Brookfield Place in Toronto on May 7, 2014.Mark Blinch/Reuters
Brookfield Asset Management Corp. is making an even larger bet on its insurance holdings with the launch of a new company next year tied to the growing business.
Brookfield said Thursday it plans to issue shares of Brookfield Asset Management Reinsurance Partners to its existing stockholders in the form of a dividend equal to about 33 cents per Brookfield share. Brookfield plans for the new shares to make their debut in the first half of 2021 and trade on the Toronto and New York stock exchanges.
The issue reflects Brookfield’s ramping up of its focus on the insurance sector. The company said last month it will buy up to 19.9 per cent of U.S. insurer American Equity Investment Life Holding Co. for a price between US$500-million and US$750-million, depending on the stake, and take on US$10-billion in American Equity insurance policies.
Chief executive officer Bruce Flatt told shareholders that Brookfield had long been interested in the insurance business, but it was concerned about the risk of locking in insurance obligations at certain interest rates, and then seeing the rates fall. It also didn’t have enough ability to make debt investments to effectively invest the insurance premium, Mr. Flatt said.
But with the 2019 acquisition of Oaktree Capital Management, a gigantic investor in corporate debt, it now had a platform for those investments. Meanwhile, the performance of interest rates suggested that can’t really fall much farther.
“Together, these developments have meaningfully changed the nature of the opportunity for us,” Mr. Flatt wrote to Brookfield shareholders in his quarterly letter.
Brookfield took a number of insurance licences it acquired over the years and placed them in the newly created company, BAM Reinsurance. Then, it made the American Equity investment, with the policies flowing its way. “The simple story is that we will receive up to [US]$10-billion of cash, invest those funds in our alternatives and income-oriented investment strategies and, if we can out-earn the rates we pay on the liabilities, we will do very well.”
The new share issuance is similar to past manoeuvres Brookfield has done in issuing shares tied to its partnerships, such as in infrastructure, real estate and renewable energy. In this case, each share of BAM Reinsurance will have the same dividend as the Brookfield parent.
Mr. Flatt said on an investor conference call that the structure is the most efficient way for Brookfield to increase the insurance business, which needs more capital from the parent corporation than Brookfield’s other, more-mature listed partnerships.
For the third quarter, Brookfield reported profit of US$542-million, down from US$1.76-billion in 2019′s third quarter, when Brookfield was able to report hundreds of millions more in income and gains in value from its investments.
Brookfield’s funds from operations, or FFO, were US$1.04-billion, up from US$826-million in the prior year; the current period includes US$232 million in FFO from Oaktree, which wasn’t part of Brookfield in the third quarter of 2019.
Mr. Flatt continues to argue that the market is undervaluing Brookfield’s real estate investments, particularly in a low-interest-rate environment. Mr. Flatt said Brookfield recently sold one of its office buildings in London for 10 per cent higher than the price it paid for the property 12 months ago.
“It’s a perfect illustration of this point. ... Contrary to the sentiment that has existed in the market, this sale provides us with clear evidence that the high-quality real asset portfolio we own is today worth even more than it was just nine months ago.”
That sentiment is seen on Brookfield’s balance sheet: It values its stake in its Brookfield Property Partners vehicle at US$15.2-billion, while the market value for the listed stock was US$6.7-billion at Sept. 30. It’s the third consecutive quarter that Brookfield has rejected the deep pessimism of investors in the public markets and embraced its optimistic long-term outlook.
Brookfield makes money from its fee-bearing portfolios of what it calls “alternative assets” – real estate, infrastructure, energy and distressed debt. The assets are placed in partnerships, some of which trade on U.S. and Canadian exchanges, and Brookfield attracts investments in the partnerships from major investors.
Brookfield said fundraising from those institutional investors totalled US$18-billion for the quarter, with US$12-billion of commitments to its latest Oaktree distressed-debt fund and US$6-billion for other strategies.
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