Principal Financial Group Inc

Good morning and welcome to the Principal Financial Group fourth quarter and full year 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 fourth quarter and full year 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 on our U.S. investment portfolio and other supplemental details. Following a reading of the Safe Harbor provision, CEO Dan Houston and CFO Deanna Strabel will deliver some prepared remarks. Then we will open up the call for questions. Others available for the Q&A in session include Renee Schaff, Retirement Income Solutions, Pat Halter, 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 remind you of two upcoming investor outreach dates. Our 2021 outlook call will be held on February 25th, and we're hosting our investor day on June 15th.

Dan? Thanks, John, and welcome to everyone on the call. I hope you and your family are healthy and well. This morning, I'll discuss key performance highlights for the fourth quarter and full year 2020. 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 additional details of our fourth quarter and full year 2020 financial results, impacts from COVID, our capital and liquidity position, and details of our investment portfolio. 2020 was truly one for the ages, a global pandemic as well as social and political unrest here and abroad. Bottom line, we dealt with these challenges head-on and kept our promises to our customers and our employees. In 2020, we prioritized exceptional service to our customers and employee safety above all else, just as we have throughout our 141-year history. In response to COVID, we waived fees on hardship withdrawals and granted premium concessions to support our customers, including individuals and businesses of all sizes who found new and often creative ways to manage through this pandemic. We kept our employees safe, transitioning to remote work around the world, I'm extremely proud of our employees for maintaining excellent customer service and staying focused on our long-term objectives, such as integrating the institutional retirement and trust business and advancing our digital strategy that is yielding tangible benefits to our customers. As discussed on previous calls, we have less exposure to industries that have been impacted the most from COVID, including hospitality and travel. The strength and resolve of the small and medium-sized businesses we work with in our U.S. retirement and insurance businesses, combined with our unique ability to serve them, continues to be a differentiator for principal. Our SMB customers have been resilient and are leading the recovery. In our retirement business, full-year net cash flow for our SMB block were positive and within our 1% to 3% of beginning-of-year account value guidance. And in group benefits, and group growth turned positive in the fourth quarter. And it was even stronger in businesses with less than 200 employees. Starting on slide four, principal delivered full year 2020 non-GAAP operating earnings of $1.4 billion. Excluding significant variances, non-GAAP operating earnings were flat compared to 2019. Higher fee revenue from increased AUM and account values, as well as ongoing expense management actions, We're partially offset by foreign currency headwinds, ongoing fee pressure, and lower sales. We continue to align our expenses with revenues, and our full-year results reflect nearly $250 million of benefits from our expense management actions. As some of the expense savings will naturally reset in 2021, we will remain diligent in managing expenses in line with revenues. We ended the year in a very strong financial position. With increased clarity and stability in the macro environment, we restarted our share repurchase program with $75 million of buybacks during the quarter. Along with our consistent dividend, we were able to deploy just over $900 million to shareholders in 2020. Total company AUM increased $71 billion year over year, or 10%, to a record $807 billion at the end of 2020. This increase was driven by positive net cash flow, favorable market performance, and the migration of some of the IRT retirement business during the fourth quarter. PGI also closed the year with a record managed and sourced AUM of $502 billion and $245 billion, respectively. Full-year PGI sourced sales were a record $56 billion, an increase of 30% from the prior year. This speaks volumes to the strength of our in-demand products and solutions, our distribution teams, as well as our consistent investment performance. At quarter-end performance for 83% of principal mutual funds, ETFs, separate accounts, and collective investment trust were above median for the one-year time period, 70% for the three-year, 80% for the five-year, and 91% for the 10-year. Additionally, for our Morningstar rated funds, 74% of the fund level AUM had a four or five-star rating. This continued strong performance positions us well to attract and retain assets going forward. Principal International finished 2020 with $165 billion of AUM. This was an increase of 6% on a constant currency basis compared to year-end 2019. We achieved record AUM in Mexico, Hong Kong, and Southeast Asia in the fourth quarter. AUM and our China joint venture, which is not included in our reported AUM, was $118 billion at year end. China AUM continued to be pressured by market trends. We are working diligently to address our customers' needs by developing new product solutions, strengthening our investment process, harnessing our institutional client network, and growing our digital distribution network in China. For the full year, total company net cash flow was a positive $14 billion, including $2.5 billion in the fourth quarter, an outstanding result during a volatile and difficult year. PGI's source net cash flow was a positive $1.1 billion in the fourth quarter and $5.6 billion for the full year, an increase of $4.8 billion from full year 2019. PGI managed net cash flow of $2 billion for the full year was driven by