Principal Financial Group Inc

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 second quarter 2025 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 Deanna Schrabo and CFO Joe Pitts will deliver prepared remarks. We will then open the call for questions. Members of senior management are also 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. Deanna?

Thanks, Humphrey. Good morning to everyone on the call. This morning I will discuss key milestones and highlights from the second quarter as we continue executing our strategy with discipline and focus to deliver strong results for our customers and shareholders. Joel will follow with additional details on our results and our capital position. Starting with results for the second quarter, adjusted non-GAAP earnings excluding significant variances was $469 million, or $2.07, an 18% increase in EPS over the second quarter of 2024. These results were supported by revenue growth strong margin and expense discipline across the businesses while investing for growth, a lower effective tax rate, and cumulative impacts from share repurchases. We returned $320 million of capital to shareholders in the second quarter, including $150 million of share repurchases. We also raised our common stock dividend for the eighth consecutive quarter, aligning with our 40% payout ratio. Volatility continued to underpin markets in the second quarter. The market drop in April drove daily averages lower for the quarter, impacting our second quarter fee revenue. This is in contrast to the positive market performance, which drove the end-to-end increase in our AUM. Notably, the strong rebound in May and June builds positive momentum heading into the second half of the year. The rally supported positive market performance in the quarterly AUM roll forward, bringing total company managed AUM to $753 billion, a 5% increase over the sequential quarter and an 8% increase over the second quarter of 2024. Net cash flow was negative $2.6 billion in the quarter, an improvement sequentially driven by positive net cash flow from global institutional clients across multiple products as we talked about last quarter. We continue to see demand for our investment capabilities. This included a significant high-yield fixed-income funding from an existing institutional client, continued flows into our mid-cap and private real estate equity strategies, and positive momentum in our ETF offerings. Overall, we remain confident in the second half of the year, and we expect our full-year enterprise results to be aligned with our 2025 outlook and enterprise financial targets. Now turning to the businesses. In retirement, we delivered strong results in the second quarter. Overall RIS sales of $6 billion increased 7% year-over-year, driven by our Workplace Savings and Retirement Solutions, or WSRS, and RILA. Looking ahead, we have a robust pipeline of opportunities that positions us well for continued growth. We see continued success in our small and mid-sized market. with 27% year-over-year transfer deposit growth, generating positive account value net cash flow in the quarter. Turning to pension risk transfer, according to LIMRA's first quarter industry report, principal ranked number three in both sales and contract count, reinforcing our leadership position in the market. We continue to be disciplined on PRT opportunities, focusing on those that meet our targeted returns. In principal asset management, AUM of $723 billion increased 5% sequentially on strong market performance and FX tailwinds. Principal asset management sales of $33 billion increased 19% over the prior year quarter, driven by investment management sales, which increased 24% over the same period. This included $10 billion sourced from our international clients. This quarter's results reflect continued progress on our strategy. the power of our global asset management business, and the benefits of a diversified client and channel base. In investment management, total fee revenue increased 6% over the year-ago quarter. Management fees grew 4% on higher average AUM, and we saw increased contributions from performance fees. We continue to expect full-year performance fees to be in line with 2024. In our specialty benefit business, we saw strong earnings growth of 10% as we remain focused on pricing discipline, leading to strong underwriting performance and margin expansion of 100 basis points. This disciplined approach positions us well for continued strong earnings growth. In our life insurance business, we delivered strong sales results driven by record non-qualified sales. These products continue to resonate with business owners and key employees, reinforcing our strong distribution relationships. Principal continues to be recognized externally for its leadership. We were named one of the 2025 Best Places to Work for Disability Inclusion after earning a top score of 100 on the 2025 Disability Equality Index. The Principal AI Generative Experience, or PAGE, was recognized as part of Newsweek's inaugural AI Impact Awards in the category of Best Outcomes Financial Services. Our AI efforts were recognized for outstanding achievements in applying AI to solve complex challenges, improve operations, and deliver meaningful outcomes. This spotlights our commitment to driving smarter decision-making, more personalized customer experience, and stronger risk management. Additionally, we received a 2025 CSO Award for our Digital ID Verification Initiative, highlighting the innovation and security embedded across our customer experience. Overall, the second quarter demonstrated the strength of our business and our ability to deliver results in dynamic markets. We're entering the second half of the year with momentum, confidence in our strategy, and continued discipline across the organization. Before I turn it over to Joel, I want to take a moment to congratulate him on officially being named our Chief Financial Officer in May. Joel stepped in as Interim CFO during a period of transition, and his deep institutional knowledge steady leadership, and clear command of our financials and businesses has been evident throughout. I'm looking forward to continuing to partner closely with him as we move the company forward and deliver strong results for our employees, customers, and shareholders. Joel?

