Best’s News & Research Service - October 20, 2020 04:41 PM (EDT)
AM Best Comments on Credit Ratings of American Equity Investment Life Holding Co. and Subs. Following Brookfield Announcement
- October 20, 2020 04:41 PM (EDT)
Oldwick //BestWire// - AM Best has commented that the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” of the members of American Equity Investment Group (Iowa) remain unchanged following its announcement that Brookfield Asset Management Inc. will acquire a minority interest in American Equity Investment Life Holding Company (AEILHC) (West Des Moines, IA). Concurrently, AM Best has commented that the Long Term ICR of “bbb-” of AEILHC and its existing Long-Term Issue Credit Ratings also remain unchanged. The outlook of these Credit Ratings (ratings) is stable.
Brookfield, an alternative asset manager with $550 billion in assets under management, will acquire an initial 9.9% ownership at $37 per share in AEILHC, with the ability to purchase an additional 10.0% at the greater of $37 per share or adjusted book value. The transaction is part of a strategic partnership with Brookfield to reinsure a $5 billion block of fixed indexed liabilities and enter into a flow reinsurance transaction for new business of up to $5 billion. Brookfield will manage the assets backing the reserves and AEILHC will receive a ceding commission that will be recurring and based on an insurance component and an asset management component in lieu of a one-time ceding fee.
This announcement follows a previously announced partnership with Varde Partners, a Minneapolis-based hedge fund, and Agam Capital Management, an insurance solutions provider, whereby AEILHC will reinsure another $5 billion of fixed indexed annuities in a newly formed reinsurance entity. Consideration for this reinsurance agreement will be granted primarily through AEILHC acquiring a minority interest in the new reinsurance subsidiary and an additional minority interest in a newly formed asset management entity.
The Brookfield transaction will free up approximately $320 million to $350 million of regulatory capital and is expected to have a neutral impact on operating earnings in the near term. AEILHC intends to use the capital release for share repurchases while maintaining holding company liquidity, interest coverage and financial leverage consistent with its current ratings. The Varde partnership will give AEILHC the opportunity to diversify its business model into reinsurance and asset management, while the Brookfield transaction will give AEILHC access to alternative long-dated assets with potentially higher returns to better match its liabilities.
The company’s ratings were previously affirmed on June 26, 2020. AM Best intends to further discuss these transactions, as well as monitor the overall quality of the reinsurance program, capital adequacy, financial and liquidity profile of the holding company and operating companies and material changes to AEILHC’s overall asset allocation and the execution of AEIHLC’s business strategy.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.