Annual Report for Fiscal Year Ending December 31, 2024 (Form 20-F)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")
5.A OPERATING RESULTS
Introduction
This management's discussion and analysis ("MD&A") covers the financial position as of December 31, 2024 and2023and the results of operations for the years ended December 31, 2024 , 2023 and2022.Unless the context requires otherwise, when used in this MD&A, the terms "we", "us", "our", or the "Company" mean Brookfield Wealth Solutions Ltd. , together with all of its subsidiaries and the term "Brookfield" means Brookfield Corporation , its subsidiaries and controlled companies and any investment fund sponsored, managed or controlled by Brookfield Corporation or its subsidiaries, and does not, for greater certainty, include us or Brookfield Oaktree Holdings, LLC and Oaktree Capital Holdings, LLC and its subsidiaries.
On September 4, 2024 , the Company changed its name from Brookfield Reinsurance Ltd. to Brookfield Wealth Solutions Ltd. and, on September 6, 2024 , changed its trading symbol from "BNRE" to "BNT".
In addition to historical information, this MD&A contains forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. See "Forward-Looking Statements" within this Form 20-F.
The information in this MD&A should be read in conjunction with the consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") as of December 31, 2024 and 2023 and for the years ended December 31, 2024 , 2023 and2022.
Overview of Our Business
Our company is an exempted company limited by shares incorporated under the laws of Bermuda on December 10 ,2020. The Company holds a direct 100% ownership interest in BAM Re Holdings Ltd. ("BAM Re Holdings "), which holds the Company's interest in its operating subsidiaries, North End Re Ltd. ("NER Ltd. "), North End Re (Cayman) SPC ("NER SPC"), Blumont Annuity Company ("BAC", formerly Brookfield Annuity Company ), American National Group Inc. ("ANGI") and Argo Group International Holdings, Inc. ("Argo").
In May 2024 , American Equity Investment Life Holdings Company ("AEL") became a wholly-owned subsidiary of BAM Re Holdings . Following the acquisition of AEL, American National Group, LLC ("American National")completed a downstream merger with AEL. Subsequently, AEL changed its name to American National Group Inc. Following this merger, American National and AEL generally maintain independent insurance operations while sharing certain corporate and management activities. As such, we continue to make references, where applicable, to the operating results of American National and AEL separately in this MD&A. For further details of the Company's acquisition of AEL and post-merger reorganization, see Note 16, "Acquisition" in the notes to the consolidated financial statements.
On March 11, 2025 , our Company received approval from the Prudential Regulatory Authority and Financial Conduct Authority in the United Kingdom to begin participating directly in the United Kingdom's pension risk transfer market through our indirect, wholly-owned subsidiary, Blumont Annuity Company UK Ltd.
Our company is focused on securing the financial futures of individuals and institutions through a range of retirement services, wealth protection products and tailored capital solutions. Our business is presently conducted through our subsidiaries. The principal operating entities of the Company generally maintain their own independent management and infrastructure. Refer to the "Lines of Business" section within this MD&A for further details on our operating segments' businesses.
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As a result of the AEL acquisition, diversification in insurance offerings and overall strategic shift, the Company reorganized and changed its internal segments in a manner that caused the composition of its reporting segments to change in the second quarter of 2024. Our reporting segments have been realigned to: Annuities, Property and Casualty ("P&C"), Life Insurance and Corporate and Other. Previously, we reported our operations under the following segments: Direct Insurance , Reinsurance, and Pension Risk Transfer ("PRT"). The Company has restated all applicable comparative information.
Controls and Procedures
The Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as ofDecember 31, 2024 . Based on the evaluation conducted, it was concluded that our disclosure controls and procedures were effective. Excluded from the evaluation was internal control over financial reporting of AEL, for which control was acquired on May 2, 2024 . There were no changes in the Company's internal control over financial reporting during the year endedDecember 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Key Financial Data
The following table presents key financial data of the Company:
| AS OF AND FOR THE YEARS ENDED US$ MILLIONS |
2024 | 2023 | 2022 | |||||||||||||||||
| Total assets | $ | 139,953 | $ | 61,643 | $ | 43,458 | ||||||||||||||
| Net income | 1,247 | 797 | 501 | |||||||||||||||||
|
Adjusted Equity(1)
|
12,872 | 8,969 | 4,788 | |||||||||||||||||
|
Distributable Operating Earnings(1)
|
1,374 | 745 | 388 | |||||||||||||||||
__________________________
(1)Adjusted Equity and Distributable Operating Earnings are Non-GAAP measures. See "Reconciliation of Non-GAAP Measures".
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Operating Results and Financial Review
CONSOLIDATED RESULTS OF OPERATIONS
The following table summarizes the financial results of our business for the years ended December 31, 2024 , 2023 and 2022:
| FOR THE YEARS ENDED US$ MILLIONS |
2024 | 2023 | 2022 | |||||||||||||||||
| Net premiums | $ | 8,267 | $ | 4,137 | $ | 3,011 | ||||||||||||||
| Other policy revenue | 781 | 413 | 224 | |||||||||||||||||
| Net investment income | 4,264 | 1,809 | 978 | |||||||||||||||||
| Investment related gains (losses) | 369 | 425 | (80) | |||||||||||||||||
| Net investment results from reinsurance funds withheld | 422 | 128 | 280 | |||||||||||||||||
| Total revenues | 14,103 | 6,912 | 4,413 | |||||||||||||||||
| Policyholder benefits and claims incurred | (8,162) | (3,939) | (2,852) | |||||||||||||||||
| Interest sensitive contract benefits | (1,874) | (687) | (239) | |||||||||||||||||
| Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired | (1,237) | (632) | (371) | |||||||||||||||||
| Change in fair value of insurance-related derivatives and embedded derivatives | 234 | 41 | (43) | |||||||||||||||||
| Change in fair value of market risk benefits | (107) | 166 | 152 | |||||||||||||||||
| Other reinsurance expenses | (26) | (21) | (13) | |||||||||||||||||
| Operating expenses | (1,356) | (777) | (411) | |||||||||||||||||
| Interest expense | (362) | (249) | (104) | |||||||||||||||||
| Total benefits and expenses | (12,890) | (6,098) | (3,881) | |||||||||||||||||
| Net income before income taxes | 1,213 | 814 | 532 | |||||||||||||||||
| Income tax recovery (expense) | 34 | (17) | (31) | |||||||||||||||||
| Net income | 1,247 | 797 | 501 | |||||||||||||||||
| Less: non-controlling interests | (33) | (1) | (2) | |||||||||||||||||
|
Net income attributable to shareholders
|
$ | 1,214 | $ | 796 | $ | 499 | ||||||||||||||
As a result of the acquisition of AEL and the increase in significance of certain accounts resulting from the consolidation of AEL, certain previously reported amounts have been reclassified to conform to the current financial statement presentation. These reclassifications had no impact on net income as reported in the statements of operations, as well as total assets, liabilities or equity in the statements of financial position.
2024 vs. 2023
For the year ended December 31, 2024 , we reported net income of $1.2 billion , compared to a net income of $797 million in the prior year. The increase of $450 million is primarily driven by the contributions of Argo and AEL during the year, growth in our existing businesses and continued redeployment of capital into higher yielding investment strategies.
Net premiums and other policy revenue were $9.0 billion for the year ended December 31, 2024 , compared to $4.6 billion in the prior year. The increase of $4.4 billion is primarily attributable to the contribution of policy revenue and net premiums from AEL and Argo respectively, growth in our PRT business and the amortization of a deferred gain arising from the ANGI reinsurance agreement. Please refer to Note 12, "Reinsurance" in the notes to the consolidated financial statements for additional information on the agreement.
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Net investment income increased by $2.5 billion for the year ended December 31, 2024 , relative to the prior year. Net investment income is comprised of interest and dividends earned on fixed income investments and equity investments, as well as other miscellaneous income from equity accounted investments primarily consisting of real estate partnerships and investment funds. The increase from the prior year was driven by the growth in our investment portfolio due to the contribution from Argo and AEL and continued rotation into higher yielding investment strategies.
Investment related gains decreased by $56 million for the year ended December 31, 2024 , relative to the prior year. The decrease is primarily driven by realized losses on investments transferred as part of the ANGI reinsurance agreement partially offset by appreciation in our equity securities portfolio.
Net investment results from reinsurance funds withheld increased by $294 million for the year ended December 31, 2024 compared to the prior year. The increase is primarily driven by mark-to-market gains on embedded derivatives arising from our modified coinsurance reinsurance treaties, offset by reduced investment income from NER SPC, following the deemed settlement of a previously held reinsurance agreement between NER SPC and AEL as part of the AEL acquisition (See Note 16, "Acquisition" in the notes to the consolidated financial statements).
Interest sensitive contract benefits represent interest credited to policyholders' account balances ("PAB") from our investment contracts with customers, as well as amortization of deferred revenue. For the year ended December 31, 2024 , the amount increased by $1.2 billion due to the assumption of AEL's PAB liabilities.
Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired ("VOBA") were $1.2 billion for the year ended December 31, 2024 , compared to $632 million in the prior year. The increase of $605 million was primarily driven by the amortization of VOBA arising from the acquisition of AEL.
Change in fair value of insurance-related derivatives and embedded derivatives represents the fair value change of call options used to fund the equity-indexed annuity and universal life contracts as well as the fair value change of embedded derivatives of these contracts. Fair value changes are impacted by the expected and actual performance of the indices the call options relate to as well as interest rates used to estimate our embedded derivatives. The increase of $193 million is attributable to movements in equity markets and interest rates.
Change in fair value of market risk benefits represents the mark-to-market movements of our liability based on the protection to the policyholder from capital market risks. The loss of $107 million for the year ended December 31, 2024 is primarily due to the effect of changes in assumptions, including the effect of our annual assumption unlocking in the third quarter of 2024, as well as movements in interest rates used in the valuation of these liabilities coupled with the assumption of AEL's market risk benefit liabilities.