Thanks, Deanna, for the kind words. I'm honored to officially step into the CFO role and appreciate the opportunity to continue working alongside our leadership team to create value for our various stakeholders. This morning, I'll share key contributors to our financial performance for the quarter, as well as details of our capital position. As shown on slide three, reported non-GAAP operating earnings were $489 million, up 27% year-over-year. And EPS was $2.16, up 33%. This included a $32 million after-tax, or 14 cents per share, benefit from a one-time expense accrual release. that is reflected as a significant variance. Excluding significant variances, second quarter non-GAAP operating earnings were $469 million, or $2.07 per diluted share. This represents an 18% increase in EPS over the second quarter of 2024 and a 14% increase year to date. Second quarter reported net income, excluding exited business, was $432 million, with minimal credit losses of $17 million. Non-GAAP operating ROE, excluding AAR, of 14.9 percent, improved 170 basis points compared to the year-ago period, comfortably within our 14 to 16 percent targeted range. These strong results were impacted by market performance in the quarter. Specifically, daily equity market averages on our asset center management were down sequentially, but up 6 percent compared to second quarter of 2024. The following commentary excludes significant variances which can be found on slide 12. Starting with RIS, second quarter top line growth was 3 percent. This coupled with expense discipline while investing in a business resulted in a 40 percent margin and 80 basis point improvement over the second quarter of 2024 and near the high end of our targeted range. Pre-tax operating earnings increased 5% from the prior year quarter, driven by growth in the business and margin expansion. Fundamentals across the business remain healthy. Transfer deposits were up 8% compared to the second quarter of 2024, including a 24% increase in fee-based transfer deposits. The number of individuals deferring and receiving employer matches is up 3% compared to the year-ago quarter. Total WSRS recurring deposits grew 7 percent on a trailing 12-month basis, with our SMB segment continuing to outperform at 9 percent growth over the same period. Participant withdrawal rates remain stable, and we're seeing continued strong contract retention. In principal asset management, investment management revenue increased 6 percent compared to second quarter 2024 within our targeted range. Higher management and performance fees contributed to a 250 basis point improvement in investment management's quarterly operating margin. In international pension, net revenue was impacted by foreign currency compared to the year-ago quarter. On a constant currency basis, net revenue increased 2% and pre-tax operating earnings grew 7% year-over-year. Operating margin of 47% expanded 180 basis points from the prior year quarter and remains within our targeted range. In specialty benefits, pre-tax operating earnings increased 10 percent compared to the year-ago quarter, driven largely by business growth and more favorable underwriting results. Premium in fees grew 3 percent compared to the year-ago quarter, impacted by sales and slight moderation in wage and employment growth. Importantly, persistency remains strong and in line with the prior year and our expectations. We expect overall premium growth to trend up in the second half of the year. The SBD loss ratio improved 130 basis points compared to the year-ago quarter. It was at the low end of our targeted range. This improvement was driven by more favorable group disability and group life results. In addition, dental results improved relative to the year-ago quarter and were positively impacted by our recent pricing actions. Operating margin of 15% expanded 100 basis points compared to the year-ago quarter. It was in the top half of our targeted range. In life insurance, premium fees increased 5% compared to the second quarter of 2024. A strong business market growth of 17% more than offset the runoff of the legacy life insurance business. Pre-tax operating earnings of $23 million were down year over year, driven by higher mortality from net claim severity, while frequency was better than expected. Our tax rate for the quarter was 18 percent, in line with our full-year target range of 17 to 20 percent. We expect the rates to remain within this range for the second half of and full year 2025. Turning to capital liquidity, we ended the quarter in a strong position with $1.4 billion of excess and available capital. This includes $800 million at the holding company at our targeted level, $250 million in our subsidiaries, and $350 million in excess of our targeted 375% risk-based capital ratio, which is estimated at 400% at quarter end. As a reminder, we built up excess capital in the first quarter to pre-fund our $400 million May maturity, which is paid off in the second quarter. Free capital flow in the quarter was slightly above our targeted range, and we expect to deliver on our targeted 75% to 85% free capital flow for the full year. As shown on slide three, we returned $320 million to shareholders in the second quarter, including $150 million of share repurchases and $170 million of common stock dividends. As a reminder, capital deployments are seasonally higher in the second half of the year. and we expect a higher level of share repurchases in the latter half of the year. With our strong capital position, we remain committed to delivering on our full-year capital return targets of $1.4 to $1.7 billion, including $700 million to $1 billion of share repurchases. Last night, we announced a $0.78 common stock dividend payable in the third quarter. This is a $0.02 increase from the dividend paid in the second quarter and an 8% increase over both the year-ago quarter and trailing 12-month period. This continues to align with our targeted 40% dividend payout ratio and demonstrates our confidence in continued growth. As Deanna outlined, our second quarter results reflect the strength and benefit of our diversified business. We remain confident in our ability to deliver on our financial targets, committed to deploying excess capital, and focus on creating long-term value for shareholders, all while supporting our customers' evolving needs. This concludes our prepared remarks. Operator, please open the call for questions.

Thank you. At this time, I would like to remind everyone that to ask a question, press star 1-1 on your telephone. We'll pause for just a moment to compile the Q&A roster. One moment for our first question. Our first question will come from the line of Tom Gallagher from Evercore ISI. Your line is open.

Good morning. First question is just on the overall expense levels. Deanna, I believe last quarter you mentioned that there was going to be a focus on it. Is there more to come on that in the second half of the year, or do you feel pretty good about where you're at now?

Yeah, thanks, Tom, for the question. I'll ask Joel to give a little more color on that. I think if you've looked at our experience over the last 10 to 15 years, we have a proven track record of aligning revenue and expenses. Obviously, the revenue and market outlook sitting here today is significantly different than it was when we were sitting here last quarter, but we did do some pullback on expenses and we continue to be very prudent about our expenses while continuing to make sure that we're balancing that with investments in the business. But I'll let Joel give a little more color.

