Principal Financial Group, Inc. (PFG) Earnings Call Transcript & Summary

Thanks, and good morning to everyone. It's a pleasure to have you join us for Principal Financial Group's conference call covering earnings from the first quarter of 2026. Just like we always do, you can find the materials tied to today's call on our website, investors.principal.com. Once the safe harbor statement has been read, our CEO, Deanna Strable, along with CFO, Joel Pitz, will share their prepared comments. After that, we'll take your questions. Other members of senior management are here as well for the Q&A portion. A few of the remarks given on this call might include forward-looking statements as defined under the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. You can read about the risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the company's most recent annual report on Form 10-K filed by the company with the U.S. Securities and Exchange Commission. Also, a few of the remarks given on this call might reference non-GAAP financial measures. You can find reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures in our earnings release, financial supplement and slide presentation. Deanna?

Appreciate that, Humphrey, and greetings to all joining the call this morning. I'll spend my time today covering how well we performed in quarter one and how consistently we're carrying out our plan, which centers on generating dependable expansion throughout our varied operations. After that, Joel will walk through more specifics regarding our financial outcomes and our capital standing. If you'll turn to Slide 2, our adjusted non-GAAP earnings per share rose 13% during quarter one, which exceeded the upper bound of the range we target; favorable underwriting outcomes and better mortality in our Benefits and Protection segment, along with supportive market environments for our fee-based operations, were the main forces behind this result. That fed into robust top-line gains and widening margins. Our solid results and ability to generate capital let us give back roughly $375 million to shareholders during the quarter, which included $200 million in buybacks of shares. On top of that, we lifted our common stock dividend, marking the 12th quarter in a row, which works out to an 8% bump measured both quarterly and across the trailing 12-month period. All of this together highlights just how valuable our diversified business model is. Now on to Slide 3. We keep advancing on our strategic growth drivers: the broad retirement ecosystem, small and midsized businesses, and global asset management. In the retirement ecosystem, we're entering the year with momentum that spans our whole operation. Retirement transfer deposits totaled $12 billion for the quarter, a 35% rise compared with a year earlier, while recurring deposits were up 7% across that same span. This expansion shows we can bring in new business while also keeping and growing the clients we already have, thanks to a full set of capabilities spanning recordkeeping, asset management, investment advice, and income solutions. Our participant count is increasing, and we're assisting those people in putting away more for retirement. You can see this in a 3% gain in the count of participants who defer into their retirement plans versus the same quarter last year, with average deferrals also climbing by more than 3%. Participants keep bringing their retirement savings together on our platform, with $1.7 billion of roll-ins during the quarter. When participants gather their retirement savings with us, it strengthens even further our belief in how strong our platform is and in our capacity to deliver tailored advice and solutions that fit what they need. Our know-how in retirement investing, a key growth driver inside the retirement ecosystem, keeps building momentum with third-party retirement platforms; DCIO sales of $2 billion for the quarter and close to $8 billion across the trailing 12 months demonstrate this. When it comes to the small and midsized business segment, our distinctive capabilities and deep knowledge are producing results. In Retirement, the SMB market keeps doing well. Recurring deposits were up 6% versus the year ago quarter and 7% on a trailing 12-month basis. Solid new business activity and good retention produced positive account value net cash flow of $600 million for the quarter. In Benefits and Protection, the broad and significant value we offer the SMB segment keeps fueling growth and strengthening customer relationships. Specialty Benefits posted record sales, climbing 24% over the year ago quarter. Also, in the business market, Life premium and fees rose 15% compared to the same period last year, which shows strong appetite for tailored offerings that assist company owners in safeguarding essential staff and financing vital succession plans. Our most recent well-being index, conducted in late March, showed stable employment patterns, with 90% of small and midsized business owners saying they are keeping headcount steady or adding workers. Looking at the 180,000 diverse businesses we serve across Group Benefits and Retirement, both hiring levels and pay gains have continued to hold up well, and they're driving growth. Turning to Global Asset Management, momentum is building — gross sales in Investment Management hit a record $37 billion, which is up 21% from the same period last year. That growth is linked directly to in-demand products and our strengthened distribution partnerships across markets around the world. Demand from clients for our private markets offerings stays robust globally, generating $400 million in net inflows for the quarter and $3 billion over the trailing 12 months. Private markets AUM rose 11% year over year, powered by sustained interest in our real estate, infrastructure and private credit strategies. Our active ETF business keeps building traction and brought in net inflows of $400 million for the quarter and $1.8 billion on a trailing 12-month basis. In addition, we produced robust net cash flow of $1.5 billion during the quarter from clients located outside the U.S. Considering these 3 growth drivers, this momentum encourages me, and the scope of our retirement solutions, our leading position serving small and midsize businesses and our growing global asset management capabilities open multiple paths for lasting growth; we also keep innovating in how we serve and engage customers throughout the enterprise, using data and emerging technologies, including AI. Across the whole company, we're putting these capabilities to work so we can get more done, build stronger ties with customers, and keep making the experience we deliver every day better. Before Joel takes over, I'd like to note a few honors we've received. Ethisphere has again included Principal among the world's most ethical companies — that's the 15th time — and this recognition, which means a great deal to me, speaks to how long we've stayed committed to integrity, transparency and doing business responsibly. In addition, PERE, a leading private markets publication, selected Principal Asset Management as North America's Data Center Firm of the Year. That award highlights the knowledge we've built over many decades, our growing set of capabilities and our results in this area. All these acknowledgments, viewed together, make a stronger argument for the culture we've built and for the competitive edges that distinguish Principal in the market. So, to close things out, the momentum visible across our businesses leaves us confident that we can reach our financial goals. As our customer base expands toward 82 million people globally, our attention remains on executing with discipline, growing sustainably, and delivering long-term value to both customers and shareholders. The results we posted this quarter are a testament to the hard work of our 19,000 employees worldwide. Because they stayed focused on customers and executed with discipline, we were able to seize opportunities early in the year, and that leaves us well positioned to keep growing as we progress through 2026. Over to you, Joel.

