Earnings call transcript Q4 2022

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Operator

Good morning, and welcome to the Principal Financial Group Fourth Quarter 2022 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 Humphrey Lee, Vice President of Investor Relations.

Humphrey Lee

Thank you, and good morning. Group's and Financial conference year Principal call. to fourth full quarter XXXX Welcome

related are today's website always, to As materials call at available investors.principal.com. our on

Dan Insurance Q&A Strable, Halter, and Following and the remarks. Solutions; call reading of Pat Others safe Global Solutions. Littlefield, open provision, a Amy available Retirement questions. for Income the Dan will Management; CFO, Chris Friedrich, deliver will CEO, Deanna for some include U.S. prepared Asset harbor Houston; and

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

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

goes the effect will Dan? of accounting for X, Thursday, plan call outlook unit March is guidance. to X, XXXX business It quarter targeted quarter include or insurance impacts guidance, first XXXX with Our XXXX into supplement. financial which fourth contract long-duration the our reporting. will release recast scheduled LDTI, March we improvements enterprise term we Wednesday, On and for a share where XXXX longer and

Dan Houston

follow an results, as will on on on and morning, LDTI. and year we quarter everyone discuss full current Deanna on Thanks, achieved our XXXX. milestones our strategy, update highlights position, fourth with well will XXXX Humphrey, I details key executed with as financial additional fourth along year financial in full quarter our the XXXX from and the call. we to and capital This as our welcome

balanced we with portfolio XXXX, In more one higher a on and forward, XXXX more our capital in efficient growth to to progress our guided made asset of continue focus management retirement, growth, a commitment return to towards a path our outlined and goals our environment. macroeconomic shareholders. in This successful strategic meaningful a We've invest execution drivers protection. and capital and challenging despite long-term global benefits

during universal was reinforcing profile. In to up commitment overall secondary we and The share agreement our to higher our our repurchases more while and portfolio built fixed milestone risk to capital January, capital a guarantee of deployment strengthened reinsure that transaction higher with the an a capital shareholders excess focus life stock XXXX key billion U.S. $X.X We common strategic we on with return, and pandemic growth, improving May efficient announced returned to in have strategy retail rightsize, on blocks our into dividends. our business. continuing the return in insurance annuity closed and delivered through evolve

taken have continuing growth adapt deliver to and the and strong revenue shareholder manage our volatile We've uncertain and actions of environment expenses appropriate for total while invest pressured with continued needs to customers, the serve return. to macro our to

of Starting full or non-GAAP share. on we $X.X reported X, billion $X.XX earnings, diluted Slide per year operating XXXX

strong result macroeconomic environment. per given earnings the X% pressured variances, over significant share Excluding increased a XXXX,

and quarter total billion the $XX out transferred reinsurance $XXX $X.XX pressured Unfavorable Slide operating share we the was non-GAAP on XXXX with AUM as equity earnings and company quarter. billion income per reported of throughout transaction. $XXX the of of fourth X, million second fixed in AUM. managed We ended diluted markets As in shown part or XXXX

strategies. income remained growth stocks investment strong, X, performance high-quality which specialty Slide The volatile on short-term throughout focused favor the Turning XXXX was our on performance of style, our long-term our as is in impacted investment performance markets out to fixed for particularly year. investment of our much

volatile very the generated flow. cash This of and cash positive company full flow. positive included This outflows billion we asset across was of during a During billion net a net year result than a industry. total pressured managers, $X.X for $X.X managed flow period billion was and higher XXXX year net $X cash PGI our of a strong

total fourth $X flows estate experienced quarter value negative other diversified institutional retirement The our we income positive retail and and cash customers typically cash was fixed net in is and institutional, Fourth by net platform flow real of as PGI both flow specialty quarter was quarter driven billion. RIS-Fee. flow the highlighting retail cash during channels. asset to cash XXXX distribution across the company strong outflows equities, sidelines. our managers, the Net for to negative the in moved Similar through

seeing positive XXXX, momentum in for Early the equity which While timing income pipeline funding meaningful institutional The products fund, our likely mandates market impact which special new volatility our will are we can with are of real fund for quarter. start to in the commitments several second the our year. expected of we estate of clients. fixed when have first strategies, the in half committed healthy, is and

we provides for business top the relationships. expanded continue integration acquisition completed as provider additional new growth additional drivers year. The the highlights revenue-generating early solidify retirement In us and a in and to with we as our distribution capabilities, XXXX. position our to opportunities Retirement, of Turning the some IRT

lapses account at one-third single, low-fee Roughly providers quarter typically contributed negative change as of related was lapses the contract a to with to net assets. case principal often plans end account quarter value the no is lapsed the highest year. the cash value fourth of flow large for managed in RIS-Fee quarter. the The

anticipate our ahead of cash net pipeline. positive Looking the we in flow to quarter, sales first light

with a the wage and block. driven well year inflation, XX% XX% employment strong strong company XXXX. XXXX, in increase throughout legacy participant and were matches was fundamentals by as total to higher incentive on a underlying of as increased our The deposits growth Retirement very increases Compared compensation. deferrals, recurring business This full

X.X, with in we advocated. the to passage businesses future a expands also of U.S. plans which SECURE great opportunities financial the retirement and retirement the access long-term improving greater security for for in savings savings We creating This legislation for bill overall, market saw Americans.

