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KKR KKR & Co.

Filed: 10 May 21, 4:44pm
0001404912srt:MinimumMemberkkr:MeasurementInputEnterpriseValueLTMEBITDAExitMultipleMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ValuationTechniqueDiscountedCashFlowMember2021-03-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
 
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2021 
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Transition period from           to           . 
Commission File Number 001-34820
kkr-20210331_g1.jpg
KKR & CO. INC.
(Exact name of Registrant as specified in its charter) 
Delaware 26-0426107
(State or other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification Number)
  30 Hudson Yards
New York, New York 10001
Telephone: (212) 750-8300
(Address, zip code, and telephone number, including
area code, of registrant's principal executive office.)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common StockKKRNew York Stock Exchange
6.75% Series A Preferred StockKKR PR ANew York Stock Exchange
6.50% Series B Preferred StockKKR PR BNew York Stock Exchange
6.00% Series C Mandatory Convertible Preferred StockKKR PR CNew York Stock Exchange
4.625% Subordinated Notes due 2061 of KKR Group Finance Co. IX LLCKKRSNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer 
Non-accelerated filer Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
As of May 7, 2021, there were 581,778,745 shares of common stock of the registrant outstanding.


KKR & CO. INC.
FORM 10-Q
For the Quarter Ended March 31, 2021

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believe," "think," "expect," "potential," "continue," "may," "should," "seek," "approximately," "predict," "intend," "will," "plan," "estimate," "anticipate," the negative version of these words, other comparable words or other statements that do not relate strictly to historical or factual matters. Without limiting the foregoing, statements regarding the declaration and payment of dividends on common or preferred stock of KKR & Co. Inc.; the timing, manner and volume of repurchase of common stock pursuant to its repurchase program; expansion and growth opportunities and other synergies resulting from acquisitions, reorganizations or strategic partnerships may constitute forward-looking statements. Forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements or cause the anticipated benefits and synergies from transactions to not be realized. We believe these factors include those described under the section entitled "Risk Factors" in this report. These factors should be read in conjunction with the other cautionary statements that are included in this report and in our other filings with the U.S. Securities and Exchange Commission (the "SEC"). We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.


In this report, references to "KKR," "we," "us" and "our" refer to KKR & Co. Inc. and its subsidiaries, including The Global Atlantic Financial Group LLC ("TGAFG" and, together with its subsidiaries, "Global Atlantic"), unless the context requires otherwise.

On January 1, 2020, KKR completed an internal reorganization (the "Reorganization"), which was undertaken to, among other purposes, simplify KKR's internal structure. In the Reorganization, KKR Management Holdings L.P. and KKR International Holdings L.P., which were former intermediate holdings companies for KKR's business, were combined with another intermediate holding company, KKR Fund Holdings L.P., which changed its name to KKR Group Partnership L.P. ("KKR Group Partnership") and became the sole intermediate holding company for KKR's business. On May 8, 2020, we amended and restated our certificate of incorporation and our bylaws to, among other things, rename Class A common stock of KKR & Co. Inc. as common stock, and reclassify Class B common stock and Class C common stock of KKR & Co. Inc. into Series I preferred stock and Series II preferred stock, respectively (the "Reclassification"). References to "KKR Group Partnership" for periods prior to the Reorganization mean KKR Fund Holdings L.P., KKR Management Holdings L.P. and KKR International Holdings L.P., collectively, and references to "KKR Group Partnership" for periods following the Reorganization mean KKR Group Partnership L.P. References to a "KKR Group Partnership Unit" mean (i) one Class A partner interest in each of KKR Fund Holdings L.P., KKR Management Holdings L.P. and KKR International Holdings L.P., collectively, for periods prior to the Reorganization and (ii) one Class A partner interest in KKR Group Partnership for periods following the Reorganization. References to "common stock" for periods prior to the Reclassification mean Class A common stock of KKR & Co. Inc. and references to "Series I preferred stock" and "Series II preferred stock" for periods prior to the Reclassification mean Class B common stock and Class C common stock of KKR & Co. Inc., respectively. References to the "Series I preferred stockholder" are to KKR Management LLP, the holder of the sole share of our Series I preferred stock. Contemporaneously with the Reorganization, KKR acquired KKR Capstone Americas LLC and its affiliates ("KKR Capstone") on January 1, 2020. References to "non-employee operating consultants" for periods prior to the acquisition mean employees of KKR Capstone, who were not employees of KKR during such periods. Prior to the acquisition, KKR Capstone was owned and controlled by its senior management and was not a subsidiary or affiliate of KKR.

Unless otherwise indicated, references to equity interests in KKR's business, or to percentage interests in KKR's business, reflect the aggregate equity interests in KKR Group Partnership and are net of amounts that have been allocated to our principals and other employees in respect of the carried interest from KKR's business as part of our "carry pool" and certain minority interests. References to "principals" are to our senior employees who hold interests in KKR's business through KKR Holdings L.P. ("KKR Holdings") or comparable equity structures, including KKR Holdings II L.P., and references to our "senior principals" are to our senior employees who hold interests in the Series I preferred stockholder.

On February 1, 2021, KKR completed its acquisition of Global Atlantic. KKR holds all of the voting interests in Global Atlantic and owns 61.1% of the economic equity interests in Global Atlantic, which percentage is subject to change due to certain post-closing purchase price adjustments. Global Atlantic conducts its insurance business through its subsidiaries that are regulated insurance companies.

3

In this report, the term "GAAP" refers to accounting principles generally accepted in the United States of America.

We disclose certain financial measures in this report that are calculated and presented using methodologies other than in accordance with GAAP, including after-tax distributable earnings, asset management segment revenues, distributable operating earnings, fee related earnings ("FRE"), book value and book value per adjusted share. We believe that providing these performance measures on a supplemental basis to our GAAP results is helpful to stockholders in assessing the overall performance of KKR's businesses. These non-GAAP financial measures should not be considered as a substitute for similar financial measures calculated in accordance with GAAP. We caution readers that these non-GAAP financial measures may differ from the calculations of other investment managers, and as a result, may not be comparable to similar measures presented by other investment managers. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, where applicable, are included under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Reconciliations to GAAP Measures." This report also uses the terms AUM, fee paying assets under management ("FPAUM") and capital invested. You should note that our calculations of these and other operating metrics may differ from the calculations of other investment managers and, as a result, may not be comparable to similar metrics presented by other investment managers. These non-GAAP and operating metrics are defined in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Non-GAAP Performance Measures and Other Operating Measures."

References to our "funds" or our "vehicles" refer to investment funds, vehicles and accounts that are advised, managed or sponsored by one or more subsidiaries of KKR, including collateralized loan obligations ("CLOs") and commercial real estate mortgage-backed securities ("CMBS") vehicles, unless the context requires otherwise. They do not include investment funds, vehicles or accounts of any hedge fund or other manager with which we have formed a strategic partnership where we have acquired an ownership interest.

Unless otherwise indicated, references in this report to our fully exchanged and diluted common stock outstanding, or to our common stock outstanding on a fully exchanged and diluted basis, reflect (i) actual shares of common stock outstanding, (ii) shares of common stock into which KKR Group Partnership Units held by KKR Holdings are exchangeable pursuant to the terms of the exchange agreement described in this report, (iii) shares of common stock into which all outstanding shares of Series C Mandatory Convertible Preferred Stock are convertible and (iv) shares of common stock issuable pursuant to any equity awards actually granted from the Amended and Restated KKR & Co. Inc. 2010 Equity Incentive Plan (the "2010 Equity Incentive Plan") or the Amended and Restated KKR & Co. Inc. 2019 Equity Incentive Plan (the "2019 Equity Incentive Plan" and, together with the 2010 Equity Incentive Plan, our "Equity Incentive Plans"). Our fully exchanged and diluted common stock outstanding does not include shares of common stock available for issuance pursuant to the Equity Incentive Plans for which equity awards have not yet been granted. 

The use of any defined term in this report to mean more than one entities, persons, securities or other items collectively is solely for convenience of reference and in no way implies that such entities, persons, securities or other items are one indistinguishable group. For example, notwithstanding the use of the defined terms "KKR," "we" and "our" in this report to refer to KKR & Co. Inc. and its subsidiaries, each subsidiary of KKR & Co. Inc. is a standalone legal entity that is separate and distinct from KKR & Co. Inc. and any of its other subsidiaries. Any KKR entity referenced herein is responsible for its own financial, contractual and legal obligations.
4

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Amounts in Thousands, Except Share and Per Share Data)
March 31, 2021December 31, 2020
Assets  
Asset Management
Cash and Cash Equivalents$5,031,724 $6,507,874 
Restricted Cash and Cash Equivalents79,017 485,583 
Investments76,156,229 69,274,715 
Due from Affiliates1,061,431 872,994 
Other Assets2,766,628 2,665,336 
85,095,029 79,806,502 
Insurance
Cash and Cash Equivalents$5,467,012 $
Restricted Cash and Cash Equivalents399,922 
Investments98,271,046 
Reinsurance Recoverable15,681,893 
Insurance Intangible Assets1,089,830 
Other Assets4,970,295 
Separate Account Assets5,470,087 
131,350,085 
Total Assets$216,445,114 $79,806,502 
Liabilities and Stockholders' Equity  
Asset Management
Debt Obligations$34,669,430 $33,423,596 
Due to Affiliates322,511 325,177 
Accrued Expenses and Other Liabilities7,293,077 5,257,813 
42,285,018 39,006,586 
Insurance
Policy Liabilities$102,607,224 $
Debt Obligations1,400,338 
Funds Withheld Payable at Interest13,446,163 
Accrued Expenses and Other Liabilities4,511,576 
Reinsurance Liabilities422,078 
Separate Account Liabilities5,470,087 
127,857,466 
Total Liabilities170,142,484 39,006,586 
5

March 31, 2021December 31, 2020
Commitments and Contingencies (See Note 23)00
Redeemable Noncontrolling Interests$91,845 $
Stockholders' Equity  
Series A and B Preferred Stock, $0.01 par value. 13,800,000 and 6,200,000 shares, respectively, issued and outstanding as of March 31, 2021 and December 31, 2020.$482,554 $482,554 
Series C Mandatory Convertible Preferred Stock, $0.01 par value. 23,000,000 shares issued and outstanding as of March 31, 2021 and December 31, 2020.1,115,792 1,115,792 
Series I Preferred Stock, $0.01 par value. 1 share authorized, 1 share issued and outstanding as of March 31, 2021 and December 31, 2020.
Series II Preferred Stock, $0.01 par value. 499,999,999 shares authorized, 273,367,712 and 275,626,493 shares, issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.2,733 2,756 
Common Stock, $0.01 par value. 3,500,000,000 shares authorized, 578,269,039 and 572,893,738 shares, issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.5,783 5,729 
Additional Paid-In Capital8,708,339 8,687,817 
Retained Earnings5,007,223 3,440,782 
Accumulated Other Comprehensive Income (Loss)(646,368)(18,612)
Total KKR & Co. Inc. Stockholders' Equity14,676,056 13,716,818 
Noncontrolling Interests31,534,729 27,083,098 
Total Equity46,210,785 40,799,916 
Total Liabilities and Equity$216,445,114 $79,806,502 


See notes to financial statements.
6

KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (Continued)
(Amounts in Thousands)
 
The following presents the portion of the consolidated balances presented in the consolidated statements of financial condition attributable to consolidated variable interest entities ("VIEs"). As of March 31, 2021 and December 31, 2020, KKR's consolidated VIEs consist primarily of (i) certain collateralized financing entities ("CFEs") holding collateralized loan obligations ("CLOs") (ii) certain investment funds and (iii) certain VIEs formed by Global Atlantic.

With respect to consolidated CLOs and certain investment funds, the following assets may only be used to settle obligations of these consolidated VIEs and the following liabilities are only the obligations of these consolidated VIEs and not generally to KKR. The noteholders, creditors and equity holders of these VIEs have no recourse to the assets of any other KKR entity. Additionally, KKR has no right to the benefits from, nor does KKR bear the risks associated with, the assets held by these VIEs beyond KKR's beneficial interest therein and any income generated from the VIEs. There are neither explicit arrangements nor does KKR hold implicit variable interests that would require KKR to provide any material ongoing financial support to the consolidated VIEs, beyond amounts previously committed to them, if any.

With respect to certain other VIEs consolidated by Global Atlantic, Global Atlantic has formed certain VIEs to hold investments, including railcar, aviation and other transportation equipment, renewable energy projects, fixed maturity securities, residential rental properties and student loans. These VIEs issue beneficial interests primarily to Global Atlantic’s insurance companies.
March 31, 2021
 Consolidated CLOsConsolidated FundsOther VIEsTotal
Assets 
Asset Management
Cash and Cash Equivalents$1,220,782 $713,459 $$1,934,241 
Restricted Cash and Cash Equivalents40,774 40,774 
Investments19,163,155 34,896,394 54,059,549 
Other Assets574,695 266,433 841,128 
20,958,632 35,917,060 56,875,692 
Insurance
Cash and Cash Equivalents754,307 754,307 
Investments12,419,521 12,419,521 
Other Assets846,092 846,092 
14,019,920 14,019,920 
Total Assets$20,958,632 $35,917,060 $14,019,920 $70,895,612 
  
Liabilities 
Asset Management
Debt Obligations$18,640,854 $3,635,845 $$22,276,699 
Accrued Expenses and Other Liabilities1,705,659 582,754 2,288,413 
20,346,513 4,218,599 24,565,112 
Insurance
Accrued Expenses and Other Liabilities1,081,574 1,081,574 
Total Liabilities$20,346,513 $4,218,599 $1,081,574 $25,646,686 




7

 
December 31, 2020
 Consolidated CLOsConsolidated FundsTotal
Assets 
Asset Management
Cash and Cash Equivalents$749,395 $263,024 $1,012,419 
Restricted Cash and Cash Equivalents59,490 59,490 
Investments17,706,976 32,699,562 50,406,538 
Other Assets161,621 150,696 312,317 
Total Assets$18,617,992 $33,172,772 $51,790,764 
  
Liabilities 
Asset Management
Debt Obligations$17,372,740 $4,253,645 $21,626,385 
Accrued Expenses and Other Liabilities782,056 412,410 1,194,466 
Total Liabilities$18,154,796 $4,666,055 $22,820,851 

See notes to financial statements.
8

KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in Thousands, Except Share and Per Share Data)
Three Months Ended March 31,
 20212020
Revenues
Asset Management
Fees and Other$493,311 $380,572 
Capital Allocation-Based Income (Loss)2,684,647 (1,382,077)
3,177,958 (1,001,505)
Insurance
Premiums1,176,142 
Policy Fees201,683 
Net Investment Income444,781 
Net Investment (Losses) Gains(455,702)
Other Income18,144 
1,385,048 
Total Revenues4,563,006 (1,001,505)
Expenses
Asset Management
Compensation and Benefits1,306,797 (262,137)
Occupancy and Related Charges15,200 16,322 
General, Administrative and Other166,997 149,123 
1,488,994 (96,692)
Insurance
Policy Benefits and Claims1,485,318 
Amortization of Policy Acquisition Costs(20,478)
Interest Expense10,672 
Insurance Expenses52,084 
General, Administrative and Other79,955 
1,607,551 
Total Expenses3,096,545 (96,692)
Investment Income (Loss) - Asset Management
Net Gains (Losses) from Investment Activities2,696,200 (3,944,504)
Dividend Income75,746 168,699 
Interest Income367,455 353,455 
Interest Expense(251,756)(261,469)
Total Investment Income (Loss)2,887,645 (3,683,819)
9

Three Months Ended March 31,
 20212020
Income (Loss) Before Taxes4,354,106 (4,588,632)
Income Tax Expense (Benefit)438,739 (360,679)
Net Income (Loss)3,915,367 (4,227,953)
Net Income (Loss) Attributable to Redeemable Noncontrolling Interests
Net Income (Loss) Attributable to Noncontrolling Interests2,245,531 (2,947,429)
Net Income (Loss) Attributable to KKR & Co. Inc.1,669,836 (1,280,524)
Series A Preferred Stock Dividends5,822 5,822 
Series B Preferred Stock Dividends2,519 2,519 
Series C Mandatory Convertible Preferred Stock Dividends17,250 
Net Income (Loss) Attributable to KKR & Co. Inc.
Common Stockholders
$1,644,245 $(1,288,865)
Net Income (Loss) Attributable to KKR & Co. Inc.
Per Share of Common Stock
Basic$2.85 $(2.31)
Diluted$2.68 $(2.31)
Weighted Average Shares of Common Stock Outstanding
Basic576,727,967 559,149,821 
Diluted620,888,491 559,149,821 
See notes to financial statements.
10

KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Amounts in Thousands)
 Three Months Ended March 31,
 20212020
Net Income (Loss)$3,915,367 $(4,227,953)
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Losses on Available-For-Sale Securities
and Other
(1,490,289)
Foreign Currency Translation Adjustments(15,257)(26,732)
Comprehensive Income (Loss)2,409,821 (4,254,685)
Comprehensive Income (Loss)
Attributable to Noncontrolling Interests
1,366,143 (2,961,543)
Comprehensive Income (Loss)
Attributable to KKR & Co. Inc.
$1,043,678 $(1,293,142)
 
See notes to financial statements.
11

KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(Amounts in Thousands, Except Share and Per Share Data)

Three Months Ended March 31,
20212020
AmountsSharesAmountsShares
Series A and B Preferred Stock
Beginning of Period$482,554 20,000,000 $482,554 20,000,000 
End of Period482,554 20,000,000 482,554 20,000,000 
Series C Mandatory Convertible Preferred Stock
Beginning of Period1,115,792 23,000,000 
End of Period1,115,792 23,000,000 
Series I Preferred Stock
Beginning of Period
End of Period
Series II Preferred Stock
Beginning of Period2,756 275,626,493 2,904 290,381,345 
Cancellation of Series II Preferred Stock(23)(2,258,781)(39)(3,904,074)
End of Period2,733 273,367,712 2,865 286,477,271 
Common Stock
Beginning of Period5,729 572,893,738 5,600 560,007,579 
Private Placement Share Issuance964,871 — — 
Exchange of KKR Holdings Units23 2,258,781 39 3,904,074 
Net Delivery of Common Stock37 3,657,470 — — 
Clawback of Transfer Restricted Shares— (4,263)— — 
Repurchases of Common Stock(15)(1,501,558)(102)(10,209,673)
End of Period5,783 578,269,039 5,537 553,701,980 
Additional Paid-In Capital
Beginning of Period8,687,817 8,565,919 
Private Placement Share Issuance38,454 — 
Exchange of KKR Holdings Units58,501 72,331 
Tax Effects - Exchange of KKR Holdings Units and Other4,627 (1,426)
Net Delivery of Common Stock(55,910)
Repurchases of Common Stock(71,351)(246,058)
Equity-Based Compensation46,201 51,003 
Transfer of Interests Under Common Control— 14,385 
End of Period8,708,339 8,456,154 
Retained Earnings
Beginning of Period3,440,782 1,792,152 
Net Income (Loss) Attributable to KKR & Co. Inc.1,669,836 (1,280,524)
Series A Preferred Stock Dividends ($0.421875 per share)(5,822)(5,822)
Series B Preferred Stock Dividends ($0.406250 per share)(2,519)(2,519)
Series C Mandatory Convertible Preferred Stock Dividends ($0.75 per share)(17,250)— 
Common Stock Dividends ($0.135 and $0.125 per share, respectively)(77,804)(69,741)
End of Period5,007,223 433,546 
Accumulated Other Comprehensive Income (Loss) (net of tax)
Beginning of Period(18,612)(41,639)
Other Comprehensive Income (Loss)(626,158)(12,618)
Exchange of KKR Holdings Units(1,598)(437)
End of Period(646,368)(54,694)
Total KKR & Co. Inc. Stockholders' Equity14,676,056 9,325,962 
Noncontrolling Interests (See Note 21)31,534,729 17,264,068 
Total Equity$46,210,785 $26,590,030 
Redeemable Noncontrolling Interests (See Note 22)$91,845 $
See notes to financial statements.
12

KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in Thousands)
 Three Months Ended March 31,
20212020
Operating Activities
Net Income (Loss)$3,915,367 $(4,227,953)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities:
Equity-Based and Other Non-Cash Compensation88,162 71,379 
Net Realized (Gains) Losses - Asset Management(584,381)(63,375)
Change in Unrealized (Gains) Losses - Asset Management(2,111,819)4,007,879 
Capital Allocation-Based (Income) Loss - Asset Management(2,684,647)1,382,077 
Net Realized (Gains) Losses - Insurance441,553 
Net Accretion and Amortization82,607 (10,316)
Interest Credited to Policyholder Account Balances (net of Policy Fees) - Insurance422,873 
Other Non-Cash Amounts2,297 459 
Cash Flows Due to Changes in Operating Assets and Liabilities:
Reinsurance Transactions and Acquisitions, Net of Cash Provided - Insurance415,777 
Change in Premiums, Notes Receivable and Reinsurance Recoverable, Net of Reinsurance Premiums Payable - Insurance295,131 
Change in Deferred Policy Acquisition Costs - Insurance(73,201)
Change in Policy Liabilities and Accruals, Net - Insurance(189,108)
Change in Consolidation(21,149)
Change in Due from / to Affiliates(212,300)(183,129)
Change in Other Assets308,439 (323,040)
Change in Accrued Expenses and Other Liabilities1,135,268 (766,087)
Investments Purchased - Asset Management(15,127,133)(8,312,849)
Proceeds from Investments - Asset Management13,823,098 7,018,549 
Net Cash Provided (Used) by Operating Activities(73,166)(1,406,406)
Investing Activities
Acquisition of Global Atlantic, Net of Cash Acquired (See Note 3)(415,640)
Purchases of Fixed Assets(27,727)(41,371)
Investments Purchased - Insurance(5,300,346)
Proceeds from Investments - Insurance5,255,841 
Other Investing Activities, Net - Insurance111,836 
Development of Oil and Natural Gas Properties(4,073)
Net Cash Provided (Used) by Investing Activities(376,036)(45,444)
Financing Activities
Series A and B Preferred Stock Dividends(8,341)(8,341)
Series C Mandatory Convertible Preferred Stock Dividends(17,250)
Common Stock Dividends(77,804)(69,741)
Distributions to Noncontrolling Interests(1,027,834)(524,656)
Contributions from Noncontrolling Interests3,164,049 1,120,966 
Net Delivery of Common Stock (Equity Incentive Plans)(55,873)
Repurchases of Common Stock(71,366)(246,160)
Private Placement Share Issuance38,463 
Proceeds from Debt Obligations5,109,790 3,792,041 
Repayment of Debt Obligations(3,552,362)(2,543,694)
Financing Costs Paid(921)(10,198)
Additions to Contractholder Deposit Funds2,433,498 
Withdrawals from Contractholder Deposit Funds(1,475,176)
Other Financing Activity, Net269 0
Net Cash Provided (Used) by Financing Activities4,459,142 1,510,217 
13

 Three Months Ended March 31,
20212020
Effect of exchange rate changes on cash, cash equivalents and restricted cash(25,722)(25,740)
Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash$3,984,218 $32,627 
Cash, Cash Equivalents and Restricted Cash, Beginning of Period6,993,457 3,237,416 
Cash, Cash Equivalents and Restricted Cash, End of Period$10,977,675 $3,270,043 
Cash, Cash Equivalents and Restricted Cash are comprised of the following:
Beginning of the Period
Asset Management
Cash and Cash Equivalents$6,507,874 $3,163,154 
Restricted Cash and Cash Equivalents485,583 74,262 
Total Asset Management6,993,457 3,237,416 
Insurance
Cash and Cash Equivalents$$
Restricted Cash and Cash Equivalents
Total Insurance
Cash, Cash Equivalents and Restricted Cash, Beginning of Period$6,993,457 $3,237,416 
End of the Period
Asset Management
Cash and Cash Equivalents$5,031,724 $3,153,537 
Restricted Cash and Cash Equivalents79,017 116,506 
  Total Asset Management5,110,741 3,270,043 
Insurance
Cash and Cash Equivalents$5,467,012 $
Restricted Cash and Cash Equivalents399,922 
  Total Insurance5,866,934 
Cash, Cash Equivalents and Restricted Cash, End of Period$10,977,675 $3,270,043 
 
See notes to financial statements.
14

KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
(Amounts in Thousands)
 Three Months Ended March 31,
 20212020
Supplemental Disclosures of Cash Flow Information  
Payments for Interest$289,420 $288,916 
Payments for Income Taxes$11,044 $24,836 
Payments for Operating Lease Liabilities$9,846 $13,243 
Supplemental Disclosures of Non-Cash Investing and Financing Activities 
Equity-Based and Other Non-Cash Contributions$82,517 $71,699 
Non-Cash Contribution from Noncontrolling Interests$845,943 $
Debt Obligations - Net Gains (Losses), Translation and Other$235,821 $1,989,846 
Tax Effects - Exchange of KKR Holdings L.P. Units and Other$4,627 $(1,426)
Right-of-Use Assets obtained in Exchange for new Operating Lease Liabilities$31,003 $2,700 
Investments Acquired through Reinsurance Agreements$368,328 $
Policyholder Liabilities and Accruals Acquired through Reinsurance Agreements$1,112,370 $
Contractholder Deposit Funds Acquired through Reinsurance Agreements$6,988 $
Change in Consolidation
Investments$(49,403)$
Other Assets$(32,689)$
Debt Obligations$(26,165)$
Due to Affiliates$(238)$
Accrued Expenses and Other Liabilities$(10,350)$
Noncontrolling Interests$(66,488)$
 
See notes to financial statements.

