Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to the Principal Financial Group First Quarter 2023 Financial Results Conference Call. [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. Welcome to Principal Financial Group's First Quarter 2023 Conference Call.

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

our materials, our earnings details to addition In call commercial estate of we real exposure presentation. in slide our additional included

improvements are financial reminder, results reported long-duration LDTI. are As on accounting recast, our a or and results guidance, been available under now the targeted also have Historical website.

will the Dan Houston; Deanna Strable, Following CEO, and remarks. provision, a deliver safe reading prepared harbor of some CFO,

Others Amy available up Retirement open will and questions. Chris Pat call We Protection. Q&A the Littlefield, for for and Halter, then include Asset Friedrich, Solutions; Income Management; and Benefits

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

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

Daniel Houston

quarter call. details financial investment will additional as This and with quarter. some performance on I our will highlights the the current Humphrey, and well our everyone portfolio. on and morning, Deanna on details our position financial key for our Thanks, as first highlights welcome to capital of share results results, follow

of resilient on business during as quarter first macroeconomic integrated shown Our results. remains volatility, model strong our periods

and we economic credit pressures, While well a for of to market are conditions. variety positioned not immune we are

more than dividends. common $XXX during through in we to capital first $XXX X, returned shareholders Slide reported repurchase diluted share million operating the million stock the and $X.XX quarter. or non-GAAP per of We on of quarter Starting earnings share

We period in managed returning are X% cash year-end quarter capital currency. from equity ended deployment positive positive net as industry. an of billion our We XXXX, a total the company $XXX total by across the much increase protection. having of of strategy flow, foreign and retirement We diversified well to business, the benefits of and for shareholders. highlights cash business of This income benefits a growth and on impacts management, from model of integrated excess AUM, capital company the of with million generated strong a reflecting markets, result flow delivering investing and across fixed favorable as $XXX net outflows our during one positive and asset

of Market volatility diversified Slide X. performance offering. investment to underscoring the Turning on our value is

Our fixed are strong managing strategies challenging results, environment. income delivering credit through a

asset U.S. performance. equity been our far boosting so strategies in are equity strong their year, this alpha allocation short-term impacted performance, While international in X-year our delivering strategies have

additional mandates. companies to resonate with high-quality, invest continues clients, winning Our approach to high-growth in our

of equity received ratings silver key have several funds. also We Morningstar gold for and from our

with our XXXX industry we portfolio, below estate Turning investment well there credit has manage We been completed our credit The as about in reinsurance like leverage our investment confident and further actively decreased financial transaction exposures. risk account on to asset investment quality since intentional spend credit have our by XX%. a of exposure and I'd general increased is reduced the profile. our global the This average. and portfolio our crisis. been Slide our which market improving well focus moment our liability lowered in investment commercial recently X, diversified high-quality, to portfolio on real We're aligned

with XXX leader billion than estate have through estate billion over We experience, more of third real we investment more than of for more decades a $XX Today, nearly cycles. global different of experience real which many estate assets, parties. market X X decades real $XXX professionals, including managing are of than have XX

decade, high-quality concern stress in on standards last the our stress banking we since sector We've the we Over reduced also in the have proven of has appropriate segment, which office our producing mortgage as particular. be commercial substantial move coming enhanced global exposure to properties crisis, withstand cushion signs underwriting severe the has saw office a for as portfolio this raised portfolio financing with financial a downturns. in to recent

management transforming financial strong and risk us delivering a conditions variety and economic to market cycles. of positioning in track investment been teams a the performance and of portfolio, diligent have Our record weather

Turning additional to for some quarter. and growth drivers highlights the our

continue net and positive growth employment in activity Benefits retirement participant with We reoccurring in a and wage segments, net in across basis. up particularly retirement, on deposits U.S. midsize business. strong and growth Protection segment from cash the to to XX-month sales small we XX% generated the strong all with our flow benefit trailing In

fluctuate for the and year. quarter-to-quarter, and rest good our the market momentum, we pipeline of lapses can have large While sales is strong

on and segment drive very growth. holding to the of durable to contract net quarter up XXXX. Benefits cash and growth, is low well market SMB midsized in lapses contributing focus a with our small deposit to continues Our the XX% first business flow Protection, reoccurring strong and And increase compared to

employer footprint distribution net flow Over million in Asset growth, positive retention PGI-managed $XXX employment a record In for has was and to premium cash growth the the continued Management, and quarter. first benefits. broad are fees midsized geographic Specialty produce above-industry demonstrated XX small our sales, contributing continues last strong to experienced to our of and strong which Benefits. all the market months, in

benefit including and negative date, for many capabilities, business from While investment in we value to income the target our flows guaranteed active integrated products. continue model and managers differentiated hybrid were stable quarter,

while generating from flows general retirement business account. existing customers We are from and winning both our new

institutional we specialized forward, we As credit, in active estate. private with global investment strategies real involving and opportunistic investing debt and income engagement capabilities look continue investment see clients to in

Principal million execute These the value our joint Kong well Brazil, leader which cash customers well deposits the we key we about product we as in line, the I'm We as and across building very confident in lie strong drive channels and Specific the our our shareholders. growth leadership of cash market right as pension AUM, right a excited for flow. continue our Hong flow Bottom market were on have net Asia, to International. focus also mix, to to opportunities strategy, drove relationships. venture and Mexico market Southeast are right ahead. Deanna? and we distribution quarterly flows $XXX upon net diversified Brazil, remain

