The paragraph discusses the Principal Financial Group's First Quarter 2025 Financial Results Conference Call. The operator explains the procedure for participating in the Q&A session, and Humphrey Lee, Vice President of Investor Relations, welcomes attendees and introduces the agenda. The materials for the call are available online, and after reading the safe harbor provision, CEO Deanna Strable and interim CFO Joel Pitz will present prepared remarks. The call may include forward-looking statements and non-GAAP financial measures, with the relevant reconciliations available in the earnings materials. The call will conclude with a Q&A session, where senior management will be available to respond to questions.

The paragraph discusses the current dynamic and uncertain market environment, highlighting the impact of volatility on fee revenue in retirement and asset management. Despite the challenges, the company is confident in its strategy, resilient business model, and commitment to customer support. The company is taking disciplined actions to align expenses with revenue and believes it is well-positioned for market cycles due to past business transformations. Focus areas for growth include the retirement ecosystem, SMBs, and global asset management, which are shown on slide four of their materials. Despite market challenges, the company reported strong first-quarter results, with adjusted non-GAAP earnings of $439 million, a 10% increase in EPS compared to the previous year, and returned $370 million to shareholders through share repurchases and dividends.

The company reports strong financial performance, with total assets under management (AUM) increasing to $718 billion despite market volatility. While net cash flow was negative due to low-fee institutional withdrawals, higher fee inflows are boosting revenue. Key asset classes, such as private real estate and stable value, performed well. There were significant investment inflows in Mexico and Southeast Asia, reinforcing the company's global strategy. Growth is also noted in high yield preferred real estate and international equities. In retirement, the company achieved positive cash flow and increased pension risk transfer volume. Looking forward, the company anticipates continued growth and industry recognition across its retirement offerings.

Principal achieved top ratings in the Plan Advisor Survey, earning 17 best-in-class awards. Specialty benefits saw strong underwriting results, but growth was slowed by lack of new PFML markets and reduced dental sales due to disciplined pricing. Life sales increased by 6% driven by bundled and non-qualified sales. The small and medium business segment remains resilient, adapting through strategic pricing and supplier shifts. Core business fundamentals like recurring deposits and employment growth are strong. Principal emphasizes delivering quality service, operating with discipline, and maintaining a long-term focus. It was named one of the world's most ethical companies by Ethisphere for the 14th time, highlighting its ethical commitment. Additionally, its AI assistant, Paige, won a CIO 100 award for boosting employee productivity and efficiency.

The paragraph outlines the company's first-quarter financial performance, highlighting a 10% increase in non-GAAP operating earnings per share compared to the previous year, resulting in $439 million or $1.92 per diluted share. Reported net income, excluding exited business, was $299 million with minimal credit losses. The narrative mentions that elevated seasonal expenses in investment management were offset by a lower tax rate. The company's non-GAAP operating return on equity (ROE) improved to 14%, and foreign exchange rates positively impacted assets under management (AUM) by $8 billion. It also notes fluctuations in equity markets, with some areas down and others, like international equities and fixed income products, showing positive returns.

The first quarter results highlight strong performance across the company's integrated and diversified businesses, achieving a 10% year-over-year EPS growth. RIS demonstrated robust top-line growth of 5% and a significant margin improvement to 41%, with an 8% increase in pretax operating earnings driven by business growth and favorable market conditions. Recurring deposit growth was strong at 9%, and both employee deferrals and employer matches saw significant increases. In principal asset management, investment management revenue grew by 4%, with management fees up by 5% due to higher assets under management and stable fees. Seasonal expenses were higher but are expected to normalize, and the company remains focused on profitable revenue growth while continuing to invest in the business.

In the international pension segment, net revenue decreased slightly due to foreign currency impacts but increased by 4% on a constant currency basis. Pretax operating earnings rose by 5%, despite a $6 million foreign exchange impact, with margin expansion nearly 400 basis points over the previous year. Specialty benefits saw a 4% growth in premiums and fees, despite lower dental sales and challenging comparisons, with an optimistic outlook for future growth. In this segment, pretax operating earnings grew 5%, supported by business growth, favorable underwriting, and higher investment income. The loss ratio for the specialty benefits division improved by 40 basis points to 60.7%. The life business experienced a rise in premiums and fees driven by strong market growth, though pretax operating earnings declined to $14 million due to higher mortality and severity of claims, including a significant $5 million claim from a policy issued in 1999.

In the quarter, the company experienced lower tax rates due to foreign tax credits and share-based compensation, but expects a full-year rate of 17-20% for 2025. Their investment portfolio remains high quality and minimally exposed to tariff-impacted industries. The commercial mortgage loan portfolio is healthy, with two office loan maturities settled. The company holds a strong capital position, with $1.8 billion excess capital, and managed a $400 million debt maturity through proceeds from 2028 PCAPS. They also issued $500 million in new PCAPs, addressing future maturities and maintaining a targeted free capital flow of 75-85%.