Other reinsurance expenses increased by $5 million . The increase is driven by increased ceded reinsurance exposures following the acquisition of AEL in the second quarter of 2024, partially offset by the reduced expenses from our reinsurance assumed businesses as a result of the deemed settlement of a previously held reinsurance agreement between NER SPC and AEL in the same quarter.
Operating expenses were $1.4 billion for the year ended December 31, 2024 , compared to $777 million in the prior year, which represents an increase of $579 million . The increase was primarily driven by the contribution of expenses from Argo and AEL, as well as additional costs incurred to support the continued growth of our business.
Interest expense increased by $113 million for the year ended December 31, 2024 compared to the prior year. The increase is primarily driven by debt assumed and raised through our acquisition of AEL.
Distributable operating earnings ("DOE ") increased by $629 million to $1.4 billion for the year ended December 31, 2024 . The increase was primarily driven by earnings contributions from Argo and AEL, coupled with new business wins and higher spread earnings.
2023 vs. 2022
For the year ended December 31, 2023 , we reported net income of $797 million compared to a net income of $501 million in the prior year. The increase of $296 million isprimarily due to growth in the business and redeployment of capital into higher yielding investments. We also benefited from the contribution by American National of full year earnings, as opposed to their partial year earnings in 2022, following the acquisition on May 25, 2022 .
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Net premiums and other policy revenue were $4.6 billion for the year ended December 31, 2023 , compared to $3.2 billion in the prior year. The increase of $1.4 billion is primarily due to a higher number of PRT deals closed in 2023 including our first year of sales within our U.S. business, which contributed $1.0 billion of gross premiums.
Net investment income increased by $831 million for the year ended December 31, 2023 , relative to the prior year.Theincreasein 2023 was driven by the growth in our investment portfolio and the rotation into higher yielding investment strategies.
We recorded $425 million of investment related gains for the year ended December 31, 2023 , which represents an increase of $505 million over the prior year. The increase is primarily due to mark-to-market gains on equity securities of $372 million and short term investments of $262 million .
Net investment results from reinsurance funds withheld decreased by $152 million for the year ended December 31, 2023 compared to the prior year. The decrease is primarily driven by mark-to-market losses on embedded derivatives arising from our modified coinsurance reinsurance treaties.
Interest sensitive contract benefits represent interest credited to PAB from our investment contracts with customers, as well as amortization of deferred revenue. For the year ended December 31, 2023 , the amounts increased by $448 million primarily driven by growth in the business as well ashigher interest credited.
Amortization of deferred policy acquisition costs, deferred sales inducements and VOBA were $632 million for the year ended December 31, 2023 , compared to $371 million in the prior year. The increase of $261 million was primarily driven by the amortization of VOBA arising from the acquisition of American National coupled with higher annuity sales.
Change in fair value of insurance-related derivatives and embedded derivatives increased by $84 million for the year ended December 31, 2023 and is attributable to movements in equity markets and interest rates.
We recognized a gain of $166 million in the change in fair value of market risk benefits for the year ended December 31, 2023 . The gain is primarily due to movements in interest rates used in the valuation of these liabilities.
Other reinsurance expenses increased by $8 million for the year ended December 31, 2023 . Other reinsurance expenses primarily relate to commissions and expenses assumed under a reinsurance agreement between NER SPC and AEL, which was effectively settled upon our acquisition of AEL in the second quarter of 2024.
Operating expenses were $777 million for the year ended December 31, 2023 , compared to $411 million in the prior year period, which represents an increase of $366 million .Theincreasewas primarily driven by the full year contribution of expenses from American National, as well as additional costs incurred to support the continued growth of our business.
Interest expense increased by $145 million for the year ended December 31, 2023 , compared to the prior year. The increase is primarily driven by debt assumed and raised through our acquisition of American National,as well as higher interest rates and increased borrowings on our warehoused investments credit facility.
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CONSOLIDATED FINANCIAL POSITION
The following table summarizes the financial position as of December 31, 2024 and 2023:
|
AS OF
US$ MILLIONS
|
2024 | 2023 | |||||||||
| Assets | |||||||||||
| Investments | $ | 92,966 | $ | 39,838 | |||||||
| Cash and cash equivalents | 12,243 | 4,308 | |||||||||
| Accrued investment income | 860 | 280 | |||||||||
| Deferred policy acquisition costs, deferred sales inducements and value of business acquired | 10,696 | 2,468 | |||||||||
| Reinsurance funds withheld | 1,517 | 7,248 | |||||||||
| Premiums due and other receivables | 647 | 711 | |||||||||
| Ceded unearned premiums | 520 | 401 | |||||||||
| Deferred tax asset | 760 | 432 | |||||||||
| Reinsurance recoverables and deposit assets | 13,195 | 3,388 | |||||||||
| Property and equipment | 272 | 294 | |||||||||
| Intangible assets | 1,690 | 235 | |||||||||
| 783 | 121 | ||||||||||
| Other assets | 2,461 | 730 | |||||||||
| Separate account assets | 1,343 | 1,189 | |||||||||
| Total assets | 139,953 | 61,643 | |||||||||
| Liabilities | |||||||||||
| Future policy benefits | 14,088 | 9,813 | |||||||||
| Policyholders' account balances | 83,079 | 24,939 | |||||||||
| Policy and contract claims | 7,659 | 7,288 | |||||||||
| Deposit liabilities | 1,502 | 1,577 | |||||||||
| Market risk benefits | 3,655 | 89 | |||||||||
| Unearned premium reserve | 1,843 | 2,056 | |||||||||
| Due to related parties | 684 | 564 | |||||||||
| Other policyholder funds | 347 | 335 | |||||||||
| Notes payable | 189 | 174 | |||||||||
| Corporate borrowings | 1,022 | 1,706 | |||||||||
| Subsidiary borrowings | 3,329 | 1,863 | |||||||||
| Funds withheld for reinsurance liabilities | 3,392 | 83 | |||||||||
| Other liabilities | 4,745 | 1,118 | |||||||||
| Separate account liabilities | 1,343 | 1,189 | |||||||||
| Total liabilities | 126,877 | 52,794 | |||||||||
| Mezzanine equity | |||||||||||
| Redeemable junior preferred shares | - | 2,694 | |||||||||
| Equity | |||||||||||
|
Class A exchangeable, Class B and Class C(1)
|
9,968 | 5,184 | |||||||||
| Retained earnings | 2,054 | 945 | |||||||||
| Accumulated other comprehensive income (loss) | 204 | (120) | |||||||||
| Non-controlling interests | 850 | 146 | |||||||||
| Total equity | 13,076 | 6,155 | |||||||||
| Total liabilities, mezzanine equity and equity | $ | 139,953 | $ | 61,643 | |||||||
__________________________
(1)On August 29, 2024 , the Company redesignated all of its Class A-1 exchangeable shares into its Class A exchangeable shares. Share capital as of December 31, 2023 include amounts attributable to Class A-1 exchangeable shareholders prior to the redesignation. For further details, refer to Note 23, "Share Capital" in the notes to the consolidated financial statements.
Comparison as of December 31, 2024 and 2023
Total assets increased by $78.3 billion during the year to $140.0 billion , primarily driven by the acquisition of AEL and capital deployment from annuity sales.
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Cash and cash equivalents increased by $7.9 billion from December 31, 2023 to December 31, 2024 primarily driven by the acquisition of AEL as well as annuity sales during the year not yet deployed into our investments. We continue to maintain a strong liquidity position across our segments. For further information, refer to "Liquidity and Capital Resources" section within this MD&A.
Total investmentsincreasedby$53.1 billion from December 31, 2023 to December 31, 2024 , primarily driven by the incorporation of AEL's investments.
The decrease in reinsurance funds withheld of$5.7 billion from December 31, 2023 to December 31, 2024 was primarily driven by the deemed settlement of a previously held reinsurance agreement between NERC SPC and AEL, due to the companies being under common control subsequent to the acquisition of AEL.
DAC are capitalized costs directly related to writing new policyholder contracts. TheVOBA intangible asset arising from a business combination is also included as part of this line item. The increase from December 31, 2023 to December 31, 2024 was driven by VOBA resulting from the acquisition of AEL.
Ceded unearned premiums represent a portion of unearned premiums ceded to reinsurers. Theincrease of $119 million from December 31, 2023 to December 31, 2024 is primarily driven by additional reinsurance agreements intended to reduce our exposure to products deemed non-core.
Reinsurance recoverables and deposit assets areestimated amounts due to the Company from reinsurers or cedants, related to paid and unpaid ceded benefits, claims and expenses and are presented net of reserves for collectability. The increase of $9.8 billion from December 31, 2023 to December 31, 2024 was primarily driven by the acquisition of AEL, coupled with the ANGI reinsurance agreement executed in the third quarter of 2024.
Other assets were $2.5 billion as of December 31, 2024 , increasing by $1.7 billion from December 31, 2023 . The balance includes current tax assets, market risk benefit asset, prepaid pension assets, as well as other miscellaneous receivables. The increase is primarily driven by market risk benefit assets arising from the acquisition of AEL, which accounted for $856 million of the balance as of December 31, 2024 .
Intangible assets increased by $1.5 billion from December 31, 2023 to December 31, 2024 , principally due to the approximately$1.5 billion ofintangible assets that arose from the acquisition of AEL.
Separate account assets and liabilities both increased by $154 million from December 31, 2023 to December 31, 2024 , principally due to net realized capital gains on underlying assets.
Future policy benefits and policyholders' account balances increased by$62.4 billion from December 31, 2023 to December 31, 2024 ,primarily driven by the assumption ofAEL's PAB liabilities, coupled with strong annuity sales during the year.
Policy and contract claims increased by $371 million from December 31, 2023 to December 31, 2024 driven by the loss experience of our P&C segment during the year.
Corporate and subsidiary borrowings increased by$782 million from December 31, 2023 to December 31, 2024 due to the debt assumed and raised through our acquisition of AEL.