of its While employee long-term it support in as expect take employer have will We're this already from an cost-effective more for retirement. small immediate to workers applaud better market for the in plans. matches leaders on drive its our the plant to will as additional SECURE save retirement deferrals, thanks business. will and that time start-up readiness and increases to uniquely in and We're focus formations growth X.X, help impact, won't benefit businesses positioned bill well we in all and which participation for and midsized new options more support

local Outside on and growth leverage the we our management focus into compelling lean capabilities continue where with markets opportunities established global U.S., can we and asset to partners. local

the strengthened years and Pension minority these partnership expand company. stake accretive Both This Southeast grow expected XX of our fourth and wealth with in time. Company, and the During asset pension the CIMB market-leading mutual more extended ownership than a immediately Asia. acquiring management, pension in existing to opportunities be Bank fund of partnerships is closed with end over Management at our distributors. we quarter, China the And with our we Construction management transaction year,

footprint our we to of International. integration XX the Management than Management, serve, In by and with increasing in Global continue Principal Asset unify demonstrated more we launch investment across Asset October Principal markets

offering our continue XXXX. to expand in specialty We

recognition, have it's work year year. a doubled Principal create lending Management once its of the direct testament As XXth an the and to employees deliver by their Money Place a committed this results positive team our been pensions This to the Management our and Asset Work in for earned example, and has in foothold investments. and throughout our increased market is culture again the to named capital consecutive we Best customers. the middle

Record strong retention attracted businesses providing in expanded new In growth XXXX. strong to Benefits share. our medium-sized in Protection, serve evident relationships customers, deepened our employment and throughout customers We to year. and the the with retain we sales, Benefits on focus delivered results and results. market business and The attract Specialty prioritize employees benefits our existing is small

In business. momentum Full new XX% guidance the over exceeding year-over-year, end increased with of fees from top sales coming early and premium range, our compared robust net Benefits, continued growth year XXXX. increased to strong a half Specialty with XX% of the XXXX in

Individual Our diversified business owner continues drive of insurance. focus in Life our results solutions on to set and

plan hit of COLI model. Approximately sales. Full of record our our record included these were with the market business year-over-year. non-qualified customers, sales year levels growth highlighting This XX% sales business XX% value integrated retirement up

multiple higher delivering resulting strategy, transforming We’re value. our and shareholder businesses, a forward our in increased portfolio go on

our our balance We sheet our have risk intensive. de-risked portfolio, and capital reduced less

competitive our our while all sharpened shareholders. more higher investing markets, business leveraging on focus have our We advantages growth in and capital returning to

presents have long-term XXXX challenges, and its achieving line targets. While of own our sight financial good in a confidence we Deanna?

Deanna Strable

I’ll current Good as quarter net losses billion, and contributors Dan. to position, the Thanks, the the morning performance an to share call. This our reported was the principal full billion excluding of was income to with million. manageable attributable year $X.X income $XX from businesses Full credit financial well on for year, morning key $X.X our net capital LDTI. as everyone financial year on income update for exited full and

of income, credit net non-GAAP was $XXX excluding businesses million losses. quarter with $XX million Fourth exited

reminder, funds a value the the and income is change by of driven embedded from in derivative. As withheld non-economic is the business exited fair the

capital volatile Importantly, free and it can be doesn’t quarter-to-quarter. impact our cash flow extremely or

quality diluted share positive $X.X the operating $X.XX year had per per credit We or sheet. $XXX quarter. share or of million including earnings We also during balance the full the diluted further in year $X.XX billion fourth our demonstrating drift reported of non-GAAP

Excluding significant per this or $X.XX billion $XXX share. or per variances share, included in $X.X the full fourth earnings operating $X.XX diluted was diluted quarter year million non-GAAP

partially to we X% from share earnings. Compared customer repurchases offset as per full benefit XXXX, strong and was share macroeconomic the increased on growth pressures earnings by year

virtually during DAC slight Encaje had pre-tax net basis, than offset amortization several on As significant income. performance a detailed and American variable XX, higher Latin a than expected the quarter. earnings fourth investment we more non-GAAP lower on from positive impact Slide On Brazilian than offset and expected variances inflation lower benefits that had favorable operating

$X.XX million after These per and had impact non-GAAP net $X of pre-tax, diluted $X reported million tax, share. positive a approximately operating to earnings

for While income investment returns, the expected and prepayment we real estate alternative lower experienced fees quarter, positive investment was than variable sales.

quarter XXX from X% the from fourth of S&P in fourth quarter and continued of quarter on our XXXX and pressured businesses. full fee-based year basis. in X% a XX% volatility earnings daily XXXX, the decreased third average The Macroeconomic the

negatively performance XXXX the and into approximately heading AUM, returns outlook, values, expected XXXX our margins lower. we earnings year. than This lower RIS-Fee unfavorable daily S&P to market were and and the XX% in full year income the was PGI impacted XXX Relative year average fixed account revenue fee XX% throughout

negative and XXXX. exchange to foreign manage enterprise immaterial It fourth have compared pressured the to periods compared to earnings of was pre-tax $XX full negative by took from a actions expenses as as million previous was third rates the we macroeconomics. pressured a for $X during the year. reported Headwinds of the we quarter Throughout quarter of million revenue XXXX across unfavorable XXXX, fee operating

the Our efforts expenses million fee-based fourth off, expenses on elevated XXXX were expenses of of than quarter approximately despite basis, in lower other full have severance the variances compensation significant than and across year the excluding paid businesses restructuring were $XX and X% X% XXXX, quarter fourth quarter. and lower a

expenses took growth. naturally actions to and like variable to while the compensation cost, Some incentive continuing other other we balance for expenses reduce throughout and adjusted investments year

XX% the As to to fourth see X% typical we in first a this quarter average increase didn’t and three result, expenses quarters. relative other of compensation the the

to throughout of and fourth end the fees year. quarter, as following performance, margin the offset significant fourth below revenues from the Turning quarter improved RIS-Fee’s which full the results in synergies more year guidance business year was comments by pressured and the variances. benefit exclude net the on than units, expense IRT market but unfavorable

interest margin for offset guidance track synergies pre-tax and in the short-term the the the business revenue we’ve million end expense investment XXXX. well $XX and on run helped of income, reinsurance to rates million rising exceeded impacts RIS-Spread growth more post-transaction of year. $XX full are in XXXX, the realize Favorable a our of and the full than Through transaction. from realized benefit growth rate net

of million and our $XXX for throughout year. We quarter. of guidance year sales PGI’s first end billion was low $X.X pension in than strong macro XXXX, remains transfer XX% pipeline risk full as head significant at the in completed we very more into The headwinds fourth the the range the pre-tax including PRT the margin quarter. despite

