Principal Financial Group Inc

Good morning and welcome to the Principal Financial Group Fourth Quarter 2023 Financial Results and 2024 Outlook 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 yourself to one question 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 Li, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group's fourth quarter and fourth year 2023 earnings and 2024 outlook 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. We will then open up the call for questions. Other members of senior management will also be available for Q&A. 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, 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. We are planning to host our 2024 Investor Day on Monday, November 18th in New York, and look forward to seeing many of you over the coming months. Dan?

Thanks, Humphrey, and welcome to everyone on the call. This morning, I will discuss key milestones and highlights from the fourth quarter of and full year 2023 as we continue to execute our strategy with discipline and focus and deliver strong results for our customers and shareholders. Deanna will follow with additional details of our results, the investment portfolio, our capital position, as well as our 2024 outlook. 2023 was a great year for Principal. We delivered on our ambitious outlook for the enterprise despite a wide range of macro issues, including significant geopolitical events and global inflation. These factors resulted in elevated market and interest rate volatility, which impacted investor risk appetite and increased allocations to cash and cash equivalents. Our diversified and integrated business model continued to prove resilient despite these challenges and generated robust fourth quarter and full-year results. Starting on slide three, we reported $1.6 billion of full-year 2023 non-GAAP operating earnings, or $6.55 per diluted share. Excluding significant variances, earnings per share increased 6% over 2022, at the top end of our 2023 outlook. Our strong capital position and full-year free capital flow enabled us to deliver on our capital deployment strategy. We invested for growth in our businesses and returned more than $1.3 billion of capital to shareholders through share repurchase and common stock dividends. nearly 90% of net income excluding exited businesses. As shown on slide four, we reported $441 million of non-GAAP operating earnings, or $1.83 per diluted share in the fourth quarter. We ended 2023 with $695 billion of total company-managed AUM, up over 9% from 2022. While markets were volatile throughout the year, they finished the year strong. Market performance and foreign currency tailwinds more than offset outflows on a full-year basis. Adjusting for the large withdrawal as we discussed last quarter, we generated a positive $350 million of PGI institutional net cash flow in the fourth quarter, driven by real estate and fixed income flows. Retail net cash flow for us and the asset management industry remains challenged as approximately $6 trillion of assets remain in money market funds or cash equivalents. We continue to benefit from diversification of distribution channels among institutional, retail, retirement, private assets, and international geographies. Our organic growth rate measured by net cash flow as a percentage of beginning of period assets has proven more resilient than our active management peers over the last 12 months. As interest rates retreat from their peak, we were well positioned with the right strategies as investors begin to reallocate back into risk-based assets. The pipeline of committed yet unfunded real estate mandates remains strong, currently over $6 billion that we'll put to work opportunistically. We continue to grow our in-house capabilities, including principal alternative credit, our direct lending franchise that recently surpassed $2 billion in borrower commitments since we launched in 2020. We have generated an 11% IRR since inception, and the current portfolio yield is 13%, making this a compelling offering for our clients. This is yet another testament of our dedication to providing differentiated investment capabilities to clients across all asset classes. Turning to slide six, investment performance improved significantly across Morningstar-rated funds and composites, particularly in our retirement-focused asset allocation strategies. While there have been some quarterly fluctuations, we're focused on generating consistently strong long-term performance for our clients. In Principal International, we ended the quarter with a record $180 billion of total reported AUM. The increase was driven by a combination of market performance, foreign exchange tailwinds, and over $2 billion of positive cash flows through 2023, evenly split between Latin America and Asia. While the Asia economy continues to face headwinds, we are still confident about the region's long-term potential. We welcomed a new president of Latin America in November, Pablo Springer. Pablo joins principal with more than 20 years of industry experience, most recently a CEO of Sura Investments. His deep knowledge of our markets and the customer segments we serve will be valuable in driving growth across the region. Turning to U.S. retirement, we generated strong growth in revenue and earnings in the fourth quarter. Our focus on revenue generation and continued expense discipline helped drive the full year margin above the top end of our guidance range while we continue to invest for future growth. Business fundamentals remain very healthy. We generated a strong growth in transfer deposits over the fourth quarter of 2022, including a 9% increase in fee-based and 36% increase in spread-based transfer deposits. These strong results were driven by growth in the retirement plan sales, as well as robust pension risk transfer sales, which exceeded targeted returns. Total RIS reoccurring deposits increased 12% over the year-ago quarter, including a 14% increase in the SMB segment. This growth was primarily driven by an increase in participant deferrals and employer matches in retirement plans. While we were pleased to see plan lapses moderate in the fourth quarter, which is typically an active quarter for plan transitions and lineup changes, participant withdrawals increased over the year-ago quarter. All in, we saw significant improvement and account value net cash flow compared to the fourth quarter of 2022. For the full year, RIS sales increased 9% over 2022, driven by a 17% increase in fee-based transfer deposits and nearly $3 billion of pension risk transfer sales. We continue to leverage our favorable market position with a full suite of retirement and workplace solutions, and like the good momentum we're seeing in our retirement platforms heading into 2024. In specialty benefits, record full-year sales, as well as strong retention, employment, and wage growth, contributed to a 9% growth in premium and fees over both the fourth quarter of 2022 and full year. Attractive segments within the SMB market remain underpenetrated, and we are confident in our ability to serve these customers with a meaningful value proposition. Sales and specialty benefits so far this year are tracking to our expectations, and importantly, retention is also strong. These factors give us confidence we will continue to grow faster than the market in 2024. In life, premium and fees for the total block increased 5% over the fourth quarter of 2022, including a 26% increase in the business market segment. Our focus on the business market is resonating with distribution partners and has more than offset the runoff in our legacy retail block. I'm excited about the growth opportunities across principal and and remain confident that our focus on higher growth markets combined with our integrated product portfolio and important distribution partnerships will continue to create value for customers and shareholders. At our core, we remain committed to providing individuals, businesses, communities, and markets access to essential financial tools, products, and guidance, and we see strong demand for our brand of expertise and support in today's environment. Before turning it over to Deanna, I'd like to highlight an important recognition we received this quarter, included on slide five, along with other 2023 awards and recognition. For the 12th consecutive year, principal asset management was once again named a best place to work in money management by pensions and investments, earning this recognition every year since the inception of the award. Recognition like this helps us benchmark progress, attract and retain talent, and stand out in the marketplace. I'd be remiss if I didn't also take a moment to recognize Pat Halter, President of Principal Asset Management, who announced his retirement after 40 years with the company. I will miss Pat as a business leader and also as a very trusted advisor. I wish he and his family much success in the next phase of their life. He has guided Principal Asset Management through significant growth, including further diversification of its active, special investment capabilities into private markets and new geographies. I'd also like to congratulate Kamal Bhatia, who has assumed the role as President of Principal Asset Management. Kamal joined the company in 2019 as an industry veteran with significant experience in investment solutions, business strategy, client engagement, and product development. We close 2023 with momentum across our diverse portfolio businesses. Our success is a testament to the focus and hard work of our nearly 20,000 dedicated global employees. Their ongoing commitment to excellence and to our customers enable us to seize opportunities and set the stage for future growth. Deanna?