EX-99.8 9 d522682dex998.htm EX-99.8 EX-99.8

Exhibit 99.8

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

These Unaudited Pro Forma Financial Statements are based on the combined and consolidated financial statements of Brookfield Reinsurance Ltd. (the “Company”), the consolidated financial statements of American National Insurance Company (“American National”), Argo Group International Holdings, Ltd. (“Argo”) and American Equity Investment Life Holding Company (“AEL”), and the financial information of the Real Estate Assets (as defined below) as adjusted to give effect to the acquisitions of American National (the “American National acquisition”) and the Real Estate Assets and the probable acquisitions of Argo (the “Argo acquisition”) and American Equity Investment Life Holding Company (“AEL acquisition”). These Unaudited Pro Forma Financial Statements have been prepared to illustrate the effects of the following transaction accounting adjustments that occurred upon completion of the American National acquisition and the acquisition of the Real Estate Assets or are expected to occur upon completion of the Argo acquisition and the AEL acquisition (collectively, the “Transactions”):

Consummated transactions:

 

   

The Company acquired a 100% interest in American National for total cash consideration of $5.1 billion. American National offers a broad portfolio of insurance products, including individual and group life insurance, annuities, health insurance, and property and casualty insurance. The Company acquired control of American National on May 25, 2022 and funded the acquisition through the issuance of $3.6 billion of junior preferred shares and class C shares to Brookfield Corporation and $1.5 billion of term loans issued to a consortium of external lenders.

 

   

In the first half of 2023, the Company acquired interests in a portfolio of core office and mixed-use real estate properties (“Real Estate Assets”) which are accounted for as equity method investments. The properties are office and mixed-use commercial properties that provide stable operating income to the Company’s insurance portfolio. Total fair value of the consideration transferred in relation to the portfolio of assets acquired was approximately $800 million, and was funded with cash on hand available to the Company.

Probable transactions:

 

   

The Company is expected to acquire a 100% interest in Argo for total expected cash consideration of $1.1 billion. Argo is a U.S. focused underwriter of specialty insurance products in the property and casualty market. The Company is expected to fund the transaction with existing cash on hand available to the Company.

 

   

The Company is expected to acquire all of the outstanding shares of common stock of AEL it does not already own for total expected consideration of $3.4 billion, which values AEL at $4.3 billion. AEL is a U.S. based insurance company, specializing in the development and sale of annuity and life insurance products. The Company is expected to fund the transaction with cash on hand available to the Company, class A limited voting shares of Brookfield Asset Management Ltd. (“BAM”), and $350 million of debt financing.

The information in the Unaudited Condensed Pro Forma Statement of Operating Results give effect to the pro forma adjustments as if they had been consummated on January 1, 2022. The information in the Unaudited Condensed Pro Forma Statement of Financial Position gives effect to the pro forma adjustments as if the Argo acquisition and the AEL acquisition had been consummated on June 30, 2023. As a result of the acquisition of American National on May 25, 2022, the acquired assets and liabilities of American National are included within the statement of financial position of the Company as of June 30, 2023 and the results of American National have been included in the Company’s statement of operations for the six months ended June 30, 2023. As a result of the acquisition of the Real Estate Assets in the first half of 2023, the investment in the Real Estate Assets is included within the statement of financial position of the Company as of June 30, 2023. All financial data in the Unaudited Pro Forma Financial Statements is presented in U.S. dollars, and unless otherwise noted, has been prepared using accounting policies that are consistent with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The Unaudited Pro Forma Financial Statements are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The notes to the Unaudited Pro Forma Financial Statements provide a detailed discussion of how such adjustments were derived and presented in the Unaudited Pro Forma Financial Statements. The Unaudited Pro Forma Financial Statements should be read in conjunction with:

 

1


   

the audited financial statements of the Company as at December 31, 2022 and 2021 and for each of the years in the three years ended December 31, 2022, and the unaudited interim financial statements of the Company as at June 30, 2023 and December 31, 2022 and for the three and six months ended June 30, 2023 and 2022;

 

   

the audited combined statement of revenues and certain operating expenses of the Real Estate Assets for the year ended December 31, 2022, and the unaudited combined statement of revenues and certain operating expenses for the six months ended June 30, 2023;

 

   

the audited financial statements of American National as of December 31, 2021 and 2020 and for each of the years in the two year period ended December 31, 2021, and the unaudited interim financial statements of American National as of June 30, 2022 and December 31, 2021 and for the six months ended June 30, 2022 and 2021;

 

   

the audited financial statements of Argo as at December 31, 2022 and 2021 and for each of the years in the three years ended December 31, 2022, and the unaudited interim financial statements of Argo as at June 30, 2023 and December 31, 2022 and for the three and six months ended June 30, 2023 and 2022; and

 

   

the audited financial statements of AEL as at December 31, 2022 and 2021 and for each of the years in the three years ended December 31, 2022, and the unaudited interim financial statements of AEL as at June 30, 2023 and December 31, 2022 and for the three and six months ended June 30, 2023 and 2022, as well as

 

   

the accompanying notes to such financial statements.

The historical financial statements of the Company have been prepared in accordance with U.S. GAAP. The Unaudited Pro Forma Financial Statements have been prepared for illustrative purposes only and are not necessarily indicative of the Company’s financial position or results of its operations had the transactions for which we are giving pro forma effect occurred on the dates or for the periods indicated, nor is such pro forma financial information necessarily indicative of the results to be expected for any future period. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

 

2


UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION

As at June 30, 2023

Brookfield Reinsurance Ltd.

 

           Probable 
Transactions
             

As at June 30, 2023

In USD, millions

   Brookfield
Reinsurance
Ltd. (Historical)
    Argo (2)     AEL (3)     Pro Forma -
Probable
Transactions
    Pro Forma
Combined
 

Assets

          

Available-for-sale fixed maturity securities, at fair value

   $ 15,833     $ 2,590     $ 38,680     $ 41,270     $ 57,103  

Equity securities, at fair value

     1,362       310       (875     (565     797  

Mortgage loans on real estate

     5,958       160       6,900       7,060       13,018  

Real estate and real estate partnerships

     2,224       —         2,920       2,920       5,144  

Investment funds

     1,956       55       —         55       2,011  

Policy loans, net

     381       —         —         —         381  

Private loans

     1,337       —         —         —         1,337  

Short term investments

     2,905       841       —         841       3,746  

Other invested assets, net

     402       5       2,545       2,550       2,952  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investments

