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Pedestrians and office workers walk past the Bay St. entrance to Brookfield Place in Toronto’s Financial District on July 12, 2022.Fred Lum/the Globe and Mail

Brookfield Asset Management Ltd. BAM-T expanded further into the annuities business Wednesday with its reinsurance arm’s US$4.3-billion acquisition of American Equity Investment Life Holding Co.

The cash-and-stock deal values Des Moines, Iowa-based AEL at US$55 per share, representing a roughly 35-per-cent premium to the New York Stock Exchange-listed company’s June 23 closing price, which was the last trading day before the proposal was first disclosed. AEL shareholders will receive US$38.85 in cash and slightly less than half of one Brookfield share for each AEL share, according to the deal terms.

Acquiring AEL is the culmination of a years-long relationship that began in late 2020, when Brookfield agreed to acquire an ownership stake of up to 20 per cent in the annuities provider and to reinsure up to US$10-billion worth of its products. Annuities are an insurance product that offers buyers a steady income stream in retirement.

Because products like annuities are linked to interest rates, they have become increasingly popular in both the United States and Canada over the past few years, as central bankers have sought to combat inflation by raising borrowing costs at the fastest pace in decades. Even before rates started to rise, demand for annuities grew throughout the COVID-19 pandemic as part of a broader flight to safety among older investors, according to data from the Secure Retirement Institute (SRI).

Total annuity sales more than doubled on a year-over-year basis during the first quarter of 2023, the SRI said in late May. That marked the fourth consecutive quarter of record-breaking annuity sales.

“Given the complementary nature of AEL’s leading fixed-annuity business to our existing platform, we expect to accelerate growth,” Jon Bayer, managing partner of Brookfield Reinsurance BNRE-T, said in a statement.

The growing popularity of annuities has also made AEL an increasingly attractive acquisition target. In December, 2022, AEL rejected an all-cash takeover offer of US$45 per share worth roughly US$4-billion from Prosperity Life, which is owned by Elliot Investment Management.

That offer “significantly undervalues” the company, AEL said at the time.

Once the AEL acquisition is complete, which is expected within the first half of 2024, Brookfield Reinsurance will have more than US$100-billion in insurance assets. During the Canadian company’s 2022 investor day, Brookfield set a goal of having US$225-billion in total insurance assets by 2027.

That would represent dramatic growth for a division that barely existed as recently as 2021, when Brookfield had a single line of insurance business related to pension risk transfer that had roughly US$2-billion in assets.

Brookfield Asset Management Reinsurance Partners Ltd. was formally established in June, 2021. Two months later, that unit agreed to pay US$5.1-billion in cash to acquire Galveston, Tex.-based American National Group Inc., which offers a broad range of insurance, annuities and pension products in the U.S.

Follow Jameson Berkow on Twitter: @JamesonBerkowOpens in a new window

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