WASHINGTON BUREAU — Insurance representatives say the Senate financial services bill may end up having little financial or regulatory impact on high-asset insurers.

But nothing is certain at this point, and an industry lobbyist familiar with the negotiations asked not to be identified because of the sensitivity of those negotiations.

IThe industry is negotiating with Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee, and Sen. Mark Warner, D-Va. Dodd unveiled a draft of the financial services bill Monday. He hopes the committee will start marking up the bill March 22 and complete work by March 26, when Congress starts a 10-day Easter recess.

Dodd wants to create a bailout fund that could be used to “resolve” troubled financial services companies that are big enough and sick enough to pose a serious threat to the financial system.

Insurers want to keep any bill from imposing bailout fund “pre-funding” assessments on insurers with more than $50 billion in assessments. They also hope to get language into the bill that would ensure that large insurers would be subject to federal oversight only under extremely limited conditions.

“Insurers do not want to be the cash cow that provides the federal government with funding to use its resolution authority against banks, hedge funds, securities firms etc.,” an insurance lobbyist says. “Just because insurers are big doesn’t mean that they present systemic risk and should be subject to federal assessment. Insurers already pay for their industry competitors’ insolvencies through the state guaranty funds.”

In addition, “we are concerned that large insurance companies could be subject to federal solvency standards, such as capital and surplus requirements, reserving restrictions by the federal systemic regulator over and above state insurance regulation or dual and conflicting with state regulation,” the lobbyist says. “That would be the worst of all worlds.”

Lobbyists believe that Dodd now wants to exempt insurers from having to capitalize the initial $50 billion bailout fund. But someone familiar with the talks warned that the compromise is tentative, “and nothing has been secured” as yet.

National Underwriter has obtained what appears to be a copy of the insurance company compromise language tentatively accepted by Dodd and Warner.

That version makes it clear that the bill would “exclude insurance companies (including those that are part of non-bank financial holding company structures) from the pre-event assessment.”

Elsewhere, the version of the compromise language obtained by National Underwriter states that, “This provision is only meant to apply to banking holding companies that meet the total consolidated asset threshold and to nonbank financial companies that are determined by a 2/3 majority vote of the Financial Stability Oversight Council, pursuant to section 113, to be subject to prudential supervision by the Board of Governors of the Federal Reserve System because ‘material financial distress’ at the company ‘would pose a threat to the financial stability of the United States.’”

Whatever happens with regard to the provisions affecting insurers, it is not clear how likely the Dodd bill is to get through the Senate.

Sen. Richard Shelby, R-Ala., said today that the Banking Committee might pass the current version of the bill with a party-line vote but that the current version is unlikely to get through the full Senate.

The “door remains open a crack” for bipartisan legislation, Shelby said.

Insurers were lobbying for the changes as Jon Greenlee, a Federal Reserve Board official, testified that insurers and other non-bank financial institutions that are big enough to hurt the financial system should come under the same regulatory plan used to regulate banks and bank holding companies.

“The current financial crisis has clearly demonstrated that risks to the financial system can arise not only in the banking sector, but also from the activities of other financial firms–such as investment banks or insurance companies,” Greenlee said at hearing on insurance holding company supervision organized by the House Financial Services Committee capital markets subcommittee.

“To close this important gap in our regulatory structure, legislative action is needed that would subject all systemically important financial institutions to the same framework for consolidated, prudential supervision that currently applies to bank holding companies and financial holding companies,” Greenlee said.

Greenlee said the Fed’s customary focus on protecting the bank within a holding company is no longer sufficient because risks can arise outside of a commercial banking unit.

“The crisis has highlighted the financial, managerial, operational, and reputational linkages among the bank, securities, commodity, insurance and other units of financial firms,” he said.