(Adds more detail, industry reaction, context)
By Huw Jones
LONDON, Nov 21 (Reuters) - Global regulators are rethinking how to assess risks in big insurance companies, marking a shift that could make life easier for the industry.
The Financial Stability Board said on Tuesday it could take a different approach to assessing risk which would change the way it compiles a list of "systemically" important insurers that must comply with tough rules to cushion them against losses.
Reuters reported the rethink earlier this month, marking a victory for insurers following pressure from the U.S. Treasury.
The FSB, which coordinates financial rules across the Group of 20 (G20) economies, first created its list of globally systemic insurers in 2013 and updates it each November.
The aim of the FSB list is to ensure that big insurers comply with extra requirements such as "higher loss absorbency" and closer scrutiny.
But the FSB, based in Basel, Switzerland, said work by insurance regulators to develop an approach focused more on an insurer's activities rather than its size, "may have significant implications for the assessment of systemic risk in the insurance sector."
The FSB will review progress on this "activities-based approach" in November 2018.
Insurers have long argued they should not be treated like banks when it comes to setting capital requirements.
U.S. insurer AIG's $182 billion bailout by American taxpayers in the financial crisis was an exception due to its involvement in risky activities, the industry has said.
Five of the nine insurers on the FSB's 2016 list - Aegon , Allianz, Aviva, Axa and Prudential, are based in Europe.
"Although, it is possible that insurers can develop activities, such as banking type business, which could be systemic, this has always been rare," Nicolas Jeanmart, head of personal and general insurance at trade body Insurance Europe, said in a statement.
"The current list approach, with automatic capital increases for those included, and largely driven by the size, is flawed," Jeanmart said.
The Association of British Insurers (ABI) said the FSB had taken a "puzzling step", but it was hopeful the new approach would lead to a more sophisticated way of assessing risks.
ABI policy adviser Annalise Vucetich said it was unclear why the FSB won't go ahead with updating its list given that work on an activities based approach has barely begun.
Work on a global capital standard for the big insurers is also taking longer than expected due to disagreements between the United States and Europe.
In the meantime, the U.S. Treasury Department has been pushing the FSB to ease up on insurers and asset managers. A group of U.S. regulators have removed AIG from its domestic list of systemically important insurers, raising questions over whether the FSB would keep it on its global list.
Global watchdogs like the FSB face the choice of accommodating the United States or risk having the world's most important capital market pulling back from international rulemaking.
The FSB has already had to back down from treating big asset managers like banks and switched to an activities-based approach after pressure, this time from fellow securities regulators.
Reporting by Huw Jones; editing by Jason Neely and Jane Merriman