Our redeemable junior preferred shares, issued to Brookfield in 2022, were converted to Class C shares in the fourth quarter of2024resulting in adecrease of $2.7 billion . There was a corresponding increase of $2.8 billion , inclusive of accrued dividends on these shares, in our Class C share capital.
Total equity increased by $6.9 billion from December 31, 2023 to December 31, 2024 . The increase was primarily driven by approximately $4.9 billion of Class C shares issued during the year, including $1.1 billion of Class C shares issued in the second quarter of 2024 in exchange for class A limited voting shares of BAM stock used as purchase consideration in the AEL acquisition and $2.8 billion of Class C shares issued due to the aforementioned conversion of our redeemable junior preferred shares by Brookfield, $713 million in non-controlling interest assumed from AEL and $1.1 billion in retained earnings due to the growth of the business during the year.
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SEGMENT REVIEW
As a result of the AEL acquisition, diversification in insurance offerings and overall strategic shift, the Company reorganized and changed its internal segments in a manner that caused the composition of its reporting segments to change in the second quarter of 2024. The Company's reporting segments have been realigned to: Annuities, P&C, Life Insurance and Corporate and Other. Previously, the Company reported its operations under the following segments: Direct Insurance , Reinsurance and PRT.
We measure operating performance primarily using DOE which measures our ability to acquire net insurance assets at a positive margin, and invest these assets at a retuthat is greater than the cost of policyholder liabilities.
The following table presents DOE of each of our reporting segmentsfor the years ended December 31, 2024 , 2023 and2022:
| FOR THE YEARS ENDED US$ MILLIONS |
2024 | 2023 | 2022 | |||||||||||||||||
| Annuities | $ | 1,220 | $ | 595 | $ | 145 | ||||||||||||||
| P&C | 263 | 84 | 82 | |||||||||||||||||
| Life Insurance | 194 | 198 | 148 | |||||||||||||||||
| Corporate and Other | (303) | (132) | 13 | |||||||||||||||||
| Total |
$ | 1,374 | $ | 745 | $ | 388 | ||||||||||||||
2024vs. 2023
Annuities -DOE within our annuities business represents contribution from both our retail and institutional platforms. DOE increasedby$625 million for the year ended December 31, 2024 compared to the prior year. The increase was primarily attributable to earnings contributed from AEL as well as increased investment income from our continued deployment into higher yielding investment strategies.
P&C -DOE increasedby$179 million for the year ended December 31, 2024 compared to the prior year. The increase was primarily driven by full year earnings contributed from Argo coupled with improvements in our loss experience arising from underwriting actions implemented over the past twelve months.
Life Insurance -DOE decreasedby$4 million for the year ended December 31, 2024 compared to the prior year. The favorable impact of improved investment income from our continued deployment into higher yielding investment strategies was offset by the ANGI reinsurance agreement executed during the year.
Corporate and Other -DOE decreased by$171 million for the year ended December 31, 2024 compared to the prior year. The decrease was primarily driven by increased interest expenses due todebt assumed and raised through our acquisition of AEL, coupled with increased operating and other expenses incurred to support the continued growth of our business.
2023 vs. 2022
Annuities -DOE increasedby$450 million for the year ended December 31, 2023 compared to 2022. The increase was primarily attributable to full year earnings contributed from American National coupled with increased investment income from our continued deployment into higher yielding investment strategies.
P&C -DOE increasedby$2 million for the year ended December 31, 2023 compared to 2022. The increase was primarily driven by full year earnings contributed from American National coupled with increased investment income from continued deployment into higher yielding investment strategies.
Life Insurance -DOE increasedby$50 million for the year ended December 31, 2023 compared to 2022. The increase was primarily driven by favorable mortality experience, coupled with higher investment income.
Corporate and Other -DOE decreasedby$145 million for the year ended December 31, 2023 compared to 2022. The decrease was primarily driven by increased interest expenses due todebt assumed and raised through our acquisition of American National,higher interest rates and increased borrowings on our warehoused investments credit facility.
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The following tables provide supplemental information on our DOE for the three months and the years endedDecember 31, 2024 and 2023.
|
FOR THE THREE MONTHS ENDED
US$ MILLIONS
|
Annuities
|
P&C
|
Life Insurance
|
Corporate and Other
|
Total
|
|||||||||||||||||||||||||||
|
Net investment income, including reinsurance funds withheld
|
$ | 1,215 | $ | 104 | $ | 58 | $ | 80 | $ | 1,457 | ||||||||||||||||||||||
|
Cost of funds(1)
|
(799) | (2) | (26) | - | (827) | |||||||||||||||||||||||||||
|
Interest expense
|
- | - | - | (96) | (96) | |||||||||||||||||||||||||||
|
Operating expenses and other
|
- | - | - | (107) | (107) | |||||||||||||||||||||||||||
|
|
$ | 416 | $ | 102 | $ | 32 | $ | (123) | $ | 427 | ||||||||||||||||||||||
|
FOR THE THREE MONTHS ENDED
US$ MILLIONS
|
Annuities
|
P&C
|
Life Insurance
|
Corporate and Other
|
Total
|
|||||||||||||||||||||||||||
|
Net investment income, including reinsurance funds withheld
|
$ | 443 | $ | 61 | $ | 106 | $ | 22 | $ | 632 | ||||||||||||||||||||||
|
Cost of funds(1)
|
(277) | 21 | (55) | - | (311) | |||||||||||||||||||||||||||
|
Interest expense
|
- | - | - | (53) | (53) | |||||||||||||||||||||||||||
| Operating expenses and other | - | - | - | (10) | (10) | |||||||||||||||||||||||||||
|
|
$ | 166 | $ | 82 | $ | 51 | $ | (41) | $ | 258 | ||||||||||||||||||||||
|
FOR THE YEAR ENDED
US$ MILLIONS
|
Annuities
|
P&C
|
Life Insurance
|
Corporate and Other
|
Total
|
|||||||||||||||||||||||||||
|
Net investment income, including reinsurance funds withheld
|
$ | 3,804 | $ | 448 | $ | 313 | $ | 135 | $ | 4,700 | ||||||||||||||||||||||
|
Cost of funds(1)
|
(2,450) | (162) | (114) | - | (2,726) | |||||||||||||||||||||||||||
|
Interest expense
|
- | - | - | (344) | (344) | |||||||||||||||||||||||||||
|
Operating expenses and other
|
(134) | (23) | (5) | (94) | (256) | |||||||||||||||||||||||||||
|
|
$ | 1,220 | $ | 263 | $ | 194 | $ | (303) | $ | 1,374 | ||||||||||||||||||||||
|
FOR THE YEAR ENDED
US$ MILLIONS
|
Annuities
|
P&C
|
Life Insurance
|
Corporate and Other
|
Total
|
|||||||||||||||||||||||||||
|
Net investment income, including reinsurance funds withheld
|
$ | 1,557 | $ | 225 | $ | 363 | $ | 124 | $ | 2,269 | ||||||||||||||||||||||
|
Cost of funds(1)
|
(931) | (127) | (156) | - | (1,214) | |||||||||||||||||||||||||||
|
Interest expense
|
- | - | - | (193) | (193) | |||||||||||||||||||||||||||
|
Operating expenses and other
|
(31) | (14) | (9) | (63) | (117) | |||||||||||||||||||||||||||
|
|
$ | 595 | $ | 84 | $ | 198 | $ | (132) | $ | 745 | ||||||||||||||||||||||
__________________________
(1)Cost of funds is a non-GAAP measure. See "Performance Measures used by Management".
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The following table presents the composition of our invested assets, which represents the portfolio of assets over which we evaluate our investment return, as well as its breakdown by segment as ofDecember 31, 2024 and 2023:
|
AS OF
US$ MILLIONS
|
2024 | 2023 | ||||||||||||
|
Investments
|
$ | 92,966 | $ | 39,838 | ||||||||||
|
Cash and cash equivalents
|
12,243 | 4,308 | ||||||||||||
|
Accrued investment income
|
860 | 280 | ||||||||||||
|
Reinsurance funds withheld
|
1,517 | 7,248 | ||||||||||||
| Total invested assets | $ | 107,586 | $ | 51,674 | ||||||||||
|
Attributable to:
|
||||||||||||||
| Annuities | $ | 90,293 | $ | 32,220 | ||||||||||
| P&C | 8,290 | 8,542 | ||||||||||||
| Life Insurance | 4,213 | 6,256 | ||||||||||||
| Corporate and Other | 4,790 | 4,656 | ||||||||||||
| $ | 107,586 | $ | 51,674 | |||||||||||
Lines of Business
Through our operating subsidiaries, our company offers a range of retirement services, wealth protection products and tailored capital solutions focused on securing the financial futures of individuals and institutions.
Annuities
Fixed Index Annuities- Fixed index annuities allow policyholders to eaindex credits based on the performance of a particular index without the risk of loss of their account value. Certain products offer a premium bonus in which the initial annuity deposit on these policies is increased at issuance by a specified premium bonus rate. Generally, the surrender charge and bonus vesting provisions of our policies are structured such that we have comparable protection from early termination between bonus and non-bonus products. The annuity contract value is equal to the sum of premiums paid, premium bonuses and interest credited ("index credits" for funds allocated to an index based strategy), which is based upon an overall limit (or "cap") or a percentage (the "participation rate") of the appreciation (based in certain situations on monthly averages or monthly point-to-point calculations) in a recognized index or benchmark. Caps and participation rates limit the amount of interest the policyholder may eain any one contract year and may be adjusted by us annually subject to stated minimums.
Fixed Rate Annuities- Fixed rate deferred annuities include annual, multi-year rate guaranteed products ("MYGAs") and single premium deferred annuities ("SPDAs"). Our annual reset fixed rate annuities have an annual interest rate (the "crediting rate") that is guaranteed for the first policy year. After the first policy year, we have the discretionary ability to change the crediting rate once annually to any rate at or above a guaranteed minimum rate. Our MYGAs and SPDAs are similar to our annual reset products except that the initial crediting rate on MYGAs is guaranteed for a stated period of time before it may be changed at our discretion while the initial crediting rate on SPDAs is guaranteed for either three or five years.