     32,358       3,961       50,170       54,131       86,489  

Cash and cash equivalents

     2,893       (1,023     5,001       3,978       6,871  

Accrued investment income

     285       19       488       507       792  

Deferred policy acquisition costs

     1,986       —         —         —         1,986  

Coinsurance deposits

     —         —         13,362       13,362       13,362  

Reinsurance funds withheld

     6,540       —         (4,938     (4,938     1,602  

Premiums due and other receivables

     541       312       —         312       853  

Ceded unearned premiums

       358       —         358       358  

Deferred tax asset

     489       91       1,036       1,127       1,616  

Reinsurance recoverables, net

     627       2,908       —         2,908       3,535  

Property and equipment

     160       —         —         —         160  

Goodwill, VOBA and intangible assets

     121       164       2,502       2,666       2,787  

Other assets

     849       276       1,120       1,396       2,245  

Separate account assets

     1,145       —         —         —         1,145  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 47,994     $ 7,066     $ 68,741     $ 75,807     $ 123,801  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

          

Future policy benefits

     8,863       —         —         —         8,863  

Policyholders’ account balances

     23,018       —         56,972       56,972       79,990  

Policy and contract claims

     1,868       5,205       210       5,415       7,283  

Deposit liabilities

     1,632       —         —         —         1,632  

Market risk benefit

     131       —         2,673       2,673       2,804  

Unearned premium reserve

     1,150       1,003       —         1,003       2,153  

Due to related parties

     525       —         —         —         525  

Other policyholder funds

     316       —         —         —         316  

Notes payable

     158       —         —         —         158  

Corporate borrowings

     1,740       —         —         —         1,740  

Subsidiary borrowings

     1,494       369       1,213       1,582       3,076  

Liabilities issued to reinsurance entities

     217       —         —         —         217  

Other liabilities

     1,191       355       3,935       4,290       5,481  

Separate account liabilities

     1,145       —         —         —         1,145  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

   $ 43,448     $ 6,932     $ 65,003     $ 71,935     $ 115,383  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Junior preferred shares

     2,635       —         —         —         2,635  

Equity

          

Class A exchangeable, Class B, and Class C (10,450,952 class A exchangeable shares, 24,000 class B shares; par value $33.56 per share and 41,314,891 class C shares issued and outstanding; par value $1 per share)

     1,926       —         —         —         1,926  

Additional paid-in capital

     —         —         3,110       3,110       3,110  

Retained earnings

     477       (10     —         (10     467  

Accumulated other comprehensive income (loss), net of taxes

     (501     —         —         —         (501

Non-controlling interests

     9       144       628       772       781  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

   $ 1,911     $ 134     $ 3,738     $ 3,872     $ 5,783  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 47,994     $ 7,066     $ 68,741     $ 75,807     $ 123,801  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

3


UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS

For the Six Months Ended June 30, 2023

Brookfield Reinsurance Ltd.

 

                        Probable Transactions                     

For the six months ended June 30, 2023

In USD, millions (except per share
amounts)

   Brookfield
Reinsurance
Ltd.
(Historical)
    Real Estate
Assets
(Consum-mated

Transactions) (1)
     Pro Forma -
Consummated
Transactions
(Subtotal)
    Argo (2)     AEL (3)     Pro Forma -
Probable

Transactions
(Subtotal)
    Note      Pro Forma
Combined
 

Net premiums

   $ 1,899     $ —        $ 1,899     $ 681     $ 141     $ 822        $ 2,721  

Other policy revenue

     200       —          200       —         33       33          233  

Net investment income

     840       9        849       60       1,104       1,164          2,013  

Investment related gains (losses), net

     186       —          186       4       237       241          427  

Net investment results from funds withheld

     118       —          118       —         —         —            118  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total revenues

     3,243       9        3,252       745       1,515       2,260          5,512  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Policyholder benefits and claims incurred

     (1,875     —          (1,875     (506     (12     (518        (2,393

Interest sensitive contract benefits

     (557     —          (557     —         (180     (180        (737

Commissions for acquiring and servicing policies

     (393     —          (393     (226     —         (226        (619

Net change in deferred policy acquisition costs

     362       —          362       —         —         —            362  

Change in fair value of market risk benefit

     8       —          8       —         (40     (40        (32

Change in fair value of embedded derivatives

     —         —          —         —         (568     (568        (568

Other reinsurance expenses

     (37     —          (37     —         —         —            (37

Operating expenses

     (362     —          (362     (19     (150     (169        (531

Interest expense

     (120     —          (120     (16     (31     (47        (167
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total benefits and expenses

     (2,974     —          (2,974     (767     (981     (1,748        (4,722
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) before income taxes

     269       9        278       (22     534       512          790  

Income tax recovery (expense)

     (2     —          (2     6       (237     (231        (233
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) for the period

   $ 267     $ 9      $ 276     $ (16   $ 297     $ 281        $ 557  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Attributable to:

                  

Class A exchangeable and Class B shareholders

     2       —          2       —         —         —            2  

Class C shareholders

     263       9        272       (21     275       254         
526
 

Non-controlling interests

     2       —          2       5       22       27          29  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 
   $ 267     $ 9      $ 276     $ (16   $ 297     $ 281        $ 557  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) per class C share

                  

Basic

   $ 5.04                  5      $ 11.44  

See the accompanying notes to the pro forma financial statements.

 

4


UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS

For the Year Ended December 31, 2022

Brookfield Reinsurance Ltd.

 

          Consummated
Transactions
          Probable
Transactions
                   

For the year ended December 31,

2022

In USD, millions

  Brookfield
Reinsurance
Ltd.
(Historical)
    American
National (4)
    Real Estate
Assets (1)
    Pro Forma -
Consummated
Transactions
    Argo
(2.1)
    AEL
(3.1)
    Pro Forma
Probable
Transactions
    Note     Pro
Forma
Combined
 

Net premiums

  $ 3,011     $ 979     $ —       $ 3,990     $ 1,258     $ 250     $ 1,508       $ 5,498  

Other policy revenue

    224       178       —         402       —         42       42         444  

Net investment income

    978       385       5       1,368       130       2,308       2,438         3,806  

Investment related gains (losses), net

    (185     (7     —         (192     (141     (1,186     (1,327       (1,519

Net investment results from funds withheld

    281       —         —         281       —         —         —           281  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total revenues

    4,309       1,535       5       5,849       1,247       1,414       2,661         8,510  

Claims and policyholder benefits

    (2,852     (854     —         (3,706     (928     (33     (961       (4,667

Interest sensitive contract benefits

    (357     (53     —         (410     —         (555     (555       (965

Commissions for acquiring and servicing policies

    (413     (319     —         (732     (466     —         (466       (1,198

Net change in deferred policy acquisition costs

    339       224       —         563       —         —         —           563  

Change in fair value of market risk benefit

    127       (5     —         122       —         (4     (4       118  

Change in fair value of embedded derivatives

    —         —         —         —         —         1,732       1,732         1,732  

Operating expenses

    (439     (260     —         (699     (51     (290     (341       (1,040

Other reinsurance expenses

    (78     —         —         (78     —         —         —           (78

Interest expense

    (104     (24     —         (128     (22     (60     (82       (210

Impairment of intangible assets and goodwill

    —         —         —         —         (28     —         (28       (28
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total benefits and expenses

    (3,777     (1,291     —         (5,068     (1,495     790       (705       (5,773
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss) before income taxes

    532       244       5       781       (248     2,204       1,956         2,737  

Income tax recovery (expense)

    (31     (49     —         (80     8       (463     (455       (535
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss) for the period

  $ 501     $ 195     $ 5     $ 701     $ (240   $ 1,741     $ 1,501       $ 2,202  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Attributable to:

                 

Class A exchangeable and Class B shareholders

    6       —         —         6       —         —         —           6  

Class C shareholders

    493       193       5       691       (251     1,697       1,446         2,137  

Non-controlling interests

    2       2       —         4       11       44       55         59  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss) for the period

  $ 501     $ 195     $ 5     $ 701     $ (240   $ 1,741     $ 1,501       $ 2,202  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss) per class C share

                 

Basic

  $ 13.75                   5     $ 66.92  

See the accompanying notes to the pro forma financial statements

 

5


Pro Forma Adjustments

 

1.

