Brookfield Asset Management Reinsurance Partners Ltd. — FY2021 Form 20-F
Entity and period: The supplied filing is for Brookfield Asset Management Reinsurance Partners Ltd.; the request metadata names Brookfield Wealth Solutions Ltd. The filing covers the fiscal year ended December 31, 2021, not a standalone fourth quarter. Its financial statements are audited and prepared under IFRS. Because the company was spun off on June 28, 2021, pre-spin comparative results reflect the predecessor business under Brookfield Asset Management, so comparisons are not fully like-for-like.
Business context
The company operates through reinsurance and Canadian pension risk transfer (PRT) businesses. It aims to match long-duration insurance liabilities with investment assets, drawing on Brookfield’s investment-management platform. At year-end, it had contracted to reinsure approximately $12 billion of annuity liabilities, including an agreement for up to $10 billion from AEILIC. The planned acquisition of American National would add U.S. direct insurance operations; it had not closed by the filing date.
Financial and operating performance
| Metric (US$ millions, unless noted) | 2021 | 2020 | 2019 |
|---|---|---|---|
| Gross premiums | 7,207 | 431 | 504 |
| Net premiums | 7,206 | 430 | 325 |
| Total revenue | 7,344 | 514 | 382 |
| Net income (loss) | (44) | 1 | 6 |
| Distributable Operating Earnings (DOE; non-IFRS) | 30 | 1 | 6 |
| Operating cash flow | 1,581 | 399 | 309 |
| Investing cash flow | (3,864) | (385) | (268) |
| Financing cash flow | 2,640 | 13 | (35) |
Revenue growth chiefly reflected two large-block reinsurance transactions and increased PRT activity. Total net investment income, including funds-withheld results, was $138 million. Benefits and expenses totaled $7,394 million; the $6,958 million increase in gross insurance reserves was primarily associated with new business and market movements. The $44 million net loss included $59 million of net hedging expenses, including corporate hedge costs and mark-to-market effects. DOE is a company-defined non-IFRS measure and is not a substitute for IFRS results.
- Business activity: The reinsurance segment reported DOE of $13 million and PRT DOE of $11 million; other activities contributed to total DOE. The company closed 26 PRT deals in 2021 versus 15 in 2020. The filing describes these deals as representing about $1.1 billion of premiums and approximately 20% of the Canadian PRT market; the segment table reports net PRT premiums of $1,016 million.
- Year-end balance sheet: Total assets were $11,493 million, including $4,943 million of investments, $4,650 million of reinsurance funds withheld, and $393 million of cash and cash equivalents. Insurance reserves were $8,497 million gross ($8,328 million net of reinsurance assets); total liabilities were $10,058 million and equity was $1,435 million.
- Debt and liquidity: Corporate borrowings were $693 million, including $656 million drawn on a 364-day facility to warehouse investments and $37 million drawn on bilateral facilities. The company reported $949 million of total liquidity, a measure including cash, corporate financial assets and undrawn facilities; it separately identified $105 million of unrestricted cash resources. It also had an undrawn $2 billion Brookfield equity commitment. The Brookfield revolving facility was $200 million at year-end and was increased to $400 million in March 2022.
- Capital and ratings: Non-IFRS excess capital was $720 million and net reserve capital was $715 million. A.M. Best ratings for listed operating entities were A- with stable outlook. The company reported compliance with applicable regulatory capital requirements at year-end.
- Distributions: The company made $0.13 per Class A exchangeable share and Class B share as a return of capital in each of the third and fourth quarters of 2021.
Material changes and outlook
- Gross premiums rose to $7,207 million from $431 million, reflecting the launch of the reinsurance business and large transactions. The reinsurance segment commenced operations in 2021; PRT remained the established business.
- Management said it had deployed $5 billion of assets received from reinsurance and PRT transactions and expected DOE to grow in coming quarters as assets were invested in higher-yielding strategies. The filing gives no formal numerical earnings guidance.
- The American National acquisition was agreed at $190 per share, for approximately $5.1 billion, and was expected to close in the first half of 2022, subject to regulatory approvals and other conditions. Funding was expected to include $1.5 billion of committed bank debt and Brookfield equity support.
- At December 31, the company held approximately 9.8% of AEL Holdings; a subsequent January 2022 purchase of approximately $253 million increased its reported interest to about 16%. It had reinsured approximately $4 billion of in-force AEILIC policies and about $400 million of flow liabilities by year-end.
- Corporate hedge positions were unwound in January 2022, with the resulting realized gains expected to be reflected in first-quarter 2022 net income, rather than 2021.
Risks, contingencies and unusual items
- Insurance reserves depend on actuarial assumptions, particularly longevity, mortality, policyholder surrenders and investment yields. Deloitte identified reserve valuation as a critical audit matter; structured-entity consolidation was also a critical audit matter.
- Low or changing interest rates, credit spreads, investment valuations, illiquid assets, counterparty defaults and unexpected policyholder withdrawals could affect earnings, capital and liquidity. The company relies on cedants and third parties for underwriting data and administration in some arrangements.
- Brookfield provides investment management, senior executives, administrative services, financing and capital support. This creates related-party and opportunity-allocation conflicts; the filing describes controls but cautions that conflicts may not be resolved in the company’s favor.
- Insurance regulation can restrict subsidiary dividends, capital deployment and transactions. The American National acquisition remained subject to regulatory approval. The company also disclosed tax, cybersecurity, pandemic and litigation risks.
- IFRS 17 was expected to apply from January 1, 2023. Management was assessing its effect and expected changes to the timing and presentation of insurance earnings.
- Management concluded disclosure controls were effective at year-end. The filing did not include management’s assessment or an auditor attestation on internal control over financial reporting because of the transition period for newly public companies.
Most important facts for investors to verify
- Reconcile the $44 million IFRS net loss with $30 million of non-IFRS DOE, including hedging and transaction-cost adjustments.
- Review reserve assumptions, sensitivity disclosures and the effects of asset-liability movements on reported results and capital.
- Confirm the source, availability and restrictions on reported liquidity, undrawn facilities and Brookfield equity support, and assess the near-term maturity of warehouse borrowings.
- Check the completion and financing of the American National acquisition and subsequent developments in the AEILIC reinsurance and AEL Holdings investment.
- Assess related-party investment management, fees, conflicts procedures and the effect of Brookfield’s governance and consent rights.
- Consider how IFRS 17 adoption, regulatory capital requirements and the company’s limited standalone operating history may affect future comparability and returns.