Global Atlantic Annuity Holders Are Keeping Their Contracts: KKR

A top KKR & Co. executive said the company is happy with the performance of its Global Atlantic life insurance and annuity unit.

Robert Lewin, the New York-based private equity firm’s chief financial officer, told securities analysts Tuesday that he sees no signs of credit problems affecting the bonds in Global Atlantic’s investment portfolio, and no signs that rising interest rates are causing annuity holders to give up their contracts.

So far this year, “we’ve experienced lower surrenders than what we were expecting,” Lewin said.

That might be partly because about 75% of the contracts either have surrender charges or cannot be surrendered, Lewin added during a conference call KKR held to go over its earnings for the third quarter.

What It Means

Some analysts have wondered how today’s rising interest rates really are good for the life insurers supporting the guarantees inside your clients’ life insurance policies and annuity contracts.

KKR’s answer is that, at least so far, rising rates have been great for Global Atlantic.

The Earnings

The third quarter ended Sept. 30.

KKR is reporting a $92 million net loss for the third quarter on $1.9 billion in revenue, compared with $1.1 billion in net income on $4.5 billion in revenue for the third quarter of 2021.

After-tax distributable earnings, which exclude items such as unrealized gains and losses on investments, fell to $1.1 billion, from $1.2 billion.

KKR acquired Global Atlantic a year ago.

The insurance unit, which includes Global Atlantic, is reporting $127 million in operating earnings for the quarter on $2.2 billion in revenue, compared with $115 million in operating earnings on $1.8 billion in revenue for the year-earlier quarter.

The latest results include $120 million in insurance unit gains on investments and derivatives, and $126 million in income tax benefits.

The company as a whole paid $541 million in income taxes, up from $186 million in income taxes in the third quarter of 2021.

Interest Rates

In the United States, annuities and life insurance policies are like burritos filled with bonds, mortgages, derivatives and a smattering of other assets.

The Federal Reserve Board has been trying to control inflation by doing what it can to increase interest rates.

Rising interest rates hurt home buyers, growing businesses that use loans to fuel growth, and investors who buy stocks on margin. But rising rates can increase life and annuity issuers’ investment yields, by improving the rates the issuers earn on newly invested money.

Some analysts have suggested that rising rates could also hurt life and annuity issuers, by hurting bond issuers’ ability to make bond payments, and by causing “disintermediation,” or efforts by customers to move assets from old, low-paying life and annuity products and into new, higher-paying products.

Global Atlantic’s Situation

Lewin said that KKR is watching how rising rates affect Global Atlantic closely, but that the company believes the insurer will be a net beneficiary of the new rate environment.

KKR has not seen any deterioration in bond issuer credit quality, and it believes that rising rates will help Global Atlantic sell more group annuities to pension plan sponsors and more individual annuities to consumers.

“I think, on the individual side, it’s just easier to be able to sell and distribute a 4% annuity than it is a 1.5% annuity,” Lewin said.

(Photo: Lucky-photographe/Shutterstock)