The firm's report was commissioned by PCI in the wake of U.S. House of Representatives passage of the "Wall Street Reform and Consumer Protection Act of 2009," which aims in part to recover taxpayer funds paid out under the Troubled Asset Relief Program.

That legislation requires that asset size be used to determine whether a financial firm is deemed a "covered financial company" and subject to assessments that would prefund a "systemic dissolution fund."

The fund would be prefunded by assessments on financial companies with more than $50 billion in assets and by hedge funds with more than $10 billion in assets."

NERA's study for PCI does not say how many insurers are within the $50 billion class.

The consultant's report concluded that identification of systemically risky institutions based on size will have negative economic consequences associated with subjecting these firms to heightened regulatory oversight and new assessments to prefund a systemic dissolution fund.

It said these problems would include:

o Consumer price increases for basic financial services.

o Heightened systemic risk as a result of increased moral hazard.

o Potential U.S. job losses and other economic inefficiencies.

Arbitrary, size-based thresholds, according to the consulting firm, would erroneously identify a number of financial firms as systemically risky, when in fact they are not and the result would be a cross-subsidy of significant magnitude from firms that do not pose systemic risk to those firms whose activities are systemically risky, creating moral hazard that encourages risk-taking.

The report concluded this could potentially defeat the intent of the proposals to reduce the economy's exposure to systemic risk.

It said increased costs to consumers for basic, often required financial services would result from the pass-through of assessment costs and costs associated with increased regulation.

NERA's study foresees U.S. job losses, including those predicted to result from reductions in capital and labor expenditures and economic dislocation as a result of efforts by firms to structure to avoid size thresholds.

It said smaller firms could pose a risk as well and as such would get a free ride from the legislation.

Any regulation, the report concluded, should be based on the key sources of firm-based systemic risk, including interconnectedness, cyclicality, leverage, liquidity risk and transparency.