Thank you, Deanna, and good morning, everybody joining us. I'm going to take you through how we performed financially in Q1 and give you an update on where capital stands. If you look at Slide 4, we got off to a solid start this year, and we're in good shape to hit our 2026 financial targets; non-GAAP operating earnings came in at $456 million, which is 10% higher than the same quarter a year earlier, or $2.07 per share, which is up 14%. If you set aside significant variances, non-GAAP operating earnings reached $479 million, a 9% gain versus the prior-year quarter, or $2.17 per share, marking a 13% rise. On top of that, non-GAAP operating ROE came in at 16.1%, which is 140 basis points better than a year ago and sits right at the middle of our 15% to 17% target range. The significant variances you'll find on Slide 11 had an after-tax impact of $23 million during Q1. The decline in variable investment income was mostly due to the timing of real estate transactions along with somewhat weaker returns from our other alternatives portfolio. During our February outlook call, we mentioned that we were reviewing the presentation and depreciation for core real estate within our alternatives portfolio. Starting in Q1, we moved this noncash expense into realized gains and losses. That gives a better picture of total returns by matching depreciation with where gains get recognized when a sale occurs. We continue to expect that full year 2026 variable investment income will be better than 2025 whether or not this change is made. This only affects reported results, and adjusted results are unaffected. Margin came in at 30% for Q1, widening by 190 basis points. That gain reflects solid business fundamentals, with net revenue growing 6% year-over-year and disciplined expense management even as we keep investing in the business. Now on to capital and liquidity. We finished the quarter strongly, with more than $1.4 billion in excess and available capital. That figure includes $800 million at the holding company, which is at our target level, $300 million across our subsidiaries, and $350 million above our targeted 375% risk-based capital ratio, which stood at roughly 400% when the quarter closed. We gave back $374 million to shareholders during Q1, made up of $200 million in share repurchases and $174 million in common stock dividends. Last night, we declared an $0.82 common stock dividend that will be paid in the second quarter. That's $0.02 more than what was paid in Q1 and represents an 8% year-over-year increase; it stays consistent with our 40% targeted dividend payout ratio and shows our confidence in ongoing earnings growth and capital generation. Shifting to AUM and net cash flow. Total company managed AUM finished the quarter at $770 billion, slightly down from the prior quarter because of market performance but up 7% year-over-year. Total company net cash flow was negative $1.5 billion for the quarter, which is a substantial improvement both sequentially and year-over-year. That improvement came from positive net cash flow in International Pension during the quarter and better year-over-year results in Investment Management. Now let's move to the businesses. This commentary leaves out material variances. Beginning with RIS, and as you can see on Slide 5, pretax operating earnings came to $318 million, which is up 4% from a year earlier, helped by 3% growth in net revenue along with margin expansion. Our operating margin was 41.5%, 60 basis points wider than in the same quarter last year, and that sits just above the top end of our target range. That speaks to how disciplined we've been about growing revenue profitably and managing expenses, plus some favorable seasonality and timing effects this quarter. The underlying fundamentals of the business are still sound. As Deanna mentioned, we saw strong transfer deposits and recurring deposits, and retention was favorable too. That produced $1.8 billion of net cash flow in RIS account value for the quarter, with support from fee-based net