Principal Financial Group® Announces Second Quarter 2023 Results

Declares increase to third quarter 2023 common stock dividend 

Company Highlights

• Second quarter 2023 net income attributable to Principal Financial Group®, Inc. (PFG)¹ of $389 million, or $1.58 per diluted share, includes $64 million of income from exited business.
• Second quarter 2023 non-GAAP operating earnings² of $376 million, or $1.53 per diluted share.
• Returned $255 million of capital to shareholders in second quarter 2023.
• Company declares third quarter 2023 common stock dividend of $0.65 per share, a 1 cent or 2% increase over second quarter 2023.
• Assets under management (AUM) of $674 billion, which is included in assets under administration (AUA) of $1.5 trillion.

Principal Financial Group^® (Nasdaq: PFG) announced results for second quarter 2023.

• Non-GAAP net income attributable to PFG excluding income from exited business¹ for second quarter 2023 of $324.5 million, compared to $207.7 million for second quarter 2022. Non-GAAP net income excluding income from exited business per diluted share of $1.32 for second quarter 2023.
• Non-GAAP operating earnings for second quarter 2023 of $375.8 million, compared to $424.0 million for second quarter 2022. Non-GAAP operating earnings per diluted share of $1.53 for second quarter 2023 compared to $1.65 per diluted share for second quarter 2022.
• Quarterly common stock dividend of $0.65 per share for third quarter 2023 was authorized by the company’s Board of Directors, bringing the trailing twelve-month dividend to $2.57 per share. The dividend will be payable on September 29, 2023, to shareholders of record as of September 7, 2023.

"Our integrated business model and leading position in the small to mid-sized business segment contributed to healthy growth across our Benefits and Protection and U.S. Retirement businesses as well as strong second quarter results with non-GAAP operating earnings of $376 million. We returned over $250 million to our shareholders during the quarter and remain confident in our full-year guidance,” said Dan Houston, chairman, president, and CEO of Principal®. "

“Despite pressured net cash flow in the quarter, we have momentum going into the remainder of 2023, particularly within global asset management. With markets recovering, we expect greater opportunities to capture assets in our actively managed solutions in the second half of the year. Investment performance rebounded significantly across many of our solutions in the second quarter, and we’re confident we have the right capabilities to meet client needs and deliver long-term net cash flows.”

Second quarter highlights

• Strong Morningstar investment performance³ with 71% of Principal investment options above median on a one-year basis, 62% on a three-year basis, 76% on a five-year basis, and 85% on a ten-year basis
• Retirement and Income Solutions (RIS) operating margin⁴ of 36%; sales of $5.5 billion, including $0.6 billion of pension risk transfer sales
• Principal Global Investors (PGI) managed AUM of $485.8 billion; operating margin⁵ of 35%
• Principal International (PI) reported AUM of $174.4 billion, up 17% from second quarter 2022
• Specialty Benefits premium and fees increased 8% from second quarter 2022 driven by continued strong sales, retention, employment and wage growth
• Life Insurance sales increased 28% from second quarter 2022
• Returned $254.9 million of capital to shareholders during the second quarter, including:
  • $100.0 million to repurchase 1.4 million shares of common stock; and
  • $154.9 million of common stock dividends with the $0.64 per share common dividend paid in the second quarter
• Retired $700.0 million of long-term debt during the quarter, using the proceeds from issuances in first quarter 2023

Strong financial position

• $1.2 billion of excess and available capital in our holding companies and other subsidiaries
• Estimated statutory risk-based capital (RBC) ratio for Principal Life Insurance Company of 407%

• Pre-tax operating earnings decreased $22.3 million primarily due to lower net revenue.
• Net revenue decreased $11.8 million primarily due to lower variable investment income, which was partially offset by the benefits of rising interest rates. Additionally, the prior year quarter was adversely impacted by the 2022 reinsurance transaction.

• Pre-tax operating earnings decreased $55.0 million primarily due to lower operating revenues less pass-through expenses.
• Operating revenues less pass-through expenses decreased $69.1 million primarily due to lower performance fees as well as lower management fees from a decrease in average AUM.

• Pre-tax operating earnings decreased $26.2 million primarily due to lower combined net revenue.
• Combined net revenue (at PFG share) decreased $15.4 million primarily due to lower variable investment income and unfavorable impacts from inflation and LDTI discount rate movements, partially offset by growth in the business.

• Pre-tax operating earnings increased $11.3 million due to growth in the business and a decrease in the incurred loss ratio, partially offset by lower net investment income.
• Premium and fees increased $55.2 million driven by strong sales, retention, employment and wage growth.
• Incurred loss ratio decreased primarily due to lower group life mortality and improved disability experience.

• Pre-tax operating earnings decreased $44.0 million primarily due to lower net investment income. Additionally, the prior year quarter was impacted by the 2022 reinsurance transactions.
• Premium and fees increased $98.4 million as a result of the impacts of the 2022 reinsurance transactions in the prior year quarter.

• Pre-tax operating losses decreased $55.5 million primarily due to higher net investment income.

