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DERIVATIVES | 12 Months Ended
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Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES | DERIVATIVES Asset Management KKR and certain of its consolidated funds have entered into derivative transactions as part of their overall risk management for the asset management business and investment strategies. These derivative contracts are not designated as hedging instruments for accounting purposes. Such contracts may include forward, swap and option contracts related to foreign currencies and interest rates to manage foreign exchange risk and interest rate risk arising from certain assets and liabilities. All derivatives are recognized in Other Assets or Accrued Expenses and Other Liabilities and are presented on a gross basis in the consolidated statements of financial condition and measured at fair value with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. KKR's derivative financial instruments contain credit risk to the extent that its counterparties may be unable to meet the terms of the agreements. KKR attempts to reduce this risk by limiting its counterparties to major financial institutions with strong credit ratings. Insurance Global Atlantic holds derivative instruments that are primarily used in its hedge program. Global Atlantic has established a hedge program that seeks to mitigate economic impacts primarily from interest rate and equity price movements, while taking into consideration accounting and capital impacts. Global Atlantic hedges interest rate and equity market risks associated with its insurance liabilities including fixed-indexed annuities, indexed universal life policies, variable annuity policies and variable universal life policies, among others. For fixed-indexed annuities and indexed universal life policies, Global Atlantic generally seeks to use static hedges to offset the exposure primarily created by changes in its embedded derivative balances. Global Atlantic generally purchases options which replicate the crediting rate strategies, often in the form of call spreads. Call spreads are the purchase of a call option matched by the sale of a different call option. For variable annuities and variable universal life policies, Global Atlantic generally seeks to dynamically hedge its exposure to changes in the value of the guarantee it provides to policyholders. Doing so requires the active trading of several financial instruments to respond to changes in market conditions. In addition, Global Atlantic enters into inflation swaps to manage inflation risk associated with inflation-indexed preneed policies. In the context of specific reinsurance transactions in the institutional channel or acquisitions, Global Atlantic may also enter into hedges which are designed to limit short-term market risks to the economic value of the target assets. From time to time, Global Atlantic also enters into hedges designed to mitigate interest rate and credit risk in investment income, interest expense, and fair value of assets and liabilities. In addition, Global Atlantic enters into currency swaps and forwards to manage any foreign exchange rate risks that may arise from investments denominated in foreign currencies. Global Atlantic attempts to mitigate the risk of loss due to ineffectiveness under these derivative investments through a regular monitoring process which evaluates the program’s effectiveness. Global Atlantic is exposed to risk of loss in the event of non-performance by the counterparties and, accordingly, all option contracts are purchased from counterparties that have been evaluated for creditworthiness. All of these counterparties are nationally recognized financial institutions with a Moody’s or S&P investment-grade credit rating. Global Atlantic monitors its derivative activities by reviewing portfolio activities and risk levels. Global Atlantic also oversees all derivative transactions to ensure that the types of transactions entered into and the results obtained from those transactions are consistent with both Global Atlantic's risk management strategy and its policies and procedures. The restricted cash