15

KKR & CO. INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(All Amounts in Thousands, Except Share and Per Share Data, and Except Where Noted)

1. ORGANIZATION
 
KKR & Co. Inc. (NYSE: KKR), through its subsidiaries (collectively, "KKR"), is a leading global investment firm that offers alternative asset management and capital markets and insurance solutions. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in its portfolio companies and communities. KKR sponsors investment funds that invest in private equity, credit and real assets and has strategic partners that manage hedge funds. KKR’s insurance subsidiaries offer retirement, life and reinsurance products under the management of The Global Atlantic Financial Group LLC ("TGAFG" and, together with its subsidiaries, "Global Atlantic").

KKR & Co. Inc. is the parent company of KKR Group Holdings Corp., which is the general partner of KKR Group Partnership L.P. ("KKR Group Partnership"). KKR & Co. Inc. both indirectly controls KKR Group Partnership and indirectly holds Class A partner interests in KKR Group Partnership ("KKR Group Partnership Units") representing economic interests in KKR's business. The remaining KKR Group Partnership Units are held by KKR Holdings L.P. ("KKR Holdings"), which is not a subsidiary of KKR & Co. Inc., and holders of other exchangeable securities. As of March 31, 2021, KKR & Co. Inc. held indirectly approximately 67.8% of the KKR Group Partnership Units. The percentage ownership in KKR Group Partnership will continue to change as KKR Holdings and these holders exchange their KKR Group Partnership Units for shares of common stock of KKR & Co. Inc. or when KKR & Co. Inc. otherwise issues or repurchases shares of common stock of KKR & Co. Inc. KKR Group Partnership also has outstanding limited partner interests that provide for a carry pool and preferred units with economic terms that mirror the Series A Preferred Stock, Series B Preferred Stock and Series C Mandatory Convertible Preferred Stock issued by KKR & Co. Inc.

Acquisition of Global Atlantic Financial Group

In July 2020, KKR and Global Atlantic Financial Group Limited announced a strategic transaction whereby KKR agreed to acquire Global Atlantic, a leading retirement and life insurance and reinsurance company. The transaction, which closed on February 1, 2021, was funded with a combination of: (i) cash on hand, (ii) proceeds from syndication of the equity interests in Global Atlantic to minority co-investors, (iii) proceeds from the offering of $1,150 million of 6.00% Series C Mandatory Convertible Preferred Stock by KKR & Co. Inc. and (iv) proceeds from the offering of $750 million aggregate principal amount of 3.500% Senior Notes due 2050 by KKR Group Finance Co. VIII LLC.

Global Atlantic's results are included in KKR's consolidated financial statements commencing from the GA Acquisition Date. Refer to Note 3 "Acquisition of Global Atlantic" for additional information on the transaction.

References herein to "KKR," refer to KKR & Co. Inc. and its subsidiaries, including Global Atlantic, unless the context requires otherwise such as in sections where it refers to the asset management business only.







0
16

Notes to Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements of KKR & Co. Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the instructions to this Quarterly Report on Form 10-Q. The condensed consolidated financial statements (referred to hereafter as the "financial statements"), including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) such that the financial statements are presented fairly and that estimates made in preparing the financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. The consolidated balance sheet data as of December 31, 2020 was derived from audited financial statements included in KKR's Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (the "SEC") on February 19, 2021, and the financial statements should be read in conjunction with the audited financial statements included therein. Additionally, in the accompanying financial statements, the condensed consolidated statements of financial condition are referred to hereafter as the "consolidated statements of financial condition"; the condensed consolidated statements of operations are referred to hereafter as the "consolidated statements of operations"; the condensed consolidated statements of comprehensive income (loss) are referred to hereafter as the "consolidated statements of comprehensive income (loss)"; the condensed consolidated statements of changes in equity and redeemable non-controlling interests are referred to hereafter as the "consolidated statements of changes in equity"; and the condensed consolidated statements of cash flows are referred to hereafter as the "consolidated statements of cash flows."
KKR consolidates the financial results of KKR Group Partnership and its consolidated entities, which include the accounts of KKR's investment management and capital markets companies, the general partners of certain unconsolidated investment funds, general partners of consolidated investment funds and their respective consolidated investment funds, certain other entities including CFEs and Global Atlantic. References in the accompanying financial statements to "principals" are to KKR's senior employees who hold interests in KKR's business through KKR Holdings. References to Global Atlantic hereafter includes the insurance companies of Global Atlantic, which are consolidated by KKR starting on the GA Acquisition Date (refer to Note 3 "Acquisition of Global Atlantic" for additional information on the transaction).
The presentations in the consolidated statement of financial condition and consolidated statement of operations reflect the significant industry diversification of KKR by its acquisition of Global Atlantic. Global Atlantic operates an insurance business, and KKR operates an asset management business, each of which possess distinct characteristics. As a result, KKR developed a two-tiered approach for the financial statements presentation, where Global Atlantic's insurance operations are presented separately from KKR's asset management business. KKR believes that these separate presentations provide a more informative view of the consolidated financial position and results of operations than traditional aggregated presentations and that reporting Global Atlantic’s insurance operations separately is appropriate given, among other factors, the relative significance of Global Atlantic’s policy liabilities, which are not obligations of KKR (other than the insurance companies that issued them). If a traditional aggregate presentation were to be used, KKR would expect to eliminate or combine several identical or similar captions, which would condense the presentations, but would also reduce the level of information presented. KKR also believes that using a traditional aggregate presentation would result in no new line items compared to the two-tier presentation included in the financial statements in this report.
In addition, in connection with the Global Atlantic acquisition, we organized our business into 2 segments: Asset Management and Insurance. Global Atlantic’s operations constitute the Insurance segment. See Note 20 "Segment Reporting".
The summary of the significant accounting policies has been organized considering the two-tiered approach and includes a section for common accounting policies and an accounting policy section for each of the two tiers when a policy is specific to one of the tiers.
All intercompany transactions and balances have been eliminated.


17

Notes to Financial Statements (Continued)
SIGNIFICANT ACCOUNTING POLICIES - COMMON AMONG ASSET MANAGEMENT AND INSURANCE
COVID-19 and Global Economic and Market Conditions
The novel strain of coronavirus ("COVID-19") has caused, and continues to cause, severe disruptions to the U.S. and global economies. The outbreak of COVID-19 and the actions taken in response have had far reaching impact on the U.S. and global economies, contributing to significant volatility in the financial markets, resulting in increased volatility in equity prices (including our common stock) and lower interest rates, and causing furloughs and layoffs in the labor market. Although a number of vaccines for COVID-19 have been developed and are in the process of being deployed in certain countries, including the United States, the timing for widespread vaccination and immunity is uncertain, and these vaccines may be less effective against any new mutated strains of the virus that have started to spread globally.
Given the ongoing nature of the pandemic, at this time KKR cannot reasonably predict the magnitude of the ultimate impact that COVID-19 will have on KKR’s business, financial performance and operating results. KKR believes COVID-19's adverse impact on KKR’s business, financial performance and operating results will be significantly driven by a number of factors that KKR is unable to predict or control, including, for example: the severity and duration of the pandemic; the pandemic's impact on the U.S. and global economies; the timing, scope and effectiveness of additional governmental responses to the pandemic; the timing and speed of economic recovery, including the availability and distribution of treatments and vaccines for COVID-19; and the negative impact on our fund investors, vendors and other business partners that may indirectly adversely affect KKR.

Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and investment income (loss) during the reporting periods. Such estimates include but are not limited to (i) the valuation of investments and financial instruments, (ii) the determination of the income tax provision, (iii) the impairment of goodwill and intangible assets, (iv) the impairment of available-for-sale investments, (v) the valuation of insurance policy liabilities, (vi) the valuation of embedded derivatives, (vii) the determination of the allowance for loan losses, and (viii) amortization of deferred revenues and expenses associated with the insurance business. Actual results could differ from those estimates, and such differences could be material to the financial statements.
Principles of Consolidation
The types of entities KKR assesses for consolidation include (i) subsidiaries, including management companies, broker-dealers and general partners of investment funds that KKR manages, (ii) entities that have the attributes of an investment company, like investment funds, (iii) CFEs, (iv) Global Atlantic and its insurance companies beginning on February 1, 2021, and (v) other entities. Each of these entities is assessed for consolidation on a case by case basis depending on the specific facts and circumstances surrounding that entity. For further information on the acquisition accounting for Global Atlantic see Note 3 "Acquisition of Global Atlantic".
Pursuant to its consolidation policy, KKR first considers whether an entity is considered a VIE and therefore whether to apply the consolidation guidance under the VIE model. Entities that do not qualify as VIEs are assessed for consolidation as voting interest entities ("VOEs") under the voting interest model.
KKR's funds are, for GAAP purposes, investment companies and therefore are not required to consolidate their investments in portfolio companies even if majority-owned and controlled. Rather, the consolidated funds and vehicles reflect their investments at fair value as described below in "Fair Value Measurements."
An entity in which KKR holds a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk (as a group) lack either the direct or indirect ability through voting rights or similar rights to make decisions about a legal entity's activities that have a significant effect on the success of the legal entity or the obligation to absorb the expected losses or right to receive the expected residual returns, or (c) the voting rights of some investors are disproportionate to their obligation to absorb the expected losses of the legal entity, their rights to receive the expected residual returns of the legal entity, or both and substantially all of the legal entity's activities either involve or are conducted on behalf of an investor with disproportionately few voting rights. Limited partnerships and other similar entities where unaffiliated limited partners have not been granted (i) substantive participatory rights or (ii) substantive rights to either dissolve the partnership or remove the general partner ("kick-out rights") are VIEs. KKR's investment funds that are not CFEs (i) are
18

Notes to Financial Statements (Continued)
generally limited partnerships, (ii) generally provide KKR with operational discretion and control, and (iii) generally have fund investors with no substantive rights to impact ongoing governance and operating activities of the fund, including the ability to remove the general partner, and, as such, the limited partners do not have kick-out rights. Accordingly, most of KKR's investment funds are categorized as VIEs.
KKR consolidates all VIEs in which it is the primary beneficiary. A reporting entity is determined to be the primary beneficiary if it holds a controlling financial interest in a VIE. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The consolidation guidance requires an analysis to determine (i) whether an entity in which KKR holds a variable interest is a VIE and (ii) whether KKR's involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (for example, management and performance income), would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment. Fees earned by KKR that are customary and commensurate with the level of effort required to provide those services, and where KKR does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, would not be considered to be variable interests. KKR factors in all economic interests including interests held through related parties, to determine if it holds a variable interest. KKR determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion when facts and circumstances change.
For entities that are determined not to be VIEs, these entities are generally considered VOEs and are evaluated under the voting interest model. KKR consolidates VOEs it controls through a majority voting interest or through other means.
The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances for each entity, and therefore certain of KKR's investment funds may qualify as VIEs whereas others may qualify as VOEs.
With respect to CLOs (which are generally VIEs), in KKR's role as collateral manager, KKR generally has the power to direct the activities of the CLO that most significantly impact the economic performance of the entity. In some, but not all cases, KKR, through its residual interest in the CLO may have variable interests that represent an obligation to absorb losses of, or a right to receive benefits from, the CLO that could potentially be significant to the CLO. In cases where KKR has both the power to direct the activities of the CLO that most significantly impact the CLO's economic performance and the obligation to absorb losses of the CLO or the right to receive benefits from the CLO that could potentially be significant to the CLO, KKR is deemed to be the primary beneficiary and consolidates the CLO.
KKR has invested approximately $20 million in the sponsor shareholder of KKR Acquisition Holdings I Corp., a special purpose acquisition company ("SPAC"). The sponsor shareholder is a limited liability company whose only assets are equity securities of the SPAC. The investors in the sponsor shareholder are KKR and an unaffiliated investor. KKR is not the managing member of the sponsor shareholder, and KKR does not have the sole power to direct the activities that most significantly impact the sponsor shareholder. As such, KKR treats its investment in the sponsor shareholder as an equity method investment.
Global Atlantic has formed certain VIEs to hold investments, including railcar, aviation and other transportation equipment, renewable energy projects, fixed maturity securities, residential rental properties and student loans. These VIEs issue beneficial interests primarily to Global Atlantic’s insurance companies and Global Atlantic maintains the power to direct the activities of the VIEs that most significantly impact their economic performance and bears the obligation to absorb losses or receive benefits from the VIEs that could potentially be significant. Accordingly, Global Atlantic is the primary beneficiary of these VIEs, which are consolidated in Global Atlantic’s results. Where these VIEs or entities consolidated by these VIEs issue beneficial interests to third-party investors, they are reported as non-controlling interests by Global Atlantic.
For certain consolidated renewable energy partnerships consolidated by Global Atlantic's insurance companies, Global Atlantic uses hypothetical liquidation at book value method ("HLBV") to allocate income and cash flows based on third-party investors’ claim to net assets, including those for the noncontrolling interests and redeemable noncontrolling interests.
KKR classifies certain noncontrolling interests with redemption features that are not solely within the control of KKR outside of permanent equity on its consolidated statements of financial condition. These redeemable non-controlling interests are reported using the greater of the carrying value at each reporting date as determined by the HLBV method or the estimated redemption value in each reporting period.
19

Notes to Financial Statements (Continued)

Cash and Cash Equivalents
KKR considers all liquid short‑term investments with original maturities of 90 days or less when purchased to be cash equivalents. Cash and cash equivalents includes cash held at consolidated entities, which represents cash that, although not legally restricted, is not available generally to fund liquidity needs of KKR, as the use of such funds is generally limited to the investment activities of KKR's investment funds and CFEs. In prior periods, those amounts were classified in a separate line "Cash and Cash Equivalents Held at Consolidated Entities" on the statement of financial condition, and the comparable information have been recasted to current presentation.
Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents primarily represent amounts that are held by third parties under certain of KKR's financing and derivative transactions. The duration of this restricted cash generally matches the duration of the related financing or derivative transaction. Global Atlantic’s restricted cash principally includes certain cash and cash equivalents held in trusts formed for the benefit of ceding companies or held in connection with open derivative transactions.

Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve varying levels of management estimation and judgment, the degree of which is dependent on a variety of factors.
GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments and financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:
Level I - Pricing inputs are unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date. The types of financial instruments included in this category are publicly-listed equities, U.S. government and agencies securities, and securities sold short.
Level II - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the measurement date, and fair value is determined through the use of models or other valuation methodologies. The types of financial instruments included in this category are credit investments, fixed-income securities held by consolidated insurance companies, investments and debt obligations of consolidated CLO entities, convertible debt securities indexed to publicly-listed securities, less liquid and restricted equity securities, certain funds withheld payable at interest, and certain over-the-counter derivatives such as foreign currency option and forward contracts.
Level III - Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. The types of financial instruments generally included in this category are private portfolio companies, real assets investments, certain credit investments, equity method investments for which the fair value option was elected, certain fixed-income and structured securities held by the consolidated insurance subsidiaries, reinsurance recoverables carried at fair value, certain insurance policy liabilities carried at fair value, and certain embedded derivatives related to (i) certain funds withheld payable at interest, and (ii) annuities and indexed universal life products, which contain equity-indexed features.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. KKR's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset.
20

Notes to Financial Statements (Continued)
A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value.
The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of instrument, whether the instrument has recently been issued, whether the instrument is traded on an active exchange or in the secondary market, and current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires additional judgment. Accordingly, the degree of judgment exercised by KKR in determining fair value is greatest for instruments categorized in Level III. The variability and availability of the observable inputs affected by the factors described above may cause transfers between Levels I, II, and III, which KKR recognizes at the beginning of the reporting period. 
Investments and other financial instruments that have readily observable market prices (such as those traded on a securities exchange) are stated at the last quoted sales price as of the reporting date. KKR does not adjust the quoted price for these investments, even in situations where KKR holds a large position and a sale could reasonably affect the quoted price.
Management's determination of fair value is based upon the methodologies and processes described below and may incorporate assumptions that are management's best estimates after consideration of a variety of internal and external factors.
Level II Valuation Methodologies
Credit Investments, U.S. Municipal Securities, Corporate Bonds and Structured Securities: These financial instruments generally have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that KKR and others are willing to pay for an instrument. Ask prices represent the lowest price that KKR and others are willing to accept for an instrument. For financial instruments whose inputs are based on bid-ask prices obtained from third party pricing services, fair value may not always be a predetermined point in the bid-ask range. KKR's policy is generally to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets KKR's best estimate of fair value. KKR may also use model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Investments and Debt Obligations of Consolidated CLO Vehicles: Investments of consolidated CLO vehicles are reported within Investments of Consolidated CFEs and are valued using the same valuation methodology as described above for credit investments. Under ASU 2014-13, KKR measures CLO debt obligations on the basis of the fair value of the financial assets of the CLO.
Securities Indexed to Publicly-Listed Securities: These securities are typically valued using standard convertible security pricing models. The key inputs into these models that require some amount of judgment are the credit spreads utilized and the volatility assumed. To the extent the company being valued has other outstanding debt securities that are publicly-traded, the implied credit spread on the company's other outstanding debt securities would be utilized in the valuation. To the extent the company being valued does not have other outstanding debt securities that are publicly-traded, the credit spread will be estimated based on the implied credit spreads observed in comparable publicly-traded debt securities. In certain cases, an additional spread will be added to reflect an illiquidity discount due to the fact that the security being valued is not publicly-traded. The volatility assumption is based upon the historically observed volatility of the underlying equity security into which the convertible debt security is convertible and/or the volatility implied by the prices of options on the underlying equity security.
Equity Securities: The valuation of certain equity securities is based on (i) an observable price for an identical security adjusted for the effect of a restriction or leverage that collateralized the equity securities and (ii) quoted prices for identical or similar instruments in markets that are not active.
Derivatives: The valuation incorporates observable inputs comprising yield curves, foreign currency rates, interest rate volatility and credit spreads.

21

Notes to Financial Statements (Continued)
Level III Valuation Methodologies
Private Equity Investments: KKR generally employs 2 valuation methodologies when determining the fair value of a private equity investment. The first methodology is typically a market comparables analysis that considers key financial inputs, which may take into account recent public and private transactions and other available measures. The second methodology utilized is typically a discounted cash flow analysis, which incorporates significant assumptions and judgments. Estimates of key inputs used in this methodology include the weighted average cost of capital for the investment and assumed inputs used to calculate terminal values, such as exit EBITDA multiples. The results of the discounted cash flow approach can be significantly impacted by these estimates. Other inputs are also used in both methodologies. In addition, when a definitive agreement has been executed to sell an investment, KKR generally considers a significant determinant of fair value to be the consideration to be received by KKR pursuant to the executed definitive agreement.
Upon completion of the valuations conducted using these methodologies, a weighting is ascribed to each method, and an illiquidity discount is typically applied where appropriate. The ultimate fair value recorded for a particular investment will generally be within a range suggested by the 2 methodologies, except that the value may be higher or lower than such range in the case of investments being sold pursuant to an executed definitive agreement.
When determining the weighting ascribed to each valuation methodology, KKR considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis, the expected hold period and manner of realization for the investment, and in the case of investments being sold pursuant to an executed definitive agreement, an estimated probability of such sale being completed. These factors can result in different weightings among investments in the portfolio and in certain instances may result in up to a 100% weighting to a single methodology.
When an illiquidity discount is to be applied, KKR seeks to take a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments. KKR then evaluates such private equity investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include (i) whether KKR is unable to freely sell the portfolio company or conduct an initial public offering of the portfolio company due to the consent rights of a third party or similar factors, (ii) whether the portfolio company is undergoing significant restructuring activity or similar factors, and (iii) characteristics about the portfolio company regarding its size and/or whether the portfolio company is experiencing, or expected to experience, a significant decline in earnings. These factors generally make it less likely that a portfolio company would be sold or publicly offered in the near term at a price indicated by using just a market multiples and/or discounted cash flow analysis, and these factors tend to reduce the number of opportunities to sell an investment and/or increase the time horizon over which an investment may be monetized. Depending on the applicability of these factors, KKR determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time KKR holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by KKR in its valuations.
    In the case of growth equity investments, enterprise values may be determined using the market comparables analysis and discounted cash flow analysis described above. A scenario analysis may also be conducted to subject the estimated enterprise values to a downside, base and upside case, which involves significant assumptions and judgments. A milestone analysis may also be conducted to assess the current level of progress towards value drivers that we have determined to be important, which involves significant assumptions and judgments. The enterprise value in each case may then be allocated across the investment's capital structure to reflect the terms of the security and subjected to probability weightings. In certain cases, the values of growth equity investments may be based on recent or expected financings or other transactions.
Real Asset Investments: Real asset investments in infrastructure, energy and real estate are valued using one or a combination of the discounted cash flow analysis, market comparables analysis and direct income capitalization methods, which in each case incorporates significant assumptions and judgments.
Infrastructure investments are generally valued using the discounted cash flow analysis. Key inputs used in this methodology can include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as exit EBITDA multiples.
Energy investments are generally valued using a discounted cash flow approach, and where applicable, a market approach using comparable companies and transactions. Key inputs used in our valuations include (i) the weighted average cost of capital,
22

Notes to Financial Statements (Continued)
(ii) future commodity prices, as quoted on indices, and long-term commodity price forecasts, and (iii) the asset’s projected future operating performance.
Real estate investments are generally valued using a combination of direct income capitalization and discounted cash flow analysis. Certain real estate investments are valued by KKR based on ranges of valuations determined by independent valuation firms. Key inputs used in such methodologies that require estimates include an unlevered discount rate and current capitalization rate. The valuations of real assets investments also use other inputs.
Credit Investments: Credit investments are valued using values obtained from dealers or market makers, and where these values are not available, credit investments are generally valued by KKR based on ranges of valuations determined by an independent valuation firm. Valuation models are based on discounted cash flow analyses, for which the key inputs are determined based on market comparables, which incorporate similar instruments from similar issuers.
Real Estate Mortgage Loans: Real estate mortgage loans are illiquid, structured investments that are specific to the property and its operating performance. KKR engages an independent valuation firm to estimate the fair value of each loan. KKR reviews the quarterly loan valuation estimates provided by the independent valuation firm. These loans are generally valued using a discounted cash flow model using discount rates derived from observable market data applied to the capital structure of the respective sponsor and estimated property value.
Other Investments: With respect to other investments including equity method investments, KKR generally employs the same valuation methodologies as described above for private equity, credit investments and real assets investments when valuing these other investments.
Funds withheld at interest: The funds withheld receivables and payables at interest carried at fair value are primarily valued based on the fair value of the underlying investments, which have quoted prices or other observable inputs to pricing. A portion of the funds withheld receivable and payables at interest carried at fair value represent embedded derivatives and are valued using present value techniques that consider inputs including contract duration.
Reinsurance recoverables: Reinsurance recoverables carried at fair value are valued using present value techniques that consider inputs including mortality and surrender rates for the associated policies, as well as estimates of policy expenses and the cost of capital held in support of the related closed block policy liabilities.
Insurance liabilities and insurance embedded derivatives: Policy liabilities carried at fair value are valued using present value techniques that discount estimated liability cash flows at a rate that reflects the riskiness of those cash flows and also consider policyholder behavior (including lapse rates, surrender rates and mortality). Closed block policy liabilities carried at fair value are valued using present value techniques that consider inputs including mortality and surrender rates for the respective policies, as well as estimates of policy expenses and the cost of capital held in support of the liabilities. The funds withheld payable at interest carried at fair value represents embedded derivatives and is valued based on the change in the fair value of the assets supporting the payable. Other embedded derivative liabilities are related to our fixed-indexed annuity, variable annuity and indexed universal life products, which contain equity-indexed features. The embedded derivative liabilities are calculated as the present value of future projected benefits in excess of the projected guaranteed benefits, using an option budget as the indexed account value growth rate and considering an adjustment to reflect the risk of nonperformance on our obligation and inputs such as projected withdrawal and surrender activity, and mortality. KKR calculates nonperformance risk using a blend of observable peer holding company credit spreads, adjusted to reflect the claims paying ability of our insurance entities, as well as an adjustment to reflect the priority of policyholder claims.

