Canadian giant seeks entry into UK insurance market

Brookfield, a prominent global private capital group, has initiated the process to establish an insurance company in the UK. This strategic move aims to capitalize on the current trend of British companies offloading their pension plans, an opportunity enhanced by rising interest rates.

Improved interest rates have significantly bolstered the financial health of corporate pension schemes, encouraging companies to transfer these liabilities and assets to insurers. Consultancy LCP anticipates that approximately £40 billion in such transactions will occur this year, approaching the record levels seen in 2023.

Brookfield’s insurance division, headquartered in Toronto, has submitted an application to the Prudential Regulation Authority of the Bank of England to form a new insurer. This development, confirmed by insiders, marks a shift from Brookfield’s earlier consideration of acquiring an existing UK pension provider.

Last year, Brookfield, alongside Apollo and other firms, contemplated bidding for Pension Insurance Corporation, a key player in the bulk annuity market. However, potential buyers were deterred by the high valuation demanded by its owners.

Establishing a new insurance entity from the ground up presents a formidable challenge in a market dominated by established bulk annuity providers like Phoenix Group and Legal & General. The regulatory approval process for setting up the new insurer could span six months or longer, contingent on the regulators’ review of Brookfield’s proposed investment strategies.

Neither Brookfield nor the Bank of England have provided comments on this matter.

This move aligns with a broader trend of private capital groups expanding into the global life insurance sector. Brookfield Reinsurance, an independent business established in Bermuda in 2020, now manages over $100 billion in assets. Sachin Shah, CEO of Brookfield Reinsurance, expressed in May his ambition to bid on UK pension transactions by the end of the year, starting with smaller deals and gradually progressing to larger ones.

In the United States, Brookfield has already executed $3 billion in transactions over the past year. Additionally, Brookfield holds a majority stake in Oaktree Capital Management, which supports Utmost, a UK life insurer planning to enter the market, according to sources.

Taking on pension responsibilities will subject Brookfield to scrutiny, as the UK market already includes established privately-owned entities such as PIC and Rothesay. Proponents within private capital groups argue that their expertise in alternative investments, including private credit, can uncover higher-yielding, appropriate assets for pension schemes.

Recently, regulators have been scrutinizing investment strategies that diverge from traditional life insurer holdings, which typically include government bonds and high-quality corporate debt. Pension consultants view the entry of new players as a positive development to manage the anticipated influx of corporate pension deals. Notably, Royal London, a mutual life insurer, has also announced plans to enter this burgeoning market.

Brookfield’s foray into insurance

In 2020, Brookfield identified what it considered to be an opportune moment to venture into the insurance sector, capitalizing on the prolonged period of near-zero interest rates. That October, Brookfield made a significant investment in American Equity Investment Life Insurance (AEL), a prominent provider of fixed index and fixed rate annuities, and agreed to reinsure $5 billion of existing annuity policies, with potential for an additional $5 billion in future payments.

Sachin Shah, appointed to lead Brookfield’s insurance operations, noted at the time the strategic timing due to the low likelihood of further interest rate declines, positioning the business for long-term gains as rates rose. Currently, Brookfield Reinsurance manages nearly $45 billion in assets, maintains strong ratings across its subsidiaries, and employs over 3,400 personnel.

In June 2021, Brookfield Reinsurance was spun off as a separate public entity, and in May 2022, it acquired American National for $5.1 billion. The company’s focus is on providing capital solutions to insurance firms, aiming to align long-term liabilities with high-quality investments for favourable, risk-adjusted returns. It offers a comprehensive range of insurance products, including life insurance, annuities, health insurance, and property and casualty insurance.

Shah expressed confidence in leveraging Brookfield’s alternative asset strategies to deliver sustained value, projecting Brookfield Reinsurance’s growth to a $500 billion scale within the next decade.