Critics call out Brookfield Asset Management asset transfers to insurer

Financial reporting documents by Brookfield Asset Management Reinsurance (Brookfield Re) and an insurer it acquired last year are raising renewed questions about private equity control of policyholder funds.

Forms filed by Brookfield Re and American National Insurance Co. show a transfer of  assets owned by the former company, mainly commercial real estate. A new report issued by Unite Here, a union group and persistent critic of Brookfield, raises red flags for some industry consumer advocates.

In the bigger picture, billion-dollar private equity firms continue pushing to acquire ever-bigger pots of insurance policyholder funds. That has some consumer advocates concerned that state insurance departments are not up to the task of regulating their behavior.

"Unite correctly points out the regulators' willingness to concede confidentiality to insurers through model laws as well as in discretionary areas," said Birny Birnbaum, executive director of the Center for Economic Justice. "The treatment of information critical to hold insurers and regulators accountable as confidential facilitates conflicts of interest as regulators move to and from industry."

Regulators should place an "immediate moratorium" on private equity firms acquiring life insurance companies "as fodder for their own securities," Birnbaum added.

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.

'Unaffiliated' or not?

Brookfield Re acquired American National, headquartered in Galveston, Texas, in a $5.1 billion deal that officially closed in May 2022. Operating in all 50 states and Puerto Rico, American National affiliates underwrites and issues life, health, and property and casualty insurance and annuities. The insurer recorded $3.9 billion in revenues for 2021, the most recent year available.

In the four reporting quarters since Brookfield Re acquired American National, the latter company booked more than $4.7 billion in Brookfield investments. Most of those have been classified as "unaffiliated," a request granted by the Texas Department of Insurance.

The disclaimer of affiliation granted by regulators creates a lack of transparency around the investments, consumer advocates say. The National Association of Insurance Commissioners enforces tougher accounting standards for affiliated transactions, or those between companies under common control, explained Tom Gober, a forensic accountant.

Gober has seen disclaimers of affiliation before, but adds that “in this instance, it's especially egregious because Brookfield [Re] just purchased American National and immediately entered into massive offshore affiliated reinsurance transactions and purchases of related-party assets.”

A spokesman for the Texas Department of Insurance said that state code requires all information related to filings for a disclaimer of affiliation to be kept confidential.

"Generally speaking, TDI is most concerned that the entities we regulate are providing us with transparency in their filings and responses to us as we monitor solvency and regulatory compliance," said Ben Gonzalez of the TDI, via email. "Because of recent changes in statutory reporting, investments made in, with, or through Brookfield Corporation and its affiliates will be reported as 'related party' transactions in American National’s financial statements going forward. With this change, investments can be publicly identified, and regulators will have full transparency into those transactions."

'More questions than answers'

Without full transparency and complete accounting, the moves raise a lot of questions, said Marty Leary, director of research for Unite Here.

Unite Here represents more than 300,000 workers in the United States and Canada and is in an ongoing dispute with Brookfield Corp. regarding benefits and working conditions at hotels Brookfield owns.

Since its acquisition by Brookfield Re, American National purchased asset-backed securities issued by dozens of newly-created Brookfield-managed private funds, with a combined book value of $1.8 billion, Unite Here reported.

"There's more questions than answers in his report," Leary said. "If you want to sell all that real estate debt to the insurance company, sell the real estate debt. Why securitize it?"

Brookfield Re is not done dabbling in the insurance market. In a deal expected to close in the first half of 2024, the company is paying $4.3 billion for American Equity Investment Life Holding Co. The Des Moines, Iowa-based insurer is a big seller of fixed annuities.

"We expect to be named the manager for AEL's $50 billion of investible capital, which will triple our current insurance fee bearing capital and puts us on track to reach the target of $225 billion of insurance capital that we laid out in our five-year plan," Connor Teskey, president of Brookfield Asset Management Ltd., told analysts during a second-quarter earnings call.

With American National and American Equity in the fold, Teskey told analysts "there is a clear path to get to $15 to $20 billion of annual annuity policies." He went on to outline plans to target allocating "40% of our insurance assets into private funds. Today, that number is only 6%."

BAM will not be reckless with any policyholder funds, Teskey assured analysts.

"Much of the allocation decision is dictated by understanding the regulatory regime in which each policy is based, meeting appropriate capital charges and liquidity requirements, and matching the duration of the insurance liabilities with the asset mix," he said.

Sagging commercial real estate market

Meanwhile, Brookfield Corp. is experiencing financial setbacks in the commercial real estate market. The Wall Street Journal reported in May on missed payments for high-profile, multi-million-dollar office properties.

A Brookfield source noted that none of the loans to distressed properties are held "in any form" by an insurer under Brookfield Re control. The company released this statement on the United Here report:

“American National is a well-capitalized and conservatively managed insurance company that, with the support of Brookfield Reinsurance, is building on its long history and proud legacy of delivering value to policyholders and clients. Our mission and approach are completely aligned with all stakeholders committed to policyholder protection.”

Private equity concerns

Private-equity firms are very interested in insurance companies due to the significant amounts of policyholder cash they can use as investment capital. Life insurers are equally interested in how PE firms can help them grow investments.

Policyholder funds are fueling a "shadow" private lending market, the New York Times reported last week. As of the second quarter of 2023, PE firms owned nearly 9%, or about $774 billion, of the U.S. life insurance industry’s assets, up from just 1 percent in 2012, according to the most recent data from the insurance ratings agency AM Best.

For some, the downside is clear: private-equity firms operate with a level of financial sophistication that might overmatch busy state insurance regulators.

When things go bad, they can go really bad. Gober points to North Carolina, where regulators have spent years trying to unwind the financial empire of Greg Lindberg to make policyholders whole.

Lindberg, founder of the private equity firm Eli Global, eventually acquired several insurers and grouped them together as the Global Bankers Insurance Group. Insurance profits soared and ultimately enabled Lindberg to funnel $2 billion to Eli Global. Along the way, Lindberg made a special agreement with former insurance commissioner Wayne Goodwin allowing him to invest up to 40% of his insurance companies' assets into affiliated business entities.

Lindberg's former insurance companies, which include Colorado Bankers Life Insurance Co. and Bankers Life Insurance Co., are in receivership. North Carolina officials recently made $1.2 billion available to long-suffering policyholders.

"The issue there was the company had somehow convinced the regulator to allow them to do things that are clearly subject to this related-party principle," Gober said. "They now regret that they allowed him to do that. But even when they softened it significantly, by then it was too late. They couldn't unwind this stuff.

“How different is Brookfield [Re] taking control of American National and engaging in buying a bunch of affiliated paper and going offshore with reinsurance? How is that really different from Greg Lindberg doing similar activities?”

13 considerations

NAIC regulators have stepped up oversight of PE involvement with life insurance ownership in recent years. That work is focused in the Macroprudential Working Group, which adopted a list of "13 considerations" applicable to PE-owned insurers.

"The state insurance solvency framework includes significant checks and balances to protect policyholders, including many public and non-public disclosures and statutory requirements, and these are used to assess risks to all insurers, regardless of the type of ownership," the NAIC said in a statement to InsuranceNewsNet. "Private equity ownership of insurers is not a new thing; state insurance regulators adopted new regulatory guidance in 2013 to identify and address the different risks of PE owners.

"What is new is the volume of such transactions and the increased complexity of investments for most insurers in general."

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.