New Holding...Brookfield Reinsurance Partners (TSX: BAMR)

New Holding...Brookfield Reinsurance Partners (TSX: BAMR)

----------------------------------------------------------------------------------

Overview of Our Business

The Company was established by Brookfield to own and operate a leading reinsurance business focused on providing capital-based solutions to insurance companies and their stakeholders. Through our operating subsidiaries, we act as a direct issuer of PRT products for pension plan sponsors and will provide annuity-based reinsurance products to insurance and reinsurance companies. In doing so, we seek to match long-duration liabilities with a portfolio of high-quality investments in order to generate attractive, risk-adjusted returns within our business. We intend to leverage our relationship with Brookfield in order to opportunistically source new business and deploy our capital in assets that are tailored to our investment needs. Our relationship with Brookfield provides us with access to a diverse mix of leading alternative investment strategies that we believe are well suited for this purpose.

We currently have a single operating segment related to our PRT business. Going forward, we plan to focus primarily on growing our annuities-based reinsurance business, which we refer to as our annuities business. Over time, we may look for opportunities to expand our reinsurance business to cover other longer-duration products such as life insurance and structured settlements. 

--------------------------------------------------------------------------------------------------

Annuities

Within our annuities business, we are focused primarily on the reinsurance of annuity-based products, and will primarily seek to reinsure annuity-based products for direct insurers and other reinsurers operating in North America and Western Europe.

Annuities are insurance contracts that provide a defined income stream, typically for retirement planning. Policyholders deposit money with an insurance company in return for a fixed stream of cash flows either immediately or in the future. Reinsurance is an arrangement whereby an insurance company, the reinsurer, agrees to indemnify another insurance company, referred to as the ceding company or cedant, for all or a portion of the insurance risks that are underwritten by the ceding company. Reinsurance serves multiple purposes, including to (1) transfer insurance risk off of a ceding company’s balance sheet, enabling it to more efficiently manage balance sheet capacity to increase the volume of business it can underwrite (2) stabilize a ceding company’s operating results, (3) assist the cedant in achieving applicable regulatory requirements, and (4) optimize the overall financial strength and capital structure of the cedant.

Reinsurance may be structured as a block transaction, pursuant to which a reinsurer contractually assumes assets and liabilities associated with an in-force book of business, or as a flow arrangement, pursuant to which a reinsurer contractually agrees to assume assets and liabilities for future business.

We primarily seek to reinsure three types of annuity products: fixed annuities, fixed index annuities and payout annuities.

Fixed Annuities

A fixed annuity (“FA”) is a type of insurance contract that provides a fixed rate of investment return (often referred to as a crediting rate) for a specified period of time. Fixed rate reset annuities have a crediting rate that is typically guaranteed for a period of one year, after which insurers are able to change the crediting rate at their discretion, generally to any rate at or above a previously guaranteed minimum rate.

Insurers earn income on FA contracts by generating a net investment spread, which is based on the difference between income earned on the investments supporting the liabilities and the crediting rate owed to customers.

Fixed Index Annuities

A fixed index annuity (“FIA”) is an insurance contract in which the policyholder makes one or more premium deposits that earn interest at a crediting rate based on a specified market index. Policyholders are entitled to recurring or lump sum payments for a specified period of time. FIAs provide policyholders with the ability to earn interest without significant downside risk to their principal balance. A market index tracks the performance of a specific group of stocks or other assets representing a particular segment of the market, or in some cases, an entire market. A policyholder’s crediting rate in relation to a market index is based on the change in the relevant market index, subject to a pre-defined cap (a maximum rate that may be credited), spread (a credited rate determined by reducing a specific rate from the index return) and/or a participation rate (a credited rate equal to a percentage of the index return).

Insurers earn income on FIA contracts based on a net investment spread, which is the difference between income generated on investments supporting the liabilities and the interest that is credited to policyholders.

Payout Annuities

A payout annuity is an income-generating insurance product. In exchange for a lump sum premium, the policyholder receives a series of guaranteed income payments for one lifetime, two lifetimes or a specified period of time.

Insurers earn income on payout annuity contracts based on a net investment spread, which is the difference between income generated on investments supporting the liabilities and the interest that is credited to policyholders.

We intend to operate our annuities business through licensed operating companies, North End Re (Cayman) SPC ("NER SPC") and North End Re Ltd (“NER Ltd”). As of the date of this MD&A, we have not entered into any reinsurance contracts.

Pension Risk Transfer

Pension risk transfer (“PRT”) is the transfer by a corporate sponsor of the risks (or some of the risks) associated with the sponsorship and administration of a pension plan, in particular, investment risk and longevity risk, which is the risk of an increase in life expectancy of plan beneficiaries. These risks can be transferred either to an insurer like us through a group annuity transaction, or to an individual through a lump sum settlement payment. PRT using insurance typically involves a single premium group annuity contract that is issued by an insurer, permitting the corporate pension plan sponsor to discharge certain pension plan liabilities from its balance sheet.

