Principal Financial Group Inc

Good morning and welcome to the Principal Financial Group first quarter 2021 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 then the number one on your telephone keypad. We would ask that you please be respectful of others and limit your questions to one and a follow-up so we can get everyone in the queue. I would now like to turn the conference over to John Egan, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group's first quarter 2021 conference call. As always, materials related to today's call are available on our website at principal.com backslash investor. Following the reading of the Safe Harbor provision, CEO Dan Houston and CFO Deanna Strable will deliver some prepared remarks. Then we'll open up the call for questions. Others available for the Q&A session include Rene Schaaf, Retirement Income Solutions, Pat Halter, Global Asset Management, 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're looking forward to connecting with many of you at our 2021 Investor Day, which will now be held on June 29th. The event will be virtual, and we'll share more details in the near future. Additionally, our 2020 Corporate Social Responsibility Report was recently released, and we launched a new sustainability subsection on principal.com. Our 2020 CSR report highlights several achievements from the year and new commitments we've made. View the report and learn more about our ESG strategy at principal.com backslash sustainability. Dan?

Thanks, John, and welcome to everyone on the call. This morning I will discuss key performance highlights for the first quarter and the growing momentum we're seeing across our diversified business. Deanna will follow with additional details of our first quarter results and our current financial positions. 2021 is off to a strong start. Beginning on slide four, we reported non-GAAP operating earnings of $424 million. Excluding significant variances, non-GAAP operating earnings increased 18% over the first quarter of 2020, driven by solid execution and improved macroeconomic conditions. We're very optimistic about the opportunities that lie ahead, as momentum has returned in many of our businesses and we continue to see resiliency in small to medium-sized businesses. In the first quarter, we had strong in-group growth from positive employment trends and group benefits, and we had record sales in our retirement business, while participant deferrals and company matches increased and returned to pre-pandemic levels. We continue to be in a very strong financial position, with $2.8 billion of excess and available capital. We deployed over $250 million of capital in the first quarter through share repurchases and common stock dividends. Last night, we announced a $0.61 common stock dividend payable in the second quarter, a $0.05 increase over the first quarter dividend. This increase helps us stay on track with our targeted 40% dividend payout ratio. We're confident that our businesses will continue to generate strong earnings and create long-term value for shareholders. We closed the first quarter with record total company AUM of $820 billion, an increase of nearly $190 billion, or 30% over a pressured first quarter of 2020. This includes $19 billion of positive net cash flow. And we achieved record PGI managed and PGI sourced AUM of $508 billion, and $250 billion, respectively. Our diversified suite of products and solutions are in demand in the current market and continue to be relevant to institutional retail investors, as well as our affiliated businesses. Investment performance remains strong, as 57 percent of principal mutual funds, ETFs, separate accounts, and collective investment trusts were above median for the one-year time period, 77 percent for the three-year, 76 percent for five years, and 89 percent for the 10-year. For our Morningstar-rated funds, 71 percent of fund-level AUM had a four- or five-star rating. Longer-term performance, which drives our net cash flow, remains strong and positions us well to attract and retain assets going forward. Principal International reported $160 billion of AUM in the first quarter, a 15 percent increase on a constant currency basis compared to a year ago. China AUM, which is not included in our reported AUM, increased to $155 billion in the first quarter. Total company net cash flow was a positive $8 billion in the first quarter, $5 billion higher than the first quarter of 2020. RIS fee generated $5.7 billion of net cash flow, driven by a record $8 billion of retirement sales, growth in reoccurring deposits, as well as low contract lapses and participant withdrawals. The pipeline is robust, especially in the large plan market, and is expected to drive strong growth in full-year sales. Participant withdrawals as a percent of average account values returned to pre-pandemic levels in the first quarter, a recovery that is expected to persist throughout the year. While PGI's source first quarter net cash flow was a positive $400 million driven by strong institutional flows, PGI managed net cash flow was a negative $500 million. To better meet customers' needs, we chose to move approximately $7.5 billion from mutual funds to collective investment trust in April. This will not impact second quarter net cash flow, nor will there be a material impact on revenues or earnings. Principal International reported $1.4 billion of first quarter net cash flow, the 50th consecutive positive quarter, driven by Southeast Asia and Hong Kong. Although not included in our reported net cash flow, China had $34 billion of net cash flow in the first quarter. While China clearly benefited from money market funds being in favor in the first quarter, we're making progress to diversify our offering through our joint venture with China Construction Bank, including $360 million of positive net cash flow and equity strategies in the first quarter. In addition, our digital distribution continues to grow in China, We added 3 million new digital retail mutual fund customers and doubled our digital AUM in the first quarter alone. The pandemic continues to impact many countries we operate in, Brazil in particular. Industry-wide net deposits were down 19% from a year ago. While we continue to lead the industry in pension deposits, first quarter net cash flow of $100 million declined from the fourth quarter. And in Chile, first quarter AUM was negatively impacted by $600 million in from COVID hardship withdrawals improved from $1.3 billion in the fourth quarter. I'll now share some additional execution and business highlights, starting with the integration of the institutional retirement and trust business. The integration is going very well and remains on track with a third successful migration occurring just last week. The migration of the retirement business will be completed in the second quarter and trust and custody in the third quarter. In total, we're adding more than 2.2 million retirement participants and approximately $140 billion in retirement account value through the IRT acquisition. Expense synergies will begin to emerge in the second half of the year, and the transition services agreement will wind down by the end of the year. To offset some of the pressure on earnings, we're working on solutions to mitigate the impacts that the low IOER rate has had on the acquired trust and custody business. We're beginning to realize some tangible benefits of the IRT acquisition, having scale and additional distribution channels help drive record retirement sales in the first quarter, and our pipeline has doubled compared to a year ago. As we're servicing more customers, revenue synergies are starting to build and exceeded our expectations in the first quarter, including IRA rollovers, automatic IRAs, and asset management opportunities. This business is a powerful growth driver for principal. We are increasing our scale to better serve small, medium, and large-sized clients. We're enhancing our capabilities, and we have a more robust platform that is needed to compete in the retirement business moving forward. A few other business highlights to note. In RIS spread, we had approximately $900 million of opportunistic MTN and GIC issuances in the first quarter. The PRT pipeline continues to build. and we expect a robust second half of the year. Individual life sales rebounded with a 30 percent increase over the prior year quarter, driven by non-qualified deferred compensation, an important component of our total retirement solutions and our small to medium-sized business strategies. A few weeks ago, Principal unveiled new corporate responsibility commitments that bring additional accountability to our ESG strategy. Through these commitments, we're pledging enhanced support for women and minority-owned businesses, continuing to nurture a diverse and inclusive work environment, and by 2050, we are targeting net zero carbon emissions. As many of you are aware, we entered into an agreement with Elliott Management earlier this year to conduct a strategic review of our business mix, capital management, and capital deployment, as well as add two independent directors to our board. The review, which is being led by the Finance Committee of our board, is well underway and will share the outcome in late June. We're considering the entire spectrum of options to enhance shareholder value, meet the needs of our customers, and strengthen our position as an industry leader. We've had very insightful conversations with many of our investors and sell-side analysts since reaching our agreement with Elliott Management in mid-February. I want to thank all of you for your candor and your perspectives. Our conversations with Elliott remain constructive. Last night, we announced Claudia Marizabal is joining our board of directors. Claudia's immense global experience and leadership in the technology industry will bring valuable insights to our digital initiatives around the world. Combined with the addition of Meliz Beams in February, we've now added two new independent directors in 2021, per our agreement with Elliott. With that, let me turn it over to Deanna.