Deanna Strable

contributors to on Dan. Thanks, of our investment a in to $XXX attributable portfolio. to I morning income everyone quarter. an current financial Good negative call. performance quarter, on will the for net financial and and our share Reported This key Principal update million morning, capital details the first position was the

exited was Excluding the $XX drift income with losses. businesses, from million million Credit in credit positive $XXX loss was of a the positive net quarter. slightly

$X.XX variances, despite $XXX levels first XXXX. a AUM million or pressures strong per macroeconomic quarter share, Excluding diluted during non-GAAP on earnings result operating were significant

value diversified strategy. the As of Dan our results business highlight and resiliency first quarter of the focus noted, strength and

primarily variances diluted variable Slide earnings Mortality due after were significant RIS pretax, experience offset model of The tax Benefits. investment lower-than-expected a Benefits true-ups and Specialty RIS were per $XX by and significant on approximately variances operating on As in million detailed non-GAAP had impact $XX $X.XX to and in LDTI share. income our in net Protection. quarter million negative mostly XX, refinements first

our estate year. VII income investment the As total sales. in long-term real prepayment have first macro rate returns, a was expected quarter. continued discussed fees VII due than estate be quarter, fee-based heading in alternative year the during XXXX relative did in or our XXXX and outlook for quarter the our run to variable Macroeconomic levels and but earnings environment volatility and any fees from lower from ago lower prepayment call, sales to we positive pressured than we into to businesses expected investment not real

and X% average was fourth lower XX-month from basis. quarter XXX XXXX, daily XXXX trailing S&P of the lower a the than While of XX% the XX% first quarter increased it on

XX-month headwind tailwind first million compared to and basis. exchange reported a to basis. Foreign trailing were quarter positive Impacts compared compared XX-month on but and fourth rates $XX the $X quarter to a on to a a relative ago XXXX, the a year negative a quarter to fourth included trailing pretax a of negative million quarter earnings operating slight XXXX

comments Turning significant to following quarter variances. business exclude results units. on our The the first

our and and year diligent margin expectations values were on second Benefits growth and items International from first expenses. impacted the in and XXXX of compared the of quarter a in in quarter. AUM and quarter first margins was account the Principal a first timing quarter benefiting growth, volatility of closed transactions by in and both businesses macroeconomic in outlook. pressures more comparisons As impacts Specialty the conditions reinsurance RIS PGI line in from revenue quarter by our that were assumptions pressured onetime in to relative lower XXXX with the the the favorable reminder, RIS strong are and the benefited the Revenue ago growth expense to Despite XXXX. to in Revenue in are but management, of

by by XX% guided expect to for conditions the range year, and the macro of year. XX% full level seasonality expected taxes lower to continue with the compensation. the we in PGI's ultimate the the and elevated operating were impacted borrower pretax For margin earnings within due of fees. to remainder expected approximately be first seasonality well payroll as expense were to quarter $XX million by Expenses as and pressured transaction deferred

year. in margin performance expect in encaje of strong lower to for within XXXX and the Brazil across in were year. the Principal and business pretax first had transaction higher to was were In driven by in The decline growth and PGI's expected, inflation VII margin premium earnings quarter. higher and be the interest higher full XX% normalize impacts AUM. Chile. will fees XX% Favorable quarter due rates guided continue experience by to the range the life, primarily driven in throughout than International and to earnings offset claims lower-than-expected and reinsurance the the by operating We

well expect full the the the total company. to both XXXX business our deliver guidance on for to continue as for year, We unit level as at

and million quarter our of excess the our targeted and is in proceeds of redemption debt subsidiaries ratio. first million in issuance capital the $XXX quarter liquidity. billion despite first $X.X financial $XXX holding including billion and of environment. We company. excess position and remain more capital our with Turning volatile the risk-based $X.X a million the second XXX% in at We maturity earmarked in includes that in the $XXX to quarter, from $XX debt ended than target This strong million for available and capital

the in attractive capital During our for excess we forward organic to of businesses. our accelerated was pull to business deployment returning quarter, plan shareholders, XXXX. in we addition as capital our a This opportunities saw return

capital flow real line shareholders Looking a investment $XXX with and pursuing payout ahead, million approach by returned We generation Last will some I XX% we'll portfolio, $X.XX both and additional end company, million our of our liquidity in payable our dividend including comments exposure. announced want our to our common disciplined capital dividends. the at increase to repurchases details of focused free deployment. in quarter, dividend the night, company first of stock million capital to stock on the ratio. we second and a year. life including throughout in providing share $XXX the continue $XXX the remain maintaining targeted common We holding quarter, targets my estate and and balanced

and the intentionally credit real the As have overall fixed Dan crisis. estate since global improved maturity across quality portfolios we mentioned, financial our

well investments of are our variety well and aligned are conditions. a we with quality, economic positioned high for Our profile, liability

Slide Starting estate to real XX. Specific the portfolio. on

commercial of a our end portfolio X.Xx loan-to-value loan a has X.Xx. the As in from improved This has average and current of of the XXXX. coverage first XX% of debt service and quarter, XX%