which was held in connection with open derivative transactions with exchange brokers was $278.7 million and $151.1 million as of December 31, 2022 and 2021, respectively. Global Atlantic also has embedded derivatives related to reinsurance contracts that are accounted for on a modified coinsurance and funds withheld basis. An embedded derivative exists because the arrangement exposes the reinsurer to third-party credit risk. These embedded derivatives are included in funds withheld receivable and payable at interest in the consolidated statements of financial condition. Derivatives designated as accounting hedges Where Global Atlantic has derivative instruments that are designated and qualify as accounting hedges, these derivative instruments receive hedge accounting. Global Atlantic has designated interest rate swaps to hedge the interest rate risk associated with the $500.0 million senior unsecured notes due 2029, $650.0 million senior unsecured notes due 2031, FHLB and FABN funding agreement liabilities in fair value hedges. The 2029 Senior Notes and 2031 Senior Notes are reported in debt and FHLB and FABN funding agreement liabilities are reported in policy liabilities in the consolidated statements of financial condition and are hedged through their respective maturities. These hedges qualify for the shortcut method of assessing hedge effectiveness. The following table represents the gains (losses) recognized on derivative instruments and related hedged items in fair value hedging relationship:
Year Ended December 31, 2022 | Derivatives |  | Hedged items |  | Net
2029 Senior Notes | $ | (70,382) |  |  | $ | 70,382 |  |  | $ | — |
2031 Senior Notes | (107,473) |  |  | 107,473 |  |  | — |
FHLB funding agreement liabilities | (47,266) |  |  | 47,266 |  |  | — |
FABN liabilities | (335,110) |  |  | 335,110 |  |  | — |
Year Ended December 31, 2021 | Derivatives |  | Hedged items |  | Net
2029 Senior Notes | $ | (18,808) |  |  | $ | 18,808 |  |  | $ | — |
2031 Senior Notes | (5,561) |  |  | 5,561 |  |  | — |
FHLB funding agreement liabilities | (16,092) |  |  | 16,092 |  |  | — |
The following table represents the carrying values and cumulative fair value adjustments for hedged items reflected there-in:
| As of December 31, 2022 |  | As of December 31, 2021
| Carrying value |  | Cumulative fair value of hedge adjustments(1) |  | Carrying value |  | Cumulative fair value of hedge adjustments
2029 Senior Notes | $ | 408,295 |  |  | $ | (89,180) |  |  | $ | 473,890 |  |  | $ | (18,808) |
2031 Senior Notes | 537,578 |  |  | (112,423) |  |  | 644,439 |  |  | (5,561) |
FHLB funding agreement liabilities | 1,039,632 |  |  | (67,116) |  |  | 1,070,770 |  |  | (16,092) |
FABN liabilities | 4,631,252 |  |  | (368,378) |  |  | — |  |  | — |
(1)Includes $19.8 million and $33.3 million of fair value hedge adjustments on discontinued hedges of FHLB and FABN liabilities, respectively, as of December 31, 2022. Global Atlantic has designated bond forwards to hedge the interest rate risk associated with the planned purchase of AFS debt securities in cash flow hedges. Regression analysis is used to assess the effectiveness of these hedges. As of December 31, 2022 and 2021, there was a cumulative (loss) gain of $(169.8) million and $9.4 million on the bond forwards recorded in accumulated other comprehensive loss, respectively. Amounts deferred in accumulated other comprehensive loss are reclassified to net investment income following the qualifying purchases of AFS securities, as an adjustment to the yield earned over the life of the purchased securities, using the effective interest method. These arrangements are hedging purchases from July 2021 through December 2027 and are expected to affect earnings until 2052. There were $266.8 million of securities purchased for the year ended December 31, 2022. As of December 31, 2022, a cumulative loss of $(61.6) million on settled bond forward derivative hedge instruments, coinciding with the purchase of hedged bonds, began to be reclassified into net investment income. Global Atlantic estimates that the amount of gains/losses in accumulated other comprehensive loss to be reclassified into earnings in the next 12 months