PFG - Earnings call transcript Q1 2018 | Principal Financial Group, Inc.

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Operator

Good morning and welcome to the Principal Financial Group First Quarter 2018 Financial Results Conference Call. There will be a question-and-answer period after the speakers have completed their prepared remarks. [Operator Instructions] I would now like to turn the conference call over to John Egan, Vice President of Investor Relations.

John Egan

Thank you and good morning. Welcome to Principal Financial Group’s first quarter conference call.

to are related website on materials principal.com/investor. at always, today’s available call our As by change boutique mentioning quarter start will I a in top Page PGI the financial to the AUM on by table of XX. supplement first our Asset approximately the Principal Income AUM to from $XX align billion X, better income resources and the Fixed fixed Fixed Edge EDGE of January team Management Principal Income Effective as to capabilities XXXX, joined Global a boutique. Global result move

CEO, provision, Then Harbor Houston Safe Tim Friedrich, Amy up Luis the include of reading Retirement Income deliver Solutions; available remarks. Insurance the Deanna U.S. Nora CFO, prepared the Others and Investors; will Investment Valdes, session Solutions; we Dan Principal our Strable the questions. Following Dunbar, and Chief and open Q&A Jim International; for Everett, Global Officer. call McCaughan, some for will Principal

Reform that the not reflect statements filed uncertainties with U.S. and subsequent company’s Some the implied Private of Securities contain may or recent new the forward-looking to Litigation The comments call made meaning in Exchange them changes to of the conference actual Form events discussed or cause those company update this expressed Act. company Risk strategy. or differ materially are on report Commission. most by in results the within XX-K information, during from Securities could revise does and the

call non-GAAP financial found presentation. the may maybe U.S. Additionally, Reconciliation and to earnings financial comparable during the the conference our release, refer measures GAAP some of in to non-GAAP directly slide most comments this made of measures. supplement financial measure

call Now, over I the to would to Dan. like turn

Dan Houston

on highlights for This the to welcome follow deployment. some will on with our Deanna will positioned continued us financial Thanks, results details capital that share accomplishments and John call. morning, and I growth. and everyone performance

Principal. year a First the quarter to start was for good

reform. first delivered record and businesses investments expense our This We growth, non-GAAP due solutions business operating good oriented reflects earnings, continued balanced focused discipline and execute to million, be growth to of our we basis, $XXX exceeded At and markets, shareholder protection strong in $XX tax and customer is the capital. good our retirement assets law leadership Latin reported Asia, strategy, a AUM in underlying increase savings global $XXX effective rate to and or deliver under non-GAAP lower stewards On XX-month quarter and with a XXXX. compared X% U.S. a our asset tax America billion billion benefits XX% across Compared year and long-term trailing up management. demonstrating and earnings billion. management, the savings, a $X.X record operating in group strength long-term or U.S. retirement to to ago,

foundation the integration by solid revenue not but and and type, our earnings investor growth also period, for across asset and underscores also of in a franchise not by XX% provides increased billion Over report we a or to That joint $XX in the AUM venture China. management included is in diversification geography, class strong $XXX the units. same of our record business AUM asset it only This billion.

I As of long-term a China traction strong benefit reflect the it’s in continuously drive growth. investments the recent specifically, on to making great of reminder

during our the third-party best received management noteworthy we on fund Barron’s ranked some asset of eighth color franchise, families list additional As Principal again recognition on quarter. XXXX. Funds in

in Bloomberg, Morningstar from organizations, more Lipper. awards XX fund including best received than and we Additionally, countries

And X-year above XX% performance, trust performance median investment for above performance. or median the very traded accounts X-star XX% funds, Morningstar had rating. end, performance strong. At as a X fund slide funds, for of separate remains ETFs, or X, XX% Our and X-year for median on for or exchange were funds above collective XX% Principal shown level investment of AUM our mutual quarter and rated CITs X-year

cash leaving the at nicely withdrawals Global of and same and due another net RIS cash from Southeast despite and fundings absorbed. client the Kong $X.X awarded net to for they us next That of with RIS of XX market total hedging easily income A in rise positive outflows multiple flows to in And declined to flow $X mandate Asia. fourth us cost we strategies of loss billion to well And the the withdrew billion call. $X PGI’s continue billion softness lower pleased client $X primarily flows, delayed over the the PI different be including other due awarded billion single flow periods. cash mandates solutions. elevated of outflows was investment the in quarter and quarter quarter, where as net total from transparent for for quarter Hong some the delivered deposits positive billion on from net is record Investors hedging And $X.X quarter. positive we another half Despite net international of grade representing as investment for the as currency more cash negative its delivered volatility. strategy for billion, accounted over in single resulting to grade in rebounded be manage same these risk of of a to we billion retirement Principal first over discussed reflecting $X said, a quarter client results Moving there flow, credit new the during Principal consecutive assets time year. are can $X quarter institutional results a fourth flow. cost company

cost revenue offsets XX% larger XX% it investment is Quarterly of of withdrew, hedging annual mandate institutional new PGI mandate. from been pressure now. the less volatility and aside grade currency have quarters the than the for more the than several assets flows they While under

forward. our we will As to doing well some going improve what I color flows revenue and outlook are we what continue saying as such and provide growth future on are as

more impacted withdrawals growth investment has This deposit recent seen made for space lower and have pronounced even in demand the challenging. We quarters. options institutional become cost in

and expect this value demonstrate remain trend continue, for real the investment We marketplace. can strong to opportunities to that performance consistently managers but deliver

are doing billion boutiques. last our $X.X We over X positive of of We years delivered the flows at in least seven both.

