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Brighthouse Financial is seeking to sell itself, with some of the most prominent private capital managers expected to make bids for the US provider of life insurance and annuities.
US-listed Brighthouse, which was spun out of MetLife in 2017, is working with bankers at Goldman Sachs and Wells Fargo to both consider offers for the whole company or separately to raise minority equity, said two people familiar with the matter. They cautioned that the process was in its early stages with no certainty that a deal materialises.
Shares in Brighthouse rose 20 per cent in trading in the US on Tuesday morning after the Financial Times revealed the plan.
The company, which has a market value of $3bn, trades at just 0.8 times book value per share as it has struggled to increase profits needed to reach its targeted capital ratios. Brighthouse’s focus on variable annuities, a complex product that is expensive to hedge and carries high capital charges, has discouraged some bidders, according to people familiar with the talks.
However, its $120bn investment portfolio makes it one of the few life insurance companies with sufficient scale to appeal to alternative asset managers such as Apollo, KKR, Sixth Street, Brookfield and BlackRock, who have paired private credit strategies with acquiring long-dated life insurance and annuities liabilities.
The Brighthouse sale process comes as several other large life insurance platforms, including American Equity Life, American National, Global Atlantic and Talcott Resolution have merged into alternative asset managers. Assets managers are also currently pursuing a deal for Viridium Group, a German life insurance group backed by Cinven.
Rather than sticking to public investment grade bonds, insurers affiliated with private capital firms more aggressively invest customer funds in private debt that can earn asset managers excess returns above payouts to policyholders.
MetLife, like several other large legacy insurance groups, had over the past decade separated its legacy annuities segments. These insurance blocks had fallen out of favour with public market investors concerned about policies written before the financial crisis when interest rates were higher.
Brighthouse shares have fallen by about a quarter from their debut levels in 2017. The company has been seeking to shore up its capital position recently through reinsurance transactions and other measures. Shares of MetLife, now focused on property and casualty insurance, have soared since the Brighthouse divestiture and boast a market capitalisation above $60bn.
Some industry participants noted that the new annuities that Brighthouse had been briskly selling presented an attractive opportunity if the challenges of the legacy blocks could be acquired cheaply enough. Brighthouse has an existing partnership with BlackRock in which the pair have designed a retirement annuity product for consumers called LifePath Paycheck.
Apollo and its insurance affiliate Athene had in recent years completed complex variable annuity transactions with the likes of Voya Financial and Prudential. While asset managers have been beefing up their private credit abilities, they have simultaneously been scouring for large insurance and reinsurance deals as the source of funds to deploy.
Brighthouse is set to report its fourth-quarter earnings on February 12. A person familiar with the process said its preference was to find an outright buyer rather than sell a minority equity stake.
Brighthouse said it did “not comment on rumours and speculation”. Goldman and Wells Fargo declined to comment.
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