cash flow in both the large and SMB market segments. Now to Slide 6. Principal Asset Management posted earnings growth of 10% versus a year ago, on 5% revenue growth and margin expansion. Inside Investment Management, pretax operating earnings rose 8% from the prior year quarter. Adjusted revenue was up more than 2% year-over-year even with the effect of our recent divestiture. The combination of higher revenue and expense discipline drove a 100 basis point gain in Investment Management's quarterly operating margin. Gross sales for the quarter set a record, rising 21% from the year ago quarter. That shows how appealing our solutions are and how far our distribution reaches globally. Importantly, demand is still there in several key areas, including $1.2 billion of net cash flow split evenly among private markets, ETFs and UCITS. Shifting to International Pension. AUM rose 4% sequentially and 20% year-over-year, reaching a record $160 billion. That gain came mainly from positive market performance and net cash flow, as well as foreign currency tailwinds. Net cash flow was positive $500 million for the quarter, including $700 million of net inflows in Brazil. Pretax operating earnings climbed 14% year-over-year, helped by higher performance fees, favorable foreign currency effects and growth in the business. Our operating margin of 48.5% remains comfortably inside our target range. Now to Slide 7. Benefits and Protection had a very strong quarter. Pretax operating earnings were $177 million, up 41% year-over-year, driven by more favorable Specialty Benefits underwriting, better life mortality and business growth. Starting with Specialty Benefits, premium fees were up 4% year-over-year, partly helped by record sales in the first quarter. As we said on our outlook call, we still expect premium fees growth to trend higher as the year goes on, most notably in the second half. Pretax operating earnings of $140 million rose 26% year-over-year, reflecting strong underwriting experience and growth in the business. Total loss ratio improved 220 basis points versus the year ago quarter, thanks to better Group Life and Group Dental results, along with continued strong results in group disability. That fed into margin expansion, which improved to 16.2%, up 290 basis points year-over-year. When it comes to Life Insurance, we saw pretax operating earnings reach $37 million, which is a $23 million jump compared to the same period last year. That improvement came from better mortality results, thanks to both lower frequency and severity, and it helped produce a 15.6% operating margin for the quarter, landing at the top of our target range. Turning to Corporate. Losses in the first quarter ran high because of how expenses were timed. Looking at the full year, though, we anticipate segment results will fall inside our target range. Before I wrap up, I want to offer a few thoughts about our investment portfolio. Lately there's been a lot of focus on how exposed the insurance sector is to private credit. Above all, we bring more than 60 years of expertise in underwriting and managing private assets, both for our general account and for clients. As we told you last quarter, the overwhelming majority of our private fixed income securities carry investment grade ratings, with only minimal exposure to direct lending. What's more, our portfolio keeps delivering solid performance, with results coming in ahead of what we expect over the long term. I stay confident in this portfolio — well-constructed and diversified — and it lines up appropriately with the liquidity characteristics of our liabilities. To wrap up, our first quarter results show disciplined execution throughout the enterprise, with strong earnings growth, margin expansion and healthy underlying fundamentals. Those results underscore the strength of our diversified business mix and leave us well positioned to hit our financial targets in 2026 and beyond. That brings our prepared remarks to a close. Operator, please open the call for questions.

