UPDATE 1-UK insurers want independent probe into news of sector review

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LONDON, April 8 (Reuters) - Britain's insurance industry hascalled for a fully independent inquiry into last month'spre-release by the financial watchdog of plans for a review ofaspects of the way the sector handles some of its pensions andsavings clients.

The premature disclosure to a newspaper sparked a sharp fallin shares in insurers including Aviva, Prudential and Legal & General and has already been described byMartin Wheatley, head of the Financial Conduct Authority (FCA),as "not our finest hour".

The FCA had told a newspaper of its plans, which involve aninvestigation into whether people locked into some 30 millionpension and other savings plans sold by insurance firms in the30 years after 1970 are treated fairly compared with newclients.

The watchdog did not itself clarify the nature of its review until more than six hours after the start of trading on theLondon Stock Exchange.

The Association of British Insurers (ABI) said in a letterto the FCA, released to the media on Tuesday by parliament'sTreasury Committee, that it has serious concerns about whatappeared to have been premature and selective disclosure.

The watchdog had said an investigation into its handling ofthe news would be carried out by its board with an external lawfirm. But the ABI said it wanted an independent probe, sayingthe watchdog "cannot be permitted to investigate itself".

"This is very much a situation in which even the perceptionof a lack of objectivity or thoroughness could be damaging tothe FCA and its aims," ABI Director General Otto Thoresen saidin the letter.

Thoresen was quizzed about the incident by the TreasuryCommittee on Tuesday. Britain's finance minister George Osborneand Committee members have already called for an independentinvestigation.

The FCA said it will announce the terms of reference for theinvestigation as soon as possible. Its Chairman JohnGriffith-Jones wrote to Osborne on April 1, saying theinvestigation will be "done by an external legal firm and willbe independent of the executive".

The ABI said the best way to make changes in the market wasthrough collaboration with the industry, which he said was nottrying to shy away from reviews into its activities.

"In that context, it is important that the FCA's mediastrategy is, and is seen as being, consistent with its statedintent of working collaboratively with the industry," the ABIsaid. (Editing by Clare Hutchison and David Holmes)