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After American National Group Acquisition, Brookfield Reinsurance Is Building Its Business With More Deals

Brookfield Reinsurance, an insurance holding company spun off in 2021 by Canadian investment firm Brookfield Corporation, entered the U.S. insurance market in 2022 when it completed its acquisition of American National Group.

Posted: 9th November 2023 by Finance Monthly
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American National Group is a multi-line group of insurance companies, and Brookfield Reinsurance looks to own, operate, and build on the long-standing stability and success of the American National Group. The American National Group acquisition was part of a broader industry trend of acquisitions of insurers that coincide with insurance companies expanding interest in private credit assets to provide better returns amid record-low interest rates. Other firms to acquire significant insurance assets at the time included Blackstone Group, Apollo Global Management, and KKR & Co.

In 2023, Brookfield Reinsurance has continued its acquisition strategy. In February, it announced that it would acquire the U.S. commercial speciality lines platform of Argo International Holdings, a provider of property and casualty insurance products, in an all-cash transaction valued at approximately $1.1 billion. Then, in July, Brookfield Reinsurance announced an agreement to buy American Equity Life Insurance Company (NYSE: AEL). That deal, a cash and stock transaction that valued AEL at approximately $4.3 billion, followed Brookfield’s initial partnership with AEL in which it agreed to reinsure up to $10 billion of fixed index annuity liabilities and made a 19.9% equity investment in the company in October 2022. 

This scope of mergers and acquisitions activity reflects efforts by Brookfield Reinsurance to expand its insurance business in an economic climate that has changed since it acquired American National Insurance in mid-2022. Since that time, the Federal Reserve has raised interest rates 11 times to combat rising inflation. Brookfield Reinsurance will own and operate insurance companies for decades into the future

Nevertheless, M&A activity in the insurance industry has remained resilient ​​despite macroeconomic changes since mid-2022. According to a PwC report, during the six months from mid-November 2022 to mid-May 2023, a total of 194 insurance industry M&A transactions were disclosed, accounting for more than $7 billion. This contrasts with the earlier six-month span from mid-May to mid-November 2022, which saw 263 disclosed transactions with a combined deal value of $2 billion.

Acquisitions pursued by Brookfield Reinsurance fall in line with this trend. 

Terms of the Deals

The deal with Argo was seen as a noteworthy step toward broadening Brookfield Reinsurance’s offerings, with Argo's U.S. commercial speciality lines platform seen as a complementary addition to American National Group’s existing casualty market participation.

As part of the agreement, each issued and outstanding Argo common share was converted into the right to receive $30 in cash at the merger's closing, which Brookfield funded with existing cash on hand. This per-share price offered a 6.7% premium to Argo’s closing share price on the day before the merger, Feb. 7, 2023.

The acquisition of AEL targeted its fixed annuity business, one of the largest in the industry.

“Given the complementary nature of AEL’s leading fixed annuity business to our existing platform, we expect to accelerate growth in collaboration with our distribution partners and employees while continuing to meet the needs of our policyholders and other stakeholders,” said Jon Bayer, managing partner at Brookfield Reinsurance, in a statement when the deal was announced. “Under its current leadership, AEL has been transformed into an innovative, asset-light insurer that is positioned for growth, and we look forward to building on our successful partnership.” 

Under the terms of the deal, AEL shareholders will receive $55 per share, with a mix of cash and Brookfield Asset Management Ltd. class A limited voting shares, valuing AEL at a 35% premium compared to AEL’s closing share price before the deal.

Post-acquisition, AEL's headquarters will remain in Des Moines, Iowa. Brookfield Reinsurance also plans to maintain AEL's charitable contributions and focus on alternative asset strategies, with a considerable portion of AEL’s assets expected to be managed by Brookfield Asset Management Ltd. The transaction is slated for closure in the first half of 2024.

M&A Opportunities in an Uncertain Economy

Brookfield made this investment in the casualty insurance market and annuities amid a broader downturn in M&A activity and a more uncertain macroeconomic environment. And it’s not the only large firm to make these kinds of investments. Nevertheless, other recent acquisitions include Stone Point Capital LLC’s 20% acquisition of Truist Insurance Holdings Inc. for $1.95 billion and RenaissanceRe Holdings’ $3 billion acquisition of American International Group Inc.’s treaty reinsurance business.

The insurance M&A sector has been resilient largely because, despite rising rates and inflation, stable assets like casualty insurance and fixed annuity writers are attractive investments for acquiring firms with the capacity to invest patiently and to operate insurance companies that serve the interests of policyholders.

Casualty businesses generate consistent revenue through premium collections from policyholders, irrespective of the economic environment. In times of economic turbulence, the predictable revenue from premiums can provide a financial cushion, making casualty insurance platforms targets for diversification and long-term investment.

According to Brookfield’s most recent letter to investors, the company’s insurance investments seem to be following this playbook, paying off despite high interest and inflation.

“During the quarter, our average investment portfolio yield increased to 5.4% on approximately $45 billion of assets, about 220 bps higher than the average cost of capital,” reads the letter. “We continue to see a path to annualized earnings from this business of $800 million by the end of 2023 and, given tight credit markets, this puts us in an enviable position.”

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