Principal Financial Group Inc

Good morning and welcome to the Principal Financial Group Third 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 call over to John Egan, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group's third quarter 2020 conference call. As always, materials related to today's call are available on our website at principal.com backslash investor. Similar to last quarter, we 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 Renee 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. We would like to make you aware of two upcoming investor events. We're changing the timing of our Outlook call from December to February 25th. Additionally, we plan to host our 2021 Investor Day on June 15th next year. More details of both events will be shared in the future. Dan?

Thanks, John, and welcome to everyone on the call. I hope you and your family are staying healthy and well. This morning, I'll provide an update on how Principal continues to respond to COVID-19 and its impact on our business. I'll discuss key performance highlights for the third quarter, our continued strong financial position, and how we are well positioned for long-term growth with the right strategies in place. Deanna will follow with our third quarter financial results, including the financial impacts from our annual actuarial assumption review in COVID, details of our capital and liquidity position, and an update on our investment portfolio. Safety of our employees and customers remains a top priority. While most of our employees continue to effectively work remotely, we're gradually welcoming some back into our offices around the world. We are extremely pleased on how effective and flexible our employees have been in this remote work environment while maintaining excellent customer service. Our investments in technology and digital solutions over the last several years continues to pay off and allow for a seamless transition. COVID has had an impact on the retirement and group benefits landscape, with both employers and employees recognizing the need for benefits that protect the health and well-being of both individuals and their families. This has magnified the role employer benefits play in attracting and retaining top talent, especially within small to medium-sized business community. Last quarter, I mentioned that the impact COVID is having on our customers was less about the size of the business and more about the industry they operate in. This continues to be true. We remain well diversified by geography and industry, and we're less exposed to industries most impacted. The pandemic has certainly created some unique opportunities and challenges for principal. Our integrated and diversified business model remains resilient. I'm confident that we're in the right businesses with the right teams in place, and we will continue to make investments to create long-term shareholder value. Moving to the third quarter highlights on slide four, we reported non-GAAP operating earnings of $235 million. Excluding the impacts of the actuarial assumption review and other significant variances, which Deanna will discuss, non-GAAP operating earnings of $417 million increased a strong 10% compared to a year ago quarter. The increase was driven by higher revenue from increased AUM and disciplined expense management, partially offset by foreign currency headwinds. At the end of the third quarter, we remained well capitalized with $3.4 billion in available cash and liquid assets, and $2.6 billion of excess and available capital were positioned to execute on the right opportunities that will enable principal to grow and create long-term shareholder value. Compared to the second quarter, total company AUM increased nearly $30 billion, or 4%, to $731 billion at the end of the third quarter. This increase was driven by both positive net cash flow and favorable market performance. We closed the quarter with a record PGI-managed AUM of $468 billion, and record PGI-sourced AUM of $226 billion. This continues to highlight the strength of our investment performance and our in-demand products and solutions. AUM on our China joint venture, which is not included in our reported AUM, declined 16% during the quarter to $120 billion. This decline was primarily due to the industry trends in China to move investments out of money market funds in light of the low interest rate environment. Through the first nine months of the year, total company net cash flow was a positive $11 billion, including $2 billion in the third quarter. On a trailing 12-month basis, net cash flow of $18 billion increased from $7 billion in the year-ago period. Principal International generated $1.8 billion of net cash flow and marked its 48th consecutive positive quarter driven by positive flows in Brazil, Southeast Asia, Chile, and Hong Kong. This is an extraordinary feat given the significant macro headwinds in emerging markets. RIS spread reported net cash flow of $500 million due in part to another strong quarter of opportunistic MTN and GIC issuances. RIS fee had negative $1.8 billion of net cash flow in the quarter, primarily due to continued COVID hardship withdrawals, lower sales and pressure on growth and reoccurring