Brookfield Asset Management’s recently spun-off insurance venture is making its first big deal with the US$5.1-billion all-cash purchase of Texas-based American National Group Inc. , a seller of a wide range of products from annuities to auto insurance.
The deal, announced Monday, is the latest sign of Brookfield’s big interest in insurance, particularly annuities, a business the Toronto conglomerate has been in for the past half-decade. Annuities generated about 18 per cent of American National’s 2020 revenue, according to S&P Global Market Intelligence, and the insurance contracts represent a big chunk of the company’s balance sheet.
American National also has a significant property and casualty insurance business that insures homes, cars, boats, motorcycles and recreational vehicles. According to S&P Global Market Intelligence, about US$1.6-billion of American National’s US$3.8-billion in total revenue came from property and casualty insurance.
American National also has a non-annuity life insurance business, and a small amount of its sales come from health insurance. The company says it has more than US$100-billion of insurance policies in force.
Brookfield’s zeal for insurance has been matched by other big institutional investors in recent years. Insurance companies, particularly those specializing in selling annuities, are dogged by low returns on their fixed-income investments. Alternative asset managers such as Brookfield can provide new investment opportunities for the insurers, and the institutional investors get a new source of investable money.
Brookfield spun off Brookfield Asset Management Reinsurance Partners Ltd. to its shareholders in late June, and Brookfield Reinsurance now trades on the Toronto and New York stock exchanges. The shares closed at $73.02 in Toronto Monday, a postspinoff high.
Brookfield Reinsurance holds Brookfield Annuity, a company launched in 2016 to operate in the Canadian pension “risk transfer” business, in which employers who sponsor defined-benefit pension plans buy annuities from Brookfield to cut down or eliminate their risks in paying out pensions and benefits to retirees. Brookfield Reinsurance now has $1.6-billion in policyholder reserves.
Brookfield Reinsurance also has a US$337-million investment in American Equity Investment Life Holding Co. (AEL) , a U.S. seller of life insurance and annuities. Brookfield assumed a stake of almost 10 per cent in the Iowa insurer in November, 2020, with the intention of reinsuring up to US$10-billion of AEL’s annuities. Brookfield Reinsurance is still awaiting approval from U.S. regulators for the reinsurance arrangement, with hopes of finalizing the deal this quarter and increasing its stake in AEL some time after.
By paying US$190 a share for American National, which trades on the Nasdaq stock exchange, Brookfield Reinsurance is offering a 55-per-cent premium to the company’s May share price, before media reports revealed that it would entertain a sale. The offer price is a little less than 10 per cent above last Friday’s close of US$172.80.
Brookfield Reinsurance said it intends to keep American National’s management intact and its headquarters in Galveston, Tex. Sachin Shah, CEO of Brookfield Reinsurance, said American National’s management team “has a strong track record of stable growth and disciplined underwriting ... we look to further grow the business and maintain a strong franchise for the benefit of all stakeholders.”
American National CEO Jim Pozzi said, “Brookfield Reinsurance has been very clear: They want us to continue to grow our business, together with our leadership team and our excellent team of employees and distribution partners.” He said his company considered “a range of strategic alternatives and possible business opportunities to maximize value for our stockholders.”
Brookfield Reinsurance’s purchase price for American National is below current average multiples for multiline insurance companies on a price-to-earnings, price-to-revenue and price-to-book value basis, according to S&P Global Market Intelligence.
American National was founded by William L. Moody Jr. in 1905. Moody family trusts and related entities still own about 70 per cent of the company, and members of the family are on the company’s board of directors. The remainder of the shares trade on Nasdaq.
When Brookfield spun off its reinsurance business in June, it told investors there are “two long-term tailwinds” that create demand for the business’s products: Aging populations are increasingly looking to insurance products for retirement planning, and those products offer stable, protected returns in a period of historically low interest rates.
Brookfield also said several factors could lead insurance companies to partner up with its new insurance venture, including Brookfield’s alternative investment products, the desire free up capital and low valuations in the public markets for insurers.
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