Yeah, Tom, thanks for the question. As we've done historically, we'll continue to actively and responsibly align expense with revenue, as Deanna mentioned, and this quarter was no different. This is evidenced by our continued margin expansion. As we mentioned in our prepared remarks, you know, margins have improved 140 basis points year over year at the enterprise level, and 80 basis points on trailing 12-month basis. And this is all a product of expenses growing at a slower rate than revenue. During periods of market volatility like we experienced early in the first part of the second quarter, we will focus on what we can control. You know, at that time, we leaned into expense management activities and won't allow macro headwinds to hit our bottom line dollar for dollar. That's been our practice in the past, and that will certainly be our practice in the future. So we'll continue to align expense with revenues while investing in the business, and we feel really good about our expense structure going forward.

Tom, do you have a follow-up?

Okay, thanks. Yeah, my follow-up is... I noticed the RIS account values and the spread side went down somewhat this quarter. It looks like it's investment only. Any color on what you expect for the balance of the year on spread balances within RIS?

Yeah, thanks, Tom. I'll have Chris address that question.

Good morning, Tom. Thanks. Yeah, I think certainly IO issuance is a piece of the answer. If we look year-to-date, we saw more maturities in 25 and less issuances. As we look at that business, it's opportunistic, so we're constantly scanning the market to make sure that if there's an opportunity to get our targeted returns, we'll look at that, and we're going to continue looking at that to the balance of the year, so I wouldn't read any softness there across the full year. Second driver of the spread-based flows is really related to PRT. PRT had a bit more moderate quarter this year at about $450 $45 million of PRT sales. That is really due to two things. One, the pipeline of opportunities has been a bit smaller than we expected in the second quarter. And secondly, we weren't able to get the targeted returns. And so we were very disciplined and remain disciplined in making sure that we prioritize returns over volume. And if we can't put that capital work, we look to deploy that to other better organic uses or to return it to shareholders. So when I think about PRT generally, I think PRT, again, I think we're going to have a good year on PRT, but it's really going to be highly dependent on what that pipeline looks like in the second half of the year, as well as the market competitiveness and the returns that we're able to get.

Thanks, Tom, for your questions.

One moment for our next question. Our next question comes from John Barnage from Piper Sandler. Your line is open.

Thank you for the opportunity. My first question, building on the comments on PRT, talked about being focused on the returns and not the volume. Is it becoming a bit more of a competitive environment, or are there fewer maybe pension partners coming to market given the market dislocation that occurred in April? Thank you.

Yeah, thanks, John. As Chris just mentioned, you know, the pipeline was a little bit less But we continue to see a lot of success converting our DB clients into our PRT, and we'll continue to lean into that as well. But I'll see if Chris has some additional color.

Yeah, I mean, I think it really remains to be seen what that pipeline is going to look like in the second half. I mean, I think we remain optimistic in where we think we are going to land in PRT, if you look historically. We've sort of been in that range of $2.5 billion to $3 billion over the last several years, and we expect to land anywhere in that range, and where we land in that range is going to be really dependent on pipeline as well as that mark competitors. There clearly are more competitors in the PRT, but again, where we compete, we actually are able to generate a fair amount of our business from our own existing DB customer block, and then we're really thoughtful about returns and making sure we get our target returns and produce capital outside of those customers. So, you know, I feel really good about it, but, you know, it really remains to be seen over the balance of year and what develops.

John, do you have an additional question?

Yes, thank you very much. Maybe on variable investment income experience in the quarter, it's different between segments, and then any visibility into the third on that, thanks.

Yeah, John, I'll turn it over to Joel to address that question.

Yeah, John, thanks for the question. As it relates to the quarter, you know, VII performance was improved from first quarter 2025, and you can see that through our significant variances, which we provide a lot of transparency in that regard. I mean, as a reminder, just our portfolio is a little bit different than what you see elsewhere with 50% of our alt portfolio in real estate. That results in a lower concentration in categories such as private equity and hedge funds. On the real estate front, you know, year-to-date and 2Q25 are below run rate due to leasing activity and low transaction activity, which is exactly what we expected coming in the year. And signs of recovery are evident as office leasing has picked up. Since the majority of our real estate assets are not marked to market each quarter, we're sitting in a portfolio of very highly appreciated assets, gains in which they're not recognized until the time of sale. So we are expecting that transaction activity to pick up in the latter part of the year. We had no transaction activity in the real estate front in the second quarter. But as we've done historically, we'll continue to provide transparency in our alt returns relative to long-term run rate expectation due to use of our significant variances. As it relates to our outlook, to your question, we do expect improved results in the final six months of 2025 relative to what you saw in the first half, and we do expect improvement year over year. Having said that, we continue to expect returns for May of the year to be lower than long-term run rate assumptions, but, again, improved in the latter half of the year. So I hope that helps. John, any other questions on that front?

No, appreciate it. Thank you.

You bet. One moment for our next question. Our next question will come from the line of Wes Carmichael from Autonomous Research. Your line is open.