And earnings XX foreign of was in Principal were fee fee remain regulatory throughout International by The as XXXX Mexico masked operating stable. growth overall reduction pressured headwinds. basis in business underlying pre-tax rate the the points management and exchange approximately

On In XXXX. as Specialty year earnings operating a stable and full This currency over Benefits, record Chile. operating sales growth Brazil basis, XXXX maintaining increased both and employment expense and over earnings retention strong was premium strong fees growth increased year management pre-tax the well with constant by and full disciplined X% as ratio. in strong a while loss fueled XX% pre-tax

it macro to $X.X prudent due liquidity, uncertain This the in XXXX ended XXXX. We above remain financial targeted we a the felt and be despite was and capital. is volatile of position environment, as environment. available capital heading and disciplined volatile to Turning to with our strong we into levels billion excess

approximately $XXX million targeted in above excess estimated $XXX $XXX capital in XXX% billion year. end $XX of included at risk-based subsidiaries, holding This the million be the and our at XXX% million the of ratio target, our $X company, million our to

to Our at is within leverage ratio targeted XX% XX% range. our and XX% low

financial the macro volatility experience necessary of through to flexibility, manage have and uncertainty. We time this and discipline,

As shareholders common nearly and X, of billion shown more $XXX of we stock billion to on million dividends. Slide XXXX, repurchases returned $X.X share in than $X.X including

to also billion. towards our We million year $X.X reduction M&A $XXX to approximately deployed deployments $XXX capital million full bringing debt and

million share stock shareholders In Last quarter of payable XX% dividends. in and dividend $XXX a $X.XX we to we of night, dividend the million fourth announced common our in than $XXX $XXX returned common stock repurchases with quarter, the more payout million first ratio. with targeted line

to maintaining continue and life and head on the at approach a our as we both focused into capital and will targets disciplined balanced with deployment a capital and XXXX. holding remain liquidity We company company

liability and quality good fit high is a for portfolio investment Our our profile.

an XX% The loan average debt X.X loan commercial service value very portfolio to mortgage ratio of is average coverage of quality an high with times. and

risk We to our liability high sectors, and and manageable exposure management. have diverse a and and have alternatives disciplined importantly, are long-term asset other we liabilities

the details slides. available portfolio of our the are Additional investment of appendix in

the goes a in LDTI As first effect reminder, into quarter.

free this cash results. it our on doesn’t economics, Importantly, change our or flow but capital impact our generation have will underlying an position, financial reported

to X, a line. non-GAAP $XX annual most moving The a reduce release approximately fees, the will our our the by quarter This net generation change to before fourth geography hedging outlook total on related XXXX capital corresponding earnings recast on an position. flow variable fees cash company We our is of operating free the no supplement plan night March basis call. or below to notable annuity to earnings impact income, million the with operating impact some

call. will will be will consolidated impacts segment upcoming largely our In earnings addition, during a offset that outlook More there level. details to at shared be

management billion in XXXX the equity have as as with on today, nearly here at interest completed to positive and slightly approximately strategy XXXX. Principal stockholders’ Moving to of strengthened XXXX, of the transition impact was a will of equity, of and executed where the AOCI. January as the XXXX mid-year, they expect LDTI our of we the risen approach. Sitting significantly capital the transactions beginning were total stockholders’ $X.X fourth all we from impact by be of decrease our quarter of transformative LDTI from impact reinsurance equity the year as from go-forward for adoption X, rates deployment

benefits and enterprise asset the value. drive long-term on focused will retirement, management global growth drivers protection, growth long-term shareholder and our We’re of maximizing which and for

prepared the questions. Operator, our call for remarks. please This open concludes

Operator

Sandler. Barnidge your with with Piper first question proceed Please comes Our Instructions] question. from John [Operator

John Barnidge

morning. that a Fee please? more color comment and viewing managers wide employee was the business. how Principal approach you maybe staffing the assets. Can you enterprise in much, very with maybe Other Fee about and discipline count reductions about Thank PGI severance expense has on in given asset lower talk announced in have levels good and No. you’re always there down severance expenses business,

Dan Houston

Yes, you. good hear from morning, John, good to

we in my with is goes and every to Pat expenses as this at day, credit month, high and align something revenues, said comments, prepared quarter, to every our every and Kamal level, Just a I do for where not about he’ll taking think what within places to their steps demand. I talent but we’re investor meet talk investing, in build is discipline to we’re And PGI. also only right-sizing, adding capabilities organic out again,

please. Pat, So

Pat Halter

Yes, John. Thanks for the question.

operating bit below very stage, was we’re margins on quarter as lower clearly investor to aversion tipped generation. of maybe So as the fee of highlight little the And which the as and terms a saw just and XX.X%. you focused of operating XX%, fourth in set third risk kind terms is in pressured mentioned, quarter XX.X%, average of the in that margin Dan in volatility, down resulting from you AUM

management, expenses. focus very expense to purposeful on as to way a and quarter suggest, we revenue think you managing those us expenses, our team very terms clearly sort as the in continues required aligning align we very, And revenues be disciplined challenging it’s with given our think about the fourth that, management We really absolutely and organization. of, in of and those marketplace. a the And

We’re looking at are I producing that frankly growth focused contribution and the going revenue continue very to think, be, organization. activities not on to for

very focused sure in focus terms of very, our proposition. our main and interest client our we I well. management clearly want serving That’s expense are staying to on make clients

can that for to we’re continuing revenue think, it’s and continue and long-term maintain sure is make very our absolutely we So are important. the John, that long-term, on we very to our organization. that investing challenging to that, But invest to teams highlight also I be focused where teams growth important,

going to on be shift capabilities to and to as on of we shift we’re desires. to their going also be we in management, investing need as talent continue investor talent in very expense terms so continue focused be focused of and in very where but capabilities that we’re So interest relevant terms

going to That’s very going continue growth to to distribution is to in our further growth our We’re important we continue important also. to forward our private which which going invest have, very to and we’re capabilities. develop our investment

that want centric we’re growth we So team our management about make sure is that. continue to the really to – on focused going I highlight to do and centricity

fourth of the million we expenses In expenses, $X severance around terms had expenses. of in severance some quarter, the

