markdown PART I [Key Information](index=16&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section outlines the principal risks associated with the company and its securities, categorized by their impact on exchangeable shares, operations, relationship with Brookfield, investments, regulatory environment, and taxation [Risk Factors](index=16&type=section&id=3.D%20RISK%20FACTORS) The company faces numerous risks, including market volatility of its exchangeable shares, operational dependence on Brookfield, regulatory compliance across multiple jurisdictions, investment risks, conflicts of interest with Brookfield, and complex tax implications for shareholders - The exchangeable shares are structured to provide an economic return equivalent to one Brookfield Class A Share, meaning their market price is expected to be impacted by the performance and market price of Brookfield Class A Shares[158](index=158&type=chunk) - The company may redeem all outstanding exchangeable shares at any time without shareholder consent, subject to certain conditions and the prior written consent of the holder of the class C shares (Brookfield Corporation)[61](index=61&type=chunk) - The company relies on an exemption from the U.S. Investment Company Act of 1940, and if this exemption were deemed inapplicable, it could have a significant adverse impact on the business[79](index=79&type=chunk) - The business is highly regulated across multiple jurisdictions (U.S., Bermuda, Cayman Islands, Canada), and changes in these complex regulations could materially impact capitalization, profitability, and growth[248](index=248&type=chunk) - The organizational structure and relationship with Brookfield give rise to conflicts of interest, particularly in the allocation of investment opportunities and affiliate transactions[238](index=238&type=chunk)[239](index=239&type=chunk) - U.S. Holders of exchangeable shares face uncertain tax treatment, including whether the shares are treated as stock of the company, and potential adverse consequences if the company is classified as a Passive Foreign Investment Company (PFIC) or has Related Person Insurance Income (RPII)[276](index=276&type=chunk)[277](index=277&type=chunk)[281](index=281&type=chunk) [Information on the Company](index=69&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details the company's history, business operations, and organizational structure, highlighting its spin-off from Brookfield Corporation, strategic acquisitions, and comprehensive regulatory framework [History and Development of the Company](index=69&type=section&id=4.A%20HISTORY%20AND%20DEVELOPMENT%20OF%20THE%20COMPANY) Brookfield Reinsurance Ltd. was incorporated in 2020 and spun off from Brookfield Corporation in 2021, growing significantly through strategic acquisitions like American National and a planned acquisition of Argo Group - Incorporated on December 10, 2020, and spun-off from Brookfield Corporation on June 28, 2021[283](index=283&type=chunk)[435](index=435&type=chunk) - Completed the acquisition of American National in an all-cash transaction valued at approximately **$5.1 billion** on May 25, 2022, making it the platform for the company's U.S. direct insurance operations[287](index=287&type=chunk) - Entered into a definitive merger agreement on February 8, 2023, to acquire Argo Group for approximately **$1.1 billion**, with the acquisition expected to close in the second half of 2023[284](index=284&type=chunk) - In October 2021, closed a transaction to reinsure up to **$10 billion** of annuity products from AEILIC, including an initial block of ~**$4 billion** and a flow agreement for up to an additional ~**$6 billion**[313](index=313&type=chunk) [Business Overview](index=71&type=section&id=4.B%20BUSINESS%20OVERVIEW) The company operates a capital solutions business through three segments: Reinsurance, Pension Risk Transfer (PRT), and Direct Insurance, leveraging Brookfield's investment expertise and maintaining strong financial strength ratings under stringent regulatory frameworks - The company's business is conducted through three operating segments: Reinsurance, Pension Risk Transfer (PRT), and Direct Insurance[1](index=1&type=chunk) - The Direct Insurance business, primarily through American National, offers a broad range of products including life insurance, annuities, and property and casualty insurance, with **$19.7 billion** of future policy benefits and policyholder account balances as of December 31, 2022[344](index=344&type=chunk)[346](index=346&type=chunk) - The Reinsurance business, operated through NER SPC and NER Ltd., focuses on reinsuring annuity products, with these subsidiaries having **$5.9 billion** and **$1.5 billion** of future policy benefits, respectively, as of December 31, 2022[292](index=292&type=chunk) - The PRT business operates in Canada