To start, I wanted to ask about Specialty Benefits. Could you share additional detail regarding the positive underwriting results you saw in Dental, Life, and Disability, and also what your perspective is on how things look going forward?

Morning, Ryan, and glad to have you back. Clearly, Specialty Benefits had a very robust quarter. I'll turn it over to Amy so she can walk through what drove that.

Absolutely. Thank you. So Ryan, yes — this quarter's underwriting results came in very strong. Just like you pointed out, we had a 58.5% loss ratio. Digging into it, the main drivers really are Group Life and Dental. On the Group Life side, what's behind it is the low frequency we experienced during this quarter. Turning to Dental, I believe we've discussed on earlier calls some of the initiatives we've had underway — specifically past pricing actions, which are now fully reflected in the experience, plus certain Dental network optimization efforts we've been pursuing, and those are feeding into that performance too. I'd also add that Group Disability results continue to be solid. They matched what we saw in prior year quarters and were in line with our expectations. Just to remind you, you raised the question of what's ahead. Looking forward, the second quarter is typically the seasonal peak for Dental. That means the total SBD loss ratio edges up somewhat during second quarter. That said, for the full year outlook, my view is quite favorable, with loss ratios anticipated to come in at the low end or perhaps a touch under the low end of the range we shared at outlook.

Ryan, do you have a follow-up question?

Yeah. Regarding Investment Management, gross sales have had nice momentum, yet redemptions have mostly risen too, meaning flows haven't gotten much better. So I was hoping for a bit more detail on both sides, really — what's behind the gross sales momentum, and also why have redemptions been running higher? And how do you expect that to develop going forward?

Yes. Appreciate that, Ryan. I'll have Kamal give some color on that.

Absolutely, Ryan — I appreciate that, it's a solid question. So allow me to unpack the net flow matter you raised a bit. To start, I'll simply restate it. I believe both Deanna and Joel emphasized this during their comments, and you brought it up too. In Investment Management, during the first quarter, we produced record gross sales, up 21% compared with a year earlier. You'd also agree that's a notable figure. And in my view, that ties straight to the emphasis we've placed on new products and the fresh strategies we're bringing to market. Even more significant, though, is that we keep expanding our distribution relationships around the world. Worth pointing out: Asia delivered an exceptional quarter, posting $1.1 billion in positive NCF, while our international clients contributed more than $1.5 billion in positive NCF. So growing sales globally matters most to us, since that's essential for shifting the NCF profile in light of our legacy book. Now, turning to what you asked about the driver behind this quarter's NCF pattern — we did observe redemption activity, and it was clustered within a quite limited set of U.S. equity active equity mutual funds in the U.S. wealth channel, mostly caused by shifts in asset allocation and advisory business models. Therefore, our aim remains delivering greater gross sales and securing commitments across a wider range of products. Once redemption activity settles back to normal, I'd anticipate our nonaffiliated NCF profile getting better over the rest of the year. And finally, I'd add that the pipeline ahead looks quite robust. I trust that addresses your question, Ryan.

It does.

Thanks, Ryan. Next question.

My first inquiry concerns the Individual Life division. From what I can see in the results, this looks like the strongest quarter that unit has delivered in quite some time, and I usually view Q1 as seasonally soft when it comes to mortality. So I'm curious whether you believe anything about that segment's earnings power has shifted, or whether this is somewhat more of a one-off situation?

Yes. Wes, I appreciate the question. Clearly, Life posted a very robust earnings quarter, largely fueled by mortality. So I'll turn it over to Amy to provide some detail on that.

