KKR Loves Global Atlantic for Its Sticky Capital

Ordinary investors may be skeptical of life insurers’ exposure to low interest rates, stock market ups and downs, and COVID-19.

But KKR & Co. loves Global Atlantic — the life insurer it recently acquired — for its sticky capital.

Executives from KKR talked about Global Atlantic’s stable base of capital Tuesday, during a conference call. KKR held the call to go over its earnings for the second quarter, which ended June 30.

‘Perpetual Capital’

KKR classifies much of Global Atlantic’s capital as “perpetual capital,” meaning that it is likely to stay on the books for many years and can be fed into lucrative, long-duration investments.

The Global Atlantic deal helped increase KKR’s total level of perpetual capital to $130 billion, from $22 billion just a year earlier.

Scott Nuttall, KKR’s co-president, told securities analysts that the KKR insurance business can bring in big, growing flows of capital by selling annuities and other products to individual customers.

The individual capital flow alone can amount to $8 billion to $10 billion per year, Nuttall said.

The insurance business can also bring in capital by buying blocks of life and annuity business, reinsurance blocks of life and annuity business, and by selling big group annuities to pension plan sponsors, through pension risk transfer arrangements, Nuttall added.

The pension risk transfer market “is incredibly active and it’s getting more active, especially this year,” Nuttall said.

Nuttall estimated that the total flow of capital from the insurance business will be about $8 billion to $10 billion per year from the retail business, plus several billion dollars on top of that, from the institutional business.

Rob Lewin, KKR’s chief financial officer, cited Global Atlantic’s links to savings, tax deferral, the aging population, and people looking to manage their own wealth as examples of themes that interest KKR, along with health and wellness, cybersecurity, nesting and infrastructure.

“What we’re finding is that, if you get behind these big themes, there’s a big opportunity to generate outsized returns,” Lewin said. ”There’s going to be some of these areas and themes that we think will be big winners. We’re getting behind those.”

Q2 Earnings

Global Atlantic started out in 2004, as the insurance investment arm of Goldman Sachs. It bulked up by acquiring several major life insurers: Accordia Life, Commonwealth Annuity and Life, First Allmerica Financial and Forethought Life.

KKR closed on a $4.7 billion acquisition of control over Global Atlantic Feb. 1. KKR now owns 61.5% of Global Atlantic’s stock.

KKR as a whole is reporting $1.3 billion in net income for the second quarter on $3.1 billion in revenue, up from $699 million in net income on $1.3 billion in revenue for the second quarter of 2020.

Because of changes related to the KKR-Global Atlantic deal, the recent performance of Global Atlantic and KKR’s insurance business is not easy to compare with how those businesses performed before the deal closed.

But KKR says that its insurance unit generated about $128 million in distributable operating income in the latest quarter on $935 million in revenue.

Scott Nuttall (Photo: KKR)