Real Estate Assets

In the first half of 2023, the Company acquired the Real Estate Assets, which are interests in a portfolio of core office and mixed-use real estate properties. The Company’s interests in the Real Estate Assets range from 5.8 to 49.5 percent, which do not provide the Company with a controlling financial interest and are deemed to provide the Company with the ability to exert significant influence over the properties, and therefore the Company accounts for such interests using the equity method.

Transaction accounting adjustments related to the Real Estate Assets are made to net investment income for the Company’s share of the properties’ earnings (losses) as follows:

 

   

The Company’s consolidated statement of operating results for the six months ended June 30, 2023 has been adjusted to reflect $9 million for the Company’s share of the Real Estate Assets’ results from January 1, 2023 to the date of the acquisitions.

 

   

The Company’s consolidated statement of operating results for the year ended December 31, 2022 has been adjusted to $5 million for the Company’s share of the Real Estate Assets’ results for the year ended December 31, 2022.

 

2.

Argo - June 30, 2023

The following tables and explanatory notes present the statement of financial position as at June 30, 2023 and the statement of operating results for the six months ended June 30, 2023 of Argo, as adjusted to give effect to the Argo acquisition. As part of the definitive merger agreement, each issued and outstanding Argo common share will be converted into the right to receive $30.00 in cash at closing of the merger, funded by existing cash on hand and liquidity available to the Company, while the preferred shares will continue to be outstanding and considered as our non-controlling interests.

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION

As at June 30, 2023

Argo Group International Holdings, Ltd.

 

As at June 30, 2023

In USD, millions

   Argo
(Historical)
(2a)
     Reclassification
to conform
presentation (2b)
    Transaction
Accounting
Adjustments
(2c)
           Argo
Pro
Forma
 

Assets

            

Investments:

            

Fixed maturities available-for-sale, at fair value

   $ 2,590      $ (2,590   $ —          $ —    

Available-for-sale fixed maturity securities, at fair value

        2,590       —            2,590  

Commercial mortgage loan

     160        (160     —            —    

Mortgage loans on real estate

        160       —            160  

Equity securities, at fair value

     43        267       —            310  

Investment funds

        55       —            55  

Other investments

     327        (327     —            —    

Other invested assets, net

        5       —            5  

Short term investments, at fair value

     841        (841     —            —    

Short term investments

     —          841       —            841  
  

 

 

    

 

 

   

 

 

      

 

 

 

Total investments

     3,961        —         —            3,961  

Cash

     29        —         (1,052     2c(iv)        (1,023

Accrued investment income

     19        —         —            19  

Premiums due and other receivables

     —          312       —            312  

Premiums receivable

     312        (312     —            —    

Reinsurance recoverables, net

     —          2,908       —            2,908  

Reinsurance recoverables

     2,908        (2,908     —            —    

Goodwill

     119          45       2c(ii)        164  

Current income taxes receivable, net

     45        (45     —            —    

Deferred tax asset, net

     101        —         (10     2c(vi)        91  

Deferred acquisition costs, net

     104        —         (104     2c(i)        —    

Ceded unearned premiums

     358        —         —            358  

Operating lease right-of-use assets

     53        (53     —            —    

Other assets

     178        98            276  
  

 

 

    

 

 

   

 

 

      

 

 

 

Total assets

   $ 8,187      $ —       $ (1,121      $ 7,066  
  

 

 

    

 

 

   

 

 

      

 

 

 

 

6


Liabilities and shareholders’ equity

           

Policy and contract claims

     —         5,205       —            5,205  

Reserves for losses and loss adjustment expenses

     5,205       (5,205     —            —    

Unearned premiums

     1,003       —         —            1,003  

Accrued underwriting expenses and other liabilities

     50       (50     —            —    

Reinsurance payable

     —         —         —            —    

Ceded reinsurance payable, net

     183       (183     —            —    

Funds held

     51       (51     —            —    

Subsidiary borrowings

     —         399       (30     2c(iii)        369  

Senior unsecured fixed rate notes

     140       (140     —            —    

Junior subordinated debentures

     259       (259     —            —    

Other liabilities

     —         345       10       2c(v)        355  

Operating lease liabilities

     61       (61     —            —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     6,952       —         (20        6,932  
  

 

 

   

 

 

   

 

 

      

 

 

 

Shareholders’ equity:

           

Preferred shares and additional paid-in capital

     144       (144     —            —    

Common shares

     46       —         (46     2c(iv)        —    

Additional paid-in capital

     1,395       —         (1,395     2c(iv)        —    

Treasury shares

     (455     —         455       2c(iv)        —    

Retained earnings

     371       —         (381     2c(iv)        (10

Accumulated other comprehensive loss, net of taxes

     (266     —         266       2c(iv)        —    

Non-controlling interests

     —         144       —            144  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total shareholders’ equity

     1,235       —         (1,101        134  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities and shareholders’ equity

   $ 8,187     $ —       $ (1,121      $ 7,066  
  

 

 

   

 

 

   

 

 

      

 

 

 

 

7


UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS

For the Six Months Ended June 30, 2023

Argo Group International Holdings, Ltd.