Yeah, I appreciate you bringing that up. We certainly believe there was some favorable movement in mortality during this quarter; however, we've also experienced other quarters where the trend went the other way, and we discussed that at the time. So I do recognize that some positive mortality is factored into these results. That said, when we look at the full year for this segment, we provided a guidance range for our margin of 12% to 16%; and although this quarter was sort of steering us toward the middle to upper portion of that range, I'd say that for a full-year expectation regarding the earnings power and margin power of this business, something near the bottom portion of that range is what I'd be considering for the health of the business.

One more point I'd add there: had you examined claims, it was encouraging to observe the favorable development stemmed from frequency as well as severity. Frequently, swings are driven by the severity component, yet we saw results exceeding expectations across both frequency and severity; so...

And if I break those down into incidence and severity, each accounts for roughly 50 to 50.

Wes, is there anything else you'd like to ask?

Yeah, I've got one. So moving over to RIS, the transfer deposits were quite robust. I'm just wondering whether you might speak to how that segment's flow is likely to look through the remainder of the year?

Sure, I'll hand things to Chris. As you're aware, our emphasis is on growing revenue, and in the end that produced really solid results; fundamentals were extremely strong throughout RIS. Transfer deposits in large cases have a tendency toward unevenness, and this quarter was one where that worked in our favor, though I'll have Chris add further detail.

Absolutely. Thank you, Deanna, and thank you, Wes. So, to reiterate, I believe that, as you pointed out, we enjoyed a truly solid quarter when viewed through the lens of net cash flow, largely fueled by robust transfer deposits, and we also saw very strong contract retention; moreover, those 2 factors were bolstered by healthy recurring deposits and steady participant withdrawal rates; and all of this occurred even with the market performance that continues. So we genuinely feel positive regarding our net cash flow. Looking ahead, as Deanna mentioned, and as we enjoy reminding you, our real emphasis is on generating profitable revenue growth, yet when we look ahead to flows in 2026, we do anticipate that they will track the historical pattern in which Q1 is our strongest for the sales and transfer deposits, while the remaining quarters are likely to be affected by strong markets, which raises withdrawal dollars, along with the lumpiness that we observe in large from time to time in the quarterly results.

Thanks, Chris, and thanks, Wes. Next question.

I'd like to begin with RIS, and also touch on the advice model you have in place. If I'm mistaken, please set me straight, but from what I understand, you lean toward something like a call center setup rather than having people out on the street or establishing wealth management offices. I'm aware that one of your rivals is pursuing that second path. I'm just curious whether that's an option you've examined or one you'd possibly think about?

Yes. Thank you, Suneet. We appreciate you joining and appreciate the question. As we've discussed before, the bulk of our participants are really where we concentrate, and we want to be able to offer wide — deliver support on a broad basis to those with less access, as well as to the adviser community. So I'd say our method is not the same; but I'll turn it over to Chris to add a bit more detail on that.

Absolutely. Thank you, Suneet, for raising that. As Deanna pointed out, our attention has really been on the people we already serve. Building out a bunch of brick-and-mortar storefront locations isn't something we're pursuing. We currently have several hundred advisers on salary, and they reach roughly 90% of the participants we serve, which lets us deliver advisory services to them, and the outcomes look good. As we've said, the in-force dynamics are strong — whether that's roll-ins from participants, rising deferral rates, or a growing number of participants who defer. The advice model we provide is driving all of that; among our retail individual customers, those using both IRA and advisory services have grown roughly 11% for the year. So our approach really centers on our participants, on the more mainstream segment rather than high net worth individuals, and on the places where Americans need assistance. We're confident this model will succeed as time goes on.

Correct, and something else worth bringing up on that front is that we're adding improved technology on top of it, which will keep ramping up as we work to serve those clients as well as possible and in the way they prefer. So, Suneet, is there another question you'd like to ask?