In the ninth paragraph of the article, the company discusses free capital flow trends, noting it is usually lowest in the first quarter and increases throughout the year. They returned $370 million to shareholders in the first quarter through share repurchases and dividends. A $0.76 dividend was announced for the second quarter, representing a slight increase and a 9% growth rate over the last twelve months. They maintain a 40% dividend payout ratio, reflecting confidence in their business performance. The company emphasizes disciplined capital deployment, aligning expenses with revenue, and investing for growth to provide long-term value to shareholders. The paragraph concludes with the transition to the Q&A session, beginning with a question about the company's EPS growth outlook amidst economic uncertainties. Deanna Strable responds with some preliminary thoughts, passing the details to Joel.

The speaker emphasizes the challenges posed by a dynamic and unpredictable environment affecting fee revenue in retirement and asset management due to recent market volatility. Despite these challenges, the speaker highlights the strength of their diverse and resilient business portfolio, suggesting that this diversity is crucial in such times. The first quarter of the year showed strong performance with a 10% earnings per share growth, aligning with their guidance, aided by revenue growth and margin expansion. The diversified business mix, particularly in benefits and protection spread businesses, provides some insulation from market volatility as they focus on controllable factors like customer support, growth, and expense management.

The paragraph discusses the resilience of a company's portfolio in volatile market conditions, highlighting a $3.5 billion increase in assets under management (AUM) despite a 5% decline in the S&P 500. The impact of market disruptions on the company's fee businesses will depend on their duration and severity. The company mitigates macroeconomic headwinds through expense management and benefits from lower interest rates, which boost AUM levels. Additionally, currency headwinds are decreasing, with significant recent strengthening of the Brazilian real and Chilean peso against the US dollar. The company remains confident in maintaining a 9% to 12% earnings per share (EPS) growth, contingent on the future market landscape.

In this excerpt, Joel Hurwitz and Deanna Strable discuss the company's approach to managing expenses in alignment with revenue during economic cycles. Deanna emphasizes their proven track record of aligning expenses with revenue, stating that it has been their guiding principle, especially in recent weeks. Joel Pitz further elaborates on their strategy, highlighting controlling expenses to match revenue as essential. He notes that their efforts have led to a 40 basis point year-over-year improvement in margins. Pitz provides examples of expense management activities, such as reducing travel, delaying hiring, and cutting consulting spending. They stress the importance of responsibly aligning expenses with revenues during volatile periods.

In the paragraph, Deanna Strable and Kamal Bhatia discuss client behavior in their asset management business amidst elevated market volatility. They note that client activity has become more volatile due to the macro environment, but they see positive developments in their business. Kamal highlights improvements in their pipeline and mentions that new mandates have higher net revenue rates than their average business, aligning with their strength in private markets. Additionally, there's a significant increase in their global pipeline and immediate business activities, as indicated by more requests for proposals (RFPs) compared to informational requests (RFIs), driven by investment consultants.

In the paragraph, a discussion is taking place regarding participant behavior in retirement accounts. Ryan Krueger asks about potential increases in hardship withdrawals, which another competitor had reportedly been experiencing. Christopher Littlefield responds by stating that they have not observed a significant rise in hardship withdrawals or loans among participants. Instead, participant withdrawal rates have stabilized, remaining consistent with previous quarters and the preceding year. While the dollar amount of participant withdrawals has increased, it correlates with growth in average account values, reflecting the impact of equity market performance rather than an increase in financial hardship.

In the article paragraph, Deanna Strable and Amy Friedrich discuss the performance and volatility of their life business, particularly focusing on mortality rates. Wilma Burdis from Raymond James asks about the drivers of mortality results. Deanna notes that while there can be quarterly fluctuations, the long-term mortality rates align with expectations. Amy adds that the individual life business experienced some volatility and a severity bump due to a specific large claim this quarter. However, the group life segment, which targets working-age individuals, performed well. Amy emphasizes that the severity issues are more pronounced in the all-population segment rather than the working-age population.

The paragraph features a discussion among Amy Friedrich, Deanna Strable, Wilma Burdis, and Christopher Littlefield about the impact of a longstanding insurance claim and the growth of spread-based products in retirement plans. Amy Friedrich elaborates on a large claim that has been affecting the industry for years. Wilma Burdis asks about the growth of spread-based products in retirement amidst market uncertainty. Christopher Littlefield highlights strong performance in these products, with significant sales in registered index-linked annuities and pension risk transfers (PRTs). He cites an effective strategy involving increased use of guaranteed fixed-rate products in retirement plans, contributing to overall profitable growth. However, he notes some pressure in the investment-only segment.

