The conferees turned the issue over to staffers to develop a compromise after the House rejected the Senate language on the issue Tuesday night.

Industry lobbyists said work on the title is not expected to be completed until next week.

The current plan is for the conferees to agree on a version of the bill, H.R. 4173, by Monday, June 28.

The National Association of Insurance Commissioners (NAIC) issued a statement Wednesday saying it strongly supported the House version, which would call for judicial review of a Treasury preemption decision.

In the statement, NAIC President Jane Cline, West Virginia insurance commissioner, also voiced support for the House language on "covered agreement."

Ms. Cline added, "The Senate proposal is not a mere technical change."

She said the Senate's language "directly affects the scope of a new, untested office's power to preempt the state insurance regulatory framework."

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee and chief House negotiator, said Tuesday that he "rejected emphatically" the final Senate proposal on this issue.

The Senate had already agreed to accept several other provisions of the House version of Title V of the legislation, which creates the federal insurance office.

These concessions included adding the U.S. Trade Representative as well as the House Ways and Means Committee and the Senate Finance Committee to the groups which would "negotiate, finalize and enforce"' international insurance agreements.

But in a statement, Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee and chief Senate negotiator, rejected the judicial review and covered agreement House provisions supported–and proposed–by the NAIC.

"[W]e are not accepting the House definition of 'covered agreement,' which is essentially limited to mutual recognition agreements," Sen. Dodd said.

"This is a highly technical issue, but our understanding is that a recognition agreement will not allow the federal insurance office to deal with issues such as those arising from the state requirement that non-U.S. reinsurance companies post 100 percent collateral."

Sen. Dodd said the European Union is in the process of revamping its insurance regulations under what is known as the Solvency II directive.

"To continue to operate in the European Union, U.S. insurance companies will need the European Union to recognize the U.S. insurance regulatory system under Solvency II," Sen. Dodd added.

"However, my understanding is that addressing the reinsurance collateral issue in the U.S. is linked to the EU's recognition of the U.S. insurance regulatory system," he said.

"The House definition of 'covered agreements' therefore casts into doubt whether we could reach an agreement with the European Union," he said.

A group of insurance and reinsurance trade groups sent a letter to the conferees urging passage of the Senate version of the preemption provisions.

The letter said the bill allows what will be known as the Federal Insurance Office to "exercise narrow preemption" of state insurance measures in order to effectuate international regulatory agreements on prudential insurance matters "under clearly defined circumstances and with appropriate due process."

The Independent Insurance Agents and Brokers of America (IIABA) acknowledged that the Senate had agreed to accept major concessions to the Senate bill supported by the IIABA. But the association said it also supported the NAIC's efforts to include the covered agreement and demand for judicial review to the provision.

The National Association of Mutual Insurance Companies (NAMIC) said it supports the NAIC and IIABA demand for a judicial review.

"By establishing a review system, the bill ensures that [federal] preemption will occur only when absolutely necessary," said Jimi Grande, NAMIC senior vice president of federal and political affairs. "This would serve as a vital check against an overreach by the federal office," he said.

House and Senate conferees also killed a provision that would have set up a clearinghouse to assign a credit-rater for a security. Sen. Dodd and Rep. Frank said they opposed the idea because it presented "practical difficulties."

The amendment, sponsored by Sen. Al Franken, D-Minn., would have given the Securities and Exchange Commission the authority to set up a Credit Rating Agency Board.

Under the amendment, the body would be made up of investors and independent regulators. The new body would assign a credit rater for a security.