Pension Risk Transfer -Pension Risk Transfer 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. Longevity risk represents 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 commonly referred to as PRT, or to an individual through a lump-sum settlement payment. PRT using insurance typically involves a single premium group annuity contract that is issued to a pension plan by an insurer, permitting the corporate pension plan sponsor to discharge certain pension plan liabilities from its balance sheet.
Single Premium Immediate Annuities-A single premium immediate annuity is purchased with one premium payment, providing periodic (usually monthly or annual) payments to the annuitant for a specified period, such as for the remainder of the annuitant's life. Retuof the original deposit may or may not be guaranteed, depending on the terms of the annuity contract.
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Variable Annuities -With a variable annuity, the policyholder bears the investment risk because the value of the policyholder's account balance varies with the investment experience of the separate account investment options selected by the policyholder. Our variable annuity products have no guaranteed minimum withdrawal benefits. This product accounts for less than 1% of our annuities business.
Property and Casualty
Property- Property lines offer policies protecting various personal and commercial properties from man-made and natural disasters, including property insurance for homeowners and renters.
Casualty-Casualty lines include a broad range of primary and excess casualty products, such as specialty casualty, construction defect, general liability, commercial multi-peril, workers compensation, product liability, environmental liability and auto liability. Casualty lines are generally considered long-tailed as it takes a relatively long period of time to finalize and resolve all claims from a given accident year. Some products have long claims reporting lags and/or longer time lags for payment of claims.
Specialty -Specialty lines include niche insurance coverages such as garage and inland marine and offer insurance programs and fronting solutions. Specialty lines are considered generally short-tailed as claims are typically known relatively quickly, although it may take a longer period of time to finalize and resolve all claims from a given year.
Run-off and Other -Run-off and Other lines primarily consist of discontinued lines previously underwritten by our insurance subsidiaries including professional liability and surety coverages.
Life Insurance
Universal Life -Universal life insurance products provide coverage through a contract that gives the policyholder flexibility in premium payments and coverage amounts. Universal life products may allow the policyholder, within certain limits, to increase or decrease the amount of death benefit coverage over the term of the contract and to adjust the frequency and amount of premium payments. Universal life products are interest rate sensitive, and we determine the interest crediting rates during the contract period, subject to policy specific minimums. An equity-indexed universal life product is credited with interest using a retuthat is based, in part, on changes in an index, such as the Standard & Poor's 500 Index ("S&P 500"), subject to a specified minimum.
Variable Universal Life -Variable universal life products provide insurance coverage on a similar basis as universal life, except that the policyholder bears the investment risk because the value of the policyholder's account balance varies with the investment experience of the securities selected by the policyholder held in the separate account.
Corporate and Other
Our Corporate and Other segment performs various corporate and other activities that support our core insurance operations. Such activities include our investment warehousing activities where we temporarily warehouse investments that will ultimately be transferred into our insurance investment portfolios in the near term. We generate investment income from warehoused investments and incur interest expenses on revolving credit facilities utilized to fund these investments. Also included in our Corporate and Other segment activities are certain hedging activities, certain charges and activities that are not attributable to our insurance operating segments and interest expense related to the Company's corporate and subsidiary borrowings.
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Net Premiums
The breakdown of premiums by product, net of ceded premiums, is as follows:
| FOR THE YEARS ENDED US$ MILLIONS |
2024 | 2023 | 2022 | |||||||||||||||||
| Annuities | ||||||||||||||||||||
|
Retail(1):
|
||||||||||||||||||||
| Fixed Index | $ | 5 | $ | - | $ | - | ||||||||||||||
| Fixed Rate | 4 | 2 | 5 | |||||||||||||||||
| Variable | - | - | - | |||||||||||||||||
| Total Retail Annuities | 9 | 2 | 5 | |||||||||||||||||
| Institutional: | ||||||||||||||||||||
|
Pension Risk Transfer(2)
|
4,804 | 1,467 | 1,555 | |||||||||||||||||
| Total Institutional Annuities | 4,804 | 1,467 | 1,555 | |||||||||||||||||
| Total Annuities | 4,813 | 1,469 | 1,560 | |||||||||||||||||
| 511 | 520 | 348 | ||||||||||||||||||
| Property and Casualty | ||||||||||||||||||||
| Property | 1,266 | 1,168 | 636 | |||||||||||||||||
| Casualty | 1,133 | 891 | 467 | |||||||||||||||||
| Specialty | 258 | 33 | - | |||||||||||||||||
| Run-off and Other | 286 | 56 | - | |||||||||||||||||
| Total Property and Casualty | 2,943 | 2,148 | 1,103 | |||||||||||||||||
| Total Net Premiums | $ | 8,267 | $ | 4,137 | $ | 3,011 | ||||||||||||||
__________________________
(1)Premiums received from retail annuities are generally recorded as deposits and are not included in net premiums.
(2)Premiums differ from gross annuity sales in PRT, since premiums are recognized as revenue when due while they are included in sales upon deal close, which is confirmed by the counterparty.
2024vs. 2023
For the year ended December 31, 2024 , we reported total net premiums of $8.3 billion , compared to $4.1 billion in the prior year. The increase of $4.1 billion is primarily due to the growth in our Annuities and P&C segments. Net premiums for our Annuities segment increased by $3.3 billion as we continue to scale our PRT business. Our P&C segment increased by $795 million due to full year contributions from Argo.
2023 vs. 2022
For the year ended December 31, 2023 , we reported total net premiums of $4.1 billion , compared to $3.0 billion in 2022. The increase of $1.1 billion is primarily due to the contribution by American National following the acquisition on May 25, 2022 .
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Gross Annuity Sales
Gross annuity sales are comprised of all products' deposits, which generally are not included in revenues on the statements of operations. Gross annuity sales include directly written business, flow reinsurance assumed as well as premiums and deposits generated from assumed block reinsurance transactions.
The breakdown of gross annuity sales follows:
| FOR THE YEARS ENDED US$ MILLIONS |
2024 | 2023 | 2022 | |||||||||||||||||
| Retail: | ||||||||||||||||||||
| Fixed Index | $ | 5,522 | $ | 2,206 | $ | 1,469 | ||||||||||||||
| Fixed Rate | 5,132 | 3,938 | 827 | |||||||||||||||||
| Variable | 372 | 63 | 36 | |||||||||||||||||
| Total Retail Annuities | 11,026 | 6,207 | 2,332 | |||||||||||||||||
| Institutional: | ||||||||||||||||||||
|
Pension Risk Transfer(1)
|
4,814 | 1,469 | 1,573 | |||||||||||||||||
| Total Institutional Annuities | 4,814 | 1,469 | 1,573 | |||||||||||||||||
| Total Gross Annuity Sales | $ | 15,840 | $ | 7,676 | $ | 3,905 | ||||||||||||||
__________________________
(1)Gross annuity sales differ from premiums in PRT, since premiums are recognized as revenue when due while they are included in sales upon deal close, which is confirmed by the counterparty.
2024vs. 2023
For theyear ended December 31, 2024 , we reported total gross annuity sales of$15.8 billion , compared to$7.7 billion in the prior year. Theincreaseof$8.2 billion isprimarily due to the contribution from AEL, coupled with the growth in our PRT business.
2023 vs. 2022
For the year ended December 31, 2023 , we reported total gross annuity sales of $7.7 billion , compared to $3.9 billion in 2022. The increase of $3.8 billion is primarily due to the contribution by American National of full year annuity sales, as opposed to their partial year sales in 2022, following the acquisition on May 25, 2022 .
Income Taxes
Our consolidated income tax expense (recovery) arises from our operations in various countries that have different tax laws and rates. Due to our diversified international operations, our weighted average effective tax rate may differ significantly from U.S. statutory tax rates and vary year over year due to changes in our assets as well as annual net income (loss) before income taxes in each jurisdiction. The following information should be read in conjunction with Note 22, "Income Taxes" in the notes to the consolidated financial statements.
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Our consolidated income tax expense (recovery) is calculated based on the following income before income taxes by jurisdiction:
| FOR THE YEARS ENDED US$ MILLIONS |
2024 | 2023 | 2022 | |||||||||||||||||
|
|
$ | 129 | $ | 491 | $ | 385 | ||||||||||||||
| 127 | 47 | (129) | ||||||||||||||||||
|
|
853 | 168 | 25 | |||||||||||||||||
| Other | 104 | 108 | 251 | |||||||||||||||||
| Total income before income taxes | $ | 1,213 | $ | 814 | $ | 532 | ||||||||||||||
__________________________
(1)The amount for the year endedDecember 31, 2024 includes income from a Bermuda -domiciled company that has elected to pay U.S. income taxes under section 953(d) of the Internal Revenue Code ("IRC").
(2)The amount for the year endedDecember 31, 2024 includes mark to market movements of $558 million on warehoused investments yet to be transferred to insurance subsidiaries.
The following table presents income tax expense (recovery) attributable to continuing operations by jurisdiction:
| FOR THE YEARS ENDED US$ MILLIONS |
2024 | 2023 | 2022 | |||||||||||||||||
|
|
$ | (48) | $ | 3 | $ | 65 | ||||||||||||||
| 36 | 13 | (34) | ||||||||||||||||||
| (22) | - | - | ||||||||||||||||||
|
Other(2)
|
- | 1 | - | |||||||||||||||||
| Total income tax expense (recovery) | $ | (34) | $ | 17 | $ | 31 | ||||||||||||||
__________________________
(1)Includes Bermuda income tax recovery of $292 million from a Bermuda -domiciled company that has elected to pay U.S. income taxes under section 953(d) of the IRC.
(2)No other country greater than 10%.
