As a result, "this rulemaking has the potential to fundamentally alter what has been the state's historic role as the primary regulator of the insurance industry," Mr. Caligiuri said.

For example, in comments on a regulatory proposal filed Feb. 25, the American Council of Life Insurers voiced concern about the Federal Stability Oversight Council's approach to determining if an insurer is systemically risky.

In the comment letter, the ACLI voiced alarm about the FSOC's desire to determine if insurers are systemically risky and therefore subject to federal oversight based on subjective scrutiny of their books by federal examiners—not on hard-and-fast rules that insurers will be able to challenge in court.

Seven property and casualty insurers with federally regulated thrift operations are so concerned about the emerging trend that they have formed a separate coalition focused on challenging the FSOC's proposed subjective approach. 

The Property and Casualty Insurers Coalition letter was sent by J. Paul Mattera, senior vice president and chief public affairs officer of Liberty Mutual Insurance Co., on behalf of his company, ACE, Allstate, CNA, Nationwide, State Farm and USAA. The letter contends that the "proposed regulation must provide clearer guidance to non-bank financial companies regarding the standards or methodology that the FSOC intends to use to make determinations under the proposed regulation."

The letter insists that the FSOC "must articulate the objective criteria it intends to use as a matter of public policy."

Moreover, in testimony before the Senate Banking Committee on Feb. 17, Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said that insurance companies designated systemically risky by federal regulators may need to provide data that is not currently collected or otherwise available in public filings.

She also said that the FSOC gives regulators the authority to ask the Federal Reserve Board to conduct an examination of a company that is being considered for designation as systemically risky.

"By collecting more information in advance of designation, the FSOC can be much more judicious in determining which firms it designates as systemically important financial institutions," Ms. Bair said.

The relationship between the National Association of Insurance Commissioners and the FSOC is also rocky. In comments at a private conference in New York on Feb. 28, Susan Voss, NAIC president, compared the treatment of insurers on the FSOC "to the Thanksgiving feast where children are kept to a separate table."

Ms. Voss voiced concern not only at the conference but also in a memo to National Underwriter and in a letter to Treasury Secretary Timothy Geithner about his department's interpretation of the limited role of Missouri Insurance Commissioner John Huff on the FSOC.

Specifically, Commissioner Huff is being barred by the FSOC staff, as stated by Ms. Voss at the New York conference, "under threat of death" to discuss FSOC business with either the NAIC or individual state commissioners.

The NAIC is getting in its licks, too. According to several sources, the NAIC has declined an FSOC request to allow staffers the same access to insurance data maintained by the NAIC as provided to state insurance commissioners.

According to these sources, this is partially in response to the decision of Congress not to specify that the FSOC must use the NAIC database in order to track the financial status of insurance companies in the Dodd-Frank financial services reform law that created the FSOC.