We we see build strong our help clients solution interest continue capabilities downside specialty in investment address generate income, alternative diversify, and inflation. and as wealth, to against risk protect

Consistent revenue through these report AUM Consulting tend than but the asset and will Boston to mandates is in projects Assets between XXXX faster be fees. with higher Group smaller, passive XXXX. product the growth previous increasing. divergence type grow discussions growth other any with

investment alternative is from and specialties pure and to our XX% cost we investments estate growth active active and providing on solutions. lower other retail revenue that our CIT focused experiencing markets development project industry will passive to is excel. based and where over real and and emerging heavily The traditional platform This also they compete income However, of other our come solutions, international ETF capitalize strong and with compete outcomes platforms on product wealth this Distribution mutual period alternatives, options and fund out of strategies. build options creation. more complement remains

funds of as key ETF in traction platforms is with helping offset the I last starting some some In America institutional local China quarter, across institutional responding well execution and and platform. share quarter as investment solutions. platform in double generating and Southeast total first demand PGI now SMA, and retail pressure. Latin will more dozen multi-asset we its highlights our with As increasing gaining CIT to its to new the Asia, communicated a income launched for than

collateralized attractive the first surpassed product efficient asset placing provides of marks tables Principal XX we milestones the our ETF to borders, progress the In Importantly, and a quarter of U.S. $X quarter market, delivering our April. After in build solutions mutual bank and class. XXXX April league across ETF our ETF priced needs investors grade fund meet the have franchise of the ETF on clients. first for In platforms income make active Group surpassing we our loan access corporate in in at global of the continue billion billion to beginning end. our launched leveraging capabilities on top $X This to platform. adding XXXX the loan we Post at to the investment an to that investment obligation $X billion suite on oriented an our way Advisory local us

also on front. additional quarter savings digital their through change customers when We guide towards help to progress jobs the We retirement they the experience launched made retire. enhanced options digital or

advisors of of discuss driving kind Additionally, the and a among help benefits ESOP we business their its for planning succession website and U.S. needs potential business launched readiness. and employees owners retirement owners the to ESOPs first address to

in the and drive and more on action Our Hong eliminate are life and the DALBAR’s mobile management the towards investment app being Kong digital in points as reduce X Report in with solutions we customers and advisors. top to Mobile digital to ranking barriers award that come industry pain recognized outstanding and MPF for efforts annuity category, wealth InSIGHT

to earned to success Asset our funds in offer was getting we more than with selected with affiliate. a the Baba’s Ali Bank platforms on to total multi-product Ant third-party China than CCB XXXX classes. our multi-channel midyear XX Construction across different approach Principal payment different on mutual distribution, we the quarter asset the Management, dozen and more Moving advance continue platform, Financial venture placements joint during XX funds

and X billion million surpassed two we As customers. of of mid-April, $X key AUM milestones,

modest, we Clearly to platform While exposure expect Ant’s revenue time. earnings over billion key X.X the currently become to both today a impact is meaningful benefit is brand and more users.

private by final more our in distribution As highlight, MetLife’s the Afore acquisition than in increases Mexico market of our recent retirement XX%. business sales competing force one

approach deployment. more cover will to our capital comment Deanna on While balanced I detail, this in want to

strategies, addition to through than in than our $XX activities. more we we stock share to accelerated investors our buybacks committed our and organic digital business ongoing more million and and investment common In investments returned growth dividends $XXX million and M&A to

Before DOL the fiduciary closing, on update a rule. quick

interest the will which on in fiduciary of interest the on Appeals March DOL proposals and We Court workable, their best of pursued. happen fiduciary should fiduciary jurisdiction. in as As Securities Commission The you as best U.S. definition ruling validating standard of May, as additional Insurance recognition to I Court Fifth for broad the the for continue in of respective the share continue Commissioners and Fifth Association general exemption. early contract a including Circuit beneficial expect and elements work the is industry advice the could also remains uniform, to accordance. its some and will areas Circuit standard National a operate rule best Exchange believe XX, in interest all we and the rule, order quarter. and be the the Until investment enters of final delivered know effect we

five just companies make For the financial eighth the of as time, services Ethisphere Institute most to in Principal of one companies, named list. ethical world’s the one

Forbes of as of employers named diversity best one sixth ranking for recognized. America’s Principal companies out XXX

Principal Lastly, time, for Association companies top the for women. the XXth the Executives National one Female named executive of of

just a build It We women’s our into XX In as of are are volumes the to our companies will in Deanna? closing, each to on a shareholders financial customers and that translate I to about us one advancement that was quarter These was long-term. and continue long-term we momentum progress stakeholders. for period and of its to throughout we year of momentum very positions. into be success. helping leadership company first of commitment achieve why XXXX clients and good successful start for Fame Hall look for who for continued speak longstanding value again reflecting Principal. to

Deanna Strable

Good for deployment. and participating capital I will key first you in morning our our call. update and provide discuss financial quarter I Today, an on thank to will results Dan. Thanks, contributors

guided start quarter Principal quarter. million first income quarter XXXX strong year Non-GAAP $XXX range or impact stock-based quarter. record was the first earnings increase the tax was the a from diluted of benefits of per quarter. increased year and XX% were end to the non-GAAP XX% of was the million, at compensation prior share of tax Reflecting rate to $XXX over with $X.XX first of prior treatment. The XX% and a a of effective This to due our XX% attributable XX.X% income our primarily the to for operating record operating lower earnings an U.S. in reform, state net XXXX tax

adjustment, for tax expect foreign range we ROE, excluding in While on be some translation a the AOCI the was quarter. the to for volatility basis quarter-to-quarter, year. other guidance effective first rate maybe within still the XX.X% full than currency there reported

million in Excluding the in the The from first XXXX was the impact expected pretax variance actuarial XX lower ROE $XX from performance International. improved XX.X% was quarter XXXX of basis review, year significant and encaje only end. Principal than points

significant higher expected million offset Penn of investment with included a associated higher As an total encaje and Treaty by a expected $XX variances the income XXXX variable partially than from reminder, assessment quarter first performance, liquidation. than

variances, significant This operating which experience XX% year our in reflects I total earnings growth and and these over Excluding discuss underlying increased the spread will non-GAAP ago shortly. company businesses risk favorable some quarter.

