The National Association of Insurance Commissioners has come under fire from a non-profit think tank for its contention that the problems of American International Group are an argument against federal insurance regulation.

Criticism of the NAIC position came in a paper issued by the Washington-based Competitive Enterprise Institute, a group that takes no federal funding, but has backing from foundations and industry.

Asked if any insurance entities funded its operation, CEI said by e-mail that it does not discuss specific donors. It does not do contract work.

CEI issued its paper after the NAIC slammed both the American Insurance Association and the American Council of Life Insurers for statements saying the liquidity crisis at AIG that led the company to give the government a 79.9 percent interest in exchange for an $85 billion loan showed the need for a federal insurance regulatory presence.

"An examination of the facts will clearly show that these organizations have gotten it wrong and are letting their desire to have an optional federal charter get in the way of making a common sense recommendation to address the problem," said NAIC President Sandy Praeger, the Kansas insurance commissioner.

NAIC said the AIG state-regulated insurance entities were sound and it was the conglomerate's financial holding company regulated by the U.S. Office of Thrift Supervision.

CEI said "no federal agency really oversaw the company in toto" and called NAIC's argument, "a red herring. An OFC would not put all of its activities under one umbrella, but neither does the current system."

Proposed OFC legislation, according to CEI would subject all of a holding company's operations to a degree of federal oversight if even one subsidiary is federally regulated. "It is impossible to know if this type of oversight would have prevented the collapse of AIG," said the article by Eli Lehrer, a senior fellow at the institute.

The NAIC said that during the AIG liquidity crisis state regulators ensured that no insurance company policyholder assets were used. But CEI countered that New York officials, before the federal bailout, appeared ready to let AIG take money from insurance subsidiaries and "without federal intervention the state regulatory system could well have impacted AIG's solvency."

CEI said it believes by calling for more transparency on risky securities business that the organization is proposing significant new regulations.

The CEI accused NAIC of "doing what it accuses the trade associations of doing and pushing a largely unrelated agenda as a result of the collapse of AIG."