Residential Mortgage Loans for Insurers

Guide to RMLs & Frequently Asked Questions

Insurance capital has historically played an important role in residential credit, with interest growing as insurers seek portfolio diversification and enhanced investment income.

While Residential Mortgage Whole Loans offer attractive opportunities, they present unique complexities for insurance companies due to the highly regulated mortgage industry, specific loan characteristics, and the specialized ecosystem of providers including brokers, lenders, and servicers. Insurance investors also navigate regulatory, accounting, and capital considerations specific to their industry.

This guide addresses frequently asked questions from our insurance partners and outlines key considerations to help navigate this asset class.

1. How does KKR think about Residential Mortgages as an investable asset class for insurers?

Residential Mortgages are managed through KKR’s Credit platform, which oversees more than $250 billion in assets with approximately 250 investment professionals and decades of investing experience.

The Asset Based Finance (ABF) investment team includes approximately 50 professionals across consumer / mortgage finance, commercial finance, contractual cash flows, and hard assets. Residential mortgages has been one of our largest industry verticals with over $27 billion of capital put to work across multiple product types across transactions with 20+ counterparties over the past decade+ on behalf of insurance capital.

We consider residential mortgages to be an attractive spread sector that offers diversification and favorable credit risk with relatively low capital requirements. Although the market often emphasizes origination, product type, and yield profile, we see the actual product as relatively standardized due to regulations and constraints such as adverse selection, which investors aim to mitigate.

We see the value of mortgages in the intricacies associated with holding whole loans, which demand substantial servicing and maintenance. This complexity creates barriers to entry and limits participants to a select few that are capable of fully addressing insurers’ needs. Moreover, achieving success in this sector necessitates scale and a diverse array of partnerships—both captive and within an extensive network—to maintain a competitive advantage.

As further detailed below, insurers seek the qualities of diversification, income, and strong credit experience from this asset class while also sizing allocations based on considerations like liability profile.

2. What type of Residential Mortgage Loans are originated and what are the characteristics of the loans?

Below is a brief overview of residential products to consider as part of a diversified RML strategy:

Depending on company specific considerations, we view a mix of Non-QM and Investor products as a core allocation to help with diversification at attractive spreads given origination trends, sourcing channels, and market demand. Demand for the asset class has grown significantly, as evidenced by increased allocations on insurance company balance sheets and its expanding share of the securitization market, which increased from 13% of issuance in 2021 to 29% in 2024. Over the same period, cumulative losses have remained near-zero piquing even greater interest.

3. How should insurers think about the convexity profile of RMLs in the context of Asset Liability Management (ALM)?

Insurers can approach the convexity profile of RMLs in the context of ALM by understanding the unique risks and characteristics associated with these loans and the bounds around the potential impacts of rate moves to both the assets and the insurer’s liabilities. Life insurers, in particular, may have important rate-sensitivities in their liabilities due to product mechanics or policyholder behavior. Convexity, as well as cashflow variability of mortgages, is a topic insurers typically review as part of asset class approval as well as sizing of an RML allocation.

Many investors’ basis for comparison on convexity in residential mortgages comes from Agency MBS, which have historically exhibited high levels of convexity. However, the RML subsectors discussed above generally can help mitigate these risks due to differentiating factors among the products. For example, Non-QM borrowers by definition do not fit Agency qualification criteria which provides some additional friction to refinancing relative to an Agency-qualifying borrower.

Meanwhile, for investor loans, most are originated with a prepayment penalty that can last 1-5 years which can deter immediate refinancing. As a result, these RML subsectors can be an attractive alternative to Agency MBS.

As an illustrative case study on ALM, we conducted a +200bps and -200bps interest rate shock scenario for a block of 5-year multi-year guaranteed annuities (MYGAs) with surrender charge protection, which have a high convexity profile driven by policyholder behavior. We tested two portfolios against these liabilities: Portfolio A as a base portfolio with no RMLs and a BBB Corporate-tilt, and Portfolio B with 20% RMLs split 50%/50% across Non-QM and Investor Loans.

Below is an overview of the experience which shows comparable to higher net yields under both scenarios with manageable ALM gaps.

4. How should insurers think about risk-based capital treatment and efficiency for RMLs?

Risk Based Capital (RBC) factors are guided by the below – Life insurers have varying charges depending on loan status and whether the loan is insured/guaranteed, while P&C and Health insurers use a 5% base charge. RMLs will generally be uninsured/non-guaranteed and in good standing at the time of purchase.

While Life insurers have the lowest base charge as shown in the above table, P&C and Health insurers benefit from a strong covariance effect in the RBC formula which results in significantly lower “effective” charges when taking this into consideration. As illustrated below, the nominal charge of 5% drops to 0.4% for P&C insurers and 1.1% for Health insurers.

Effective RBC Changes for RMLs

To assess relative value against other investment options, insurers may use a capital-adjusted yield framework which adjusts gross spreads for both expected default losses and the cost of holding the effective RBC charge for the asset.

