Principal Financial Group Inc

Good morning and welcome to the Principal Financial Group second quarter 2022 financial results conference call. There will be a question and answers 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. A confirmation tone will indicate your line is in the question queue. We would ask that you would be respectful of others and limit your questions to one and a follow-up so we can get to everyone in the queue. I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group's second quarter 2022 conference call. As always, material related to today's call are available on our website at investors.principal.com. Following a reading of the Safe Harbor provision, CEO Dan Houston and CFO Deanna Strabo will deliver some prepared remarks. Then we'll open up the call for questions. Others available for Q&A include Chris Littlefield, Retirement and Income Solutions, Pat Halter, Global Asset Management, and Amy Frederick, US 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. Risks 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. As a reminder, the transaction to reinsure our in-force U.S. retail fixed annuity and universal life insurance with secondary guarantee blocks of business closed in the second quarter. The transaction had an effective date of January 1, 2022, which resulted in a true-up in the second quarter to transfer the associated revenue, earnings, net income, and AUM to the counterparty. As a result, the second quarter financial results are not comparable to prior periods for RIS spread, individual life, and total company. Also related to the transaction, we've updated our ROE and book value per share definitions to exclude the cumulative change in the fair value of the funds withheld embedded derivative as the GAAP accounting treatment is non-economic. Additional details of the impact of the transaction are available in the second quarter earnings call presentation available on our website. Dan?

Thanks, Humphrey, and welcome to everyone on the call. This morning I will touch on key performance and business highlights for the second quarter, including our view on the impacts of our current macroeconomic environment. Deanna will follow with additional details on our results, our financial and capital position, our investment portfolio, and our initial LDTI estimated transition impact. She will also discuss the impacts of the reinsurance transaction, which was a key milestone for Principal as we continue to transform and evolve our portfolio to focus on our growth drivers. The value of our diversified business strategy was evident in our second quarter results during a period of volatile markets, high inflation, and macroeconomic uncertainty. Strong customer growth across our businesses, rising interest rates, and optimization within our general account are helping us to mitigate some of the headwinds from market volatility. We have a long track record of managing expenses to weather challenging times, and this period is no different. We're keenly focused on aligning expenses with revenues to help offset some of the near-term pressures on our fee-based margins. Second quarter financial highlights are shown on slide two. We reported $423 million of non-GAAP operating earnings, or $1.65 per diluted share, excluding significant variances, earnings per share of $1.70 increased 3% over the second quarter of 2021. We returned approximately $400 million to shareholders in the second quarter, and nearly $1.3 billion year to date through our share repurchases and common stock dividends. We closed the second quarter with $632 billion of total company AUM, reflecting the AUM that was transferred as part of the reinsurance transaction, as well as unfavorable equity and fixed income performance and foreign exchange headwinds. Our long-term relative investment performance remained strong. While short-term relative performance was pressured by market volatility, and a continued rotation from quality and growth to value investing in the second quarter. We have seen improvement in July. Total company net cash flow was a positive $1.5 billion in the quarter. This included $1.4 billion of PGI managed net cash flow driven by strong institutional flows across equities and real estate, partially offset by industry-wide retail outflows. The strong year-to-date net cash flow in PGI highlights the appeal and value proposition of our diverse and differentiated investment solutions across equities, real estate, and fixed income. We continue to develop products and capabilities to meet the needs of our customers. We recently launched an actively managed real estate ETF that combines two core strengths of principle, active management and real estate investing. It is focused on non-traditional real estate sectors, including data centers, life sciences, single-family rental, medical office, and self-storage properties, and provides retail investors access in a liquid ETF structure. We're also continuing to build our direct lending team and private credit capabilities. We now have 30 professionals on our team, deploying over $1.2 billion in the last two years, following the funding of our first loan. The demand for our differentiated solutions remains robust and will continue to expand our existing capabilities to meet our clients' needs. A few other business highlights from the quarter. Starting in Chile, despite a level of uncertainty in the future state of Chilean pension system, our business continues to grow. In the second quarter, Coopram experienced its fifth consecutive quarter of positive net rim, the salary base upon which we earn fees, as well as a positive net transfers of new customers, suggesting more Chileans are choosing to move their mandatory savings to Coopram. We remain engaged on the development on pension reform in Chile, and we continue to work with industry peers and stakeholders to promote a more inclusive and well-funded pension system to help improve financial security for all Chileans. In the U.S., the small to mid-sized business segments we target are weathering the current environment well. Similar to previous periods of uncertainty, employers are continuing to seek solutions to help attract and retain talent, and they are leaning into principle to help in a very competitive labor market. This is especially evident in specialty benefits, where premium and fees increased 11% over the year-ago quarter. Roughly half the growth was driven by net new business. This includes customers moving their benefits to principal, selling additional products to existing customers, attracting customers that are offering benefits for the first time, and maintaining strong retention. The remaining growth is attributable to employment growth and higher salaries from existing customers. Our dedication to creating unique, tech-driven solutions and group benefits is receiving recognition. Dalbar recently rated principle number one for online group benefits administration with its communication seal of excellence for superior web experience. This award spotlights one of our strategic priorities, customer experience. By listening to our customers and responding with systematic improvements to both digital and human interactions, We are consistently improving the customer's experience and helping them take the necessary steps towards financial security. In individual life, our targeted focus on the business market is paying off. Compared to a year ago, sales of non-qualified deferred compensation and business owner solutions increased 76% on a quarterly basis and 57% on a year-to-date basis, nearly offsetting the impact of our decision to focus solely on this market. Through continuous tracking of our brand health metrics, we're seeing steady increases in brand favorability among SMBs. This, in combination with focused distribution efforts and the market demand for our employer solutions, are driving these strong results. The resiliency of the SMB market also comes through our U.S. retirement business. An RIS fee, second quarter reoccurring deposits, increased 37% in total and 14% on our legacy block as compared to a year ago. We're seeing growth across our participant base, stemming from both net new business and employment growth on our existing block. Existing participants are also saving more. This, along with strong sales retention, drove $2.5 billion of positive account value net cash flow in the quarter. Dalbar also recently recognized Principal as one of the top five retirement plan providers with superior mobile enrollment experiences. This acknowledges our seamless rollover process, making it easy for participants to move their retirement savings to principal and opting into their new retirement plan. Overall, we're entering the second half of 2022 with momentum, prepared to navigate uncertainty in the macro environment. Our transformed portfolio focused on our growth drivers will continue to drive financial and customer results. Deanna?