Looking at factors, market first volatility the macroeconomic quarter. in returned

X% average X%. to While during the the the close S&P daily decreased open increased XXX quarter,

this the prospective is quarterly of development. U.S. points the positive first As index for first XX-year a XX during treasury The decline quarter increased XXXX. the yield since quarter, basis

However, results. the a have higher for it time portfolio and some noticeable thus financial to takes yields on rates impact

mortality and RIS results Brazil Favorable unsustainable offset morbidity inflation Additionally, the currency and benefited positive interest impacts to and from and extremely quarter contributed specialty negative Latin quarter were foreign in spread by results. of rates first lower America. benefits $XX benefits, significantly business quarter in during million impact disability to benefiting ratio rates for lower Specific the each low and first and pretax. approximately specialty strong individual by exchange loss

mortality as As million. quarter us operating business during impacting on individual to specialty expenses Principal experience quarter sized quarter. in nearly differentiate ago group life, from a Total key businesses growth the levels fourth to within first expected in is expectations negatively focus In our marketplace. by elevated the returned year the an The to continues quarter. $XX company a was life benefits in the driver were small elevated reminder, claims medium results for our

Our accelerated track. first to from business expenses expected investment levels Total operating returned in fourth elevated quarter strategies in on is company the digital an quarter.

digital investment Our accelerated in business is strategies track. on

both quarter. results, and digital In impact year our in into expectations significant were account taking these my RIS earnings specialty beginning margins morbidity unit following International with for investments favorable exclude the pretax life throughout As variances I pretax in line our on comparisons. and with XXXX. Principal unit the business comments after line my operating in will in operating the earnings benefits were will periods benefits experience. the spread from also and mortality expectations to discussed, business previously Individual with emerge

spread, remain RIS the a pension For business opportunities robust in with transfer compelling pipeline. risk sales very

increased per prior the fee revenue, higher In As than shown business adoption rate $XX DAC revenue guidance higher earnings from Slide operating a quarter. rate including actuarial XXXX we Net impacts review. RIS RIS X% quarter increase expect DAC is the on amortization pretax due run and on third from expenses $XXX the X, X% year were in and X% by recognition the This of quarter operating previous run million to our fees million, in to amortization. $XX million higher in revenue down investment offset fee. the of

X% count contribution over up with fundamentals and business a XXX plan defined deposits to underlying strong. sales X%, ago, fees count RIS participants. increased plans X.X% grew participant X%, almost new or Importantly, remain Compared are year increased recurring XXX,XXX

the pre-tax X, operating year. of to lower run-rate. can in our for any year corporate $XXX Moving an management, $XX the million be expect expected fees $XXX increased management full and guided X% to quarter operating earnings from our investment within expense were growth business. period by be million range the we Corporate offset than in losses million losses Slide PGI’s and million, XX% prior given pretax disciplined $XXX to volatile in At partially reflecting to

year reflect guidance RBC RBC elevated U.S. $XXX million intend to tax on remains the to NAC our Our to keep changes the is ratio risk-based higher our and We ratio reform. ratio our $XXX estimated formula until provides range targeted capital above slightly of to end. at than million

ratio currently percentage negative XX estimating point change. this our impact XX to are a We from to

provide into During the and quarter, regardless between we economic of costs initial our ongoing financial and entered arrangements funds funding the XXXX are XX guidance operating $XXX split included not will These impact of and and million drawn contingent pre-tax unless upon. capital flexibility losses. access tranches. ratio and The corporate in financing corporate XX-year to for in environment reflected our were us leverage

debt structure. upgraded in recently access Poor’s & A-. senior unregulated S&P our increased from from Standard dividends BBB+ triple Additionally, to changes noted unsecured legal ratings to our

deployed on $XXX in share repurchases million million Slide $XXX quarter, capital dividends. million $XXX we during including shown XX, of stock As in the and common

XXXX. Principal $XX our On months. to planned a quarter, to million close long-term financial the dividend ago transaction increase consecutive commitment million strong target ownership a confident will in stock XX% billion of that track night, million the also margin anticipating capabilities. ability Afore two acquisition $XXX to remain and $X reflecting deploy Real payout real global scale. in closed Estate year and to are Principal’s Both take million XX% Asia earnings. This to transactions of with expenses has Integration of our pre-tax in management earnings business. and in Principal we will April On dividend in in Bank accretive slated is our we to a the Punjab been a closed our ninth second and MetLife’s to committed as This largest We AUM. in pre-tax from our and joint resources quarter our National XX, in we We payable ratio. second during said, Internos benefit we quarterly increasing renamed India. Last Internos, transactions be we will The the of negatively Southeast XX% and shareholder announced to Mexico Europe quarter Principal the to of PI’s value. dividend which ownership increase in are XX, estate the expands position progressing and Asset to continue of full That February from coming planned. as Management is capital XXXX. Company our fifth impact increase in operating acquisition our common Afore asset terms makes to ventures $X.XX $X $X.X acquisition CIMB on integration approximately

growth. we deliver to profitable sustainable Importantly, continue

reviews, delivered This to non-GAAP we have please prepared our from an of our growth Excluding operating X over the call impacts long-term compounded the open remarks. actuarial the and earnings XX%. Operator, years, last target questions. X% within XX% well annual for concludes rate

Operator

from Your question Jimmy JPMorgan. comes first Instructions] Bhullar [Operator of

Jimmy Bhullar

good Hi, morning.

So questions. I a few had

your fees fee it basis, were have were asset I on a increase less like they would have we flat sequentially, were First the growth the think up earnings overall on our business, PGI income market and weaker assumed, would the seems than but than year-over-year suggested. in

So I go secondly, just any had wanted that? see to ahead on then comments actually. you And if

Dan Houston

No, finish Jimmy. no, go ahead no second and question, please your

Jimmy Bhullar

So the a have back so basis this you other ended years. stock in quarter quarterly question than last share you was think I more buyback, on on up buying the several

buyback if active the or So price been did if is not quarter anything stock would because years? we recent should be more didn’t it you sure beaten and the then that stays price you the you you than assume wanted with if have to that in reason was more last declined down you that be and the because the proactive buybacks

Dan Houston

on It some me where might and again us on our would the how so stand second options on Jim for go in of on a share you income. we we about for deployment. deliberate complete good with expect. have income relative continued we to basis it deploying That third up options increased, of throw the feel let approach like was have then it opportunity we Jim dividend got nice authorization on next the a because again Board first quarter, all that will the is very that. to that, growth, I still felt deployment at balanced tuck-ins, would say the still coming the all we with weigh for Jim? got throw we Like have And to – So and expect With buybacks. looking And I May, Jimmy having steps the you good again we really in always hit the we buyback. all that as in there your question queue. our do potential conversations have good Board will share I pick capital, to second to and acquisitions up on which meeting PGI look at so fee capital the acquisitions, your to obviously But remaining capital to here will fee have we a PGI organic question.

