WASHINGTON—Several property/casualty insurance trade groups have filed comments with the federal Financial Stability Oversight Council arguing that property/casualty insurers should not be subject to heightened supervision because they do not present systemic risks to the economy.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, a nonbank financial company must be found by the Financial Stability Oversight Council to pose a threat to the stability of the United States through either financial stress or ongoing activities in order for the nonbank company to be subject to heightened regulation and supervision by the Federal Reserve Board.

In its filing dated Nov. 5, the American Insurance Assn. urged the council to conduct a two-stage analysis to determine whether a company could present a systemic risk. The council first would determine whether a company could generate systemic financial instability. “If, as a result of the council’s external impact analysis, a nonbank financial company comes under closer scrutiny, the council should next evaluate those factors that go to the internal financial structure of the institution to determine the potential for material financial distress that could pose a threat to U.S. financial stability,” the AIA wrote.

The AIA said that by focusing on the first stage of the process, “we are confident that close examination of relevant…factors will demonstrate that property/casualty insurers engaged in traditional insurance activities do not pose a systemic threat to U.S. financial stability.”

In its filing, the Property Casualty Insurers Assn. of America said the council should avoid being “overly inclusive” in any designations concerning systemic risk. “Incorrect designations will lead to impaired market efficiency and resource allocation and increased moral hazard.”

Insurer trade groups also filed comments regarding whether what is known as the Volcker Rule, which is part of the Dodd-Frank Act, should be applied to property/casualty insurers. The rule prohibits banks from engaging in proprietary trading and making certain investments. But Congress specifically excluded investments of state-regulated insurance companies and their insurance affiliates from the rule to avoid duplicate regulation.

Eliminating insurers’ ability to invest premiums in anything other than low-yield government securities would mean higher prices for consumers, the National Assn. of Mutual Insurance Cos. said in its filing. “Core insurance investment practices” did not present a significant risk to the U.S. economy during the economic crisis “and are not considered to be a contributing factor to systemic risk” in the future.

Comments on both provisions of the Dodd-Frank Act can be found at www.regulations.gov.