Principal Financial Group Inc

Group Second Quarter 2023 Financial Results Conference Call. There will be a question and answer session 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 will now turn the conference over to Humphrey Li, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group's second quarter 2023 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 Deanna Strabo will deliver some prepared remarks. We will then open up the call for questions. Others available for Q&A include Chris Littlefield, Retirement and Income Solutions, Pat Halter, Asset Management, and Amy Frederick, Benefits and Protection. 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. Dan?

Thanks, Humphrey, and welcome to everyone on the call. This morning, I will share key aspects of our second quarter financial results and some notable performance highlights. Deanna will follow with additional details and an update on our current financial and capital position. Our leading position in the U.S. small to mid-sized business market contributed to healthy growth across our benefits and protection and retirement businesses. Across the enterprise, we continue to balance investing for growth in our business with disciplined expense management, and favorable 2023 equity market performance is starting to benefit revenue in our fee-based businesses. Starting on slide three, we reported $376 million of non-GAAP operating earnings, or $1.53, per diluted share in the second quarter. Excluding significant variances, earnings per share increased 4% over the second quarter of 2022. Our second quarter results highlight our focus on our growth drivers, the power of our integrated offerings, and the value of our differentiated distribution and joint venture partnerships, and our deep customer relationships. During the quarter, we delivered on our capital deployment strategy, investing for growth in our business and returning $255 million of excess capital to shareholders through share repurchases and common stock dividends. Our businesses generated strong pre-capital flow in the quarter, and we are on track to deliver on our targeted 75% to 85% for the full year. We ended the quarter with nearly $675 billion of total company managed AUM. A 2% increase from the first quarter improved market performance and positive impacts from foreign currency more than offset a negative $3.9 billion of net cash flow. Across the industry, active asset managers were challenged by net outflows in the quarter. While our real estate net cash flow was positive in the quarter and year to date, it was pressured relative to prior periods. Looking ahead, we are beginning to see greater opportunities to deploy new money into real estate marketplace. We have a real estate pipeline of approximately $7 billion of committed, yet unfunded mandates that are expected to be invested over the next 12 to 18 months as valuations and market conditions stabilize. The third quarter is off to a good start for global asset management, as we are seeing momentum build across high yield and core fixed income, specialty equity strategies, local solutions in our international markets, and select real estate property types, such as data centers. We are well positioned to capture net cash flow across our platform as investor appetite for risk assets, returns, and our yield-oriented capabilities become attractive again as we approach the end of the Fed rate hike cycle. As shown on slide four, investment performance improved significantly across our Morningstar-rated funds and composites, including our fixed income, asset allocation, and actively managed equity strategies. We're continuing to create new products and diversify across investment vehicles. We are bringing to market new ETFs that offer investors additional ways to access some of our most popular solutions. In mid-July, we launched the Focused Blue Chip ETF to offer investors another way to access our large-gap strategy, which has generated strong long-term returns for our investors. We also launched a new equity strategy with our Asset Management joint venture, CCB principal asset management. This strategy offers investors an offshore opportunity to invest in the new energy industry in China, including renewable power, electrical equipment, energy storage, and electric vehicles. We're working through the final regulatory stages to make the USITS fund available across much of Asia. With this positive momentum and recovery in our investment performance, we're optimistic for asset management net cash flow in the second half of the year. In Principal International, total AUM increased 4% to $174 billion during the quarter, primarily driven by favorable market performance and foreign currency translation. I've had the opportunity to engage in person with many of our longstanding global joint venture partners in the first half of the year. We have established deep relationships combining our global expertise with their market-leading distribution capabilities. I have great confidence in the differentiated value of these relationships, to continue to enable preferred access to global high-growth markets. Across U.S. retirement and benefits and protection, revenue is benefiting from strong employment market, especially within the small to mid-sized business segment. Though we are seeing moderation in employment growth from record highs, wage growth is accelerated. These employment trends, coupled with strong sales retention, are contributing to our continued above-market premium and fee growth and specialty benefits which increased 8% over the second quarter of 2022. Capitalizing on opportunities, we launched a hospital indemnity insurance product in the second quarter. This product complements our existing core workplace benefits, rounds out the voluntary products portfolio, and will further drive supplemental health growth within specialty benefits. In retirement, net cash flow was pressured in the second quarter due to an uptick in large plan lapses. Large plan sales and lapses fluctuate quarter to quarter. and can have a significant impact on net cash flow, but they generally have a lower overall impact on revenue for our retirement business. Looking at the SMB segment within retirement, net cash flow was a positive $265 million, driven by a 16% increase in transfer deposits and a 9% increase in reoccurring deposits, stronger results than the overall block compared to the year-ago quarter. We expect retirement sales to pick up in the second half of the year. with strong full-year growth across the SMB and large plan segments. We remain focused on driving profitable growth in RIS, leveraging our leading market position and full suite of retirement solutions. We continue to expect to be within our net revenue growth and margin guidance for the full year. Bottom line, we are excited about the growth opportunities across the enterprise. I'm confident that our focus on the high-growth markets combined with our differentiated product suite and distinct set of distribution partnerships, will continue to drive value for our customers and our shareholders. Deanna?