Hey, thank you. Good morning. First question on PGI. I think performance fees are around $9 million or so there, a bit higher than I was expecting. So I'm just curious if there was more transactional activity in the quarter. And I think you previously talked about performance fees being relatively in line with 2024. So just wondering if that outlook still stands.

Yeah, I'll ask Kamal to address performance fee and our investment management segment.

Wes, good morning. Thanks for the question. So I'll start, I think you had two parts. What drove our performance fees and how do we expect the rest of the year to play out? So first, we were quite pleased with the nature of performance fee this quarter. This quarter, the performance fees were primarily generated from our alternative debt strategies, which is predominantly direct lending and real estate debt, which reflects both a strong execution and the capabilities we've built over the years. Historically, a lot of our performance fees were real estate equity driven. So it's good that we are diversifying the base of our performance fee. The other aspect to consider as you think about is given that it was generated from debt, sometimes the quantum can be smaller, but the aperture of opportunity is wider as we build these capabilities. To your question on what does the rest of 25 look like? I would say the fee levels would be similar to 2024. You know, the transaction and borrower fees are probably expected to return to a more normal level as we complete this year. But those will be my perspective on your questions.

Wes, do you have a follow-up question?

Yeah, I do. And apologies for mischaracterizing investment management as PGI. But just switching to RIS, I think last year you'd launched a target date fund with an in-plan guarantee, but there was some plan around a product number 2.0 that was kind of in the works. I'm just curious if there's any update there. I think the plan was for it to be on balance sheet, but I don't know if Chris had any update there.

Hey, Chris. Yeah, thanks, Wes. Yeah, we did launch a passive target date with some guaranteed in it in the first quarter of this year off platform and have rolled it off on platform in the second quarter. So we are beginning to see a client take up, but honestly, it's really early days on that, and we think there's some good opportunities for us as plan sponsors get more accustomed to it and our advisors get more accustomed to it as well. So I I think there's a still remaining really good opportunity for us there, but I would say we're still in the very early innings of that game.

Thanks, Wes, for your questions.

Thank you. One moment for our next question. Our next question will come from the line of Sunita Kamath from Jefferies. Your line is open.

Great. Thank you. Good morning. I just wanted to start on RIS. Obviously, the earnings and the margins were quite strong, but the flows continue to be negative. So maybe just can you provide some color in terms of what's going on there and what is your sort of outlook for flows in the balance of the year? Thanks.

Yes, Sunit, thanks for recognizing the strong results in that business. I'll ask Chris to give a little more color on our flow outlook, but as you know, there are some dynamics within that business that are pressuring flows, but continue to focus on those areas where we can drive growth, and I think those played out this quarter as well, but I'll let Chris give some additional color.

Yeah, thanks, Sunit. I think, you know, as we've talked about for a few quarters now, elevated markets are not helpful to to overall AV net cash flows. And so we'll continue to see that trend continue. But if you look at the second quarter, the AV net cash flows are significantly improved from the year-ago quarter, and we saw improvement across all drivers, including transfer deposits, growth in recurring deposits, and more stabilized participant withdrawal rates. I think Deanna and Joel have hit on some of the key positives as well. really strong fee-based transfer deposit growth versus a year ago. And in the trailing 12 months, we continue to see strong asset retention, and we continue to see real nice resiliency in SMB flows. When it comes to participant withdrawals, we do see stabilization there. And while the dollar of withdrawals are up about 4% from a year ago, the overall average AV is up about 7%. So you're seeing sort of a stabilization or improvement in the withdrawal rate. And those withdrawals are largely elevated due to the strong market performance. So that continues to be a bit of the theme there and the challenge there. The only other thing I'd say with respect to fee-based flows, Sunit, is that, as we pointed out last quarter, some of the fee-based AV is also being impacted from outflows from our traditional variable annuity block, and some of that is converting into spread-based RILA product. And so that's another pressure that we're seeing in fee-based. So you might see fee-based traditional VA, but we're seeing very nice sales and increases of spread-based RILA product.

Got it. And then just sort of a related question, are you able to proactively reach out to plan participants as they get close to retirement and offer some of the, you know, rollover solutions that you provide? Is that something that you're able to do? And if it is, is that something that you actively do? Thanks.

Yeah, Sunita, I think we laid out a lot of that strategy at our Investor Day last November, but I'll let Chris give some additional color there as well.

Yeah, thanks, Sunita. Yes, you know, I think certainly we have put emphasis on being able to offer advice solutions to our participants that we serve, and we did roll that out in the third quarter of last year, and we're seeing very nice success on that. I wouldn't say it's as much as a proactive as much as it's bringing participants along the journey. And if they have questions about what to do with their funds or what they might do with their retirement savings, we're able to provide that advice. Where in the past, we were in education only mode about their alternatives. And so that is a bit of the shift and we continue to see significant opportunities there. And again, as we highlighted in the investor slides, we're really focused on participant growth, and we're seeing overall participant growth. And then we're also not just seeing the total number of participants growing, but also the amount that they're saving improving and growing. And so that funnel is growing for us as we think about how do we capture more opportunity to serve individuals, both while they're in the plan or also when they're out of the plan.

Thanks, Sunit. The other thing I would just mention is when we are successful in that, sometimes the actual AUM shows up in other parts of the organization. And so ultimately, you know, that does drive results at the enterprise level, but from a geography perspective may shift at that point in time as well.

