Editor's note: Arthur D. Postal writes a weekly column for PC360 on insurance-related developments in Washington. Prevoiusly, he was National Underwriter's Washington Bureau chief. Opinions expressed are the author's own.

Personal lines insurers and their captive and independent agents will be paying close attention this week as the House works to craft a politically acceptable bill that will delay or reduce National Flood Insurance Program premium increases mandated by a 2012 law.

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

The latest, however, is that an administrative haircut for WYO companies as a pay-for has been rejected by the House Republican leadership, and that the House bill will propose to limit rate increases across-the-board to more than 15 percent annually, PC360 has learned.

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

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

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

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

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

Meanwhile, the Senate's bill to delay NFIP rate hikes, passed 10 days ago, would delay all rate increases for approximately four years. There are 235 House co-sponsors to the Senate bill and House Democrats would most likely be able to defeat the preferred Republican version if they objected to Cassidy being the lead sponsor or to the Republican version itself, industry lobbyists and staffers acknowledged.

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

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

Congress is reconsidering the underlying 2012 legislation because, while the voters embraced the Republican calls for lesser government in the 2010 wave election, they reconsidered after getting bills calling for huge increases in their flood-insurance premiums.

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

Sign of the times

American International Group's stock got an initial boost in after-hours trading when it reported strong overall earnings Thursday night, but turned down Friday after analysts took a hard look at the numbers and found adjusted property and casualty underwriting results continued to deteriorate.

AIG president and CEO Robert Benmosche tried to soften the blow by telling analysts that loss ratios continue to accrue, “but remember, it's not a year-to-year business, it's a zig zag. I know that'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 has invested heavily in an engineering center that will improve its ability to assess risk, “investing huge amounts of money and time to get better data around underwriting intuition.”

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

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

Federal regulation and insurance

In testimony before the House Financial Services Committee last week, incoming Federal Reserve Board chair Janet Yellen repeated what she said during her confirmation hearing last November, that federal regulators are aware insurers are different from banks and regulatory schemes are going to have to be tailored to fit the insurance model.

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

Nadel added he believes initial proposals as to how systemic insurers will be regulated at the federal level won't be proposed before the latter part of 2014, and more likely will slip into 2015.

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

The Fed also oversees as consolidated federal regulator insurers which operate savings and loans. Two of the largest are State Farm and USAA. They will also likely be impacted by how federal regulators determine to oversee insurance companies, including whether they will accept use of statutory accounting principles, or demand an overall switch Generally Accepted Accounting Principles, as used by banks.

Special Reports /

The Washington Report: House Flood Bill; AIG and a Sign of the Times; Federal Regulation in 2014

Related Stories

Recommended For You