Editor's note: Arthur D. Postal writesa weekly column for PC360 on insurance-related developments inWashington. Prevoiusly, he was NationalUnderwriter's Washington Bureau chief. Opinions expressedare the author's own.

Personal lines insurers and their captive and independent agentswill be paying close attention this week as the House works tocraft a politically acceptable bill that will delay or reduceNational Flood Insurance Program premium increases mandated by a2012 law.

That's because House conservatives are demanding that anyreduction from current revenue yielded by the 2012 bill — such as arollback of the rate increases — be paid for through other means,and fees paid to Write-Your-Own Companies and their agents wererumored to be among the usual suspects.

The latest, however, is that an administrative haircut for WYOcompanies as a pay-for has been rejected by the House Republicanleadership, and that the House bill will propose to limit rateincreases across-the-board to more than 15 percent annually, PC360has learned.

According to the latest information, the cost of making up theloss in revenues that would have been generated by fullimplementation of the 2012 will be recouped by imposing an annual$25 dollar surcharge per policy for residential customers and $100for commercial customers. Other staffers say the annual surchargefor commercial properties and second homes will be $250.

The House bill will be taken up the week of Feb. 24, whenCongress returns from its George Washington recess. It will hit theHouse floor under accelerated rules, through the so-called“suspension” calendar, several industry lobbyists and congressionalstaffers said.

That requires a two-thirds vote, though, which could present aproblem for House Republicans because of who might sponsor thelegislation.

House Republicans want the primary sponsor of the legislation tobe Rep. Bill Cassidy, R-La., the primary challenger to Sen. MaryLandrieu, D-La., who is facing a rough re-election campaign.

According to industry lobbyists and congressional staffers, theHouse Democrats won't support the bill if Cassidy is the primaryco-sponsor.

Meanwhile, the Senate's bill to delay NFIP rate hikes, passed 10days ago, would delay all rate increases for approximately fouryears. There are 235 House co-sponsors to the Senate bill and HouseDemocrats would most likely be able to defeat the preferredRepublican version if they objected to Cassidy being the leadsponsor or to the Republican version itself, industry lobbyists andstaffers acknowledged.

Another issue is whether the Senate will even take up the Housebill if it is passed, or demand it be conferenced with the Senatebill.

House fiscal hawks object to the Senate bill because theCongressional Budget Office projected that the NFIP would lose $1.9billion in revenues over five years, therefore rolling back theentire purpose of the 2012 bill, which was intended to put the NFIPback on a sound financial basis.

Congress is reconsidering the underlying 2012 legislationbecause, while the voters embraced the Republican calls for lessergovernment in the 2010 wave election, they reconsidered aftergetting bills calling for huge increases in their flood-insurancepremiums.

The 2012 bill exposed political deals providing subsidized floodinsurance premium subsidies, some of which date back to 1972.

Sign of the times

American International Group's stock got an initial boost inafter-hours trading when it reported strong overall earningsThursday night, but turned down Friday after analysts took a hardlook at the numbers and found adjusted property and casualtyunderwriting results continued to deteriorate.

AIG president and CEO Robert Benmosche tried to soften the blowby telling analysts that loss ratios continue to accrue, “butremember, it's not a year-to-year business, it's a zig zag. I knowthat's a technical term for some of you, but there's up and down,and it doesn't go straight. And so we've seen that, but the trends,I feel, are very strong.”

Benmosche and other AIG officials also said the company hasinvested heavily in an engineering center that will improve itsability to assess risk, “investing huge amounts of money and timeto get better data around underwriting intuition.”

In other words, analysts are having problems because AIG, awell-run company that pays attention to everything because it isunder such scrutiny, is running into the same issue as every otherP&C company: earnings volatility because of an inability toproperly forecast losses in underwriting because weather incidentsare becoming more severe and unpredictable.

Maybe security analysts, homeowners and members of Congress areas well. Such storms as Katrina, Sandy, tornadoes, and the recentrun of unusual cold weather and storms in the Southeast, as well asthe severe problems in the UK are signs that severe weather isgoing to have to be taken into account when evaluating our economy,specifically the cost of insurance and the subsidies provided bygovernment to help deal with the issue.

Federal regulation and insurance

In testimony before the House Financial Services Committee lastweek, incoming Federal Reserve Board chair Janet Yellen repeatedwhat she said during her confirmation hearing last November, thatfederal regulators are aware insurers are different from banks andregulatory schemes are going to have to be tailored to fit theinsurance model.

John Nadel, insurance analyst at Stern, Agee and Leach in NewYork, reacted by saying it was “positive news” that the FederalFinancial Oversight Stability Council “recognizes that there areseveral key differences between the business models of large,systemic insurers and banks.”

Nadel added he believes initial proposals as to how systemicinsurers will be regulated at the federal level won't be proposedbefore the latter part of 2014, and more likely will slip into2015.

“As we've said before, we believe it unlikely that SIFI(systemically important financial institutions) stress testing forthe three named insurers will begin until 2016 based on late 2015data submissions,” Nadel said. However, the issue is broader thanthe two current SIFI companies, AIG and Prudential Financial, and,most likely, going forward, MetLife.

The Fed also oversees as consolidated federal regulator insurerswhich operate savings and loans. Two of the largest are State Farmand USAA. They will also likely be impacted by how federalregulators determine to oversee insurance companies, includingwhether they will accept use of statutory accounting principles, ordemand an overall switch Generally Accepted Accounting Principles,as used by banks.