Private equity and buyout giant KKR & Co. L.P. (or Kohlberg Kravis Roberts) has again demonstrated its appetite for insurance-linked returns by announcing it is to acquire life and retirement focused insurance and reinsurance firm Global Atlantic Financial Group.
KKR, as one of the largest private equity and buyout specialists, has long had a liking for returns from insurance and reinsurance business, perhaps most acutely evidenced for our purposes by the stake it took in ILS fund manager Nephila Capital back in 2013.
With life and retirement focused insurance and reinsurance potentially a significant source of assets as well, many large investors are active in this space currently (Apollo, Canadian pensions and the like).
KKR is set to acquire all of the outstanding shares of Global Atlantic in what it calls “a strategic transaction.”
Once the deal is closed, Global Atlantic will continue to operate under its existing brand, with its existing management team and as a separate business.
Global Atlantic is one of the largest annuity providers in the United States and also a leading provider of reinsurance solutions to life and annuity company clients.
“We are thrilled to have a new, long-term partner in KKR,” commented Allan Levine, Chairman and Chief Executive Officer of Global Atlantic. “With its global presence, investment acumen and long-term focus, we believe we will be even better positioned – financially and strategically – both to help Americans address the financial challenges they face today and to help our institutional channel clients achieve their strategic, risk, and capital management goals.”
“This is a transformative event for KKR,” added Henry Kravis and George Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. “Global Atlantic is a best-in-class business with a like-minded entrepreneurial management team. Our businesses are complementary and our partnership will benefit all of our collective stakeholders.”
Joseph Bae and Scott Nuttall, Co-Presidents and Co-Chief Operating Officers of KKR, also stated: “This transaction is highly strategic for KKR — it meaningfully expands our base of permanent capital, further diversifies and scales our business, and significantly grows our position within the insurance industry, which has been increasing its exposure to alternative investment strategies. Insurance providers play a critical role in supporting the financial security for millions of individuals. This transaction positions KKR to support Global Atlantic policyholders through our global network and asset management and origination capabilities.”
The timing is interesting as Global Atlantic had just recently launched a co-investment vehicle named Ivy, which will operate as a kind of sidecar structure and is funded with $1 billion to invest in life and annuity reinsurance deals.
It shows an appetite to leverage third-party capital within reinsurance deals, to enable the firm to enter into more and larger transactions.
Once the acquisition is completed, KKR intends to act as asset manager to Global Atlantic, with its policyholders set to benefit from KKR’s asset management and origination capabilities.
The investor said that, “Global Atlantic represents a significant and natural extension of KKR’s existing insurance business,” adding that it sees this deal as a significant expansion of strategically important growth vertical.
There’s also the assets the acquisition brings to consider, with KKR saying that pro forma for this deal, as of March 31st 2020, KKR’s assets under management would increase from $207 billion to $279 billion thanks to buying Global Atlantic.
“Additionally, permanent capital as a percentage of KKR’s total AUM would increase from 9% to 33%, and permanent capital, together with our long-term strategic investor partnership capital, would represent 42% of KKR’s AUM,” the investor explained.
KKR said that it will pay an amount equal to 1.0x Global Atlantic’s Book Value as of the date of closing, subject to an equity roll-over for certain existing shareholders.
As of March 31st 2020 that would equal roughly $4.4 billion.
KKR said that it expects to fund the acquisition using cash on hand, proceeds from potential minority co-investors and the issuance of new debt and/or equity by KKR.
Global Atlantic used to be owned by investment bank Goldman Sachs, but was sold in a private share offering in 2013.