A PRT insurance transaction may be structured as either a buy-out annuity or a buy-in annuity. 

Under a buyout annuity, a direct insurer enters into a group annuity contract with the plan sponsor and assumes the liability to fund, administer and pay benefits covered under the contract directly to the individual pension plan members covered under the contract. 

Under a buy-in annuity, the insurer enters into a group annuity contract with the plan sponsor and is liable to fund and pay the benefits covered under the contract to the pension plan fund, with the plan sponsor retaining the liability to administer and pay pension benefits to plan members. In both cases, the insurer assumes the investment and longevity risk.

Insurers earn income on buy-out and buy-in group annuities by generating a net investment spread, which is based on the difference between income earned on the investments supporting the annuity contract and the cost of the pension liabilities assumed.

Today, our PRT business is operated primarily through Brookfield Annuity Company (“BAC”), a Canadian domiciled, licensed and regulated direct life insurance company that provides PRT solutions to organizations across Canada. BAC is led by a team of experts with an average of over 25 years of experience in group annuities, pensions, insurance and investments.

BAC was incorporated in August 2016 as a wholly-owned indirect subsidiary of Brookfield and wrote its first group annuity policy in the first quarter of 2017. As of June 30, 2021, BAC had $1.3 billion (C$1.6 billion) of policyholder reserves.

Life Insurance

Although today our business is focused primarily on annuity-based products, in the future we may look to expand our reinsurance business to cover other longer-duration products, including life insurance. Life insurance is a contract between an insurer and the insured person in which the insurer guarantees payment of a death benefit to named beneficiaries in exchange for premiums paid by the insured person. Insurers generate income based upon the income earned on assets invested in connection with the policy, relative to the cost of administration and the death benefit paid.

----------------------------------------------------------------------------------------------------

Recent Developments

Brookfield Asset Management Reinsurance Partners to Acquire American National in $5.1 Billion Transaction

BROOKFIELD, NEWS, Aug. 09, 2021 (GLOBE NEWSWIRE) -- American National Group, Inc. (American National) (NASDAQ:ANAT), and Brookfield Asset Management Reinsurance Partners Ltd. (Brookfield Reinsurance) (NYSE:BAMR; TSX:BAMR), today announced they have entered into a definitive merger agreement whereby Brookfield Reinsurance will acquire American National in an all-cash transaction valued at approximately $5.1billion.

As part of the agreement, each issued and outstanding share of American National common stock will be converted into the right to receive $190.00 in cash at closing of the merger. The merger consideration of $190.00 per share of American National common stock (the Merger Consideration) represents a 55% premium to the unaffected share price of $122.56 on May11,2021, as well as a 24.7% premium over American Nationals 30-day volume-weighted average price as of August 6,2021. The merger has received unanimous approval of American Nationals Board of Directors.

Sachin Shah, Chief Executive Officer of Brookfield Reinsurance, said, 'The acquisition of American National represents a significant milestone in the continued expansion of our insurance business. American Nationals management team has a strong track record of stable growth and disciplined underwriting. We are excited to partner with them, and the dedicated American National employee base and distribution partners, as we look to further grow the business and maintain a strong franchise for the benefit of all stakeholders.'

Following closing, Brookfield Reinsurance intends to maintain American Nationals headquarters in Galveston, Texas and its presence in League City, Texas, as well as its operational hubs in Springfield, Missouri and Albany, New York. Brookfield Reinsurance also looks forward to continuing American Nationals longstanding involvement with its local communities.

Jim Pozzi, President and Chief Executive Officer of American National, said, 'This is an energizing moment in American Nationals history. Our two companies share a long-term view of building strong, enduring businesses. 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. I would like to thank our board of directors, particularly our strategic opportunities committee of independent directors, which conducted a thorough review of a range of strategic alternatives and possible business opportunities to maximize value for our stockholders. The transaction provides clear and immediate value for our stockholders at an attractive premium.'

The merger is expected to close in the first half of 2022. It is subject to certain customary closing conditions, including antitrust clearance and receipt of insurance regulatory approvals, for a transaction of this type. Following the execution of the merger agreement, stockholders representing more than a majority of the issued and outstanding shares of American National common stock delivered stockholder written consents adopting and approving the merger agreement. American National will file a current report on Form 8-K with the U.S. Securities and Exchange Commission containing a summary of the terms and conditions of the proposed acquisition, as well as a copy of the merger agreement.

The Merger Consideration will be funded by Brookfield Reinsurance through a combination of committed debt and equity financing, including committed debt financing of $1.5billion and an equity commitment of up to the aggregate Merger Consideration from Brookfield Asset Management Inc. (NYSE: BAM; TSX: BAM.A) (BAM), which equity commitment will be reduced by the amount of debt funded at closing. BAMs equity commitment will be funded by existing liquidity at the corporate level.

Aug 09 2021

---------------------------------------------------------------------------------------

Source

https://bamr.brookfield.com/