deposits. This also impacted PGI managed net cash flow's where we managed a portion of the retirement assets. PGI source net cash flow was a positive $1 billion, driven by our diversified products that continue to have strong performance, as well as multiple distribution channels and client types. Our investment performance remains strong. At quarter end, 73% of principal funds, ETFs, separate accounts, and collective investment trusts were above median for the one year, 77% above median for three year, 76% were above median for five year, and 91% above median for 10 years. Additionally, for Morningstar-rated funds, 74% of the funds level AUM had a four- or five-star rating. This continued strong performance positions us well to attract and retain assets going forward. Combined with positive net cash flow, this is a testament to the great work our teams have been doing to create in-demand products and leverage our digital investments. I'll now share some additional execution and business highlights, starting with the integration of the IRT business. Despite working remotely, our teams have successfully started to migrate the core IRT retirement business to our platform. The migration of the retirement plans will continue through the summer of 2021. Importantly, the strategic and cultural fit are confirmed and showing benefits already. The revenue and expense synergies are also confirmed. Though delayed, with the expense synergies expected to be 50% higher than originally modeled, these benefits will help mitigate the impact from the reduction in the interest on excess reserve, or IOER, rate on deposit revenue. These financial benefits will start to emerge after the transition services agreement unwinds in the summer of 2021. Our increased scale and access to the consultant and large market channels have doubled the volumes of created pipeline in the large plan segment, This pipeline is coming from distribution channels we haven't previously had access to. The combined platform we built offers enhanced capabilities for not only our new IRT customers, but also our existing and prospective clients as well. We are extremely excited about the IRT business and the benefits it will provide throughout the organization and all of its segments, small, medium, and large plan markets. From a digital perspective, our principal mobile app remains a top-rated app in the retirement industry. With more ratings and actionable feedback, than our competitors. We also launched Simply Retirement by Principle, a new all-digital 401 solution that helps small business owners and their financial professionals build retirement benefit programs in a matter of just a few hours. Simply Retirement features competitive pricing, our industry-leading digital onboarding experience, and tools that make it easy to administer. In individual life, we've seen continued adoption of our term life digital self-service tool, Principle Life Online. one of the first fully digital experiences in the industry. Since January, we've had 47,000 applicants utilize this tool. By leveraging our digital application tools and investments in underwriting automation, about a third of our underwriting approvals can be completed with less than 10 minutes of underwriting time. In Chile, Coopram recorded its highest net transfer rate of new customers since our acquisition of Coopram in 2013. The new customer growth is driven by Coopram's easy-to-use digital solutions as well as our investments in direct-to-consumer and cloud capabilities, all of which have helped make our transactions simple for our customers. We've enjoyed some noteworthy third-party recognition during the third quarter as well. In our global asset management franchise, we receive recognition for our ESG efforts from the United Nations Principles for Responsible Investing, or UNPRI, PGI received an A-plus overall approach rating, and Principal Real Estate Investors received an A-plus rating for the fourth consecutive year, both the highest ranked awarded. Principal was recognized by Financial Advisor IQ Service Awards as a top three record keeper for an excellent advisor experience. U.S. News & World Report again named Principal to this list of top life insurance companies, and CNET named Principal the best overall life insurance company for 2020. In PI, BrazilPrev was recognized by Isto e Dinheiro magazine as the best insurance company in financial sustainability, innovation, quality, and social responsibility. They've been performing an annual analysis for the last 16 years. Before I turn the call over to Deanna, I'd be remiss if I didn't recognize the upcoming retirements of Tim Dunbar and Julia Lawler. I'd like to thank Tim and Julia for their unwavering commitment to principle over the last 35 years. They've been tremendous individuals, leaders, and professionals. over the years in our organization would not be the same place today without them. I, along with so many others, will miss them personally and professionally. We wish you both the best in your well-deserved retirement. That said, Pat Halter and Ken McCullum are in place to now carry the torch as we continue our journey as an ever-evolving and growing global financial services organization. Deanna? Deanna?