Brookfield Asset Management Inc., the giant Canadian headquartered alternative asset manager that has around $575 billion of assets under management, continues to expand its reinsurance operations with a rating from AM Best now secured for its Cayman Islands based reinsurer North End Re (Cayman) SPC.
Brookfield Asset Management became the latest very large global asset manager to target the life and annuities reinsurance sector as a source of insurance-linked returns and premium float assets last year.
The move saw Brookfield joining major players such as Apollo Global Management and KKR & Co. LLP, both significant asset managers that have demonstrated their liking for the way reinsurance premium assets can be both source of income, as well as long-term firepower for their other investment strategies and are growing their operations in this sector.
Brookfield launched a Bermuda based reinsurance entity named Brookfield Asset Management Reinsurance Partners, or BAM Reinsurance for short.
The asset manager said that it expected to secure up to $10 billion of additional float at the start of these operations, which was presumably through the deal it had announced previously, an arrangement with American Equity Investment Life Holding Company that saw the pair creating a strategic partnership that would see Brookfield reinsuring $5 billion of existing liabilities and up to an incremental $5 billion of new sales of American Equity’s IncomeShield or similar fixed index annuity products.
Now, AM Best has assigned a Preliminary Credit Assessment (PCA) to North End Re (Cayman) SPC, with a Financial Strength Assessment of A- pca (Excellent) and a Long-Term Issuer Credit Assessment of “a-” pca, all with a stable outlook.
North End Re (Cayman) SPC is a wholly owned direct subsidiary of Brookfield Asset Management Inc. set up as part of its life and annuities reinsurance push.
AM Best said that Brookfield Asset Management plans to make a significant capital investment into North End Re, to keep its risk-adjusted capital at an appropriate level and the necessary regulatory risk-adjusted capital. Revolving lines of credit, both internal and external, are also expected to be used to maintain capital levels for North End Re.
AM Best also notes Brookfield Asset Management’s growth ambitions for this new reinsurance set-up, saying that it is beginning with a focus on the United States with the American Equity Life deal, but also sees potential growth opportunities outside the country.
AM Best also notes that sister company Brookfield Annuity Company (BAC) underwrites pension risk transfer solutions in Canada, which could hint at another area of synergy between Brookfield’s new reinsurance business and its other operations, bringing efficient capital to back those pension risk transfer deals.
Global asset managers, like the Brookfields, Apollo’s and KKR’s of this world, can enter the reinsurance market with relatively low-friction, delivering assets for use in their own strategies, providing more firepower, as well as profits for their shareholders.
It seems a win-win for these giant asset managers and it will be interesting to see how innovative they can get in ways to bring more third-party capital in to support this float accumulation strategy, something we’re already seeing
With Athene and its ACRA vehicle and Global Atlantic with Ivy Re, sidecar structures used to channel third-party capital firepower into large life and annuity reinsurance deals are proving a mechanism to bring extra investor capital along to support market growth, while enabling the asset managers to do even larger deals, accumulating even more float on the back of end-investor allocations.
We’ve also seen the setting up of Langhorne Re, by Reinsurance Group of America with management support from RenaissanceRe, also targeting the large life and annuities reinsurance space using third-party capital.
This continues to evolve into a fascinating marketplace, with players like Brookfield building out the infrastructure to support significant growth into the space and as a result this market segment of reinsurance is likely to attract more large investors over the coming years.
North End Re, as a segregated portfolio company, could even be used to channel investor funds to the reinsurance business the vehicle writes, providing Brookfield with a ready made structure that can enable it to partner with investors and bring them into this side of its business as it grows.