For something very conscientious that’s around stay X% make the terms expenses to to are of were that very obviously for that up of a very growth, year, year-over-year. ability focused on margins. level be but continue our to invest we in expenses And in our sure those to reasonable continue

Dan Houston

John? help, That

John Barnidge

helpful. It going the venture. Thank is impact talk pension news very about prospects you And about to January early follow-up Thank my Can you. how in question, maybe in your exciting that’s China? business you. joint

Dan Houston

John, really for so Yes, that. thanks appreciate out, that calling

expanding excited China We’re about with our Bank. relationship Construction

As China JV. retail part XX-year four included you a the including pillars by with and adding is Construction way asset China as relationship know, funds, of of all we’ve scheme retirement that had Bank, and so the management retirement

retirement asset I look that in the opportunity, said global will against Principal’s as establishing again, As we earlier being comments, a deploying accretive and player resources along transaction positioning with be management. to forward and the

question. So for thanks the

John Barnidge

for the answers. Thanks

Operator

comes from Morgan. question. question next with with Jimmy Please proceed Bhullar Our J.P. your

Jimmy Bhullar

morning. Hey, good

the on had asset So management in first business. a just flows question

are – what question extent maybe overall over are then for a by affected the had your past quarter a flows in in performance asset a your about the of of outlook facing contributions flows pressured business year? matching environment? in what’s what’s rates, talk that you obviously retirement that the terms being but on retirement getting I deferral this flows large little because can managers of worse similarly versus to And the they case, your and outlook lapse feed were If the environment just the the current in business

Dan Houston

income, But I and great a the minority very again, capabilities. just share in on us that, strong and I way the Well, we respond. we as reflects around a appreciate how level, a is do Pat will funds Jimmy, you I’ll which do high retail of this. interesting it think which management on knowas have and Chris of of the But lot we that, that’s a I before that’s particular overall asset cover fixed report, maybe Morningstar actually have And Pat and question. that. performance demand that’s high at our what’s both very in

buying confidence outlook just have out pipeline positive have because been on to third commitments note then of the the what’s have sophisticated today And made. there investors most manager – the that, secondly, performance, actually a And we in and it’s themselves. some strategies very the that in some quartile are and they

long-term a therefore strategies performance. the between come correlation to the strong. turn but yield it very having spite of cash performance of growth there investment bit out a favor ours maybe flow, know over in, must you in remains net not are But think I a So of and one-year like performance instances I our Pat. where I’ll commitments reminder, that, With find

Pat Halter

a start fed, to fourth a a seasonal typically, of maybe in always the sentiment off and of But waiting of challenging, related even growth just the being about because is experienced with the quarter. the It nervousness quarter. basically Fourth company concern. with was positioning and inflation, quarter fourth sort challenging their concern more portfolios that risk earnings. investor was challenging quarter. the it Jimmy, the economic off we that’s path of Concern of very sentiment around Yes. about

was some reasons, of sort to off tax management this the risk which base accelerating focused period. addition particularly in this So on offset investor sort of capital holdings mutual their of in gains impact the amplified, in fund being for

in in have equities business. fourth seen our the in but unique we’re They not mutual result a as in industry withdrawals So outflows that. definitely And also of also in were we sales, retail definitely lower but saw elevated predominantly, quarter. fund income. fixed We

But markets terms pipeline have much capital deep slowdown I estate fourth We of activity. in that time also real committed we rest the estate. in very experienced a of in the assured a deploy in But think, the capital into strong the quarter. of conditions, I real in did first investment Jimmy, not given as we fourth new market for quarter, new

Just And framing, terms net a of a I that’s very strong continue flow flow the think we cash cash net net for cash a in of for view flow for year, to are trends, pleased managed see this flow of $X.X the we to from very XXXX, billion. flow net $X for $X.X that And cash up which is Jimmy. billion, full about see picture. cash around better billion about net year,

to longer So we beginning some becoming, our I see, of I in think particular the net in tone, the change in expectations more sort positive generate we of markets. Dan, continue terms both flow. think, to definitely fixed think, seeing equity strong ability of term, income we Investor toward sentiment. highlights in behavior year, I is a cash are as a the

terms think in [indiscernible] I of investments I that think, quite terms equipped the I one going in income that. area is And of prepared think in and towards think, the (X:XX:XX) well, to well we’re flows fixed be, I

think, some and and We have on fixed of those investments a debt, terms quartile continue estate preferred I income are to emerging we’ll in in have, where three first yield see performance. we fixed great And the debt still basis. of think and investments, market flows in income five-year the credit Morningstar it’s private performance where high the very strong all one, space lineup I real

to we’re our investment of terms think the of I attract in continue terms positioned as in with ability well of to forward kind performance we that XXXX capital. So look we I think have

be performance it you our of is at look to our absolutely that capabilities. I’ll our second performance relative toward. we requires have estate to are talk the, We’ll to like, be direction probably about our And of we us money But orientated, on the really because more absolutely half motion when trend need to the definitely real a evaluations. some just type of deeper I ketchup little to (X:XX:XX) bit in terms more in in seeing think that see But list. flows is suggest Jimmy focus investments we investment

in is off-season capturing we have lineup which at quite shifts of positive look So the point. very sentiment, constructive, to forward I strong and terms capabilities think a investor investment in the this

