Brookfield Re eyes $10B in annuity sales when American Equity deal closes

When its acquisition of American Equity is completed, Brookfield Reinsurance expects to challenge the biggest annuity sellers in the country.

Both companies announced second-quarter earnings this week. It is the final quarterly report for American Equity, ending a multi-year run as a target of pursuers. Brookfield Re, established in late 2020, continues to flex its private-equity muscle with an aggressive acquisition strategy.

Brookfield Re announced in June that it would pay a well-above-market price of $55 per share for all American Equity shares that it does not own, a $4.3 billion deal that AE executives accepted. Brookfield Re previously acquired American National Group last year.

"Following the completion of the [American Equity] transaction ... Brookfield Reinsurance will have the foundation to become a leading U.S. annuity originator," the company said in a news release. "Through product and distribution synergies, we expect to increase new business origination to over $10 billion of policies in aggregate annually."

According to LIMRA's Fact Tank data, 11 insurers topped $10 billion in sales in 2022. Private equity backed insurers, led by Athene in second place with $20.6 billion, continue to climb the charts.

Brookfield Re is also awaiting closure of a previously announced acquisition of Argo Group, a leading U.S. specialty property and casualty platform. That deal remains on track to close in the second half of 2023, the company said.

"Following the close of our announced transactions, our total insurance assets will be over $100 billion," said Sachin Shah, CEO of Brookfield Re, "representing an important milestone in the continued growth of a diversified insurance business of scale.”

Strong sales start

In the second quarter, Brookfield Re "originated over $3 billion of annuity sales," the company said, including $650 million of flow business within existing reinsurance treaties. In addition, the company closed over 25 pension risk transfer transactions, representing approximately $530 million in premiums.

The company reported Q2 net income of $360 million, compared to $25 million in the year-ago quarter, as a result of "unrealized mark-to-market gains on our investments and insurance reserves," the release said. "Net income also continues to benefit from the repositioning of assets across our insurance accounts into higher yielding investments."

American Equity (AEL) reported accelerated sales momentum "in both the independent agent channel and bank and broker-dealer channel while the investment portfolio allocation to private assets continued to increase," the company said.

Still, AEL financials fell short of Wall Street expectations. The company reported second-quarter profit of $355.4 million and posted adjusted revenue of $542.7 million, which fell short of Street forecasts. Five analysts surveyed by Zacks expected $555 million.

CEO Anant Bhalla said the company is thriving and "firing on all cylinders" as it looks to close the Brookfield Re transaction by the first quarter of 2024. The company did not hold an earnings call with analysts.

"New business sales of $2 billion in the second quarter is at nearly all-time highs for AEL," Bhalla said in a news release. "Private asset investments over $12 billion – or 25% of all invested assets on the balance sheet – and nearly $11 billion of account values ceded to reinsurance partners to earn 'fee-like' revenues are both significant milestones in our transformation into a capital-light and more resilient."

Higher lapse rates

Compared to Q1 2023, second quarter surrender charge income increased $7 million to $34 million, American Equity said, reflecting "increased lapsation associated with higher interest rates positively affecting yields on bank deposits and new money caps, participation rates and credited interest rates on annuities offered by American Equity and its competitors."

Analysts pointed to lapse rates as a data point to watch during earnings season.

Nearly 94%, or $1.9 billion, of AEL sales were in fixed index annuities. Total enterprise FIA sales increased 94.7% and 142% compared to the first quarter of 2023 and the second quarter of 2022, respectively, the company reported.

Compared to Q1 2023, FIA sales at American Equity Life in the independent marketing organization channel doubled, while Eagle Life FIA sales through banks and broker-dealers rose 77.7%, AEL said.

While competitors may "chase rates" as interest rates remain volatile, Bhalla said, AEL will maintain "disciplined underwriting" and focus on building cash reserves through the remainder of 2023.

"We expect to manage sales levels through the remainder of the year to finish 2023 with total FIA sales in the $5 billion to $6 billion range across our IMO, bank and broker-dealer channels," he added. "We expect the bank and broker-dealer channels to contribute approximately 25% of new sales, a meaningful achievement reflecting the re-building of these channels over the past three years."

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.

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

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.