AIG American International Group Inc

By Leslie Scism 

Insurers are hoping in a Trump administration they will be deemed less important, systemically, that is.

Three of the biggest insurers were designated as "systemically important financial institutions," or SIFIs, in 2013 and 2014 by a panel of federal regulators created under the 2010 Dodd-Frank regulatory-overhaul law. Because of the designation, American International Group Inc. and Prudential Financial Inc. face stiffer regulation and capital cushions than peers, though final rules are still being crafted.

MetLife Inc. was similarly tagged but went to court and won a ruling in March rescinding the label on the basis of a flawed designation process. The government is appealing.

A Trump presidency, industry experts and investors say, could mean a friendlier regulatory environment. President-elect Donald Trump told The Wall Street Journal on Friday he planned on deregulating financial institutions. Mr. Trump's team, people familiar with the matter said, is focused on rescinding certain Dodd-Frank provisions Republicans find most objectionable, such as the Financial Stability Oversight Council's authority to designate large non-banks systemically important.

Since Tuesday's close, shares of MetLife have advanced 12%, Prudential's are up 10% and AIG's have advanced 6.4%, while the broader market is up 1.2%, according to FactSet.

MetLife Chief Executive Steven Kandarian briefly addressed the election's impact at an investor event Thursday, saying it "may result in a more constructive approach at the federal level."

In addition, some analysts think new conflict-of-interest regulations issued in April by the Labor Department designed to protect retirees' from unnecessarily expensive investment products could also be pulled back. If so, that shift could benefit insurers selling commission-based variable and indexed annuities.

More generally, insurers are already benefiting from upward movement in the 10-year Treasury yield, which on Thursday reached 2.118%, up from 1.867% on Tuesday. The U.S. bond market was closed Friday for Veterans Day. With higher rates, insurance firms earn more on the bonds they buy with customers' premiums and hold until paying future claims.

"Future capital market gyrations are obviously uncertain, but it is difficult to challenge investors' initial read that a Trump presidency is a major positive (might we say nirvana) to MET," Janney Montgomery Scott LLC analyst Larry Greenberg told clients in a note.

He wrote further, on the government's appeal of the MetLife decision, that "the Trump administration could theoretically drop the case."

A Prudential spokesman said: "It would be premature to comment on what the Trump administration may or may not do regarding Dodd Frank." An AIG spokesman declined to comment Friday, and MetLife didn't have immediate comment.

One concern for insurance firms in a Trump administration surrounds possible tax changes.

Lower corporate income-tax rates are a positive for the industry, but a simplified tax system might not be.

"What if taxes are vastly simplified and the Byzantine array of loopholes, tax-advantaged investment products, and tax mitigation products eliminated? That's probably bad for life insurers that cater to the needs of high-income individuals," said Imperial Capital LLC credit analyst David Havens.

Write to Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

November 12, 2016 07:14 ET (12:14 GMT)

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