Financial Performance - Gross premiums increased by $6.8 billion in 2021 compared to 2020, driven by two large-block reinsurance transactions and a higher volume of pension risk transfer (PRT) deals closed [220]. - Net investment income, including funds withheld, rose by $54 million in 2021, reflecting growth in the investment portfolio and realized gains from the first large-block reinsurance transaction [220]. - The company reported a net loss of $44 million for the year ended December 31, 2021, compared to net income of $1 million in 2020 [219]. - Total revenues for 2021 were $7.344 billion, a significant increase from $514 million in 2020 [219]. - Distributable Operating Earnings (DOE) increased to $30 million in 2021, up from $1 million in 2020, with expectations for further growth in the coming quarters [222]. - Cash generated from operating activities was $1.6 billion in 2021, compared to $399 million in 2020, largely due to favorable changes in insurance reserves [241]. - Cash generated from financing activities was $2.6 billion in 2021, significantly up from $13 million in 2020, mainly from the issuance of shares [245]. - Distributable Operating Earnings (DOE) for the PRT segment increased to $11 million in 2021 from $1 million in 2020, reflecting a higher investment spread [236]. Assets and Liabilities - Insurance reserves increased by $7.2 billion in 2021, primarily due to two new reinsurance transactions and new PRT deals [231]. - Cash and cash equivalents rose by $358 million during the year, largely due to cash held within investment portfolios from new reinsurance treaties [228]. - Total assets increased to $11.493 billion as of December 31, 2021, compared to $1.440 billion in 2020 [228]. - Reinsurance payable increased by $75 million due to new reinsurance treaties closed during the year [232]. - Corporate borrowings rose by $693 million, primarily from drawings on a 364-day revolving credit facility for investment opportunities [232]. - Deferred revenue increased by $82 million as a result of a negative ceding commission from a reinsurance transaction [232]. - Assets Under Management (AUM) grew by $8.6 billion to $9.7 billion, driven by new Reinsurance and Pension Risk Transfer (PRT) business [232]. Market Trends and Opportunities - The Canadian PRT market has expanded at a growth rate of approximately 24% per annum since 2015, indicating significant growth opportunities [254]. - The life insurance and annuities industry in North America and Western Europe has over $13 trillion in assets, growing at approximately 4% annually [255]. - Insurers are facing pressure on profitability due to low interest rates, creating opportunities for higher-yielding alternative investments [255]. - Many insurers are shifting towards less asset-intensive products, seeking to free up capital through reinsurance [255]. - Recent market conditions have exposed under-capitalized companies, increasing the demand for reinsurance solutions [255]. - Public market valuations for insurers have compressed, leading to a search for partnerships to address capital needs [255]. Risk Management - The company manages interest rate risk through asset liability management (ALM), using derivatives to reduce market risk [259]. - Credit risk is managed by establishing concentration limits and monitoring the financial condition of counterparties [260]. - The company utilizes foreign exchange forwards to manage foreign exchange risk associated with its insurance contracts [258]. - BAC recognizes reinsurance assets related to longevity reinsurance as the difference between scheduled fixed and actual benefit payments [282]. Corporate Governance - The board meets at least four times each year, with additional meetings held as necessary to address specific business items [331]. - The board is composed of a minimum of four and a maximum of eight members, with at least a majority required to be independent of the company and Brookfield [333]. - The company has adopted a majority voting policy for the election of directors, requiring a majority of shares voted in favor for a nominee to be elected [335]. - The board oversees the management of the company's business and affairs through three standing committees: Audit, Governance and Nominating, and Compensation [337]. - The Governance and Nominating Committee regularly reviews the board's composition and recommends changes to ensure a balance of experience and fresh perspectives [338]. - The Compensation Committee evaluates executive compensation to ensure it aligns with the company's risk profile and does not encourage excessive risk-taking [351]. - The company does not set formal diversity targets for board representation but emphasizes the importance of diversity in the nomination process [341]. - The company has adopted a Code of Business Conduct and Ethics to ensure integrity and compliance with legal requirements [357]. Executive Compensation - For the year ended December 31, 2021, directors received approximately $300,000 in aggregate compensation for all services to the company and its subsidiaries [327]. - Effective January 1, 2022, the annual retainer for directors increased to $150,000 for their service on the board of directors [328]. - During 2021, named executive officers (NEOs) received approximately $4.4 million in aggregate compensation paid by the company for all services [329]. - The Chief Executive Officer, Chief Investment Officer, and the Chief Executive Officer of the reinsurance business are employees of Brookfield, and their compensation is determined by Brookfield [329]. - The company does not have any equity compensation plans authorized for issuance, but NEOs may participate in Brookfield's long-term incentive plans at Brookfield's discretion [329]. Financial Reporting and Compliance - The Company measures performance using net income, gross premiums, and non-IFRS measures such as Distributable Operating Earnings and Excess Capital [298]. - Distributable Operating Earnings is defined as net income excluding depreciation, income taxes, and other specific costs, providing insight into operating performance [300]. - Excess Capital represents capital not currently supporting insurance contracts, defined as total cash, equity accounted investments, and other capital items [301]. - Net Reserve Capital is the capital within regulated entities supporting insurance contracts, defined as equity excluding Excess Capital [301]. - The Company is assessing the impact of IFRS 17, which will significantly affect the timing of earnings recognition for insurance contracts [290]. - The Company invests in structured entities, consolidating them within its financial statements due to significant influence and variable returns [288]. - The Company recognizes impairment indicators for associates at each reporting date, with potential for reversal of impairment losses [287].
Brookfield Reinsurance .(BNRE) - 2021 Q4 - Annual Report