Principal Financial Group Inc

Good morning and welcome to the Principal Financial Group Third Quarter 2024 Financial Results Conference Call. There will be a question and answer period after the speakers have completed their prepared remarks. To ask a question during the session, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. We would ask that you 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 call over to Humphrey Lee, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group's third quarter 2024 earnings 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 President and COO Deanna Strable will deliver some prepared remarks. We will then open 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. 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 discuss key milestones and highlights from the third quarter as we execute our strategy with discipline and focus. Deanna will follow with additional details on our results, capital position, and the outcome of our actuarial assumption review. It continues to be a strong year for principal as we delivered favorable results for our customers and shareholders, consistent with the commitments outlined in our 2024 outlook and reiterated last quarter. Starting with the third quarter, we reported $412 million of non-GAAP operating earnings, or $1.76 per diluted share. Excluding significant variances and our actuarial assumption review, our EPS was $2.05, a 12% increase in EPS over third quarter of 2023. The earnings growth on a year-over-year basis was fueled by a 5% increase in net revenue. This was primarily due to growth in the businesses, and favorable market conditions compared to the previous year. Earnings also benefited from strong expense management while reinvesting in our businesses. We returned $416 million of capital to shareholders in the third quarter, including $251 million of share repurchases. We raised our common stock dividend for the sixth consecutive quarter, aligning with our targeted 40% dividend payout ratio. At the end of the quarter, our total company managed AUM reached $741 billion, reflecting a 6% growth from the previous quarter. This increase was mainly driven by robust returns and positive market performance across equity, fixed income, and real estate. Lastly, our net cash flow for total company AUM showed improvement, both sequentially and on a year-over-year basis. Now turning to our businesses. In retirement, we are generating revenue and earnings growth Above the high end of our guidance, this momentum is driven by favorable market conditions and the breadth and depth of our integrated suite of retirement solutions, which span recordkeeping, asset management, and retirement income. In addition, the underlying fundamentals across the retirement remain healthy. Reoccurring deposits increased by 10% year over year across all segments. The number of individuals deferring and receiving employer matches, as well as the dollar amount of those deferrals and matches, continues to grow. Contract retention remains strong with lapse rates running lower than a year ago. We are on track to achieve our best full-year retention rates over the past five years. We are also benefiting from market performance, which drove account value growth in the quarter. While rising markets are a benefit to our business financially, the increased account values also result in a corresponding increase in the dollar amount of participant withdrawals. With respect to new retirement plan sales, We see a lot of momentum in our business with our pipeline up significantly across all segments, positioning us well for continued growth in 2025. As further evidence of our momentum, we recently received the second most mentions as a top record keeper from advisors in the 2024 NAPA Advisors' Choice Awards. This is a testament to the high-quality retirement services and solutions we offer to the market. Pension risk transfer sales were nearly $500 million in the third quarter, bringing our year-to-date sales to $2.2 billion in attractive returns. We remain on track to achieve our target of $3 billion in full-year sales. Turning to principal asset management, strong net cash flows in Principal International were offset by outflows in PGI. The outflows in PGI were driven in part by lower fee and yield products, as well as the rebalancing activities taken by institutional clients following strong appreciation. Our private real estate strategies generated approximately $400 million of positive net cash flow in the quarter, the 12th consecutive quarter of positive flows. Our unfunded commitments remain strong at approximately $5 billion as we continue to put money to work. We're also generating good underlying momentum with global retail and institutional investors, given the strong ongoing demand for our product offering and specialty capabilities. We're seeing notable increases in institutional RFP activities across equity, fixed income, and private assets. The year-to-date volume has already exceeded four-year volumes in 2023 and 2022. This increased activity is driven by broad interest in equity and fixed income strategies and very strong interest in commitments for our Real Estate Data Center Fund. Lower interest rates and improving liquidity are leading to more conversations, meetings, and searches for our broad range of public and private investment capabilities. These interactions are expected to drive continued business momentum over the next several quarters. Principal International ended the quarter with a record $185 billion of AUM, up 8% from the second quarter. This was driven by robust net cash flows, favorable market performance, and FX tailwinds. Positive net cash flows of $2.3 billion were driven by $2.1 billion of investment management flows, These were spurred by institutional mandate wins from new clients in Chile, Mexico, and Southeast Asia. These flows and current quarter results highlight the success we are having in going to market as a global asset manager across our integrated international franchise and the strong client interest in our local and global investment capabilities. While not included in reported AUM and net cash flow, our combined AUM in China was $268 billion, Asset management inflows in the quarter exceeded $18 billion, reflecting the recovering macro environment in the region. Turning now to benefits and protection. We continue to generate above-market premium and fee growth of over 6% in specialty benefits. More than half of our growth is driven by net new business, highlighting our leadership position in the small to mid-sized market. Our focus remains on high-growth, high-persistency industries. and we continue to deepen relationships with key distribution partners and customers. The average number of coverages per customer grew 3.5% to over three coverages per customer on a trailing 12-month basis. I'm excited about the opportunities across principal. We remain well positioned to capitalize on the immense opportunities that exist in the markets in which we do business today. Our diversified yet integrated portfolio allows us to manage through dynamic macro conditions while evolving to meet changing customer demands. We are locked in on driving growth, which will continue to come from aligning our businesses with the higher value creation opportunities and maximizing the intersection of our businesses. Our unwavering focus is on providing individuals, businesses, communities, and markets with access to financial tools, products, and guidance. We regularly assess global customer trends and sentiment. and we know the demand for our brand of financial security expertise and support is significant. For example, through our proprietary Global Financial Inclusion Index, we track the state of financial inclusion worldwide. A key finding from this year's study is while financial inclusion has improved globally for the second consecutive year, the perception of feeling financially included has fallen among global consumers. As a financial services leader, that tells us there is more work to be done While I'm encouraged by the increase in access to financial tools and solutions, I can't help but see the opportunity and demand to do more to support, advise, and enable the individual to feel more secure in their financial decision-making. Before turning it over to Deanna, I want to acknowledge her promotion in August to President and Chief Operating Officer. Deanna is a remarkable leader with an impeccable track record for the past 35 years, both in our industry and at principal. She has worked internationally, led our U.S. benefits unit, directed our strategy function during pivotal moments in our company's history, and most recently, she's done an exemplary job as our chief financial officer. Deanna's diverse roles have given her deep insights in what makes Principal successful and how we can continue to grow. Her passion and intense focus on the customer and creating shareholder value has been instrumental in strengthening our organization. The Board and I have complete confidence in her ability to drive the organization forward today and well into the future. Deanna, congratulations.