Key unobservable inputs that have a significant impact on KKR's Level III valuations as described above are included in Note 9 "Fair Value Measurements." KKR utilizes several unobservable pricing inputs and assumptions in determining the fair value of its Level III financial instruments. These unobservable pricing inputs and assumptions may differ by financial instruments and in the application of KKR's valuation methodologies. KKR's reported fair value estimates could vary materially if KKR had chosen to incorporate different unobservable pricing inputs and other assumptions or, for certain applicable investments, if KKR only used either the discounted cash flow methodology or the market comparables methodology instead of assigning a weighting to both methodologies.
There is inherent uncertainty involved in the valuation of Level III financial instruments and there is no assurance that, upon liquidation or sale, KKR will realize the values reflected in our valuations. Our valuations may differ significantly from the values that would have been used had an active market for the financial instruments existed, and it is reasonably possible that the difference could be material.

23

Notes to Financial Statements (Continued)
Goodwill and Intangible Assets
Goodwill represents the excess of acquisition cost over the fair value of net tangible and intangible assets acquired in connection with an acquisition. Goodwill is assessed for impairment annually in the third quarter of each fiscal year or more frequently if circumstances indicate impairment may have occurred. Goodwill is recorded in Other Assets in the accompanying consolidated statements of financial condition.

KKR has the option to either (i) perform a quantitative impairment test or (ii) first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, in which case the quantitative test would then be performed. When performing a quantitative impairment test, KKR compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, the goodwill impairment loss is equal to the excess of the carrying value over the fair value, limited to the carrying amount of goodwill allocated to that reporting unit. The estimated fair values of the reporting units are derived based on valuation techniques KKR believes market participants would use for each respective reporting unit. The estimated fair values are generally determined by utilizing a discounted cash flow methodology or methodologies that incorporate market multiples of certain comparable companies.

KKR tests goodwill for impairment at the reporting unit level, which is generally at the level of or one level below its reportable segments. Goodwill recorded as a result of the acquisition of Global Atlantic has been allocated to the Insurance Segment. See Note 20 "Segment Reporting".

Intangible assets, which primarily relate to intangible assets acquired in the GA Acquisition are recorded in Other Assets in the accompanying consolidated statements of financial condition and are amortized over their estimated useful lives and are reviewed for impairment on an interim basis when impairment indicators are present. Impairment losses are recorded within Insurance Expenses in the consolidated statements of operations. The finite lived intangible assets are amortized using the straight-line method over the useful life of the assets which is between 15 to 19 years. The indefinite lived intangible assets are not subject to amortization.
For additional details on the GA Acquisition and the acquisition accounting see Note 3 "Acquisition of Global Atlantic".

Fixed Assets, Depreciation and Amortization
Fixed assets consist primarily of corporate real estate, leasehold improvements, furniture and computer hardware. Such amounts are recorded at cost less accumulated depreciation and amortization and are included in Other Assets within the accompanying consolidated statements of financial condition. Depreciation and amortization are calculated using the straight‑line method over the assets' estimated economic useful lives, which for leasehold improvements are the lesser of the lease term or the life of the asset, for KKR's owner occupied corporate real estate is up to forty years, and three to seven years for other fixed assets.
Foreign Currency
Consolidated entities that have a functional currency that differs from KKR's reporting currency are primarily KKR's investment management and capital markets companies located outside the United States and certain CFEs. Foreign currency denominated assets and liabilities are translated using the exchange rates prevailing at the end of each reporting period. Results of foreign operations are translated at the weighted average exchange rate for each reporting period. Translation adjustments are included as a component of accumulated other comprehensive income (loss) until realized. Foreign currency income or expenses resulting from transactions outside of the functional currency of a consolidated entity are recorded as incurred in general, administrative and other expense in the consolidated statements of operations.

24

Notes to Financial Statements (Continued)
Leases
At contract inception, KKR determines if an arrangement contains a lease by evaluating whether (i) the identified asset has been deployed in the contract explicitly or implicitly and (ii) KKR obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. Additionally, at contract inception KKR will evaluate whether the lease is an operating or finance lease. Right-of-use ("ROU") assets represent KKR’s right to use an underlying asset for the lease term and lease liabilities represent KKR’s obligation to make lease payments arising from the lease.
ROU assets and the associated lease liabilities are recognized at the commencement date based on the present value of the future minimum lease payments over the lease term. The discount rate implicit in the lease is generally not readily determinable. Consequently, KKR uses its incremental borrowing rate based on the information available including, but not limited to, collateral assumptions, the term of the lease, and the economic environment in which the lease is denominated at the commencement date in determining the present value of the future lease payments. The ROU assets are recognized as the initial measurement of the lease liabilities plus any initial direct costs and any prepaid lease payments less lease incentives received, if any. The lease terms may include options to extend or terminate the lease which are accounted for when it is reasonably certain that KKR will exercise that option. Certain leases that include lease and non-lease components are accounted for as one single lease component. In addition to contractual rent payments, occupancy lease agreements generally include additional payments for certain costs incurred by the landlord, such as building expenses and utilities. To the extent these are fixed or determinable, they are included as part of the lease payments used to measure the Operating Lease Liability.
Operating lease expense is recognized on a straight-line basis over the lease term and is recorded within Occupancy and Related Charges in the accompanying consolidated statements of operations. The ROU assets are included in Other Assets and the lease liabilities are included in Accrued Expenses and Other Liabilities in the accompanying consolidated statements of financial condition. See Note 14 "Other Assets and Accrued Expenses and Other Liabilities."
Comprehensive Income (Loss)
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from contributions from and distributions to owners. In the accompanying consolidated financial statements, comprehensive income is comprised of (i) Net Income (Loss), as presented in the consolidated statements of operations, (ii) unrealized gains (losses) on available-for-sale securities and (iii) net foreign currency translation.
Income Taxes
KKR & Co. Inc. is a domestic corporation for U.S. federal income tax purposes and is subject to U.S. federal, state and local income taxes at the entity level on its share of taxable income. In addition, KKR Group Partnership and certain of its subsidiaries operate as partnerships for U.S. federal tax purposes but as taxable entities for certain state, local or non-U.S. tax purposes. Moreover, certain corporate subsidiaries of KKR, including certain Global Atlantic subsidiaries, are domestic corporations for U.S. federal income tax purposes and are subject to U.S. federal, state, and local income taxes.
Deferred Income Taxes

Income taxes are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis, using tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period when the change is enacted.
Deferred tax assets, which are recorded in Other Assets within the statement of financial condition, are reduced by a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. When evaluating the realizability of the deferred tax assets, all evidence, both positive and negative, is considered. Items considered when evaluating the need for a valuation allowance include the ability to carry back losses, future reversals of existing temporary differences, tax planning strategies, and expectations of future earnings.
For a particular tax‑paying component of an entity and within a particular tax jurisdiction, deferred tax assets and liabilities are offset and presented as a single amount within Other Assets or Accrued and Other Liabilities, as applicable, in the accompanying statements of financial condition.
25

Notes to Financial Statements (Continued)
Uncertain Tax Positions
KKR analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, KKR determines that uncertainties in tax positions exist, a reserve is established. The reserve for uncertain tax positions is recorded in Accrued and Other Liabilities in the accompanying statements of financial condition. KKR recognizes accrued interest and penalties related to uncertain tax positions within the provision for income taxes in the consolidated statements of operations.
KKR records uncertain tax positions on the basis of a two‑step process: (a) determination is made whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (b) those tax positions that meet the more‑likely‑than‑not threshold are recognized as the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
SIGNIFICANT ACCOUNTING POLICIES - ASSET MANAGEMENT
The significant accounting policies applicable to KKR’s asset management business are described below.
Investments
Investments consist primarily of private equity, credit, investments of consolidated CFEs, real assets, equity method and other investments. Investments denominated in currencies other than the entity's functional currency are valued based on the spot rate of the respective currency at the end of the reporting period with changes related to exchange rate movements reflected in the consolidated statements of operations. Security and loan transactions are recorded on a trade date basis. Further disclosure on investments is presented in Note 7 "Investments."
The following describes the types of securities held within each investment class.
Private Equity - Consists primarily of equity investments in operating businesses, including growth equity investments.
Credit - Consists primarily of investments in below investment grade corporate debt securities (primarily high yield bonds and syndicated bank loans), originated, distressed and opportunistic credit, real estate mortgage loans, and interests in unconsolidated CLOs.
Investments of Consolidated CFEs - Consists primarily of investments in below investment grade corporate debt securities (primarily high yield bonds and syndicated bank loans) held directly by the consolidated CLOs.
Real Assets - Consists primarily of investments in (i) energy related assets, principally oil and natural gas properties, (ii) infrastructure assets, and (iii) real estate, principally residential and commercial real estate assets and businesses.
Equity Method - Other - Consists primarily of (i) certain direct interests in operating companies in which KKR is deemed to exert significant influence under GAAP and (ii) certain interests in partnerships and joint ventures that hold private equity and real assets investments.
Equity Method - Capital Allocation-Based Income - Consists primarily of (i) the capital interest KKR holds as the general partner in certain investment funds, which are not consolidated and (ii) the carried interest component of the general partner interest, which are accounted for as a single unit of account.
Other - Consists primarily of investments in common stock, preferred stock, warrants and options of companies that are not private equity, real assets, credit or investments of consolidated CFEs.
Investments held by Consolidated Investment Funds
The consolidated investment funds are, for GAAP purposes, investment companies and reflect their investments and other financial instruments, including portfolio companies that are majority-owned and controlled by KKR's investment funds, at fair value. KKR has retained this specialized accounting for the consolidated investment funds in consolidation. Accordingly, the unrealized gains and losses resulting from changes in fair value of the investments and other financial instruments held by the consolidated investment funds are reflected as a component of Net Gains (Losses) from Investment Activities in the consolidated statements of operations.
26

Notes to Financial Statements (Continued)
Certain energy investments are made through consolidated investment funds, including investments in working and royalty interests in oil and natural gas properties as well as investments in operating companies that operate in the energy industry. Since these investments are held through consolidated investment funds, such investments are reflected at fair value as of the end of the reporting period. 
Investments in operating companies that are held through KKR's consolidated investment funds are generally classified within private equity investments and investments in working and royalty interests in oil and natural gas properties are generally classified as real asset investments.
Energy Investments held by KKR
On August 18, 2020, KKR transferred all the working and royalty interests in oil and natural gas properties, which were directly held by KKR and not held through investment funds, into a consolidated investment fund. Before the transfer, oil and natural gas activities were accounted for under the successful efforts method of accounting and such working and royalty interests were consolidated based on the proportion of the working and royalty interests held by KKR. Subsequent to the transfer, such working and royalty interests are carried at fair value in accordance with ASC 946, Financial Services - Investment Companies, and recorded within investments in the consolidated statements of financial condition. Any changes in fair value are recorded within Net Gains (Losses) from Investment Activities in the consolidated statements of operations. No gain or loss has been recorded in the consolidated statement of operations as result of the transfer. KKR recognized the differential between the net carrying value of such working and royalty interests and the fair value at the time of the transfer within stockholders' equity. This transaction resulted in an adjustment to KKR Group Partnership's equity, and accordingly, both KKR's equity and noncontrolling interests held by KKR Holdings were adjusted for their proportionate share based on their ownership in KKR Group Partnership at the time of transfer. See the consolidated statements of changes in equity and Note 21 "Equity". The fair value has been determined in accordance with KKR’s Level III Valuation Methodologies.
Fair Value Option
For certain investments and other financial instruments, KKR has elected the fair value option. Such election is irrevocable and is applied on a financial instrument by financial instrument basis at initial recognition. KKR has elected the fair value option for certain private equity, real assets, credit, investments of consolidated CFEs, equity method - other and other financial instruments not held through a consolidated investment fund. Accounting for these investments at fair value is consistent with how KKR accounts for its investments held through consolidated investment funds. Changes in the fair value of such instruments are recognized in Net Gains (Losses) from Investment Activities in the consolidated statements of operations. Interest income on interest bearing credit securities on which the fair value option has been elected is based on stated coupon rates adjusted for the accretion of purchase discounts and the amortization of purchase premiums. This interest income is recorded within Interest Income in the consolidated statements of operations.
Equity Method
For certain investments in entities over which KKR exercises significant influence but which do not meet the requirements for consolidation and for which KKR has not elected the fair value option, KKR uses the equity method of accounting. The carrying value of equity method investments, for which KKR has not elected the fair value option, is determined based on the amounts invested by KKR, adjusted for the equity in earnings or losses of the investee allocated based on KKR's respective ownership percentage, less distributions.
For equity method investments for which KKR has not elected the fair value option, KKR records its proportionate share of the investee's earnings or losses based on the most recently available financial information of the investee, which in certain cases may lag the date of KKR's financial statements by no more than three calendar months. As of March 31, 2021, equity method investees for which KKR reports financial results on a lag include Marshall Wace LLP ("Marshall Wace").
KKR evaluates its equity method investments for which KKR has not elected the fair value option for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.
The carrying value of investments classified as Equity Method - Capital Allocation-Based Income approximates fair value, because the underlying investments of the unconsolidated investment funds are reported at fair value.
27

Notes to Financial Statements (Continued)
Financial Instruments held by Consolidated CFEs
KKR measures both the financial assets and financial liabilities of the consolidated CFEs in its financial statements using the more observable of the fair value of the financial assets and the fair value of the financial liabilities which results in KKR's consolidated net income (loss) reflecting KKR's own economic interests in the consolidated CFEs including (i) changes in the fair value of the beneficial interests retained by KKR and (ii) beneficial interests that represent compensation for services rendered.
For the consolidated CLOs, KKR has determined that the fair value of the financial assets of the consolidated CLOs is more observable than the fair value of the financial liabilities of the consolidated CLOs. As a result, the financial assets of the consolidated CLOs are being measured at fair value and the financial liabilities are being measured in consolidation as: (1) the sum of the fair value of the financial assets and the carrying value of any nonfinancial assets that are incidental to the operations of the CLOs less (2) the sum of the fair value of any beneficial interests retained by KKR (other than those that represent compensation for services) and KKR's carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained by KKR).
Due from and Due to Affiliates
KKR considers its principals and their related entities, unconsolidated investment funds and the portfolio companies of its funds to be affiliates for accounting purposes. Receivables from and payables to affiliates are recorded at their current settlement amount.
Freestanding Derivatives
Freestanding derivatives are instruments that KKR and certain of its consolidated funds have entered into as part of their overall risk management 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.
Securities Sold Short
Whether part of a hedging transaction or a transaction in its own right, securities sold short represent obligations of KKR to deliver the specified security at the contracted price at a future point in time, and thereby create a liability to repurchase the security in the market at the prevailing prices. The liability for such securities sold short, which is recorded in Accrued Expenses and Other Liabilities in the statement of financial condition, is marked to market based on the current fair value of the underlying security at the reporting date with changes in fair value recorded as unrealized gains or losses in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. These transactions may involve market risk in excess of the amount currently reflected in the accompanying consolidated statements of financial condition.

28

Notes to Financial Statements (Continued)
Revenues
For the three months ended March 31, 2021 and 2020, respectively, revenues consisted of the following:    
 Three Months Ended March 31,
 20212020
Management Fees$276,181 $222,689 
Fee Credits(35,398)(35,387)
Transaction Fees165,893 98,996 
Monitoring Fees35,388 31,149 
Incentive Fees3,438 668 
Expense Reimbursements27,729 28,224 
Oil and Gas Revenue13,315 
Consulting Fees20,080 20,918 
Total Fees and Other493,311 380,572 
Carried Interest2,140,426 (1,210,925)
General Partner Capital Interest544,221 (171,152)
Total Capital Allocation-Based Income (Loss)2,684,647 (1,382,077)
Total Revenues - Asset Management$3,177,958 $(1,001,505)
Fees and Other
Fees and Other, as detailed above, are accounted for as contracts with customers. Under ASC 606, Revenue from Contracts with Customers ("ASC 606"), KKR is required to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) KKR satisfies its performance obligation. In determining the transaction price, KKR has included variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved.
29

Notes to Financial Statements (Continued)
The following table summarizes KKR's revenues from contracts with customers:
Revenue TypeCustomerPerformance Obligation
Performance Obligation Satisfied Over Time or
Point In Time (1)
Variable or
Fixed Consideration
Payment TermsSubject to Return Once Recognized
Classification of Uncollected Amounts (2)
Management FeesInvestment funds, CLOs and other vehiclesInvestment management servicesOver time as services are renderedVariable consideration since varies based on fluctuations in the basis of the management fee over timeTypically quarterly or annually in arrearsNoDue from Affiliates
Transaction FeesPortfolio companies and third party companiesAdvisory services and debt and equity arranging and underwritingPoint in time when the transaction (e.g. underwriting) is completedFixed considerationTypically paid on or shortly after transaction closesNoDue from Affiliates (portfolio companies)

Other Assets (third parties)
Monitoring Fees
Recurring FeesPortfolio companiesMonitoring servicesOver time as services are renderedVariable consideration since varies based on fluctuations in the basis of the recurring feeTypically quarterly in arrearsNoDue from Affiliates
Termination FeesPortfolio companiesMonitoring servicesPoint in time when the termination is completedFixed considerationTypically paid on or shortly after termination occursNoDue from Affiliates
Incentive FeesInvestment funds and other vehiclesInvestment management services that result in achievement of minimum investment return levelsOver time as services are renderedVariable consideration since contingent upon the investment fund and other vehicles achieving more than stipulated investment return hurdlesTypically paid shortly after the end of the performance measurement periodNoDue from Affiliates
Expense ReimbursementsInvestment funds and portfolio companiesInvestment management and monitoring servicesPoint in time when the related expense is incurredFixed considerationTypically shortly after expense is incurredNoDue from Affiliates
Oil and Gas RevenuesOil and gas wholesalersDelivery of oil liquids and gasPoint in time when delivery has occurred and title has transferredFixed considerationTypically shortly after deliveryNoOther Assets
Consulting FeesPortfolio companies and other companiesConsulting and other servicesOver time as services are renderedFixed considerationTypically quarterly in arrearsNoDue from Affiliates
(1)For performance obligations satisfied at a point in time, there were no significant judgments made in evaluating when a customer obtains control of the promised service.
(2)For amounts classified in Other Assets, see Note 14 "Other Assets and Accrued Expenses and Other Liabilities." For amounts classified in Due from Affiliates, see Note 19 "Related Party Transactions."

