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Life insurers fell with the broader indexes during week of fiduciary rule unveiling

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Life insurers fell with the broader indexes during week of fiduciary rule unveiling

Sharesof life insurance companies lost ground with the broader indexes during the weekended April 7, a period during which the federal government released new rules intendedto restrict how companies sell retirement products.

The SNLInsurance Index declined 4.59% on the week to 710.22, and the S&P 500 fell 4.61%to 1,977.22.

Lifeinsurers were among the most vocalopponents of the Obama administration's proposal to expand the fiduciarystandard to advisers for retirement investments. After a year of public commenton the outlines of the proposed changes, the finalized version of the Department of Labor's fiduciaryrule that was made public April 6 included unexpected details that could impactthe life insurance industry, Keefe Bruyette & Woods analyst Ryan Krueger said.

Clarifyingthe permissibility of annuity commissions and allowing them to be higher than thosefor mutual funds addressed a key concern, Krueger wrote in an April 7 note. Thenew retirement advisory rules would include annuities within a range of productswith contractual requirements the government sought in an effort to avoid adviserconflicts of interests.

"Westill expect industry [variable annuity] sales to decline given product complexity,high commissions/incentive bonuses and the [best interest contract exemption] reasonablecompensation test, but believe the impact will be less severe than previously feared,"Krueger wrote.

One ofthe proposal's surprise negatives is the inclusion of indexed annuities within thebest interest contract requirement, a change that the Labor Department did not originallypropose. Shares of the public company with the highest percentage of sales in themarket, American Equity InvestmentLife Holding Co., declined sharply soon after the announcement.

Bothclasses of annuities are high-commission products, and a significant portion ofindustry sales are within qualified retirement plans. Most are sold through independentagents with less centralized compliance, Krueger said.

"Forthese reasons we expect indexed annuity sales to be negatively impacted," hesaid.

andAmerican International Group Inc.are also among the market leaders for indexed annuity sales, according to the note.

The proposalcould face a legal challengebefore the January 2018 deadline set for full compliance.

Lifeinsurers will spend the intervening time sorting out what compliance means for them,said Steven Weisbart, the Insurance Information Institute's chief economist. Amongthe issues companies will study is how to respond to claims that retirement advicewas not in a saver's best interest, Weisbart said in an interview.

"There'spresumably going to be some way to challenge that impression," he said.

Anotheruncertainty arising from the proposal comes from the fact that products that arenot tax-deferred investments will still not be covered by the fiduciary rules, Weisbartadded.

"Arewe going to be operating with two different standards, or is that fiduciary levelgoing to essentially take over?" he said.

SandlerO'Neill downgraded AmericanEquity Investment Life after the release of the rule.

The company'sshares finished down 23.74% for the week to close at $12.88. AIG lost 3.24% of itsprice to finish at $53.11. MetLifeInc. shed 5.92%, closing at $41.92, and Lincoln National Corp. declined 6.13% to $37.37.

Elsewherein the insurance industry, WillisTowers Watson Plc discloseda $120 million settlement in litigation involving Stanford Financial Group and allegationsfrom incidents dating back about a decade. The company's share price fell 5.33%to $113.54.

SeveralM&A items surfaced during the week.

was in an April 4 news report tobe angling for an acquisition of CIFGAssurance North America Inc. Representatives for Ambac and CIFG declinedto comment. Ambac's shares lost 13.12% for the week to close at $14.57.

said the same day thatit reached an agreement to acquirethe parent of Starmount Life InsuranceCo. Unum believesthe deal would be neutral to accretive to its EPS in 2017. Unum's stock price fell3.73% for the week to $30.19.

A unitof Marsh & McLennan Cos. Inc.subsidiary Marsh LLC announcedthat it acquiredCorporate Consulting Services Ltd., a New York insurance brokerage and human resourceconsulting company. Marsh & McLennan shares dropped 1.96% to $60.17.

The fewweekly gains among the largest and most heavily traded insurance companies weremodest. Anthem Inc.'sshares ticked up 1.11% to $143.42, and CenteneCorp.'s stock price edged up 0.21% to $61.92.