Jim McCaughan

Jimmy. question the you Thank

the risk our contact, point first of as a out quite is Just lot quarter-to-quarter in seasonality to numbers. thing the

comes partly for of for the to profitability years XX% quarter. the accounting first tax quarter comes by revenues, of this the making typically process. to driven As also one by the XX% XX% the the on in and fourth year seasonality reasons XX% in guideline decision And in U.S. year, driven

tends quarter which a on to the fourth tend incentive fees, tends on first quarter. to The be fees. low bit very transaction be to in It low clustered be

XX% a would year XX.X% have in more increase of is progress argue takes measure quarter seasonal because the we of over appropriate ago profits, I in X% and or from that the management effect measure adjustment. fees So better that out the made, increase the

other was aligned don’t anyone think guidance. and at I have all what The expenses course can. I to But with are the that in first that, well we into but quarter but you past didn’t seasonal, this its wants a in if of the me said that is go disappointing thing

Dan Houston

that helpful Jimmy? Is

Jimmy Bhullar

business, I results should on the Yes. in reform but how it subsiding, call, not And more, if am Okay. talk half of into so then is gotten view to sure in the second XQ, reduced they effect as then little and the your…? environment think you your in drastic of seems better in election expect with we has sort is the what going Chilean Luis your maybe business that that versus are and pension one the the the a fees like well will I impact

Dan Houston

Thank you.

are we certainly but and pointed rebounding and they You really you four Chile respond. and but three might questions But and it’s prepared there, just questions relevant is remain is out in optimistic, Luis? as here Luis squeezed

Luis Valdes

new about Jimmy. names, XX there, Yes. Good professional, the very is always Chilean we discussion death have a question reform, pending, been that professional is which very technical, morning, very a so with its new very they direction. as administration the group in value in the pension fair birth and Good A cabinet. we since March of the say dedicated, working heading has created good – said in right discussion. good say very I people, would would names patience well, this I

So we are when of fairly outcome Congress. be there. very have happen we chambers, new might possible sort that little kind these kind of may to bill so optimistic [indiscernible] might about current that redeem administration factor of a going very it’s both the of only the the the have, [indiscernible] The might discussions is

process have be in of lot extremely to Jimmy. we that So a involved

in our So, to reduction lot fee attention discussion environment allows that, Above better but productivity paying to said Chile. benefit that in about we are to this [indiscernible] of a have the of transfer us result that order gains essentially have customers. positive as and efficiency our in you the the and

proposition continue keeping our investment advice performance. service, value and clients We customer to there and our financial

And a on in fee going a So as think a rate being in new continue very place Chile. about you And to X. fee July to you said there. can very be as that subtle fee we going competitive this certainly adjustment are is

Dan Houston

question. your for Thanks

Jimmy Bhullar

guidance? your a of your fee It guidance, of part was the part adjustment. was that And

Luis Valdes

sir. Yes,

Jimmy Bhullar

Okay.

Luis Valdes

neither Chile impact not margins reaction nor in expecting [indiscernible]. are is going this to our that in We

Jimmy Bhullar

Very Thank good. you.

Operator

comes of & question Humphrey from Your Dowling next Partners. Lee

Humphrey Lee

for morning you Good thank my and questions. taking

especially earnings in initiative to so XXXX a pose reform Just the understand fees, sort RIS to of on is impact supposed a questions pre-tax of kind basis. that related expenses, X% I this in

would that’s to probably pre-tax assume I closer basis. million a on So, $XX

investments top color think I on about fourth some figure moving of some And But it So, be provide of the going and expenses you be in to just the these like fees? talked in the and then of is if terms seems you expenses in the of quarter then RIS there was year? terms can of some just there have will was in stand out to additional first the you you for that pieces the in of ongoing the expenses where trying do some quarter in accelerated investments additional you to in this rest I wondering where be kind line quarter.

Dan Houston

am that. thank going – to going in is make are Deanna incredibly so Humphrey, broad am thrown I to that about Yes, before digital. comment the you these I into for we investments actually enthusiastic

are traction. getting We some

seeing know, fourth – are We with it as materialize the started quarter. in you we here

into see me made in first it very we here are We to regards the to am but and are well the I quarter to that, it progress with about starting let and Deanna. frankly excited throw specifics,

Deanna Strable

Humphrey. Thanks,

fee. work add if would specifically best RIS think what could our then Nora a I few comments for talk I is to about expenses in total the company and

have first different they first company the total, quarter I say I in thing expenses expected. is what were for into would than dug we significantly when so the And our not

growth investment this to to balanced long-term growth served that as to point that always up align the in business, investments well a have the our about discussed, very we talked in has those well because have also we in goal We on revenue, and to driving critical but with will it’s growth. continue us serve expenses us

it’s to is there think to seasonality expenses. recognize important also that I

is expense and be to quarter a quarter items little as to fourth payroll taxes first Jim Some due quarter of such tends compensation as bit be highest second variable quarter in tends highest to just PGI about overall the our our first higher talked always quarter and that well.