Management Fees
KKR provides investment management services to investment funds, CLOs, and other vehicles and entities in exchange for a management fee. Management fees are determined quarterly based on an annual rate and are generally based upon a percentage of the capital committed or capital invested during the investment period. Thereafter, management fees are generally based on a percentage of remaining invested capital, net asset value, gross assets or as otherwise defined in the respective contractual agreements. Since some of the factors that cause the fees to fluctuate are outside of KKR's control, management fees are considered to be constrained and are therefore not included in the transaction price. Additionally, after the contract is established there are no significant judgments made when determining the transaction price.
Management fees earned from KKR's consolidated investment funds and other vehicles and entities are eliminated in consolidation. However, because these amounts are funded by, and earned from, noncontrolling interests, KKR's allocated share of the net income from the consolidated investment funds and other vehicles is increased by the amount of fees that are
30

Notes to Financial Statements (Continued)
eliminated. Accordingly, the elimination of these fees does not impact the net income (loss) attributable to KKR or KKR stockholders' equity.
Fee Credits
Under the terms of the management agreements with certain of its investment funds, KKR is required to share with such funds an agreed upon percentage of certain fees, including monitoring and transaction fees earned from portfolio companies ("Fee Credits"). Investment funds earn Fee Credits only with respect to monitoring and transaction fees that are allocable to the fund's investment in the portfolio company and not, for example, any fees allocable to capital invested through co-investment vehicles. Fee Credits are calculated after deducting certain costs incurred in connection with pursuing potential investments that do not result in completed transactions ("broken-deal expenses") and generally amount to 80% for older funds formed on or prior to January 1, 2015, or 100% for newer funds, of allocable monitoring and transaction fees after broken-deal expenses are recovered, although the actual percentage may vary from fund to fund. Fee Credits are recognized and owed to investment funds concurrently with the recognition of monitoring fees, transaction fees and broken-deal expenses. Since Fee Credits are payable to investment funds, amounts owed are generally applied as a reduction of the management fee that is otherwise billed to the investment fund. Fee credits are recorded as a reduction of revenues in the consolidated statement of operations. Fee Credits owed to investment funds are recorded in Due to Affiliates on the consolidated statements of financial condition. See Note 19 "Related Party Transactions."
Transaction Fees
KKR (i) arranges debt and equity financing, places and underwrites securities offerings, and provides other types of capital markets services for companies seeking financing in its Capital Markets business line and (ii) provides advisory services in connection with successful Private Markets and Public Markets business line portfolio company investment transactions, in each case, in exchange for a transaction fee. Transaction fees are separately negotiated for each transaction and are generally based on (i) for Capital Markets business line transactions, a percentage of the overall transaction size and (ii) for Private Markets and Public Markets business line transactions, a percentage of either total enterprise value of an investment or a percentage of the aggregate price paid for an investment. After the contract is established, there are no significant judgments made when determining the transaction price.
Monitoring Fees
KKR provides services in connection with monitoring portfolio companies in exchange for a fee. Recurring monitoring fees are separately negotiated for each portfolio company. In addition, certain monitoring fee arrangements may provide for a termination payment following an initial public offering or change of control as defined in the contractual terms of the related agreement. These termination payments are recognized in the period when the related transaction closes. After the contract is established, there are no significant judgments made when determining the transaction price.
Incentive Fees
KKR provides investment management services to certain investment funds, CLOs and other vehicles in exchange for a management fee as discussed above and, in some cases an incentive fee when KKR is not entitled to a carried interest. Incentive fee rates generally range from 5% to 20% of investment gains. Incentive fees are considered a form of variable consideration as these fees are subject to reversal, and therefore the recognition of such fees is deferred until the end of each fund's measurement period when the performance-based incentive fees become fixed and determinable. Incentive fees are generally paid within 90 days of the end of the investment vehicles' measurement period. After the contract is established, there are no significant judgments made when determining the transaction price.
Incentive fees earned from KKR's consolidated investment funds, CLOs, and other vehicles are eliminated in consolidation. However, because these amounts are funded by, and earned from, noncontrolling interests, KKR's allocated share of the net income from the consolidated investment funds, CLOs, and other vehicles is increased by the amount of fees that are eliminated. Accordingly, the elimination of these fees does not impact the net income (loss) attributable to KKR or KKR stockholders' equity.
Expense Reimbursements
Providing investment management services to investment funds and monitoring KKR’s portfolio companies require KKR to arrange for services on behalf of them. In those situations where KKR is acting as an agent on behalf of its investment funds or portfolio companies, it presents the cost of services on a net basis as a reduction of Revenues. In all other situations, KKR is primarily responsible for fulfilling the services and is therefore acting as a principal for those arrangements for accounting
31

Notes to Financial Statements (Continued)
purposes. As a result, the expense and related reimbursement associated with those services is presented on a gross basis. Costs incurred are classified within Expenses and reimbursements of such costs are classified as Expense Reimbursements within Revenues on the consolidated statements of operations. After the contract is established, there are no significant judgments made when determining the transaction price.
Oil and Gas Revenue
On August 18, 2020, KKR transferred all the working and royalty interests in oil and natural gas properties, which were directly held by KKR and not held through investment funds, into a consolidated investment fund. Before the transfer, oil and gas revenue was recognized when the performance obligations were satisfied, which occurred at the point in time when control of the product transferred to the customer. Performance obligations were typically satisfied through the monthly delivery of production. Revenue was recognized based on KKR's proportionate share of production from non-operated properties as marketed by the operator. After the contract was established, there were no significant judgments made when determining the transaction price. As result of the transfer of all the working and royalty interests into a consolidated investment fund, no oil and gas revenue has been recognized since the date of the transfer.
Consulting Fees
KKR provides consulting and other services to portfolio companies and other companies in exchange for a consulting fee. Consulting fees are separately negotiated with each company for which services are provided. After the contract is established, there are no significant judgments made when determining the transaction price.
Capital Allocation-Based Income (Loss)
Capital allocation-based income (loss) is earned from those arrangements where KKR has a general partner capital interest and is entitled to a disproportionate allocation of investment income (referred to hereafter as "carried interest"). KKR accounts for its general partner interests in capital allocation-based arrangements as financial instruments under ASC 323, Investments - Equity Method and Joint Ventures ("ASC 323") since the general partner has significant governance rights in the investment funds in which it invests, which demonstrates significant influence. In accordance with ASC 323, KKR records equity method income based on the proportionate share of the income of the investment fund, including carried interest, assuming the investment fund was liquidated as of each reporting date pursuant to each investment fund's governing agreements. Accordingly, these general partner interests are accounted for outside of the scope of ASC 606. Other arrangements surrounding contractual incentive fees through an advisory contract are separate and distinct and accounted for in accordance with ASC 606. In these incentive fee arrangements, accounted for in accordance with ASC 606, KKR’s economics in the entity do not involve an allocation of capital. See "Incentive Fees" above.
Carried interest is allocated to the general partner based on cumulative fund performance to date, and where applicable, subject to a preferred return to the funds' limited partners. At the end of each reporting period, KKR calculates the carried interest that would be due to KKR for each investment fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as carried interest to reflect either (a) positive performance resulting in an increase in the carried interest allocated to the general partner or (b) negative performance that would cause the amount due to KKR to be less than the amount previously recognized, resulting in a negative adjustment to carried interest allocated to the general partner. In each case, it is necessary to calculate the carried interest on cumulative results compared to the carried interest recorded to date and to make the required positive or negative adjustments. KKR ceases to record negative carried interest allocations once previously recognized carried interest allocations for an investment fund have been fully reversed. KKR is not obligated to make payments for guaranteed returns or hurdles and, therefore, cannot have negative carried interest over the life of an investment fund. Accrued but unpaid carried interest as of the reporting date is reflected in Investments in the consolidated statements of financial condition.
Compensation and Benefits
Compensation and Benefits expense includes (i) base cash compensation consisting of salaries and wages, (ii) benefits, (iii) carry pool allocations, (iv) equity-based compensation, and (v) discretionary cash bonuses.
To supplement base cash compensation, benefits, carry pool allocations, and equity-based compensation, KKR typically pays discretionary cash bonuses, which are included in Compensation and Benefits expense in the consolidated statements of operations, based principally on the level of (i) management fees and other fee revenues (including incentive fees), (ii) realized carried interest and (iii) realized investment income earned during the year. The amounts paid as discretionary cash bonuses, if
32

Notes to Financial Statements (Continued)
any, are at KKR’s sole discretion and vary by individual to individual and from period to period, including having no cash bonus. KKR accrues discretionary cash bonuses when payment becomes probable and reasonably estimable which is generally in the period when KKR makes the decision to pay discretionary cash bonuses and is based upon a number of factors including the recognition of fee revenues, realized carried interest, realized investment income and other factors determined during the year.
KKR decides whether to pay a discretionary cash bonus and determines the percentage of applicable revenue components to pay compensation only upon the occurrence of the realization event. There is no contractual or other binding obligation that requires KKR to pay a discretionary cash bonus to its employees, except in limited circumstances.
While most cash bonuses paid to most employees are borne by KKR and result in customary compensation and benefits expense, certain cash bonuses that are paid to certain of KKR's principals can be borne by KKR Holdings. These bonuses can be funded with distributions that KKR Holdings receives on KKR Group Partnership Units held by KKR Holdings but are not then passed on to holders of unvested units of KKR Holdings. Because KKR principals are not entitled to receive distributions on units that are unvested, any amounts allocated to principals in excess of a principal's vested equity interests are reflected as employee compensation and benefits expense. These compensation charges, if any, are currently recorded based on the amount of cash expected to be paid by KKR Holdings.
Carry Pool Allocation
With respect to KKR's funds that provide for carried interest, KKR allocates a portion of the realized and unrealized carried interest that it earns to a carry pool established at KKR Associates Holdings L.P. (which is not a subsidiary of KKR), from which its employees and certain other carry pool participants are eligible to receive a carried interest allocation. The allocation is determined based upon a fixed arrangement between KKR Associates Holdings L.P. and KKR, and KKR does not exercise discretion on whether to make an allocation to the carry pool upon a realization event. These amounts are accounted for as compensatory profit sharing arrangements in Accrued Expenses and Other Liabilities within the accompanying consolidated statements of financial condition in conjunction with the related carried interest income and are recorded as compensation expense. Upon a reversal of carried interest income, the related carry pool allocation, if any, is also reversed. Accordingly, such compensation expense is subject to both positive and negative adjustments.
In February 2021, following the approval of a majority of KKR & Co. Inc.'s independent directors, KKR amended the percentage of carried interest that is allocable to the carry pool to 65% for (i) current investment funds for which no or de minimis amounts of carried interest was accrued as of December 31, 2020 and (ii) all future funds. For all other funds, the percentage of carried interest remains 40% or 43%, as applicable. The percentage of carried interest allocable to the carry pool may be increased above 65% only with the approval of a majority of KKR & Co. Inc.'s independent directors.
Equity-based Compensation
In addition to the cash-based compensation and carry pool allocations as described above, employees receive equity awards under the Amended and Restated KKR & Co. Inc. 2010 Equity Incentive Plan (the "2010 Equity Incentive Plan") and the Amended and Restated KKR & Co. Inc. 2019 Equity Incentive Plan (the "2019 Equity Incentive Plan" and, together with the 2010 Equity Incentive Plan, the "Equity Incentive Plans"). Most of these awards are subject to service-based vesting typically over a three to five-year period from the date of grant, while in certain cases vesting is subject to the achievement of market conditions. Certain of these awards are subject to transfer restrictions and minimum retained ownership requirements.
Profit Sharing Plan
KKR provides certain profit sharing programs for KKR employees. In particular, KKR provides a 401(k) plan for eligible employees in the United States. For certain employees who are participants in the 401(k) plan, KKR may, in its discretion, contribute an amount after the end of the plan year.
General, Administrative and Other
General, administrative and other expense consists primarily of professional fees paid to legal advisors, accountants, advisors and consultants, insurance costs, travel and related expenses, communications and information services, depreciation and amortization charges, expenses (including impairment charges) incurred by oil and gas entities that are consolidated, broken-deal expenses, placement fees and other general operating expenses. A portion of these general administrative and other expenses, in particular broken-deal expenses, are borne by fund investors.
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Notes to Financial Statements (Continued)
Investment Income
Investment income consists primarily of the net impact of:
(i)    Realized and unrealized gains and losses on investments, securities sold short, derivatives and debt obligations of consolidated CFEs which are recorded in Net Gains (Losses) from Investment Activities. Upon disposition of an investment, previously recognized unrealized gains or losses are reversed and a realized gain or loss is recognized.
(ii)    Foreign exchange gains and losses relating to mark‑to‑market activity on foreign exchange forward contracts, foreign currency options and foreign denominated debt which are recorded in Net Gains (Losses) from Investment Activities.
(iii)    Dividends, which are recognized on the ex‑dividend date, or, in the absence of a formal declaration of a record date, on the date it is received.
(iv)    Interest income, which is recognized as earned.
(v)    Interest expense, which is recognized as incurred.

SIGNIFICANT ACCOUNTING POLICIES - INSURANCE
The significant accounting policies applicable to KKR’s insurance business, which is conducted by Global Atlantic, are described below.

Investments
In the normal course of business, Global Atlantic enters into transactions involving various types of investments.

Investments include the following: U.S. government and agency obligations; commercial mortgage-backed securities ("CMBS"), residential mortgage-backed securities ("RMBS"), CLOs, collateralized bond obligations ("CBOs") and all other structured securities (consisting primarily of asset-backed securities ("ABS") (collectively, "structured securities"); corporate bonds; state and political subdivision obligations; foreign government obligations; equity securities; mortgage and other loan receivables; policy loans; and other non-derivative investments. Investments are recorded on a trade-date basis.

Available-for-sale fixed maturity securities

Global Atlantic primarily accounts for its fixed maturity securities (including bonds, structured securities and redeemable preferred stock) as available-for-sale ("AFS"). AFS fixed maturity securities are carried at fair value. Impairment associated with AFS fixed maturity securities is recognized as an allowance for credit losses. The allowance for credit losses is established either by a charge to net investment losses in the consolidated statements of operations, for securities identified as credit impaired after purchase, or by a gross-up recognition of an initial allowance for purchased credit deteriorated ("PCD") securities.

PCD securities are those purchased by Global Atlantic that were assessed at acquisition as having experienced a more-than-insignificant deterioration in credit quality since their origination. Global Atlantic considers an AFS fixed maturity security to be PCD if there are indicators of a credit loss at the acquisition date or, in the case of structured securities, if there is a significant difference between contractual cash flows and expected cash flows at acquisition. PCD securities also include those AFS fixed maturity securities previously held by Global Atlantic that were similarly assessed at the time of the KKR acquisition. The initial amortized cost for a PCD security equals the purchase price plus the initial allowance for credit losses. The initial allowance for credit losses is determined using a discounted cash flow method based on the best estimate of the present value of cash flows expected to be collected. After purchase, the accounting for a PCD security is consistent with that applied to all other securities.

Unrealized gains and losses on AFS fixed maturity securities, net of tax and insurance intangible amortization, are reported in accumulated other comprehensive income in the consolidated statements of financial condition. Realized investment gains and losses are recognized on a first-in first-out basis and are reported in net investment losses in the consolidated statements of operations. The amortized cost of fixed maturity securities is adjusted for impairment charge-offs, amortization of premiums and accretion of discounts. Such amortization and accretion is calculated using the effective yield method and included in net investment income in the consolidated statements of operations.

34

Notes to Financial Statements (Continued)
For structured securities, Global Atlantic recognizes interest income using a constant effective yield based on estimated cash flows generated from internal models utilizing interest rate, default and prepayment assumptions. Effective yields for structured securities that are not of high credit quality are recalculated and adjusted prospectively based on changes in expected undiscounted future cash flows, after consideration of any appropriate recognition or release of an allowance for credit losses. For structured securities that are of high credit quality, effective yields are recalculated based on payments received and updated prepayment expectations, and amortized cost is adjusted to the amount that would have existed had the new effective yield been applied since acquisition with a corresponding charge or credit to net investment income. Prepayment fees are recorded when earned in net investment income in the consolidated statements of operations.

Global Atlantic generally suspends accrual of interest for securities that are more than 90 days past due and reverses any related accrued interest to net investment income in the Consolidated statements of operations. When a security is in non-accrual status, coupon payments are recognized as interest income as cash is received, subject to consideration as to the overall collectibility of the security. A security is returned to accrual status when Global Atlantic determines that the collection of amounts due is probable. The allowance for credit losses excludes accrued interest from the amortized cost basis for which losses are estimated.

Trading fixed maturity securities

Global Atlantic accounts for certain fixed maturity securities as trading at acquisition, based on intent or via the election of the fair value option. Trading securities are carried at fair value, with realized and unrealized gains and losses reported in net investment gains (losses) in the consolidated statements of operations. Interest income from these securities is reported in net investment income. These trading securities, for which investment results accrue to the benefit of either contractholders or reinsurance counterparties, are primarily used to match asset and liability accounting.

Equity securities

Global Atlantic accounts for its investments in equity securities (including common stock and non-redeemable preferred stock) that do not require equity method accounting or result in consolidation, at fair value. Realized and unrealized investment gains and losses are reported in net investment gains (losses) in the consolidated statements of operations.

Mortgage and other loan receivables

Global Atlantic purchases and originates mortgage and other loan receivables, and these loans are carried at cost, less the allowance for credit losses and as adjusted for amortization/accretion of premiums/discounts. The allowance for credit losses is established either by a charge to net investment losses in the consolidated statements of operations or, for PCD mortgage and other loan receivables, by a gross-up recognition of the initial allowance in the consolidated statements of financial condition.

PCD mortgage and other loan receivables are those purchased by Global Atlantic that were assessed at acquisition as having experienced a more-than-insignificant deterioration in credit quality since their origination. PCD mortgage and other loan receivables also include those mortgage and other loan receivables previously held by Global Atlantic that were similarly assessed at the time of the KKR acquisition. The initial amortized cost for a PCD mortgage or other loan receivable equals the purchase price plus the initial allowance for credit losses. The initial allowance for credit losses is determined using a method consistent with that used for other similar loans. See further discussion of allowance methods below. After purchase, the accounting for a PCD mortgage or other loan receivable is consistent with that applied to all other mortgage and other loan receivables. As part of the acquisition of Global Atlantic, Global Atlantic identified $3.7 billion of PCD mortgage and other loan receivables with a related allowance of $120.3 million. The allowance on the Non-PCD mortgage and other loan receivables, instead, had to be recognized outside the purchase accounting analysis and had an impact on the consolidated statement of operations of $183.6 million.

Loan premiums or discounts are amortized or accreted using the effective yield method. Interest income is accrued on the principal balance of each loan based on its contractual interest rate. The accrual of interest is generally suspended when the collection of interest is no longer probable or the collection of any portion of principal is doubtful. Global Atlantic generally suspends accrual of interest for loans that are more than 90 days past due and reverses any related accrued interest to net investment income in the consolidated statements of operations. When a loan is in non-accrual status, coupon payments are generally recognized as interest income as cash is received, subject to consideration as to the overall collectibility of the loan. A loan is returned to accrual status when Global Atlantic determines that the collection of amounts due is probable. The allowance for credit losses excludes accrued interest from the amortized cost basis for which losses are estimated.


35

Notes to Financial Statements (Continued)
Policy loans

Policy loans are loans policyholders take out against their life insurance policies. Each policy loan is fully collateralized by the cash surrender value of the policyholder’s life insurance policy. Policy loans are carried at unpaid principal balances. Interest income on such loans is recognized as earned using the contractually agreed upon interest rate and reflected in net investment income in the consolidated statements of operations. Generally, interest is capitalized on the associated policy’s anniversary date.

Other investments

Other investments in the consolidated statements of financial condition include Global Atlantic’s investments in investment partnerships, for which Global Atlantic does not have voting control or power to direct activities. These investments are accounted for using the equity method of accounting unless Global Atlantic’s interest is so minor that it has virtually no influence over partnership operating or financial policies. The equity method of accounting requires that the investments be initially recorded at cost and the carrying amount of the investment subsequently be adjusted to recognize Global Atlantic’s share of the earnings and losses of the investee. Where there is a difference between the cost of the investment and Global Atlantic’s proportionate share of the equity method investee’s net assets, this basis difference is accreted to net investment income over the life of the underlying assets. In applying the equity method, Global Atlantic uses financial information provided by the investee, generally on a one to three month lag due to the timing of the receipt of related financial statements.

The income from Global Atlantic’s equity method investments is included in net investment income in the consolidated statements of operations. In limited circumstances, Global Atlantic elects to apply the fair value option to investment partnerships, which are carried at fair value with unrealized gains and losses reported in net investment gains (losses) in the consolidated statements of operations. The contributions to and distributions from investment partnerships are classified as investing activities within the consolidated statements of cash flows.

Global Atlantic consolidates investment partnerships and other entities when it is deemed to control or is considered the primary beneficiary of a VIE. The results of certain consolidated investment entities are reported on a one to three month lag and intervening events are evaluated for materiality and recognition by disclosure or otherwise, as appropriate.

Included in other investments are Global Atlantic’s investments in renewable energy entities, including partnerships and limited liability companies. Respective investments are consolidated when Global Atlantic has control, or are accounted for using the equity method of accounting when Global Atlantic has the ability to exercise significant influence but not control. These investments involve tiered capital structures that facilitate a waterfall of returns and allocations to ensure the efficient use of tax credits. A conventional income statement oriented approach to the equity method of accounting, or to the recognition of non-controlling interests (when Global Atlantic is consolidating the investment), based on ownership percentages does not accurately reflect the proper allocation of income and cash flows for these investments. Instead, Global Atlantic uses the hypothetical liquidation at book value method ("HLBV”) which is a balance sheet oriented approach to the equity method of accounting and to the recognition of non-controlling interests that allocates income and cash flows based on changes to each investor’s claim to net assets assuming a liquidation of the investee as of each reporting date, including an assessment of the likelihood of liquidation in determining the contractual provisions to utilize when applying the HLBV method.

Investments in real assets included in other investments in the consolidated statements of financial condition relate to Global Atlantic’s consolidated investments in renewable energy entities and investments in transportation assets. The income, as well as the depreciation and other expenses associated with these tangible assets is reported in net investment income in the consolidated statements of operations.

Income on consolidated investments in renewable energy entities is earned from the sale of the energy generated under long-term contracts. Income on investments in transportation assets is earned from the lease of these assets. Tangible assets associated with renewable energy entities primarily comprise solar energy systems, which are depreciated on a straight-line basis over their estimated useful lives of generally 35 years. Transportation assets are primarily aircraft and railcars, which are depreciated to their estimated salvage value on a straight-line basis over their remaining useful lives. These useful lives generally range up to 25 years for aircraft and 45 years for railcars, as determined from the date of manufacture.

Global Atlantic has investments in real estate, some of which are accounted for at cost less depreciation. The useful lives for these real estate investments generally range up to 30 years. Other investments in real estate held in consolidated investment companies that account for such real estate at fair value under investment company accounting. Net rental income on the investments in real estate is recognized in net investment income and changes in the fair value of real estate held in consolidated investment companies are recognized in net investment gains (losses) in the consolidated statements of operations.

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Notes to Financial Statements (Continued)
Investments in Federal Home Loan Bank ("FHLB") common stock are also included in other investments in the consolidated statements of financial condition and are accounted at cost.

Derivative instruments

Derivatives are instruments that derive their values from underlying asset prices, indices, foreign exchange rates, reference rates and other inputs or a combination of these factors. Derivatives may be privately negotiated contracts, which are usually referred to as over-the-counter ("OTC") derivatives, or they may be listed and traded on an exchange ("exchange-traded"). Global Atlantic’s derivative instruments are primarily used to hedge certain risks, including interest rate risk and equity market risk, and to a lesser extent foreign exchange and inflation risks. Where certain criteria are met, some of these hedging arrangements may achieve hedge accounting.

Derivative instruments are generally recognized at estimated fair value in either funds withheld receivable at interest, other assets, funds withheld payable at interest or accrued expenses and other liabilities in the consolidated statements of financial condition, with changes in fair value recorded in net investment gains (losses) in the consolidated statements of operations. Where certain qualifying criteria are met, some derivative instruments are designated as accounting hedges and are recognized at estimated fair value in derivative assets or accrued expenses and other liabilities in the consolidated statements of financial condition. For derivative instruments designated as fair value hedges, changes in fair value are recognized in the consolidated statements of operations, in the same line where the hedged item is reported. For derivative instruments designated as cash flow hedges, changes in fair value are initially recognized in accumulated other comprehensive income (loss) in the consolidated statements of financial condition and subsequently reclassified to the consolidated statements of operations, in the same line item where the hedged item is reported.

Derivative receivables and payables with a counterparty that are subject to an International Swaps and Derivatives Association Master Agreement ("ISDA") or other similar agreement that provides a legal right of setoff, are presented at their net amounts. Where the legal right of setoff exists, Global Atlantic also offsets the fair value of cash collateral received or posted under an ISDA, or other similar agreement with a counterparty, against the related derivative balances as appropriate.

Investment credit losses and impairment

Available-for-sale fixed maturity securities

One of the significant estimates related to AFS securities is the evaluation of those investments for credit losses. The evaluation of investments for credit losses is a quantitative and qualitative quarterly process that is subject to risks and uncertainties and involves significant estimates and judgments by management. Changes in the estimates and judgments used in such analysis can have a significant impact on the consolidated statements of operations.

Global Atlantic regularly reviews its AFS securities for declines in fair value below amortized cost that it determines to be due to credit losses. For fixed maturity securities, Global Atlantic first considers the intent to sell a security, or whether it is more-likely-than-not that it will be required to sell the security, before the recovery of its amortized cost. If Global Atlantic intends to sell an AFS fixed maturity security with an unrealized loss or it is more-likely-than-not that it will be required to sell an AFS fixed maturity security with an unrealized loss before recovery of its amortized cost basis, the amortized cost is written down to fair value and a corresponding charge is recognized to net investment losses.

For AFS fixed maturity securities in an unrealized loss position that Global Atlantic does not intend to sell, and will not be required to sell, Global Atlantic bifurcates the impairment into two components: credit impairment and non-credit impairment. Credit impairments are measured as the difference between the security’s cost or amortized cost and its estimated recoverable value, which is the present value of its expected future cash flows discounted at the current effective interest rate. The estimated recoverable value is subject to a floor equal to the fair value of the security. The remaining difference between the security’s fair value and the recoverable value, if any, is the non-credit impairment. Credit impairments are recognized in the allowance for credit losses on AFS fixed maturity securities, which is established via a charge to net investment losses in the consolidated statements of operations, and non-credit impairments are charged to accumulated other comprehensive income in the consolidated statements of financial condition.

