Principal Financial Group Inc

Good morning and welcome to the Principal Financial Group First Quarter 2020 Financial Results Conference Call. There will be a question and answer period after the speakers have completed their prepared remarks. If you would like to ask a question at that time, simply press star and the number one on your telephone keypad. We would ask that you be respectful of others and limit your questions to one and a follow-up so that we can get to everyone in the queue. I would now like to turn the conference call over to John Egan, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group's first quarter 2020 conference call. As always, materials related to today's call are available on our website at principal.com backslash investor. We also posted an additional slide deck on our website with details of our U.S. investment portfolio. Following the reading of the Safe Harbor provision, CEO Dan Houston and CFO Deanna Strable, will deliver some prepared remarks. Then we will open up the call for questions. Others available for the Q&A session include Rene Schaaf, Retirement Income Solutions, Tim Dunbar, Global Asset Management, Luis Valdez, Principal International, and Amy Frederick, U.S. Insurance Solutions. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events, or changes in strategy. Risk and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10-K filed by the company with the U.S. Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures. reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures may be found in our earnings release, financial supplement, and slide presentation. Due to the current environment, we've made the decision to delay our June 23rd Investor Day and cancel our September 16th Tokyo Investor Event. We are working on rescheduling our Investor Day and will let you know when we have a new date.

Dan? Thanks, John, and welcome to everyone on the call. I hope this call finds all of you and your family safe and healthy during these unprecedented times. This morning, I'll share insights on our strong financial position, how principal is responding to COVID-19 pandemic, and key performance highlights for the first quarter. Deanna will follow with additional details of our capital liquidity position, the financial impacts from COVID, our investment portfolio, and our first quarter financial results. We started 2020 in one of the strongest financial positions in our history and in a better position than we were going into the global financial crisis. While Deanna will provide additional details, I'll share a few insights and highlights that speak volumes to the changes we've made to our business model since 2008. At the end of the first quarter, we had over $3 billion in available cash and liquid assets, as well as access to revolving credit facilities to use for liquidity purposes. And our capital position is strong with over $1.7 billion of excess and available capital, as well as access to contingent capital facilities. We'll continue to be diligent stewards of our capital during these challenging times while weighing opportunities as they arise. We have a high-quality diversified investment portfolio that aligns with our liabilities. The general account has grown in recent years, but so has the quality of the portfolio. Over the past several years, we've intentionally prioritized risk management I want to thank our employees for how resilient they've been in responding to COVID crisis. From the onset of the virus, we have prioritized their safety. Our past investments in technology and digital solutions allowed us to quickly transition our employees around the world to work remotely. Today, 95% of our global workforce is remote, with no meaningful impact to our operations or our ability to serve our customers. Our call centers have remained fully operational. and we've provided easy access to important information on our website for our customers. Our sales and service professionals are able to take on new business and support existing customers with our digital tools. Throughout our 141-year history, we've staked our reputation on demonstrating an ability to adapt and to be there for our customers, employees, and communities. The COVID health crisis has tested every aspect of our business, and I'm proud of our nearly 18,000 employees who responded with dedication, resiliency, and perseverance. This pandemic is impacting all of us in some way, and we're adjusting all of our businesses to help our customers manage through some of the near-term challenges created by the virus. We've taken actions to help and reduce the short-term financial burdens for our customers by waiving certain fees for participants that need to take COVID-related withdrawals and loans from their retirement accounts. Additionally, we've waived certain fees for retirement plan sponsors impacted by COVID to allow participants to access these programs or, if needed, reduce or suspend their employer contributions. We've extended grace periods for premium payments to prevent lapse in coverage, and we've temporarily paused rate increases for our group insurance customers. As a global company, all of the communities where we have operations have been impacted by COVID crisis. In addition to customer relief, we've started community giving programs to provide relief to the small and medium-sized business owners and individuals impacted the most. We anticipate these giving efforts through principal and principal foundation in combination with the relief we've already offered to our customers will total more than $25 million. And these times, we're reminded why we're in the business, to help people save enough, protect enough, and have enough. And these words take on a very different meaning during this time. While these are unprecedented times, we remain committed to our long-term strategy and a diversified business model. We'll continue to serve small, medium, and large employers who value the comprehensive products and services that we provide to meet the long-term retirement and protection needs of their employees. We look to support their recovery in any way we can. If you recall, the small to medium-sized business market was resilient, as it was the strongest market to recover after the last recession in 2008. We have purposely diversified across geographies, plant size, and industries. Moving to our first quarter results, we delivered non-GAAP operating earnings of $320 million with limited COVID-related impacts. Excluding significant variances, earnings were flat compared to the prior year quarter despite foreign currency headwinds. Compared to the sequential quarter, total company AUM decreased $104 billion to $631 billion at the end of the first quarter. This decline was driven by unfavorable market performance and foreign exchange rates. Additionally, we have ended the quarter with $140 billion of AUM in our China joint venture and $780 billion of assets under administration in the Institutional Retirement Trust, or IRT, businesses. The integration of IRT businesses continue, and retirement plans will start to migrate to our platform later this year as planned. Despite the disruptions in the markets, total company net cash flow was a positive $3 billion for the quarter after a very promising first two months of the year. RIS fee had $2.1 billion of positive net cash flow. This was driven by sales of $4.8 billion and strong reoccurring deposit growth, up 14% versus the prior year quarter. RIS spread had a half a billion dollars of net cash flow in the quarter, driven by $2.3 billion of sales. including a record $1.5 billion of pension risk transfer sales. While sales were strong in the first quarter, we do see the pipeline slowing down due to low interest rates and the impact this environment is having on funding ratios of pension plans. Principal International also generated $300 million of net cash flow and marked its 46th consecutive positive quarter driven by positive flows in Brazil, Mexico, and Hong Kong. When not included in the reported net cash flow, China had $8.2 billion of negative net cash flow in the quarter. This was mainly due to the outflows in the first two months of the quarter, partially offset by positive flows in March as a result of a flight to quality. Principal global investors sourced net cash flow was a negative $300 million. This was the result of institutional outflows driven by client rebalancing activities and as well as the real estate asset sales earlier in the quarter to take advantage of market conditions and harvest gains for clients. This was partially offset by record quarterly sales for our U.S. mutual fund and CIT platforms. Turning to slide 11, our investment performance remained strong. At quarter end, 80% of principal mutual funds, ETFs, separate accounts, and collective investment trusts were above median for the five years, and 77% were above median for three years. Additionally, for our Morningstar-rated funds, 73% of the funds level AUM had a four- or five-star rating. This strong performance positions us well to attract and retain assets going forward. I'll also share some noteworthy third-party recognition of our efforts. Barron's named Principal Global Investors as a top five best fund families for 2019, and Lipper named our Principal Blue Chip Fund as the best fund over the past five years in the large-cap growth funds. We've also been named by Barron's as one of the 100 most sustainable companies in America. Throughout this recent market turmoil, we have not forgotten or moved away from our core values. We talk about withdrawals and claims in terms of numbers, but it is times like this that we need to remember the human impact in people's lives behind these numbers. We are here to help our customers navigate through the good times and the bad, and I could not be more proud of how our teams have come together to help. With that, let me turn it over to Deanna.