Brookfield Asset Management Reinsurance Partners Ltd.

Moat: 2/5

Understandability: 4/5

Balance Sheet Health: 3/5

Brookfield Asset Management Reinsurance Partners (BAMR) is a Bermuda-based holding company operating within the insurance and reinsurance sector, focusing on providing customized risk management and reinsurance solutions to its clients.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

BAMR operates in a complex and relatively opaque niche of the insurance sector. It essentially assumes liabilities from insurance companies with the intent of managing those assets to create value.

  • Core Operations: BAMR focuses primarily on life, annuity, and liability-driven investments, aiming for long-duration assets and liabilities. The company assumes risks by taking liabilities through reinsurance and creating unique solutions for clients, including risk mitigation and capital relief.
  • Revenue Streams: Primarily derived from premiums earned through reinsurance transactions and the investment income generated from assets held to cover these liabilities. Notably, the company earns more from the assets acquired than from the premiums alone.
  • Geographic Footprint: While headquartered in Bermuda, BAMR has a global presence, with a primary focus on the North American and European markets.
  • Competitive Landscape: The reinsurance market is competitive, with established players and new entrants. BAMR differentiates itself by focusing on specialized solutions for insurance clients, often dealing with large, complex, or unique asset portfolios. Competitors include traditional reinsurance companies like Reinsurance Group of America and SCOR, which are more well-known and generally larger with diversified products. Other competitors are more niche and compete on price or specific product capabilities.
  • Key Differentiators: BAMR leverages the asset management capabilities of its affiliate, Brookfield Asset Management, to enhance returns from its liability portfolio. This relationship allows BAMR to invest in a variety of nontraditional asset classes, often achieving higher returns than its peers.

Moat Analysis

BAMR’s moat is rated as 2/5, a narrow moat, here’s why:

  • Limited Intangible Assets: Unlike consumer companies which can use brands and patents as competitive advantages, BAMR’s business does not have strong intellectual properties and patents.

  • Switching Costs: Even though banks and asset managers have high switching costs, the services of reinsurers are primarily financial, and clients are not very loyal, and could move for price reasons.

  • Scale: The company benefits from scale, allowing it to obtain more opportunities and generate higher returns on its investments. The scale does provide a benefit, but the benefits are not large enough to confer a wide moat.
  • Unique Assets/Capabilities: The ability to leverage Brookfield Asset Management’s expertise and platform gives it a key advantage, as well as the ability to underwrite complex or large deals. This could give it an edge on competitors, and may prove sustainable in the medium term but it isn’t permanent and competitors could emulate this strategy.

Risks to the Moat and Business

Here are some notable risks to BAMR’s moat:

  • Intense Competition: The reinsurance industry is competitive, with both established players and new entrants. The competition can push down prices and returns. As such, it may be difficult for BAMR to generate large returns consistently.
  • Investment Risks: Many of BAMR’s investments are in alternative and complex assets, and though these generate higher returns, they are also more risky and harder to liquidate or sell for a quick profit. Economic downturns could particularly lead to problems in this area, lowering returns, and increasing losses.
  • Regulatory Risk: The insurance industry is highly regulated. Changes in regulations (such as requirements to hold more cash) can affect BAMR’s operating metrics.
  • Underwriting Risk: Underwriting large and complex risks is very difficult, which if mismanaged, could lead to severe losses.
  • Economic Risk: Since most assets are linked to the broader economy, downturns in the economy or the housing market may impact BAMR’s assets and profitability.
  • Changes in business models: As a relatively new business model, it’s hard to predict the exact way companies like BAMR will develop, and competitors could mimic it or the market itself could change.

However, here is what makes this business resilient:

  • Specialized Expertise: The company has a unique skillset in originating, underwriting, and managing complex and illiquid liabilities.
  • Long-Term Focus: Many of BAMR’s deals are for long time horizons, allowing the company to manage the businesses for long periods to maximize their returns.
  • Flexible Business Model: The nature of insurance and reinsurance mean that the company can adapt in size and structure quickly if required.

Financial Deep Dive

  • Revenue Growth: BAMR’s revenue growth in the last couple of years has been significant, partly due to acquisitions (including the American National Group). However, the organic growth rate has been volatile, with some years showing strong performance and others showing a substantial reduction in growth. As a consequence, the revenue may be unpredictable.
  • Profitability: BAMR’s profitability is highly dependent on asset allocation and investment performance, so profitability can vary. The profit margin has been decent but has been variable in recent years.
  • Cash Flows: The company consistently generates positive operating cash flows, which allows it to invest in future acquisitions, new investments, and to pursue growth. The cash conversion rate is excellent as a very high percentage of the operating earnings are converted to free cash flow.
  • Solvency & Liquidity: Brookfield Asset Management Reinsurance Partners has a solid debt profile with no issues in the current time frame. The credit ratings of the company suggest a low default rate.
  • Recent events: There are no significant recent events or controversies affecting the financials of the business.

Understandability

This is a relatively complex business. The value is driven by the assets that the company is acquiring. The profitability and the risk of the company depend mostly on the quality of these assets, and whether those are managed correctly or not. This would make the understandability of the business hard, however, the way the company’s operations are structured are relatively simple. This leads to a rating of 4/5 for understandability.

Balance Sheet Health

While there aren’t any indications of near-term issues, BAMR is relatively highly leveraged, which makes its balance sheet weaker than other financial institutions. The lack of visibility into the asset performance also creates additional risk. Because of these reasons, its balance sheet health is 3/5.