Dan Houston

Chris, Pat. additional highlights some RIS. Thanks, on

Chris Littlefield

Jimmy. Yes. great. for the Yes, Thanks question,

opposite the we've So the outflow a lot. as plans indicated Dan quarter as similarly come us sales for on. first the as we as I effect think quarter quarter in the fourth And a mentioned, past, in high is change see

thing other fee managed when have on plans the of volatile assets, in that quarter flows, that plan, side can we billion both withdrawal institutional The that low which noticed certainly with in a was quarter, none $X I'd And Principal. and saw those in single large and fourth the be we lumpy by side. deposit were large which about

the business also in how mean, it, we the fundamentals I look volatility. underlying and I as talked we So saw flow investment mandates. doing we're we've of definitely think that but management about earning net cash is Principal at lens, one

significance segments. of quarter, focused how we're assets very We to earning healthy. profitability And throughout if came fewer XXXX at look revenues, who assess in existing and we seeing IRT, we Principal have managed are good trends on we're in all managed increased changes significant driving saw from investment customers over investments out from all mandates and the which fourth very winning Principal of across

we If $X cash over year, the net historic in XXXX. for flow SMB SMB was look looking at billion full for strength our at flows, just

value trends. number see So we receiving and If dollars account up market. deposit are up, Dan participants healthy mentioned core think are the recurring the of a up. deposits also match number with fundamentals, recurring of number part average The participants health we look of participants are The in deferring I our where the up. of at all are that match

trend the that trends be inflow quarter, again, healthy and seasonality. It continue. there specifically think quarter us. respect for we We a first tends will do see to higher So to with

to flow We due expect quarter. positive in net sales higher and deposit recurring to trends see first healthy cash the

So feel overall good about the overall business.

Dan Houston

lot there. that of detail helpful? a Jimmy Was

Jimmy Bhullar

you. It helpful. was very Thank

Operator

comes your proceed Please Our question question. from with Kamath Jefferies. with next Suneet

Suneet Kamath

Thanks.

on think capital First question, we about as just XXXX.

talked are earnings? as about sense of you just under having some of going I for and your know you But it's maybe next a of LDTI, just in change that. to maybe capital. under thoughts but help return a can couch with in managing your it all give terms comments could capital think us I Deanna percentage accounting us current construct year, what if the you prudence

Dan Houston

please ahead. go Yes,

Deanna Strable

talked plan Yes. more think capital Outlook, XXXX I'd Suneet, can color our go what on kind to at but to we've deployment what about. of you we back is say I give

income free portfolio We given continue bars of is how very of cash think of to deployment organic businesses good feel to really a that flow and our capital. to about high net XX% relative percentage we XX%

rolling excess into slightly we as capital that go clarity we go more are on throughout we environment. deploy to we'll as a economic year the assess get over We as higher whether and the XXXX

about that I to discussing forward would how that's So think more March. in look But it. early again, we

Dan Houston

Follow up, Suneet.

Suneet Kamath

that big jumped company, it. Got have out I not for I $XX at larger just of it's overall just one little did decent impact Yes, the RISV think a than I percentage was – The certainly disclosure. thought. LDTI million but me the a bit is or

annuities? RISV can variable – just much how So earnings maybe you could from just of tell you like us if come

Dan Houston

Yes, please.

Deanna Strable

we and we because and the hedging to isn't a we the gains of has aware, income some VA have I our that would contributed overall performed business of disclose. where you're is, as the managed knew basis That net something billion fees and consistently $X losses block very there Yes. That that say franchise. about was between differences always geographies We've What do. business. well retirement on enforce

better process, non-hedging As allowed we we've hedging fees years been between got which the information many, that went for to a LDTI us we on fees. working split many the through and

there's though those a across where consistent of the treatment losses think we this as of a even this and go. And better is hedging gains as not peers, alignment well those fees

in forward. of And So franchise. that business, that'll of very contributor given key part we've VA think approach. again, be our how well a our It's we to performed a our franchise a ultimately we a like retirement retirement to part going managed it's continue disciplined

we that the some offset an is earnings level mention items we by give do our see much enterprise in just we some I is supplement the impacts at you fourth in did it, – You in that DAC. the they we though other offset impacts when night actually to The positive virtually before think level. million immaterial what March. LDTI. is Outlook do very impacts to such but operating reason quarter include to RIS recast on Call impact, clarity enterprise didn't impacts Even the our enterprise didn't of we to other ask with want plan expect early see those We at negative life. But a more individual some $XX

Dan Houston

for the Thanks questions, Suneet.

Suneet Kamath

you. Thank

Operator

Our next your comes with Tracy with question. Please from Barclays. question proceed Benguigui

Tracy Benguigui

some also capital I you. have questions. Thank

came of range. the on in would XQ buybacks, with it what depend third in I the shared So that in in you quarter. us market the quarter and than $XXX of market lower did say conditions recovery million you later mean, buybacks level came

up your in catch annual should year of is, to expect shareholder? we to for billion plan $X.X question XXXX my below coming to $X in the for billion So

Dan Houston

environment Hopefully with and incredibly clarity. conservatism, I'll economic matter provide going appreciate these how good understanding given additional you volatile in. to are businesses a that, just This a this it's matter with Tracy, can we're But of ask perform. that Yes. being prudent of isn't a Deanna question. it's you

Deanna Strable

fixed we it's daily about Outlook. obviously I billion think to go conditions and underlying averages market would've year. throughout we through of $X.X important and obviously $X.X the impactful back in level that as went values saw we of billion to underpinned included that income lower as outlook macro $X $X pressures went contemplate range And XX% year, billion equity our to as lower. than billion market were the that the didn't at And XX% what be Yes, been think that

excess I capital results, our our the – just of holdco billion look in year and to at year. fact you $X.X actually virtually you billion the that the end and think if our relative at which million look to billion fast $X $XXX even and $X.X if at lifeco, range, was forward full the to that

again, to deployed at would've billion. to been and prudent, the XXXX volatility $X.X be Dan's the you we back made that comment, on we and would've If the going uncertainty given decision

is the macro flow. that pressure of that businesses that pressure year and on those range, while macro So that within free higher through we capital level saw a fee despite the have

be some our into put free fourth the you materialized when we say you about ended to Obviously than place timing capital go as see in the that going to buyback we're plans thought capital when and excess we actually quarter. what flow during So there's always of I'd XXXX continue prudent. as higher your quarter, slightly year thought. between share we But

positive end. as the mentioned, got actually were toward more the And you throughout quarter markets

Call, So and But path with more capital. capital XXXX. throughout will management what Outlook to we'll talk we'll things that to XXXX well, capital consistent on and approach it of as down deployment bringing there is seen we that. go a continue our level excess If you've into be move about

Dan Houston

Follow up, Tracy.