As disclosed in Note 22, "Income Taxes" in the notes to the consolidated financial statements, our weighted average statutory income tax rates for the years endedDecember 31, 2024 , 2023 and 2022 were20.5%, 17.3% and 16.4%, respectively. These weighted average statutory income tax rates were calculated based on the following total asset allocation by jurisdiction:
| AS OF US$ MILLIONS |
2024 | 2023 | 2022 | |||||||||||||||||
| $ | 130,051 | $ | 43,977 | $ | 29,689 | |||||||||||||||
| 5,238 | 3,997 | 3,421 | ||||||||||||||||||
| 4,202 | 4,457 | 2,818 | ||||||||||||||||||
| Other | 462 | 9,212 | 7,530 | |||||||||||||||||
| Total assets | $ | 139,953 | $ | 61,643 | $ | 43,458 | ||||||||||||||
Our weighted average statutory income tax rates have been calculated as the sum of total assets in each jurisdiction multiplied by that jurisdiction's applicable statutory tax rate. During the current year, applicable statutory tax rates by jurisdiction were 0% for Bermuda , 21.0% for the United States and 26.5% for Canada .
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Liquidity and Capital Resources
CAPITAL RESOURCES
We strive to maintain sufficient financial liquidity at all times so that we are able to participate in attractive opportunities as they arise, better withstand sudden adverse changes in economic circumstances within our operating subsidiaries and maintain payments to policyholders, as well as maintain distributions to our shareholders. Our principal sources of liquidity are cash flows from our operations, access to the Company's third-party credit facilities, and our credit facility and equity commitment with Brookfield. We proactively manage our liquidity position to meet liquidity needs and continue to develop relationships with lenders who provide borrowing capacity at competitive rates, while looking to minimize adverse impacts on investment returns. We look to structure the ownership of our assets to enhance our ability to monetize them to provide additional liquidity, if needed. Our corporate liquidity for the periods noted below consisted of the following:
| AS OF US$ MILLIONS |
2024 | 2023 | ||||||||||||
| Cash and cash equivalents | $ | 311 | $ | 78 | ||||||||||
| Liquid financial assets | 116 | 212 | ||||||||||||
| Undrawn credit facilities | 1,608 | 720 | ||||||||||||
|
Total Corporate Liquidity(1)
|
$ | 2,035 | $ | 1,010 | ||||||||||
__________________________
(1)Total Corporate Liquidity is a non-GAAP measure. See "Performance Measures used by Management".
As of the date of this MD&A, our liquidity is sufficient to meet our present requirements for the foreseeable future. In June 2021 , Brookfield provided to the Company an equity commitment in the amount of $2.0 billion to fund future growth, which the Company may draw on from time to time. The equity commitment may be called by the Company in exchange for the issuance of Class C shares or redeemable junior preferred shares. As of December 31, 2024 , there was $2.0 billion of undrawn equity commitment available. In addition, in connection with the Company's spin-off from Brookfield on June 28, 2021 , we entered into a credit agreement with Brookfield as the lender, providing a revolving $400 million credit facility. We have$1.2 billion of revolving bilateral credit facilities with external banks. We use the liquidity provided by our credit facilities for working capital purposes, and we may use the proceeds from the capital commitment to fund growth capital investments and acquisitions. The determination of which of these sources of fundingthe Company will access in any particular situation is a matter of optimizing needs and opportunities at that time.As ofDecember 31, 2024 , there was$17 million drawn on the external bilateral facilities andnoamount drawn on the Brookfield facility.
Today, we have significant liquidity within our insurance portfolios, giving us flexibility to secure attractive investment opportunities. In addition to a portfolio of highly liquid financial assets, our operating companies have additional access to liquidity from sources such as the Federal Home Loan Bank ("FHLB") programs. As ofDecember 31, 2024 , the Company had no drawings and a total of $881 million undrawn commitment available related to these programs.
Liquidity within our operating subsidiaries may be restricted from time to time due to regulatory constraints. As of December 31, 2024 , the Company's total liquidity was$53.0 billion , which included $311 million of unrestricted cash and cash equivalents and $116 million of unrestricted liquid financial assets held by non-regulated corporate entities.
| AS OF US$ MILLIONS |
2024 | 2023 | ||||||||||||
| Cash and cash equivalents | $ | 12,243 | $ | 4,308 | ||||||||||
| Liquid financial assets | 39,195 | 21,927 | ||||||||||||
| Undrawn credit facilities | 1,608 | 720 | ||||||||||||
|
Total Liquidity(1)
|
$ | 53,046 | $ | 26,955 | ||||||||||
__________________________
(1)Total Liquidity is a non-GAAP measure. See "Performance Measures used by Management".
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As of December 31, 2024 and 2023, 87% and 63% of the Company's total liquidity was held by our U.S. insurance subsidiaries, respectively.
In addition to the total corporate liquidity and total liquidity, we maintain a strong capital position across our regulated insurance subsidiaries and holding companies to fulfill our commitment to the policyholders and retirees we serve. The following table provides the capital position of our insurance subsidiaries, which includes the statutory capital and surplus as determined with respect to each insurance entity by applying the statutory accounting principles applicable to each such entity, with adjustments made to, among other things, asset valuations reserves and our holding companies.
| AS OF US$ BILLIONS |
2024 | 2023 | ||||||||||||
| Group / Entity: | ||||||||||||||
|
Insurance subsidiaries(1)
|
$ | 13.5 | $ | 7.5 | ||||||||||
| Group holding companies | 2.6 | 1.4 | ||||||||||||
| Total group capital | $ | 16.1 | $ | 8.9 | ||||||||||
__________________________
(1)Calculated on an aggregate basis in accordance with applicable insurance regulations.
As of December 31, 2024 , our total group capital across our regulated insurance subsidiaries and holding companies was $16.1 billion , which underpins the A financial strength ratings assigned to our life and annuity companies and the investment grade ratings for our life and annuity holding companies (2023 - $8.9 billion ). The increase from the prior year is attributable to the acquisition of AEL, strong earnings contributions from our operating subsidiaries and capital contributions from Brookfield.
Comparison of the years ended December 31, 2024 , 2023 and 2022
The following table presents a summary of our cash flows and ending cash balances for the years ended December 31, 2024 , 2023 and 2022:
| FOR THE YEARS ENDED US$ MILLIONS |
2024 | 2023 | 2022 | |||||||||||||||||
| Operating activities | $ | 4,569 | $ | 1,507 | $ | 644 | ||||||||||||||
| Investing activities | 1,433 | (1,809) | (4,878) | |||||||||||||||||
| Financing activities | 1,922 | 2,465 | 5,994 | |||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||
| Cash and cash equivalents, beginning of year | 4,308 | 2,145 | 393 | |||||||||||||||||
| Net change during the year | 7,924 | 2,163 | 1,760 | |||||||||||||||||
| Foreign exchange on cash balances held in foreign currencies | 11 | - | (8) | |||||||||||||||||
| Cash and cash equivalents, end of year | $ | 12,243 | $ | 4,308 | $ | 2,145 | ||||||||||||||
Operating Activities
2024 vs. 2023
For the year ended December 31, 2024 , we generated $4.6 billion of cash from operating activities compared to $1.5 billion generated during the prior year. The increase is primarily due to higher investment income from the growth in the investment portfolio as well as the contributions from AEL and Argo.
2023 vs. 2022
For the year ended December 31, 2023 , we generated $1.5 billion of cash from operating activities compared to $644 million during 2022,primarily due to growth in the business benefitting from the full year contribution by American National, as opposed to their partial year in 2022, as well as an increase in PRT deals written.
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Investing Activities
2024 vs. 2023
During the current year, $1.4 billion of cash inflows from investing activities arose primarily from $10.8 billion of cash acquired as part of our acquisition of AEL, net of cash proceeds paid, partially offset by net deployment into investments during the period, compared to a net deployment of $1.8 billion in the prior year period.
2023 vs. 2022
During 2023, we rotated our investment portfolio into higher yielding investment strategies as well as deployed funds into the acquisition of Argo. This resulted in net deployment of $1.8 billion of cash from investing activities, compared to net deployment of $4.9 billion in the prior year, including$4.1 billion relating to the acquisition of American National.
Financing Activities
2024 vs. 2023
For the year ended December 31, 2024 , we had a net cash inflow of $1.9 billion , which decreased from a net cash inflow of $2.5 billion in the prior year period.The decrease was primarily driven by withdrawals on policyholders' accounts coupled with net repayments on our borrowings, partially offset by payments received on policyholders' account deposits.
2023 vs. 2022
For the year ended December 31, 2023 , we received $2.5 billion of cash from financing activities, compared to $6.0 billion received in 2022. The proceeds in 2023 were mainly as a result of $2.6 billion net payments received on policyholders' account deposits, partially offset by the net repayment of $487 million on our borrowings.
Financial Instruments
To the extent that we believe it is economic to do so, our strategy is to hedge a portion of our equity investments and/or cash flows exposed to foreign currencies by the Company. The following key principles form the basis of our foreign currency hedging strategy:
•We leverage any natural hedges that may exist within our operations;
•We utilize local currency debt financing to the extent possible; and
•We may utilize derivative contracts to the extent that natural hedges are insufficient.
As of December 31, 2024 , our total equity was $13.1 billion and our Adjusted Equity was $12.9 billion . Adjusted Equity represents the total economic equity of the Company through its Class A, B and C shares and the redeemable junior preferred shares issued by the Company, excluding our accumulated other comprehensive income. Refer to the discussion on Non-GAAP Measures.
Included in equity and Adjusted Equity was approximately $190 million invested in Canadian dollars. As of December 31, 2024 , we had a notional $6.7 billion (2023 - $2.9 billion ) of foreign exchange forward and cross currency forward contracts in place to hedge against foreign currency risk.
For additional information, see Note 9, "Derivative Instruments" in the notes to the consolidated financial statements.
Future Capital Obligations and Requirements
As of December 31, 2024 , the Company and its subsidiaries, in aggregate, had total unfunded investment commitments of$10.3 billion (2023-$5.4 billion ). These commitments, when funded, are primarily recognized as mortgage loans, private loans, investment funds, investment real estate and other invested assets. For additional information, see Note 28, "Financial Commitments and Contingencies" in the notes to the consolidated financial statements.
