Brookfield Q3 earnings’ report reflects hefty insurance assets

The impact of life insurance assets is already having a big impact on the bottom line for Brookfield Corp., as the firm stockpiles cash for future investment.

Brookfield, which is in the midst of closing its second major insurance company acquisition, reported third-quarter earnings this week. The deal for American Equity is expected to close early in 2024.

Brookfield Re previously acquired American National Group last year, and has a pending deal to take over Argo Group, a U.S.-based underwriter in the property and casualty market.

"The expected acquisitions of Argo Group and American Equity Life will grow insurance assets to over $100 billion and increase annualized earnings to $1.2 billion, with a credible path to a stabilized earnings run-rate of approximately $2 billion annually over time," Brookfield announced.

Critics are watching Brookfield and other private equity firms for how they handle billions in policyholder funds. Regulators are being pressured to step up monitoring of certain transactions and filing requirements.

Significant insurance assets

Bahir Manios is managing partner and chief financial officer for Brookfield. He outlined Brookfield's strategy for deploying insurance assets over the coming 12 to 24 months.

"Of the $28 billion of assets that we’re managing on behalf of Brookfield Insurance Business, we’ve deployed so far about $2 billion into a number of our private credit strategies," he told an analyst during a conference call. "A further $7 billion has been committed and will probably start being deployed or invested, and as such, contributing to our results over the next 24 months."

Investment income return helped Brookfield's insurance segment thrive in Q3. Distributable operating earnings were $182 million in the quarter and $657 million for the preceding 12 months, an increase of 14% compared to the prior year quarter, the company reported.

"Significant growth in earnings was driven by redeploying our highly liquid, short-term investment portfolio into higher yielding assets and originating over $2 billion of annuities in the quarter," Brookfield said in a news release.

Long known as Brookfield Asset Management Inc., the Toronto-based firm became Brookfield Corp. in December 2022. The firm then spun off 25% interest in their asset management business into the new publicly listed Brookfield Asset Management Ltd. Brookfield Corp. oversees several Brookfield subsidiaries.

Brookfield Re is a separate standalone company, of which Brookfield Corp. owns less than 5% of its shares. However, Brookfield Asset Management is expected to handle investments of the insurance company assets.

Brookfield: billions in capital on hand

Brookfield ended Q3 with about $120 billion of deployable capital for new investments, including $35 billion of cash, financial assets and undrawn credit lines. Brookfield Asset Management reported that total net income rose to $494 million for the recent quarter, with a 7.5% increase in revenue to $893 million.

Insurance companies are increasingly turning to alternative investments such as private credit, which has analysts at Moody's concerned. Brookfield is active in private credit, which Connor Tesky, president of Brookfield Asset Management, called "an underappreciated part of our story."

"We expect to organically grow our credit platform fee-bearing capital by more than $150 billion to $300 billion over the next five years," Tesky added. "In addition, we expect to grow our insurance solutions business by $200 billion over the same period, and we will direct a large part of that capital into private credit funds, further expanding our capabilities."

DOL rule thoughts

The Department of Labor fiduciary rule package released last week came up in nearly every earnings call with insurers. Bruce Flatt, CEO of Brookfield Asset Management, said he expects the demand for fixed indexed annuities, of which American Equity is a top seller, to remain strong.

If it takes effect, the fiduciary rule proposal would extend fiduciary duty to a wide range of annuity sales. Critics say it would restrict financial advice to middle-market savers.

"We would really expect is the new regulatory environment to increasingly favor large players in the space, which is what we have become," Flatt said. "It increasingly will favor those players with the scale and capital to easily comply with the new regulations while still capturing the significant demand growth. So while we do monitor the situation closely, we feel our business will be well positioned."

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.