$4.7b in related-party investments made by Brookfield’s newly-acquired insurance affiliate American National

UNITE HERE released a research report today unveiling billions of dollars of Brookfield Corporation (NYSE:BN) related-party investments made by American National Insurance Company in the year after Brookfield bought the Galveston, TX-based insurance company, most of which are listed on American National’s sworn Annual statement as “unaffiliated,” and over $1.2 billion of which are Brookfield-related real estate securities. So far this year, Brookfield ventures have defaulted on over $1 billion of commercial real estate loans, with over $5 billion more of office and real estate loans having been identified by analysts or lenders as distressed.

The report, Real Estate Runaround: How Brookfield’s Insurance Venture Offers Reward for Investors, Risk for Retirees, examines the dramatic changes in American National’s investment portfolio since the Brookfield takeover, including over $4.7 billion (book value) of investments in securities originated, structured, or collateralized by Brookfield’s non-insurance affiliates and joint ventures.

Over $1.2 billion of those related-party securities are related to Brookfield’s real estate holdings. These investments include bonds issued by affiliates of Brookfield Office Properties and Commercial Mortgage-Backed Securities (CMBS) sponsored by Brookfield-owned office buildings and shopping malls.

“It is not entirely clear when exactly all these securities were issued, for what purposes, or whether they have been sold to any non-Brookfield-affiliated investors,” the report argues. Nevertheless, “Brookfield has significant exposure to the distressed office real estate market, and we know from press reports that the firm has defaulted on over $1 billion of office loans in 2023 alone. However, the opacity of Brookfield’s corporate structure makes it difficult to determine the impact of the ‘office real estate apocalypse’ on the health of the firm.”

Additionally, the report identifies dozens of newly-created Brookfield-managed private funds that issued asset-backed securities and that appear to have sold most, if not all, of those securities to American National. “Why not just sell the insurer the underlying assets themselves? Why go to the trouble of securitizing them?” the report asks. “Brookfield has not explained…(but) statutory accounting rules allow insurers to hold most bonds – including real estate-related debt and asset-backed securities at book value (or cost less depreciation) indefinitely.”

Brookfield’s strategy for American National is further obscured by the lack of explanation for why so many of these related-party transactions are listed as “unaffiliated.” UNITE HERE reports that public information requests to the Texas Department of Insurance (TDI) revealed that TDI approved, with certain conditions, a “disclaimer of affiliation” filed by Brookfield Asset Management (BAM) requesting that BAM and American National’s parent company be considered unaffiliated. TDI has declined to provide the document, Brookfield’s rationale for filing it, or TDI’s rationale for approving it.

The UNITE HERE report quotes from a recent analyst call in which BAM President Connor Teskey revealed that insurance capital and related-party investments are key to Brookfield’s future business plans. Teskey told analysts that BAM plans to allocate approximately 40 percent of its insurance assets into Brookfield’s own managed credit funds or originated private loans, and aims to more than triple its fee bearing capital by doing so. “Brookfield’s candor with analysts and investors about its plan,” the report argues, “…makes regulators’ devotion to secrecy all the more perplexing.”

UNITE HERE released the report online at PrivateEquityRetirementWatch.org/RealEstateRunaround, and mailed copies to key stakeholders, including state insurance commissioners, key insurance legislators, regulatory policy experts, and pension plan administrators.

Insurance experts weigh in on UNITE HERE’s report:

Edward Stone, Executive Director of Retirees for Justice:

“As a retiree advocate, I find the lack of transparency and accountability with respect to American National and its affiliated transactions with Brookfield to be shocking,” said Edward Stone. “The thought that American National could be responsible for the safety and security of retiree pensions gives real cause for concern. The stated purpose behind state regulation of the business of insurance is not to let private equity funds pull a fast one on state insurance departments – and let policyholders and retirees twist in the wind. Affiliate transactions require scrutiny for a reason – and that reason is to protect policyholders from the risks of financial alchemy and self-dealing.”

Thomas Gober, Certified Fraud Examiner and Forensic Accountant:

“A disclaimer of affiliation guts the intended transparency and protection of policyholders. One of the core principles of statutory accounting, as reflected in SSAP 25 is:

‘Related party transactions are subject to abuse because reporting entities may be induced to enter transactions that may not reflect economic realities or may not be fair and reasonable to the reporting entity or its policyholders. As such, related party transactions require specialized accounting rules and increased regulatory scrutiny.’

Transparency is foundational to statutory accounting. The regulators shouldn’t need a new rule to require transparency in reporting related party investments by insurers.”

View source version on businesswire.com: https://www.businesswire.com/news/home/20230927477573/en/

“It is not entirely clear when exactly all these securities were issued, for what purposes, or whether they have been sold to any non-Brookfield-affiliated investors.”- UNITE HERE Report