Got it. Thank you.

Thank you. One moment for our next question. Our next question comes from Ryan Krueger from KBW. Your line is open.

Hey, thanks. Good morning. I have a question on investment management. It seems like you have momentum on growth sales, but you've also seen withdrawals be somewhat elevated, which has led to flows not improving anymore. Can you give a little bit more color on the withdrawal side of things? And do you have any insight going forward into if you expect to continue or could we see some improvement there going forward?

Yeah, Ryan, I'll ask Kamal to give some color there. With the vast volatility in the market during second quarter, we did see some impacts kind of flow through. But as you mentioned, we are seeing some strong momentum on the sales side. So I'll ask Kamal to give a little more color there.

Good morning. So I'll start with what you highlighted, which was I think you've highlighted our strong momentum on gross sales, which is very true, I think, as Deanna mentioned. We actually saw positive NCF from our global institutions this quarter. And then we also had very, very strong 24% growth, sales growth in investment management on a year-over-year basis, which we are quite pleased with. It sort of shows our focus on expanding the clients that we cover. Let me first handle what I see in terms of the growth flow momentum and give you some insights on what's driving it. And then I'll also give you some sense of what the nature of outflows was this quarter. So one segment I would highlight for you is I'm quite pleased with the momentum we have in our Asia institutional business. To just give you an outline, That business is now almost $50 billion in AUM for us, and that has only grown over time. More recently, we've accelerated the nature of mandates we are bringing in. Some very, very long-term investors like sovereign wealth funds have been a big part of growing that segment for us. In fact, if you just look at that segment, we've almost doubled our business. from last quarter last year to this quarter, almost 100% growth, which gives me quite confidence that we are doing very well on the growth side of our institutional segment. So the nature of outflows this quarter, I would say we're mostly focused in our U.S. businesses, but it was due to increased hedging from a lot of these clients. It happened in two areas. One, there was active rebalancing away from areas that have done quite well, In particular, we have a strength in REITs and small cap where they were rebalancing away. And then there was some reallocation by some of these investors into non-traditional assets. We obviously don't cover those asset classes. But we are quite successfully diversifying our flows as well. Away from that, if I look at our international clients, I think Deanna highlighted it. We had almost $10 billion of quarterly sales. If you look at that segment, that is almost 50% increase from last year's quarter. So you'll see the momentum we have in our gross sales numbers. The other segment I would highlight for you today is just we historically talked about our strength in real estate. When I look at our middle market direct lending business, our private infrastructure debt business, and the private investment grade business, That continues to expand its AUM base. That AUM base has gone up almost 25% year over year. So I would say our focus continues to be on growing our gross sales while we manage the outflows and the results are showing this quarter. And I think that's helping us deliver excellent performance compared to other asset management peers.

Thanks, Ryan. Do you have a follow-up?

Yeah, I had one for Amy. Can you talk a little bit more about what you're seeing in dental, both from a top-line standpoint as well as a loss ratio standpoint and your thoughts on that business going forward?

Yeah, I'll have Amy take that one. But as mentioned, we are constantly balancing pricing discipline with our competitive position and are really managing that business for long-term earnings growth. but I'll have Amy give you some color specific to dental.

Yeah, Ryan. So I think a lot of what I'm still seeing in dental is a continuation from some of the prior quarters. So from a competitive environment, it's definitely a prominent product in those people who have that as part of their portfolio. Again, there's a subset of our competitors that have dental as a bigger part of our of their portfolio, and it's competitive out there. So I would say we are definitely seeing new sale rates are competitive. I am seeing probably a little bit of, I'm going to call it, market activity and easing begin to happen on the renewals. And so here's how I'd characterize that. Dental is a product that, again, you know, if you didn't get the pricing quite right, hadn't built in trend or inflation, at the levels that you needed to, you see that pop up in your results pretty quickly. It's a highly utilized product. And so it shows up in your results in 12, 18 months later. And so what I am seeing are some renewals and renewal rates for dental that are high with some of our competitors. That is probably over time through some of 25, but probably more into 26, probably beginning to show up as an opportunity for for even healthier new sale rates. And so, again, our perspective on dental has been that because our renewal and persistency strategy is so important, we want to deliver manageable, predictable renewals for that small to medium size customer base that has really sharp focus on cash flow. we want to make sure that we're pricing it right up front. And the best way to deliver that renewal rate at a rate that they can withstand is to price it right up front. So what I'm seeing is we're still not probably seeing quite what we need to see yet in pricing it right up front. So we're not selling as much, just bluntly, of dental and some of the other products that might bundle with it. But what we are seeing is beginning to see some loosening up on the persistency side. So When I think of our own performance for dental loss ratios, and I think this is a little bit inherent in your question, we definitely do still see a loss ratio pattern, though, that is first half, second half. So that first half is definitely where we see the experience come in. And we see a pattern where third and fourth quarter are markedly better. So I think last year's pattern of second, third, and fourth quarter is a really nice pattern for us to think about through the rest of our year in terms of how the experience actually emerges for dental. So that's kind of how I'm thinking about the business. Hopefully that gives you some color.

