American Equity (AEL), Brookfield to Ink Strategic Partnership

American Equity Investment Life Holding Company AEL has inked a deal with Brookfield Asset Management Inc. BAM. Per the strategic partnership, Brookfield will reinsure up to $10 billion of American Equity fixed index annuity liabilities as well as acquire 19.9% stake in American Equity. This transaction thus nullifies the unsolicited, non-binding acquisition proposal from Athene Holding ATH and MassMutual Mutual Life Insurance Company for $36.00 per share in cash announced on Oct 1, 2020.

The Reinsurance Coverage

Brookfield through its reinsurance and annuity subsidiary Brookfield Asset Management Partners will reinsure $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.

American Equity is a leading issuer of fixed index annuities and brings in distribution, policyholder service and administration, product development and insurance specific asset management expertise.

Brookfield Asset Management is a leading global alternative asset manager with approximately $550 billion of assets under management across real estate, infrastructure, renewable power, private equity and credit that generates sturdy risk adjusted returns.

This transaction is thus a strategic fit for both parties. America Equity can have access to Brookfield’s investments in targeted asset classes and will help accelerate its AEL 2.0 strategy and generate sustained returns even in this low interest rate environment.

Brookfield on the other hand could make strategic investment in the attractive U.S. insurance market.

Per Anant Bhalla, CEO of American Equity, ‘this partnership accelerates the transformation of our business toward a ROA model from our historical focus on ROE, unlocks new investment opportunities, and enables us to deliver significant value to our shareholders and policyholders’.

America Equity has been working diligently toward executing its AEL 2.0 strategy. Last month, this Zacks Rank # 2 (Buy) leading issuer of fixed index annuities agreed to form a strategic partnership with Varde Partners and Agam Capital Management.

American Equity is targeting expansion into the global life and annuity reinsurance and third-party insurance asset management businesses and thus these strategic partnerships augur well for growth.

The Ownership

Brookfield’s 19.9% ownership in American Equity will be in two stages. Brookfield will acquire 9.9% stake for $37.00 per share post Hart-Scott-Rodino approval. The remaining 10% will be acquired for $37.00 per share or adjusted book value per share (excluding AOCI and the net impact of fair value accounting for derivatives and embedded derivatives), whichever is more. The second stage will follow finalization of certain reinsurance agreement terms, receipt of applicable regulatory approvals and other closing conditions. The transaction is expected to close in the first half of 2021.

Brookfield will also be part of American Equity’s board of directors.

Share Buyback Program

Concurrently, the board of directors of American Equity’s approved a buyback program of up to $500 million of common shares. The company expects to deploy proceeds of the Brookfield equity investment and cash on hand to repurchase shares post its third-quarter earnings announcement. American Equity expects to offset the dilution from equity issuance with this share buyback.

Price Performance

Shares of American Equity have gained 8% against its industry’s decrease of 19.9% year to date. American Equity’s target market includes individuals in the age group of 45-75, seeking to accumulate tax-deferred savings or create guaranteed lifetime income. It remains focused on growing its leading position as a retirement planning annuity provider. These strategic partnerships will position the company to offer more attractive and wider variety of products to America’s retirees and pre-retirees.

Another Stock to Consider

Manulife Financial Corp. MFC, sharing the same Zacks Rank as American Equity, delivered an earnings surprise of 30.23% in the last reported quarter.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Manulife Financial Corp (MFC): Free Stock Analysis Report
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