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Canadian Firm Closes on $10B American Equity Reinsurance Deal

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What You Need to Know

  • American Equity announced the deal about a year ago after rejecting an offer from Athene and MassMutual.
  • The deal should free up about $200 million in capital.
  • American Equity says it wants to create mechanisms of its own for tapping outside investor capital directly.

A subsidiary of Brookfield Reinsurance has closed a deal to reinsure about $10 billion in annuities for American Equity Investment Life Holding Co.

The deal means that annuity advisors will continue to be able to do business with an annuity issuer that’s based in the United States — in West Des Moines, Iowa — rather than in Bermuda or some other country.

For American Equity, the deal means that the company needs to find a way to tap outside investor capital itself, rather than depending on reinsurers or other outside entities to do the job.

The Players

American Equity is an annuity issuer that was founded in 1996 by David Noble. It helped create the modern indexed annuity market. An indexed annuity pays the contract holder a return linked, indirectly, to the performance of at least one investment index.

American Equity moved from having $11 million in assets 25 years ago to having a total of about $63 billion in annuity reserve liabilities on its books earlier this month, before it closed the deal with Brookfield Re.

Brookfield Re is an affiliate of Brookfield Asset Management — a Toronto-based financial services company with about $625 billion in assets under management.

Brookfield Asset Management formed Brookfield Re in December 2020 and turned Brookfield Re into a separate, publicly traded company by paying a special dividend to its own shareholders about four months ago.

In addition to making the deal with American Equity, Brookfield Re has agreed to acquire an entire Texas-based multiline insurer, American National Group, for about $5.1 billion.

Sachin Shah, Brookfield Re’s CEO, said in August, when Brookfield Re released its earnings for the second quarter of 2021, that the company has “significant capital available to deploy into a large pipeline of investment opportunities.”

The Brookfield Re-American Equity Deal

American Equity and Brookfield Asset Management announced their $10 billion annuity reinsurance deal in October 2020, before the Brookfield Re launch.

The deal includes reinsurance for in-force annuities backed by $4 billion in reserves, along with “forward flow reinsurance” for annuities to be written in the future, over a seven-year-period, according to a report filed with the SEC.

The $6 billion in reinsurance for annuities to be written later “will provide American Equity Life capital flexibility to fuel future growth in annuity origination,” the company says.

The reinsurance flow will amount to about one-quarter of the capital now going into new American Equity indexed annuities per year, the company estimates.

The deal will free up about $200 million in capital that was supporting the in-force annuities, American Equity says.

The deal could also give Brookfield Re influence over American Equity’s operations: Brookfield Re now owns 19.9% of American Equity and has a seat on the company’s board.

The Future

American Equity made the deal with Brookfield, and a separate financing deal with Värde Partners and Agam Capital Management, because it needed capital.

Earlier, the company revealed that it had rejected a $3 billion cash acquisition offer from Athene Holding Ltd. and Massachusetts Mutual Life Insurance Co.

American Equity executives said in December 2020, when they presented results for the third quarter of 2020 to investors, that one company goal was to set up reinsurance vehicles of its own that it could use to pull in outside capital, to replicate the kind of arrangement Brookfield could provide.

Outside reinsurers can offer attractive arrangements because they use vehicles based outside the United States to “transfer liabilities to a jurisdiction with a principles-based reserve and capital regime,” American Equity said at the time, according to a presentation slidedeck filed with the SEC.

American Equity said the Brookfield deal would help it level the playing field with key competitors that were using capital-raising vehicles based in favorable regimes.

American Equity said in the announcement of the Brookfield Re deal closing that it’s now transforming into a company that backs some traditional insurance-like business with its own capital and generates fee-like earnings by having outside companies reinsure other business.

American Equity is set to release earnings for the third quarter of 2021 in November. It said it will give more information about the impact of the Brookfield Re deal on its business then.

Toronto (Photo: Adobe Stock)