The paragraph discusses the company's strategic approach to investment, stating that they adjust their investment activity based on available opportunities and have reduced investment-only activities, resulting in a $500 million drag for the current quarter. They highlight positive dynamics in spreads as part of their revenue growth strategy. The conversation shifts to specialty benefits, where Wes Carmichael asks about the company's approach to new business, particularly dental pricing. Deanna Strable and Amy Friedrich explain that while new sales have seen a decrease across most lines, this is partly due to factors like paid family medical leave volatility impacting growth rates. Amy notes that comparisons are challenging because a state introduced paid family medical leave in the previous year's first quarter, affecting the group disability line.

The paragraph discusses the challenges faced by the company in the dental sales segment due to increased competition. The company is addressing this by maintaining disciplined pricing strategies, particularly for small to medium-sized businesses (SMBs), to ensure consistent and predictable renewals. They have implemented pricing adjustments for dental throughout 2024 and early 2025, which initially affect new sales and gradually impact existing policies. The company expects these adjustments to improve the loss ratio by the end of 2025 compared to 2024. Additionally, the company has achieved record success in selling and servicing bundled group benefits.

The paragraph discusses financial strategies and results within a company, focusing on insurance products and investment income. The company is making adjustments to its product rates, such as dental and life insurance, to remain competitive and maintain desired persistency. They express satisfaction with their first-quarter outcomes, which align with their expectations for 2025. The paragraph also touches on variable investment income (VII), noting it faced some challenges this quarter, particularly due to lower hedge fund returns. Despite these pressures, the VII performance remains consistent with previous quarters. They highlight that half of their portfolio is invested in real estate.

The paragraph provides an update on a financial discussion, starting with a focus on private equity, hedge funds, and real estate transactions. It mentions that real estate assets, not frequently marked to market, remain highly appreciated until sold, with most transactions expected later in the year. The outlook depends on market disruptions, which could affect alternative returns and real estate sales timing. There's an emphasis on maintaining transparency about developments throughout the year. Following this, questions from analysts are addressed. Tom Gallagher from Evercore ISI inquires about the dynamics within their 401 business, particularly across different plan sizes, noting a decrease in fee rates relative to assets under management. Deanna Strable references slide four in their presentation, which outlines strong fundamentals and favorable results, especially in small to mid-sized businesses, compared to larger cases. Christopher Littlefield is invited to provide further details on the overall dynamics.

The paragraph discusses the performance and dynamics of Principal's SMB and large business segments. The SMB segment is highlighted as a strong, consistent performer with nearly a 30% increase in transfer deposits, acting as a core growth engine. In contrast, the large segment is described as more volatile due to the size and timing of plan trades, although it contributes positively with growth in participant numbers. Overall, there's strength across all sales segments, particularly in the 401k business, and a 10% increase in retail customers over the past year. In terms of fee revenue rates, there’s a slight decline, which is partly attributed to market outperformance.

The paragraph discusses market outperformance in the first quarter, noting a 40% improvement compared to the previous year, which contrasts with the expected fee compression in normal markets. It highlights pressure from variable annuity lapses, with many being captured by the spread-based product, Rilla, causing shifts in the revenue mix and affecting fee revenue rates. Tom Gallagher appreciates the explanation and inquires about supplemental health's earned premium, noting a significant slowdown. Amy Friedrich explains this is due to prior year accounting adjustments and emphasizes that, without these one-time adjustments, the block is experiencing growth above the rest of the portfolio, with clearer growth expected later in the year.

In the paragraph, Deanna Strable and Amy Friedrich discuss the impact of market noise on their business, specifically regarding premiums and loss ratios in the group disability and supplemental health lines. Amy confirms that supplemental health is growing significantly within their portfolio. Tom Gallagher acknowledges this information, and the conversation shifts to Suneet Kamath, who asks about potential changes in the small and medium-sized business (SMB) market given recent employment volatility. Deanna and Amy respond by emphasizing the resilience of the SMB market through various cycles, stating they haven't seen meaningful impacts yet but will continue to monitor the situation.

The paragraph discusses the resilience of small and midsized companies, particularly those in Principal's portfolio, which have been in business for an average of thirty years and have experienced various economic cycles. These companies are generally well-prepared for economic uncertainties, having planned for issues like working capital, staffing, and production capacity. In light of recent economic uncertainties, such as tariff issues, a survey of over 250 SMB customers in April showed that while businesses expect impacts on growth, they are primarily focusing on supply chain adjustments and pricing changes rather than reducing benefits, staffing, or wages.