through Brookfield Annuity Company (BAC) and in the U.S. through American National Insurance Company (ANICO), with BAC having **$3.0 billion** of future policy benefits as of December 31, 2022[293](index=293&type=chunk) Financial Strength Ratings (A.M. Best) as of Dec 31, 2022 | Company | Financial Strength Rating | Issuer Credit Rating | Outlook | | :--- | :--- | :--- | :--- | | Brookfield Annuity Company | A- (4 of 16) | a- (7 of 21) | Stable | | North End Re (Cayman) SPC | A- (4 of 16) | a- (7 of 21) | Stable | | North End Re Ltd. | A- (4 of 16) | a- (7 of 21) | Stable | | American National Insurance Company | A (3 of 16) | a+ (5 of 21) | Stable | - The company is subject to comprehensive regulatory oversight in its key jurisdictions, including by the Bermuda Monetary Authority (BMA), Cayman Islands Monetary Authority (CIMA), Canada's Office of the Superintendent of Financial Institutions (OSFI), and various U.S. state insurance departments following NAIC guidelines[352](index=352&type=chunk)[353](index=353&type=chunk)[358](index=358&type=chunk)[361](index=361&type=chunk)[365](index=365&type=chunk) [Organizational Structure](index=90&type=section&id=4.C%20ORGANIZATIONAL%20STRUCTURE) Brookfield Reinsurance Ltd. is the parent holding company, wholly owning BAM Re Holdings Ltd., which in turn holds the company's primary operating subsidiaries, while Brookfield Corporation holds all Class C shares, representing the residual economic interest - The company's significant subsidiaries include BAM Re Holdings Ltd., Brookfield Annuity Company, North End Re (Cayman) SPC, North End Re Ltd., and American National Group, LLC[342](index=342&type=chunk)[627](index=627&type=chunk) [Operating and Financial Review and Prospects](index=95&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section provides management's discussion and analysis of the company's financial condition and results of operations, highlighting significant growth in 2022 driven by the American National acquisition and strategic use of non-IFRS measures [Operating Results](index=95&type=section&id=5.A%20OPERATING%20RESULTS) For the year ended December 31, 2022, the company reported a net income of **$492 million**, a significant turnaround from a net loss of **$44 million** in 2021, primarily driven by the American National acquisition and increased net investment income Key Financial Data (in US$ Millions) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total assets | $43,499 | $11,493 | $1,440 | | Net income (loss) | $492 | $(44) | $1 | | Distributable Operating Earnings | $388 | $30 | $1 | - Net income for 2022 was **$492 million**, a significant increase from a net loss of **$44 million** in 2021, largely driven by contributions from the American National acquisition[657](index=657&type=chunk) - Net premiums and other policy revenue decreased to **$4.5 billion** in 2022 from **$7.2 billion** in 2021, mainly because 2021 included **$6.2 billion** from two large-block reinsurance transactions not repeated in 2022[658](index=658&type=chunk) - Net investment income, including funds withheld, increased significantly to **$617 million** in 2022 from **$79 million** in 2021, driven by growth in the investment portfolio from recent transactions and rising interest rates[658](index=658&type=chunk) - Total assets grew to **$43.5 billion** as of Dec 31, 2022, from **$11.5 billion** at year-end 2021, primarily due to the American National acquisition which added **$29.7 billion** in assets[639](index=639&type=chunk)[664](index=664&type=chunk) [Liquidity and Capital Resources](index=103&type=section&id=5.B%20LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains a strong liquidity position, with total corporate liquidity of **$1.57 billion** as of December 31, 2022, supported by operating cash flows, credit facilities, and a **$2.0 billion** equity commitment from Brookfield Corporate Liquidity (in US$ Millions) | Component | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $784 | $70 | | Liquid financial assets | $241 | $243 | | Undrawn credit facilities | $544 | $313 | | **Total Corporate liquidity** | **$1,569** | **$626** | - The company has access to a **$2.0 billion** equity commitment from Brookfield to fund future growth, which can be drawn in exchange for Class C or junior preferred shares[668](index=668&type=chunk)[90](index=90&type=chunk) Summary of Cash Flows (in US$ Millions) | Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Operating activities | $107 | $1,581 | $399 | | Investing activities | $(4,341) | $(3,864) | $(385) | | Financing activities | $5,994 | $2,640 | $13 | | **Net change in cash** | **$1,760** | **$357** | **$27** | [Directors, Senior Management and Employees](index=121&type=section&id=ITEM%206.