The review of each AFS fixed maturity in an unrealized loss position for credit losses includes an analysis of gross unrealized losses by severity. A severe unrealized loss position on a fixed maturity security may not impact the recoverability of all contractual cash flows or the ability to recover an amount at least equal to the investment’s amortized cost. The facts and circumstances available relevant to the severity of the loss position are analyzed, including changes in market interest rates, credit issues, changes in business climate, management changes, litigation, government actions, and other similar factors that may
37

Notes to Financial Statements (Continued)
impact the issuer’s ability to meet current and future principal and interest obligations. Indicators of credit impairment may include changes in the issuers’ credit ratings, the frequency of late payments, pricing levels and deterioration in any, or a combination of, key financial ratios, financial statements, revenue forecasts and cash flow projections.

In determining the estimated recoverable value, the review of expected future cash flows for structured securities includes assumptions about key systemic risks (e.g., unemployment rates, housing prices) and loan-specific information (e.g., delinquency rates, loan-to-value ratios). Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third parties, along with assumptions and judgments about the future performance of the underlying collateral. For corporate and government bonds the recoverable value is determined using cash flow estimates that consider facts and circumstances relevant to the security and the issuer, including overall financial strength and secondary sources of repayment as well as pending restructuring or disposition of assets. Where information for such cash flow estimates is limited or deemed not reliable, fair value is considered the best estimate of the recoverable value.

In periods subsequent to the initial recognition of an allowance for credit losses on a fixed maturity security, whether for a PCD security or a security impaired since purchase, Global Atlantic continues to monitor credit loss expectations. Deterioration in the estimated recoverable value of a credit impaired security is recognized as an addition to the allowance for credit losses, as limited by the amount by which the security’s fair value is less than amortized cost. Improvements in the estimated recoverable value of a credit impaired security or improvements in the fair value of a credit impaired security that limit the amount of the allowance result in reductions in the allowance for credit losses, which are recognized as a credit to net investment gains in the consolidated statements of income.

Amounts are charged off against the allowance for credit losses when deemed uncollectible or when Global Atlantic determines that it intends to sell, or more likely than not will be required to sell, the security. Charge-offs are reflected as a decrease in the allowance and a direct write down in the amortized cost of the security. If Global Atlantic recovers all or a portion of an amount previously written off on a credit impaired security, the recovery is recognized as a realized investment gain.

Mortgage and other loan receivables

Global Atlantic updates its estimate of the expected credit losses on its investments in mortgage and other loan receivables each quarter. For loans that share similar risk characteristics, expected credit losses are measured on a pool basis.

For commercial mortgage loans, the current expected credit losses are estimated using a model that evaluates the probability that each loan will default and estimates the amount of loss given the occurrence of such a default over the life of each loan in the portfolio. The model incorporates historical and current data on the relevant property market and projects potential future paths for each loan’s collateral, considering both the net income to be generated by the collateral real estate and its market value. The model considers how macroeconomic forecasts (such as gross domestic product, unemployment, and interest rates) influence commercial real estate market factors (including vacancy rates, rental and income growth rates, property value changes), and in turn how commercial real estate market conditions, in combination with loan specific information (including debt service coverage and loan to value), drive commercial mortgage loan credit risk.

For residential mortgage loans and consumer loans, the current expected credit losses are primarily estimated using a discounted cash flow model. The model considers loan-specific information as well as current, historical and forecasted data relevant to the respective loans, including home prices, interest rates and unemployment. Expected cash flows are projected for each loan and are discounted using the effective interest rate of the respective loan. Any shortfalls between the discounted cash flows and the amortized cost of each individual loan are aggregated to determine the total allowances on the residential mortgage loan and consumer loan portfolios. For certain residential mortgage loans secured by single-family rental properties, current expected credit losses are determined using a model consistent with that described above for commercial mortgage loans.

With regard to the use of forecasts in the determination of Global Atlantic’s current expected credit losses, the reversion of forecasts to historical data is based on reversion dynamics that depend on the specific variable and its interaction with the other parameters of the respective model; however, the forecasts generally tend to revert to a long-term equilibrium trend within two to three years from the forecast start date.

For the investment in other loan receivables, a variety of methodologies are used to estimate the respective current expected credit losses. These methodologies consider the terms specific to each loan, including the value of any collateral, and evaluate the risk of loss over the life of these loans.

Global Atlantic also assesses and measures an allowance for credit losses arising from off-balance sheet commitments, including loan commitments, that are not unconditionally cancellable by Global Atlantic. This allowance for credit losses for off-
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Notes to Financial Statements (Continued)
balance sheet commitments is determined using methods consistent with those used for the associated mortgage and other loan receivable class, as described above, and is recognized in other liabilities in the consolidated statements of financial condition, since there is no funded asset for the committed amount.

When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the carrying amount of the loan is charged off against the allowance. If Global Atlantic recovers all or a portion of an amount previously written off on a credit impaired loan, the recovery is recognized as a realized investment gain.

Other investments

The determination of the amount of impairment on other classes of investments also requires significant judgment and is based upon a periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such assessments are revised as conditions change and new information becomes available.

Impairment of consolidated renewable energy assets and transportation assets is assessed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When indicators of impairment are present, a recoverability test is performed to determine if the sum of the estimated undiscounted future cash flows attributable to the assets is greater than the carrying amount. If the undiscounted estimated future cash flows are less than the carrying amount, an impairment loss is recognized based on the amount by which the carrying amount exceeds its estimated fair value.

Impairment of investments subject to the equity method of accounting is assessed whenever events or circumstances suggest that the carrying amount may not be recoverable. An impairment charge is recognized in earnings for a decline in value that is determined to be other than temporary and is measured as the difference between the carrying amount and the fair value of the equity method investment as of the balance sheet date.

Deferral and amortization of certain revenues and expenses

Deferrals

Deferred policy acquisition costs ("DAC") consist of commissions and other costs that are directly related to the successful acquisition of new or renewal life insurance or annuity contracts. Deferred sales inducements ("DSI") are generated by annuities that offer enhanced crediting rates or bonus payments to policyholders and is included in other assets in the consolidated statements of financial condition. DAC is recorded in insurance intangibles in the consolidated statements of financial condition.

Value of business acquired ("VOBA") represents the difference between the carrying value of the purchased in-force insurance contract liabilities at the time of the business combination and the estimated fair value of insurance and reinsurance contracts. VOBA can be either positive or negative. Positive VOBA is recorded in insurance intangibles. Negative VOBA is recorded in the same financial statement line in the consolidated statement of financial condition as the associated reserves.

Revenues from certain universal life insurance products are deferred to future periods and an unearned revenue reserve ("URR") liability is established. The amount deferred is equal to the excess of the revenue collected over an estimate of the ultimate future level of these revenues and included in policy liabilities in the consolidated statements of financial condition.

Deferred revenue liability ("DRL") represents the gross premium less the net premium on limited pay contracts (i.e., payout annuities.) DRL is included in policy liabilities in the consolidated statements of financial condition.

For certain preneed contracts, the gross premium is in excess of the benefit reserve plus additional insurance liability. An unearned front-end load ("UFEL") is established to defer the recognition of this front-end load. UFEL is included in policy liabilities in the consolidated statements of financial condition.

Amortization

For interest-sensitive products (fixed-indexed annuities and variable annuities, most universal life including preneed contracts, and variable universal life), DAC and DSI assets are generally amortized in proportion to actual historical gross profits and estimated future gross profits over the estimated lives of the contracts. The amount of gross profit consists principally of investment returns (including hedge gains and losses) in excess of the amounts credited to policyholders, asset-based and other policy fees, and surrender charges reduced by death and other excess benefits and expenses. Numerous factors including
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Notes to Financial Statements (Continued)
mortality, benefit utilization, surrender activity, premium persistency, and the economic environment influence the level and timing of gross profits.

Estimated gross profits are updated each reporting period with actual gross profits as part of the amortization process for the interest-sensitive policies. When actual gross profits are higher in the period than had been previously estimated, more amortization is recognized than planned. When actual gross profits are lower than had been previously estimated, less amortization is recognized than planned. These relationships hold provided that future estimates of gross profits remain unchanged, which may not always be true.

VOBA is generally amortized on a constant level basis using policy count over the estimated lives of the contracts.

When a different basis of amortization is determined to be more representative of the economics, such as when negative estimated gross profits or margins occur, an alternative basis of amortization may be selected for DAC and VOBA.

For most term and whole life products, DAC is amortized in proportion to premium revenue recognized.

DRL is amortized on a straight-line basis for whole life and term life insurance policies. For annuities, universal life and indexed universal life policies, DRL is amortized in proportion to the pattern of policyholder death benefits in-force. For payout annuities, DRL is recognized in income in a constant relationship with the amount of expected future payments.

URR is amortized consistent with the amortization of DAC on similar products. UFEL is amortized consistent with the method used in the amortization of DAC for preneed contracts.

The key assumptions used in the calculation of the amortization of DAC, VOBA and DSI are periodically updated as part of the assumptions review process, which results in revisions to the estimated future gross profits. The effects of changes in assumptions are recorded as unlocking in the period in which the changes are made. The following are types of changes to future assumptions that would generally result in a negative unlocking (i.e., an acceleration of amortization resulting in a reduction to net income): lower equity returns, lower investment returns, higher operating expenses, higher mortality, and unfavorable lapses.

The carrying amounts of DAC, DSI, URR and UFEL are adjusted for the effects of realized and unrealized gains and losses on debt and equity securities classified as AFS and certain derivatives.

Internal replacements

An internal replacement is a modification in product benefits, features, rights, or coverages that occurs by the legal extinguishment of one contract and the issuance of another contract (a contract exchange), or by amendment, endorsement, or rider to a contract, or by the election of a benefit, feature, right, or coverage within a contract. If the modification does not substantially change the contract, Global Atlantic does not change the accounting and amortization of existing DAC and related actuarial balances (i.e., continuation of contract accounting). If an internal replacement represents a substantial change, the original contract is considered to be extinguished and any related DAC or other policy balances are charged or credited to income, and any new deferrable costs associated with the replacement contract are deferred.

Separate accounts

Separate account assets and liabilities represent segregated funds administered and invested by Global Atlantic for the benefit of variable annuities and variable universal life insurance contractholders and certain pension funds. Global Atlantic reports separately, as assets and liabilities, investments held in the separate accounts and liabilities of separate accounts if: (1) such separate accounts are legally recognized; (2) assets supporting the contract liabilities are legally insulated from Global Atlantic’s general account liabilities; (3) investments are directed by the contract owner or participant; and (4) all investment performance, net of contract fees and assessments, is passed through to the contract owner.

Separate account assets consist principally of mutual funds at fair value. The investment income and gains and losses of these accounts generally accrue to the contractholders and therefore, are not included in Global Atlantic’s net income. However, Global Atlantic’s net income reflects fees assessed and earned on fund values of these contracts which are presented as a component of policy fees in the consolidated statements of operations. Realized investment gains and losses related to separate accounts that meet the conditions for separate account reporting accrue to and are borne by the contractholder.


40

Notes to Financial Statements (Continued)
Policy liabilities

Policy liabilities, or collectively, “reserves,” are the portion of past premiums or assessments received that are set aside to meet future policy and contract obligations as they become due. Interest accrues on these reserves and on future premiums, which may also be available to pay for future obligations. Global Atlantic establishes reserves to pay future policyholder benefits, claims, and certain expenses for its life policies and annuity contracts.

Reserves are estimates based on models that include many actuarial assumptions and projections. These assumptions and projections, which are inherently uncertain, involve significant judgment, including assumptions as to the levels and/or timing of premiums, benefits, claims, expenses, interest credits, investment results (including equity market returns), mortality, longevity, and persistency.

The assumptions on which reserves are based are intended to represent an estimation of experience for the period that policyholder benefits are payable. The adequacy of these reserves and the assumptions underlying those reserves are reviewed at least annually. Global Atlantic cannot, however, determine with precision the amount or the timing of actual policyholder benefit payments. If actual experience is better than or equal to the assumptions, then reserves would be adequate to provide for future policyholder benefits and expenses. If experience is worse than the assumptions, additional reserves may be required to meet future policy and contract obligations. This would result in a charge to Global Atlantic’s net income during the period in which excess policyholder benefits are paid or an increase in reserves occurs.

For a majority of Global Atlantic’s in-force policies, including its universal life policies and most annuity contracts, the base policy reserve is equal to the account value. For these products, the account value represents Global Atlantic’s obligation to repay to the policyholder the amounts held on deposit. However, there are several significant blocks of business where additional policyholder reserves are explicitly calculated, including variable annuities, fixed-indexed annuities, universal life with secondary guarantees, indexed universal life and preneed policies.

Fixed-rate and fixed-indexed annuities

Contractholder deposits fund reserves for fixed-indexed annuities earning a fixed rate of interest and certain other fixed-rate annuity products are computed under a retrospective deposit method and represent policyholder account balances before applicable surrender charges. For certain fixed-rate annuity products, an additional reserve was established for above market interest rate guarantees upon acquisition. These reserves are amortized on a straight-line basis over the remaining guaranteed interest rate period.

Certain of Global Atlantic’s fixed-indexed annuity products enable the policyholder to allocate contract value between a fixed crediting rate and strategies which reflect the change in the value of an index, such as the S&P 500 Index or other indices. These products are accounted for as investment-type contracts. The liability for these products consists of a combination of the underlying account value and an embedded derivative value. The liability for the underlying account value is primarily based on policy guarantees and its initial value is the difference between the premium payment and the fair value of the embedded derivative. Thereafter, the account value liability is determined in a manner consistent with the accounting for a deposit liability under the “constant yield method.” All future host balances are determined as: (1) the initial host balance; (2) plus interest; (3) less applicable policyholder benefits. The interest rate used in the prior roll forward is re-determined on each valuation date, per the constant yield method. The embedded derivative component’s fair value is based on an estimate of the policyholders’ expected participation in future increases in the relevant index. The fair value of this embedded derivative component includes assumptions, including those about future interest rates and investment yields, future costs for options used to hedge the contract obligations, projected withdrawal and surrender activity, benefit utilization and the level and limits on contract participation in any future increases in the respective index option. The account value liability and embedded derivative are recorded in policy liabilities in the consolidated statements of financial condition, with changes in value of the liabilities recorded in policy benefits and claims in the consolidated statements of operations.

Global Atlantic issues funding agreements to certain unaffiliated (and non-unconsolidated) special purpose entities that have issued debt securities for which payment of interest and principal is secured by such funding agreements. Global Atlantic’s funding agreements are considered investment type contracts and liabilities are calculated as the present value of future payments. Global Atlantic's obligation is reported in policy liabilities in the consolidated statements of financial condition. Interest expense is calculated using the effective interest method and recorded in policy benefits and claims in the consolidated statements of income.

41

Notes to Financial Statements (Continued)
Contractholder deposit funds reserves for certain assumed blocks of fixed-indexed and fixed-rate annuity products are accounted for as investment-type contracts. A net liability (consisting of the benefit reserve plus deferred revenue liability less DAC) is established at inception and amortized under the constant yield method.

Guaranteed benefits

Certain fixed-rate and fixed-indexed annuity contracts provide the contractholder with guaranteed minimum death benefits ("GMDB") and/or guaranteed minimum withdrawal benefits ("GMWB"). The associated reserves for these benefits are calculated by estimating the present value of total expected (excess) benefit payments over the life of the contract divided by the present value of total expected assessments over the life of the contract, or the “benefit ratio,” and multiplying this ratio by the cumulative assessments recorded from the contract inception through the balance sheet date less cumulative benefit payments plus interest on the reserves. The liabilities are included in policy liabilities in the consolidated statements of financial condition. The change in the reserve is included in policy benefits and claims in the consolidated statements of operations.

Long-term care benefit riders

Certain fixed-rate contracts provide the policyholder with long-term care benefit riders. The long-term care benefit rider permits access to the policy’s account value, along with a supplemental rider benefit value, free of a surrender charge, to reimburse the policyholder for certain qualified long-term care expenses. Depending on the outcome of simplified underwriting, the rider benefit is capped at the return of account value plus 1 or 2 times the account value. The benefit rider paid to the policyholder is subject to a monthly maximum such that the benefit is typically paid out over a period of six years or longer. The liabilities for these benefits are calculated by using the benefit ratio multiplied by the cumulative assessments recorded from the contract inception through the balance sheet date less cumulative benefit payments plus interest on the reserves. The change in the reserve is included in policy benefits and claims in the consolidated statements of operations.

Variable annuities

Variable annuity contracts offered and assumed by Global Atlantic provide the contractholder with GMDB and/or GMWB. The liabilities for these benefits are included in policy liabilities in the consolidated statements of financial condition. The change in the liabilities for these benefits is included in policy benefits and claims in the consolidated statements of operations.
Global Atlantic issued variable annuity contracts with GMDB features. Global Atlantic elected the fair value option to measure the liability for certain of these variable annuity contracts. Fair value is calculated as the present value of the estimated death benefits less the present value of the GMDB fees, using 1,000 risk neutral scenarios. Global Atlantic discounts the cash flows using the U.S. Treasury rates plus an adjustment for own company credit risk.
Global Atlantic also issues variable annuity contracts with a GMWB. The GMWB feature represents an embedded derivative. The embedded derivative is required to be bifurcated and measured at fair value. This liability is calculated as the present value of the excess GMWB claims less the present value of GMWB fees, using 1,000 risk neutral scenarios. Global Atlantic discounts the cash flows using U.S. Treasury rates plus an adjustment for own company credit risk.
Payout annuities

Payout annuities include single premium immediate annuities, annuitizations of deferred annuities and structured settlements. These contracts subject the insurer to risks over a period that extends beyond the period or periods in which premiums are collected. These contracts may be either non-life contingent or life contingent. Non-life contingent annuities are accounted for as financial instruments. For life contingent annuities, Global Atlantic records a liability at the present value of future annuity payments and estimated future expenses calculated using expected mortality and costs, and interest assumptions. Any gross premiums received in excess of the net premium is the DRL and is recognized in income in a constant relationship with the amount of expected future payments. The liabilities are recorded in policy liabilities in the consolidated statements of financial condition.

Also included under payout annuities are liabilities for disability income benefits which pertain primarily to disability income policies that are already in claim payout status. Liabilities for disability income benefits are calculated as the present value of future disability payments and estimated future expenses using expected mortality and costs, and interest assumptions. The liabilities are recorded in policy liabilities in the consolidated statements of financial condition.


42

Notes to Financial Statements (Continued)
Universal life policies

For universal life policies, the base benefit reserves are deemed to be equal to the policyholder account value.

Policy liabilities for indexed universal life with returns linked to the performance of a specified market index are equal to the sum of two components: (1) the fair value of the embedded derivative; and (2) the host (or guaranteed) component. The fair value of the embedded derivative component is based on the fair value of the policyholders’ expected participation in future increases in the relevant index over the life of the contract. The fair value of this embedded derivative component includes assumptions, including those about future interest rates and investment yields, future costs for options used to hedge the contract obligations, projected benefits, benefit utilization and the level and limits on contract participation in any future increases in the respective index option.

The initial host balance is established at the time of premium payment and is equal to the total account value less the embedded derivative component. Thereafter, the balance of the host component is determined in a manner consistent with the accounting for a deposit liability under the “constant yield method.” All future host balances are determined as: (1) the initial host balance; (2) plus interest; (3) less applicable policyholder benefits. The interest rate used in the prior roll forward is re-determined on each valuation date, per the constant yield method.

Global Atlantic holds additional liabilities for universal life products with secondary guarantees, sometimes referred to as no-lapse guarantees. For these products, the fair value of the embedded derivative is the present value of the best estimate option budget projection minus the guaranteed surrender benefits over the life of the contract. The additional liabilities are measured using the benefit ratio approach where excess benefits are spread over the life of the contract based on assessments collected from the policyholder. Generally, total expected excess benefit payments are the aggregate of death claims after the policyholder account value is exhausted. The exception is when the cost of insurance charges are insufficient to produce consistently positive earnings in the future. In this case, all death benefits are deemed to be excess benefits.

Variable universal life policies

Certain assumed variable universal life policies include several forms of secondary guarantees. Global Atlantic holds additional liabilities for its secondary guarantees as discussed above.

Preneed policies

Global Atlantic’s preneed life insurance contracts are accounted for as universal life-type contracts which require that the retrospective deposit method be used. That accounting method establishes a liability for policyholder benefits in an amount determined by the account or contract balance that accrues to the benefit of the policyholder. This account value is deemed to be equal to the contract’s statutory cash surrender value. The majority of Global Atlantic’s preneed insurance contracts feature death benefits with a discretionary death benefit growth rate. Global Atlantic has the discretion to adjust these rates up or down. Global Atlantic has established an additional reserve for expected future discretionary benefits which is reflected as policy liabilities in the consolidated statements of financial condition. Global Atlantic has also issued preneed insurance contracts with crediting rates tied to inflation as measured by the U.S. Consumer Price Index.

Whole and term life

Global Atlantic has established liabilities for amounts payable under insurance policies, including whole life insurance and term life insurance policies. Generally, liabilities for these policies are calculated as the present value of future expected benefits to be paid reduced by the present value of future expected net premiums. Principal assumptions used in the establishment of liabilities for future policyholder benefits are mortality, policy lapse, renewal, investment returns, inflation, expenses and other contingent events as appropriate for the respective product. These assumptions, which include provisions for adverse deviations, are established at the time the policy is issued and are intended to estimate the experience for the period the policyholder benefits are payable. By utilizing these assumptions, liabilities are established on a block-of-business basis. For whole life and term long-duration insurance contracts, assumptions such as mortality, morbidity and interest rates are locked-in upon the issuance of new business. However, significant adverse changes in experience on such contracts may require Global Atlantic to establish premium deficiency reserves. Premium deficiency reserves are established, if necessary, when the liability for future policyholder benefits plus the present value of expected future gross premiums are determined to be insufficient to provide for expected future policyholder benefits and expenses. Such reserves are determined based on assumptions at the time the premium deficiency reserve is established and do not include a provision for adverse deviation.

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Notes to Financial Statements (Continued)
Policy liabilities for participating whole life insurance policies are equal to the aggregate of: (1) net level premium reserves for death and endowment policyholder benefits (calculated based upon the non-forfeiture interest rate, and mortality rated guarantee in calculating the cash surrender values described in such contracts); and (2) the liability for terminal dividends.

Policy liabilities for non-participating whole life and term life insurance policies are equal to the aggregate of the present value of expected future policyholder benefit payments and related expenses less the present value of expected future net premiums. Assumptions as to the mortality and persistency are based upon Global Atlantic’s experience when the basis of the liability is established, and are periodically updated. Interest rate assumptions for the aggregate policy liabilities are calculated based on the portfolio rate, net of investment expenses.

Outstanding claims

Outstanding claims include amounts payable relating to in course of settlement and incurred but not reported claim liabilities. In course of settlement claim liabilities are established for policies when Global Atlantic is notified of the death of the policyholder but the claim has not been paid as of the reporting date. Incurred but not reported claim liabilities are determined using studies of past experience and are estimated using actuarial assumptions of historical claims expense, adjusted for current trends and conditions. These estimates are continually reviewed and the ultimate liability may vary significantly from the amounts initially recognized, which are reflected in net income in the period in which they are determined. Changes in policyholder and contract claims are recorded in policy benefits and claims in the consolidated statements of operations.

Closed blocks

Through its insurance companies, Global Atlantic has acquired several closed blocks of participating life insurance policies. Global Atlantic has elected to account for the closed block policy liabilities using the fair value option.