we quarter expenses the did were total If this state due light that in you ‘XX as of timing. to include would our And quarter expenses back quarter does of impact that – those include digital investments. go did first we to you primarily mentioned

first if slightly increase and time kind that in versus low much compares you X.X%, actually to net for I up a given expected a quarter, you expenses of in our a just tend [indiscernible], digital in we an of ‘XX even have ‘XX ‘XX digital, was higher but in so but quarter period, growth other reported fourth to revenue have net X% with see quarter net And investments look line at did first revenue first significant expenses first in more quarter due our growth over adjust that quarter. the Specific at in again but revenue quarter. to that’s comp in to look longer to would if some additional you on and quarter this increase the in revenue. this basis,

outlook the you on growth said X% we call did a expenses to accurate amount calculation would XXXX. in and operating we expect earnings mentioned, you As get a that about of that pre-tax to very might our dollar impact

first aligned we quarter year don’t emerge call. was the with and for The on is of you that expect full begin what different told XXXX. in throughout spend that different spread anything outlook Our spend we all than benefits the very to segments and will

are has to So, bottom with if it line expenses will talked aligned see like fee. I any feels the what think past quarter in additional she first specific our I and to RIS in comments the pivot have Nora we to about

Nora Everett

Yes.

excited that little that, PFG and Deanna very flavor Deanna’s well level, covered has in at to are repeat for So, give investments won’t we really both fee making just RIS to so the in you point but a the I RIS fee. about

That’s sponsor about participant want that’s at the talking planned about digital just advisors. our We we and planned experience are customer a also to with are we that’s level, talking level. have experience the at not that employer technology, but

say looking we at say are So, when you this we digital when technology. really or

excited investments spend, experience a critical confidence so of have that we to franchiser that our looked long have investing to top we business. give are are things going our We us line the leading that are and digital we bottom to And in audiences regard to line really around around, marketing for They and those really in back building addition both the continue game haul. growth. that with have number about the and so marketing really that the here lead,

Dan Houston

Thanks Nora. follow-up? a Humphrey, did you have

Humphrey Lee

Yes, I do.

versus talk about PGI? PGI, that I kind kind the we are opposed within but so as definitely shift on of of as shifting to getting looking bit little some the on is we rate the more that’s are bit, mix inflows of in year-over-year quarter-over-quarter Jim underlying for wondering PGI of earnings showing when fee improvement the little about I as looking kind of just from outflows at am the was growth AUM the gear how kind a driver can basis, a So at basis you management as of should a well I to suspect because fee think the pass-through, and some fees improvement the actually if on the going

Dan Houston

much Very those and a good there classes depends story on there, was Jim. Yes. asset

Jim McCaughan

places this And to the revenue Humphrey. back remarks with Dan his links the you, growth thank being well aligned Yes, in where some of happening. about us comments made is

the in. you money and If you a industry, seeing primarily is being management know lot hard very demand lower But active area look hit as are there not at pricing. of by players. flowing that’s that’s And the really into asset are passive we they declining core for revenue, the

know in last second and we class growth. this would get. are call about the that flows about yield, can year and have active Those go and I revenue in because back areas people’s similar In the of future mix. I strong bad high much hedging did in the that multi-asset back cap are We I alternatives we still far about really it’s so are when emerging more up a because probably where things because points and to feel was both flows. average small estate, hedging basis solutions quite felt And markets. effect I it’s is of of of the confident of interesting that And can mind confident costs. where that like like tough outflow how feel we and in are had costs. change actually quarter did we remark hedging case it decent I point euro a like way yen than first point. this I areas that And quarter real in revenues even at fairly specialties

and main I the not I flows, think would well revenue turn the are that – will Jimmy I we the with growth. point we performance. attribute again. have our quite a said about the positive that a business. I our the But Almost, growing yes, revenue that execution sorry the I regardless that in placed earner very mix have given management to is a important that we to flows So little main doubt make having think Humphrey, continue be are think asset here is

Dan Houston

for thanks your questions. Humphrey

Operator

of comes Research. question from next Your Bass Autonomous Eric

Eric Bass

and contemplated you. you fee may obviously Humphrey’s you the kind that with institutional to are to revenue guess the the for those to and picture I are on growth do to actions long-term XXXX those, revenue all achievable? are Thank targets those Hi. I questions on think for just X% pressures the in X% target taking of have PGI still so deal X% maybe the follow-up mentioned you outlook, start mean X%

Dan Houston

think that range, we We and do. anticipate say But things X%. advance we would X% they feel to actually I well We these are in don’t that in comfortable reaffirm. those still I

Jim McCaughan

disruption. and is environment passive exactly so The players expected, active Yes. industry heavy change is very no core playing for to guidance seeing we out difficult The the need as very for that. almost

Eric Bass

Got think or in this year midpoint equity remarks, to the Thank know there on about return then is impact X% on you. just markets your DAC should specifically on you equity market based about but guidance commented being the simplistic? I assumption the RIS XX% the could and to talk the And think moving margins the prepared of fee, XX% I of range you for it. maybe too we the

Dan Houston

look on which think think at you point spot-on. of assumptions I does the point don’t you X%, line. while one, Nora, get was to are our simplistic if you are we I to minus as the using would it basis. compensated quarter think kind wild a saw a the overly And way again the and that because we was that daily up roughly right the to that’s on was of this revenues DAC impact that all? add are that to at the on like an But have

Nora Everett

Yes.

look And in, we based regard of are is assumption on fall that account vast so line, portfolio, but at to markets, equity and on the value that are to revenue the our we given you baked absolutely and margin lift fee going the if confident clearly guidance. our majority with fee with based

Dan Houston

a follow-up? have Did you

Eric Bass

helpful. that’s No,

where So just X% of that would right to midpoint as it’s sort fallout? the

Dan Houston

Exactly. Right.

Eric Bass

Okay, perfect. Thank you.

Dan Houston

you. Thank

Operator

comes of Your John from next Sandler Barnidge question O'Neill.