 

For the six months ended June 30, 2023

In USD, millions

   Argo
(Historical)
(2a)
    Reclassification
to conform
presentation (2b)
    Disposal
of Assets
Held for
Sale

(2c (vii))
    Transaction
Accounting
Adjustments
(2d)
           Argo Pro
Forma
 
Premiums and other revenue:              

Earned premiums

   $ 720     $ (720   $ —       $ —          $ —    

Net premiums

     —         720       (39     —            681  

Net investment income

     62       —         (2          60  

Investment related gains (losses), net

     —         (16     20       —            4  

Net realized investment and other gains (losses)

     (28     28       —         —            —    

Change in fair value recognized

     12       (12     —         —            —    

Change in allowance for credit losses on fixed maturity securities

     —         —         —         —            —    
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total net investment and other gains (losses)

     (16     —         20       —            4  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total revenue

     766       —         (21     —            745  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Expenses:

             

Losses and loss adjustment expenses

     (526     526       —         —            —    

Claims and policyholder benefits

     —         (526     20            (506

Underwriting, acquisition and insurance expenses

     (248     232       16            —    

Commissions for acquiring and servicing policies

     —         (232     —         6       2c(i)        (226

Non-operating expenses

     (18     18       —         —            —    

Operating expenses

     —         (19     —         —            (19

Interest expense

     (17     —         —         1       2c(iii)        (16

Fee and other income (expense), net

     1       (1     —         —            —    

Foreign currency exchange gains (losses)

     (4     2       2            —    
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total expenses

     (812     —         38       7          (767
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) before income taxes

     (46     —         17       7          (22

Income tax provision (benefit)

     14       —         (7     (1     2c(vi)        6  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

     (32     —         10       6          (16

Dividends on preferred shares

     (5     —         —         —            (5
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) attributable to common

     (37     —         10       6          (21
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Attributable to:

             

Class A exchangeable and Class B shareholders

     —         —         —         —            —    

Class C shareholders

     (37     —         10       6          (21

Non-controlling interests

     5       —         —         —            5  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 
   $ (32   $ —       $ 10     $ 6        $ (16
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS

 

a.

The historical financial statements of Argo are prepared in accordance with U.S. GAAP. The Company has reviewed and determined that there are no material differences in accounting policies applied by Argo and the Company.

 

b.

Certain reclassification adjustments have been recorded to conform Argo’s financial statement presentation to the presentation used by the Company.

 

c.

The Argo acquisition will be accounted for using the acquisition method under ASC 805 Business Combinations with the Company being identified as the acquirer. The pro forma adjustments in the Unaudited Pro Forma Statement of Financial Position record the use of $1.1 billion of cash on hand at the Company in exchange for the net assets of Argo. The following table summarizes, on a preliminary basis, the expected cash consideration

 

8


  transferred, the fair value of assets acquired and liabilities assumed at the acquisition date, and any resulting goodwill:

 

Consideration transferred    $ 1,052  
Cash & cash equivalents      29  
Investments      3,961  
Accrued investment income      19  
Premiums due and other receivables      312  
Reinsurance recoverables      2,908  
Deferred tax asset, net      91  
Ceded unearned premiums      358  
Other assets      276  
Policyholder and contract claims      (5,205
Unearned premiums      (1,003
Subsidiary borrowings      (369
Other liabilities      (345
  

 

 

 
Net identifiable assets acquired      1,032  
Non-controlling interests      (144
  

 

 

 
Net assets acquired      888  
  

 

 

 

Goodwill

   $ 164  
  

 

 

 

The preliminary purchase price allocation used to prepare the transaction accounting adjustments in the Unaudited Pro Forma Statement of Financial Position is based on various assumptions to determine management’s best estimates of fair value. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations to the adjustments referred to in the explanatory notes below. The final allocation may include (1) fair value adjustments to policyholder and contract claims; (2) recognition of the value of business acquired or other intangible assets such as customer relationships, brand, or network and (3) other changes to assets and liabilities. Accordingly, the unaudited pro forma adjustments are preliminary and have been made solely for illustrative purposes.

Preliminary ASC 805 adjustments include the following:

 

i.

This adjustment eliminates the deferred policy acquisition costs previously recognized by Argo which do not represent rights to future cash flows. Deferred policy acquisitions costs will be reset through the finalization of the purchase price allocation. This results in a decrease to total assets of $104 million as at June 30, 2023 and a decrease to commissions for acquiring and servicing policies arising from amortization of $6 million for the six months ended June 30, 2023.

 

ii.

This adjustment removes the $119 million of goodwill previously recognized by Argo, and the recognition of a goodwill of $164 million, based on the preliminary purchase price allocation as outlined above. The preliminary allocation of the goodwill potentially related to intangibles or value of business acquired (“VOBA”) is expected to be in a range of $60 million to $100 million.

 

iii.

Reflects a decrease of $30 million in subsidiary borrowings and the corresponding decrease in interest expense associated with the difference between the estimated fair value and the carrying value of assumed debt on acquisition.

 

iv.

This adjustment reflects the payment of purchase price of $1.1 billion to Argo’s historical common stockholders and the elimination of Argo’s historical equity.

 

v.

Reflects the accrual of $10 million of estimated transaction costs to be incurred by the Company in connection with its acquisition of Argo. These costs are reflected in the Unaudited Pro Forma Statement of Operating Results of the Company for the year ended December 31, 2022 and will not affect the Company’s statement of operating results beyond 12 months after the acquisition date.

 

9


vi.

This adjustment reflects the purchase accounting adjustments to the Argo historical deferred tax assets of $101 million. The Unaudited Pro Forma Statement of Operating Results has been adjusted to reflect the income tax and deferred tax impact of the transaction accounting adjustments based on an effective tax rate of 21%.

 

vii.

On February 2, 2023, Argo completed the sale of the entire issued share capital of Argo Underwriting Agency Limited for total consideration of $156 million, which included cash proceeds of $125 million and an additional $31 million placed in escrow related to certain reinsurance-related recoverables. The Unaudited Pro Forma Statement of Operating Results for the six months ended June 30, 2023 has been adjusted to give effect to the disposition by removing the results of disposed operations for the period from January 1, 2023 to the date of the disposal.

 

10


2.1.

Argo – December 31, 2022

The following table and explanatory notes present the statement of operating results for year ended December 31, 2022, as adjusted to give effect to the Argo acquisition.

UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS

For the Year Ended December 31, 2022

Argo Group International Holdings, Ltd.

 

For the year ended December 31, 2022

In USD, millions

   Argo
(Historical)
(2.1a)
    Reclassification
to conform
presentation
(2.1b)
    Disposal of
Assets Held
for Sale (2.1c)
    Transaction
Accounting
Adjustments
(2.1d)
           Argo
Pro
Forma
 

Premiums and other revenue:

             

Earned premiums

   $ 1,740     $ (1,740   $ —       $ —          $ —    

Net premiums

     —         1,740       (482     —            1,258  

Net investment income

     130       —         —         —            130  

Investment related gains (losses), net

     —         (115     (26     —            (141

Net realized investment and other gains (losses)

     (116     116       —         —            —    

Change in fair value recognized

     3       (3     —         —            —    

Change in allowance for credit losses on fixed maturity securities

     (2     2       —         —            —    
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total net investment and other gains (losses)

     (115     —         (26     —            (141
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total revenue

     1,755       —         (508     —            1,247  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Expenses:

             

Losses and loss adjustment expenses

     (1,167     1,167       —         —            —    

Claims and policyholder benefits

     —         (1,167     239       —            (928

Underwriting, acquisition and insurance expenses

     (671     671       —         —            —    

Commissions for acquiring and servicing policies

     —         (671     195       10       2.1d(i)        (466

Non-operating expenses

     (51     51       —         —            —    

Operating expenses

     —         (45     4       (10     2.1d(ii)        (51

Interest expense

     (27     —         3       2       2.1d(iii)        (22

Fee and other income (expense), net

     1       (1     —         —            —    

Foreign currency exchange gains (losses)