%20DIRECTORS%20%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's governance structure, including its board of directors and executive officers, their compensation, and the roles of board committees, with over **3,500** full-time employees as of the report date [Directors and Senior Management](index=122&type=section&id=6.A%20DIRECTORS%20AND%20SENIOR%20MANAGEMENT) The company is led by a board of directors and executive officers, including Sachin Shah as Chair and CEO, with key executive services provided by Brookfield under an Administration Agreement - The board and executive team include Sachin Shah (Chair & CEO), Thomas Corbett (CFO), and Lorenzo Lorilla (CIO)[762](index=762&type=chunk) - The services of the Chief Executive Officer, Chief Financial Officer, and Chief Investment Officer are provided by Brookfield Corporation under an Administration Agreement[794](index=794&type=chunk)[1031](index=1031&type=chunk) [Compensation](index=126&type=section&id=6.B%20COMPENSATION) Director compensation for 2022 included a **$150,000** annual retainer, while executive compensation for NEOs, largely determined by Brookfield, emphasizes long-term value creation through participation in Brookfield's long-term incentive plans 2022 Director Compensation Retainers | Compensation Element | Amount (USD) | | :--- | :--- | | Annual Retainer | $150,000 | | Lead Independent Director Additional Retainer | $50,000 | | Audit Committee Chair Additional Retainer | $20,000 | | Audit Committee Member Additional Retainer | $10,000 | 2022 NEO Summary Compensation Table (in US$) | Name | Principal Position | Total Annual Compensation | | :--- | :--- | :--- | | Sachin Shah | Chief Executive Officer | 8,310,040 | | Mabel Wong | Chief Financial Officer | 378,748 | | Bahir Manios | Chief Investment Officer | 1,585,340 | | Thomas Corbett | Chief Financial Officer | 1,711,796 | | Paul Forestell | Chief Operating Officer | 1,814,762 | | Gregory McConnie | CEO, NER SPC and NER Ltd. | 690,087 | - NEOs participate in Brookfield's long-term incentive plans, including the Management Share Option Plan (MSOP), Deferred Share Unit Plan (DSUP), and Restricted/Escrowed Stock Plans, to align their interests with long-term shareholder value[803](index=803&type=chunk) [Board Practices](index=138&type=section&id=6.C%20BOARD%20PRACTICES) The company's board practices ensure effective governance and oversight through a structured board composition, three standing committees composed of independent directors, and adopted policies for director elections and diversity - The board has three standing committees: Audit, Governance and Nominating, and Compensation, all composed of independent directors[854](index=854&type=chunk) - Holders of class A exchangeable shares elect one-half of the board, and the holder of class B shares (the Class B Partners) elects the other half[819](index=819&type=chunk) - The company has adopted a majority voting policy for director elections and a board diversity policy to enhance governance[820](index=820&type=chunk)[850](index=850&type=chunk) [Major Shareholders and Related Party Transactions](index=145&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details the company's ownership structure and its extensive relationship with Brookfield Corporation, highlighting major shareholders and numerous agreements that create operational synergies but also inherent conflicts of interest [Major Shareholders](index=145&type=section&id=7.A%20MAJOR%20SHAREHOLDERS) As of the report date, significant shareholders of the Class A exchangeable shares include Bruce Flatt (**10.19%**), Partners Value Investments Inc. (**8.76%**), and CI Investments Inc. (**5.29%**), while the BAM Re Partners Trust holds **100%** of the Class B limited voting shares Major Shareholders of Voting Securities | Name | Class A Shares Owned (%) | Class B Shares Owned (%) | | :--- | :--- | :--- | | Bruce Flatt | 10.19% | —% | | BAM Re Partners Trust | —% | 100% | | Partners Value Investments Inc. | 8.76% | —% | | CI Investments Inc. | 5.29% | —% | [Related Party Transactions](index=146&type=section&id=7.B%20RELATED%20PARTY%20TRANSACTIONS) The company has a deeply integrated relationship with Brookfield, which holds all Class C shares and provides critical operational and financial support through various agreements, creating conflicts of interest managed by established protocols and a Conflicts Committee - The company relies on Brookfield for operational and financial support, including investment management, administrative services, an equity commitment, and a credit facility[864](index=864&type=chunk) - The relationship with Brookfield creates conflicts of interest, particularly in allocating investment opportunities and expenses between the company and other Brookfield Accounts[864](index=864&type=chunk)[238](index=238&type=chunk) - Brookfield has implemented policies and a Conflicts Committee to manage these