Brookfield Asset Management Inc. is about to embark on the next stage of its insurance evolution with the planned June 28 special dividend of exchangeable limited voting shares in a newly formed Bermuda-based vehicle that intends to establish a meaningful presence in an increasingly crowded marketplace.
The listing of Brookfield Asset Management Reinsurance Partners Ltd. will facilitate key elements of the agreements the asset manager struck in October 2020 with American Equity Investment Life Holding Co. It will also set the stage for what the company described in an SEC filing as its pursuit of additional "large-scale" and "multi-faceted" transactions across multiple geographies — part of a plan to create a leading reinsurer of long-duration liabilities.
The reinsurer's path to formidability is mostly prospective in nature as its predecessor entity generated gross premiums of $431.1 million in 2020 and ended the year with total assets of $1.39 billion. But terms of the strategic relationship with annuity American Equity lay the groundwork for a significant operating base.
BAM Re expects to acquire approximately 9.1 million American Equity common shares, representing a 9.9% equity interest in the insurer, from a Brookfield affiliate for aggregate consideration of $287.1 million. It also has been assigned the right to boost the stake to as much as 19.9% subject to the finalization of a proposed reinsurance agreement with American Equity. The arrangement contemplates the reinsurance of $5 billion in existing fixed indexed annuity liabilities on a 100% quota-share basis by BAM Re's North End Re (Cayman) SPC as well as a 75% quota share on up to $5 billion of certain prospective fixed index annuities to be issued by American Equity subsidiaries.
At completion, which is expected to take place in the third quarter, BAM Re would recognize up to $5 billion in modified coinsurance and credit for reinsurance trust assets, up to approximately $5 billion of associated insurance contract liabilities and up to $5 billion in gross premiums. BAM Re then intends to invest the associated capital and generate enhanced investment returns through a portfolio of what it characterized as high-quality, long-dated assets, including the access it maintains to Brookfield's asset origination and alternative asset management strategies.
A host of insurers and reinsurers are pursuing similar marriages of insurance liabilities and differentiated asset management strategies in a low-interest-rate environment through the combination of acquisitions and modified coinsurance agreements at a time capital-light approaches are increasingly favored by American Equity and certain of its peers. Prominent players on the demand side include Apollo Global Management Inc.-linked Athene Holding Ltd., KKR & Co. Inc. through Global Atlantic Financial Group Ltd., The Carlyle Group Inc. through Fortitude Group Holdings LLC, and The Blackstone Group Inc.'s burgeoning Blackstone Insurance Solutions, among others. They have joined longstanding acquirers like Protective Life Corp. and established reinsurers such as Reinsurance Group of America, Incorporated and Wilton Re Ltd.
BAM Re said it will benefit from Brookfield's strategic relationships with global insurers and reinsurers. Those relationships stem from Brookfield's asset management franchise and its loan origination and credit offerings that make for attractive general account investments for insurance companies. At the same time, the filing acknowledged the increasingly competitive environment to reinsure annuity liabilities.
Beyond the American Equity transaction, BAM Re intends to focus on the reinsurance of fixed annuities, fixed indexed annuities and payout annuities from cedants in North America and Western Europe where it believes that "numerous opportunities" exist for block and flow reinsurance arrangements. The company also plans to expand its existing Canadian pension risk-transfer business: a market in which BAM Re believes there may be $250 billion of business that will emerge on an industrywide basis in the next two decades. And it did not rule out the potential of expanding those capabilities into the U.S. and U.K. markets. BAM Re might also pursue opportunistic acquisitions or strategic investments in North American and/or Western European reinsurers and direct insurers. It additionally held open the possibility of future expansion of the reinsurance business into life insurance and structured settlements.
Agreements with Brookfield will provide BAM Re with the financial flexibility to pursue those aspirations. Brookfield will extend an equity commitment of $2 billion that may be drawn from time to time to fund future growth and a five-year $200 million revolver for working capital purposes.
Brookfield Reinsurance intends to list its shares on the NYSE and the Toronto Stock Exchange.