X% rate maturity in in XXXX. high-quality to schedule with loans very maturing exposure and only a manageable X% another of XXXX floating loans minimal have and We

is building this and to in diverse XX% from signs quality. of geographically reduced XXXX stress mortgage proactively down commercial saw exposure today. our of XX% office and portfolio Our portfolio We high our sector in office

have office and a with maturities. approach conservative have near-term We taken our manageable portfolio

is the office the our XX% value. valuations XX% The reduced XX% our peak, portfolio current already by coverage have below X.Xx. and index loan-to-value debt portfolio service are We from is they current implied on and office in

XX the all XX% very and office This our assumes and X impact have track of a decrease is additional immediate years. time a of XX% additional an for of said, estimated both to to to That scenario experience office The be the out market scenarios X to our would valuations at take decreased of ultimate XX the We a looked default points loans ratio points different any under emerge, number manageable. stress on XX% includes cycles. percentage long-established valuation. conservative and an estate LTV. current navigating decrease scenario, over real XX% from XXX% RBC under and number additional impacts percentage record play It the we have over cycle to will to

Looking at our decreased an improve have portfolio today. and portfolio, we NAIC the XX% overall X relative to rating of quality CMBS XX% our to XXXX, by size the with

value The of real higher our types is real remain with high diligent the equity such strong portfolio, monitoring are and in our property portfolio confident Our market substantially Overall, is a sciences. with industrials estate of carrying portfolio in estate concentration fundamentals, quality in value. our than as we servicing proactive well life of it. and diversified

have is well and portfolio a our liability high-quality We built diversified a fit that profile. good for

XXXX drivers drive retirement, of long-term will but global shareholder are growth asset to Protection its we be positioned challenges, which Benefits and enterprise our for focus not and long-term the maximizing will on value. and growth management without

uncertainty. We through managing and financial flexibility, times of track volatility a of have and macro the record discipline

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

Operator

[Operator Instructions].

The with Krueger question comes Ryan first from KBW.

Ryan Krueger

on just you stress was provided. question office First that scenario the

the being pretty the impact scenario -- migration losses? Was ratings of impact limited mean a to of credit Just on some just over owned and estate real was and that for you'd from Or level downward anything an they curious you based some I pretty if did take in properties of impact. RBC that get the and a assume capital have property? the higher charge severe

Daniel Houston

Ryan. I'll that handle appreciate question, Deanna Yes, that. have

Deanna Strable

values. taking complete also happen was It I important of the reduced those time and extended happen that, our one Obviously, it's think all an us would was one default. And a from very already in XX% over XX% decrease Yes. unlikely properties period extreme additional wouldn't that time. then at over

Ryan Krueger

new into time of then I the thoughts to when market And could guess, the opportunities? may well about, talk you as deploy real already capital your up have over deployment within it. on you committed Got evolving as estate amount PGI for pick

Daniel Houston

appreciate Really one? that Pat, can That's you us help on a great question. Ryan. that, out

Patrick Halter

Yes.

So thanks for the question, Ryan.

advisor know, we very those world through I strong strong pipeline and investors in think been do to And world. as active throughout clients real committed the you conversations but a very throughout very we have the estate. unfunded with have a

into capital, strategies. can not into sort power the marketplace pipeline gotten to we billion the again. believe have and equity that unfunded committed can of until you to But debt deployed As drive pipeline, that imagine, where we $X we point valuations that over start we markets have in both believe enter the in the is in today a that

we the -- time right at the will right that. at So deploy appropriate time,

a any over think once your to desirable think, X we with we that quarters year. is transmission be to place will probably think see be, again, desire the valuations place believe we question, back timing and in engage. for can effect enter at to valuations when later dependent we have appropriate. conviction. to we get are us next to a have going We second strong start of markets That a But yet it's we are To the where sort this I a to will it's get to going

ago. the thing but parts some other And we interest place active the Asia have right entry just of quite of conversations because to in active was terms to from the XXXX. go investors we're many in And in of terms funds world opportunity advantage the just point, estate in also new only sort institutional eventually take as of raise into private think with but of debt first we money, having private and the to I equity now real particularly I weeks not today, investors in that's of institutional Ryan, in additional One mention, pronounced. X is

Daniel Houston

that Hopefully, helps, Ryan?

Ryan Krueger

Great.

Operator

question next JPMorgan. the Jimmy line comes of Our Bhullar with from

Jimmy Bhullar

So the in if as seem flows the on you've And several to relative retirement, fee one I that light the the strong flows especially XQ, the fact it retirement previous is XQs just spread at labor had is. given the in is even if you first business. what as pretty include over last the look years, market the

on color give drove you could just that? So if some what

Daniel Houston

Chris, please.

Christopher Littlefield

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

in quarter, in few lumpiness, see and XX%. that pipeline happen our We really large are we I up strong the fee I to going $X.X the lumpiness had strong Despite large a in really in a that that deposit the about large lapsed lapse, reminder low seeing market, when larger we business are in they assets. -- strong think though, When think seeing on a as quarter, as in they're are when things. since plan fundamentals as plans. at flows comment -- got we X are out that in in X flows billion well pipeline. well. really transfer about both different strong underlying you first the certainly and on look The We and I'd momentum performance flows was

comments, his I think in Dan the particularly mentioned in SMB.

year net growing X% in recurring on so up in Those particularly when XX% while billion SMB alone nearly SMB you at a and versus X% space. it's quarter. at trailing and And was our a about of flow strong look to in X%, are cash basis, deposits recurring ago deposits XX-month the the sort $X

and some X again, when flows you're [indiscernible] But full there. fee you going plan. lumpiness to the it large doesn't of performance strong away really on the have seeing from we're see plan So take

Daniel Houston

mask like can really large quarter. you strong a have X that a follow-up, Jimmy? Do plan Yes,

Jimmy Bhullar

Yes.

year, Just use XQ number and margins, forward -- for think to the it rest levels just on a was about in we of the going terms PGI? margins of good expenses PGI as overall is margin in

Daniel Houston

Pat, please.