conflicts, but transactions are expected to be managed differently than for other advisory clients, reflecting the integrated nature of the relationship[906](index=906&type=chunk)[907](index=907&type=chunk) [Financial Information](index=161&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section refers to the detailed consolidated financial statements and other related financial information, noting no significant changes to the financial position other than those discussed in the Operating Results section - The company's consolidated financial statements are provided under Item 18 of the report[880](index=880&type=chunk) [Additional Information](index=162&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section provides detailed information on the company's share capital, memorandum and bye-laws, material contracts, and taxation policies, outlining the rights and features of various share classes and the complexities of U.S. and Canadian federal income tax considerations for shareholders [Memorandum and Bye-laws](index=162&type=section&id=10.B%20MEMORANDUM%20AND%20BYE-LAWS) The company's governance is defined by its memorandum of association and bye-laws, establishing a share structure where Class A and Class B shareholders each elect half of the board, and Class A exchangeable shares are economically equivalent to Brookfield Class A Shares with exchange and redemption features - Holders of class A exchangeable shares are entitled to elect one-half of the board of directors, while holders of class B shares elect the other half[913](index=913&type=chunk)[951](index=951&type=chunk) - Each exchangeable share is exchangeable at the holder's option for one Brookfield Class A Share (or its cash equivalent), with the obligation to satisfy the exchange resting with Brookfield Corporation[885](index=885&type=chunk)[916](index=916&type=chunk) - The company's board has the right to redeem all outstanding exchangeable shares upon 60 days' notice, subject to the prior written consent of Brookfield Corporation[943](index=943&type=chunk) - Brookfield Corporation, as the sole holder of Class C shares, holds the residual economic interest in the company and has consent rights over key matters, including mergers and amendments to bye-laws[927](index=927&type=chunk) [Material Contracts](index=189&type=section&id=10.C%20MATERIAL%20CONTRACTS) The company has several material contracts, primarily with Brookfield Corporation, that define their operational and financial relationship, including agreements for support, administration, investment management, an equity commitment, and a credit facility - A Support Agreement with Brookfield Corporation ensures the economic equivalence of exchangeable shares with Brookfield Class A Shares[1087](index=1087&type=chunk) - An Administration Agreement allows Brookfield to provide key executives (CEO, CFO, CIO) and other administrative services on a cost-recovery basis[1031](index=1031&type=chunk)[1088](index=1088&type=chunk) - Investment Management Agreements appoint Brookfield as the investment manager for certain company assets, with fees based on invested assets[1092](index=1092&type=chunk) - A **$2 billion** Equity Commitment from Brookfield provides growth capital, callable in exchange for Class C or Junior Preferred Shares[1093](index=1093&type=chunk) - A **$400 million** revolving Credit Agreement with Brookfield provides liquidity for working capital purposes[1094](index=1094&type=chunk) [Taxation](index=194&type=section&id=10.E%20TAXATION) This subsection provides a general summary of material U.S. and Canadian federal income tax considerations for shareholders, highlighting the uncertain tax treatment for U.S. Holders and potential adverse consequences related to PFIC or RPII classifications - The U.S. federal income tax treatment of the class A exchangeable shares is uncertain, but the company treats them as its own stock for tax purposes[1078](index=1078&type=chunk) - U.S. Holders face risks of adverse tax consequences if the company is classified as a Passive Foreign Investment Company (PFIC), though the company does not expect to be a PFIC but cannot provide assurance[276](index=276&type=chunk)[561](index=561&type=chunk) - If the company's non-U.S. subsidiaries are determined to have Related Person Insurance Income (RPII), U.S. Holders may be subject to current taxation on their pro rata share of such income[277](index=277&type=chunk)[1109](index=1109&type=chunk) - For Canadian Resident Holders, dividends on exchangeable shares are included in income but are not eligible for the dividend tax credit, and the exchange of shares for Brookfield Class A Shares is a taxable disposition[272](index=272&type=chunk)[298](index=298&type=chunk) PART II [Controls and Procedures](index=213&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with the