UNITE HERE Warns Pension Plan Administrators About American National, a New Private Equity-Backed Pension Risk Transfer Market Entrant

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05/04/2023 - 02:49 PM

NEW YORK--(BUSINESS WIRE)-- In a letter released on Thursday May 4, UNITE HERE cautioned administrators of defined benefit pension plans that federal regulators have identified potential risks in private equity-backed insurers, including those offering pension risk transfer (PRT) transactions.

The letter, sent to the administrators and actuaries of several hundred pension plans and posted to PrivateEquityRetirementWatch.org, warns specifically about American National Insurance Company, which entered the PRT market in December 2022 and is owned by a Bermuda-domiciled affiliate of the Canadian alternative asset manager Brookfield Corporation (NYSE: BN).

In 2022, the Department of the Treasury wrote, in a communication to Senator Sherrod Brown (D-OH), that “the growth of alternative and non-traditional investments in the insurance sector may be associated with the potential amplification and migration of risk” in several ways, including “reliance on offshore risk-bearing entities,” “the greater prominence of illiquid and volatile assets on insurers’ books,” and “access to diversified channels to source private credit, enabling them to engage in more complicated transactions, and to take positions with increased levels of interconnectedness and reduced levels of transparency on the amount and distribution of risk across the rest of the financial system, as compared to other insurers.”

UNITE HERE wrote to pension plan administrators, “We ask that you and your plan professionals consider these amplified risks identified in Treasury’s response to Senator Brown when evaluating the paying ability and creditworthiness of American National, a firm acquired by Bermuda-domiciled Brookfield Reinsurance.” (NYSE: BNRE)

The letter presents evidence from public filings, earnings calls, and statements from Brookfield executives that American National, since its acquisition by Brookfield, has moved to replace bonds and other liquid securities with private credit, asset-backed securities, and other alternative investments. Shortly after the Brookfield acquisition was approved by regulators, American National placed its entire $13 billion bond portfolio as “available for sale.” Brookfield has indicated to investors that it intends to deploy insurance policyholder capital into private credit, including buyout loans originated by other Brookfield affiliates, including Oaktree Capital Management. Bloomberg recently described private credit as an “inherently risky industry” that “received little oversight” and whose institutional holders have yet to be tested by a default wave of the sort that could accompany a prolonged recession.

"Pension obligations should not be used as a cheap funding source for private equity asset managers chasing the illiquidity premium or offloading illiquid assets their own affiliates have originated,” UNITE HERE wrote in its letter. The letter can be viewed in its entirety on PrivateEquityRetirementWatch.org.

UNITE HERE is the hospitality workers’ union in the U.S. and Canada, representing 300,000 workers in hotels, gaming, food service, airports, and more.