Patrick Halter

Yes.

for question, thanks Jimmy. the So

for XX%. margins. terms of little over rest the That year did a quarter. $XX onetime you as where was is have the deferred with note, As That of not first sort you retirement payroll margin of reflection we was every taxes of a also onetime around quarter the compensation associated adjustment in a the that we -- should recall, have see first year, be We expense good and million. a

So in to that thing just that's one discussion. highlight, of Jimmy, terms margin

is do The first we second have a increase, with along the that in allow going we larger to and thing continue for some platforms base sort reset in growth think terms valuations to that's starting quarter and seen bit of the to little a expect going have. we forward AUM of

remain And XX% you so we guidance that in achieve confident very our of of Jimmy. XX% presented we outlook to that the we XX% by the to year, will call, that end XX% to the

Operator

next with Sandler. Our from Piper Barnidge comes John the of question line

John Barnidge

employee employees there. seeing Oftentimes, did and into versus growth factor about employers or has the Are match within they're you deposit withholding last year? recurring contributing? at trends how you And trended How RIS? talk how all on that the pull back much that

Daniel Houston

SMB strong. competitive matching want But that's still remain contributions. on The it's additional of terms thing strength of attracting amazing a and is to the in Yes, Chris, retaining provide some great you marketplace Those is things just talent. detail still that question. one the how

Christopher Littlefield

say see XXXX. from saw would growth, what I still sure. although certainly in it's we Yes, we slowing

a particularly again, the up average new deferred So of and the per in the as participants look to all those at the X% X% to year-over-year. John, value overall participant, deferring the participants X% it's metrics And on when highlighted account SMB, X% number strong deposits. with numbers I at of are of dollars match, receiving I recurring

albeit positive, a all in we've seen slower that's than So bit years. past

John Barnidge

be the is million in of Or to And in $X.X footnote supposed $X.X your presentation, number using? billion to the $XXX is you billion about we should my clarify, normalize on talked Slide for maybe just the about a we there follow-up question, on that? proceeds. the prepared the remarks Are X

Daniel Houston

please. Deanna,

Deanna Strable

hope going accident. Yes. Thanks, recovery question. is for after your John, your the I well

second couple of there. a existing will issuance elevated issued pay off Just $XXX things that that million quarter due but $X.X the you the of debt on quarter. billion debt the in That we corresponding to slide is first in see the we the

forma billion. more pro would $X.X a be the like So

why from the then go at is we down follow-up that where end year. Your were of did the

And so that. of a just comments on couple

impact issuance two, to and and the any Really, is, other forward X during our free I to dividends capital one, debt return going flow of than referred the to cash things just that quarter. of shareholders, that are roll between entities the that

buybacks kind during dividends. stock our It's seasonably a in through always continued saw the also as also you of flow $XXX bonuses is the amount and our primary to $XXX of sizable first cash light. first timing return to obviously, you X cash slightly quarter we of a up, and million and We common first all really free quarter, have of the On the over quarter, that So with build dividend. dividends, seasonality shareholders, million larger just first there's amount share payments in well. And then drivers pressures there. then quarter

to to 'XX for a minimal from pattern first the quarter in cash albeit the you're going you back quarter, pointed strong full at very but flow free the of 'XX year. to fourth flow which go quarter see of roll first If very free forward similar 'XX, look cash and to a

largest always cash our is for quarter quarter fourth that, free flow. Beyond

accelerated we portion As deployment we're year expectation. -- this our sales plan in full that our you not year, a remarks, is full see was first quarter one higher volume sales of high-return organic a in changing a our different versus the quarter of me did quarter mention heard prepared year opportunities and thing of little last

is in other of from quarters. shifting a typically is that originally quarter quarter the quarters point one see we We PRT. obvious than and million very, higher very would current is future in the nearly $XXX into first then actually a will quarter, sales I just it's The to most and had the light again, anticipated quarter. flow free So cash

we bottom unexpected. not for opportunities prior So years. entire continue line, our the we future seasonality see free in confident saw We'll it flow Thanks. it to I remain was year. in years, about think and cash the We've seen

Operator

Barclays. next Our with line from Dolin-Benguigui comes question the of Tracy

Tracy Dolin-Benguigui

to regarding you specialty across I drove group loss add benefits. like group vision, upon disability. color several what dental Can touch would and higher the ratios like life, individual products

Daniel Houston

Amy Amy, that will accordingly. handle please.

Amy Friedrich

Yes, sure.

