The AEL board has lifted a “standstill” provision that allows Brookfield to purchase more company shares than the 20 per cent stake it already owns, according to a securities filing on Tuesday. According to a letter from Brookfield addressed to the AEL board of directors in the filing, a definitive deal contract could be signed by the end of this week.

AEL had long been coveted by investment managers as one of the last large “fixed-indexed” annuities merchants whose customer premiums could be invested in complex corporate loans and other fixed-income assets besides traditional bonds. In 2020, AEL had repelled an unsolicited joint bid from Apollo’s Athene unit, which had partnered with MassMutual.

At that time, Brookfield purchased a stake in AEL and entered into a reinsurance pact, which gave the asset manager responsibility for managing billions in AEL customer liabilities.

Bhalla took the helm of AEL in early 2020 and had been implementing a strategy he called “AEL 2.0” in which the company partnered with multiple alternative asset managers to more aggressively invest the funds of customers.

Amid the corporate governance turmoil late last year, AEL faced another unsolicited bid from Prosperity Life, a life insurer owned by Elliott Management. Prosperity dropped that $4bn offer early in 2023 after AEL’s board rebuffed it.

Brookfield last year listed a minority stake in BAM to unlock its public market value and create a currency to make purchases as the asset management industry consolidates.

This story originally appeared on: Financial Times - Author:Antoine Gara

The issue pits insurers backed by large private equity firms such as Blackstone, Apollo Global and KKR — who are increasingly investing in the loans — against traditional life insurers such as MetLife and Prudential Financial, who warn of growing risks. Monday’s gathering is hosted by the National Association of Insurance Commissioners, a trade group whose standards are relied upon by state insurance commissioners.

The private equity-backed insurers are resisting a proposed 50 per cent increase in the capital charges held against the riskiest slices of corporate loan packages that are purchased with annuity premiums. Those increases are supported by many of the largest life insurers in the US, who warn that their aggressive rivals are overloading customer portfolios with excessive risk. Higher capital requirements can help absorb potential investment losses but also depress investment returns.

Regulators have been increasing their scrutiny of new insurance players built out of private equity firms, whose credit investing units rely on insurance and annuity premiums to invest in fixed income securities, bolstering the firms’ overall assets under management.

The insurance businesses inside private equity firms tend to invest in more complex securities in order to earn greater “spread” profits between investment returns and obligations owed to policyholders. The private equity firms have insisted that their portfolio choices do not increase risk of losses but rather seek excess returns through buying illiquid or complex instruments.

The working group of the NAIC is set to discuss the capital charges associated with collateralised loan obligations, or CLOs, that bundle multiple corporate loans and sell in tranches that range in rating from AAA down to high yield and equity.

The current risk-based capital regime, the NAIC noted, allows for an “arbitrage” opportunity for the holder of a CLO loan. A B-rated corporate loan owned by an insurer has to set aside equity of 9.5 per cent. However, a CLO created from a package of B-rated loans with six tranches would have a blended capital charge of just 2.9 per cent.

This story originally appeared on: Financial Times - Author:Antoine Gara