NU Online News Service, March 2, 2:50 p.m.EDT

The Financial Stability Oversight Council will vote Tuesday onthe factors it will use in determining whether an insurer is"systemically significant," a regulatory process that has beenunderway since the fall of 2010.

A proposal was first published for comment in January 2011, butre-proposed last Sept. 11 under intense pressure from the insuranceindustry as well as members of Congress.

If designated a systemically important financial institution(SIFI), an insurer would be subject to regulation by the FederalReserve Board as well as state-insurance regulators.

In a proposal last December the Fed suggested a wide range ofmeasures it would address in regulating a non-bank SIFI, includingcapital, liquidity, credit exposure, stress testing, riskmanagement, and early-remediation requirements.

Industry officials were guarded in their comments. However, oneindustry official acknowledged that insurers were caught "offguard" by the announcement of Tuesday's meeting, scheduled for 2p.m.

The industry contends that the initial FSOC proposal did nottake into account the differences between banks—the primary concernof the FSOC—and non-bank financial providers such as insurers.

Moreover, the industry and its congressional supporters wantedthe regulation to be more specific in disclosing the qualitativeand quantitative standards that will be used in determining whetheran institution is systemically significant.

J. Stephen Zielezienski, American Insurance Association generalcounsel, says the trade group hopes that the final rule providesfurther clarity to all stakeholders and is based solely on acompany's potential to be a source of systemic risk.

Zielezienski notes that in its latest comments   inDecember, the AIA made several recommendations for revisions to therule, including incorporating the guidance into the final rule,modifying the metrics used to evaluate companies in the firststage, and utilizing qualitative measures such as degree ofregulation, substitutability, and an orderly resolution system as away to screen companies out of the SIFI process.

"As we have stressed all along, AIA believes that if members ofthe FSOC correctly incorporate and apply risk-related factors inthe final rule, they will conclude that regulated property-casualtyinsurers present little, if any, danger toU.S.financialstability."

Jimi Grande, National Association of Mutual Insurance Companies'senior vice president, federal and political affairs, adds, "As theprocess for SIFI designation has taken shape, it's becomeincreasingly clear that the FSOC recognizes that property andcasualty insurance companies should not be the focus of any newsystemic-risk regime. We believe the final rule will reflectthis."

The Property Casualty Insurers Association of America declinedcomment. But in a comment letter last December, Robert Woody,senior counsel, policy, says, "It is vitally important that theFSOC establish mechanisms that will allow it to focus on thosecompanies that are truly capable of posing systemic risk."

Analysts are also weighing in.

In a investment note late last year, John Nadel of Sterne Ageesaid that if the proposal doesn't address the differences betweenbanks and insurers, measuring the risks and appropriate capitallevels for life insurers using bank-regulatory capital standards"would essentially ignore the business models and create acompletely uneven competitive environment within the life-insuranceindustry for those designated nonbank covered companies and thoseexcluded from the Fed's purview."