Brookfield creating UK insurer to join corporate pensions deal bonanza

Brookfield has applied to set up an insurance company in the UK, a move that would allow one of the world’s largest private capital groups to cash in on the wave of British companies offloading their pension plans.

Higher interest rates have radically improved the health of corporate pension plans, paving the way for companies to offload the liabilities and assets of the schemes to insurers.

Around £40bn worth of such deals are expected this year, just short of a record set in 2023, according to consultancy LCP.

Toronto-based Brookfield’s insurance business has filed paperwork with the Bank of England’s Prudential Regulation Authority to set up a new insurer, according to people familiar with the matter. 

The Canadian group had considered entering the UK corporate pensions market, which is responsible for the retirement savings of millions of Britons, through buying an established provider.

Brookfield, Apollo and others considered a bid last year for Pension Insurance Corporation, one provider that takes on the company pension plans through so-called bulk annuity deals, but buyers baulked at the valuation its owners were seeking, according to people familiar with the matter. 

Establishing an insurance business from scratch is likely to be a more challenging way to muscle in on a market dominated by big bulk annuity providers such FTSE 100 insurers Phoenix Group and Legal & General.

The application process can take six months if all runs smoothly, but longer if regulators had questions over the investment approach Brookfield would take in managing any pension schemes it takes on.

Brookfield and the Bank of England declined to comment.

The push by private capital groups like Brookfield into Britain’s corporate pension market is part of a broader expansion by such groups into the global life insurance sector. Brookfield’s insurance operation, a separately managed business with its own balance sheet and based in Bermuda, was established in 2020 and now has more than $100bn in assets under management.

Sachin Shah, chief executive of the business, known as Brookfield Reinsurance, in May signalled his ambition to enter the UK market, saying it “should be in a position by the end of the year where we’re actually bidding on transactions”, and would “start small and eventually migrate into the larger transactions”.

In its US business, it has done $3bn in transactions in the past year or so.

Brookfield also owns a majority stake in Oaktree Capital Management, which backs Utmost, a UK life insurer that is also planning to enter the market, according to a person familiar with the matter. Utmost declined to comment.

Taking on responsibility for pensioners’ retirement funds is likely to bring scrutiny for Brookfield, though the UK market already has established privately owned businesses including PIC and Rothesay. 

Private capital groups argue they can use their expertise in alternative investments, including the fast-growing private credit industry, to find higher yielding but suitable assets for the pension plans to own.

In recent months, regulators have been increasingly assessing the risks of investment strategies that deviate significantly from the conventional holdings of life insurers, which include government bonds and high-quality corporate debt.

Pension consultants have regarded the arrival of new players as one way of absorbing the wave of corporate pensions deals that is expected. Royal London, a mutually owned life insurer, recently announced it would enter the market.