     5       (5     —         —            —    

Impairment of intangible assets and goodwill

     (28     —         —         —         2.1e        (28
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total expenses

     (1,938     —         441       2          (1,495
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) before income taxes

     (183     —         (67     2          (248

Income tax (provision) benefit

     8       —         —         —         2.1d(iv)        8  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

   $ (175   $ —       $ (67   $ 2        $ (240

Dividends on preferred shares

     11       —         —         —            11  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) attributable to common shareholders

   $ (186   $ —       $ (67   $ 2        $ (251
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Attributable to:

             

Class A exchangeable and Class B shareholders

     —         —         —         —            —    

Class C shareholders

     (186     —         (67     2          (251

Non-controlling interests

     11       —         —         —            11  
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 
   $ (175   $ —       $ (67   $ 2        $ (240
  

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

 

11


NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS

 

a.

The historical financial statements of Argo are prepared in accordance with U.S. GAAP. The Company has determined that there are no material differences in accounting policies applied by Argo and the Company.

 

b.

Certain reclassification adjustments have been recorded to conform Argo’s financial statement presentation to the presentation used by the Company.

 

c.

On February 2, 2023, Argo completed the sale of the entire issued share capital of Argo Underwriting Agency Limited for total consideration of $156 million, which included cash proceeds of $125 million and an additional $31 million placed in escrow related to certain reinsurance-related recoverables. The Unaudited Pro Forma Statement of Operating Results have been adjusted to give effect to the disposition by removing the results of disposed operations for the year ended December 31, 2022.

 

d.

Preliminary ASC 805 adjustments include the following:

 

  i.

Eliminates the deferred policy acquisition costs previously recognized by Argo which do not represent rights to future cash flows. This results in a decrease to commissions for acquiring and servicing policies arising from amortization of $10 million for the year ended December 31, 2022.

 

  ii.

Reflects the accrual of $10 million of estimated transaction costs to be incurred by the Company in connection with its acquisition of Argo. These costs are reflected in the Unaudited Pro Forma Statement of Operating Results of the Company for the year ended December 31, 2022 and will not affect the Company’s statement of operating results beyond 12 months after the acquisition date.

 

  iii.

Reflects a decrease in interest expense associated with the difference between the estimated fair value and the carrying value of assumed debt on acquisition.

 

  iv.

The Unaudited Pro Forma Statement of Operating Results has been adjusted to reflect the income tax and deferred tax impact of the transaction accounting adjustments based on an effective tax rate of 21%.

 

e.

The historical financial statements of Argo included an impairment of intangible assets and goodwill of $28 million, consisting of a $17 million impairment of indefinite lived intangible assets and $11 million of goodwill. These impairment charges have not been reversed. As Argo Underwriting Agency Limited was subsequently disposed of the impairment charges are expected to be non-recurring.

 

12


3.

American Equity Investment Life Holding Company - June 30, 2023

The following tables and explanatory notes present the statement of financial position as at June 30, 2023 and the statement of operating results for the six months ended June 30, 2023 of AEL, as adjusted to give effect to the AEL acquisition. As part of the definitive merger agreement, each issued and outstanding share of AEL not already owned by the Company will be converted into the right to receive $55.00 per share at closing of the merger, payable in cash and Brookfield Asset Management Ltd. (NYSE, TSX: BAM) (“BAM”) class A limited voting shares (“BAM Shares”). In certain circumstances, the Company will have the option to pay cash for the share portion of the consideration. For purpose of these unaudited pro forma financial statements, it is assumed that consideration is comprised of approximately $2.4 billion in cash which will be partly financed by $350 million of debt financing, 30.8 million BAM shares valued at $38.85 per share, and $875 million of the Company’s pre-existing investment in AEL. The merger consideration per AEL common share represents a 35% premium to AEL’s closing share price on June 23, 2023 and a 42% premium to the 90-day volume weighted average price (“VWAP”) as of the same date, in each case, for the AEL common shares. Subsequent to the acquisition, AEL’s preferred shares will continue to be outstanding and be part of the Company’s non-controlling interests.

 

13


UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION

As at June 30, 2023

American Equity Investment Life Holding Company

 

As at June 30, 2023

In USD, millions

   AEL
(Historical)
(3a)
    Reclassification
to conform
presentation
(3b)
    Transaction
Accounting
Adjustments
(3c)
         AEL Pro
Forma
 

Assets

           

Investments:

           

Fixed maturity securities, available for sale,

   $ 38,680     $ (38,680   $ —          $ —    

Available-for-sale fixed maturity securities,

     —         38,680       —            38,680  

Equity securities, at fair value

     —         —         (875   3c(i)      (875

Mortgage loans on real estate

     7,374       —         (474   3c(vii)      6,900  

Real estate investments related to

     1,270       (1,270     —            —    

Limited partnerships and limited liability

     1,650       (1,650     —            —    

Real estate and real estate partnerships

     —         2,920       —            2,920  

Derivative instruments

     1,132       (1,132     —            —    

Other investments

     1,413       (1,413     —            —    

Other invested assets, net

     —         2,545       —            2,545  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total investments

     51,519       —         (1,349        50,170  

Cash and cash equivalents

     5,001       —              5,001  

Coinsurance deposits

     14,247       —         (885   3c(vii)      13,362  

Reinsurance funds withheld

     —         —         (4,938   3c(viii)      (4,938

Market risk benefits

     234       (234     —            —    

Deferred policy acquisition costs

     2,843       —         (2,843   3c(iv)      —    

Deferred sales inducements

     2,134       —         (2,134   3c(iv)      —    

Deferred income taxes

     293       —         743     3c(vi)      1,036  

Accrued investment income

     488       —         —            488  

Income taxes recoverable

     56       (56     —            —    

Other assets

     830       290            1,120  

Goodwill, VOBA and intangible assets

     —         —         2,502     3c(ii)      2,502  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total assets

     77,645       —         (8,904        68,741  
  

 

 

   

 

 

   

 

 

      

 

 

 

Liabilities and Stockholders’ Equity

           

Liabilities

           

Policy benefit reserves

     59,857       7,565       (10,450   3c(vii), 3c(viii)      56,972  

Market risk benefits

     2,673       —         —            2,673  

Notes and loan payable

     789       (789     —            —    

Subsidiary borrowings

     —         868       345     3c(iii),(vii)      1,213  

Subordinated debentures

     79       (79     —            —    

Funds withheld for reinsurance liabilities

     7,565       (7,565     —            —    

Other policy funds and contract claims

     202       (202     —            —    

Policy and contract claims

     —         202       8     3c(vii)      210  

Other liabilities

     3,885       —         50     3c(v)      3,935  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     75,050       —         (10,047        65,003  