The assets and cash flow generated by the closed blocks inure solely to the benefit of the holders of policies included in the closed blocks. All closed block assets will ultimately be paid out as policyholder benefits and through policyholder dividends. In the event that the closed blocks’ assets are insufficient to meet the benefits of the closed blocks’ benefits, general assets of Global Atlantic would be used to meet the contractual benefits to the closed blocks’ policyholders.

The closed block liabilities are measured at fair value, which comprises the fair value of the closed block assets plus the present value of projected expenses including commissions and the cost of capital charges associated with the closed blocks. In calculating the present value, Global Atlantic used a discount rate based on current U.S. Treasury rates, with a risk margin to reflect uncertainties in the closed block liability and a provision for Global Atlantic’s nonperformance risk.

Reinsurance

Consistent with the overall business strategy, Global Atlantic assumes certain policy risks written by other insurance companies on a coinsurance, modified coinsurance or funds withheld coinsurance basis. Reinsurance accounting is applied for ceded and assumed transactions when risk transfer provisions have been met. To meet risk transfer requirements, a long-duration reinsurance contract must transfer mortality or morbidity risks, and subject the reinsurer to a reasonable possibility of a significant loss. Those contracts that do not meet risk transfer requirements are accounted for using deposit accounting. Global Atlantic seeks to diversify risk and limits its overall financial exposure through reinsurance.

With respect to ceded reinsurance, Global Atlantic values reinsurance recoverables on reported claims at the time the underlying claim is recognized in accordance with contract terms. For future policyholder benefits, Global Atlantic estimates the amount of reinsurance recoverables based on the terms of the reinsurance contracts and historical reinsurance recovery information. The reinsurance recoverables are based on what Global Atlantic believes are reasonable estimates and the balance is reported as an asset in the consolidated statements of financial condition. However, the ultimate amount of the reinsurance recoverable is not known until all claims are settled.

The cost of reinsurance, which is the difference between the amount paid for a reinsurance contract and the amount of the liabilities for policy benefits relating to the underlying reinsured contracts, is deferred and amortized over the reinsurance contract period for short-duration contracts, or over the terms of the reinsured policies on a basis consistent with the reporting of those policies for long-duration contracts. Cost of reinsurance assets and liabilities are reported in insurance intangibles and policy liabilities in the consolidated statements of financial condition, respectively and includes certain variable incentive compensation directly related to reinsurance contract acquisition. Reinsurance contracts do not relieve Global Atlantic from its obligations to policyholders, and failure of reinsurers to honor their obligations could result in losses to Global Atlantic; consequently, allowances are established for expected credit losses, via a charge to policy benefits and claims in the consolidated statements of
44

Notes to Financial Statements (Continued)
operations. Global Atlantic’s funds withheld receivable at interest and reinsurance recoverable assets are reviewed for expected credit losses by considering credit ratings for each reinsurer, historical insurance industry specific default rate factors, rights of offset, expected recovery rates upon default and the impact of other terms specific to the reinsurance arrangement.

Recognition of insurance revenue and related benefits

Premiums related to whole life and term life insurance contracts and payout contracts with life contingencies are recognized in premiums in the consolidated statements of operations when due from the contractholders.

Amounts received as payment for universal life and investment-type contracts are reported as deposits to contractholder account balances and recorded in policy liabilities in the consolidated statements of financial condition. Amounts received as payment for Global Atlantic’s fixed fund variable annuities are reported as a component of policy liabilities in the consolidated statements of financial condition. Revenues from these contracts consist primarily of fees assessed against the contractholder account balance for mortality, policy administration, separate account administration and surrender charges, and are reported in policy fees in the consolidated statements of operations. Additionally, Global Atlantic earns investment income from the investment of contract deposits in Global Atlantic’s insurance companies' general account portfolio, which is reported in net investment income in the consolidated statements of operations.

Fees assessed that represent compensation to Global Atlantic for benefits to be provided in future periods and certain other fees are established as an unearned revenue reserve liability and amortized into revenue over the expected life of the related contracts in proportion to estimated gross profits in a manner consistent with DAC for these contracts. Unearned revenue reserves are reported in policy liabilities in the consolidated statements of financial condition and amortized into policy fees in the consolidated statements of operations. Benefits and expenses for these products include claims in excess of related account balances, expenses for contract administration and interest credited to contractholder account balances in the consolidated statements of operations.

Other income

Other income is primarily comprised of administration, management fees and distribution fees.

Insurance expenses

Insurance expenses are primarily comprised of commissions expense, premium taxes, amortization of acquired distribution and trade name intangibles, and other expenses related to insurance products and reinsurance transactions.

General, administrative and other expenses

General, administrative and other expenses are primarily comprised of employee compensation and benefit expenses, administrative and professional services and other operating expenses.

Equity-based, incentive and other deferred compensation

Global Atlantic has established a long-term incentive plan to foster and promote its long-term financial success. Compensation expense for Global Atlantic’s incentive awards is recognized only when vesting is deemed to be probable.

Global Atlantic measures compensation cost for service-based, equity-classified share-based payment awards at fair value as of the grant date and recognizes it in general, administrative and other expenses in the consolidated statements of operations as compensation expense over the requisite service period for awards expected to vest. Global Atlantic recognizes the expense using the straight-line attribution method, with adjustments for estimated forfeitures. For awards with performance-based vesting, expense recognition is deferred until the performance factor occurs or becomes probable.

Global Atlantic measures compensation cost for liability-classified share-based payment awards or other deferred compensation plans using the fair value method, beginning on the grant date, and re-measures the fair value of the awards at each reporting period until the awards are settled. Accrued compensation expense is recognized, net of an estimated forfeiture rate, in general, administrative and other expenses in the consolidated statements of operations and within accrued expenses and other liabilities in the consolidated statements of financial condition, respectively.
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Notes to Financial Statements (Continued)
Recently Issued Accounting Pronouncements
The following recently issued accounting pronouncements apply to both Asset Management and Insurance.
Adopted in 2021
Simplifying the Accounting for Income Taxes
On December 18, 2019, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2019-12, which modifies ASC 740 to simplify the accounting for income taxes. The ASU, among other changes, (i) provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and (ii) provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The guidance is effective for fiscal periods beginning after December 15, 2020. The adoption did not have a material impact on the financial statements.
Facilitation of the Effects of Reference Rate Reform on Financial Reporting
On March 12, 2020, the FASB issued ASU No. 2020-04, which provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The temporary optional expedients and exceptions can be elected through December 31, 2022. For the quarter ended March 31, 2021, KKR has not elected to apply the temporary optional expedients and exceptions and will be reevaluating the application each quarter.
Effective on January 1, 2022 and Thereafter
Targeted improvements to the accounting for long-duration contracts

In August 2018, the FASB issued new guidance for insurance and reinsurance companies that issue long-duration contracts such as life insurance and annuities. The objective of this guidance is to improve, simplify and enhance the financial reporting of long-duration contracts by providing financial statement users with useful information in a timely and transparent manner. The primary changes include: (1) more timely recognition of assumption changes in the liability for future policy benefits and use of a current rate for the discounting of future cash flows; (2) standardization and improvement in the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts (referred to as market risk benefits); (3) simplification of the amortization of deferred acquisition costs; and (4) enhanced disclosures.

The guidance is effective for public business entities that meet the definition of a SEC filer for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. For changes related to the liability for future policy benefits and deferred acquisition costs, the new guidance requires adoption using a modified retrospective approach upon transition with an option to elect a retrospective approach. For changes related to market risk benefits, the new guidance requires a retrospective approach.

KKR intends to implement this standard to Global Atlantic's insurance business using the retrospective approach for the liability for future policy benefits, deferred acquisition costs and market risk benefits with an adoption date of January 1, 2023. Global Atlantic has completed the design and planning phase of its implementation effort and has begun detailed implementation activities. Global Atlantic continues to evaluate the impact of this guidance but anticipates that the new standard will have a material impact on the consolidated financial statements. The new guidance is expected to increase financial statement volatility primarily due to the requirement to measure market risk benefits at fair value, which is recorded in net income, except for changes in value attributable to changes in an entity’s non-performance risk, which is recorded in other comprehensive income. In addition, the new guidance is expected to have a significant impact on Global Atlantic’s systems, processes and controls.


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3. ACQUISITION OF GLOBAL ATLANTIC

On July 7, 2020, indirect subsidiaries of KKR & Co. Inc., namely Magnolia Parent LLC and Magnolia Merger Sub Limited, entered into an Agreement and Plan of Merger (the “GA Merger Agreement”) with Global Atlantic Financial Group Limited ("GAFG"), Global Atlantic Financial Life Limited ("GAFLL"), LAMC LP, and Goldman Sachs & Co. LLC, solely in its capacity as the Equity Representative (as defined in the GA Merger Agreement). Pursuant to the GA Merger Agreement, at the closing of the acquisition of Global Atlantic by KKR (the "GA Acquisition"), among other things, Global Atlantic Financial Group Limited continued as the surviving entity in its merger with Magnolia Merger Sub Limited and became a direct subsidiary of Magnolia Parent LLC, which subsequently changed its name to The Global Atlantic Financial Group LLC (“TGAFG”).

On February 1, 2021 (or the “GA Acquisition Date”), the GA Acquisition was completed, and KKR acquired all of the voting interests in Global Atlantic and an economic ownership of 61.1% of Global Atlantic at closing (and which economic ownership percentage is subject to change based on certain post-closing purchase price adjustments) after taking into account GA Rollover Investors’ and GA Co-Investors’ (each as defined below) equity ownership of Global Atlantic. In addition to entering into the retirement and life insurance business through KKR's indirect ownership of Global Atlantic's insurance companies, KKR's flagship investment management company became the investment adviser for Global Atlantic’s insurance companies, which increases KKR’s presence in the insurance community. Furthermore, the transaction allows Global Atlantic to gain access to KKR’s origination and asset management capabilities.

Under the GA Merger Agreement, KKR agreed to pay former shareholders of Global Atlantic Financial Group Limited an amount in cash equal to 1.0x U.S. GAAP Shareholders’ Equity of Global Atlantic Financial Group Limited, excluding Accumulated Other Comprehensive Income and subject to certain other purchase price adjustments ("GA Book Value," determined as $4.7 billion as of February 1, 2021 for purposes of the purchase price determination). The amount of consideration payable by KKR was reduced by the amount of equity rolled over by certain former shareholders of Global Atlantic Financial Group Limited who elected to continue their equity ownership in Global Atlantic at closing ("GA Rollover Investors"). In addition, KKR syndicated equity interests in Global Atlantic to minority co-investors ("GA Co-Investors"), which also had the effect of reducing the amount of consideration payable by KKR at closing. The purchase price is as follows (in thousands):

Cash consideration paid by KKR$2,859,252 
GA Co-Investors and GA Rollover Investors1,821,303 
Total Purchase Price$4,680,555 


The purchase price paid at closing is subject to certain post-closing adjustments, which we expect will require us to pay an incremental amount less than the $150 million maximum provided under the terms of the GA Merger Agreement, which would represent an adjustment to the preliminary determination of goodwill recorded.

The GA Acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805").The purchase price has been allocated to Global Atlantic's assets acquired and liabilities assumed based on estimates of their fair values as of the GA Acquisition Date. The fair value of assets acquired and liabilities assumed represent a provisional allocation as our evaluation of facts and circumstances available as of February 1, 2021 is ongoing.

Goodwill of $451 million has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired less the amounts attributable to noncontrolling interests. Goodwill is primarily attributable to the scale, skill sets, operations, and synergies that can be achieved subsequent to the GA Acquisition. The goodwill recorded is not expected to be deductible for tax purposes and it has been allocated to the Insurance Segment.

Pursuant to Topic 805, the financial statements will not be retrospectively adjusted for any changes to the provisional values of assets acquired and liabilities assumed that occur in subsequent periods. Rather, we will recognize any adjustments as we obtain information not available as of the completion of this preliminary fair value calculation. We will also be required to record, in the same period as the financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting had been completed at the GA Acquisition Date. We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the GA Acquisition Date.

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The following table summarizes the provisional fair value amounts recognized for the assets acquired and liabilities assumed and resulting goodwill as of the GA Acquisition Date:

February 1, 2021
($ in thousands)
Consideration Transferred
Cash Consideration paid by KKR$2,859,252 
GA Co-Investors975,360 
GA Rollover Investors845,943 
Settlement of pre-existing relationships(1)
(60,200)
Total Consideration Transferred(2)
$4,620,355 
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash and Cash Equivalents$3,073,974 
Restricted Cash and Cash Equivalents284,798 
Investments99,519,110 
Reinsurance Recoverable15,753,030 
Insurance Intangible Assets1,024,520 
Other Assets3,259,222 
Separate Account Assets5,371,060 
Policy Liabilities(100,311,752)
Debt Obligations(1,450,920)
Funds Withheld Payable at Interest(13,800,969)
Accrued Expenses and Other Liabilities(2,718,648)
Reinsurance Liabilities(180,573)
Separate Account Liabilities(5,371,060)
Total Identifiable Net Assets4,451,792 
Redeemable non-controlling interests(3)
(91,845)
Other Noncontrolling interests(3)
(190,405)
Goodwill$450,813 

(1)     Represents KKR debt obligations held by Global Atlantic at the GA Acquisition Date.
(2) At the GA Acquisition Date, the transaction was funded with a combination of (i) cash on hand by KKR, (ii) cash proceeds from syndication of the equity interests in Global Atlantic to minority co-investors and equity rolled over from certain former Global Atlantic shareholders. The equity held by GA co-investors and rollover investors are presented as noncontrolling interests in the financial statements. Acquisition of Global Atlantic, Net of Cash Acquired in the consolidated statements of cash flows represents the Total Consideration Transferred (excluding GA Rollover Investors) net of acquired Cash and Cash Equivalents and Restricted Cash and Cash Equivalents.
(3)     Represents the fair value of Noncontrolling Interests in consolidated renewable energy entities held by Global Atlantic on the GA Acquisition Date. Such interests do not represent ownership interests held by GA Rollover Investors or GA Co-Investors in Global Atlantic's equity.

KKR performed a valuation of the acquired investments, policy liabilities, VOBA, other identifiable intangibles, and funds withheld at interest payables and receivables. The following is a summary of significant inputs to the valuation:
Investments
Global Atlantic’s investment portfolio primarily consists of fixed maturity securities, mortgage and other loan receivables, and also includes equity securities, and investments in real assets, such as renewable energy and transportation assets. All of the assets included within the investment portfolio were measured and reported at their fair values on the GA Acquisition Date consistent with the valuation methodologies discussed in Note 2. As a result, the cost basis of each respective investment was reset to equal fair value on the GA Acquisition Date.
Policy liabilities
Policy liabilities were remeasured based on generally accepted actuarial methods and reported at their fair values on the GA Acquisition Date. Assumptions for future mortality, persistency, policyholder behavior, expenses, investment return and
48


other actuarial factors were based on an evaluation of Global Atlantic’s recent experience, industry experience, and anticipated future trends. These assumptions are intended to be representative of market assumptions used by buyers and sellers in similar transactions. The approach employed to develop these projection assumptions is described below:
Discount rates used to calculate fair value ranged from 11% to 15%, depending on product;
Mortality and persistency assumptions are based on both Global Atlantic and general industry experience;
Expenses were projected reflecting Global Atlantic’s unit expenses with an allocation of a portion of overhead expenses to in-force business;
Future investment income reflects a runoff of the existing asset portfolios and reinvestment strategies based on Global Atlantic’s assumptions for asset yield, quality, and maturity. The projections are based on forward interest rates implied by the Treasury yield curve. Credit rates reflect Global Atlantic’s target spreads;
Separate account and index account growth rates are based on long-term return expectations for different fund types and on the underlying mix of funds; and
Statutory reserves underlying the valuation reflect Global Atlantic’s current reserving methodologies.
Value of business acquired
VOBA represents the estimated fair value of future net cash flows from in-force life and annuity insurance contracts acquired at the GA Acquisition Date.
Other identifiable intangible assets
Other identifiable intangible assets represent distribution relationships, trade names and state insurance licenses. The distribution relationships were valued using the excess earnings method, which derives value based on the present value of the cash flow attributable to the distribution relationships, less returns for contributory assets. The trade name intangible asset represents the Global Atlantic trade name, and was valued using the relief-from-royalty method giving consideration to publicly available third-party trade name royalty rates as well as expected premiums generated by the use of the trade name over its anticipated life. The state insurance licenses represent Global Atlantic’s jurisdictional insurance licenses, which include 52 insurance licenses, encompassing all 50 states, the District of Columbia, and the U.S. Virgin Islands. They were protected through registration and were valued using the market approach based on third-party market transactions from which the prices paid for state insurance licenses could be derived.
Funds withheld at interest receivables and payables
Funds withheld at interest receivables and payables were remeasured at fair value based on the fair value of assets held in the underlying portfolios supporting those receivables or payables.
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The fair value and weighted average estimated useful lives of Value of Business Acquired and Other Identifiable Intangible Assets acquired in the Acquisition consist of the following (dollars in thousands):

Fair ValueAverage Useful Life
($ in thousands)(in years)
VOBA (included within Insurance Intangible Assets)$1,024,520 28.6
Negative VOBA (included within Policy Liabilities)(1,273,414)22.2
Total VOBA$(248,894)
Value of Distribution Agreements Acquired$200,000 18
Trade Names50,000 16
State Insurance Licenses10,000 Indefinite
Total Identifiable Other Intangible Assets (included within Other Assets)$260,000 






As of the GA Acquisition Date, Global Atlantic's financial results are reflected in these financial statements. Global Atlantic's revenues and net loss of $1.4 billion and $(203.9) million, respectively, are included in the consolidated statement of operations for the three months ended March 31, 2021.

Pro- Forma Financial Information

Unaudited pro-forma financial information for the three months ended March 31, 2021 and March 31, 2020 is presented below. Pro-forma financial information presented does not include adjustments to reflect any potential revenue synergies or cost savings that may be achievable in connection with the GA Acquisition and assume the GA Acquisition occurred as of January 1, 2020. The unaudited pro forma financial information is presented for informational purposes only, and is not necessarily indicative of future operations or results had the GA Acquisition been completed as of January 1, 2020.
Three Months Ended
March 31,
20212020
Total Revenues$5,077,184 $(109,906)
Net Income Attributable to KKR & Co. Inc. Common Stockholders$1,738,106 $(1,214,078)


Amounts above reflect certain pro forma adjustments that were directly attributable to the GA Acquisition. These adjustments include the following:
adjustment to reflect the elimination of historical amortization of Global Atlantic’s intangibles and the additional amortization of intangibles measured at fair value as of the GA Acquisition Date;
adjustment to reflect the prospective reclassification from accumulated other comprehensive earnings of the unrealized gains on available-for-sale securities to a premium which will be amortized into income based on the expected life of the investment securities;
adjustments to reflect the KKR pro-rata economic ownership as well as financing consummated by KKR to complete the acquisition; and
adjustments to reflect the adoption of ASC 326 "Financial Instruments - Credit Losses" in 2020 by Global Atlantic.

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Notes to Financial Statements (Continued)
4. NET GAINS (LOSSES) FROM INVESTMENT ACTIVITIES - ASSET MANAGEMENT
Net Gains (Losses) from Investment Activities in the consolidated statements of operations consist primarily of the realized and unrealized gains and losses on investments (including foreign exchange gains and losses attributable to foreign denominated investments and related activities) and other financial instruments, including those for which the fair value option has been elected. Unrealized gains or losses result from changes in the fair value of these investments and other financial instruments during a period. Upon disposition of an investment or financial instrument, previously recognized unrealized gains or losses are reversed and an offsetting realized gain or loss is recognized in the current period.
The following table summarizes total Net Gains (Losses) from Investment Activities:
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Net Realized Gains (Losses)Net Unrealized Gains (Losses)TotalNet Realized Gains (Losses)Net Unrealized Gains (Losses)Total
Private Equity (1)
$756,347 $794,318 $1,550,665 $$(1,282,404)$(1,282,404)
Credit (1)
33,916 (4,509)29,407 (40,697)(905,607)(946,304)
Investments of Consolidated CFEs (1)
(2,628)128,143 125,515 (40,852)(2,112,541)(2,153,393)
Real Assets (1)
39,749 234,398 274,147 53,363 (851,015)(797,652)
Equity Method - Other (1)
5,187 396,514 401,701 4,405 (445,023)(440,618)
Other Investments (1)
(226,899)433,080 206,181 (11,453)(667,719)(679,172)
Foreign Exchange Forward Contracts
and Options (2)
(5,643)15,192 9,549 83,239 331,051 414,290 
Securities Sold Short (2)
50,623 50,996 101,619 14,655 21,523 36,178 
Other Derivatives (2)
(30,521)29,334 (1,187)(226)811 585 
Debt Obligations and Other (3)
(35,750)34,353 (1,397)941 1,903,045 1,903,986 
Net Gains (Losses) From Investment
Activities
$584,381 $2,111,819 $2,696,200 $63,375 $(4,007,879)$(3,944,504)
(1)See Note 7 "Investments."
(2)See Note 8 "Derivatives" and Note 14 "Other Assets and Accrued Expenses and Other Liabilities."
(3)See Note 16 "Debt Obligations."
51

Notes to Financial Statements (Continued)
5. NET INVESTMENT INCOME - INSURANCE

Net investment income for Global Atlantic is comprised primarily of interest income, including amortization of premiums and accretion of discounts, based on yields that change due to expectations in projected cash flows, dividend income from common and preferred stock, earnings from investments accounted for under equity method accounting, and lease income on other investments.

The components of net investment income were as follows:

Three Months Ended
March 31, 2021
Fixed maturity securities – interest and other income$351,540 
Mortgage and other loan receivables122,466 
Investments in transportation and other leased assets36,743 
Short-term and other investment income5,113 
Policy loans1,847 
Investments in real estate1,084 
Investments in renewable energy796 
Equity securities – dividends and other income(484)
Income from funds withheld at interest(16,366)
Gross investment income502,739 
Less investment expenses:
Investment management and administration33,946 
Transportation and renewable energy asset depreciation and maintenance23,509 
Interest expense on derivative collateral and repurchase agreements503 
Net investment income$444,781 


6. NET INVESTMENT (LOSSES) GAINS - INSURANCE
Net investment (losses) gains from insurance operations primarily consists out of (i) realized gains and (losses) from the disposal of investments, (ii) unrealized gains and (losses) from investments held for trading, equity securities, or with fair value remeasurements recognized in earnings as a result of the election of a fair-value option, (iii) unrealized gains and (losses) on funds withheld at interest, (iv) unrealized gains and (losses) from derivatives not designated in an hedging relationship, and (v) allowances for credit losses, and other impairments of investments.

Net investment (losses) gains were as follows:
Three Months Ended
March 31, 2021
Trading fixed maturity securities$(355,314)
Allowance for loan losses provision(183,641)
AFS fixed maturity securities(45,640)
Allowance losses for AFS fixed maturity securities(21,351)
Equity securities and other investments(19,155)
Allowance for loan commitment losses provision(14,610)
Derivatives148,532 
Funds withheld receivable at interest31,238 
Mortgage and other loans receivables4,239 
Net investment (losses) gains$(455,702)

52

Notes to Financial Statements (Continued)
Allowance for credit losses

Available-for-sale fixed maturity securities

The table below presents a roll-forward of the allowance for credit losses recognized for available-for-sale fixed maturity securities held by Global Atlantic:
Three Months Ended
March 31, 2021
CorporateStructuredTotal
Balance, as of beginning of period(1)
$$120,895 $120,895 
Initial impairments for credit losses recognized on securities not previously impaired27,423 27,423 
Initial credit loss allowance recognized on PCD securities222 222 
Accretion of initial credit loss allowance on PCD securities321 321 
Reductions due to sales (or maturities, pay downs or prepayments) during the period of securities previously identified as credit impaired(2,537)(2,537)
Net additions / reductions for securities previously impaired(6,072)(6,072)
Balance, as of end of period$0 $140,252 $140,252 
(1)Includes securities designated as purchased credit deteriorated as of the time of the acquisition of Global Atlantic.

