Full acquisition of Global Atlantic driving massive growth plan at KKR

KKR's deal to acquire the remaining 37% of Global Atlantic Financial Group is part of a larger plan to power up the investment firm's overall earnings to compete with the likes of Berkshire Hathaway.

In a deal announced Wednesday morning, KKR will pay about $2.7 billion in an all-cash transaction to buy out minority stakeholders of Global Atlantic. The cost is well above the $4.7 billion KKR paid to acquire 63% of the insurer three years ago.

Since then, Global Atlantic’s assets under management have grown significantly, up from $72 billion in 2020 to $158 billion today. The annuity seller has become a key cog in KKR's aggressive growth plan, which calls for quadrupling its market cap in the next decade.

Executives held a conference call Wednesday morning to discuss the Global Atlantic deal and its ambitious growth plans.

"Insurance is a powerful contributor to our business," said Co-CEO Scott Nuttall. "The earnings of Global Atlantic have proven to be highly recurring and fast growing. And GA helped scale our asset management businesses indirect private wealth distribution

Private equity concerns

Global Atlantic recently reported a strong third quarter, with earnings up 24% to $210 million, helping KKR to beat analysts' expectations. According to LIMRA's most recent data, the insurer ranked 14th in total annuity sales. The company sold more than $4.4 billion in Q2.

But concerns are mounting from regulators and consumer advocates about the private equity investments and management style. Investment firms such as KKR, Apollo and Brookfield are drawn to life insurers for the big pots of policyholder money they can invest.

How they invest that money is the concern.

As of the second quarter of 2023, PE firms owned nearly 9%, or about $774 billion, of the U.S. life insurance industry’s assets, up from just 1 percent in 2012, according to the most recent data from the insurance ratings agency AM Best.

The National Association of Insurance Commissioners have stepped up oversight of PE involvement with life insurance ownership in recent years. That work is focused in the Macroprudential Working Group, which adopted a list of "13 considerations" applicable to PE-owned insurers.

"The state insurance solvency framework includes significant checks and balances to protect policyholders, including many public and non-public disclosures and statutory requirements, and these are used to assess risks to all insurers, regardless of the type of ownership," the NAIC said in a statement to InsuranceNewsNet.

Global Atlantic sent a field bulletin last week announcing a cut in rate caps for its in-force block of indexed universal life insurance. The insurer blamed the rate cut on "sustained higher hedging costs."

Premiums applied after Nov. 21, 2023, will be subject to the new rates, the bulletin said, as will index strategies that renew on/after Dec. 1, 2023.

Global Atlantic eliminated IUL sales on July 1 of this year. Cutting in-force cap rates is generally unpopular with agents who have to deal with disgruntled policyholders who have no recourse.

The rest of the KKR plan

The KKR plan includes dividing its operations into three business segments: fee-related earnings from its asset management operations, insurance earnings and balance sheet assets called “strategic holdings.”

A new profit metric called “total operating earnings” will highlight KKR's more predictable earning streams, such as base management fees, spread-related profits from its insurance operations, and dividends earned from its balance sheet investments.

"Few companies in the world have a market cap of $50 billion, let alone $200 billion," Nuttall said. "And in financial services, the list is even shorter. And in asset management, it hasn't been done."

Growing to a $200 billion market cap "may sound like a lot of growth," he added, 'but our business model gives us confidence that we can do it and we've been planting the seeds to allow that to happen."

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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