Forward looking and cautionary statements

Certain statements made by the company which are not historical facts may be considered forward-looking statements, including, without limitation, statements as to non-GAAP operating earnings, net income attributable to PFG, net cash flow, realized and unrealized gains and losses, capital and liquidity positions, sales and earnings trends, and management’s beliefs, expectations, goals and opinions. The company does not undertake to update these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward-looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company’s annual report on Form 10-K for the year ended Dec. 31, 2022, and in the company’s quarterly report on Form 10-Q for the quarter ended Mar. 31, 2023, filed by the company with the U.S. Securities and Exchange Commission, as updated or supplemented from time to time in subsequent filings. These risks and uncertainties include, without limitation: adverse capital and credit market conditions may significantly affect the company’s ability to meet liquidity needs, access to capital and cost of capital; conditions in the global capital markets and the economy generally; volatility or declines in the equity, bond or real estate markets; changes in interest rates or credit spreads or a prolonged low interest rate environment; the elimination of the London Inter-Bank Offered Rate (“LIBOR”); the company’s investment portfolio is subject to several risks that may diminish the value of its invested assets and the investment returns credited to customers; the company’s valuation of investments and the determination of the amount of allowances and impairments taken on such investments may include methodologies, estimations and assumptions that are subject to differing interpretations; any impairments of or valuation allowances against the company’s deferred tax assets; the company’s actual experience for insurance and annuity products could differ significantly from its pricing and reserving assumptions; the pattern of amortizing the company’s DAC asset and other actuarial balances may change; changes in laws, regulations or accounting standards; the company’s ability to pay stockholder dividends, make share repurchases and meet its obligations may be constrained by the limitations on dividends or other distributions Iowa insurance laws impose on Principal Life; litigation and regulatory investigations; from time to time the company may become subject to tax audits, tax litigation or similar proceedings, and as a result it may owe additional taxes, interest and penalties in amounts that may be material; applicable laws and the company’s certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider in their best interests; competition, including from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance; a downgrade in the company’s financial strength or credit ratings; client terminations, withdrawals or changes in investor preferences; the company’s hedging or risk management strategies prove ineffective or insufficient; international business risks; risks arising from participation in joint ventures; the company may need to fund deficiencies in its “Closed Block” assets; the company’s reinsurers could default on their obligations or increase their rates; risks arising from acquisitions of businesses; risks related to administering reinsurance transactions; a pandemic, terrorist attack, military action or other catastrophic event; global climate change; technological and societal changes may disrupt the company’s business model and impair its ability to retain existing customers, attract new customers and maintain its profitability; damage to the company’s reputation; the company may not be able to protect its intellectual property and may be subject to infringement claims; inability to attract, develop and retain qualified employees and sales representatives and develop new distribution sources; an interruption in information technology, infrastructure or other internal or external systems used for business operations, or a failure to maintain the confidentiality, integrity or availability of data residing on such systems; loss of key vendor relationships or failure of a vendor to protect information of our customers or employees; and the company’s enterprise risk management framework may not be fully effective in identifying or mitigating all of the risks to which the company is exposed.

Use of Non-GAAP financial measures

The company uses a number of non-GAAP financial measures that management believes are useful to investors because they illustrate the performance of normal, ongoing operations, which is important in understanding and evaluating the company’s financial condition and results of operations. They are not, however, a substitute for U.S. GAAP financial measures. Therefore, the company has provided reconciliations of the non-GAAP measures to the most directly comparable U.S. GAAP measure at the end of the release. The company adjusts U.S. GAAP measures for items not directly related to ongoing operations. However, it is possible these adjusting items have occurred in the past and could recur in future reporting periods. Management also uses non-GAAP measures for goal setting, as a basis for determining employee and senior management awards and compensation and evaluating performance on a basis comparable to that used by investors and securities analysts.

Earnings conference call

• On Friday, Jul. 28, 2023, at 10:00 a.m. (ET), Chairman, President and Chief Executive Officer Dan Houston and Executive Vice President and Chief Financial Officer Deanna Strable will lead a discussion of results and the impacts on future prospects, asset quality and capital adequacy during a live conference call, which can be accessed as follows:
• Via live Internet webcast. Please go to investors.principal.com at least 10-15 minutes prior to the start of the call to register, and to download and install any necessary audio software.
• Via telephone by dialing 877-407-0832 (U.S. and Canadian callers) or 201-689-8433 (international callers) approximately 10 minutes prior to the start of the call.
• Replay of the earnings call via webcast as well as a transcript of the call will be available after the call at investors.principal.com.

The company’s financial supplement and slide presentation is currently available at investors.principal.com, and may be referred to during the call.

About Principal^®12

Principal Financial Group^® (Nasdaq: PFG) is a global financial company with approximately 19,000 employees¹³ passionate about improving the wealth and well-being of people and businesses. In business for more than 140 years, we’re helping approximately 62 million customers¹³ plan, insure, invest, and retire, while working to improve our planet, support the communities where we do business, and build a diverse, inclusive workforce. Principal^® is proud to be recognized as one of the 2023 World’s Most Ethical Companies¹⁴, a member of the Bloomberg Gender Equality Index, and a Top 10 “Best Places to Work in Money Management¹⁵.” Learn more about Principal and our commitment to sustainability, inclusion, and purpose at principal.com.

*U.S. GAAP (GAAP) net income attributable to PFG versus non-GAAP operating earnings

Management uses non-GAAP operating earnings, which is a financial measure that excludes the effect of net realized capital gains and losses, as adjusted, income (loss) from exited business and other after-tax adjustments the company believes are not indicative of overall operating trends, for goal setting, as a basis for determining employee and senior management awards and compensation and evaluating performance on a basis comparable to that used by investors and securities analysts. Note: it is possible these adjusting items have occurred in the past and could recur in future reporting periods. While these items may be significant components in understanding and assessing our consolidated financial performance, management believes the presentation of non-GAAP operating earnings enhances the understanding of results of operations by highlighting earnings attributable to the normal, ongoing operations of the company’s businesses.

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