Tracy Benguigui

just remember recession scenarios on are what touch thought upon $XXX losses even didn't about? a to I with of you type year, you thinking about Outlook macro, your Yes. the credit impairment and this of end may and million Call, million back sticking of risk And enter at pandemic, the XXXX up materializing. this the $XXX that if one you we shallow onset

Dan Houston

to terms frame Deanna, Yes, outlook? that in our for you're want of correct. you us

Deanna Strable

put into Yes. there, A couple things Tracy. perspective I'll

it into The our first different is pandemic. thing say the went would balance sheet I is than when we was

$XX we billion billion to is first thing away. the So, saw reinsure $XX did you'd

see amount to just in lessened that the so relative the losses that. we would be And would drift a on credit dollar perspective, impact

make well ended with we that that our income a I'd liabilities and here look with a say we that across very highlight sheet balance year slides quality and actually net we of in gains But We can drift a is amount XXXX. dollar color see it'll high for modest on go capital. more you to range of thinking on we $XXX sure million impact. the capital we go think a very that do we'll our today, more also XXXX to if And back today. obviously very And continue full think update have forward. you We'll today. when our as to that we manageable continue very and very, that portfolio or also give impacts you sit fit point but so that to you and positive investment normal very losses level gave as we little here you about sit of

Dan Houston

the is this questions, Tracy. been do positioned sort the it feel to about portfolio. environment. time for of Even weather challenging We Thanks challenging quality that good truly in a of really

question. the So appreciate

question Next please.

Operator

from Our with with Erik Autonomous Bass Research. Please proceed comes question question. next your

Erik Bass

Hi. Thank you.

could And deposits was a of seen recently outlook announced seems large like I we've as for well terms layoffs in you is So affects your more from this of number from clients? this talk you’re companies employment employers. of both benefits about what trends as seeing premiums? hoping your specialty and it how retirement coming recurring

Dan Houston

January of individuals employees was make ago large Yes, actually under than Amy if X.XX of in throw that to SMBs I’ll actually cut of Street XXX to hired more and quits. since gone had employees you and try And time Wall on period they employers February of XX, of it XXX,XXX will, in already it a February the to over high layoffs that million and XXXX. was to the a net businesses Likewise couple then of level had net they And have you XXX XXXX, back up jobs. I couple Erik, it. weeks picked provide had comments may seen but Journal

on focus really is SMB. not And not on professional the Our around is really of truly is our one retail, Amy experts it around businesses. it’s hospitality, the

get So business? it a make well. Amy, then the Chris of side our to comments on retirement impacting maybe how’s we’ll as couple And

Amy Friedrich

Yes.

When our again, an look surprise block in conditions. kind no be to So, nice well this, perspective. and at Dan, our about you’ve employment talking of block, going performing growth job, done there’s a really the we is from broad macro

of So, seeing is growth XXX pointed in what we that and kind extrapolate employees, small we’re is that holding business very employment up the terms it XXX would to under is Dan out, of really employees. that strongly under what sector, the larger and

growth in still growth that We’re employment that X.X% in seeing marketplace.

employers facts are our has message So, will small, hiring. small and have been I the keeping employers think keep been hiring

mid-size, we look at just it back I’d does So, when to consider sort what begin taper heading that, into of little bit. a the

noticeable So that X.X%, deterioration. that, some employees. instead to employment X.X% closer it you’re you something that’s X%, definitely that the to where X,XXX mid-size that XXX we’d Once is pop in that employees, X,XXX let’s call see of seeing above of

much benefits. skew block particularly note our jumbo. But less, bit that a would to we’re just begins in Again, don’t because as group that I Now, what segment, tell have we for towards in and you of sizes us little does is, really larger not impacts the X,XXX is as seeing hover those X,XXX that mid- having on still jumbo seeing around pronounced employment as the still are ones employees, we’re marketplace. happening even

Dan Houston

the Very Chris, SMB to helpful. add anything space? on

Chris Littlefield

I mean, similar. I very Well, Think the very, are trends

large watching and jumbo markets head we XXXX. growth we momentum as and small-to-mid, So, see into in the good for we’re and the

Dan Houston

Very Erik, good. follow-up?

Erik Bass

capital. Dan, follow-up for just there. on It’s caller one you thank the

a $XXX just the $XXX could I a It’s a a about drivers quarter, of implies generated of hoping earnings. the talk is about increased million growth this bit than quarter-over-quarter more think capital about excess Your million in little capital $XXX Deanna? that the which you despite deploying good, million, XXX% quarter. you

Deanna Strable

Yes, end do a comments. bit couple just little cash tend We the to of free the year. flow of a see better towards

just we But returns of up did. our the with the and focused of get right holding is businesses, Some we to continuation saw amount we dividend on that due a really of in movement unregulated capital of could of that just all and when capital only capital. again, more good we really our when some deploying trends actually that businesses of some

to quarter that made in flow. makes year a that then quarter, seasonality higher that And to so make some coming free million quarter deployment $XXX little that relative obviously is pleased into obviously the again, deployment fourth did toward and the include there cash We very that M&A. fourth approximately earmarked that fourth bit we’re had but

Dan Houston

Is that Erik? helpful,

Erik Bass

Got Yes. it. you. Thank

Operator

Thank you.

