Principal Financial Group Inc

Good morning and welcome to the Principal Financial Group Fourth Quarter 2022 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. A confirmation tone will indicate your line is in the question queue. We would ask that you 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 fourth quarter and full year 2022 conference call. As always, materials 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 Diana Strabo will deliver some prepared remarks. Then we'll open the call for questions. Others available for Q&A include Chris Littlefield, Retirement and 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 Private Security 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. Reconciliation 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. Our 2023 outlook call is scheduled for Thursday, March 2nd, where we will share enterprise and business unit 2023 and longer-term guidance. On Wednesday, March 1st, we plan to release a recast fourth quarter 2022 financial supplement. It will include the impact of the Target Improvement for Long Duration Insurance Contract Accounting Guidance, or LDTI, which goes into effect with our first quarter 2023 reporting.

Dan? Thanks, Humphrey, and welcome to everyone on the call. This morning, I will discuss the milestones we achieved in 2022 as we executed on our strategy, along with key highlights from our fourth quarter and full year 2022. Deanna will follow with additional details on our fourth quarter and full year 2022 financial results, our current financial and capital position, as well as an update on LDTI. In 2021, we outlined our strategic path forward, one balanced with a focus on a higher growth, more capital efficient portfolio, and a commitment to return more capital to shareholders. This guided our successful execution in 2022, despite a challenging macroeconomic environment. We've made meaningful progress towards our goals and continue to invest in our long-term growth drivers of retirement, global asset management, and benefits and protection. In January, we announced an agreement to reinsure our US retail fixed annuity and universal life insurance with secondary guarantee blocks of business. The transaction closed in May and was a key milestone, reinforcing our strategic focus on continuing to evolve into a higher growth, higher return, more capital efficient portfolio while improving our overall risk profile. We delivered on our strengthened capital deployment strategy and our commitment to right-size return the excess capital that we had built up during the pandemic with $2.3 billion returned to shareholders in 2022 through share repurchases and common stock dividends. We've continued to adapt to the volatile and uncertain macro environment and have taken appropriate actions to manage our expenses with pressured revenue while continuing to serve the needs of our customers. invest for growth, and deliver strong total shareholder return. Starting on slide two, we reported $1.7 billion of full-year 2022 non-GAAP operating earnings, or $6.66 per diluted share. Excluding significant variances, earnings per share increased 2% over 2021, a strong result given the pressured macroeconomic environment. As shown on slide three, we reported $422 million of non-GAAP operating earnings, or $1.70 per diluted share in the fourth quarter. Wind at 2022 was $635 billion of total company-managed AUM. Unfavorable equity and fixed income markets pressured AUM throughout 2022, and $23 billion was transferred out in the second quarter as part of the reinsurance transaction. Turning to investment performance on slide five, our long-term performance remained strong, particularly in our specially fixed income strategies. The volatile markets impacted our short-term investment performance throughout 2022 as our investment style, which is focused on high-quality growth stocks, was out of favor for much of the year. During a volatile and pressured year for asset managers, we generated a positive $3.9 billion a full year total company net cash flow, This was $1 billion higher than our 2021 net cash flow and included $4.4 billion of positive PGI managed net cash flow. This was a very strong result during a period of outflows across the industry. The positive net cash flow in 2022 was driven by strong institutional flows across equities, real estate, and specially fixed income, highlighting the value of our diversified distribution through our institutional retail and retirement channels. Fourth quarter total company net cash flow was negative $3 billion. Net cash flow is typically negative in the fourth quarter for both PGI and RISV. Similar to other asset managers, we experienced retail platform outflows during the quarter as customers moved cash to the sidelines. While market volatility can impact the timing of when new mandates fund, we are seeing positive momentum with our institutional clients. Early in 2023, we have meaningful commitments for several of our fixed income and special equity strategies, which are expected to fund in the first quarter. The committed pipeline for our real estate products is healthy, which will likely start funding in the second half of the year, turning to our growth drivers and some additional highlights for the year. In retirement, we continue to solidify our position as a top retirement provider as we completed the integration of the IRT business in early 2022. The acquisition provides us with new capabilities, additional revenue-generating opportunities, and expanded distribution relationships. RISV contract lapses contributed to negative account value net cash flow in the quarter. The fourth quarter is typically the highest quarter for lapses, as plans often change providers at the end of the year. Roughly one-third of the lapsed account value was related to a single, low-fee, large case with no principal managed assets. Looking ahead to the first quarter, we anticipate positive net cash flow in light of our sales pipeline. The underlying fundamentals of the retirement business were strong throughout 2022. Compared to full year 2021, total reoccurring deposits increased a very strong 26%, with a 14% increase on our legacy block. This was driven by employment growth and wage inflation, as well as increases in participant deferrals, company matches, and higher incentive compensation. We also saw great opportunities in the future. With the passage of SECURE 2.0, a bill for which we advocated, this legislation expands the U.S. retirement market overall, creating greater access to retirement savings plans for businesses and improving long-term savings and financial security for Americans. While it will take time and won't have an immediate impact, we expect that the bill will drive increases in new plan formations, employer matches, as well as employee participation in deferrals. all of which will help support better retirement readiness and long-term growth in our business. We're uniquely positioned to benefit from Secure 2.0, thanks to its focus on small and mid-sized businesses and its support for more cost-effective startup plans. We're already leaders in this market and applaud the additional options for workers to save more for retirement. Outside the U.S., we continue to focus on markets with compelling growth opportunities where we can leverage our local and global asset management capabilities and lean in to establish local partners. During the fourth quarter, we extended and strengthened our asset management partnership with CIMB in Southeast Asia. And at the end of the year, we closed our transaction with China Construction Bank Pension Management Company, acquiring a minority ownership stake in the pension company. This is expected to be immediately accretive and grow over time. Both opportunities expand our existing partnerships of more than 17 years with these market-leading wealth management, mutual fund, and pension distributors. In global asset management, we continue to unify our investment footprint across more than 80 markets we serve, demonstrated by the launch of principal asset management in October and increasing integration with Principal International. We continue to expand our specialty offering in 2022. As an example, our direct lending team doubled its committed capital and increased their foothold in the middle market throughout the year. Principal Asset Management has once again been named a best place to work in money management by pensions and investments. This is the 11th consecutive year we have earned this recognition, and it's a testament to the work of our employees to create a positive culture and deliver results for our customers. In benefits and protection, our focus on the small to medium-sized business delivered strong results in 2022. The businesses we serve prioritize providing benefits to attract and retain employees throughout the year. Record sales, strong retention, and employment growth is evident in specialty benefits results. We deepened our relationships with existing customers, attracted new customers, and expanded our market share. In specialty benefits, premium and fees increased a robust 11% year-over-year, exceeding the top end of our guidance range. With over half of the growth coming from net new business, full-year sales increased 19% compared to 2021, with continued strong momentum early in 2023. Our focus on business owner and our diversified set of solutions continues to drive results in individual life insurance. Full-year business market sales hit record levels, up 73% year-over-year. This growth included record non-qualified Coley sales, Approximately 50% of these sales were with our retirement plan customers, highlighting the value of our integrated business model. We're delivering on our go-forward strategy, transforming our portfolio businesses, resulting in a higher multiple and increased shareholder value. We have de-risked our portfolio, reduced our balance sheet risk, and are less capital intensive. We have sharpened our focus on higher growth markets, investing in our business, and leveraging our competitive advantages. all while returning more capital to shareholders. While 2023 presents its own challenges, we have a good line of sight and confidence in achieving our long-term financial targets. Deanna?