Principal® Announces Second Quarter 2020 Results

July 27, 2020

Company also announces common stock dividend

Company Highlights

  • Second quarter 2020 net income attributable to Principal Financial Group ® , Inc. (PFG) of $398.3 million, or $1.45 per diluted share
  • Second quarter 2020 non-GAAP operating earnings1 of $402.7 million, or $1.46 per diluted share
  • Assets under management (AUM) of $701.8 billion
  • Company declares third quarter 2020 common stock dividend of $0.56 per share; a 2% increase over third quarter 2019

DES MOINES, Iowa--(BUSINESS WIRE)-- Principal Financial Group® (Nasdaq: PFG) announced results for second quarter 2020.

Second quarter 2020 financial results

  • Net income attributable to PFG for second quarter 2020 of $398.3 million, compared to $386.3 million for second quarter 2019. Net income per diluted share of $1.45 for second quarter 2020 compared to $1.37 in the prior year quarter.
  • Non-GAAP operating earnings for second quarter 2020 of $402.7 million, compared to $427.1 million for second quarter 2019. Non-GAAP operating earnings per diluted share of $1.46 for second quarter 2020 compared to $1.52 for second quarter 2019.
  • Quarterly common stock dividend of $0.56 per share for third quarter 2020 was authorized by the company’s Board of Directors, bringing the trailing twelve-month dividend to $2.23 per share, a 3% increase compared to the prior year trailing twelve-month period. The dividend will be payable on Sept. 25, 2020, to shareholders of record as of Sept. 1, 2020.

“Swift and proactive management decisions early on in response to COVID-19 have put our employees and our business in a favorable position to continue serving our customers and delivering results despite ongoing disruption caused by the pandemic,” said Dan Houston, chairman, president, and CEO of Principal. “I’m confident we have the right team, strategy, and financial foundation in place to continue navigating the challenges and opportunities ahead – meeting the needs of our 32 million customers around the world.”

“I’m very pleased with Principal’s second quarter results. We reported non-GAAP operating earnings of $403 million, delivered $6 billion of positive net cash flow and continue to deliver outstanding investment performance across a wide array of investment options and platforms. We continue to focus on creating long-term shareholder value through a balanced approach to organic growth and capital deployment with a keen focus on expense management. During these volatile times, our position of financial strength and stability with a solid balance sheet, high quality investment portfolio, and ample liquidity has and will continue to serve us well.”

Additional details on the impacts of COVID-19 to Principal can be found in our second quarter 2020 earnings call slide presentation and details of our U.S. investment portfolio are available in a supplemental slide presentation, both available at principal.com/investor.

Other second quarter highlights

  • Strong Morningstar investment performance2, with 75% of Principal investment options above median on a one-year basis, 81% on a three-year basis, and 80% on a five-year basis. Additionally, 77% of fund level AUM had a 4- or 5-star rating.
  • Retirement and Income Solutions (RIS) - Fee sales3 were $2.8 billion and net cash flow was $0.7 billion. Coupled with strong asset appreciation, end of period account values increased $14.9 billion to $264.0 billion, or 6 percent compared to a year ago.
  • RIS-Spread account values of $52.9 billion increased 11% over the prior year quarter. Second quarter sales were $2.1 billion, including $1.1 billion of opportunistic Investment Only issuances and $0.4 billion of pension risk transfer sales.
  • Principal Global Investors (PGI) managed AUM was $450.1 billion, including positive net cash flow of $3.1 billion. Record sales in the quarter for our Separately Managed Accounts (SMA) platform at $1.7 billion and U.S. Mutual Funds sales at $7.2 billion.
  • Principal International (PI) generated net cash flow of $0.9 billion, marking its 47th consecutive quarter of positive net cash flow. In addition, China had $4.6 billion of positive net cash flow, which is not included in reported net cash flow.
  • Specialty Benefits pre-tax return on premium and fees4 of 21.6% increased 550 basis points from the prior year quarter partially due to a net benefit from COVID-19 related claims experience, driven by very favorable dental and vision claims.
  • We deployed $153.5 million of capital for common stock dividends with the $0.56 per share common dividend paid in the second quarter.

Continued strong financial position

  • $3.0 billion of total company available cash and liquid assets. We also have $800 million of revolving credit facilities available.
  • $2.3 billion of excess and available capital in our holding companies and other subsidiaries, which is available for corporate purposes. We also have access to a contingent capital facility, with a book value of $750 million, that allows us to borrow up to $1 billion, the current fair value of the Treasury assets in the facility.
  • We opportunistically issued $500 million of long-term debt in June at 2.125% maturing in 2030 to provide additional financial flexibility and further solidify our capital position. Our next debt maturity, of $300 million, is not until 2022 and is followed by a balanced, laddered maturity schedule into the future.
  • Estimated statutory risk-based capital (RBC) ratio for Principal Life Insurance Company of 422%; above the midpoint of our targeted RBC ratio range of 400%.

