KKR Investment Into Insurance

 

KKR Inc, the second biggest alternative asset manager globally has bought into an insurance companies. in order to use the insurance premiums proceeds to invest in its other main business lines private equity, real estate, private credit and lending, according to Wolfteam Ltd.'s analysis and estimates.

KKR Inc uses the stable, long-term nature of the insurance premiums, which are long-term since big insurance events are few and far between.

Thus KKR can do a maturity transformation and invest the long-term insurance premiums into mid-term in duration companies bought via insurance private equity, real estate, private credit and lending and insurance premiums.

This insurance premiums investing, maturity transformation strategy hinges on sound risk management and the lack of catastrophic events. Basically, investing the insurance premiums strategy was pioneered by Warren Buffett via the controlled by him Berkshire Hathaway conglomerate of businesses spanning energy, manufacturing, retail and insurance. Via Berkshire Hathaway Life, Berkshire Hathaway Reinsurance and Geico Berkshire Hathaway and other insurance business lines it has for decades mustered billions of USD of insurance premiums and invested them in the other Berkshire Hathaway business lines energy, manufacturing, retail and insurance and also in public stocks. Via astute and shrewd investment of insurance premiums Warren Buffett, the late Charlie Munger and his investment team have been able to beat the S&P 500 index by more than 15 % a year, building a gigantic amount of wealth as Berkshire Hathaway's market capitalization currently sits at 993 billion USD.

KRR, Blackstone, Carlyle and Apollo are trying to emulate Warren Buffett controlled Berksire Hathaway's success.

This whole insurance premiums maturity transformation strategy hinges on the avoidance of catastrophic risks. If we have many tornadoes, hurricanes, earthquakes and floods, many more than evident by historic statistics the insurance arms of Berkshire Hathaway, KRR, Blackstone, Carlyle and Apollo will have to pay out tens of billions if not hundred of billions of USDs of insurance and reinsurance damages in a short span of time, which will force them to fire sale private equity type owned companies and real estate and private loans thus crushing themselves and possibly the entire financial system.

After the 2008/2009 financial crisis and the following Great Recession regulators pushed out the risk in the financial system from the proprietary investing and trading of corporate and investment banks into private equity, real estate and lending parts of the financial system, also known as shadow banking.

As informed above, all this hinges on great risk management and Yes, on some luck not to have high frequency catastrophic events.

Below under perpetual capital are KKR's insurance premiums income:

Assets Under Management
• AUM of $601 billion, up 16% year-over-year, with $32 billion of organic new capital raised in the quarter and $108 billion in the
LTM
• Fee Paying AUM of $487 billion, up 16% year-over-year, with $29 billion of organic new capital raised in the quarter and $109
billion in the LTM
• Perpetual Capital of $250 billion, up 25% year-over-year driven primarily by the organic growth of Global Atlantic. Perpetual
capital represents 42% of AUM and 50% of FPAUM