Yes, and I'd like to revisit the SMB market. From what I recall, during the prior quarter you folks seemed quite assured about the employment picture. In your prepared comments, it sounds like you mentioned having confidence through what we've seen of this year so far. That said, when we consider the economy and the type of swings we're witnessing in the markets because of global matters, is there usually a delay you'd expect — one that perhaps isn't appearing in your numbers at present, yet later on might bring some effects from this uncertainty we're observing?

Yes, Suneet, a few points. Then I'll have Amy provide some further detail. I've asked Amy to lead a team really dedicated to tracking this in real time throughout the enterprise. A few things I'd note there: our employer base is broad. So consider that we serve 180,000 employers spanning RIS and Group Benefits, with varying sizes, industries, and locations; I believe that variety will truly benefit us. As I said, we're examining it from our block standpoint. We also conduct very frequent surveys with SMB employers too. And as of right now, nothing we're seeing has any meaningful effect. Still, we recognize that parts of this will be fluid, and we intend to remain near it; yet I keep returning to that point. I think that variety will truly benefit us. Now I'll hand things over to Amy.

Absolutely. I see it the same way Deanna framed it, and I want to emphasize that, based on what our results show, both hiring and pay increases are genuinely remaining stable within our segment. So I would describe pay increases as appearing quite strong and close to what we observed a year ago; meanwhile, hiring has cooled only slightly, yet it lines up well with our projections for this year. Turning to your point about whether a delay might exist — I do believe that when uncertainty is present, and it certainly is for both companies and workers, it usually shapes the market in a few distinct ways. First, individuals often ease back into a mindset of, "I probably won't pursue any major growth initiatives," while at the same time easing into, "I probably won't pull back either or change course." That creates somewhat of a frozen dynamic, that uncertainty in the market. For workers, this translates into many of them remaining in their current roles. For companies, it translates into many of them sticking with the plans they set for the year. So that significant delay isn't something I'm observing. What I am observing is some uncertainty in sentiment, though owners of small and midsized businesses tend to be — and our data confirms this — more hopeful about how boldly they can capitalize on market conditions once uncertainty lifts. And so I don't — a major delay effect isn't something I'm seeing, but we'll keep monitoring that on a monthly basis.

Thanks, Suneet, for the questions. Next question.

I want to start with International Pension. This quarter, the earnings run rate improved considerably, even after you strip out the large variances you flagged. Could you break down what drove that, and help me separate the pieces that are more repeatable and durable from the ones that are more temporary, such as FX or unusually high performance fees?

Sure — I'll have Joel walk us through it. And once more, Jack, thank you for joining us and for your questions. International Pension clearly delivered strong earnings growth, and that segment keeps giving us valuable diversification across our overall results, with a real focus on the areas where we believe we can generate growth. So I'll turn it to Joel for the quarter's details.

Jack, as we mentioned during the prior quarter's call, those figures sat in the mid-60s. Our expectation was that the IP results would get better, and that definitely showed up in the first quarter, with roughly $80 million in adjusted earnings for that period. Regarding your question about run rate, I would characterize it as somewhat oversized in this quarter, driven by a performance fee tied to China Construction Bank, which is part of our pension business. Within that market, a performance fee of approximately $7 million was paid out. That's one of the ways we get compensated for the services we deliver in China's pension space. So yes, it came in oversized this quarter, but this is the kind of thing that will fluctuate, and we should expect that going forward; all else being equal, I'd call it a solid run rate. It'll land more in the mid-70s, a good base to grow from. More importantly, we're finally catching some FX tailwinds. I've spent many years in this business, and it's a pleasure to talk about FX tailwinds rather than headwinds; and it's genuinely great to watch the underlying results of these businesses show up in U.S. dollars in a meaningful way.

Jack, hope that helps. And do you have a follow-up question?

Yeah, perhaps just a single question regarding what we might expect for VII and performance fees within the Investment Management segment during this year. I suppose, at this stage, is there any clarity you can offer about how realizations might be paced? And also, how much do you believe market conditions would have to shift or get better before a more typical pace of real estate monetization could be unlocked?

Joel is going to take that one.