Segment Results

Retirement and Income Solutions - Fee

(in millions except percentages or otherwise noted)

Quarter

Trailing Twelve Months

2Q20

2Q19

% Change

2Q20

2Q19

% Change

Pre-tax operating earnings5

$122.3

$132.8

(8)%

$405.8

$495.8

(18)%

Net revenue6

$464.9

$392.1

19%

$1,932.7

$1,549.1

25%

Pre-tax return on net revenue7

26.3%

33.9%

 

21.0%

32.0%

 

  • Pre-tax operating earnings decreased $10.5 million primarily as a result of impacts associated with the IRT business partially offset by lower deferred acquisition cost (DAC) amortization expense due to higher equity markets.
  • Net revenue increased $72.8 million primarily due to the addition of the IRT business.

Retirement and Income Solutions - Spread

(in millions except percentages or otherwise noted)

Quarter

 

Trailing Twelve Months

2Q20

 

2Q19

 

% Change

 

2Q20

 

2Q19

 

% Change

Pre-tax operating earnings

$91.6

 

$123.4

 

(26)%

 

$390.4

 

$451.7

 

(14)%

Net revenue

$133.5

 

$177.5

 

(25)%

 

$570.7

 

$645.7

 

(12)%

Pre-tax return on net revenue

68.6%

 

69.5%

 

 

 

68.4%

 

70.0%

 

 

  • Pre-tax operating earnings decreased $31.8 million primarily due to lower variable investment income.
  • Net revenue decreased $44.0 million due to lower variable investment income.

Principal Global Investors

(in millions except percentages or otherwise noted)

Quarter

 

Trailing Twelve Months

2Q20

 

2Q19

 

% Change

 

2Q20

 

2Q19

 

% Change

Pre-tax operating earnings

$108.4

 

$115.6

 

(6)%

 

$487.1

 

$535.5

 

(9)%

Operating revenues less pass-through expenses8

$316.8

 

$323.6

 

(2)%

 

$1,381.3

 

$1,535.3

 

(10)%

Pre-tax return on operating revenues less pass-through expenses9

34.7%

 

36.2%

 

 

35.7%

 

35.2%

 

 

Total PGI assets under management (billions)

$450.1

 

$431.8

 

4%

 

 

 

 

 

PGI sourced assets under management (billions)

$216.1

 

$208.0

 

4%

 

 

 

 

  • Pre-tax operating earnings decreased $7.2 million primarily due to lower transaction and borrower fees and higher sales compensation, partially offset by lower operating expenses.
  • Operating revenues less pass-through expenses decreased $6.8 million primarily due to lower transaction and borrower fees.

Principal International

(in millions except percentages or otherwise noted)

Quarter

 

Trailing Twelve Months

2Q20

 

2Q19

 

% Change

 

2Q20

 

2Q19

 

% Change

Pre-tax operating earnings

$94.5

 

$93.2

 

1%

 

$311.7

 

$299.1

 

4%

Combined10 net revenue (at PFG share)

$231.7

 

$244.4

 

(5)%

 

$918.5

 

$949.5

 

(3)%

Pre-tax return on combined net revenue (at PFG share)

40.8%

 

38.1%

 

 

 

33.9%

 

31.5%

 

 

Assets under management (billions)

$143.5

 

$168.0

 

(15)%

 

 

 

 

 

 

  • Pre-tax operating earnings increased $1.3 million primarily due to more favorable encaje performance, partially offset by foreign currency translation headwinds.
  • Combined net revenue (at PFG share) decreased $12.7 million primarily due to foreign currency translation headwinds, partially offset by more favorable encaje performance.

Specialty Benefits Insurance

(in millions except percentages or otherwise noted)

Quarter

 

Trailing Twelve Months

2Q20

 

2Q19

 

% Change

 

2Q20

 

2Q19

 

% Change

Pre-tax operating earnings

$127.6

 

$93.2

 

37%

 

$415.3

 

$310.0

 

34%

Premium and fees

$590.6

 

$580.1

 

2%

 

$2,370.3

 

$2,251.5

 

5%

Pre-tax return on premium and fees

21.6%

 

16.1%

 

 

17.5%

 

13.8%

 

 

Incurred loss ratio

53.4%

 

60.1%

 

 

58.4%

 

61.4%

 

  • Pre-tax operating earnings increased $34.4 million primarily due to very favorable claims largely related to COVID-19 dental and vision office closures.
  • Premium and fees increased $10.5 million reflecting strong retention.
  • Incurred loss ratio decreased primarily due to lower claims related to COVID-19 dental and vision office closures, partially offset by higher non-COVID-19 related individual disability claims.

