Global Atlantic helps KKR limit the damage to Q3 earnings

Global Atlantic posted a strong third quarter, with earnings up 24% to $210 million, helping parent KKR to beat analysts' expectations.

Net investment income of $1.35 billion propelled Global Atlantic in the quarter, "reflecting higher yields and more normalized liquidity balances," KKR said in a news release. KKR closed its acquisition of Global Atlantic early in 2021 in a $4.4 billion deal with Goldman Sachs.

One of the largest fixed rate and fixed annuity sellers, Global Atlantic is part of a thriving market for those products.

"Global Atlantic continues to have a lot of success in this rate environment and remains incredibly well positioned," said Rob Lewin, chief financial officer for KKR, during a Tuesday morning earnings call with analysts.

KKR's after-tax distributable earnings fell by nearly 7% year-over-year in Q3, less than what many analysts expected, amid a decline in asset sales. Executives stressed the growth KKR made during a relatively short time, and the investment opportunities that await.

"We continue to be really excited as a management team about our growth and our evolution," Lewin said. "We've been executing on our plan of building a very high growth and high margin asset management business, which benefits from and is accelerated by what we are doing across insurance, and core private equity.”

Global Atlantic: top seller

During the second quarter, based on the most recently available statistics, Global Atlantic ranked 14th in total annuity sales by LIMRA. The company sold more than $4.4 billion in Q2. The momentum continued into Q3 with strong investment returns buoying the sales figures.

Global Atlantic assets under management [AUM] totaled $145 billion, of which $111 billion is credit AUM, KKR reported. On the downside, cost of insurance rose to $820 million in the quarter, "driven primarily by both new business growth and the associated higher funding costs, as well the routine run off of older business that was lower cost," KKR said in a news release.

"We're seeing a lot of momentum across really all aspects of GA right now," said Scott Nuttall, co-CEO of KKR. "On a year-over-year basis our operating income is up close to 30% in the business. We're seeing success distributing through the individual channel and through the institutional channel."

Nuttall shrugged off concerns over a new fiduciary rule package introduced by the Department of Labor last week. The rules are vehemently opposed by many in the insurance industry and, if enacted, will make virtually any recommendation to buy an annuity subject to the fiduciary standard.

The new fiduciary proposal is very similar to the fiduciary rule enacted in 2016 by the Obama administration, which Nuttall acknowledged. That rule was later tossed out by the Fifth Circuit Court of Appeals.

"I think the industry is well prepared for [new rules]," Nuttall said. Global Atlantic "is well prepared for that. Ninety percent-plus of our distribution today is through the bank and broker-dealer channel. We feel this channel that's most prepared to be able to deal with wherever the regulations come out."

Private equity backed insurers such as Global Atlantic have split with traditional insurers such as Prudential and Northwestern Mutual on several regulatory points.

Investing goals

Looking ahead, KKR expects a $19.2 billion reinsurance agreement with MetLife to close during the fourth quarter, said Craig Larson, head of investor relations at KKR. The transaction, signed in May between subsidiaries of the two companies, will reinsure a block of MetLife’s retail annuity and life insurance business.

Last month, KKR announced a deal to invest in Catalio Capital Management, a multi-strategy investment firm focused on breakthrough biomedical technology and innovative health care companies.

KKR has a $4 billion-plus healthcare growth strategy, Lewin explained, and the investment is an opportunity to grow in that area. He called the Catalio deal, "a real partnership that we think can help make their business better, and then also make our business better."

Lewin also addressed a recent Yahoo Finance report claiming that KKR has an "obligation" to pay Goldman Sachs clients who still own shares of Global Atlantic under terms of the sale agreement. KKR bought 63% of Global Atlantic, with the agreement giving minority shareholders the right to force KKR to list their shares "in a few years, or find another way to buy them out," Yahoo reported.

Not exactly accurate, Lewin said.

"To be very clear, KKR has got no contractual obligation to buy out the minority shareholders at Global Atlantic," Lewin said. "What we do have is an obligation in the future to the extent that they want to seek liquidity to help them in that process, which of course, we'd be happy to do."

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.