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The following is the maturity by year on corporate and subsidiary borrowings:
| Payments due by year | ||||||||||||||||||||||||||||||||||||||||||||||||||
| AS OF US$ MILLIONS |
Total | Unamortized discount and issuance costs | Less than 1 year | 1 - 2 years | 2 - 3 years | 3 - 4 years | 4 - 5 years | More than 5 years | ||||||||||||||||||||||||||||||||||||||||||
| Corporate borrowings | $ | 1,022 | - | 1,005 | - | - | - | 17 | - | |||||||||||||||||||||||||||||||||||||||||
| Subsidiary borrowings | $ | 3,329 | (79) | - | - | 1,800 | - | 600 | 1,008 | |||||||||||||||||||||||||||||||||||||||||
| Payments due by year | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
AS OF
US$ MILLIONS
|
Total | Unamortized discount and issuance costs | Less than 1 year | 1 - 2 years | 2 - 3 years | 3 - 4 years | 4 - 5 years | More than 5 years | ||||||||||||||||||||||||||||||||||||||||||
| Corporate borrowings | $ | 1,706 | - | 1,276 | - | - | - | 430 | - | |||||||||||||||||||||||||||||||||||||||||
| Subsidiary borrowings | $ | 1,863 | (46) | - | - | - | 1,000 | - | 909 | |||||||||||||||||||||||||||||||||||||||||
For additional information, see Note21, "Corporate and Subsidiary Borrowings" in the notes to the consolidated financial statements.
Capital Management
Capital management is the ongoing process of determining and maintaining the quantity and quality of capital appropriate to take advantage of the Company's growth opportunities, to support the risks associated with the business and to optimize shareholder returns while fully complying with the regulatory capital requirements.
The Company and its subsidiaries take an integrated approach to risk management that involves the Company's risk appetite and capital requirements. The operating capital levels are determined by each respective operating company's risk appetite and Own Risk and Solvency Assessment ("ORSA"). Furthermore, additional stress techniques are used to evaluate the Company's capital adequacy under sustained adverse scenarios.
American National, AEL and certain Argo subsidiaries are required to follow Risk Based Capital ("RBC") requirements based on guidelines of the National Association of Insurance Commissioners ("NAIC"). RBC is a method of measuring the level of capital appropriate for an insurance company to support its overall business operations, in light of its size and risk profile. It provides a means of assessing capital adequacy, where the degree of risk taken by the insurer is the primary determinant.
BAC is subject to Life Insurance Capital Adequacy Test ("LICAT") as determined by Office of the Superintendent of Financial Institutions ("OSFI"). The LICAT ratio compares the regulatory capital resources of an insurance company to its Base Solvency Buffer or required capital.
The Company has determined that it is in compliance with all capital requirements as of December 31, 2024 and 2023.
Page 108
Brookfield Operating Results
An investment in the Class A exchangeable shares of the Company is intended to be, as nearly as practicable, functionally and economically, equivalent to an investment in Brookfield. A summary of Brookfield's operating results for theyearsended December 31, 2024 , 2023 and2022is provided below:
| FOR THE YEARS ENDED US$ MILLIONS, EXCEPT PER SHARE AMOUNTS |
2024 | 2023 | 2022 | |||||||||||||||||
| Revenues | $ | 86,006 | $ | 95,924 | $ | 92,769 | ||||||||||||||
| Net income attributable to Brookfield shareholders | 641 | 1,130 | 2,056 | |||||||||||||||||
| Net income of consolidated business | 1,853 | 5,105 | 5,195 | |||||||||||||||||
| Net income per share: | ||||||||||||||||||||
| Basic | 0.31 | 0.62 | 1.22 | |||||||||||||||||
| Diluted | 0.31 | 0.61 | 1.19 | |||||||||||||||||
| Distributable earnings before realizations | 4,871 | 4,223 | 4,314 | |||||||||||||||||
For theyearsended December 31, 2024 , 2023 and2022, Brookfield's pro rata share of our DOE represented approximately28%, 18% and 9%of their total distributable earnings before realizations, respectively.
Each exchangeable share has been structured with the intention of providing an economic retuequivalent to one Brookfield Class A Share due to each exchangeable share (i) being exchangeable at the option of the holder for one Brookfield Class A Share or its cash equivalent (the form of payment to be determined at the election of Brookfield), subject to certain limitations, and (ii) receiving distributions at the same time and in the same amounts as dividends on the Brookfield Class A Shares. We therefore expect that the market price of the exchangeable shares should be impacted by the market price of Brookfield Class A Shares and the business performance of Brookfield as a whole. In addition to carefully considering the disclosure made in this MD&A, carefully consideration should be made to the disclosure made by Brookfield in its continuous disclosure filings. Copies of the Brookfield's continuous disclosure filings are available electronically on EDGAR on the SEC's website at www.sec.gov or on SEDAR+ at www.sedarplus.com.
Industry Trends and Factors Affecting Our Performance
As a financial services business providing capital based solutions to the insurance industry, we are affected by numerous factors, including global economic and financial market conditions. Price fluctuations within equity, credit, commodity and foreign exchange markets, as well as interest rates, which may be volatile and mixed across geographies, can significantly impact the performance of our business. We also monitor factors such as consumer spending, business investment, the volatility of capital markets, interest rates, unemployment and the risk of inflation or deflation, which affect the business and economic environment and, in turn, impact the demand for the type of financial and insurance products offered by our business. We believe the following current trends present significant opportunities for us to grow our business:
•Financial market volatility and dislocations across asset classes favor insurers with diverse investment portfolios and access to alternative credit.Insurers primarily invest in public market fixed income products and are exposed to public market valuations. Insurers with an ability to diversify investment portfolios to include alternative and private credit assets provide more favorable investment performance.
•Many insurers are looking for ways to shift toward less asset-intensive insurance products.Given the capital-intensive nature of life and annuity liabilities, many insurance companies with diversified exposure are looking to reduce their exposure to life and annuity products, including through reinsurance, in order to free up capital that they can deploy in support of less asset-intensive products and business lines.
•Recent market conditions are exposing under-capitalized companies.Some writers of annuity products are facing higher hedging costs amidst volatile markets, and changes in regulatory standards are increasing the transparency of liability valuations in the current low-rate environment. This has necessitated a need to raise or otherwise free up capital, and the reinsurance market offers writers of annuity products an opportunity to do so. We have access to capital and are able to provide capital support to these companies.
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•Public market valuations have compressed while capital needs have grown.Insurers are trading at cyclical lows, and given the prevailing market environment, are looking to partner with organizations like ours that can provide solutions to address capital needs.
Market Risk
Our statements of financial position within our financial statements include substantial amounts of assets and liabilities whose fair values are subject to market risks. Our significant market risks are primarily associated with interest rates, foreign currency exchange rates and credit risk. The fair values of our investment portfolios remain subject to considerable volatility. The following sections address the significant market risks associated with our business activities.
Foreign Exchange Rate Risk
The Company's obligations under its insurance contracts are predominantly denominated in U.S. dollars, but a portion of the assets supporting these liabilities are denominated in non-U.S. dollars. We manage foreign exchange risk primarily using foreign exchange forwards and cross currency swaps. Our investment policy sets out the foreign currency exposure limits and types of derivatives permitted for hedging purposes.
Our net assets are subject to financial statement translation into U.S. dollars. All of our financial statement translation-related impact from changes in foreign currency rates is recorded in other comprehensive income. Gains and losses from foreign currency transactions of the Company's invested assets are reported in "Investment related gains (losses)" or "Net investment results from reinsurance funds withheld" in the statements of operations. Gains and losses from foreign currency transactions of the Company's insurance liabilities are reported in "Policyholder benefits and claims incurred" in the statements of operations.
The impact on net income resulting from a hypothetical 10% decrease in foreign currencies against the U.S. dollar, net of the impact of foreign exchange hedging strategies, would not be expected to be material.
Interest Rate Risk
Substantial and sustained increases or decreases in interest rates may cause certain market dislocations that could negatively impact our financial performance.
We manage interest rate risk through our asset liability management, which we refer to as ALM, the framework whereby the effective and key rate durations of the investment portfolio are closely matched to those of the insurance liabilities. Within the context of the ALM framework, we use derivatives including interest rate swaps, options and futures to reduce market risk. For the annuities business, where the timing and amount of the benefit payment obligations can be readily determined, the matching of asset and liability cash flows is effectively controlled through this comprehensive duration management process.
Our primary interest rate risk exposure is the exposure of our fixed maturity investment portfolio to interest rate risk and the changes in interest rates. If interest rates were to increase by 50 basis points from levels at December 31, 2024 and 2023 through a parallel shift in the yield curve, we estimate that the fair value of our fixed maturity securities would decrease by approximately $1.1 billion and $461 million in 2024 and 2023 respectively. The impact on total equity of such a decrease (net of income taxes) would be a decrease of approximately $838 million and $356 in 2024 and 2023, respectively, through accumulated other comprehensive income. The models used to estimate the impact of an increase in market interest rates by 50 basis points incorporate numerous assumptions, require significant estimates and assume an immediate and parallel change in interest rates without any management of the investment portfolio in reaction to such change. Consequently, potential changes in the value of our financial instruments indicated by the simulations will likely be different from the actual changes experienced under given interest rate scenarios, and the differences may be material. Because we actively manage our investments and liabilities, our net exposure to interest rates can vary over time. However, any such decreases in the fair value of our fixed maturity securities (unless related to credit concerns of the issuer requiring recognition of a credit loss) would generally be realized only if we were required to sell such securities at losses prior to their maturity to meet our liquidity needs, which we proactively manage. See the "Liquidity and Capital Resources" section within this MD&A for a further discussion on our liquidity.
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Other Price Risk
Other price risk is the risk of variability in fair value due to movements in equity prices or other market prices such as commodity prices and credit spreads.