Stockholders’ equity:

           

Preferred stock

     —         —         —       3c(v)      —    

Common stock

     78       —         (78   3c(v)      —    

Additional paid-in capital

     1,056       —         2,054     3c(v)      3,110  

Accumulated other comprehensive loss

     (3,425     —         3,425     3c(v)      —    

Retained earnings

     4,863       —         (4,863   3c(v)      —    

Noncontrolling interests

     23       —         605     3c(i)      628  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total stockholders’ equity

     2,595       —         1,143          3,738  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities and stockholders’ equity

   $ 77,645     $ —       $ (8,904      $ 68,741  
  

 

 

   

 

 

   

 

 

      

 

 

 

 

14


UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS

For the Six Months Ended June 30, 2023

American Equity Investment Life Holding Company

 

For the six months ended June 30, 2023

In USD, millions

   AEL
(Historical)
(3a)
    Reclassification
to conform
presentation (3b)
    Transaction
Accounting
Adjustments
(3c)
           AEL
Pro
Forma
 

Revenue:

           

Premiums and other considerations

   $ 7     $ (7   $ —          $ —    

Annuity product charges

     134       (134     —            —    

Net premiums

     —         141       —            141  

Net investment income

     1,104       —         —            1,104  

Other policy revenue

     —         33       —            33  

Investment related gains (losses), net

     —         237       —            237  

Change in fair value of derivatives

     289       (289     —            —    

Net realized gains (losses) on investments

     (52     52       —            —    

Other revenue

     33       (33     —            —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Total revenue

     1,515       —         —            1,515  
  

 

 

   

 

 

   

 

 

      

 

 

 

Benefits and expenses:

           

Insurance policy benefits and change in future policy benefits

     (12     12       —            —    

Claims and policyholder benefits

     —         (12     —            (12

Interest sensitive and index product benefits

     (180     180       —            —    

Interest sensitive contract benefits

     —         (180     —            (180

Market risk benefits (gains) losses

     (40     40       —            —    

Change in fair value of market risk benefit

     —         (40     —            (40

Amortization of deferred sales inducements

     (94     —         94       3c(iv)        —    

Change in fair value of embedded derivatives

     (618     —         50       3c(viii)        (568

Interest expense

     —         (25     (6     3c(iii)        (31

Interest expense on notes and loan payable

     (22     22       —            —    

Interest expense on subordinated debentures

     (3     3       —            —    

Amortization of deferred policy acquisition costs

     (137     —         137       3c(iv)        —    

Other operating costs and expenses

     (150     —         —            (150
  

 

 

   

 

 

   

 

 

      

 

 

 

Total benefits and expenses

     (1,256     —         275          (981
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) before taxes

     259       —         275          534  

Income tax provision (benefit)

     (60     —         (177     3c(vi)        (237
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

   $ 199     $ —       $ 98        $ 297  

Less: Net income available to non-controlling interests

     —         —         —            —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) available to American Equity Investment Life Holding Company stockholders

     199       —         98          297  

Less: Preferred stock dividends

     22       —         —            22  
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) available to American Equity Investment Life Holding Company common stockholders

     177       —         98          275  
  

 

 

   

 

 

   

 

 

      

 

 

 

Attributable to:

           

Class A exchangeable and Class B shareholders

     —         —         —            —    

Class C shareholders

     177       —         98          275  

Non-controlling interests

     22       —         —            22  
  

 

 

   

 

 

   

 

 

      

 

 

 
   $ 199     $ —       $ 98        $ 297  
  

 

 

   

 

 

   

 

 

      

 

 

 

 

15


a.

The historical financial statements of AEL are prepared in accordance with U.S. GAAP. The Company has reviewed and determined that there are no material differences in accounting policies applied by AEL and the Company.

 

b.

Certain reclassification adjustments have been recorded to conform AEL’s financial statement presentation to the presentation used by the Company.

 

c.

The AEL acquisition will be accounted for using the acquisition method under ASC 805 Business Combinations with the Company being identified as the acquirer. The pro forma adjustments in the Unaudited Pro Forma Statement of Financial Position reflects total consideration of $4.3 billion. The following table summarizes, on a preliminary basis, the expected consideration transferred, the fair value of assets acquired and liabilities assumed at the acquisition date, and any resulting goodwill:

 

Fair value of consideration transferred

  

Cash

   $ 2,260  

BAM shares

     1,200  

Fair value of the Company’s pre-existing interest in AEL

     875  
  

 

 

 

Total consideration

     4,335  

Cash and cash equivalents

     5,001  

Investments

     46,107  

Coinsurance deposits

     13,362  

Deferred income taxes

     1,036  

Accrued investment income

     488  

Income taxes recoverable

     —    

Other assets

     1,120  

Policy benefit reserves

     (56,972

Market risk benefit liabilities

     (2,673

Subsidiary borrowings

     (863

Other policy funds and contract claims

     (210

Funds withheld for reinsurance liabilities

     —    

Other liabilities

     (3,935
  

 

 

 

Net identifiable assets acquired

     2,461  

Non-controlling interests

     (628
  

 

 

 

Net assets acquired

     1,833  
  

 

 

 

Goodwill, VOBA & intangibles

   $ 2,502  
  

 

 

 

The preliminary purchase price allocation used to prepare the transaction accounting adjustments in the Unaudited Pro Forma Statement of Financial Position is based on various assumptions to determine management’s best estimates of fair value. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations to the adjustments referred to in the explanatory notes below. Accordingly, the unaudited pro forma adjustments are preliminary and have been made solely for illustrative purposes.

Preliminary ASC 805 adjustments include the following:

 

  i.

As part of the transaction, the Company is expected to issue Class C shares to Brookfield Corporation in exchange for BAM class A limited voting shares, which will in turn be used as payment for the acquisition. These adjustments reflect the AEL’s equity net of total considerations of $4.3 billion, which comprise cash, the Company’s existing investment in AEL, as well as BAM’s Class A limited voting shares. The adjustments also include the elimination of AEL’s historical equity. The cash portion of the consideration is expected to be
funded by additional subsidiary borrowings of $350 million and through the issuance of additional equity. Noncontrolling interest has been adjusted to reflect the fair value of AEL’s preferred shares which will continue to be outstanding upon closing of the acquisition.

 

  ii.

Includes $2.5 billion related to the recognition of goodwill and VOBA, as well as intangible assets related to brand name and distribution channels, based on the preliminary purchase price as outlined above. The preliminary allocation of the $2.5 billion to goodwill, VOBA and intangibles is estimated to be in the range of $500 million to $1.2 billion, $500 million to $1.1 billion and $0 to $200 million, respectively.

 

16


  iii.

Reflects an increase of $345 million in subsidiary borrowings as part of the financing of the transaction and the adjustment to reflect the fair value of AEL’s existing financing, as well as the corresponding interest expense.