Our with next comes question. Please with from Goldman Sachs. your proceed Scott Alex

Alex Scott

declining some earnings low, all and the I sensitivities sensitivity Hi, two the income you may timing of strong you’d things, quarter My net always and sort there’s net just income morning. overall standpoint. benefits fairly and disclosed interest up. the and, me from a to of not also is pretty know, struck it’s that from net up components then investment in when AUM match But sort rates. the but good that, lost rates first income sort go to a investment question on the of as investment two get it

how as fee can that expect like are rates spread unfold retirement what I that What elements from are to degree retire the we and within want rates So, to that elevated? – remain continue should from in just underlying benefiting understand the here? to and in business

Dan Houston

Deanna? Alex. Thanks,

Deanna Strable

relative Yes, if I’ll RIS then to anything on business. some see Chris comments to add of has and make lines

you’ll revenue fixed assumes that income of obviously see is start So then first up, kind very to interest continue of all, some that at to give we to some PGI. both think pretty that muted impact overall it on in I see trailing in basis important values that negative get kind kind of that the a sensitivity offset yields that And a you start RIS months. rate the happens impacts the understand is our the benefits trailing then that and XX our to cash and invest to beginning. see go that pressure see of XX-month new We money, you as

in transpire the saw fourth third as investment at equity our it’s that investment joint the earnings business the because the it it’s of strong of as And partially you in due was to flowing well. of kind obviously important it I again, not net dynamics in total method inflation, venture, for there’s our when two was fourth do that you quarter, we that out. variable One through then think income to Brazil you negative accounting also, Brazil I look compare line so as did quarter in point is to company And dynamic quarter. last see income quarter. want and

rates. So to is, kind you starting then to higher what impact of take part are out. some the from you’re interest getting need And you to see that

is You’ll we’re higher see a investing rate. earning that in money our that new

some on and We’re going is to we’re also what what because on earning that see of increase we’re in earning benefits you’re from PGI escrow rates, treasury seeing that. cash,

credited it’s some gets do is that our that our out out, to RIS, customers that in in of income increase to investment you I back then in especially BC&S think important line. point see

But business fall And are I higher as line rates. bottom of the I’ll about there. think those those that, bank trust see from interest RIS, doesn’t the levels so to benefiting and anything it But in businesses you to to if are think specifically the add Chris that has

Chris Littlefield

certainly I spread. fee at it particularly step No, think do well. captured look single are as blurring between RIS seeing, post of you business together, fee back and mean the is we I we I think thing to IRT the and spread a and lines

the offset managing diversification we from and returns when of those The with see interest the pressure helps so get rates get resilience that spread compelling the we down from they really by And businesses equity markets. the businesses short-term lift together. benefit

and So, investment rising rates fee. rising business retained we saw rates, We our we in saw saw definitely in spread. some growth yields higher in short-term

really equity the during was is open close The of which revenue drive was account really returns. up performance net X%, strong overall quarter. macro beat some separate to driven, And the largely about which helped

So, for the I think explanation that’s quarter. an

Dan Houston

follow-up? Alex helpful. Very

Alex Scott

I to second helpful, very understand. thank Follow-up, annuities had, was go make back to I that you. a variable Yes, just for to sure

below all they’ll particularly, associated cover is be that Is be to enough put that cost of that attributed So, relative below that you’re when fees fees included some compare this attributed fees line fees relates the and those as at or? move considering anything point LDTIs attributed one? the and hedging, took should to below that fees, under about fees with there did actual are being the you you the to about it terms the dynamic the of so to and sort below and unpack, I line how that’ll thinking of, you of that line, could portion in how riders the it the a it

Deanna Strable

attribute much how the cost exactly the process we that – the through coming hedging to to is business of relative of fees the and relative fees much it manage of we that how actually that’s us fees to Yes, Alex, what how you LDTI, talked went other of non-hedging more of aspects to product. allowed those are is, about the

gains that And that line hedging our charge dollar losses. those capital losses quarter-to-quarter then gains that we’ll they move the hedging offset we Those so stable are costs, will line. again, down our up and in the more below customers amounts and always pretty realized have shown the for below and

had So ours also things have nothing adjustments LDTI market or exactly those talked to and arisen that out types It geography what with attributive of do really really, of could it’s any was just that value of fees. you about.

Alex Scott

Got it.

Okay. Thank you.

Dan Houston

the for Thanks Alex. questions,

Operator

KBW. with with your Our next question proceed comes question. Krueger Please from Ryan

Ryan Krueger

Or a into from actually I seasonal are, look to expect some fourth good expenses. assume of down on decent didn’t fourth question still think I expenses, quarter forward? come more G&A that XXXX given I and given consolidated as higher XQ have Hi, action, quarter? guess going like is have took that question kind to morning. expenses you my a the that the on just should level there things we normal impacted the about seasonal is rate like, we run that forward

Pat Halter

and don’t incredibly to on like and the expenses to to this, opportunistic a are Deanna same said growth. out the a starve sure be making earlier, businesses say would Yes, some and don’t liner look time say would except our as additional revenues taking full we I we I like will XXXX simply continue, just Maybe at Dan color. handle it, we’re going have crystal what expenses to for ball be but about we while disciplined always to invest to going with looks add

Deanna Strable

did things variance, did remarks identify had couple we say there, because severance about not seasonality and did significant the in in we say you not quarter. of normal partially a that as We restructuring we mentioned, that again that quarter $XX [ph] fourth a materialize. our our prepared I’ll Yes, saw, cost expenses of million as

overall our we severance fourth to in be. there, quarter wanted expenses with what were very actually even aligned so cost those with them And

obviously little We it was every as quarter, go into in a but we in elevated severance bit we have more quarter. fourth went the

kind resets going lot in said experts expenses our parts, as the could you compensation XXXX. is having continue about have into right? go have to ultimately some But of on of part a I One some our As moving expense to think that and enterprise. all of XXXX, of that, across focus increase an incentive our moving of we’re we

the You realization make as of out progress macro, our our have through highlighted exiting also of with costs and to business alignment came us retail as our the business. lines well stranded we kind of annuity the ULSG trying very as that continue manage the synergies revenue given but RIS in you’re good aware, of to on fixed

macro aligning sure, we then long-term line with again in right we’re added efforts actually both the of ahead the in thought at slightly we’re those, the while where be we continuing point. to also make would growth. On to this have we to drive pressures And investments of to make

hard it’s really to going we macro’s good to a as January. go where And obviously so, had really say We’ve to start be in.