Yeah, Ryan, just a couple other comments. You know, very proud of one, seeing dental loss ratio improve 50 basis points in the quarter. and our overall specialty benefits loss ratio being at the low end of our targeted range, despite the fact that the dental loss ratio is elevated in the second quarter. And so, again, Amy and the team are managing that business very effectively for long-term profitable growth. And, you know, I'm confident we will get through this in a very positive realm.

Thank you. Thank you. One moment for our next question. Our next question will come from Joel Horwitz from Dowling and Partners.

Your line is open. Hey, good morning. One more on top line and specialty benefits. I think in the prepared remarks, Joel mentioned that growth is expected to pick up in the second half of this year. Just curious what you're seeing that gives you confidence in that.

I'll turn that over to Amy to address.

Yeah, so I definitely see that the second half of the year has the potential to return something that's headed back into the range that we communicated. I do want to make clear, I don't think our full year results are going to sit back in that 6% to 9% range. I think we're going to fall short of that. What I am comfortable with, though, is that the brokers who are starting to see, the intermediaries that we work with that are starting to see some of those higher renewals on dental coming from some of our competitors are really turning back to saying, you know what, it probably makes sense to keep the bundle or put the bundle back with principal. So I do see us returning to that growth mode. Again, probably not sitting within that 6% to 9% growth range, but improving. I also think the piece that we got to think about for that second half of the year is that there's that natural first half, second half. And so when we think about utilization, when we think about overall loss ratio, our ability to keep pricing attractive for the entire bundle is more dependent upon our overall loss ratio than one single product's loss ratio. So again, Deanna just mentioned this, but the overall loss ratio being at the very low end gives us the capability to make sure we're seeing that show up in the overall bundled pricing.

Thanks, Joel. Hope that helped. Do you have a follow-up question?

Yeah, it's helpful. Yeah, yeah. It looks like in investment management, you're selling another one of your boutiques with Post Advisor Group for sale. I think the AUM from that arm is much larger than past boutiques that you've divested. So I guess a couple of questions, just an update on the model, the multi-manager model, and then any potential financial impacts. I think Post AUM is in the mid-teens, billions, if that goes away?

Yeah, I'll make a few comments and then I'll ask Kamal to add on. You know, you have seen us continuing to evaluate our capabilities specifically in investment management and making sure that we're staying focused on client demand and making sure we're also unifying investment teams where it makes sense. You are correct that post has an AUM that is larger than some of those past, but I would also say that the impact of that divestiture will be immaterial to earnings and, ultimately, we feel good about our ability to grow from here, but I'll ask Kamal to give some additional color there.

Absolutely, Joel. I'll just add to Deanna's comments. I think this is part of the natural evolution of our strategy where we continue to think about what our clients need and demand and make sure we have a business that's not only managed for scale, but for efficiency. So the two aspects there is you've heard me talk about the new capabilities we've added, but we also look at where we have overlap in our capability set. And with that perspective, you know, post did overlap with a very, very strong high yield capability we have inside PGFI today, which has excellent performance and excellent momentum. So it was consistent with our view of creating value for our shareholders where we look at these capabilities, review our teams, and continue to find synergies. As part of the transaction, as you highlighted, we have agreed to sell a majority ownership stake. To your question on impact, I do not see this transaction impacting our medium-term target for either asset management revenue growth or pre-tax operating margins, so impact should be minimal. The only other comment I would add is that I wish the team the very best. They have been a big part of principle for many, many years, and I do believe the buyer for this capability is going to be an excellent buyer and will support the team moving forward.

Yeah, Joel, you know, one more comment on that. You know, we'll continue to disclose additional detail as they emerge, and we do expect that to close by the end of 2025. So hopefully that helps.

Great. Thank you.

Thank you. One moment for our next question. Our next question will come from Jimmy Buehler from JP Morgan. Your line is open.

Hi. Just first had a question on your outlook for asset management flows. You've had success in growing your business in some verticals, but overall flows obviously have been negative for, I think, eight, nine last quarters in a row. Is it reasonable to assume that flows turning positive in the next few quarters, or is it sort of hard to say given market volatility or other factors?

Yeah, Jimmy, I'll have Kamal address that. I think if you look at our net cash flow performance relative to our peers, they still fare very well, but it has been a difficult positive flow environment for asset management in general. But I'll ask Kamal to give a little more flavor on that.

Sure. Good morning, Jimmy. Thanks for your question. So I think, let me start with what I see moving forward and how this plays out in your next cash flow question. So I think as I've mentioned prior quarters, our focus is on ensuring we have a strong pipeline of client opportunities. And I mentioned the gross sale numbers earlier. And I do see the pipeline of opportunities developing at a sustained place. I think the challenge more recently has been we are in a new cycle that's changing very constantly and it's changing on a global basis. And that does cause some clients to defer their decisions. So it does impact the flow pattern in our businesses. I would highlight that our international clients and our international divisions are the ones that are doing very, very well. Over time, as I hope our U.S. businesses contribute, you would see the net cash flow picture substantially improve. So that would be one component of it. The other piece I would highlight beyond just net cash flow is we obviously measure ourselves on earnings growth, revenue growth, and operating margin, which are quite strong. And as Deanna highlighted, much stronger than some of our peers. One area I would highlight for you is historically you have seen our net cash flow driven heavily by our private market real estate division growth. Most recently, our specialty global fixed income revenue has been scaling up quite, quite well. In fact, when I compare our gross revenue for that division, it's almost up 40% this for the first half of 25 compared to the first half of 24. More importantly, a good measure to look at is mandates that we have won that haven't funded. That is up almost 120% year over year. So obviously clients decide when they invest in these mandates. They look at market conditions to make that decision. So the pipeline is quite strong. We are expanding our client set. Yes, there is market volatility that affects outflow, so we have to live with it. And our goal remains to manage through it and continue to balance our business, both in terms of the product set and the client base we have.