Individual Life Insurance

(in millions except percentages or otherwise noted)

Quarter

 

Trailing Twelve Months

2Q20

 

2Q19

 

% Change

 

2Q20

 

2Q19

 

% Change

Pre-tax operating earnings

$27.4

 

$53.1

 

(48)%

 

$133.8

 

$185.7

 

(28)%

Premium and fees

$284.4

 

$282.6

 

1%

 

$1,267.2

 

$1,117.9

 

13%

Pre-tax return on premium and fees

9.6%

 

18.8%

 

 

10.6%

 

16.6%

 

  • Pre-tax operating earnings decreased $25.7 million primarily due to unfavorable COVID-19 related impacts and lower variable investment income.
  • Premium and fees increased $1.8 million.

Corporate

(in millions except percentages or otherwise noted)

Quarter

 

Trailing Twelve Months

2Q20

 

2Q19

 

% Change

 

2Q20

 

2Q19

 

% Change

Pre-tax operating losses

$(84.0)

 

$(98.1)

 

14%

 

$(372.9)

 

$(313.6)

 

(19)%

  • Pre-tax operating losses decreased $14.1 million primarily due to expense management actions.

Forward looking and cautionary statements

Certain statements made by the company which are not historical facts may be considered forward-looking statements, including, without limitation, statements as to non-GAAP operating earnings, net income attributable to PFG, net cash flow, realized and unrealized gains and losses, capital and liquidity positions, sales and earnings trends, and management’s beliefs, expectations, goals and opinions. The company does not undertake to update these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward-looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company’s annual report on Form 10-K for the year ended Dec. 31, 2019, and in the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2020, filed by the company with the U.S. Securities and Exchange Commission, as updated or supplemented from time to time in subsequent filings. These risks and uncertainties include, without limitation: adverse capital and credit market conditions may significantly affect the company’s ability to meet liquidity needs, access to capital and cost of capital; conditions in the global capital markets and the economy generally; volatility or declines in the equity, bond or real estate markets; changes in interest rates or credit spreads or a sustained low interest rate environment; the elimination of the London Inter-Bank Offered Rate (“LIBOR”); the company’s investment portfolio is subject to several risks that may diminish the value of its invested assets and the investment returns credited to customers; the company’s valuation of investments and the determination of the amount of allowances and impairments taken on such investments may include methodologies, estimations and assumptions that are subject to differing interpretations; any impairments of or valuation allowances against the company’s deferred tax assets; the company’s actual experience for insurance and annuity products could differ significantly from its pricing and reserving assumptions; the pattern of amortizing the company’s DAC asset and other actuarial balances on its universal life-type insurance contracts, participating life insurance policies and certain investment contracts may change; changes in laws, regulations or accounting standards; the company may not be able to protect its intellectual property and may be subject to infringement claims; the company’s ability to pay stockholder dividends and meet its obligations may be constrained by the limitations on dividends Iowa insurance laws impose on Principal Life; litigation and regulatory investigations; from time to time the company may become subject to tax audits, tax litigation or similar proceedings, and as a result it may owe additional taxes, interest and penalties in amounts that may be material; applicable laws and the company’s certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider in their best interests; competition, including from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance; technological and societal changes may disrupt the company’s business model and impair its ability to retain existing customers, attract new customers and maintain its profitability; damage to the company’s reputation; a downgrade in the company’s financial strength or credit ratings; client terminations, withdrawals or changes in investor preferences; the company’s hedging or risk management strategies prove ineffective or insufficient; inability to attract and retain qualified employees and sales representatives and develop new distribution sources; an interruption in telecommunication, information technology or other systems, or a failure to maintain the confidentiality, integrity or availability of data residing on such systems; international business risks; fluctuations in foreign currency exchange rates; risks arising from participation in joint ventures; the company may need to fund deficiencies in its “Closed Block” assets; a pandemic, terrorist attack, military action or other catastrophic event; the ongoing COVID-19 pandemic and the resulting financial market impacts; the company’s reinsurers could default on their obligations or increase their rates; risks arising from acquisitions of businesses; risks related to the company’s acquisition of Wells Fargo Bank, N.A.’s IRT business; loss of key vendor relationships or failure of a vendor to protect information of our customers or employees; the company’s enterprise risk management framework may not be fully effective in identifying all of the risks to which the company is exposed; and global climate change.