Mortgage and other loan receivables

Changes in the allowance for credit losses on mortgage and other loan receivables held by Global Atlantic are summarized below:


Three Months Ended March 31, 2021
Commercial Mortgage LoansResidential Mortgage LoansConsumer and Other Loan ReceivablesTotal
Balance, as of beginning of period (1)
$58,203 $62,056 $$120,259 
Net provision (release)21,853 16,683 145,105 183,641 
Balance, as of end of period$80,056 $78,739 $145,105 $303,900 
(1)Includes loans designated as purchased credit deteriorated as of the time of the acquisition of Global Atlantic.

Proceeds and gross gains and losses from voluntary sales

The proceeds from voluntary sales and the gross gains and losses on those sales of AFS fixed maturity securities were as follows:

Three Months Ended
March 31, 2021
AFS fixed maturity securities:
Proceeds from voluntary sales$1,903,120 
Gross gains4,776 
Gross losses(50,972)
53

Notes to Financial Statements (Continued)
7. INVESTMENTS
Investments consist of the following:
 March 31, 2021December 31, 2020
Asset Management
Private Equity$21,334,284 $20,470,123 
Credit11,692,746 11,203,905 
Investments of Consolidated CFEs19,163,155 17,706,976 
Real Assets7,107,290 6,096,618 
Equity Method - Other4,747,822 4,471,441 
Equity Method - Capital Allocation-Based Income9,078,783 6,460,430 
Other Investments3,032,149 2,865,222 
Investments - Asset Management$76,156,229 $69,274,715 
Insurance
Fixed maturity securities, available-for-sale, at fair value(1)
$60,263,115 $
Mortgage and other loan receivables16,808,024 
Fixed maturity securities, trading, at fair value(1)
10,627,755 
Other investments6,530,279 
Funds withheld receivable at interest3,094,837 
Policy loans831,459 
Equity securities at fair value115,577 
Investments - Insurance$98,271,046 $0 
Total Investments$174,427,275 $69,274,715 
 
(1) Amortized cost, net of credit loss allowances, of $62.1 billion and $10.9 billion, for available-for-sale and trading fixed maturity securities, respectively.


As of March 31, 2021 and December 31, 2020, there were no investments which represented greater than 5% of total investments.

For certain disclosures a comparison to prior period is not provided when the amounts relate to investments held by Global Atlantic, which was acquired by KKR on February 1, 2021.




54

Notes to Financial Statements (Continued)
Fixed maturity securities
The cost or amortized cost and fair value for AFS fixed maturity securities were as follows:
Cost or amortized cost
Allowance for Credit Losses (2)
Gross unrealizedFair value
As of March 31, 2021gainslosses
AFS fixed maturity securities portfolio by type:
U.S. government and agencies$1,347,935 $$64 $(20,308)$1,327,691 
U.S. state, municipal and political subdivisions4,818,330 4,038 (233,723)4,588,645 
Corporate35,534,168 40,207 (1,619,680)33,954,695 
RMBS8,607,008 (118,290)73,322 (53,570)8,508,470 
CBOs3,350,520 (12,818)3,244 (9,852)3,331,094 
CMBS3,372,554 (561)5,778 (50,781)3,326,990 
CLOs2,528,002 (1,738)6,294 (3,630)2,528,928 
All other structured securities(1)
2,680,900 (6,845)37,544 (14,997)2,696,602 
Total AFS fixed maturity securities$62,239,417 $(140,252)$170,491 $(2,006,541)$60,263,115 

(1)     Includes primarily asset-backed securities ("ABS").
(2)     Represents the cumulative amount of credit impairments that have been recognized in the consolidated statement of operations (as net investment (losses) gains) or that were recognized as a gross-up of the purchase price of PCD securities. Amount excludes unrealized losses related to non-credit impairment.
Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, or Global Atlantic may have the right to put or sell the obligations back to the issuers.

The maturity distribution for AFS fixed maturity securities is as follows:

As of March 31, 2021Cost or
amortized cost (net of allowance)
Fair value
Due in one year or less$322,548 $321,244 
Due after one year through five years6,647,278 6,595,710 
Due after five years through ten years9,883,484 9,636,001 
Due after ten years24,847,123 23,318,076 
Subtotal41,700,433 39,871,031 
RMBS8,488,718 8,508,470 
CBOs3,337,702 3,331,094 
CMBS3,371,993 3,326,990 
CLOs2,526,264 2,528,928 
All other structured securities2,674,055 2,696,602 
Total AFS fixed maturity securities$62,099,165 $60,263,115 

Purchased credit deteriorated securities

Certain securities purchased by Global Atlantic were assessed at acquisition as having experienced a more-than-insignificant deterioration in credit quality since their origination. These securities are identified as PCD, and a reconciliation of the difference between the purchase price and the par value of these PCD securities is below:

55

Notes to Financial Statements (Continued)
March 31, 2021
Purchase price of PCD securities acquired during the current period$1,591,176 
Allowance for credit losses at acquisition121,117 
Discount (premium) attributable to other factors277,480 
Par value$1,989,773 

Securities in a continuous unrealized loss position

The following tables provide information about AFS fixed maturity securities that have been continuously in an unrealized loss position:

Less than 12 months12 months or moreTotal
As of March 31, 2021Fair
value
Unrealized lossesFair
value
Unrealized lossesFair
value
Unrealized losses
AFS fixed maturity securities portfolio by type:
U.S. government and agencies$1,300,371 $(20,308)$$$1,300,371 $(20,308)
U.S. state, municipal and political subdivisions4,393,429 (233,723)4,393,429 (233,723)
Corporate31,609,240 (1,619,680)31,609,240 (1,619,680)
RMBS2,476,369 (53,570)2,476,369 (53,570)
CMBS2,695,782 (50,781)2,695,782 (50,781)
CLOs1,127,040 (3,630)1,127,040 (3,630)
CBOs2,298,426 (9,852)2,298,426 (9,852)
All other structured securities1,232,009 (14,997)1,232,009 (14,997)
Total AFS fixed maturity securities in a continuous loss position$47,132,666 $(2,006,541)$0 $0 $47,132,666 $(2,006,541)

Unrealized gains and losses can be created by changing interest rates or several other factors, including changing credit spreads. Global Atlantic had gross unrealized losses on below investment grade AFS fixed maturity securities of $33.5 million as of March 31, 2021. The single largest unrealized loss on AFS fixed maturity securities was $12.3 million as of March 31, 2021. Global Atlantic had 4,499 securities in an unrealized loss position as of March 31, 2021.


Mortgage and other loan receivables

Mortgage and other loan receivables consist of the following:
As of
March 31, 2021
Commercial mortgage loans(1)
$7,824,769 
Residential mortgage loans(1)
4,838,764 
Consumer loans3,667,846 
Other loan receivables(1)(2)(3)
780,545 
Total mortgage and other loan receivables17,111,924 
Allowance for credit losses(303,900)
Total mortgage and other loan receivables, net of allowance for loan losses$16,808,024 

(1)     Includes $607.5 million of loans carried at fair value using the fair value option as of March 31, 2021. The fair value option was elected for these loans for asset-liability matching purposes. These loans had unpaid principal balances of $599.0 million as of March 31, 2021.
(2)     As of March 31, 2021, other loan receivables consisted primarily of renewable energy development loans of $724.5 million.
(3)     Includes $575.6 million of related party loans carried at fair value using the fair value option as of March 31, 2021. These loans had unpaid principal balances of $575.9 million as of March 31, 2021.

56

Notes to Financial Statements (Continued)
The maturity distribution by contractual maturity for residential and commercial mortgage loans was as follows as of March 31, 2021:

YearsResidentialCommercialTotal mortgage loans
Remainder of 2021$206,369 $679,876 $886,245 
2022306,111 871,324 1,177,435 
2023390,673 1,045,921 1,436,594 
2024256,919 1,090,084 1,347,003 
202517,759 372,484 390,243 
2026356,746 941,273 1,298,019 
2027 and thereafter3,304,187 2,823,807 6,127,994 
Total$4,838,764 $7,824,769 $12,663,533 

Actual maturities could differ from contractual maturities, because borrowers may have the right to prepay (with or without prepayment penalties) and loans may be refinanced.

The mortgage loan portfolio is diversified by both geographic region and property type to reduce concentration risk. The following tables present the mortgage loans by geographic region and property type:

Mortgage loans - carrying value by geographic region as of March 31,2021
Pacific$3,402,898 
West South Central2,266,001 
South Atlantic1,918,774 
Middle Atlantic1,382,565 
East North Central394,052 
Mountain629,604 
New England619,592 
East South Central585,943 
West North Central215,585 
Other regions1,248,519 
Total by geographic region$12,663,533 


Mortgage loans - carrying value by property type as of March 31,2021
Residential$4,859,931 
Office building2,742,478 
Apartment1,846,722 
Industrial1,584,127 
Retail794,029 
Other property types692,936 
Warehouse143,310 
Total by property type$12,663,533 

As of March 31, 2021, Global Atlantic had $241.3 million of mortgage loans that were 90 days or more past due or in the process of foreclosure. Global Atlantic ceases accrual of interest on loans that are more than 90 days past due and recognizes income as cash is received. As of March 31, 2021, there were $178.4 million of mortgage loans that were non-income producing.

As of March 31, 2021, 5% of residential mortgage loans and less than 1% of consumer loans have been granted forbearance due to COVID-19. This forbearance, which generally involves a 3-month period in which payments are not required (though must subsequently be made up), is not considered to result in troubled debt restructurings for the three months ended March 31, 2021. Interest continues to accrue on loans in temporary forbearance.

57

Notes to Financial Statements (Continued)
As of March 31, 2021, Global Atlantic had $6.7 million of consumer loans that were delinquent by more than 120 days or in default.

Purchased credit deteriorated loans

Certain residential mortgage loans purchased by Global Atlantic were assessed at acquisition as having experienced a more-than-insignificant deterioration in credit quality since their origination. These loans are identified as PCD, and a reconciliation of the difference between the purchase price and the par value of these PCD loans is below:

March 31, 2021
Purchase price of PCD loans acquired during the current period$3,694,867 
Allowance for credit losses at acquisition120,259 
Discount (premium) attributable to other factors(146,694)
Par value$3,668,432 

Credit quality indicators

Mortgage and loan receivable performance status

The following table represents the portfolio of mortgage and loan receivables by origination year and performance status:

March 31,
Performance status20212020201920182017PriorTotal
Commercial mortgage loans
Current$471,616 $1,157,366 $2,115,463 $1,475,096 $838,964 $1,766,264 $7,824,769 
30 to 59 days past due
60 to 89 days past due
Over 90 days past due
Total commercial mortgage loans471,616 1,157,366 2,115,463 1,475,096 838,964 1,766,264 7,824,769 
Residential mortgage loans
Current30,542 1,326,352 742,234 426,154 45,788 1,841,103 4,412,173 
30 to 59 days past due8,928 10,610 512 117,416 137,466 
60 to 89 days past due1,697 4,318 971 36 40,791 47,813 
Over 90 days past due13,706 17,701 1,662 208,243 241,312 
Total residential mortgage loans30,542 1,350,683 774,863 429,299 45,824 2,207,553 4,838,764 
Total mortgage loans$502,158 $2,508,049 $2,890,326 $1,904,395 $884,788 $3,973,817 $12,663,533 

The following table represents the portfolio of consumer loan receivables by performance status:
Performance statusMarch 31, 2021
Consumer loans
Current$3,633,368 
30 to 59 days past due17,606 
60 to 89 days past due9,536 
Over 90 days past due7,336 
Total consumer loans$3,667,846 

58

Notes to Financial Statements (Continued)
Loan-to-value ratio on mortgage loans

The loan-to-value ratio is expressed as a percentage of the current amount of the loan relative to the value of the underlying collateral. The following table summarizes the loan-to-value ratios for commercial mortgage loans as of March 31, 2021:

Loan-to-value as of March 31, 2021, by year of originationCarrying value loan-to-value 70% and lessCarrying value loan-to-value 71% - 90%Carrying value loan-to-value over 90%Total carrying value
2021$471,616 $$$471,616 
2020874,212 246,106 37,048 1,157,366 
20191,913,929 201,534 2,115,463 
20181,178,386 296,710 1,475,096 
2017764,668 74,296 838,964 
2016380,561 12,210 392,771 
Prior1,373,493 1,373,493 
Total commercial mortgage loans$6,956,865 $830,856 $37,048 $7,824,769 

Changing economic conditions affect the valuation of commercial mortgage loans. Changing vacancies and rents are incorporated into the discounted cash flow analysis that Global Atlantic performs for monitored loans and may contribute to the establishment of (or increase or decrease in) a commercial mortgage loan valuation allowance for credit losses. In addition, Global Atlantic continuously monitors its commercial mortgage loan portfolio to identify risk. Areas of emphasis are properties that have exposure to specific geographic events, or have deteriorating credit.

The weighted average loan-to-value ratio for the residential mortgage loans was 73% as of March 31, 2021.

Other investments

Other investments consist of the following:

As of March 31, 2021
Investments in renewable energy (1)(2)
$3,419,467 
Investments in transportation and other leased assets (3)
2,184,283 
Other investment partnerships365,428 
Investments in real estate423,557 
FHLB common stock and other investments137,544 
Total other investments$6,530,279 

(1)     Net of accumulated depreciation attributed to consolidated renewable energy assets of $99.9 million as of March 31, 2021.
(2)     Includes an equity investment in a related party, Origis USA, LLC, of $48.1 million carried at fair value using the fair value option as of March 31, 2021.
(3)     Net of accumulated depreciation of $17.1 million as of March 31, 2021.

The total amount of other investments accounted for using the equity method of accounting was $1.4 billion as of March 31, 2021. Global Atlantic's maximum exposure to loss related to these equity method investments is limited to the carrying value of these investments plus unfunded commitments of $26.1 million as of March 31, 2021.

In addition, Global Atlantic has investments that would otherwise require the equity method of accounting for which the fair value option has been elected. The carrying amount of these investments was $165.5 million as of March 31, 2021.

Funding agreements

Certain Global Atlantic subsidiaries are members of regional banks in the FHLB system. These subsidiaries have also entered into funding agreements with their respective FHLB. The funding agreements are issued in exchange for cash. The funding agreements require that Global Atlantic pledge eligible assets, such as commercial mortgage loans, as collateral. With respect to certain classes of eligible assets, the FHLB holds the pledged eligible assets in custody at the respective FHLB. The
59

Notes to Financial Statements (Continued)
liabilities for the funding agreements are included in policy liabilities in the consolidated statements of financial condition. Information related to the FHLB investment and funding agreements as of March 31, 2021 is as follows:

As of March 31, 2021Investment in common stockFunding agreements issued to FHLB member banksCollateral
FHLB Indianapolis$74,790 $1,593,207 $2,599,779 
FHLB Des Moines24,600 615,424 978,364 
FHLB Boston10,000 313,347 543,700 
Total$109,390 $2,521,978 $4,121,843 

In addition, in January 2021, Global Atlantic launched an inaugural funding-agreement backed note ("FABN") program, through which GA Global Funding Trust, a special purpose, unaffiliated statutory trust, was established to offer its senior secured medium-term notes. Net proceeds from each sale of the aforementioned notes are used to purchase one or more funding agreements from Forethought Life Insurance Company, a Global Atlantic insurance company subsidiary. As of March 31, 2021, Global Atlantic had $650 million of such funding agreements outstanding, with $9.35 billion of remaining capacity.

Repurchase agreement transactions

As of March 31, 2021, Global Atlantic participated in third-party repurchase agreements with a notional value of $300.7 million. As collateral for these transactions, as of March 31, 2021, Global Atlantic posted fixed maturity securities with a fair value and amortized cost of $316.7 million and $319.2 million, respectively, which are included in Insurance - Investments in the consolidated statements of financial condition.

The gross obligation for repurchase agreements is reported in Other Liabilities in the consolidated statements of financial condition. The gross obligations by class of collateral pledged for repurchase agreements accounted for as secured borrowings as of March 31, 2021 is presented in the following table:

As of March 31, 2021Overnight<30 Days30 - 90 Days> 90 DaysTotal
Corporate Securities$$$159,343 $157,316 $316,659 
Total borrowing$$$159,343 $157,316 $316,659 

Other

As of March 31, 2021, the cost or amortized cost and fair value of the assets on deposit with various state and governmental authorities were $184.5 million and $174.6 million.

60

Notes to Financial Statements (Continued)
8. DERIVATIVES

Asset Management

As discussed in Note 2 "Summary of Significant Accounting Policies", 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.

For exchange traded derivatives, Global Atlantic offsets asset and liability positions in similar instruments executed with the same clearing member and the same clearing house where there is legal right of setoff. In addition, these exchange traded derivatives have daily settlement of margin.

The restricted cash which was held in connection with open derivative transactions with exchange brokers was $249.6 million as of March 31, 2021.

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 an interest rate swap to hedge the interest rate risk associated with the 2029 Senior Notes in a fair value hedge. The 2029 Senior Notes are reported in debt in the consolidated statements of financial condition and are hedged through their maturity in October 2029. This hedge qualifies for the shortcut method of assessing hedge effectiveness. As of March 31, 2021, the carrying amount of the hedged 2029 Senior Notes was $473.6 million, which reflects a fair value hedge adjustment of $(26.4) million. A loss of $26.4 million was recognized in interest expense in the consolidated statements of operations, due to changes in the fair value of the swap for the three months ended March 31, 2021, fully offsetting the fair value change in the hedged 2029 Senior Notes.

Global Atlantic has designated interest rate swaps to hedge the interest rate risk associated with its FHLB funding agreement liabilities in a fair value hedge. The FHLB funding agreement liabilities are reported in policy liabilities in the consolidated statement of financial condition and are hedged through their maturities that range from 2023 to 2025. This hedge qualifies for the shortcut method of assessing hedge effectiveness. As of March 31, 2021, the carrying amount of the hedged FHLB loan liabilities was $1.1 billion, which reflects a fair value hedge adjustment of $(5.3) million. A gain due to changes in the fair value of the swaps of $5.3 million was recognized in policy benefits and claims in the consolidated statements of operations for the three months ended March 31, 2021, fully offsetting the fair value change in the hedged FHLB funding agreement liabilities.

In February and March 2021, Global Atlantic designated bond forwards to hedge the interest rate risk associated with the planned purchase of AFS debt securities in a cash flow hedge. Regression analysis is used to assess the effectiveness of this hedge. As of March 31, 2021, there was a cumulative loss of $16.8 million on the bond forwards recorded in accumulated other comprehensive (loss) income. Amounts deferred in accumulated other comprehensive (loss) income 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 January 2022 through January 2027 and are expected to affect earnings until 2051. There were no securities purchased for the three months ended March 31, 2021. Global Atlantic estimates that the amount of gains/losses in accumulated other comprehensive (loss) income to be reclassified into earnings in the next 12 months will not be material.
61

Notes to Financial Statements (Continued)

Global Atlantic designates foreign exchange forward purchase contracts ("FX forwards") on a rolling basis 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 available-for-sale fixed-maturity securities. The changes in the fair value of the available-for-sale foreign currency-denominated bonds due to changes in the spot exchange rate on their book values are recorded in earnings, along with the entire change in the fair value of the FX forwards. These hedges qualify for the critical terms match method of assessing hedge effectiveness. The changes in the fair value of the FX forwards was $2.8 million, which was recognized in net investment gains (losses) for the three months ended March 31, 2021, fully offsetting the fair value changes in the hedged available-for-sale bonds.

The fair value and notional value of the derivative assets and liabilities were as follows:

As of March 31, 2021Notional valueDerivative
assets
Derivative liabilities
Asset Management
Foreign Exchange Contracts and Options$10,383,943 $244,809 $529,962 
Other Derivatives707,775 3,401 94,132 
Total Asset Management248,210 624,094 
Insurance
Equity market contracts$25,649,611 $1,017,593 $151,329 
Interest rate contracts8,336,485 87,669 215,959 
Foreign currency contracts402,233 6,801 2,753 
Credit risk contracts60,000 1,669 
Impact of netting (1)
(168,931)(168,919)
Fair value included within derivative assets and derivative liabilities943,132 202,791 
Embedded derivative – indexed universal life products434,242 
Embedded derivative – annuity products984,910 
Fair value included within policy liabilities1,419,152 
Embedded derivative – funds withheld at interest55,883 (313,230)
Total Insurance999,015 1,308,713 
Fair value included within total assets and liabilities$1,247,225 $1,932,807 

(1)     Represents netting of derivative exposures covered by qualifying master netting agreements.


As of December 31, 2020
Notional value
Derivative
assets
Derivative liabilities
Asset Management
Foreign Exchange Contracts and Options$9,837,178 $250,398 $551,728 
Other Derivatives802,988 7,839 126,950 
Total Asset Management258,237 678,678 
Fair value included within total assets and liabilities$258,237 $678,678 


62

Notes to Financial Statements (Continued)
The amounts of derivative gains and losses recognized are reported in the consolidated statements of operations as follows:

Derivative contracts not designated as hedgesThree Months Ended
March 31,
20212020
Asset Management
Net Gains (Losses) from Investment Activities:
Foreign Exchange Contracts and Options$9,549 $414,290 
Other Derivatives(1,187)585 
   Total included in Net Gains (Losses) from Investment Activities$8,362 $414,875 
Insurance
Net investment gains (losses):
Embedded derivatives$369,113 $
Equity index options104,021 
Equity future contracts(69,583)
Interest rate contracts(266,731)
Credit risk contracts(36)
Other9,938 
Total included in net investment gains (losses)$146,722 $

Derivative contracts designated as hedgesThree Months Ended
March 31,
20212020
Insurance
Revenues:
Foreign currency forwards$1,810 $
Total included in net investment gains (losses)$1,810 $
Policy benefits and claims:
Interest rate swap$(8,403)$
Total included in policy benefits and claims$(8,403)$
Interest expense:
Interest rate swap$(24,776)$
Total included in interest expense$(24,776)$

The amount of Global Atlantic's net derivative assets and liabilities after consideration of collateral received or pledged were as follows:
As of March 31, 2021Gross amount recognized
Gross amounts offset in the statement of financial position(1)
Net amounts presented in the statement of financial conditionCollateral (received) / pledgedNet amount after collateral
Derivative assets (excluding embedded derivatives)$1,112,063 $(168,931)$943,132 $(804,042)$139,090 
Derivative liabilities (excluding embedded derivatives)$371,710 $(168,919)$202,791 $$202,791 
(1) Represents netting of derivative exposures covered by qualifying master netting agreements.