Hopefully that helps, Jimmy. Do you have a follow-up?

Yes, I'm just Yeah, relatedly just on your comment on performance fees and investment management being flat with last year, you're almost at the level you had in all of last year through the first half of the year. So I'm not sure if your guidance is overly conservative because it's implying minimal additional performance fees in the second half, especially given that the markets come back, and I'm assuming that should help.

Yeah, you know, recognize that most of our performance fees do come from our private capabilities. We are seeing that expand. But ultimately, I think the outlook for the rest of the year is more modest than what we have seen in the first half of the year. But we'll see how that plays out. But I'll see if Kamal has some additional color.

Yeah, Jimmy, I would say, I think as you highlighted, we did bring forward some performance fees from 3Q into 2Q. So that Kind of gives you the impression we are there at the half year mark. As Deanna highlighted and I highlighted earlier, you know, the real estate equity engine hasn't fully kicked in. You know, it's highly dependent not just on the rate environment, but the market cycle has to evolve a little bit too. So partly our guidance for the rest of the year is around that dimension. We do think 26 will improve, but at this stage, until the real estate equity market, particularly the core market kicks in and transaction volumes pick up, it'll be difficult to see a stronger performance fee trajectory at this stage.

The other thing I think that Kamal mentioned earlier is that our transaction and borrower fees that have been very modest due to the real estate environment, we expect that to pick up as well. So obviously some different aspects that drive overall investment management revenue. I feel good about that management fee growth, which is, again, less volatile than the other components and more of an indication of long-term growth.

Thanks.

Thank you. One moment for our next question. Our next question will come from Jack Matten from BMO. Your line is open.

Good morning. Just on specialty benefits in group life and disability where you're seeing very healthy loss ratios, I'm just wondering if there's anything notable that's benefiting your margins in those lines. Are you seeing pricing competition for your non-dental lines of business getting more intense recently?

Y'all have Amy address that.

Yeah, so first question related to the group disability and group life. I mean, I think for a little bit of background there, when we write business in these segments, keep in mind that we're almost completely in the small to midsize marketplace. And so this is a marketplace that doesn't typically feature, I'm going to call them three, four, five extended year rate guarantees. It's not necessarily a marketplace that asks for and demands that you have to have high maximums. It doesn't come with always a lot of retiree content. So the plan designs and the content that you bring in with an SMB strategy does tend to be fundamentally different. So when you look at larger jumbo case players and those that are smaller market players, you tend to, for both life and disability, just build a slightly different block of business. That said, I do think even looking at like LTD, what's driving some of that, that's an incidence-based driver for us that's driving the really good performance that we're seeing there. I still think some of the things that came with the discussions that we've had in the past about hybrid work, about our ability to find ways... not only to return people to work and to have recoveries, but the incidents themselves when people do have to move away from their traditional working arrangement, they can often not even have an incident for long-term disability because they have resolved that during the short-term disability period and they're providing work back to their employer through a hybrid working relationship or a fully remote relationship. So I do think incident is also benefiting from some of the things we have talked historically about that are relative to, you know, types of working and different modes of working. I think when moving on kind of that, remind me your second question was more about.

Competition and life and disability.

Yeah, yeah. So life and disability competition is, I would call it relatively stable. Again, we are at a point where we tend to both sell and renew in that bundled business. So if we have probably the highest premium product in that bundle, it's going to tend to be dental, which means that some of the disability and life pieces are important in that bundle, but not necessarily the most prominent piece of that. That does mean that that bundle is how we win business. It's how we retain business. And it means that we move that together in terms of a total experience. So I'm not seeing things in life and disability that indicate a lot of displacement going on. I am continuing to see the new case pricing on dental being the standout.

Thanks, Jack. Do you have a follow-up question? Okay.

Yes, thank you. And just a follow-up on expenses. If I look at RIS, you're already kind of running at the high end of your margin target. I'd imagine like there's probably a tailwind given where markets are entering the third quarter. I guess you'd be thinking about like a corresponding kind of step of an expense that keeps you within that margin range, or can we see potential upside if market performance remains strong?

I'll have Chris talk about that. Obviously, you know, how macro plays out and how that plays into revenue will have some impact. We came into the year saying we would have some margin improvement from 2024, which, you know, would put us toward the top end of that margin range. And ultimately we're balancing aligning revenue with expenses and ultimately still investing in that business to continue to drive long-term market growth. So with that, I'll turn it over to Chris to see if he has any additional color.