will not be material. Global Atlantic has designated foreign exchange forward purchase contracts ("FX forwards") to hedge the foreign currency risk associated with foreign currency-denominated bonds in fair value hedges. These foreign currency-denominated bonds are accounted for as AFS fixed maturity securities. Changes in the fair value of the hedged AFS fixed maturity securities due to changes in spot exchange rates are reclassified from AOCI to earnings, which offsets the earnings impact of the spot changes of the FX forwards, both of which are recognized within investment-related gains (losses). The effectiveness of these hedges is assessed using the spot method. Changes in the fair value of the FX forwards related to changes in the spot-forward difference are excluded from the assessment of hedge effectiveness and are deferred in AOCI and recognized in earnings using a systematic and rational method over the life of the FX forwards. The following table represents the gains (losses) related to the FX forwards hedging instruments:
| Years Ended December 31,
| 2022 |  | 2021
FX forward derivative: |  |  |
Net investment-related gains (losses) | $ | 64,945 |  |  | $ | 21,490 |
AOCI | (6,784) |  |  | 2,275 |
Amortization - excluded component | 14,737 |  |  | 2,971 |
Hedged available-for-sale securities: |  |  |
Net investment-related gains (losses) | (61,785) |  |  | (22,721) |
| December 31, 2022 |  | December 31, 2021
Notional value of foreign currency forward | $ | 2,021,061 |  |  | $ | 1,192,412 |
The fair value and notional value of the derivative assets and liabilities were as follows:
As of December 31, 2022 |  | Notional Value |  | Derivative Assets |  | Derivative Liabilities
Asset Management |  |  |  |  |  |
Foreign Exchange Contracts and Options |  | $ | 16,144,795 |  |  | $ | 668,716 |  |  | $ | 406,746 |
Other Derivatives |  | 125,000 |  |  | 7,519 |  |  | 11,018 |
Total Asset Management |  |  |  | $ | 676,235 |  |  | $ | 417,764 |
Insurance |  |  |  |  |  |
Equity market contracts |  | $ | 34,889,122 |  |  | $ | 626,391 |  |  | $ | 91,344 |
Interest rate contracts |  | 15,699,253 |  |  | 182,734 |  |  | 962,329 |
Foreign currency contracts |  | 2,696,451 |  |  | 127,440 |  |  | 91,680 |
Credit risk contracts |  | 60,000 |  |  | — |  |  | 929 |
Impact of netting(1) |  |  |  | (212,175) |  |  | (212,175) |
Fair value included within derivative assets and derivative liabilities |  |  |  | 724,390 |  |  | 934,107 |
Embedded derivative – indexed universal life products |  |  |  | — |  |  | 337,860 |
Embedded derivative – annuity products |  |  |  | — |  |  | 1,855,366 |
Fair value included within policy liabilities |  |  |  | — |  |  | 2,193,226 |
Embedded derivative – funds withheld at interest |  |  |  | 12,785 |  |  | (3,487,766) |
Total Insurance |  |  |  | $ | 737,175 |  |  | $ | (360,433) |
Fair value included within total assets and liabilities |  |  |  | $ | 1,413,410 |  |  | $ | 57,331 |
(1)Represents netting of derivative exposures covered by qualifying master netting agreements.
As of December 31, 2021 | Notional Value |  | Derivative Assets |  | Derivative Liabilities
Asset Management |  |  |  |  |
Foreign Exchange Contracts and Options | $ | 12,822,521 |  |  | $ | 590,637 |  |  | $ | 319,511 |
Other Derivatives | 505,725 |  |  | 491 |  |  | 45,003 |
Total Asset Management |  |  | $ | 591,128 |  |  | $ | 364,514 |
Insurance |  |  |  |  |
Equity market contracts | $ | 31,294,053 |  |  | $ | 1,216,843 |  |  | $ | 186,754 |
Interest rate contracts | 16,692,035 |  |  | 198,658 |  |  | 101,245 |
Foreign currency contracts | 1,517,434 |  |  | 32,464 |  |  | 7,639 |
Credit risk contracts | 107,754 |  |  | — |  |  | 1,540 |
Impact of netting(1) |  |  | (152,015) |  |  | (152,015) |
Fair value included within derivative assets and derivative liabilities |  |  | 1,295,950 |  |  | 145,163 |
Embedded derivative – indexed universal life products |  |  | — |  |  | 557,276 |
Embedded derivative – annuity products |  |  | — |  |  | 1,983,949 |
Fair value included within policy liabilities |  |  | — |  |  | 2,541,225 |
Embedded derivative – funds withheld at interest |  |  | 31,740 |  |  | (49,491) |
Total Insurance |  |  | $ | 1,327,690 |  |  | $ | 2,636,897 |
