Federal regulation of the US insurance industry is looming ever closer following proposed legislation released last week.

The wide-ranging Restoring American Financial Stability Bill proposes major reform of the American financial regulation system.

Insurance measures included in the bill detail the creation of a federal insurance office within the US Treasury to monitor the industry and oversee international insurance issues.

The legislation could further impel insurers with assets of more than $US50 billion ($54 billion) to pay into a fund to stabilise financial companies believed to present a threat to the US financial system.

The bill proposes a “Financial Stability Oversight Council” be given the capability to demand companies shed certain holdings considered a threat to financial stability.

The legislation also seeks to simplify the regulation of reinsurance across US states, where 50 state regulators currently control the industry.

Steps to streamline insurance regulation through federal measures have divided the US industry, with the Council of Insurance Agents & Brokers and the Risk and Insurance Management Society generally in favour of a move toward federal measures.

There is also strident opposition, most notably from the National Conference of Insurance Legislators and National Association of Mutual Insurance Companies.

The American Insurance Association has also voiced its concern over aspects of the proposed legislation, despite its previous support of federal regulation.