Thursday, August 13, 2020

Insurance/Private Equity: KKR Decides To Play The Float, Buffett Style

From Artemis:
KKR’s acquisition of Global Atlantic shows PE’s attraction to float & sidecars
Private equity and alternative investment giants of the world are increasingly demonstrating why access to insurance premium float, as a form of assets under management, is an attractive prospect, with KKR’s acquisition of Global Atlantic the latest clear example. It also shows their appreciation for bringing third-party capital into re/insurance.

As we explained when the deal was announced in early July, private equity and buyout giant KKR & Co. L.P. (or Kohlberg Kravis Roberts) was clearly showing its appetite for insurance-linked returns with its plan to acquire life and retirement focused insurance and reinsurance firm Global Atlantic Financial Group.

It’s not just the underwriting returns, as you’d expect from an insurance-linked securities (ILS) style investment, that attracts private equity giants like KKR to these types of transactions.
The long-term, almost permanent nature of the capital generated from insurance premiums, which is converted to assets under management (AUM) to fund its buy-out business, are a very attractive prospect and even for a firm like KKR can be relatively transformational in how they ramp up its scale.

As a result, the returns generated are not from the underwriting, or product offering, but are multiplied by the way KKR puts the float-like capital it inherits from the deal to work.
With Global Atlantic set to increase KKR’s AUM by a massive 33% to $294 billion, it’s clear that once put to work in the kinds of transactions KKR enters into, this added capital pile could be transformational for the private equity firms returns and profits.

On a pro-forma basis, KKR estimates that adding Global Atlantic’s business will drive overall assets under management to $294 billion, of which fee-based AUM will rise by 45% to $233 billion and insurance / reinsurance related AUM will rise by an impressive 261% from $28 billion to $101 billion....
August 5; 
Insurance/Private Equity: As Apollo Global Emulates Berkshire Hathaway, Assets Reach $414 Billion (APO)