Yeah, no, thanks, Jack. I mean, I think as we've said, we're very confident in our ability to deliver this year our net revenue toward the midpoint of our range and margin towards the upper end of the range. And I don't see anything changing that. We continue to have expense growth lower than revenue growth, and we'll continue to maintain that discipline. And we're also taking the opportunity to invest for future capabilities. So I wouldn't look to see us get outside the range, above the range, but we will be comfortably at the upper end of the range for the foreseeable future.

Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Alex Scott from Barclays. Your line is open.

Hi, good morning. The first question is a follow-up on some needs on just the strategy to capture some of that 401k outflow into other areas of your business. Can you just provide a little more detail on that, particularly IRAs and some of the advising you're doing? I'd just be interested in what the success and track record, since you guys kind of brought that up at the investor day, what that looks like. you know, how we can track it and sort of see that in your financials over time.

Yeah, a couple of comments there. You know, obviously that is an important strategic driver for those. How that emerges will take some time as we continue to lean into establishing relationships with those participants and ultimately leaning into that advice component as well. And so, you know, we'll pull out some significant resources KPIs relative to that, but, you know, it will take some time to emerge in a more positive way, but I'll ask Chris to maybe give a little color on that.

Yeah, no, I think, Alex, I think Deanna's captured it right. It is a long-term build. It's focused on capabilities, and it's not just focused on the advice that we're providing, but it's also focused on how do we ensure that we're getting more participants deferring? How do we increase their overall contribution and deferrals? And then when they need help and they come to us, how do we partner with advisors to make sure that we're both giving them the advice that they need to make good decisions about what to do with their retirement savings, whether that's to keep it in plan, which will be harder to see, or whether it's used in some sort of IRA rollover. So we are very focused on building our capabilities in that space and making sure that we have the sort of solutions and the advice capabilities and partnering with our advisors and our partner firms to make sure that Americans get to the advice that they need. So it's a long-term build. We think there's tremendous opportunity for us to help Americans save for retirement, and we're very focused on building those capabilities over the next several years.

Thanks, Alex.

Do you have a follow-up? Yeah, for a follow-up, I wanted to ask you about some of these partnerships that we've seen your peers make on private investments being offered and defined contribution accounts. I just want to get your take on that and if that's an opportunity for PFG, whether for principal asset management or potentially partnering.

Yeah, I'll make a few comments and then ask Chris to add as well. I think ultimately we think this is an opportunity and ultimately applaud the industry's efforts in doing that. I do suspect it will take some time to play out. Ultimately, there's some fiduciary responsibilities that people need to get comfortable with, and probably more importantly, you need advisor, plan sponsor, and participant interest to build over time. And ultimately, we've played in that space in the past, and we'll continue to lean in as we sense the customer demand. But I'll have Chris add a flavor, and then I'll see if Kamal has anything to add as well.

Yeah, thanks, Alex. Yeah, we welcome the conversation about how to offer more private asset classes to retirement plans. Obviously, you've got, what, $12 trillion in sort of DB plans and another $12 trillion with a tongue twister, $12 trillion in DC plans. And the D plans historically have had nice allocations to privates and they've performed well over time. So it's It is this sort of how do we get them in and how do we do it in a way that addresses fiduciary duty concerns around performance, risk adjusted performance, fees, and all that. So I think there is a tremendous opportunity. Obviously, Kamal can talk about the private credit capabilities that we've built. We think that there's an opportunity for our own asset management opportunities to build within retirement solutions as well as partnering with others as well, and we're active in those conversations going forward. So lots of conversation, but to Deanna's point, it's going to be a little while. I would analogize it a little bit to the take up in retirement income. There are significant fiduciary duty concerns that have to overcome, and it's going to take some time for people to get comfortable with the risks. How do we deal with liquidity? How do we educate participants? uh in a way that is that we're introducing this new diverse asset class into dc plans in a responsible way so that's what i'd say about a big opportunity but i think it's going to be a bit of a build and i'll turn it over to common see what his view is

sure so i'll just quickly add to what diana and chris said i think as you said partnerships are an important topic these days uh one comment i'll add is is we probably have more experience in that space than most people when you look at our partnerships and the joint ventures in brazil and china i think we understand how these operate and have withstood the test of time so i do think we have an ability to understand and execute on it Second, I would say, you know, we've had real estate exposure to our 401k clients for a long time, almost 20 years. So we understand how to manage through markets, but we also understand what you need to look at and not look at. I mentioned a couple of quarters ago, and Deanna mentioned we brought in a leader who now sits at the intersection of RIS and asset management, Brandt, and this is something Brandt continues to think about because our perspective on this is whatever we do, it has to create investment value for our participants and plan sponsors. So that's our focus area. And then I think it's also important to understand where we are strong and what partners would complement our capabilities on. So it is an active topic that we continue to think about.

Thanks, Alex, for the question.

Thank you. We have reached the end of our Q&A. Mr. Abel, your closing comments, please.

Thank you. As we close out today's call, I want to thank all of you for your time, your questions, and your engagement. Our second quarter and year-to-date results reflect the strength of our diversified business model and our continued disciplined execution. We're well positioned and remain confident in delivering on our 2025 financial targets, including EPS growth, ROE in our targeted range, and strong industry-leading free cash flow. We look forward to connecting with many of you in the months ahead. Have a great day.

Thank you. This concludes today's conference call. You may disconnect your lines at this time, and we thank you for your participation.