WASHINGTON - The American Council of Life Insurers has started circulating a draft that could be the basis for legislation to create a federal charter for life insurance companies.

The group has been pushing regulatory reform on two fronts - state and national - in the hopes of streamlining a cumbersome oversight structure that it says gives banks an edge over its members under the Gramm-Leach-Bliley Act.

"The competitive environment in which life insurance companies do business has changed dramatically, and regulation has not kept pace," said Gary Hughes, ACLI senior vice president and general counsel.

The five-page draft mimics the dual banking system by envisioning a federal regulatory framework for national insurance companies that would coexist with an updated state regulatory system. The federal charter would be optional and only for companies that want to offer life insurance and annuities products.

Federally chartered insurance companies would be supervised by an Office of National Insurers within the Treasury Department, similar to the Office of the Comptroller of the Currency. It would be headed by a presidential appointee with a five-year term, and funding would come from assessments.

It would be the director's duty to ensure that companies not impose "undue risk of loss to the national insurers' policyholders."

Agents could receive a federal license that would enable them to sell a nationally chartered company's products across the country instead of being licensed by each state.

The draft would extend the coverage provided by state insurance guaranty associations to national insurers to protect against insolvency, but the National Insurance Guaranty Corp. would be established as a backstop in case state funds failed to meet minimum federal standards.

"We've created a federal regulator who can oversee all insurance, but only provided the details for life insurance," Mr. Hughes said. That leaves the door open for property and casualty or other insurers to weigh in, he said.

The ACLI is widely distributing the draft among Capitol Hill staffers, industry executives, regulators, and others.

Mr. Hughes said the group hopes to receive all comments by the end of June.

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