Federal Reserve Board officials are making clear that they have a wait-and-see attitude about support for international initiatives aimed at establishing uniform capital standards for insurance companies.

For example, at a House hearing last week, the agency's general counsel, Scott Alvarez, said they "have a good working relationship" with state-insurance regulators, and "want to be educated" about insurance regulatory standards as it assumes responsibility for insurance oversight through provisions of the Dodd-Frank Act (DFA)

At the House hearing, Alvarez would only say that crafting uniform international capital standards "is something that we think is worth exploring," but that the Fed has "no pre-determined idea on how to do that." The hearing was held by the full House Financial Services Committee last Wednesday.

Rep. Randy Neugebauer, R-Texas, noted at the hearing that state insurance regulators oppose the international effort, which is being undertaken by the Financial Stability Board (FSB) under a directive to the International Association of Insurance Supervisors (IAIS).

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

That didn't stop Neugebauer and Rep. Dennis Ross, R-Fla., from disclosing that they have written a letter to the Government Accountability Office asking it to analyze developments overseas on international capital standards for insurers and report on the impact such standards would have on domestic insurers and policyholders.

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

In questioning Alvarez, Neugebauer also said creation of international capital standards "is something not supported by our own state regulators."

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

Alvarez also said the Fed "has just gotten responsibility" under DFA for supervising systemically important institutions, a couple of which include insurance companies and savings and loan holding companies, which include a number of insurance companies.

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

Congress puts FEMA in crosshairs over flood rate hikes

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

The 2012 bill garnered 404 out of 435 votes when it passed the House in July 2012. Now, after intense opposition to imposition of the rate hikes from states from Hawaii to Vermont led Congress to declare the initiative inoperative, members of Congress are wasting no time impressing on FEMA the urgency of rolling back the rate hikes. President Obama signed into law March 21 the legislation ordering a rollback of the new rates imposed by the 2012 law.

In response, David Miller, who administers the flood insurance program, 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 change owners.

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

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

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

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

In today's letter, Vitter joined Landrieu in asking FEMA "to quicken the pace" of rolling back the rate hikes. The Obama administration was not asked its views on the potential impact of the rate hikes before first the Senate and then the House overwhelmingly approved the 2012 law.

Miller's response to Vitter and Landrieu addressed their request that FEMA's "priority" should be "to do away" with the provision under the 2012 law that raised flood-insurance rates immediately to actuarial levels once a home changes owners. In some cases, that has resulted in rates that were double, triple, even 10 times higher than previous premiums, Landrieu, Vitter and other Louisiana legislators said in their request to FEMA.

Ironically, FEMA was not asked its views on the potential impact of the 2012 law before it was passed. Imposition of actuarial rates was the price demanded by Sen. Tom Coburn, R-Okla., for allowing legislation reauthorizing the NFIP to be added to a bill already being considered by the Senate in June 2012. It took FEMA from July 2012 to Feb. 2013 to provide Write-Your-Own companies who administer the NFIP, with the instructions needed to revise their software. WYO companies did not start sending out bills reflecting phase-in of the new rates until October 2013.

"Are you kidding us?" Vitter said in a letter to FEMA sent April 10. "It's been nearly a month since we've passed the law and FEMA has done virtually nothing to protect flood-insurance policyholders. FEMA needs to take action immediately because if policies lapse, people could literally lose their homes—a risk that new rates would protect against."

Sen. Thad Cochran, R-Miss., added in the same letter, "On behalf of our constituents, we want to know why the Obama administration continues to uphold unaffordable flood-insurance premiums that Congress expressly overturned.

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

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

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

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

Special Reports /

Federal Reserve Content with Slow, Steady Approach to Insurance

Related Stories

Recommended For You