strong retail and institutional sales, along with positive general account cash flows. We continue to benefit from multiple distribution channels and client types through our general account, retirement, retail, and institutional clients that position us well as we move into 2021. RIS spread had $1.2 billion of positive net cash flow in 2020, including $200 million in the fourth quarter. RIS spread had $900 million of opportunistic MTN issuances in the fourth quarter and $2.9 billion for the full year. And pension risk transfer sales were $700 million in the fourth quarter and $3 billion for the full year. RIS fee full year net cash flow was a negative $300 million, largely driven by $2.8 billion of COVID-related hardship withdrawals. Excluding these hardship withdrawals in 2020, RIS fee net cash flow would have been within our 1% to 3% of beginning of year account value guidance. Principal International generated net cash flow of $1.2 billion in the fourth quarter, marking the 49th consecutive quarter of positive net cash flow. Full-year net cash flow was $4.2 billion with positive flows in Brazil, Chile, Mexico, Hong Kong, and Southeast Asia. This was a 20% increase on a constant currency basis compared to full-year 2019. In Chile, quarterly net cash flow increased throughout 2020, and we had a record number of net new customers transfer to Coopram during the year. Digital solutions continue to be a key to our strategy and drove strong business outcomes in 2020, as we make it easier for customers to do business with us. I'll now share some additional execution and business highlights, starting with the integration of our IRT business. We continue to move customers over to our platform. The second successful migration occurred in December. Most importantly, client and participant feedback from the first two migration waves has been overwhelmingly positive. A majority of the IRT business is slated to migrate in the second quarter of 2021, and we anticipate the synergies to begin to emerge later this year, as we've previously discussed. We will provide additional details on the integration and expected synergies during our Outlook call next month. We are one of the first to market with a uniquely designed pooled employer plan, Principalease, combining our integrated retirement plan administration, customer service, and investment management capabilities. This paves the way for unrelated employers to participate in a single pooled employer plan to give more people access to retirement benefits. In individual life, we received a record number of life insurance applications in 2020 as the pandemic increased awareness of mortality. Foreterm, the number of digital applications tripled from the beginning of the year, and nearly all policies were delivered electronically. We strategically review our business portfolio to ensure alignment with our goals, expertise, and client demands, choosing to enter or exit a business or product when it makes sense. Yesterday, we announced we are exiting our retail investment and retirement business in India. While recent business results within our India asset management business have been improving, We did not have the scale needed to deliver long-term value for our shareholders. Additionally, in individual life, we recently discontinued new sales of our lifetime guaranteed universal life products, a small portion of our overall block, and the most interest rate sensitive. Both these actions are examples of our strategic focus and discipline. Our core values continue to guide our actions in 2020, as shown by some noteworthy third-party recognition. PGI was awarded one of the best places to work in money management for the ninth straight year by pensions and investments in 2020. Principal was included by Forbes in the list of best employers for women and best employers for diversity. We also earned a perfect score on the Human Rights Campaign Foundation's 2020 Corporate Equality Index and Disability Equality Index. And we were named a 2020 Top Company for Executive Women by Working Mother Media, our 20th time on this list. Principal also received the Corporate Innovation Award from Plug and Play in 2020. This distinct recognition is awarded to corporations that have demonstrated a commitment to expanding their innovation culture and cultivating relationships with startups, other businesses, and thought leaders. Slide 22 highlights some of the progress we've made towards our long-term commitment to environmental, social, and governance efforts. ESG is becoming increasingly important to how we are viewed by our customers, investors, and partners especially outside the US. We recently joined the United Nations Global Compact, the world's largest corporate sustainability initiative. Principal has also been recognized as a climate change leader with an A- rating from Carbon Disclosure Project. 2020 presented many challenges. Our employees, customers, and communities have risen to these challenges. Last week, democracy prevailed with the transition of power in the United States. We urge unity and bipartisanship as we continue to advocate on our customers' behalf and promote policies that provide greater access to financial security. Guided by our diversified business model, winning strategy, strong financial position, and core values, we look forward to serving our customers, especially during the times they need us the most. Before I turn the call over to Deanna, I'd like to take a moment to personally thank Louise Valdez, who has provided nearly 30 years of leadership and dedication to principle. Luis's passion for emerging markets, leveraging technology, and embracing local cultures and customs has contributed significantly to our international success. He also leaves a legacy of strong local teams and leaders, including Roberta Walker and Thomas Chung. We couldn't be more happy for you, Luis, and your family, and wish you the best in your well-deserved retirement. With that, let me turn it over to Deanna.