The paragraph discusses the challenges businesses faced in achieving full staffing levels after 2020 and 2021, and how this memory influences current short-term workforce decisions. Suneet Kamath asks about the relationship between market fluctuations and participant withdrawals, wondering if withdrawals decrease as markets decline. Christopher Littlefield confirms that withdrawals tend to decrease when market values drop, but emphasizes that the business prioritizes revenue and profit over monitoring flows. The company's net revenue will be largely influenced by market trends this year.

In the discussion, Deanna Strable and Christopher Littlefield address Jack Moten's inquiry about the drivers of RIS fee rates. They explain that, despite market outperformance and VA lapses affecting current conditions, the company anticipates a continued two to three basis points of fee rate compression in normal markets. This is due to shifts between proprietary solutions and from active to passive investments, as well as pricing on new sales and retention. Movements to spread-based products would impact the total revenue rate but not the fee revenue rate. Market outperformance and VA lapses are currently adding extra pressure on fee revenue rates beyond normal expectations.

The paragraph discusses the strong outlook for Principal's pension risk transfer (PRT) market, despite market volatility. Christopher Littlefield notes that while funding levels for defined benefit plans have decreased, they remain robust, and a good pipeline of opportunities exists. The expectation is for PRT sales in 2025 to be similar to 2024 levels. Deanna Strable adds that employers moving into PRT have typically shifted to less risky assets, making equity movements less impactful. Additionally, in response to Mike Ward's question, she highlights that the company maintains a strong capital position and a capital deployment strategy based on long-term discipline and flexibility, with no changes planned, ensuring continued prudent return of excess capital to shareholders.

In this discussion, Joel Pitz mentions the company's firm capital deployment plans, highlighted by a $200 million share buyback in the first quarter and ongoing buybacks in the second quarter, aiming to achieve $700 million to $1 billion in share buybacks by 2025. The company's financial strength is also evident from a 1¢ dividend increase, aligning with their 40% dividend payout ratio. Deanna Strable and Kamal Bhatia discuss the credit market, noting that while credit spreads have widened post-April, there is increased activity in accessing credit, particularly in areas like high yield and preferred securities, indicating opportunities despite market volatility.

The paragraph discusses a shift in investor behavior towards more conservative credit managers due to increased economic volatility. This shift benefits the company's fixed income and real estate debt businesses. The infrastructure debt business is also thriving as interest in investment-grade infrastructure grows. Jimmy Bhullar from JPMorgan Securities questions weak flows across the company's main businesses, despite constructive pipeline comments. Deanna Strable responds, highlighting that not all flows have the same impact on revenue, noting that despite significant outflows in investment management, the run rate revenue from these flows was positive.

The paragraph discusses the company's focus on driving revenue and earnings growth, particularly through their international pension businesses. There is a mention of seasonality affecting flows in Brazil, which has been under pressure due to high interest rates, but the company is working on new products for this environment. The company is also emphasizing an increased rate of capital deployment as a large private market manager. They deployed nearly $1.35 billion for third-party clients in the first quarter, generating fees and expecting increased future deployment. Including affiliated deployments, the total is close to $2 billion for the quarter.

In the discussion, Deanna Strable and Christopher Littlefield address the company's financial dynamics, noting that while AV net cash flow is under pressure from seasonal trends and existing flow patterns, they are maintaining a 5% net revenue growth and high margins. A significant contract was terminated in alignment with their strategy for profitable business, impacting cash flow less than 10%. While participant activities like loans and hardships are up slightly, they aren't major flow drivers. They acknowledge that during volatile periods, plan activity can affect transfer deposit timing but also lead to higher retention due to delayed plan changes.

In the paragraph, the discussion revolves around the company's approach to managing lower-fee business in their retirement and asset management sectors. Jimmy Bhullar asks whether there has been a strategic shift towards being more selective with such business. Deanna Strable and Christopher Littlefield explain that many of these lower-fee accounts originated from the IRT transaction, which has significantly influenced their portfolio. They emphasize the importance of scale in retirement plans, leveraging large accounts to spread costs and serve participants better. However, these larger accounts typically don't yield high proprietary asset capture. Kamal Bhatia adds that the focus is on revenue growth from existing clients rather than simply expanding sales, indicating a shift towards modernizing incentives.

In the paragraph, the speakers discuss how the integration of PGI and PI has led to increased global sales, particularly in Asia and Latin America, as international clients are willing to pay a premium for global products in the asset classes they operate in. Deanna Strable highlights the company's strong first-quarter results, their risk mitigation efforts, and disciplined execution amid market volatility. She emphasizes their commitment to long-term value creation for customers and shareholders over their 145-year history. The call concludes with gratitude to participants and anticipation for future engagements.

This summary was generated with AI and may contain some inaccuracies.