John Barnidge

of Thank a you. and There have been would a the employment thought benefits wave that us. there post-tax wage in some inflation inflation for U.S. be reform,

of year? ticked businesses market to contribution so has sales are far specialty Given are positioning seems could the in about this up, you plans you different like the benefit it seeing that thought your that benefit, various can defined talk number you small possibly middle strong, how your

Dan Houston

Yes.

second maybe is So, to and might a place both inflation but it have think what I Nora base. itself wage Amy on impact on would a your and on of the is there what’s I that that the and that, is very Principal our say I from And we from weigh also from in – again we have point, have will start expenses? wage element impact credible

right recruit talent for – tends end need positioning. higher which it’s maintain it’s And to trying probably the changed it’s spectrum. that always go our tried have out the create environment, the true at that We the in us of most to with is our and and to true the true with be to wages benefit

a efforts into some situation. firms talent that’s of with Amy of have wage impacting that other scientist same of I that, more for Well, are to higher hiring believe with running So will people let sort come that digital with comments. me data backgrounds some throw and additional Principal, to has if our and

Amy Friedrich

John. hi, Sure,

a of this. on perspectives you give me Let couple

growth and think First the said small in is before markets. perspective are we there it seeing pronounced employment that I positive is, we happen and have still is particularly

market that those X.X% very in XXX who about number terms XX-month up were we isolate are less go when metric so healthy of of and maybe smaller employers for in-group stayed seeing growth, has kind trailing that a reform. employ So, cases post-tax in healthy that than even us, out employment to people that

interesting seeing market are of reform kind of the are is that we One we in a the employment. marketplace that is things full post-tax near

than more about in And us even past. so benefits we interesting new see have employers small they asking the

So that the workforce. there critical pieces about a leaning questions disability illness. of hadn’t really in looked be attract ancillary into those when disability before. that is long-term and can coverages can maybe short-term the accident those asking interest In portfolio benefits some the secondary add-on of with benefits also at they previously and a Certainly, interesting other

benefits as that what seeing about there That’s package workforce So, really extended really are Dan we is they for talked well is right to are get that competitive trying attractive out an piece. workforce that now.

Dan Houston

Nora, some additional comments?

Amy Friedrich

Yes.

why but up the growth account it see you our benefiting we the service in we are wage the lifting see participants, fundamental the value. match certainly, job boats. in just business, match strong all and fee up in – see from you their positives match, both recurring deposit growth, those which coming lifting including in retirement the also first so So, lifts through you time We see employers those growth this business participants which wage as X%, RIS with that for the not and happen in why from in growth, our full X% and quarter-over-quarter, particular, is growth see with job

Dan Houston

have you some think I Jim, here. perspective

Jim McCaughan

Yes, John.

of ago, you data as question we faster I much a from your Just the economy wage aggregate would the in the than economics of year a been are the very with for X area tell two customers aligned going we or rates point whole. X to saw that about up customers. have our comment for business looking view, small midsized the last And or years and

it upscaling that I fundamental also good of the small you proof and business I midsized talking shows rescaling, very shortage the shows think the are statement on think partly strength labor segment. a about phenomenon growing

Dan Houston

around business solutions a positive reform, if the When I area and nonqualified you actually again too. seeing comment owner in about deferred nice and it there growth it Yes, was where disrupted John tax follow-up. executive has by say have we are a before business disrupted been way an I last Amy’s think compensation

any follow-up So questions John?

John Barnidge

MetLife the months for since or much the are Thank in market? and the several material well hearing last your Could a transactions that what about that you for weakness seeing pipeline and Sure, perspective very charge would great. market as PRT from be regulatory you you talk in environment answers.

Dan Houston

so much. you Thank Nora?

Nora Everett

Sure.

I I mean we sales, both confident industry in light that on a expecting with transfer our know industry, we risk extremely pipeline our the So pension see this certainly is in the XQ probably we billion are of to billion $XX to year. $XX you but opportunity. the that business, mean see opportunity was as pipeline in little to close regard

regard record we year that because at of of this last softer looking that of and million in asked perspective. even that you million about regulatory last had don’t talked call. little be our where sales that that first $X We same perspective, quarter, to industry opportunities volume about space. number With that a concerns $XXX within type with on particular would from So expect $X.X year we from billion, we to have the

and processes reserved, lost are reserved oversight are we we have We around appropriately that significant certainly confident and policyholders.

to are place. that continue confident and we will process we So that reserve from But we the the perspective, highly from in place perspective expectations. monitor in have both that

John Barnidge

Nora. Thanks

Dan Houston

you. Thank Great.

Operator

KBW. question our So from comes of Ryan next Krueger

Ryan Krueger

morning. Good Thanks. Hi.

for was strategies yields First with much can these currency affected AUM at sense point? give how you lower fixed income this point in a basis have you question

Dan Houston

Jim Yes. please?

Jim McCaughan

few the the Yes. billion first in that money number The that lost client quarter. with we direct still is being a about for point made dominated by the Dan

XX don’t evolve in I have about very broad hedging clients choose of we you to is know, institution. can it. you countries. of know the What as just extent really what to we with of And in terms range know think that’s how currency

rising. time rising is interest same pinned countries cost. to rates see problem falling determined The rates of been really the U.S. for yen are the that’s those hedging zero costs. at Some as hedging that differential he euro will indeed That’s and has or definitely

like doesn’t say we are term longer investing foreign to wary There tensions in but look But accounting will their time getting or are really and there out So natural rates buy begins it. to U.S. economics U.S. have interest to what stop like I hedge would when problem, for that either advantageous massively investors look is big the in line. securities. a a choose about for securities I our be that their near-term of comes it’s to think the

about client So the script. Dan I concerned large particularly that to referred don’t the beyond that feel in

Dan Houston

we were of in Sure, billion. roughly egg earlier the think a comment again Hopefully, strategy. there comments to $X outside helpful? hedging that a is And don’t lot my Ryan that’s

Ryan Krueger

can And that Thanks. is. and other driving on color was Southeast more then you that? what’s materially give some up question It Asia flows picked

Dan Houston

about that. Luis, did really It do Yes. provide really we and insights. additional want excited are you some to

Luis Valdes

Yes. Asia, Asia much Certainly we Thanks that, in million clearly better Southeast in Ryan and Thailand, mandates. for $XXX is much, our about in for questions. activity are particular doing flows in your very pleased

very about planning very consistent have plans a Asia we our are consistent we a pleased fact. why. But the activity that with So reason and so XXXX very and it’s what for certainly that’s very Southeast been in of about strong Malaysia, in

Dan Houston

you, Thank Ryan.