 

  iv.

Eliminates the deferred policy acquisition and deferred sales inducement costs previously recognized by AEL which do not represent rights to future cash flows. Deferred policy acquisitions costs will be reset through the finalization of the purchase price allocation. This results in a decrease to total assets of $5.0 billion as at June 30, 2023 and a decrease of $94 million and $137 million of amortization of the sales inducement costs and deferred acquisition costs, respectively, for the six months ended June 30, 2023.

 

  v.

Reflects the accrual of $50 million of liability associated with the estimated transaction costs to be incurred by the Company in connection with its acquisition of AEL. These transaction costs are reflected in the Unaudited Pro Forma Statement of Operating Results of the Company for the year ended December 31, 2022 and will not affect the Company’s statement of operating results beyond 12 months after the acquisition date.

 

  vi.

Reflects the purchase accounting adjustments of $743 million to the AEL historical deferred tax assets. The Unaudited Pro Forma Statement of Operating Results has been adjusted to reflect the deferred tax impact of the transaction accounting adjustments based on an effective tax rate of 21%.

 

  vii.

Reflects the fair value of the balances to give effect to the acquisition.

 

  viii.

Reflects the reversal of reinsurance funds withheld and derivative balances related to reinsurance treaties between the Company and AEL that will eliminate upon acquisition.

 

17


3.1

American Equity Investment Life Holding Company - December 31, 2022

The following tables and explanatory notes present the statement of operating results for year ended December 31, 2022, as adjusted to give effect to the AEL acquisition.

UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS

For the Year Ended December 31, 2022

American Equity Investment Life Holding Company

 

For the year ended December 31, 2022

In USD, millions

   AEL
(Historical)
(3.1a)
    Reclassification
to conform
presentation
(3.1b)
    Transaction
Accounting
Adjustments
(3.1c)
           AEL Pro
Forma
 

Revenue:

           

Premiums and other considerations

   $ 20     $ (20   $ —          $ —    

Annuity product charges

     230       (230     —            —    

Net premiums

     —         250       —            250  

Other policy revenue

       42            42  

Net investment income

     2,308       —         —            2,308  

Investment related gains (losses), net

     —         (1,186     —            (1,186

Change in fair value of derivatives

     (1,138     1,138       —            —    

Net realized losses on investments

     (48     48       —            —    

Other revenue

     42       (42     —            —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Total revenue

     1,414       —         —            1,414  
  

 

 

   

 

 

   

 

 

      

 

 

 

Benefits and expenses:

           

Insurance policy benefits and change in future policy benefits

     (33     33       —            —    

Claims and policyholder benefits

     —         (33     —            (33

Interest sensitive and index product benefits

     (555     555       —            —    

Interest sensitive contract benefits

     —         (555     —            (555

Change in fair value of market risk benefit

     (4     —         —            (4

Amortization of deferred sales inducements

     (182     —         182       3.1c(iv)        —    

Change in fair value of embedded derivatives

     2,353       —         (621     3.1c(ii)        1,732  

Interest expense

     —         (37     (23     3.1c(iii)        (60

Interest expense on notes and loan payable

     (32     32       —            —    

Interest expense on subordinated debentures

     (5     5       —            —    

Amortization of deferred policy acquisition costs

     (284     —         284       3.1c(iv)        —    

Other operating costs and expenses

     (240     —         (50     3.1c(i)        (290
  

 

 

   

 

 

   

 

 

      

 

 

 

Total benefits and expenses

     1,018       —         (228        790  
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) before taxes

     2,432       —         (228        2,204  

Income tax provision (benefit)

     (511     —         48       3.1c(v)        (463
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

   $ 1,921     $ —       $ (180      $ 1,741  

Less: Net income available to noncontrolling interests

     —         —         —            —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) available to American Equity Investment Life Holding Company stockholders

     1,921       —         (180        1,741  

Less: Preferred stock dividends

     (44     —         —            (44
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) available to American Equity Investment Life Holding Company common stockholders

     1,877       —         (180        1,697  
  

 

 

   

 

 

   

 

 

      

 

 

 

Attributable to:

           

Class A exchangeable and Class B shareholders

     —         —         —            —    

Class C shareholders

     1,877       —         (180        1,697  

Non-controlling interests

     44       —         —            44  
  

 

 

   

 

 

   

 

 

      

 

 

 
   $ 1,921     $ —       $ (180      $ 1,741  
  

 

 

   

 

 

   

 

 

      

 

 

 

 

18


NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS

 

a.

The historical financial statements of AEL are prepared in accordance with U.S. GAAP. The Company has determined that there are no material differences in accounting policies applied by AEL and the Company.

 

b.

Certain adjustments have been recorded to give effect to the adoption of ASU 2018-12, Long-Duration Improvements (“ASU 2018-12”), as of January 1, 2022 and to conform AEL’s financial statement presentation to the presentation used by the Company. The impact of the adoption of ASU 2018-12 is to increase AEL’s net income by $699 million.

 

c.

Preliminary ASC 805 adjustments include the following:

 

  i.

Reflects the estimated transaction costs related to the acquisition. These transaction costs are reflected in the Unaudited Pro Forma Statement of Operating Results of the Company for the year ended December 31, 2022 and will not affect the Company’s statement of operating results beyond 12 months after the acquisition date.

 

  ii.

Reflects the reversal of derivative gains related to reinsurance treaties between the Company and AEL that will eliminate upon acquisition.

 

  iii.

Reflects interest expense on additional debt issued in association with the acquisition.

 

  iv.

Eliminates the amortization of deferred sales inducements and deferred policy acquisition costs previously recognized by AEL which will be removed upon acquisition.

 

  v.

The Unaudited Pro Forma Statement of Operating Results has been adjusted to reflect the deferred tax impact of the transaction accounting adjustments based on an effective tax rate of 21%.

 

19


4.

American National - For the Period from January 1, 2022 to May 24, 2022

On May 25, 2022, the Company has completed its acquisition of American National in an all-cash transaction valued at approximately $5.1 billion at a price of $190 per share. As a result of the acquisition, American National’s operating results from May 25, 2022 to December 31, 2022 have been included in the Company’s consolidated statement of operating results for the year ended December, 2022. The following table and explanatory notes present the statement of operating results for period from January 1, 2022 to May 24, 2022 of American National with the adoption of ASU 2018-12, as adjusted to give effect to the American National acquisition as if it had been consummated on January 1, 2022.

UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS

For the Period from January 1, 2022 to May 24, 2022

American National Group, LLC

 

For the period from January 1, 2022 to May 24, 2022

In USD, millions

   American
National
Historical (4a)
     Transaction
Accounting
Adjustments (4b)
            American
National Pro
Forma
 

Net premiums

   $ 979      $ —           $ 979  

Other policy revenue

     178        —             178  

Net investment income

     385        —             385  

Investment related gains (losses), net

     (7      —             (7

Net investment results from funds withheld

     —          —             —    
  

 

 

    

 

 

       

 

 

 

Total revenues

     1,535        —             1,535  

Claims and policyholder benefits

     (854      —             (854

Interest sensitive contract benefits

     (53      —             (53

Commissions for acquiring and servicing policies

     (319      —             (319

Net change in deferred policy acquisition costs

     163        61        4b(i)        224  

Change in fair value of market risk benefit

     (5      —             (5

Operating expenses

     (260      —             (260

Other reinsurance expenses

     —          —             —    

Interest expense

     —          (24      4b(ii)        (24
  

 

 

    

 

 

       

 

 

 

Total benefits and expenses

     (1,328      37           (1,291
  

 

 

    

 

 

       

 

 

 

Net income (loss) before income taxes

     207        37           244  

Income tax recovery (expense)

     (41      (8      4b(iii)        (49
  

 

 

    

 

 

       

 

 

 

Net income (loss) for the period

   $ 166      $ 29         $ 195  
  

 

 

    

 

 

       

 

 

 

Attributable to:

           

Class A exchangeable and Class B shareholders

     —          —             —    

Class C shareholders

     164        29           193  

Non-controlling interests

     2        —             2  
  

 

 

    

 

 

       

 

 

 
   $ 166      $ 29         $ 195  
  

 

 

    

 

 

       

 

 

 

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS

 

  a.

The financial information of American National was prepared in accordance with U.S. GAAP. The Company has determined that there were no material differences in accounting policies applied by American National and the Company for the period from January 1, 2022 to the date of acquisition on May 25, 2022. The adoption of ASU 2018-12 has increased net income, net of tax, by $32 million for the period from January 1, 2022 to May 24, 2022.

 

  b.

The American National acquisition has been accounted for using the acquisition method under ASC 805 Business Combinations with the Company identified as the acquirer. The consideration transferred for the acquisition was $5.1 billion of cash on hand in exchange for the net assets of American National. The following table summarizes the provisional purchase price allocation recorded by the Company and included in its audited statement of financial position as at December 31, 2022 reflects the cash

 

20


  consideration transferred, the fair value of assets acquired and liabilities assumed at the acquisition date, and the resulting goodwill:

 

Consideration transferred

   $ 5,107  

Cash & cash equivalents

     1,021  

Investments

     22,519  

Accrued investment income

     101  

Premiums due and other receivables

     437  

Reinsurance recoverable

     45  

Deferred tax assets

     374  

Property and equipment

     138  

Prepaid pension

     149  

Equity accounted investment

     1,402  

Deferred acquisition costs and value of business acquired

     555  

Reinsurance assets

     410  

Investment properties

     541  

Other assets

     198  

Separate account assets

     1,123  

Future policy benefits

     (5,304

Policyholders’ account balances

     (13,880

Policy and contract claims

     (1,706

Unearned premiums

     (1,073

Other policyholder funds

     (324

Notes payable

     (158

Other liabilities

     (449

Separate account liabilities

     (1,123
  

 

 

 

Net identifiable assets acquired

     4,996  

Non-controlling interests

     (10
  

 

 

 

Net assets acquired

     4,986  
  

 

 

 

Goodwill

   $ 121  
  

 

 

 

The following ASC 805 adjustments have been made to prepare the Unaudited Pro Forma Statement of Operating Results in order to give effect to the acquisition of American National as though it had occurred on January 1, 2022:

 

  i.

This adjustment records the additional amortization expense related to the value of business acquired intangible asset recognized by the Company on acquisition, net of the reversal of the amortization of American National’s deferred policy acquisition costs that had previously been recorded which do not represent rights to future cash flows. This results in an increase in changes in deferred acquisition costs of $61 million for the year ended December 31, 2022.

 

  ii.

The Company financed the cash purchase price paid to acquire control of American National through the issuance of $3.6 billion of junior preferred shares to Brookfield Corporation and $1.5 billion of term loans issued to a consortium of external lenders. This adjustment reflects the additional interest expense that would have been incurred on the term loans that accrue interest at 1.42% per annum, had the facilities been in place on January 1, 2022.

 

  iii.

This adjustment reflects the income tax impact of the ASC 805 adjustments recorded, based on an effective tax rate of 21%.

 

21


5.

Earnings per share

The payment of distributions on our Company’s class A exchangeable shares and our class B shares are at the discretion of our board. Distributions on these shares are typically made quarterly, at the end of March, June, September and December of each year. The class A exchangeable shares and the class B shares have been structured with the intention of providing an economic return equivalent to one Brookfield Class A Share, and receive the same distribution amount as the Brookfield Class A holders. As a result, Brookfield Class A shareholders and Brookfield Reinsurance’s class A exchangeable shareholders received distributions of $0.56 per share for the full year ended December 31, 2022. Following the spin-off of Brookfield Asset Management from Brookfield Corporation in December 2022, it is expected that in 2023 the holders of Brookfield Class A Shares and Brookfield Reinsurance class A exchangeable shareholders will receive a quarterly distribution of $0.07 per share, or $0.28 annually. The holder of our class C shares are entitled to receive distributions if, as and when declared by our board subject to the prior rights of the holders of all classes and series of the preferred shares, class A exchangeable shares, class B shares, and any other shares ranking senior to the class C shares with respect to priority in payment of distributions.

Pro forma basic earnings per share have been calculated using the weighted-average number of class C shares of 30,919,577 and of 41,184,633 for pro forma basic and diluted earnings per share for the year ended December 31, 2022 and the six months ended June 30, 2023, respectively. The Company has no potentially dilutive instruments. Class A exchangeable shares and class B shares are not considered participating securities or considered to be ordinary shares as defined within U.S. GAAP and consequently per share amounts for these classes of shares has not been presented.

 

     Pro-Forma Combined Net Income  
In USD, millions (except per share amounts)    For the Year
Ended December 31,
2022
     For the Six
Months Ended
June 30, 2023
 

Net income for the period

   $ 2,202      $ 557  

Distributions to:

     

Class A exchangeable & Class B

     (6      (2

Redeemable junior preferred shares

     (68      (55

Non-controlling interests

     (59      (29
  

 

 

    

 

 

 

Net income attributable to class C shareholders

   $ 2,069      $ 471  
  

 

 

    

 

 

 

Net income per class C share, basic

   $ 66.92      $ 11.44  
  

 

 

    

 

 

 

 

6.

Master Services Agreement with Brookfield Corporation

Brookfield Corporation and its subsidiaries provide management services to the Company pursuant to a master services agreement (the “Master Services Agreement”). Pursuant to the Master Services Agreement, on a quarterly basis, the Company pays a base management fee to the service providers equal to 0.0625% (0.25% annually) of the capital managed by Brookfield Corporation and its subsidiaries. The base management fee is expected to increase by $135 million annually from the probable transactions, which has not been reflected in the Pro Forma Financial Statements.

 

22