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Proponents of creating an optional federal charter for the insurance industry, which is currently regulated by the states, were set to press their case Tuesday before a House panel.

The issue has split the industry, pitting life insurers and large property and casualty insurers against small and medium-sized P&C and mutually-owned companies.

It is unclear if the Obama administration will back federal regulation for insurers when it unveils its plan to rewrite financial rules Wednesday.

"[A]bsent a federal insurance regulatory agency, there will be no federal agency with the necessary expertise on insurance to either advise Congress on relevant policy matters or to implement policy with respect to life insurance companies," Aegon USA Chief Executive Patrick S. Baird will argue according to prepared remarks on behalf of the American Council of Life Insurers. Aegon USA is a subsidiary of Aegon NV (AEG).

"We support federal regulation because insurance is a sophisticated and diverse international business involving large national and multinational conglomerates, and as such demands strong oversight," Travelers Companies Inc. (TRV) Executive Vice President Kenneth F. Spence III will testify according to prepared remarks on behalf of the American Insurance Association.

Backers of an optional federal charter for insurers have seized on the federal bailout of American International Group (AIG) as an example of the need for federal oversight of the industry. However, they argue that companies should be able to chose between federal oversight or state regulation.

Legislation to create an optional federal charter was reintroduced this year after gaining little traction in past Congresses. Rep. Paul Kanjorski, D-Pa., the chairman of the House Financial Panel's Subcommittee on Capital Markets, has proposed legislation to create an office of insurance information within the federal government. The bill is broadly supported by the industry.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com