I I ranges loss in on probably It it. we the would good generally we the a you're were I one that feeling ratios in think does highlight saying about is So would would settle And seeing. the dental They're seasonality within expected. there. bit that have of have

call we've know, private you out As -- of the with calls, as of COVID. a of dental terms loss really seasonality on got discussed in previous ratios track and lot

of it's in So seasonality I happened, years. our a that see seasonality for What ability back of some with sort industry in and levels. of things dental we to the pre-COVID is other lost returning closures couple that the to see

dental at look utilization highest the I the typically emerges when over first quarter. So how in year, it's

we're So what loss to I it's what seeing seasonal. expect that we would and back for patterns, It's that still is say see. to expected would within dental ratio is

range normal are seeing some and that our for loss within block of ratios levels. across year Our group the is full benefits, we're IDI

Deanna Strable

the from quarter, ratio more fourth Group mentioned we loss an once it abnormally group Life. was claims. of but is also Tracy, in up you first COVID fourth quarter quarter 'XX you life for had low adjust is down It of 'XX. because the Actually,

group life, So so I touch you well. as that on wanted had just to mentioned one

Tracy Dolin-Benguigui

Excellent.

comments Just about circling available back the adjusting excess cash. your and on

So about it, then $XXX from at if thinking so. from exactly isn't excess billion of $XXX there million subsidiaries, I you're minimum OCO your of capital threshold. I'm And million take or cash, out the the lot $X.X million when a your $XXX

do your Are get year? cash for and earnings the that's confident you XX% greater the of organic how you'll surplus about free flow XX% to there expecting generation through sound remainder meeting You conversion.

Deanna Strable

Yes.

cash as statutory up is it aware, all that flow free cash the entities, you're holding movement be to as results in the our capital well by company. excess driven again, as, So would of non-life and

that. confident on are We

of As amount we a of just dividend mentioned, the that the the the fourth quarter. some seasonality fact pressuring and high dividends and in

thing So the at level other that. start relative to subsidiaries. last disruption our our risk to to very of current the smaller post in transactions back feel year meaningful is, year, you I'd is the don't mix environment. those bring you We confident And I in lower. our see capital a profile any plans the business

Our credit and portfolio is the talked about a lower. of really material lot of performance, will well. our investment a of feel We've high-quality lot that risk we perform why good our you given

in And so together, XQ you seasonality results see will again, as when bring see go statutory we XQ, the in dividends we higher do that And also that all we XQ. and throughout year.

Daniel Houston

Hopefully that helps, Tracy.

Operator

Wes Our next Carmichael Fargo. line question Wells of from the comes with

Wesley Carmichael

flow second, that to cash the you my the is exited Slide business. deck, of on too, But expect cash free kind stick ratio it on year. a throughout mentions to the understanding with excluding increase but wanted the X for that free conversion I income, is net of flow

the million returned $XXX I looked shareholders, quarter, first a calculated ratio of at if So XX%. the to I

like kind the seems there So of first it in quarter. you're already

should trying reconcile to just I'm on that your with So accelerate. thoughts that

Daniel Houston

I'll have PFG. Deanna handle that. But coverage on and welcome appreciate picking up Wes, you

Deanna Strable

from you're quarter flow just as out come the can come generation you well the X as excess of places. had deployment Wes, free cash into coming aware, It can so the was came excess million quarter. just in into the of it $XXX year and at think about shy the of holdco we And our coming the during entities. -- I in in

as into well. And so again, that you that to need result factor

Wesley Carmichael

talk you just transfer for sales. risk maybe And for it. pension can your about outlook Got XXXX

But as from in million $XXX good You a bouncing a had might the back. be equity quarter and markets pretty environment as first well with rates interest seems higher RIS. like in it the tailwind

Daniel Houston

ahead that. want respond? Chris, to to and True do go you

Christopher Littlefield

year call Yes. industry of Thanks really and billion expect We for. that what grow a of -- so had XX% plans it, still unusual Welcome, which I is we're first billion the shooting little for the business, Wes. overall, to is year, a range funded in our bit are was range over as Yes. Deanna for kind mean billion expecting to start to year, $XX question. The strong PRT XX% opportunities well $X.X-ish XXX%. over the at mentioned, quarter. last do to Mercer to we $XX according very

see do opportunities lot we of for PRT. a So

for think is in capital I us, deploy that disciplined we way. a important thing the most though,

in And business. return not can going PRT good we every so on after where we're those opportunity, a we're get that we're the that investing going for capital

Daniel Houston

out XX% worth probably approach to intersections of drive that is that And those see we're results from also can what where is comprehensive PRT calling and And about. for came customers. retirement the those you solutions existing help organization. sales together come Wes full-service again, actually It's about

Christopher Littlefield

point, to customers the about that in million $XXX DB ours. this existing $XXX million quarter were of And Dan, of

that business. So of you our power in do see the

Operator

Our comes the from Ward of next line Citi. question with Michael

Michael Ward

CRE, I helpful. really disclosures on appreciate very the

think LTVs are guys you I mentioned that the revalued quarterly.

evolve was current trying service debt for -- out metrics I curious I'm see? over this are? service about but for we debt to just time? just current debt component how how like mechanically, sort And of this So principal, not are just coverage the metrics these figure and coverage And how that the might necessarily CRE

Daniel Houston

bit might assess this in streets of the also the Appreciate just and maybe be have Pat group valuations And that, feet little resources class. a about terms asset we surrounding to to this the Michael. on able share with

Patrick Halter

for Yes. Thanks, the Michael, question.

the highlighted in an of as Dan have in as his organization. sort remarks that we terms organization, benefits prepared of one of our think of size the I the