The Company's exposure to the equity markets is managed by sector and individual security, and the Company mitigates the equity risk by diversification of the investment portfolio.
The Company also has equity risk associated with the equity-indexed life and annuity products the Company issues and assumes. The Company has entered into derivative transactions, primarily over-the-counter equity call options, to hedge the exposure to equity-index changes and thus has excluded equity-index changes and related derivatives from the sensitivity.
Assuming all other factors are constant, if there was a decline in public equity market prices of 10% as of December 31, 2024 and 2023, we estimate a net decrease to our point-in-time net income (loss) from changes in the fair value of our financial instruments, which are primarily public equity investments, of $230 million and $216 million respectively. The financial instruments included in the sensitivity analysis are carried at fair value, and changes in fair value are recognized in the statements of operations.
Credit Risk
Credit risk is the risk of loss from amounts owed by counterparties and arises any time funds are extended, committed, owed or invested through actual or implied contractual arrangements including reinsurance. The Company is primarily exposed to credit risk through its fixed income investments, which include debt securities and private loans.
We manage exposure to credit risk by establishing concentration limits by counterparty, credit rating and asset class. To further minimize credit risk, the financial condition of the counterparties is monitored on a regular basis. These requirements are outlined in our investment policy.
Insurance Risk
The Company makes assumptions and estimates when assessing insurance and reinsurance risks, and significant deviations, particularly with regards to mortality, morbidity, longevity and other policyholder behavior, could adversely affect our business, financial condition, results of operations, liquidity and cash flows. All transaction terms are likely to be determined by qualitative and quantitative factors, including our estimates. If we reinsure a block of business, there can be no assurance that the transaction will achieve the results expected at the time of the block's acquisition. These transactions expose us to the risk that actual results materially differ from those estimates.
We manage insurance risk through choosing whether to purchase reinsurance for certain amounts of risk underwritten across our Annuities, P&C and Life Insurance segments, and we may also look to further reinsure certain amounts of risk we assume under our reinsurance agreements in these segments.
Legal Risk
In the future, we may be parties in actions that routinely arise out of the normal course of business, including legal actions seeking to establish liability directly through insurance contracts or indirectly through reinsurance contracts issued by our subsidiaries. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material effect on our financial condition or results of operations. We are also involved from time to time in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties. We believe that any liability that may arise as a result of other pending legal actions will not have a material effect on our financial statements.
Operational Risk
Operational risk is the potential for loss resulting from inadequate or failed internal processes, people and systems, or from external events. The Company's internal control processes are supported by the maintenance of a risk register and independent internal audit review. The risk of fraud is managed through a number of processes including background checks on staff on hire, annual code of conduct confirmations, anti-bribery training and segregation of duties.
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We have material outsourcing arrangements in respect of pension administration and other functions. These arrangements are subject to agreements with formal service levels, operate within agreed authority limits and are subject to regular review by senior management. Material outsourcing arrangements are approved and monitored by the Board of Directors.
Disaster recovery and business continuity plans have also been established to manage the Company's ability to operate under adverse conditions.
Critical Accounting Policy and Estimates
The preparation of the financial statements requires management to make critical judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses that are not readily apparent from other sources, during the reporting period. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and future years if the revision affects both current and future years.
Critical judgments made by management and used in preparing the financial statements, are summarized below:
Reinsurance funds withheldare receivable for amounts contractually withheld by ceding companies in accordance with reinsurance agreements in which the subsidiaries of the Company act as reinsurers. The receivable represents assets that are held in custodial accounts that are legally segregated from the third-party ceding companies' general accounts and are managed by our subsidiaries. The assets are typically cash and cash equivalents and fixed income asset types. In the event of ceding companies' insolvency, the subsidiaries would need to assert a claim on the assets supporting the reserve liabilities. However, the subsidiaries have the ability to offset amounts owed to the ceding companies. Interest generally accrues on these assets based upon the investment earnings on the underlying investments. The subsidiaries are subject to the investment performance and have all economic rights and obligations on the funds withheld assets, in a fashion similar to the invested assets held directly by the subsidiaries. The underlying agreements contain embedded derivatives. Derivatives embedded in reinsurance contracts which are not closely related to the host contract are separated and measured at fair value in the statements of financial position and presented within "Reinsurance funds withheld". Changes in the fair value are included in the "Net investment results from funds withheld" in the statements of operations.
Deferred policy acquisition costs ("DAC")are capitalized costs related directly to the successful acquisition of new or renewal insurance contracts. Significant costs are incurred to successfully acquire insurance, reinsurance and annuity contracts, including commissions and certain underwriting, premium bonus, policy issuance and processing expenses. DAC is amortized on a constant level basis over the amortization bases selected by product, as shown below:
|
Product(s)
|
Amortization base
|
|||||||
|
Traditional life products
|
Nominal face amount
|
|||||||
|
Life contingent payout annuities
|
Annualized benefit amount in force
|
|||||||
|
Health products
|
Original annual premium
|
|||||||
|
Fixed deferred annuities, fixed index annuities, variable annuities
|
Policy count
|
|||||||
|
Universal life products
|
Initial face amount
|
|||||||
|
Property and Casualty
|
Earned premium
|
|||||||
The assumptions used in the calculation of DAC is impacted by the changes in actuarial assumptions as a result of assumption reviews and updates for associated insurance liabilities, which include full surrenders, partial withdrawals, mortality, utilization, premium persistency, reset assumptions associated with lifetime income benefit riders and the option budget assumption. The Company reviews and updates actuarial experience assumptions serving as inputs to the models that establish the expected life for DAC and other actuarial balances during the third quarter of each year, or more frequently if evidence suggests assumptions should be revised. The Company makes model refinements as necessary, and any changes resulting from these assumption updates are applied prospectively.
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Amortization of DAC is included in the "Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired" on the statements of operations.
For short-duration contracts, DAC is grouped consistent with the manner in which insurance contracts are acquired, serviced and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is anticipated in assessing the recoverability of DAC for short-duration contracts.
Value of business acquired ("VOBA")is an intangible asset or liability resulting from a business combination that represents the difference between the policyholder liabilities measured in accordance with the acquiring company's accounting policies and the estimated fair value of the same acquired policyholder liabilities in-force at the acquisition date. The estimated fair value of the acquired liabilities include assumptions on future policy benefits and contract charges, premiums, discount rates and the net investment earned rate. VOBA can be either positive or negative. Positive VOBA is recorded in the "Deferred policy acquisition costs, deferred sales inducements and value of business acquired" line in the statements of financial position. Negative VOBA occurs when the estimated fair value of in-force contracts in a life insurance company acquisition is less than the amount recorded as insurance contract liabilities, and is recorded in the "Future policy benefits" in the statements of financial position.
VOBA is amortized on a basis consistent with the related policyholder liabilities over the remaining life of the acquired underlying policies using the same methodology, factors, and assumptions used to amortize DAC. Amortization of VOBA intangible asset is included in the "Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired" on the statement of operations. Amortization of VOBA intangible liability is included in "Policyholder benefits and claims incurred" on the statements of operations.
Future policy benefits ("FPB")is calculated as the present value of expected future policy benefits to be paid or on behalf of policyholders and certain related expenses, reduced by the present value of expected net premiums to be collected from policyholders. Principal assumptions used in the establishment of the FPB include mortality, morbidity, lapse, incidence, terminations, claim-related expenses and other contingent events based on the respective product type. The Company groups contracts into annual or deal level cohorts based on product type and contract inception date for the purposes of calculating the liability for future policy benefits.
The Company updates its estimate of cash flows over the entire life of a group of contracts using actual historical experience and current future cash flow assumptions. The Company reviews and updates cash flow assumptions at least annually during the third quarter of each year, and at the same time every year by cohort or product. The Company also reviews more frequently and updates its cash flow assumptions during an interim period if evidence suggests cash flow assumptions should be revised. Assumption revisions will be reflected in the net premium ratio and FPB calculation in the quarter in which assumptions are revised. The change in the liability due to actual experience is recognized in "Policyholder benefits and claims incurred" in the statements of operations.
The change in FPB that is recognized in "Policyholder benefits and claims incurred" in the statement of operations is calculated using a locked-in discount rate. The Company measures the FPB at each reporting period using both the locked-in discount rate and the current discount rate curves. The upper-medium grade discount rate used for interest accretion is locked in for the cohort and represents the original discount rate at the issue date of the underlying contracts. The FPB for all cohorts is remeasured to a current upper-medium grade discount rate at each reporting date through other comprehensive income. The Company generally interprets the original discount rate to be a rate comparable to that of a U.S. corporate single A rate that reflects the duration characteristics of the liability. The upper-medium grade discount rate is determined using observable market data, including published upper-medium grade discount curves. In situations where market data for an upper-medium grade discount curve is not available (e.g., in certain foreign jurisdictions), spreads are applied to adjust the available observable market data to an upper-medium grade discount curve. For certain long-tailed life insurance liabilities with expected future cash flows longer than the last observable tenor (30 years), the discount rate for future cash flows beyond 30 years will be held constant at the ultimate (30 years) observable forward rate.
Should the present value of actual and future expected benefits less day one FPB balance exceed the present value of actual and future expected gross premiums, the net premium ratio will be capped at 100% and a gross premium FPB will be held. The immediate charge, recognized in earnings through "Policyholder benefits and claims incurred", will be the amount by which the uncapped net premium ratio exceeds 100% times the present value of future expected gross premium. This assessment will be performed at the cohort level.
