Brookfield ups the ante in UK pensions with insurance start-up

If you can’t buy something, you might be better off building it yourself. That seems to be the rationale behind Brookfield’s decision to set up its own insurance company in the UK. 

The group — one of the largest private capital managers in the world — has applied to the UK’s Prudential Regulation Authority for an insurance licence. It had previously considered a bid for UK insurer Pensions Insurance Corporation — along with Apollo, KKR and Carlyle. This marks a shift in its strategy, or at least a hedge.

It is not hard to see why Brookfield might want to get its foot into the UK insurance sector. Globally, there has been an influx of private capital into this space. Firms such as Apollo have led the way, betting that their expertise in managing assets and their ability to originate private debt products can help jazz up insurers’ returns. Brookfield has built a $20bn separately managed insurance business in the US and Canada.

The UK offers rich pickings. Defined benefit pension schemes hold £1.7tn of assets. Only a small proportion has been shifted off corporate balance sheets. Much more is coming — and at a faster clip now that rising interest rates have reduced or eliminated funding shortfalls. Indeed, in 2023 there were £50bn of bulk annuity transfers, up from £12bn in 2017 — a level that is expected to remain roughly constant for the next decade, thinks pension consultants LCP. 

The quickest way to get into this business would be to buy an existing bulk annuity provider, such as PIC, or an insurer with the capabilities to get into that market. That is not easy. PIC’s sale process foundered, as potential buyers baulked at the price. 

Hence Brookfield’s decision to start afresh. But that, too, is likely to be a complicated process. The PRA commits to responding to complete licence applications within six months, but could well scrutinise complex investment arrangements or market newbies for longer. The market for specialist skills is tight, too, as existing insurers seek to bolster their resources for this bonanza. 

Brookfield is probably a rarity, able to pull off a start-up given its size and US experience. That is unlikely to be a replicable process for every private capital provider. Brookfield could yet “build then buy” to grab the returns currently on offer in a market awash with possible pensions deals and short on capital to back them.

Expect insurers that look acquirable, such as PIC and listed rival Just Group, to find themselves subject to more deal attention. Ultimately, though, this stampede into UK pensions will start to trim the juicy returns that are drawing both private entrants and existing insurers in.

camilla.palladino@ft.com