But broader on of is do the for actually this loans office, reevaluating the line very on portfolio. we're one which all important the each re-underwriting we office So know -- those component, every I but quarter. here, to also

deep, the a in contract the structure changes that reconstructing expense rates those terms rents very in a have income be, where the rents quarterly we to team markets may real of market XX where steep on the who steep in associated what's from getting basically in So rental market of with knowledge, of cash tenancy those basis, flows in wide property, underwriters be streams flow lease sort really major experience to the our assets updating on each along a those cap of do time going data are have with And of cash perspective. transactions covers reevaluations, markets we may U.S. relative and one and they heading, on property

we coverage actually to ratios very a are which terms doing debt Michael. a of result analysis, those cash have as service flow deep So lot of allows in that in confidence of analysis, us a

throughout also deep terms estate valuations, we equity real group, a real developing, estate then country. of managing which And in is obviously, the experienced have very

real-time cap getting trends they're going opinions in going of rates, terms investor terms on broker to of the on are trends So that as sentiment. are that in

we're a and residential for office also, is the And quarter a through engineering it's process robust now portfolio industrial so every process we're that quarters. going our very same And over on then portfolio. sequence that of

Daniel Houston

that Michael? help, Did

Michael Ward

guys. helpful, very That's Yes.

So maybe CMBS. loans mortgage on versus commercial

Just you if wondering could comment.

office. is about all of think you XX% or mainly I I believe guys that are And conduit. almost

RBC not you hoping the whether test. or could So that's on included that comment in stress and

Daniel Houston

Pat, please.

Patrick Halter

Yes.

So we XX% office have of our CMBS is to also. in have do analysis in that space similar that what is our in in portfolio note of exposure to And relative sort goes holdings, on somewhat XX%, interesting terms percentage portfolio CMBS the office. to our that we private

that maturity us assets terms portfolio, CMBS are because We loans sort the are of point sort we're that XXXX our of be highlighted, looked the actually now sort quite comfort level to to Difficulty] then is -- test Michael, of XX% a view better. structure of that have finding highlighted. levels, of maturity And applying a great we're I thus levels actual subordination a those very deal we're still [Technical of a us of are -- doing And perspective. a cash positive when because that and evaluating and a And XXXX. levels. sort both levels stress just from is protecting the subordination those levels and of approach terms as analysis in also how or and flow But is those rating quality as those in analysis office subordination limited subordination of test also an in environment we're the of that portfolios, to if of rating structures of from those far. bottom-up we in is agency A still stress terms of those from at would CMBS what would subordination have allow we in And of comparable we

Deanna Strable

stress X, not risk. be was that, that think Mike, included in scenario, minor XX Pat, CMBSs But of Page if very a that I the in very, test the and relative XX.X% addition that in those included. that look again, we any to impact and commentary stress to are you actually given NAIC would at

Operator

from of Our next Suneet Jefferies. the question with Kamath line comes

Suneet Kamath

like is sort of just kind color lot all of on check. you a go But sound give of the to appreciate there just the you third validate you one have kind the CRE, party go through curious, more of office valuing I part of where a you process how it does analysis, the resources. to getting a about

Daniel Houston

Pat?

Patrick Halter

Yes.

an appraisals The changing. get imagine, the buildings as not rents and and what's how the Suneet, in are within reconstruction on time tenancy active So cash going the the current, real think, typically, is market not relative of appraisal. the buildings evaluated the to you contract probably you'd as understanding rent and are flows, challenge as, can those today, I

probably frankly, So opinion. sort our not out that analysis that superior expertise, in deep think sort get do that. We is valuation and we -- of analysis go a third-party to of our

Daniel Houston

our team one deep in We We this. in with brokers relationships and a estate about committee. They're They investment -- of the in talking with meet these week, there. these professionals have assess each these investment Suneet, once options are subcategories. real

with these again, books. well. really so that a incredibly we how is associated is valuation And keep assessment And think rigorous there I on a staffed it's honest process the and

Patrick Halter

Just to very feel with add and to process comfortable here. that, we over also have XX deploy we the countries, over investors XXX institutional they in

Suneet Kamath

a Makes sense. Deanna. for guess it. And then quick Got one I

outlook that of first Is the million forward? quarter. in $XXX here in guess I in Or on going that? terms expect color we any just -- Just you should expectations of did buybacks, terms for the about the that pace

Deanna Strable

Yes.

we account. of Obviously, that's of take want a that's will I to you'd amount, think recognize -- environment. rest occur is get to through of level. need of estimates the what in And same indication there think volatility that looked We into if we the I But at yes, if the kind our current need But relative think that kind think ballpark. the cash year. to could quarter-to-quarter. you what some annualize good to flow free you'd lumpiness be kind expecting, quarter-to-quarter, there I I of you be

Operator

Our Research. of next question comes Erik from line Autonomous the Bass with

Erik Bass

adjusting quarter, business, income. the In investment RIS income for increased investment the even net variable from pretty materially fourth

should So then I outlook talk we was the just you about line? could this, going the about drops that And benefit how of much and bottom what's how driving forward? hoping think to

Daniel Houston

please. Chris,

Christopher Littlefield

Erik. Sure. are in positive question, in difference that we then a our benefit between credited some seen additional the that when overall And mean, and for the Certainly, are rates been are short-term what's that definitely investment to the of Yes. X I so seeing we've back driver. primary rates That's timing and increasing we've -- interest growth the income. business. effect. in seen block lag. Thanks increase the the drivers I second We've rates, happening had a customer, to when in the think certainly seen