63

Notes to Financial Statements (Continued)
9. FAIR VALUE MEASUREMENTS
The following tables summarize the valuation of assets and liabilities measured and reported at fair value by the fair value hierarchy. Investments classified as Equity Method - Other, for which the fair value option has not been elected, and Equity Method - Capital Allocation-Based Income have been excluded from the tables below.
Assets, at fair value:
 March 31, 2021
 Level ILevel IILevel IIITotal
Asset Management
Private Equity$2,224,510 $2,045,965 $17,063,809 $21,334,284 
Credit2,306,865 9,385,881 11,692,746 
Investments of Consolidated CFEs19,163,155 19,163,155 
Real Assets228,073 6,879,217 7,107,290 
Equity Method - Other534,811 40,612 1,041,780 1,617,203 
Other Investments440,791 117,993 2,473,365 3,032,149 
Total Investments3,200,112 23,902,663 36,844,052 63,946,827 
Foreign Exchange Contracts and Options244,809 244,809 
Other Derivatives3,401 (1)3,401 
Total Assets at Fair Value - Asset Management$3,200,112 $24,147,472 $36,847,453 $64,195,037 
Insurance
AFS fixed maturity securities:
U.S. government and agencies$1,251,930 $75,761 $$1,327,691 
U.S. state, municipal and political subdivisions4,588,645 4,588,645 
Corporate30,215,165 3,739,530 33,954,695 
Structured securities20,198,978 193,106 20,392,084 
Total AFS fixed maturity securities1,251,930 55,078,549 3,932,636 60,263,115 
Trading fixed maturity securities:
U.S. government and agencies159,557 78,237 237,794 
U..S. state, municipal and political subdivisions694,926 694,926 
Corporate7,475,680 726,078 8,201,758 
Structured securities1,470,744 22,533 1,493,277 
Total trading fixed maturity securities159,557 9,719,587 748,611 10,627,755 
Equity securities45,592 69,985 115,577 
Mortgage and other loan receivables(2)
1,183,074 1,183,074 
Other investments(3)
444,882 444,882 
Funds withheld receivable at interest55,883 55,883 
Reinsurance recoverable1,317,962 1,317,962 
Derivative assets:
Equity market contracts65,730 951,863 1,017,593 
Interest rate contracts14,772 72,897 87,669 
Foreign currency contracts6,801 6,801 
Impact of netting(4)
(31,433)(137,498)(168,931)
Total derivative assets49,069 894,063 943,132 
Separate account assets5,470,087 5,470,087 
Total Assets at Fair Value - Insurance$6,976,235 $65,692,199 $7,753,033 $80,421,467 
Total Assets at Fair Value$10,176,347 $89,839,671 $44,600,486 $144,616,504 
64

Notes to Financial Statements (Continued)
 December 31, 2020
 Level ILevel IILevel IIITotal
Asset Management
Private Equity$2,758,396 $2,476,823 $15,234,904 $20,470,123 
Credit2,031,057 9,172,848 11,203,905 
Investments of Consolidated CFEs17,706,976 17,706,976 
Real Assets172,043 5,924,575 6,096,618 
Equity Method - Other485,988 7,254 1,014,378 1,507,620 
Other Investments434,481 88,760 2,341,981 2,865,222 
Total Investments3,678,865 22,482,913 33,688,686 59,850,464 
Foreign Exchange Contracts and Options250,398 250,398 
Other Derivatives442 729 6,668 (1)7,839 
Total Assets at Fair Value - Asset Management$3,679,307 $22,734,040 $33,695,354 $60,108,701 
Total Assets at Fair Value$3,679,307 $22,734,040 $33,695,354 $60,108,701 
(1)Includes derivative assets that were valued using a third-party valuation firm. The approach used to estimate the fair value of these derivative assets was generally the discounted cash flow method, which includes consideration of the current portfolio, projected portfolio construction, projected portfolio realizations, portfolio volatility (based on the volatility, correlation, and size of each underlying asset class), and the discounting of future cash flows to the reporting date.
(2)Includes related party balance of $575.6 million in Level 3 for mortgage and other loan receivables.
(3)Other investments excluded from the fair value hierarchy include certain real estate and private equity funds for which fair value is measured at net asset value per share as a practical expedient. As of March 31, 2021, the fair value of these investments was $113.5 million.
(4)Represents netting of derivative exposures covered by qualifying master netting agreements.
65

Notes to Financial Statements (Continued)

Liabilities, at fair value:
 March 31, 2021
 Level ILevel IILevel IIITotal
Asset Management
Securities Sold Short$243,524 $$$243,524 
Foreign Exchange Contracts and Options529,962 529,962 
Unfunded Revolver Commitments35,637 (1)35,637 
Other Derivatives94,132 94,132 
Debt Obligations of Consolidated CFEs18,640,854 18,640,854 
Total Liabilities at Fair Value - Asset Management$243,524 $19,264,948 $35,637 $19,544,109 
Insurance
Policy liabilities$$$565,642 $565,642 
Closed block policy liabilities1,366,879 1,366,879 
Funds withheld payable at interest(313,230)(313,230)
Derivative instruments payable:
Equity market contracts17,100 134,229 151,329 
Interest rate contracts51,086 164,873 215,959 
Foreign currency contracts2,753 2,753 
Credit contracts1,669 1,669 
Impact of netting(2)
(31,433)(137,486)(168,919)
Total derivative instruments payable36,753 166,038 202,791 
Embedded derivative – indexed universal life products434,242 434,242 
Embedded derivative – annuity products984,910 984,910 
Total Liabilities at Fair Value - Insurance$36,753 $166,038 $3,038,443 $3,241,234 
Total Liabilities at Fair Value$280,277 $19,430,986 $3,074,080 $22,785,343 
 December 31, 2020
 Level ILevel IILevel IIITotal
Asset Management
Securities Sold Short$281,826 $$$281,826 
Foreign Exchange Contracts and Options551,728 551,728 
Unfunded Revolver Commitments46,340 (1)46,340 
Other Derivatives76,930 50,020 126,950 
Debt Obligations of Consolidated CFEs17,372,740 17,372,740 
Total Liabilities at Fair Value - Asset Management$358,756 $17,974,488 $46,340 $18,379,584 
Total Liabilities at Fair Value$358,756 $17,974,488 $46,340 $18,379,584 
(1)These unfunded revolver commitments are classified as Level III within the fair value hierarchy and valued using the same valuation methodologies as KKR's Level III credit investments.
(2)Represents netting of derivative exposures covered by qualifying master netting agreement.



66

Notes to Financial Statements (Continued)
The following tables summarize changes in assets and liabilities measured and reported at fair value for which Level III inputs have been used to determine fair value for the three months ended March 31, 2021 and 2020, respectively except for financial instruments held by Global Atlantic and acquired by KKR on the GA Acquisition Date which represents activity for the two months beginning February 1, 2021. The format of the tables has been modified to include the insurance assets and liabilities and, as such, the prior period presentation has been modified accordingly.

Three Months Ended March 31, 2021
Balance, Beg. of PeriodTransfers In / (Out) - Changes in ConsolidationTransfers InTransfers OutNet Purchases/Issuances/Sales/SettlementsNet Unrealized and Realized Gains (Losses)Change in OCIBalance, End of PeriodChanges in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting DateChanges in Net Unrealized Gains (Losses) Included in OCI related to Level III Assets and Liabilities still held as of the Reporting Date
Assets
Asset Management
Private Equity$15,234,904 $$$$130,309 $1,698,596 $$17,063,809 $1,622,804 $
Credit9,172,848 (1,021)86,135 92,140 33,640 2,139 9,385,881 61,774 2,139 
Real Assets5,924,575 696,345 258,297 6,879,217 231,898 
Equity Method - Other1,014,378 (153,840)181,242 1,041,780 180,258 
Other Investments2,341,981 (2,879)(105,644)63,054 176,853 2,473,365 214,879 
Other Derivatives6,668 3,574 (6,841)3,401 (6,841)
  Total Assets - Asset Management33,695,354 (3,900)86,135 (105,644)831,582 2,341,787 2,139 36,847,453 2,304,772 2,139 
Insurance
AFS fixed maturity securities:
Corporate fixed maturity securities3,519,368 244,578 (24,416)3,739,530 (22,210)
Structured securities197,983 (1,692)(3,185)193,106 474 
Total AFS fixed maturity securities3,717,351 242,886 (27,601)3,932,636 (21,736)
Trading fixed maturity securities:
Corporate fixed maturity securities674,380 55,699 (4,001)726,078 (3,600)
Structured securities14,661 8,055 (183)22,533 (222)
Total trading fixed maturity securities689,041 63,754 (4,184)748,611 (3,822)
Equity securities66,660 3,325 69,985 3,325 
Mortgage and other loan receivables929,855 247,719 5,500 1,183,074 6,322 
Other investments443,824 1,058 444,882 6,092 
Funds withheld receivable at interest334 55,549 55,883 
Reinsurance recoverable1,317,962 1,317,962 
Total Assets - Insurance5,846,731 554,693 1,379,210 (27,601)7,753,033 11,917 (21,736)
Total$39,542,085 $(3,900)$86,135 $(105,644)$1,386,275 $3,720,997 $(25,462)$44,600,486 $2,316,689 $(19,597)
67

Notes to Financial Statements (Continued)
Three Months Ended March 31, 2020
Balance, Beg. of PeriodTransfers In / (Out) - Changes in ConsolidationTransfers InTransfers OutNet Purchases/Issuances/Sales/SettlementsNet Unrealized and Realized Gains (Losses)Change in OCIBalance, End of PeriodChanges in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting Date
Assets
Asset Management
Private Equity$9,871,682 $$$$114,099 $(636,333)$$9,349,448 $(636,333)
Credit9,217,759 567,020 (757,783)(22,031)9,004,965 (750,837)
Real Assets3,567,944 (42,301)(797,652)2,727,991 (844,905)
Equity Method - Other1,656,045 2,098 (305,797)1,352,346 (305,797)
Other Investments2,154,755 60,442 (537,580)1,677,617 (528,523)
Other Derivatives21,806 (1,360)23,922 44,368 24,438 
Total Assets - Asset Management$26,489,991 $$$$699,998 $(3,011,223)$(22,031)$24,156,735 $(3,041,957)

68

Notes to Financial Statements (Continued)

Three Months Ended March 31, 2021Three Months Ended March 31, 2020
PurchasesIssuancesSalesSettlementsNet Purchases/Issuances/Sales/SettlementsPurchasesSalesSettlementsNet Purchases/Issuances/Sales/Settlements
Assets
Asset Management
Private Equity$221,344 $$(91,035)$$130,309 $114,099 $$$114,099 
Credit1,120,791 (1,028,651)92,140 1,227,138 (620,645)(39,473)567,020 
Real Assets924,320 (227,975)696,345 168,640 (210,941)(42,301)
Equity Method - Other144 (153,984)(153,840)2,098 2,098 
Other Investments89,502 (26,448)63,054 87,224 (26,782)60,442 
Other Derivatives3,574 3,574 (1,360)(1,360)
  Total Assets - Asset Management2,359,675 (1,528,093)831,582 1,599,199 (859,728)(39,473)699,998 
Insurance
AFS fixed maturity securities:
Corporate fixed maturity securities$287,638 $(3,299)$(39,761)244,578 
Structured securities10 (1,702)(1,692)
Total AFS fixed maturity securities287,648 (3,299)(41,463)242,886 
Trading fixed maturity securities:
Corporate fixed maturity securities57,451 (1,752)55,699 
Structured securities8,110 (55)8,055 
Total trading fixed maturity securities65,561 (1,807)63,754 
Mortgage and other loan receivables254,995 (5,076)(2,200)247,719 
Funds withheld receivable at interest334 334 
Total Assets - Insurance608,204 334 (8,375)(45,470)554,693 
Total$2,967,879 $334 $(1,536,468)$(45,470)$1,386,275 $1,599,199 $(859,728)$(39,473)$699,998 

69

Notes to Financial Statements (Continued)
Three Months Ended March 31, 2021
Balance, Beg. of PeriodTransfers In / (Out) - Changes in ConsolidationTransfers InTransfers OutNet Purchases/Sales/Settlements/IssuancesNet Unrealized and Realized Gains (Losses)Change in OCIBalance, End of PeriodChanges in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting Date
Liabilities
Asset Management
Unfunded Revolver Commitments$46,340 $$$$1,167 $(11,870)$$35,637 $(11,870)
Total Liabilities - Asset Management46,340 1,167 (11,870)35,637 (11,870)
Insurance
Policy liabilities$637,800 $$$$$(72,158)$$565,642 $
Closed block policy liabilities1,395,746 (25,982)(2,885)1,366,879 
Funds withheld payable at interest59,230 (372,460)(313,230)
Embedded derivative – indexed universal life products386,746 (931)48,427 434,242 
Embedded derivative – annuity products1,024,601 44,809 (84,500)984,910 
Total Liabilities - Insurance3,504,123 43,878 (506,673)(2,885)3,038,443 
Total$3,550,463 $$$$45,045 $(518,543)$(2,885)$3,074,080 $(11,870)

Three Months Ended March 31, 2020
Balance, Beg. of PeriodTransfers In / (Out) - Changes in ConsolidationTransfers InTransfers OutNet Purchases/Sales/Settlements/IssuancesNet Unrealized and Realized Gains (Losses)Change in OCIBalance, End of PeriodChanges in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting Date
Liabilities
Asset Management
Unfunded Revolver Commitments$75,842 $$$$(2,464)$(2,781)$$70,597 $(2,781)
Total Liabilities - Asset Management$75,842 $$$$(2,464)$(2,781)$$70,597 $(2,781)



70

Notes to Financial Statements (Continued)
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
IssuancesSettlementsNet settlements/IssuancesIssuancesSettlementsNet settlements/Issuances
Liabilities
Asset Management
Unfunded Revolver Commitments$1,167 $$1,167 $$(2,464)$(2,464)
Total Liabilities - Asset Management1,167 1,167 (2,464)(2,464)
Insurance
Embedded derivative – indexed universal life products5,607 (6,538)(931)
Embedded derivative – annuity products44,809 44,809 
Total Liabilities - Insurance50,416 (6,538)43,878 
Total$51,583 $(6,538)$45,045 $$(2,464)$(2,464)





71

Notes to Financial Statements (Continued)
Total realized and unrealized gains and losses recorded for Asset Management - Level III assets and liabilities are reported in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations while Insurance - Level III assets and liabilities are reported in Net Investment Gains and Policy Benefits and Claims in the accompanying consolidated statements of operations.
The following table presents additional information about valuation methodologies and significant unobservable inputs used for financial assets and liabilities that are measured and reported at fair value and categorized within Level III as of March 31, 2021. Because input information includes only those items for which information is reasonably available, balances shown below may not equal total amounts reported for such Level 3 assets and liabilities:
Level III AssetsFair Value March 31, 2021Valuation
Methodologies
Unobservable Input(s) (1)
Weighted
Average (2)
Range
Impact to
 Valuation
from an
Increase in
Input (3)
ASSET
MANAGEMENT
      
Private Equity$17,063,809 
Private Equity$14,016,147 Inputs to market comparables, discounted cash flow and transaction priceIlliquidity Discount7.3%5.0% - 15.0% Decrease
  Weight Ascribed to Market Comparables31.1%0.0% - 50.0% (4)
  Weight Ascribed to Discounted Cash Flow68.0%0.0% - 100.0% (5)
  Weight Ascribed to Transaction Price0.9%0.0% - 75.0% (6)
  Market comparablesEnterprise Value/LTM EBITDA Multiple16.4x8.8x - 29.3x Increase
Enterprise Value/Forward EBITDA Multiple15.0x8.3x - 20.1x Increase
  Discounted cash flowWeighted Average Cost of Capital9.2%4.4% - 17.6% Decrease
  Enterprise Value/LTM EBITDA Exit Multiple13.0x6.0x - 18.0x Increase
Growth Equity$3,047,662 Inputs to market comparables, discounted cash flow and milestonesIlliquidity Discount12.5%10.0% - 45.0%Decrease
Weight Ascribed to Market Comparables20.0%0.0% - 100.0%(4)
Weight Ascribed to Discounted Cash Flow0.2%0.0% - 50.0%(5)
Weight Ascribed to Milestones79.8%0.0% - 100.0%(6)
Scenario WeightingBase70.9%50.0% - 80.0%Increase
Downside9.6%0.0% - 25.0%Decrease
Upside19.5%0.0% - 35.0%Increase
Credit$9,385,881 Yield AnalysisYield5.6%4.3% - 18.1% Decrease
Net Leverage5.2x0.2x - 22.0xDecrease
EBITDA Multiple10.8x0.8x - 30.0xIncrease
Real Assets$6,879,217       
Energy$2,293,765 Inputs to market comparables and discounted cash flowWeight Ascribed to Market Comparables46.6%0.0% - 50.0%(4)
Weight Ascribed to Discounted Cash Flow53.4%50.0% - 100.0%(5)
Market comparablesEnterprise Value/LTM EBITDA Multiple7.7x7.4x - 7.8xIncrease
Enterprise Value/Forward EBITDA Multiple6.2x6.0x - 9.0xIncrease
Discounted cash flowWeighted Average Cost of Capital11.4%10.4% - 14.3% Decrease
Average Price Per BOE (8)$37.05$34.56 - $39.43Increase
Infrastructure
$1,305,548 Inputs to market comparables, discounted cash flow and transaction priceIlliquidity Discount6.7%5.0% - 10.0% Decrease
Weight Ascribed to Market Comparables4.0%0.0% - 25.0%(4)
Weight Ascribed to Discounted Cash Flow20.0%0.0% - 100.0% (5)
Weight Ascribed to Transaction Price76.0%0.0% - 100.0% (6)
Market comparablesEnterprise Value/Forward EBITDA Multiple10.5x10.5x - 10.5xIncrease
Discounted cash flowWeighted Average Cost of Capital7.7%6.6% - 8.3%Decrease
Enterprise Value/LTM EBITDA Exit Multiple10.0x10.0x - 10.0xIncrease
Real Estate$3,279,904 Inputs to direct income capitalization and discounted cash flowWeight Ascribed to Direct Income Capitalization15.6%0.0% - 100.0% (7)
  Weight Ascribed to Discounted Cash Flow70.4%0.0% - 100.0% (5)
Weight Ascribed to Transaction Price14.0%0.0% - 100.0%(6)
  Direct income capitalizationCurrent Capitalization Rate5.6%3.8% - 7.9% Decrease
  Discounted cash flowUnlevered Discount Rate6.6%5.2% - 18.0% Decrease
72

Notes to Financial Statements (Continued)
Level III AssetsFair Value March 31, 2021Valuation
Methodologies
Unobservable Input(s) (1)
Weighted
Average (2)
Range
Impact to
 Valuation
from an
Increase in
Input (3)
Equity Method - Other$1,041,780 Inputs to market comparables, discounted cash flow and transaction priceIlliquidity Discount9.5%5.0% - 15.0% Decrease
Weight Ascribed to Market Comparables35.4%0.0% - 60.0% (4)
  Weight Ascribed to Discounted Cash Flow29.2%0.0% - 100.0% (5)
  Weight Ascribed to Transaction Price35.4%0.0% - 100.0% (6)
  Market comparablesEnterprise Value/LTM EBITDA Multiple12.5x7.4x - 23.7x Increase
Enterprise Value/Forward EBITDA Multiple12.7x6.0x - 21.0x Increase
  Discounted cash flowWeighted Average Cost of Capital10.2%6.2% - 18.1% Decrease
�� Enterprise Value/LTM EBITDA Exit Multiple10.9x6.0x - 15.0x Increase
Other Investments$2,473,365 (9)Inputs to market comparables, discounted cash flow and transaction priceIlliquidity Discount10.2%5.0% - 20.0% Decrease
Weight Ascribed to Market Comparables29.7%0.0% - 100.0% (4)
Weight Ascribed to Discounted Cash Flow41.1%0.0% - 100.0% (5)
Weight Ascribed to Transaction Price29.2%0.0% - 100.0% (6)
Market comparablesEnterprise Value/LTM EBITDA Multiple12.4x1.5x - 30.0x Increase
Enterprise Value/Forward EBITDA Multiple12.5x1.3x - 27.0x Increase
Discounted cash flowWeighted Average Cost of Capital13.6%7.6% - 25.0% Decrease
Enterprise Value/LTM EBITDA Exit Multiple9.2x5.0x - 11.0x Increase
INSURANCE
Corporate fixed maturity securities$1,824,106 Discounted cash flowDiscount Spread2.16%0.04% - 4.97%Decrease
Structured securities$175,626 Discounted cash flowDiscount Spread2.63%2.20% - 5.90%Decrease
Constant Prepayment Rate7.43%5.00% - 15.00%Increase/Decrease
Constant Default Rate1.15%1.00% - 2.50%Decrease
Loss Severity100%Decrease
Equity securities$48,072 Discounted cash flowYield17.50%Decrease
Other investments$423,279 Direct capitalizationCurrent Capitalization Rate5.52%5.27% - 5.77%Increase
Vacancy rate5.00%Decrease
Funds withheld receivable at interest$55,883 Discounted cash flowDuration/Weighted Average Life10.14 years0.0 years - 22.3 yearsIncrease
Contractholder Persistency6.38%3.70% - 16.50%Increase
Nonperformance Risk0.40% - 1.14%Decrease
Reinsurance recoverable$1,317,962 Present value of expenses paid from the open block plus the cost of capital held in support of the liabilities.Expense assumptionThe average expense assumption is between $10.40 and $78.00 per policy, increased by inflation.Increase
Unobservable inputs are a market participant’s view of the expenses, a risk margin on the uncertainty of the level of expenses and a cost of capital on the capital held in support of the liabilities.Expense risk margin9.42%Decrease
Cost of capital3.69% - 9.88%Increase
Discounted cash flowMortality Rate2.55%Increase
Surrender Rate5.33%Increase
(1)In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. Management has determined that market participants would take these inputs into account when valuing the investments and debt obligations. LTM means last twelve months and EBITDA means earnings before interest, taxes, depreciation and amortization.
(2)Inputs were weighted based on the fair value of the investments included in the range.
73

Notes to Financial Statements (Continued)
(3)Unless otherwise noted, this column represents the directional change in the fair value of the Level III investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.
(4)The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level III investments if the market comparables approach results in a higher valuation than the discounted cash flow approach and transaction price. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach and transaction price.
(5)The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level III investments if the discounted cash flow approach results in a higher valuation than the market comparables approach, transaction price and direct income capitalization approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach, transaction price and direct income capitalization approach.
(6)The directional change from an increase in the weight ascribed to the transaction price or milestones would increase the fair value of the Level III investments if the transaction price or milestones results in a higher valuation than the market comparables and discounted cash flow approach. The opposite would be true if the transaction price or milestones results in a lower valuation than the market comparables approach and discounted cash flow approach.
(7)The directional change from an increase in the weight ascribed to the direct income capitalization approach would increase the fair value of the Level III investments if the direct income capitalization approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the direct income capitalization approach results in a lower valuation than the discounted cash flow approach.
(8)The total energy fair value amount includes multiple investments (in multiple locations throughout North America) that are held in multiple investment funds and produce varying quantities of oil, condensate, natural gas liquids, and natural gas. Commodity price may be measured using a common volumetric equivalent where one barrel of oil equivalent ("BOE"), is determined using the ratio of six thousand cubic feet of natural gas to one barrel of oil, condensate or natural gas liquids. The price per BOE is provided to show the aggregate of all price inputs for the various investments over a common volumetric equivalent although the valuations for specific investments may use price inputs specific to the asset for purposes of our valuations. The discounted cash flows include forecasted production of liquids (oil, condensate, and natural gas liquids) and natural gas with a forecasted revenue ratio of approximately 84% liquids and 16% natural gas.
(9)Consists primarily of investments in common stock, preferred stock, warrants and options of companies that are not private equity, real assets, credit, equity method - other or investments of consolidated CFEs.



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Notes to Financial Statements (Continued)
Level III LiabilitiesFair Value March 31, 2021Valuation
Methodologies
Unobservable Input(s) (1)
Weighted
Average (2)
Range
Impact to
 Valuation
from an
Increase in
Input (3)
ASSET MANAGEMENT
Unfunded Revolver Commitments$35,637 Yield AnalysisYield6.2%4.6% - 7.9%Decrease