in be at with continue net we’ve comp align revenue, to testament to in change to and is and know all we’re make we we continued look volatility and is our think our we fourth year, and you aligned you think do of alignment. pressure I full going can is revenue. see which that other if period sure I to expenses there’ll quarter very that done both change Whereas what with volatility think in that is any

Dan Houston

helps. Ryan. Hopefully that

Ryan Krueger

investment property provided continues to just Follow-up Thanks. that on that – appreciate looks, look mortgage the loans portfolio the very give in color downside, on I extent the LTV to slides. potential maybe the any particularly updates on favorable. I value office? what commercial just was reappraise the to, detailed and you guess, in you Can I you’ve reflect portfolio. the guess all attempted

Dan Houston

having really at commercial Yes, portfolio. goes team, additional his Everett, again, for high Pat, competitive to constantly very color? and put a quality together that Pat Todd credit we and and look

Pat Halter

Yes, Ryan. Great.

of are our environment bottom question, follow-up mortgage always to portfolio in understand investments. portfolio think perspective, make commercial of and we a absolutely Sort what each we macroeconomic fixed is sure the really interrogating our one that from to doing I our up income

what XXXX. fixed to So, mortgage very and would have commercial environment perspective we income its resilience believe be we our our a for portfolio relative disciplined and position both up to recession to bottom a

the to terms I continue mortgage both of up But analysis, analysis material now and we you we see income to sort sides The of we portfolio portfolio our office down top imagine very, already you do but hold area top very our strong durability mortgages. also a right commercial on our that take sort we is the think the and in the very of both we portfolio. the bottom of Ryan, well on commercial that up provided, model stress continues resilience of and down, of have investments of of highlighted sort the extreme some vigilance would in

we up analysis, portfolio. loan-to-value continues top That as about well. coverage occupied. service loans has office XX% $X.X billion a We there, hold X.X sort quite bottom our times. for portfolio and our debt XXX even of about in office our a have up to do down about XX% But our It’s

not terms part or overall as strong of of very of in we’re for that of as properties any are And problems the be giving up portfolio on back go But tenant how lot seeing XXXX, we surface doing we’re office that a space vigilance into sort lease major yet our bottom much to rollover, on some portfolio Ryan. imagine, markets. will to analysis us maturities, you our the again, a continue scenario but of in can

Dan Houston

Thanks, Pat.

Ryan Krueger

Thank you.

Dan Houston

Thank the question. Ryan. Appreciate you,

Operator

Our your Shanker Bank next question with comes with Please of question. Josh America. from proceed

Josh Shanker

very you thank Yes, much.

extent to side. Jimmy’s quickly and but funds see lot little of on strong moment assets when great by that funds institutional a how portfolio you’ve Morningstar, Can in out? in a I the you bit not done up probably retail question, retail are the the you from a results the get of results, work on rated understand following flow Just about the the talk and Morningstar as flow lot you aren’t

Dan Houston

and it I were because performance lot large than new mentioned that’s of attention. some have actually wish seeing we it a third Josh, cash flow as quartile easier net sales is,

is So the difficult. correlation sometimes, very

the not a clean me. up lot You’d highly and is, for to you Pat, do correlated, with given can favor necessarily has think they’d be reality time. they’re at But but what’s correlated that its in any

Pat Halter

five terms to at because are relative and advisors, gatekeepers, to makers, well complicated how utilized not take they such also investment that benchmarking Morningstar inform since one in of to managers. three are just portfolio, they’re at looking of the clearly, session the Josh year is our our as things looking terms their They’re individuals at, pricing performance; other decision the style, year, the really year it’s actual and capabilities portfolios. gatekeepers investor Yes, performance. strategies looking approach more in in investment doing But

of of in mix things look performance. that In terms to other of portfolio performance overall of diversification multi-strategy solution their construction, outside there’s of at a lot terms providers

direct in the X in versus from have correlation Morningstar to relative capabilities, because of a of no a toward continue advisors but there nuanced So Dan of you have as as cash our just rating suggest. capability And terms terms mentioned, it when performance eyes to of Y correlation of a between doesn’t an of evaluate is informative capital it’s in a that net to very really sort timeframe It’s flow. much sort us more capability. away direct for important to it’s movement a as is the to

Dan Houston

Quick follow-up, Josh?

Josh Shanker

these or the fixed styles side, mandates about given or Have about for views institutional recession seeing whatnot? are that inflation the strategies winning you the on in Yes, fixed you in side? any you’re views change engage on that given changes

Pat Halter

it’s great too. follow-up Yes, really of sort

some income interest, and strong fixed right XXXX yield. and now auto the real seeing particularly We’re blocks high side

We’re seeing private again interests institutional and continue market investors. debt, from also private emerging a we debt see pivot to toward the space credit

institutional we’ll and including So real capabilities continue income the a long-term investment institutional the right And now. investors classes, debt purposeful engaged from space. are private I including investors estate think to alternative and trends way in very clear, in see fixed very towards

Josh Shanker

you very much. Thank

Dan Houston

Thanks, Josh.

Operator

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

Dan Houston

of to We historically. on not your our call. reduced excess for Yes, outlook follow-up taking on transformative and valuable XXXX that was so investing they’ve have revenues year. a to our thanks share did much. continue those get you XXXX less expenses the about for time We’ll shareholders. capital chance apologies team intensive portfolio, Thank and our part more growth joining today sheet, and call and managing a the are From perspective, been drivers, will Q&A. out Thanks We’ll to returning focus queue to we our accordingly. in to for and his be guidance again, March our de-risked this Humphrey balance day and long-term the and our X outlook businesses in capital of

Operator

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

Principal Financial (PFG) 31 Jan 232022 Q4 Earnings call transcript