So those the drivers NII. key are in

the you I into it it's account take NII, also have you at can BCSD not picture think that's -- in when look interest best necessarily line. the being because the credited you at supplement, to look just the

at a line. so that you NII we're certainly would there see not looking the solely just is as but it's seeing, And large benefit as by

definitely So benefit. a

'XX, margin. of to said of will the that of over to have course and pressures over some that we saw others, long I but we increases benefits to -- net interest reiterate see nearing benefit. will tend kind I'll normalize expect some time the rise, over today, interest and if see we've XXXX, think and expect what competitive and benefit. We again are What to rates larger we term, we're will additional some to expect continue although the the also normalize in through we There that end

Daniel Houston

Do Erik? you have follow-up,

Erik Bass

Pat. for follow-up a Yes,

income. passive? rates have of terms if client Or a seeing what Just to stabilized more started new you're being demand fixed Has And for seeing in into money allocated up going interest now to is are you active traditional bit? curious products? that so, pick

Patrick Halter

of preferreds. couple to kind actually very yield. REITs. pause did investors, we're was, One first maybe that been quarter. discussions portfolio. there's of of debt were active that think to emerging outflow of from banking Thanks, starting a things because continue you gotten a are preferreds were bit the Erik. about with sort Great. Thanks that fixed for think of little of interesting And also that, have We we I CDs. because been even marketplace investors side interesting. though, of to our sort on in things is do in but market the a to a the our discussions prices, sort underway and that think we're moving be in Yes. Interesting good active question. sort there bit income-producing a note, relatively That money know, active mentioned I I relevant income We now It's high And There's capabilities crisis, about like in had terms we've to of given little other income of of a market specialty again. in investors communicated preferreds. preferreds of speaking, lot investments. mentioned and of is as very we lot the increasing activity of at we the as look banking and at We to

income, the a of that. once active amount income, Fed place of and raising expecting So there starts we're fixed interest interest we be more and get an rates bigger rates, in fixed -- will in of maybe to that think stabilize investing maybe not

Operator

Our next the Gallagher Evercore. from comes question Tom line with of

Thomas Gallagher

a details wanted seasonal Deanna, ask quarter. with for how can I to of I $XXX in I I some just Recognizing comments, the versus your $XXX seasonality for up normal. flow one, generation But if forgetting generation quarter versus much saw million the about first about million you about end about produced, to appreciate a minute, -- normal saw shortfall the that. if capital cash in I My

$XXX Now with if cash assuming that The of maybe And million. else that's That million. million seasonal sort another if you me in $XXX me math would million PRT would about gaps around so, what the here? that $XX leave $XX consumed highlighted, up? Tell adds I'm shortfall. to payments a fill

Deanna Strable

Yes. Thanks, question. the for Tom,

to. the think is seasonality I what credit you're giving than greater

we went was deployed roll year, by to of back first just million If reduced $XXX from approximately you to quarter, million. capital fourth forward $XXX there and last shy the quarter quarter the our in

very again, flow. free And so cash modest

seasonality. the understating you're amount of So

year maybe is think There opportunities were the anticipating anticipated the seasonality in say that what they in forward. in in really But quarter. much probably greater organic than you some roll either ballpark. the I'd is I were one-timers were I we would modest of will really knew your seasonality pressuring our you or that reverse you're kind in back ago they do and a but take to plan, to it's comparison. quarter they but a capital first future understating, be that quarters,

Thomas Gallagher

very Should create investment should sheet goals? to And to assume think do the just this sheet slow, billion going it big, excess a sale then steady your my it's look equity at monetization capital? real on lot look difference we with that alternative I and gain. $X.X about help big off-balance that's part what acceleration a the to the we your a produce estimate you How on Or of should your return portfolio Pat. we a for more is off-balance -- would bigger just ever a do estate, number? the if you market value gain disclosure, carrying question -- helpful. versus updated we'll The of follow-up call That's current is value,

Daniel Houston

Yes.

that. me marks. I to Let and cap go respond gave responsibility her have ahead Deanna over

Deanna Strable

Yes.

a of there's things Tom. couple think I there,

something right time, in had we've this term. our I disclosed over but customers long be we we're -- haven't that would think to our portfolio. the obviously going Obviously, period what's for of our and do over a investors this

parts credit our our -- offset of we'll some other that see portfolio. Sometimes in pressures,

roll equity investments. Sometimes into we'll estate it real new actually

your I that is again, So the line. to bottom it doesn't But drop think relative bottom to right. line observation

what's makes well shareholders has there? And our portfolio. looking not want portfolio. something customers many again, to those our add over But to levers at would triggers sense pull that long it's it's we diversified that and very again, to a portfolio. It's it to a very return But right for high-quality our our It's this And again, over because, just do relative opportunities term we're we served at the customers active something and and pulling anything when decades. very the Pat, shareholders. pulling to

Patrick Halter

well No, think said. really that's I

Tom, to industrial a the residential. a add has it. have to dimensionality little in and Just of concentration in big big It bit, a is does concentration --

really good. that's So

in $X.X million. I think office past base versus what the we've a little the identified in value billion $XXX cost little the over -- carrying is a over

portfolio. So diversified -- very a but it's

highlighted, it's of we portfolio think lot I the and as Deanna positioned to for use well that. flexibility a have