Fair value included within total assets and liabilities |  | $ | 1,918,818 |  |  | $ | 3,001,411 |
(1)Represents netting of derivative exposures covered by qualifying master netting agreements. The amounts of derivative gains and losses recognized are reported in the consolidated statements of operations as follows:
Derivative contracts not designated as hedges |  |  | Years Ended December 31,
|  |  |  |  | 2022 |  | 2021 |  | 2020
Asset Management |  |  |  |  |  |  |  |  |
Net Gains (Losses) from Investment Activities: |  |  |  |  |  |  |  |  |
Foreign Exchange Contracts and Options |  |  |  |  | 362,965 |  |  | $ | 545,238 |  |  | $ | (332,096) |
Other Derivatives |  |  |  |  | 6,790 |  |  | (77,034) |  |  | (202,744) |
Total included in Net Gains (Losses) from Investment Activities |  |  |  |  | $ | 369,755 |  |  | $ | 468,204 |  |  | $ | (534,840) |
Insurance |  |  |  |  |  |  |  |  |
Net investment-related gains (losses): |  |  |  |  |  |  |  |  |
Funds withheld receivable embedded derivatives |  |  |  |  | $ | (29,390) |  |  | $ | 31,740 |  |  | $ | — |
Funds withheld payable embedded derivatives |  |  |  |  | 3,448,710 |  |  | 49,491 |  |  | — |
Equity index options |  |  |  |  | (895,602) |  |  | 549,987 |  |  | — |
Equity future contracts |  |  |  |  | 167,924 |  |  | (263,637) |  |  | — |
Interest rate contracts and other |  |  |  |  | (333,937) |  |  | (146,920) |  |  | — |
Credit risk contracts |  |  |  |  | (108) |  |  | (400) |  |  | — |
Other |  |  |  |  | (29,779) |  |  | — |  |  | — |
Total included in net investment-related gains (losses) |  |  |  |  | $ | 2,327,818 |  |  | $ | 220,261 |  |  | $ | — |
Derivative contracts designated as hedges |  |  | Years Ended December 31,
|  |  |  |  | 2022 |  | 2021 |  | 2020
Insurance |  |  |  |  |  |  |  |  |
Revenues |  |  |  |  |  |  |  |  |
Net investment-related gains (losses): |  |  |  |  |  |  |  |  |
Foreign currency forwards |  |  |  |  | $ | 18,929 |  |  | $ | 2,484 |  |  | $ | — |
Total included in net investment-related gains (losses) |  |  |  |  | $ | 18,929 |  |  | $ | 2,484 |  |  | $ | — |
Expenses |  |  |  |  |  |  |  |  |
Net policy benefits and claims: |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  |  |  | $ | (438,707) |  |  | $ | (16,177) |  |  | $ | — |
Total included in net policy benefits and claims |  |  |  |  | $ | (438,707) |  |  | $ | (16,177) |  |  | $ | — |
Interest expense: |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  |  |  | $ | (179,259) |  |  | $ | (15,069) |  |  | $ | — |
Total included in interest expense |  |  |  |  | $ | (179,259) |  |  | $ | (15,069) |  |  | $ | — |
The amount of Global Atlantic's net derivative assets and liabilities after consideration of collateral received or pledged were as follows:
As of December 31, 2022 | Gross amount recognized |  | Gross amounts offset in the statements of financial position(1) |  | Net amounts presented in the statements of financial condition |  | Collateral (received) / pledged |  | Net amount after collateral
Derivative assets (excluding embedded derivatives) | $ | 936,565 |  |  | $ | (212,175) |  |  | $ | 724,390 |  |  | $ | (466,371) |  |  | $ | 258,019 |
Derivative liabilities (excluding embedded derivatives) | $ | 1,146,282 |  |  | $ | (212,175) |  |  | $ | 934,107 |  |  | $ | 366,508 |  |  | $ | 567,599 |
(1)Represents netting of derivative exposures covered by qualifying master netting agreements.
As of December 31, 2021 | Gross amount recognized |  | Gross amounts offset in the statements of financial position(1) |  | Net amounts presented in the statements of financial condition |  | Collateral (received) / pledged |  | Net amount after collateral
Derivative assets (excluding embedded derivatives) | $ | 1,447,965 |  |  | $ | (152,015) |  |  | $ | 1,295,950 |  |  | $ | (1,086,061) |  |  | $ | 209,889 |
Derivative liabilities (excluding embedded derivatives) | $ | 297,178 |  |  | $ | (152,015) |  |  | $ | 145,163 |  |  | $ | 49,860 |  |  | $ | 95,303 |
(1) Represents netting of derivative exposures covered by qualifying master netting agreements.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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