Ryan Krueger

Great. Thanks.

Operator

John question Nadel comes next of UBS. from Your

John Nadel

everybody. really a are or from are what critical this the see internal even of deployment couple first Deanna, or factors for think questions, that about to the I the so lower end range upper from you maybe that move Dan still but range different you if the deployment factors wide, external of most of would that Hey, it’s I range year, morning I capital the kind prior have not years, is one the total know good that end?

Dan Houston

again payout have burst an the funding some we to that say has within variability of would know that XX% impact level and where net the income Deanna Sure. light is that yourself first shot $X.X to at that and Happy beginning of million then to leave to year, bit start it you of billion range. on record been certainly which have turn you the off we a want the on take to hits it impact $XXX at the

additional you we want risk in I really think here can is close business, accretive fits can up probably would on know variable the it’s end capital we going can capital. that but the can terms largest say in at the to acquisitions the again, pension make area and scale. be That’s that organic buyback and we of how one that. one sense share get in the deploy that there there, of to again transfer model. go I way as our of pretty and use if to growth, are We we would fill opportunity opportunistic we it relative with the in course and and internal all capabilities the around after it is

bit a good us more a flexibility decisions, wide bit making additional it’s think thoughts? give but purposely for I Deanna, So, to

Deanna Strable

Yes.

it hit think I Dan on.

end and buyback deployment different thought different valuation. would is really to to piece around within But the dependent I those year well tend maybe pretty easy obviously be share places volatile of the first or would have within and as the start great I is a history stated we that as that being quarter into range. of dividend the for think you the share on to would of to think be have estimate you than two to going that to more what other be opportunities be is probably at we would two tend as could what up be above buyback. year, a But long said Obviously, relative at beginning the we have going us cause that. the know and M&A items we

Dan Houston

have you do follow-up? John, a

John Nadel

where than discussed going Thank reform thinking business to you the group insurance or floated. that. days tax curious the was of for back answers to am do. I Yes, I the about sort first

the of actually first that, before seeing I pretty in that curious that quickly there group beginning is bit come it business sales sales through a would through that through one pass and the of and premium the I would you insurance think a after-tax after that to margins year are pretty soon? whether I already given such guess expectation or reform the Principal to is similar. pretty stay such specifically too little an look the was is probably rates for reform probably critical part just am

Dan Houston

on take that, your What’s Amy?

Amy Friedrich

because kind look the to at Yes. when this our is soon. It’s we year is business of And I bit a guarantee. of you on think I why group little Principal unique so about rate talking have business benefits am so a much comfortable too really X

studies quarter So move compared peer block, at maybe we some and appropriate lot more competitors single bit when the every a tend business quickly actively things really the and than to every re-pricing a health of competitors. year our and year our every looking into of to really doing of our are our we even

I accurate, their be their answers So, own think again block. can it’s but given

we little is bit renewable. again, So, early, have a a but of high our percentage block annually that

Deanna Strable

to John, reform. tax the thing impacts pricing there other two I obviously on mention would is is relative

think focused thing that in is the complex businesses is the businesses. most benefits from likely our that I ignore contemplating other are back requirements that would capital the two PGI you capital within and it of is tax obviously group benefited that the rate the needed that. a But the can and change the NAC our increase is to on effective lowering that one are are

tax to pricing, account about a but think we those to as just probably of into we group need this positive, likely we is impacts for those. of rate sure that the make we both with both still understanding really effective so benefits agree And Amy’s are not got take change. I comment net

Dan Houston

for Thanks your questions, John.

John Nadel

you. appreciate much very Thank Yes, that.

Dan Houston

good. Very

Operator

Your next question comes of from Suneet Kamath Citi.

Suneet Kamath

Thanks. Good morning.

options there difference of Is percentage a are at the in the RIS that is compares give new and point how this you us kind on getting? of you a big fee, then that passive to sense two? between of Just can those account deposits what value

Dan Houston

got Yes, specifics? that’s a good you question. those Nora,

Nora Everett

portion have a path. that has Yes. that have meaningful don’t – has always the And in I portfolio been specifics, but we generally, been of

passive So a CIT question, as on we And what flows – will percentage our go Suneet. was relative basis? of your into second and the Hybrid, up have

Suneet Kamath

of we comparison have business if follow-up versus the information? the was It before new can and don’t you that if

Nora Everett

really with flows we specifics we we give options, because you – can an passive product so the target strong account to Sure. extremely flows increase the we dates hybrid target value strong follow-up into but regard on Yes, that. see the dates in with and their will directionally the will underlying into specifics, our of within

Dan Houston

global if Yes. as a about franchise Suneet as at representative active, of will XX% a the just investors assets XX% example customer for are are look sample passive. of management under we

are to Nora a think the reorient looking at from the target coming strategies the it’s coming little you they it from, date look of is necessarily just are of at looking the are the where it, PGI you become They and question the cost. as revenues If vehicle numbers, a cost a active maybe touched providing our your in from have management passive. XX% manufactured that passive marketplace. I and know bit lower strategy primary being very revenues And X% on competitive sort And the CITs performance lower that’s for. pure a by active for they for are

platform in become half simply the really those like that’s passive to available third strategies plans an opposed the while are our So horse work place. being from option as going work the to those capture S&P a date into target XXX flows to first on because

that’s hopefully helpful. So

Suneet Kamath

of a basis, that as that I a markets returns tax-exempt why might almost guess not that haven’t that is some and seems I guess XXX(b) there a or but you of curious haven’t and look competitors I just just guys are And you is different where I XXX(k) reason sizes taken the does. participated it market? XXX(k), bit I of you second then higher little of might advantage XXX, be at about the setup blend there RIS be some it’s some is really those why at business, am be when I part my ROE think your across It strategic, the entirely that employer way in the question fee on to I think Yes. your little think of