latter assessment excluding the recently acquired American National - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[1165](index=1165&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[1133](index=1133&type=chunk) - The assessment of internal control over financial reporting excluded the recently acquired American National, which constituted **68%** of total assets and **44%** of revenues for the year ended December 31, 2022[1133](index=1133&type=chunk)[420](index=420&type=chunk) - The company's independent registered public accounting firm, Deloitte LLP, has audited and issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[420](index=420&type=chunk)[1133](index=1133&type=chunk) PART III [Financial Statements](index=216&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section contains the audited combined consolidated financial statements of Brookfield Reinsurance Ltd. for 2022, 2021, and 2020, prepared in accordance with IFRS, including the Report of Independent Registered Public Accounting Firm and detailed notes [Report of Independent Registered Public Accounting Firm](index=223&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte LLP issued an unqualified opinion on the company's combined consolidated financial statements and the effectiveness of its internal control over financial reporting, while identifying critical audit matters related to the valuation of future policy benefits - The auditors, Deloitte LLP, expressed an unqualified opinion that the financial statements are fairly presented in accordance with International Financial Reporting Standards (IFRS)[1177](index=1177&type=chunk) - The audit identified two Critical Audit Matters: 1) The valuation of future policy benefits related to the American National acquisition, due to the complexity of assumptions for discount rates and mortality; 2) The valuation of existing future policy benefits, due to the subjective and complex judgments required for mortality and policyholder behavior assumptions[1178](index=1178&type=chunk)[425](index=425&type=chunk) [Consolidated Financial Statements](index=228&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show significant growth in 2022, primarily due to the American National acquisition, with total assets increasing to **$43.5 billion** and net income reaching **$492 million** Combined Consolidated Statement of Financial Position (in US$ Millions) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$43,499** | **$11,493** | | Total Liabilities | $42,042 | $10,058 | | Total Equity | $1,457 | $1,435 | | **Total Liabilities and Equity** | **$43,499** | **$11,493** | Combined Consolidated Statement of Operations (in US$ Millions) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenues | $5,101 | $7,241 | $514 | | Total Benefits and Expenses | $4,763 | $7,291 | $512 | | **Net Income (Loss) for the Year** | **$492** | **$(44)** | **$1** | Combined Consolidated Statement of Cash Flows (in US$ Millions) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Cash flows from operating activities | $107 | $1,581 | $399 | | Cash flows from investing activities | $(4,341) | $(3,864) | $(385) | | Cash flows from financing activities | $5,994 | $2,640 | $13 | | **Cash and cash equivalents, end of year** | **$2,145** | **$393** | **$35** | [Notes to Financial Statements](index=236&type=section&id=Notes%20to%20Financial%20Statements) The notes provide detailed explanations of accounting policies and financial statement line items, including the **$5.1 billion** American National acquisition, the **$28.1 billion** investment portfolio, methodologies for **$15.8 billion** in future policy benefits, and segment-level financial results - The acquisition of American National on May 25, 2022, for **$5.1 billion** in cash, added **$29.1 billion** in assets and **$24.0 billion** in liabilities, resulting in **$102 million** of goodwill[510](index=510&type=chunk)[483](index=483&type=chunk) - As of Dec 31, 2022, the company's investment portfolio totaled **$28.1 billion**, with the majority in debt securities (**$19.0 billion**) and loans and receivables (**$7.5 billion**)[484](index=484&type=chunk) - Future policy benefits of **$15.8 billion** are calculated using different actuarial methods: Canadian Asset Liability Method (CALM) for the PRT business, and US GAAP methodologies for the Reinsurance and Direct Insurance segments, as permitted by IFRS 4[453](index=453&type=chunk)[455](index=455&type=chunk)[718](index=718&type=chunk) - The company's operations are reported across three segments: Reinsurance, Pension Risk Transfer (PRT), and Direct Insurance, with the Direct Insurance segment being the largest contributor to Distributable Operating Earnings (DOE) for 2022[1288](index=1288&type=chunk)[1309](index=1309&type=chunk)
Brookfield Reinsurance .(BNRE) - 2022 Q4 - Annual Report