S&P upgrades Global Atlantic’s ratings on strong capital

S&P Global Ratings has raised the financial strength and issuer credit ratings of Global Atlantic Financial Group’s (GAFG) operating insurance entities to ‘A’ from ‘A-‘, assigning a stable outlook.

Concurrently, the credit rating agency also upgraded the holding company’s rating to ‘BBB’ from ‘BBB-‘.

The rating upgrades reflect GAFG’s strengthened capital adequacy over the past several years, a key factor that led to S&P’s upgrade to the company’s ratings.

The agency stated: “[GAFG] has consistently maintained strong capital–with capital redundancy above the required capital at the 99.80% confidence level per our capital model–while growing its business profitably and diversifying its product and risk profile.

“The increased diversity–along with the support of its parent, KKR & Co. Inc., (A/Stable) and access to third-party capital through the Ivy sidecars–has also served to stabilize GAFG’s capital and earnings.”

Primarily a block reinsurer with volatile capital, GAFG has broadened its business since being acquired by KKR in 2021. Its expansion into various annuity and insurance sectors (retail annuities, flow reinsurance, FABNs, PRT, pre-need life) has helped to stabilise the company’s earnings.

Block reinsurance made up roughly 61% of GAFG’s new business volume in 2020; it dropped to about 28% in 2024.

S&P also acknowledged the capital support from KKR, which has invested over $3 billion in GAFG in recent years, helping to mitigate the capital and earnings volatility associated with reinsurance and PRT transactions.

Furthermore, access to on-demand third-party capital through its Ivy sidecars has been instrumental in executing 13 block deals and 47 PRT transactions since Ivy’s launch in April 2020.

These include significant transactions with MetLife (GAFG’s largest block reinsurance deal at $19.2 billion) and Manulife Financial Corp. (approximately $10 billion).

“In our view, GAFG’s contracts with Ivy give it a significant amount of influence over Ivy’s strategy, particularly in acquiring new business, capital and investment management, and enterprise risk management. As a result, Ivy’s and future Ivy vehicles’ growth plans and capital strength, based on our riskbased capital model, are integral to our overall view of GAFG,” S&P stated.

While the relationship with Ivy has helped stabilise GAFG’s capital and has fuelled its growth, it also introduces meaningful counterparty risk.

“As GAFG reinsures more business to Ivy, its dependence on Ivy’s financial strength grows. Although GAFG has a great deal of influence over Ivy, it doesn’t own any of Ivy’s equity or debt; therefore, Ivy is not consolidated into GAFG’s financials. We incorporate a view of Ivy’s capitalization and the counterparty risk it represents into our analysis of GAFG’s capital adequacy,” analysts explained.

The stable outlook reflects S&P’s expectation that GAFG will maintain its strong operating performance; continue its profitable growth in its institutional, retail annuity, and life insurance lines; maintain a high-quality investment portfolio; and consistently manage a strong capital and earnings position, with healthy redundancy at the 99.80% confidence level per our capital model.

The outlook also assumes the continued benefits of GAFG’s partnerships with KKR and Ivy, and the absence of material deterioration in their financial health.

S&P noted that there could be a potential for a downgrade if GAFG’s capital adequacy falls below the 99.80% level due to increased investment portfolio risk or other factors.

The agency also stated: “We may also lower our ratings if the company’s operating performance weakens to where we no longer view its business risk profile as strong. We would also likely downgrade GAFG if KKR was downgraded, or if there was a material deterioration in Ivy’s capitalization.”

Given GAFG’s relative concentration in spread-based businesses, S&P analysts stated that it is unlikely that they would raise the company’s financial strength rating within the next two years.

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