Global Atlantic buoys KKR Q2 earnings, while insurance costs soar

By Doug Bailey

Amid swirling reports that it was about to close a blockbuster deal to acquire publisher Simon & Schuster, private investment giant KKR & Co. Inc. released second quarter earnings results Monday that topped Wall Street expectations as profits from its traditional private equity portfolio sparked improved performance. Assets under management and fee-related earnings rose as well, the company said.

Net income rose to $844.5 million, or $21.99 stockholders equity per share, vs. a loss of $1 billion, in the second quarter last year. The company’s fee-related earnings of $602 million, was a 31% jump from the previous year’s quarter, with assets under management up 6% from the prior year to $519 billion.

The performance of KKR’s insurance segment on paper looked relatively flat for the quarter, with $1.3 billion in net investment income, compared to $965 million for the second quarter of 2022, with insurance costs soaring to $812 million, versus $504 million in the year ago quarter. But company executives stressed the results reflected the positioning and realignment of 2021’s acquisition of Global Atlantic Financial, one of the largest fixed rate and fixed annuity providers, and promised great things in the future.

Global Atlantic a 'fantastic acquisition'

“Global Atlantic has continued to be a fantastic acquisition for us,” said Rob Lewin, KKR’s chief financial officer in an analyst call Monday. “Overall, GA is continuing to demonstrate significant momentum, with $144 billion of assets under management as of Q2. This has doubled since we announced the acquisition in 2020. A further proof point of our acquisition, and a demonstration of how the alignment we've created can drive real success.”

Lewin noted that KKR’s June announcement of a reinsurance agreement with MetLife, which was funded by Global’s balance sheet, will increase the company’s assets under management by another $13 billion upon closing and boost both management fees and insurance operating earnings. In June KKR and GA formed a strategic partnership with Japan Post Insurance, an individual life insurance company, that Lewin said will also pay off in future quarters.

“This partnership allows us to pursue additional growth opportunities through our collaboration with a key player in the Japanese insurance market,” he said.

The quarter to quarter decline in insurance costs, Lewin said, was a function of a strategic decision at Global to position the company’s books with more liquid securities at the beginning of Q2.

Repositioning books 'the right decision'

“If you think back to your early part of Q2, we were still in that regional bank crisis timeframe,” he said. “And I think we made the right decision to reposition the books at that point in time. We gave up a little bit of borrowing in the quarter, but I think it was the right decision for the business.”

Company executives also emphasized KKR’s burgeoning asset-backed financing business, which they said was a “massive” $5 trillion market that is losing players, creating a void that KKR hopes to fill. The company reported $227 billion of assets under management in credit and liquid strategies, including $80 billion in private credit and $45 billion in asset based finance.

“We now manage roughly $200 billion for insurance companies,” said Scott Nutall, co-chief executive officer. And about $250 billion from Global Atlantic and the rest from third parties. We have 150 insurance companies that invest with us on a third-party basis, but also, increasingly, we're seeing interest from institutions.”

KKR officials made only one oblique reference to the news it was acquiring publishing giant Simon & Schuster from Paramount Global for a reported. $1.62 billion. A previous agreement to sell the book publisher to Bertelsmann’s Penguin Random House was blocked by U.S. regulators last year for being anti-competitive — a ruling that was upheld by a federal judge. A transaction with KKR would not likely face the same hurdles. Neither parties have publicly confirmed the transaction.

In trading Monday, KKR stock was up almost 3% to $61.99 per share.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].