Operator

Our next Goldman the of Sachs. line Alex with question Scott comes from

Alexander Scott

is compensation The timing, the amount I and timing. came RIS first out you expense had down pretty year-over-year. expense a I one good know And other on called

that you fact to at expenses just you over see could that of I I very wanted cognizant the have been I'm bit us. mean a guys managing time. little So for unpack if good

quarters? of management, the I doing pure expense of in good it couple versus the So want more been much to understand way is old-fashioned you how expense like timing guys have last

Daniel Houston

around unique think some do provide bit We with here try to a But detail? the to Fargo IRT makes And you all the have what is post good want the time old additional businesses. transaction little all Chris, I the expense Wells RIS business. across management

Christopher Littlefield

what would good our think to we I for I that, say margins. said committed continue management. maintaining I last exercise as disciplined Thanks And quarter, to mean is Yes. Alex. I expense we're

delivering period and will need on accruals of had the onetime for expenses. we're synergies were And some We're longer we the we growth. catch some to that no going in revenue some IRT, so take that quarter needed. course the actions did expenditure the and over investing think timing, from year. We the which we're from to align prior up benefits see definitely We

of together, we to all that savings, through end So I get the and -- be XXXX, we're put We'll flat comp good for well. investing by growth -- year-over-year. expect of but the other some as in essentially future also when we

had thing call of answers year. $X quarter is We we didn't The XX out these had that last hopefully, So expense the that quarter last we that I'd we only and fourth in point question. for disciplined full out taking severance the we're about we other especially. year, haven't in X% expense first year about management, when highlighted the had million

So expense those some severance good we're despite additional costs. still of showing management

Deanna Strable

the point. were that as that well. Now know retail if it's expenses what to we expense normalize. don't back fixed and just comparing And would other had to relative you of were annuity to business. first some PSA Again, one still there included thing 'XX, But comparing quarter have you items I will to. in

Alexander Scott

outlook color And Understood. portfolio Yes. your through help some other? Or level it about way or high to just flows and provide push think should in maybe And then kind on Could could any any you out the overall for pressures? industry that you one there? us us the PGI. just of nuances talk we the of

Daniel Houston

Pat, please.

Patrick Halter

Yes.

be area And as that of in think, that more the I active rates. specialized private on being investment think to continue uncertainty that the probably market Erik, as And be inflation, Clearly, to I relative continue think, we I as we private as mentioned active also I credit, an income That products, something response. will I for And see, to our to a I in for market the mentioned think of lot there response economy, money debt. said, to do my investor I the of highlighted, I continues like position to the continues Alex. interest conditions, will question, is, investors. in lot is previous interest So my a retail accounts, platform CDs. relative earlier, flow side, thanks still money path side, into there mentioned to

next viable X. look year real to as offerings the are of or in that estate marketplace forward we this sort we of Some believe

some an side. equity we sort We on of think space, the had a couple I equity that's of potential so strong of wins. The have area And growth capabilities. nice institutional

I think in first in material the we highlighted quarter. the that

provide there's our there's to capabilities, I were an think lot to investors choice lot uncertainty, uncertain thought broad-based sort of need position capital a I to themselves of a offer in still So of marketplace. them. But we investment still of think,

Operator

from of the of final line Josh Our question with Shanker Bank comes America.

Joshua Shanker

capital Just an In up you forward on asking. follow Tom of talked was the variance? quarter? the usually your to it What's the the [indiscernible] is into I equal every easy how one. the want prepared on big normal seasonality business business Is And in remarks, deploying plan. pull plan. about

Daniel Houston

Deanna?

Deanna Strable

to returns of and very an tends that Yes. wanted and great product normal loaded, highlighted we kind of every I PRT that's was where Again, than take the was year, different to we because advantage be think answer what different. PRT a normal is don't opportunity, because that. easy again, was one a back-end great in saw, seasonality

And so flow, again, that seasonality, quarter said, different. But very quarter cash product-by-product, seasonality I pressured. free flow, very, first strong. Fourth free as very very cash is again,

Operator

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

Daniel Houston

A Yes. comments. quick I of couple appreciate Christine. that,

your we appreciate insights first The which your and of questions.

to an be recognizing and team because estate we appropriate particular, cycle. management that that with real was portion Secondly, the period. that we're very right 'XX proactive through this just a around provide this commercial large of the transparency. think we'll cycle to disclosures, trying on do in 'XX, We've of been third, path office during to through here it's Maybe the thing investors that's find today and before, here level

the we And also has markets markets to up a get conversation serve. And helpful well, beginning the it's we well. international the where today, into the historically. I Again, had way, which first Also, recognize emergence from by clarity of then again, held flow, set out the free reaffirming had and think year. this we of the of cash understand the to as which of the really didn't has our fundamentals the quarter in lot

flows America. both So Asia seeing in very cash Latin and positive

spite held on very of volatile from our we markets during well, challenging our very some up environment, made the it's what call. call serve in deliver promises we the outlook certainly intention to which I'd So have and and macroeconomic

So thank forward a road. look to Have you great seeing you, the and on day.

Operator

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

time. this You may at disconnect your lines

Principal Financial (PFG) 28 Apr 232023 Q1 Earnings call transcript