Dan Houston

take to one? that do Good question. Nora, want you

Nora Everett

in we employer Suneet, the legacy sponsored market, in – plans from particular individual an around perspective. in in that tax model. XXX(b) a it’s we quite are priority the versus strategic space a exempt Actually Yes. active us annuity for But the the market, chassis if play

the strategy. our our we if certainly, entire not to is them. exempt But part suite with the and retirement So we tax that total bring about of non-qual or both the a organization, you suite, think DB

we can So non-qual the we the a etcetera. of one but you XXX(b) to actually tax tools, the but where meaningful that bring bring market as player are call DB the it it’s in and exempt addition and XXX(b) space,

the are the way. meaningful market exempt under pretty as current our sure we XXX market But in far As focus tax a in us not that’s market unique that for strategy. and for is a a

Dan Houston

just of get to guaranteed tend you driven the follow-up? the XXX(b) by describing have market moments. customer but investment gets of in couple, generally rates XXX it’s XXX. higher owe municipalities low speaks And one have not a the quick, if Just your individual just bit there the that always bid those deal. driven of referring if a bid up will. that by also is can may how quite be state-of-the-art about oriented is price, solutions. I into experience employers I you there a all for be we to was a comments. really fact The some talking investments a are it’s the Did buyers come tends to am or that account think around large. The These to little about keeping of revenue couple services. upon not you about lot kind recognized quite And sometimes annuities, a Nora that retain our I that in attract In have really the record assets try talent which talking as am And to to you other digital, higher options help or the that a based are to

Suneet Kamath

Thanks. alright. it’s No,

Dan Houston

Thank you.

Operator

question Tom of final Evercore. from Gallagher Your comes

Tom Gallagher

hit can being of for flows there a overlay currency absolute one mandate comment quarters? you little I at just but do how next quarters first for those on $X realized an broadly low outflows really startling net billion the are billion of have that from standpoint some highlighted Jim, know guess kind we of from do level looking before, $X couple high would but do the just that you I a of haven’t because fee, think seen the – you more watermark next out just playing I Good how and you we at see the PGI morning, was PGI, few you outflows risk, for of see you things over here, think just

Dan Houston

Please ahead go Jim.

Jim McCaughan

Tom. question the for Thanks Yes.

First promote it’s the a quite pretty thing of to some say that rich longer mandates. a with builds do incidentally, which multiyear is we them structures of and good carriers if see value up revenue strong are the term. pipeline pipeline think longer you including some for definitely business the term, Also

piece, feel So, I on confident. that really

are think positioned very effectively. I we

platforms. on confident retail I our think make should us the performance

Our in CITs, very remained year and last ETFs, others a million retail substantial, and quarter. year uses very inflows and change $X XX positive between first Act steady platforms the last had SMA of an

of that’s up flows by good gradual feel So, business building that. and sort I about very

Dan Houston

don’t down want particularly to and developed the currency very as go, world. come a hedging, a what in of I happens result make tight about prediction

enough strategies, to which likely that the the real cost. those and I all large that have yields, we income managers. current But high or is the that hedging have risk risk in is for estate markets, costs have from comfort hedged biased things any some have think return like hedging debt, a have absorb even there we we REITs, asset fact even expected still take high we I

you quarter but be bad going I promise to foreclosed. So, feel our want I this is cautiously that don’t to only optimistic,

Tom Gallagher

that’s Yes, thanks good. Okay, Dan.

all? guess and all? I think know on AUM, So, this majority what’s based are and do talk you how on it simple more is every much fee bit a fewer of broadly maybe talk like follow-ups vast – I day can at one mentioned the is bit that less bit factors I I little the compression a there that presume can and going I actually based a in down you in that’s quarter. quantify you But How but your my I about think per little on are quarter, of you there? can participant you Nora, fees XXX(k), think I revenue changing re-pricing non-AUM a see guess your XQ see about yield just you was fee

Deanna Strable

Sure.

vast two So, service got trend, between because the value value, having. more, we growth would longstanding talked our have Tom, X% amount at which to growth on of be impact see value, generally sequential sometimes tied portfolio and and so tied sequential so but noisy, look re-pricing. majority is revenue one. be to of a look we we at that’s the investment if not if prior is we be mix, asset drop overall to this small about talked but less X:X of overall to will sometimes Number also and has we X%, question quarter-to-quarter we business it at there industry impacting very been a we the to it and which your revenue your you product been full point mix, is timing, certainly where that you expect discussion gap that this will account saw if have but But competitive re-pricing not account number look to definitely days, some Principal, can is gap, was be you some this before, our fewer around account just this pricing, certainly have

So, The to the surprises extremely regard there is of growth the with strong. underlying business here no us to are results.

deposits, of see etcetera So, you lift business. drive this count, when is we what have extremely see there participant in see – growth the when you planned that that lift count, talked to that going you the is what’s strong recurring about that and

Tom Gallagher

Okay, thanks.

Dan Houston

your Appreciate you. question. Thank

Operator

reached the Mr. have end of Q&A. We Houston, comments closing your please. our

Dan Houston

Thank much today. your you. very questions Appreciate

to a Our lot needs approach serving of a it’s here, right performance I the selling model, customer other investment business are are And world. the love leveraging have our in thing shareholders. global the remain high are confidence strong I and we business integrated we be in we demand. value what focus is the that around and to going diversified model, the the does the to the about the much in on model that have still frankly of of and and really classes asset rest were in customers that the business delivering of model,

here and continue on you our Thank you. the will for months. long-term seeing customers the and of many to delivering next we to few shareholder look forward differentiate road So, in value

Operator

will today’s beginning U.S. international for is X, conference code replay. May and or The today’s XXX-XXX-XXXX in until participating Eastern for Canadian concludes end dial-in XXX-XXX-XXXX of the the XXXX. the callers. you day Thank approximately call for This replay is X conference This Time access for call. p.m. to be XXXXXXX callers replay available at call. number for for

You may now disconnect.

Principal Financial (PFG) 27 Apr 182018 Q1 Earnings call transcript