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Policyholders' account balances ("PAB")represent the contract value that has accrued to the benefit of the policyholders related to universal-life and investments-type contracts. For fixed products, these are generally equal to the accumulated deposits plus interest credited, reduced by withdrawals, payouts and accumulated policyholder assessments. Indexed product account balances with returns linked to the performance of a specified market index are equal to the sum of the host (or guaranteed) component of the contracts and the fair value of the embedded derivatives which include funded benefits in excess of the host guarantee. The host value is established at inception of the contract and accreted over the policy's life at a constant level of interest. The fair value of the embedded derivative is estimated by projecting policy contract values and minimum guaranteed contract values over the expected lives of the contracts and discounting the excess of the projected contract value amounts at the applicable risk-free interest rates adjusted for nonperformance risk related to those liabilities. The host value is established at inception of the contract and accreted over the policy's life at a constant level of interest. Interest credited or index credits to policyholders' account balances pursuant to accounting by insurance companies for certain long-duration contracts are included in "Interest sensitive contract benefits" in the statements of operations. Changes in the fair value of the embedded derivatives are included in the "Change in fair value of insurance-related derivatives and embedded derivatives" in the statements of operations.
Liabilities for unpaid claims and claim adjustment expenses ("CAE")are established to provide for the estimated costs of paying claims. These reserves include estimates for both case reserves and incurred but not reported claims ("IBNR") liabilities. Case reserves include the liability for reported but unpaid claims and are determined on either a judgement or a formula basis depending on the timing and type of the loss. IBNR liabilities include a provision for potential development on case reserves, losses on claims currently closed which may reopen in the future, as well as IBNR claims. IBNR estimates are based on many variables including historical statistical information, inflation, legal environment, economic conditions and trends in claim severity and frequency. These liabilities also include an estimate of the expense associated with settling claims, including legal and other fees, and the general expenses of administering the claims adjustment process. Liabilities for unpaid claims and CAE for health and property and casualty insurance are included in "Policy and contract claims" in the statements of financial position.
Market risk benefits ("MRB")are contracts or contract features that provide protection to the policyholder from other-than-nominal capital market risk and expose us to such risk. The Company issues certain fixed indexed annuity and fixed rate annuity contracts that provide minimum guarantees to policyholders including guaranteed minimum withdrawal benefits and guaranteed minimum death benefits that are MRBs. MRBs are measured at fair value, at the individual contract level, and can be either an asset or a liability. Contracts which contain more than one MRB feature are combined into one single MRB. The fair value is calculated using stochastic models. At contract inception, attributed fees are calculated based on the present value of the fees and assessments collectible from the policyholder relative to the present value of expected benefits paid attributable to the MRB. The attributed fees remain static over the life of the MRB and is used to calculate the fair value of the MRB using a risk neutral valuation method. The attributed fees cannot be negative and cannot exceed the total explicit fees collectible from the policyholder. The periodic change in fair value is recognized in earnings with the exception of the periodic change in fair value related to the instrument-specific credit risk, which is recognized in other comprehensive income ("OCI").
The actuarial assumptions used in the MRB calculation are the Company's best estimate assumptions. Assumptions are adjusted to reflect fair value by applying a margin for non-hedgeable risk and an adjustment for own credit spread through the discount rate. The risk-free discount rate is the scenario specific US treasury rate.
Market risk benefits with positive values are recorded as "Other assets" and negative fair values as "Market risk benefits" liability in the statements of financial position. The ceded MRB assets are presented in "Reinsurance recoverables and deposit assets" on the statements of financial position.
Performance Measures Used by Management
To measure performance, we focus on net income and total assets, as well as certain non-GAAP measures, including DOE , Cost of Funds, Adjusted Equity, Total Corporate Liquidity and Total Liquidity which we believe are useful to investors to provide additional insights into assets within the business available for redeployment. Refer to the "Segment Review" and "Liquidity and Capital Resources" sections of this MD&A for further discussion on our performance and Non-GAAP measures for the years endedDecember 31, 2024 , 2023 and 2022.
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Non-GAAP Measures
We regularly monitor certain Non-GAAP measures that are used to evaluate our performance and analyze underlying business performance and trends. We use these measures to establish budgets and operational goals, manage our business and evaluate our performance. We also believe that these measures help investors compare our operating performance with our results in prior years. These Non-GAAP financial measures are provided as supplemental information to the financial measures presented in this MD&A that are calculated and presented in accordance with GAAP. These Non-GAAP measures are not comparable to GAAP and may not be comparable to similarly described Non-GAAP measures reported by other companies, including those within our industry. Consequently, our Non-GAAP measures should not be evaluated in isolation, but rather, should be considered together with the most directly comparable GAAP measure in our consolidated financial statements for the years presented. The Non-GAAP financial measures we present in this MD&A should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.
Distributable Operating Earnings
We use DOE to assess operating results and the performance of our businesses. We define DOE as net income after applicable taxes excluding the impact of depreciation and amortization, deferred income taxes related to basis and other changes, and breakage and transaction costs, as well as certain investment and insurance reserve gains and losses, including gains and losses related to asset and liability matching strategies, non-operating adjustments related to changes in cash flow assumptions for future policy benefits and change in market risk benefits, and is inclusive of returns on equity invested in certain variable interest entities and our share of adjusted earnings from our investments in certain associates.
We believe our presentation of DOE is useful to investors because it supplements investors' understanding of our operating performance by providing information regarding our ongoing performance that excludes items we believe do not directly affect our core operations. Our presentation of DOE also provide investors enhanced comparability of our ongoing performance across years.
Cost of Funds
Cost of Funds ("COF") forms part of DOE and primarily represents expenses directly attributable to our core insurance operations. COF includes certaininsurance reserve gains and losses not otherwise excluded from DOE , net of earned premiums.
Adjusted Equity
Adjusted Equity represents the total economic equity of the Company through its Class A, B and C shares, excluding accumulated other comprehensive income. Prior to the redesignation of our Class A-1 shares and the conversion of all of our redeemable junior preferred shares by Brookfield to our Class C shares in 2024, Adjusted Equity also included Class A-1 shares and the redeemable junior preferred shares. We use Adjusted Equity to assess our retuon our equity.
Total Corporate Liquidity and Total Liquidity
Corporate Liquidity is a measure of our liquidity position and includes cash and cash equivalents, undrawn revolving credit facilities and liquid financial assets held by non-regulated corporate entities. Total Liquidity includes liquiditywithinour regulated insurance entities.
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The followings contain further details regarding our use of the Non-GAAP measures, as well as a reconciliation of GAAP consolidated net income and total equity to these measures:
Reconciliation of Non-GAAP Measures
The following table reconciles our net income to DOE :
| FOR THE YEARS ENDED US$ MILLIONS |
2024 | 2023 | 2022 | |||||||||||||||||
| Net income | $ | 1,247 | $ | 797 | $ | 501 | ||||||||||||||
|
Mark-to-market losses (gains) on investments, including reinsurance funds withheld(1)
|
(283) | (36) | 7 | |||||||||||||||||
|
Mark-to-market losses (gains) on insurance contracts and other net assets(2)(3)
|
257 | (100) | (103) | |||||||||||||||||
| Deferred income tax expense (recovery) | (195) | 14 | (25) | |||||||||||||||||
| Transaction costs | 213 | 40 | 8 | |||||||||||||||||
| Depreciation | 135 | 30 | - | |||||||||||||||||
| $ | 1,374 | $ | 745 | $ | 388 | |||||||||||||||
__________________________
(1)"Mark-to-market losses (gains) on investments, including reinsurance funds withheld" primarily represent mark-to-market gains or losses on our investments and reinsurance funds withheld. Mark-to-market gains or losses on our investments are presented as "Investment related gains (losses)" on the statements of operations. See Note 10, "Net Investment Income and Investment Related Gains (Losses)" in the notes to the consolidated financial statements for additional details. Mark-to-market gains or losses on reinsurance funds withheld are included in "Net investment results from reinsurance funds withheld" and represent the change in fair value of their embedded derivative during the period. See Note 9, "Derivative Instruments" in the notes to the consolidated financial statements for additional details.
(2)"Mark-to-market losses (gains) on insurance contracts and other net assets" principally represents the mark-to-market effect on insurance-related liabilities, net of reinsurance, due to changes in market risks (e.g., interest rates, equity markets and equity index volatility) and includes depreciation expenses on investment real estate. These mark-to-market effects are primarily included in "Net investment income", "Interest sensitive contract benefits", "Change in fair value of insurance-related derivatives and embedded derivatives" and "Change in fair value of market risk benefits" on the statements of operations. See the following notes to the consolidated financial statements for additional information: (i) Note 9, "Derivative Instruments"; (ii) Note 10, "Net Investment Income and Investment Related Gains (Losses)"; (iii) Note 18, "Policyholders' Account Balances"; and (iv) Note 19, "Market Risk Benefits".
(3)Included in "Mark-to-market losses (gains) on insurance contracts and other net assets" are "returns on equity invested in certain variable interest entities" and "our share of adjusted earnings from our investments in certain associates" as stated in the definition of DOE . "Returns on equity invested in certain variable interest entities" primarily represent equity-accounted income from our investments in real estate partnerships and investment funds and are included in "Net investment income" on the statements of operations. Additionally, "our share of adjusted earnings from our investments in certain associates" represents our share of DOE from AEL following the announcement of our acquisition in the third quarter of 2023, which is no longer applicable given our acquisition of AEL in May 2024 .
The following table reconciles our equity to Adjusted Equity:
| AS OF US$ MILLIONS |
2024 | 2023 | |||||||||
| Total equity | $ | 13,076 | $ | 6,155 | |||||||
| Add: | |||||||||||
| Accumulated other comprehensive loss (income) | (204) | 120 | |||||||||
|
Redeemable junior preferred shares
|
- | 2,694 | |||||||||
| Adjusted Equity | $ | 12,872 | $ | 8,969 | |||||||
5.B LIQUIDITY AND CAPITAL RESOURCES
See Item 5.A "Operating Results - Liquidity and Capital Resources"
5.C RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
None.
5.D TREND INFORMATION
See Item 5.A "Operating Results - Industry Trends and Factors Affecting Our Performance"
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5.E CRITICAL ACCOUNTING ESTIMATES
See Item 5.A "Operating Results - Critical Accounting Policy and Estimates"
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Attachments
Disclaimer
Proxy Statement (Form DEF 14A)
Proxy Statement (Form DEF 14A)
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