Federal Reserve Board officials are making clear that they havea wait-and-see attitude about support for international initiativesaimed at establishing uniform capital standards for insurancecompanies.

For example, at a House hearing last week, the agency's generalcounsel, Scott Alvarez, said they "have a good workingrelationship" with state-insurance regulators, and "want to beeducated" about insurance regulatory standards as it assumesresponsibility for insurance oversight through provisions of theDodd-Frank Act (DFA)

At the House hearing, Alvarez would only say that craftinguniform international capital standards "is something that we thinkis worth exploring," but that the Fed has "no pre-determined ideaon how to do that." The hearing was held by the full HouseFinancial Services Committee last Wednesday.

Rep. Randy Neugebauer, R-Texas, noted at the hearing that stateinsurance regulators oppose the international effort, which isbeing undertaken by the Financial Stability Board (FSB) under adirective to the International Association of Insurance Supervisors(IAIS).

In response to a question from Neugebauer, Alvarez made clearthat the FSB "is not the Federal Reserve."

That didn't stop Neugebauer and Rep. Dennis Ross, R-Fla., fromdisclosing that they have written a letter to the GovernmentAccountability Office asking it to analyze developments overseas oninternational capital standards for insurers and report on theimpact such standards would have on domestic insurers andpolicyholders. 

In the letter, Neugebauer and Ross noted that "there has beenlittle cost-benefit analysis" of the need to globalize a holdingcompany capital standard, or how a potential requirement for stateinsurance regulators to use such a standard would impact U.S.insurers and consumers. 

In questioning Alvarez, Neugebauer also said creation ofinternational capital standards "is something not supported by ourown state regulators." 

Alvarez replied by saying, "We look forward to working with,"and "have a very good working relationship with the state insurancecommissioners."

Alvarez also said the Fed "has just gotten responsibility" underDFA for supervising systemically important institutions, a coupleof which include insurance companies and savings and loan holdingcompanies, which include a number of insurance companies.

"So we've begun discussions with insurance companies directly tounderstand their business model, to understand the capital regimethat they're under, the supervisory regime they're under," Alvarezsaid. He said Fed officials are also meeting with the NAIC and inparticular certain lead insurance regulators to understand theframework. We want to be educated there."

Congress puts FEMA in crosshairs over flood ratehikes

As expected, members of Congress are using the recently-enacted"Homeowner Flood Insurance Affordability Act" to swiftly shiftresponsibility to the Federal Emergency Management Agency for thepassage in 2012 of legislation that imposed actuarial premiums oncustomers of the National Flood Insurance Program.

The 2012 bill garnered 404 out of 435 votes when it passed theHouse in July 2012. Now, after intense opposition to imposition ofthe rate hikes from states from Hawaii to Vermont led Congress todeclare the initiative inoperative, members of Congress are wastingno time impressing on FEMA the urgency of rolling back the ratehikes. President Obama signed into law March 21 the legislationordering a rollback of the new rates imposed by the 2012 law.

In response, David Miller, who administers the flood insuranceprogram, today sent a letter to Louisiana lawmakers who want"quicker implementation" of the rollback law. Miller said FEMA's"top priority" is to restore subsidized rates for homes that changeowners.

The second priority, he wrote in a letter to Sen. Mary Landrieu,D-La., is to develop a procedure to make refunds for people whobought new homes and suddenly found, at least in some cases,dramatically higher premiums because of the now cancelled provisionunder the 2012 law that ended subsidized rates once a home changeshands.

"Today, we held a consultation call with all the Write Your Owncompanies and presented a potential implementation concept fortheir consideration, as required by law," Miller said.

"As a result, we are seeking input and specific data from themon the first priority action. Once we have this information, weanticipate that we could issue guidance to WYO companies—within thenext couple weeks—to swiftly restore subsidized rates upon therenewal or purchase of a policy."

The pressure on FEMA started with a letter by three Republicansenators to FEMA administrator Craig Fugate April 10 asking for ameeting to discuss a plan to implement the new law, which, theysaid, "reinstates rates as Congress intended."

In today's letter, Vitter joined Landrieu in asking FEMA "toquicken the pace" of rolling back the rate hikes. The Obamaadministration was not asked its views on the potential impact ofthe rate hikes before first the Senate and then the Houseoverwhelmingly approved the 2012 law. 

Miller's response to Vitter and Landrieu addressed their requestthat FEMA's "priority" should be "to do away" with the provisionunder the 2012 law that raised flood-insurance rates immediately toactuarial levels once a home changes owners. In some cases, thathas resulted in rates that were double, triple, even 10 timeshigher than previous premiums, Landrieu, Vitter and other Louisianalegislators said in their request to FEMA.

Ironically, FEMA was not asked its views on the potential impactof the 2012 law before it was passed. Imposition of actuarial rateswas the price demanded by Sen. Tom Coburn, R-Okla., for allowinglegislation reauthorizing the NFIP to be added to a bill alreadybeing considered by the Senate in June 2012. It took FEMA from July2012 to Feb. 2013 to provide Write-Your-Own companies whoadminister the NFIP, with the instructions needed to revise theirsoftware. WYO companies did not start sending out bills reflectingphase-in of the new rates until October 2013. 

 "Are you kidding us?" Vitter said in a letter to FEMAsent April 10. "It's been nearly a month since we've passed the lawand FEMA has done virtually nothing to protect flood-insurancepolicyholders. FEMA needs to take action immediately because ifpolicies lapse, people could literally lose their homes—a risk thatnew rates would protect against."

Sen. Thad Cochran, R-Miss., added in the same letter, "On behalfof our constituents, we want to know why the Obama administrationcontinues to uphold unaffordable flood-insurance premiums thatCongress expressly overturned.

"This is not fair and any foot dragging by FEMA to implement thenew law is unacceptable," Cochran said.

Sen. John Hoeven, R-N.D., added, "The reason we worked so hardto pass our legislation was that people were enduring the hardshipof higher premiums."

Hoeven said, "FEMA should be implementing the new law now forthe very same reason – people are enduring the hardship of higherpremiums, but they shouldn't be because we've already passed a lawto reduce their high rates."

Congress had been debating bills reauthorizing the NFIP sinceJune 2007; the existing reauthorization ended Sept. 30, 2008, andthe program limped along on interim reauthorizations with lapses ofa total of 54 days, before the 2012 law was enacted.