Brookfield Reinsurance Ltd. — FY2022 Form 20-F
Issuer and period: The supplied filing is Brookfield Reinsurance Ltd.’s annual report for the fiscal year ended December 31, 2022, not a standalone fourth-quarter report. The request metadata names Brookfield Wealth Solutions Ltd.; that is not the issuer named in the filing. Financial statements are audited and prepared under IFRS in U.S. dollars.
Business context
The Bermuda holding company provides insurance and reinsurance through three segments: Direct Insurance, Reinsurance and Pension Risk Transfer (PRT). Its operations expanded substantially after acquiring American National in May 2022. Class A exchangeable shares trade on the NYSE and TSX as BNRE and are intended to provide an economic return equivalent to one Brookfield Corporation Class A share.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $5.101 billion | $7.241 billion |
| Net income (loss) | $492 million | $(44) million |
| Distributable Operating Earnings (DOE), non-IFRS | $388 million | $30 million |
| Net investment income, including funds withheld | $617 million | $79 million |
| Cash from operating activities | $107 million | $1.581 billion |
| Total assets | $43.499 billion | $11.493 billion |
| Total liabilities | $42.042 billion | $10.058 billion |
| Total equity | $1.457 billion | $1.435 billion |
| Corporate and subsidiary borrowings | $3.652 billion | $693 million |
Reported net investment income also includes a $281 million result from funds withheld; the filing reports $336 million of net investment income separately. Interest expense was $196 million, including $67 million of accrued preferred-share dividends; the $2.512 billion of preferred shares is treated as a liability for accounting purposes. Operating cash flow fell mainly because FY2021 included substantial cash received on large-block reinsurance transactions. Investing cash flow was $(4.341) billion and financing cash flow was $5.994 billion in FY2022.
At year-end, cash and cash equivalents were $2.145 billion. Management’s total corporate liquidity measure was $1.569 billion, comprising $784 million of unrestricted corporate cash, $241 million of liquid financial assets and $544 million of undrawn facilities. Total liquidity, including insurance operations, was $20.458 billion. The filing does not present a conventional consolidated operating-margin measure.
Changes versus the prior year
- Revenue declined about $2.1 billion year over year, principally because FY2021 included $6.2 billion of large-block reinsurance transactions; FY2022’s growth in PRT and Direct Insurance partly offset their absence.
- Net income improved from a $44 million loss to $492 million of income. DOE rose to $388 million, driven largely by American National, investment redeployment and growth in spread earnings.
- American National, acquired for approximately $5.1 billion in cash, added $29.7 billion of assets at year-end and contributed $2.3 billion of revenue and $277 million of net profit from acquisition through year-end.
- Investments grew to $28.098 billion from $4.943 billion. The company recorded $823 million of total other comprehensive loss, including a $1.009 billion unrealized loss on available-for-sale securities, partly offset by tax recovery.
- FY2022 included $421 million of unrealized net investment losses in the MD&A discussion, largely associated with rising rates and market volatility; management said the liability valuation impact more than offset the investment mark-to-market effect.
Outlook, risks and unusual items
- Outlook: Management said liquidity was sufficient for foreseeable requirements and expected the U.S. PRT business to be active in 2023. No specific earnings or revenue guidance is provided. The proposed approximately $1.1 billion all-cash Argo Group acquisition was expected to close in the second half of 2023, subject to shareholder and regulatory approvals.
- Accounting transition: The company adopted U.S. GAAP beginning January 1, 2023, including the new long-duration insurance contract standard. Management could not estimate the ultimate impact; it warned adoption could materially reduce equity at year-end 2022 interest-rate levels and affect ratings and borrowing capacity.
- Acquisition accounting and controls: American National’s purchase-price allocation was provisional at year-end, with valuation work still outstanding. Management excluded American National from its 2022 internal-control assessment; the acquired business represented 68% of assets, 44% of revenue and 56% of net income. The auditor’s internal-control opinion likewise excluded it.
- Capital and commitments: Brookfield provided a $2 billion equity commitment and a $400 million revolving facility; neither was drawn at year-end. Separately, subsidiaries had investment commitments of up to $5.4 billion, of which $2.8 billion was unfunded. Corporate borrowings included short-term secured facilities and acquisition financing.
- Key risks: Material exposures include longevity and policyholder behavior assumptions, investment valuation and illiquidity, interest rates and credit spreads, catastrophe and climate risks, regulatory capital and rating changes, counterparty performance, and reliance on Brookfield for investment management and administrative support. Related-party investment allocation, fees and other conflicts are disclosed in detail.
- Unusual shareholder distribution: In connection with Brookfield’s 2022 arrangement, holders received one Brookfield Asset Management share for every four BNRE Class A exchangeable or Class B shares, recorded as a $5.481-per-share return of capital. The company also reported quarterly $0.14-per-share returns of capital in 2022.
- Contingencies: American National is involved in ordinary-course litigation, including contract, employment and insurance sales matters. Management considered a material adverse outcome remote, but noted that litigation outcomes are uncertain. The filing also reports $121 million of customer bank-loan guarantees, supported by $143 million of related policy cash values.
Important facts for investors to verify
- Confirm the issuer and reporting period: this is Brookfield Reinsurance Ltd.’s FY2022 annual filing, not a Brookfield Wealth Solutions Ltd. quarterly filing.
- Review the audited financial statements and DOE reconciliation; DOE is a company-defined non-IFRS measure and is not comparable on a standardized basis.
- Track final American National purchase accounting, subsequent U.S. GAAP/LDTI transition disclosures, and remediation or testing of controls over the acquired business.
- Assess the maturity and refinancing profile of borrowings, the $2.8 billion unfunded investment commitments, and restrictions on moving cash from regulated insurance subsidiaries.
- Evaluate the pending Argo acquisition, required approvals, financing and integration risks, and whether anticipated benefits are realized.
- Review Brookfield-related investment management fees, affiliated transactions and conflict-management procedures, alongside the terms and practical operation of the exchange, redemption and distribution rights.