A Financial Stability Board report urging greater centralization of U.S. insurance regulation is drawing a mixed and generally negative reaction from U.S. insurance industry groups.

In its recent “Peer Review of the United States,” the stability board said Congress has established the Federal Insurance Office, but also noted the FIO does not have “the explicit legal authority to promote greater regulatory uniformity in the insurance sector.”

The board is an international body on which three U.S. organizations sit — The Treasury Department, the Securities and Exchange Commission and the Federal Reserve Board of Governors.

Nevertheless, the FSB review said that information-sharing and coordination between state regulators and federal authorities has increased and that “state authorities have taken useful steps to improve insurance group supervision; to modernize solvency requirements; and to improve disclosures required for securities lending operations by insurance companies.”

Despite the accomplishments, “however, significant additional work is required” to fully address the recommendations by the International Monetary Fund in regard to insurance regulation, according to the review.

“While the National Association of Insurance Commissioners plays an important role in promoting consistency between states, the fact that it is not a supervisory authority and that state laws must only be 'substantially similar' to the NAIC's model laws allows for divergent approaches, which may impact the consistency of supervision applied to large insurance groups with national and international reach,” according to the review.

The review recommended that U.S. authorities carefully consider and recommend to Congress whether moving toward a more federal, streamlined structure might be more effective in achieving greater regulatory uniformity.

Not surprisingly, the NAIC did not agree with the review's recommendations.

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“I don't think the report focuses on outcomes,” said Tom Leonardi, Connecticut Insurance Commissioner and chair of the NAIC's international committee.

He said that the FSB noted that states' regulators are protecting policyholders and good at ensuring the solvency of insurers.

But “they kind of ignored all of those things,” Mr. Leonardi said. “Instead, the FSB cited a lack of systemic focus, it cited a lack of groupwide supervision,” matters over which the FSB has no power in this country, he said.

An outside expert said the FSB report could lead proponents of a greater federal role in insurance regulation to push for that change.

“Right now, as the report points out, the federal government does not have a significant level of regulatory authority, and the report takes a position that the state-based system does not lead to enough uniformity and that greater uniformity and resources will be necessary to properly address the regulatory needs for the U.S. to be in sync with other countries in the world economy,” said Mike Nelson, chairman of the insurance law firm Nelson Levine DeLuca & Hamilton L.L.C. in New York.

A proponent of a greater federal regulatory role welcomed the FSB's recommendations.

“We strongly agree with the report's conclusions and hope that it makes a modest impression on state regulators, particularly with respect to the necessity of speaking with a unified voice on international negotiations,” said Joel Wood, senior vice president of the Washington-based Council of Insurance Agents & Brokers.

Others disagreed.

“At the macro level, European banking regulators' views of the U.S. insurance regulatory system should always be treated with skepticism,” said Jimi Grande, senior vice president in the Washington office of the National Association of Mutual Insurance Cos.

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“Reviewing their report, they seem to conclude that Dodd-Frank, (the Financial Stability Oversight Council) are a good start and that (the Office of Financial Research) is an important innovation. That leads me to conclude that the Europeans are always going to look for more centralized regulation regardless of the outcomes,” Mr. Grande said.

The Property Casualty Insurers Association of America also expressed skepticism.

“As the dialogue continues regarding potential structural changes to help ensure financial stability, it is important to remember that the U.S. state-based insurance regulatory system has successfully overseen the largest insurance market in the world for over 150 years,” David Snyder, PCI vice president in the group's Washington office, said in a statement.

The diverse U.S. market serves consumers well “and has withstood the financial crisis better than some other sectors, unprecedented natural catastrophes and years of economic slowdown,” Mr. Snyder said. The FSB report “was prepared by a global team that may not like our state-based system, not because it is ineffective, but because it is different,” he said.