WASHINGTON (Bloomberg) — Tucked into Senator Christopher Dodd's 1,408-page proposal to overhaul Us financial regulations is a measure drawing cheers from overseas insurers including Swiss Reinsurance Co., Ace Ltd. and Lloyd's of London.

The provision would help the companies preempt state rules that govern reinsurers by creating a US Treasury Department office to negotiate international regulations. Non-US reinsurers without state licences say they're hobbled in the $63 billion US market because they're required to post higher collateral than their domestic competitors.

"This is an additional layer of money that is basically an issue of trust," Don Preston, senior regulatory officer for Zurich-based Swiss Re, said in an interview. "Does the US trust that a foreign-owned company like Swiss Re is going to pay its obligations to US clients?"

Opponents of the provision say the Treasury's new power would be used on behalf of companies rather than consumers.

"It's absolutely a giveaway to the insurance industry," said Representative Jackie Speier, a California Democrat. "Consumer protections will be wiped out." Speier got the measure weakened in related legislation that passed the House of Representatives.

The Dodd measure would let the office override state rules that discriminate against foreign insurers or don't match deals the Treasury negotiates. The American Insurance Association, which represents insurers including Chubb Corp., is also fighting for the provision, saying it would help open markets in Europe or Asia.

The Treasury office could help tie US regulations to new rules, called Solvency II, that are set to take effect in the European Union in 2012 and would allow US companies to compete on an equal footing in that market, said David Snyder, general counsel of the insurance association.

Without the office "we lack a negotiator to participate in negotiations on behalf of the US industry," Snyder said in an interview.

The National Association of Insurance Commissioners, which represents state regulators, wrote to Dodd, the Connecticut Democrat who heads the Senate Banking Committee, expressing its preference for the tighter restrictions on preemption in the House bill. "Our concern is that you would continue to take parts of our regulatory authority from us and put it at the federal level," Jane Cline, the West Virginia insurance commissioner and president of the national association, said in an interview. The companies "prefer a federal charter", she said. "In my mind it's about seeking less regulatory oversight."

US property and casualty reinsurance, which provides back-up protection to insurance companies, is a $63 billion industry, based on gross written premiums in 2009, according to Aon Corp., the world's largest insurance broker.

Companies are spending in support of the provision. Lloyd's of London, the world's oldest insurance market, spent $380,000 on lobbying in the first three months of 2010 on this and other measures. Swiss Re, the world's second-biggest reinsurer after Munich Re, spent $40,000 in that period. Zurich-based Ace spent $1.17 million on lobbying in the quarter.

"These issues are inherently global and transnational," Charles Landgraf, a partner at Dewey & LeBoeuf LLP in Washington who is lobbying for Lloyd's of London in support of the Dodd measure, said in an interview. "They are mixing and matching risks in different markets."

Andrew Williams, a spokesman for the Treasury Department, had no immediate comment. Mark Greenberg, a spokesman for Chubb, declined to comment.

"We believe that collateral should be based on the financial strength of a reinsurer, not its place of domicile," Ace chief executive officer Evan Greenberg said in an e-mailed statement.

The Dodd measure isn't the first time insurance companies have made the case for greater federal control over the industry, which is governed by individual regulations in each of the 50 states.

Passage of the Gramm-Leach-Bliley Act of 1999 that removed sections of the 1933 Glass-Steagall Act separating banks, insurance companies and securities firms, included some preemption of state insurance regulation, according to the NAIC.

Then-Treasury Secretary Henry Paulson proposed creating an optional federal charter for insurance companies in 2008. Lawmakers were set to vote on a stand-alone measure similar to the one in the Dodd bill in September 2008. That vote was delayed after financial markets collapsed.

Treasury Secretary Timothy Geithner picked up the idea in a proposal last June, saying it would "promote national coordination in the insurance sector."

The Senate is scheduled to take up Dodd's bill next week. The legislation would create a consumer protection bureau at the Federal Reserve and a council of regulators to monitor the financial system for systemic risk. It also would strengthen oversight of derivatives and hedge funds.

Public Citizen, a Washington-based consumer group founded by Ralph Nader, says the insurance provision in the bill may be short-sighted.

"It is incomprehensible that, in the context of pledges worldwide to reregulate financial services, any measure which promotes further deregulation and threatens state consumer protections would be considered by Congress," Public Citizen said in talking points it's using against the provision.