Comparing RMLs against BBB and HY corporates, we see that RMLs have a strong net capital-adjusted spread when accounting for these factors, driven by the spread premium of RMLs compared to BBB corporates and much lower RML loss experience and cost of RBC compared to high-yield corporates. This supports our view that RMLs can be attractive options for insurers on a loss-adjusted and capital-adjusted basis.

Capital-Adjusted Net Spread by Insurer Type

5. What are the various ways insurance companies can hold Residential Mortgage Loans and the positives and drawbacks of each approach? What is KKR’s suggested approach for insurer ownership of RMLs?

Insurers’ investments are governed by statutory investment of the insurer’s domicile as well as the NAIC’s Statutory accounting and reporting requirements. For Statutory Accounting Purposes (SSAP No. 37), “a mortgage loan is defined as a debt obligation that is not a security, which is secured by a mortgage on real estate. In addition to mortgage loans directly originated, a mortgage loan also includes mortgage loans acquired or obtained through assignment, syndication or participation.”

While the optimal approach to owning RMLs should be determined by an insurance company in consultation with its accountants, regulators, and other stakeholders, we have outlined several approaches we have seen in the market below:

In our experience, Schedule B ownership is straightforward, and this is the approach taken by most insurance companies holding residential mortgages. Additionally, the NAIC is finalizing formal guidance for residential mortgage loan trusts to qualify for Schedule B reporting, which will provide clarity around structural requirements and further validate trusts as an appropriate access method.

6. What are the considerations for pledging to the Federal Home Loan Bank (FHLB)? How can KKR support insurers who pledge to the FHLB?

In general, RMLs are able to be posted to the FHLB, though the specific guidance may vary depending on each insurer’s FHLB member bank. Also, as discussed above, the method an insurer uses to purchase and hold the RMLs may impact whether the collateral can be pledged to the FHLB – for example, holding RMLs through a joint venture, partnership or LLC generally means the RMLs may not be posted. FHLBs will also have underwriting requirements that loans must meet to be eligible for posting.

KKR brings deep experience managing residential mortgage loan portfolios for insurers, with a focus on high-quality, well-underwritten assets that align with FHLB collateral requirements. Through our dedicated mortgage operations and oversight teams, we provide comprehensive loan-level reporting to streamline the pledge process. Our team can deliver reporting to meet FHLB requirements.

7. What is the typical implementation process?

Timing will be dependent on each individual insurance company’s infrastructure, internal governance and other factors that guide implementation timing. Below is a high-level summary of topics to address during implementation. After implementation is complete, deployment can be paced based on a client’s preference for putting capital to work given the substantial size of the mortgage market compared to other sectors where deployment may be more measured.

8. What differentiates KKR in residential mortgages?

Residential Mortgages are managed through KKR’s Credit platform, which oversees more than $250 billion in assets with approximately 250 investment professionals and decades of investing experience.

The Asset Based Finance (ABF) investment team is responsible for investing in Residential credit and residential mortgage whole loans for clients.

Below is a summary of KKR’s differentiators in the residential sector for insurers:

Broad Insurance Expertise
KKR has managed insurance assets since 1976, with insurance capital now representing our largest client segment today. Our 100% ownership of Global Atlantic provides strong insight into insurer-specific constraints and regulatory considerations. This unique positioning enables us to apply an insurance-first lens to all investment decisions, anticipating industry needs and delivering solutions specifically tailored for insurance portfolios.

Established History in Residential Whole Loans
KKR has been investing in residential whole loans for over a decade, purchasing more than $27 billion across various product types (Non-QM, Investor, Prime Jumbo, RPL, RTL) for Global Atlantic since 2014.

In addition to the investment team, we have additional servicing and asset management oversight through K-Star, a wholly- owned subsidiary of KKR. A subset of K-Star is solely dedicated to provide support to the residential whole loan business through servicer surveillance, data reconciliation, monthly cash management, and performance reporting.

Built Residential Business from the Ground Up for Insurers
We have in-house experience in building a residential whole loan investment program from start to finish for an insurer – including trading, operations, reporting, accounting, legal, compliance, technology, portfolio risk analytics, and asset management.

Captive Platforms
Clients benefit from KKR’s sourcing advantages through captive platforms, allowing access to loans in a competitive credit environment and the ability to tailor the credit box to fit clients’ risk appetites. These platforms also provide information advantages through comprehensive diligence, underwriting, and execution.

Extensive Network of Sourcing Partners and Servicers
KKR has established relationships with more than a dozen top-tier counterparties and nine servicers, enabling seamless market operations and providing economic and knowledge benefits from these partnerships.

Acknowledgements
Christopher Mellia, Alicia Winick, Shreyas Kolavennu, Andrew Phillips, Mitch Lee, Angela Pflug, Vanitha Milberg, Allie Baretta

REFERENCES

¹ Spread to Treasury Curve; as of 08/31/2025

DISCLOSURES