Use of Non-GAAP financial measures

The company uses a number of non-GAAP financial measures that management believes are useful to investors because they illustrate the performance of normal, ongoing operations, which is important in understanding and evaluating the company’s financial condition and results of operations. They are not, however, a substitute for U.S. GAAP financial measures. Therefore, the company has provided reconciliations of the non-GAAP measures to the most directly comparable U.S. GAAP measure at the end of the release. The company adjusts U.S. GAAP measures for items not directly related toongoing operations. However, it is possible these adjusting items have occurred in the past and could recur in future reporting periods. Management also uses non-GAAP measures for goal setting, as a basis for determining employee and senior management awards and compensation and evaluating performance on a basis comparable to that used by investors and securities analysts.

Earnings conference call

On Tuesday, Jul. 28, 2020, at 10:00 a.m. (ET), Chairman, President and Chief Executive Officer Dan Houston and Executive Vice President and Chief Financial Officer Deanna Strable will lead a discussion of results and the impacts on future prospects, asset quality and capital adequacy during a live conference call, which can be accessed as follows:

  • Via live Internet webcast. Please go to principal.com/investor at least 10-15 minutes prior to the start of the call to register, and to download and install any necessary audio software.
  • Via telephone by dialing 866-427-0175 (U.S. and Canadian callers) or 706-643-7701 (international callers) approximately 10 minutes prior to the start of the call. The access code is 2169068.
  • Replay of the earnings call via telephone is available by dialing 855-859-2056 (U.S. and Canadian callers) or 404-537-3406 (international callers). The access code is 2169068. This replay will be available approximately two hours after the completion of the live earnings call through the end of day Aug. 4, 2020.
  • Replay of the earnings call via webcast as well as a transcript of the call will be available after the call at principal.com/investor.

The company’s financial supplement and slide presentation is currently available at principal.com/investor, and may be referred to during the call.

About Principal ®11

Principal helps people and companies around the world build, protect and advance their financial well-being through retirement, insurance and asset management solutions that fit their lives. Our employees are passionate about helping clients of all income and portfolio sizes achieve their goals – offering innovative ideas, investment expertise and real-life solutions to make financial progress possible. To find out more, visit us at principal.com.

Summary of Principal Financial Group, Inc. and Segment Results

Principal Financial Group, Inc. Results:

(in millions)

Three Months Ended,

Trailing Twelve Months,

6/30/20

6/30/19

6/30/20

6/30/19

Net income attributable to PFG

$

398.3

 

$

386.3

 

$

1,265.2

 

$

1,509.0

 

Net realized capital (gains) losses, as adjusted

 

4.4

 

 

40.8

 

 

198.8

 

 

115.7

 

Non-GAAP Operating Earnings*

$

402.7

 

$

427.1

 

$

1,464.0

 

$

1,624.7

 

Income taxes

 

85.1

 

 

86.1

 

 

307.2

 

 

339.5

 

Non-GAAP Pre-Tax Operating Earnings

$

487.8

 

$

513.2

 

$

1,771.2

 

$

1,964.2

 

 

 

 

 

 

Segment Pre-Tax Operating Earnings (Losses):

 

 

 

 

Retirement and Income Solutions

$

213.9

 

$

256.2

 

$

796.2

 

$

947.5

 

Principal Global Investors

 

108.4

 

 

115.6

 

 

487.1

 

 

535.5

 

Principal International

 

94.5

 

 

93.2

 

 

311.7

 

 

299.1

 

U.S. Insurance Solutions

 

155.0

 

 

146.3

 

 

549.1

 

 

495.7

 

Corporate

 

(84.0

)

 

(98.1

)

 

(372.9

)

 

(313.6

)

Total Segment Pre-Tax Operating Earnings

$

487.8

 

$

513.2

 

$

1,771.2

 

$

1,964.2

 

 

 

 

 

 

 

 

 

Per Diluted Share

Three Months Ended,

Six Months Ended,

6/30/20

6/30/19

6/30/20

6/30/19

Net income

$

1.45

 

$

1.37

 

$

2.49

 

$

2.90

 

Net realized capital (gains) losses, as adjusted

 

0.01

 

 

0.15

 

 

0.12

 

 

0.04

 

Non-GAAP Operating Earnings

$

1.46

 

$

1.52

 

$

2.61

 

$

2.94

 

Weighted-average diluted common shares outstanding (in millions)

 

275.6

 

 

281.2

 

 

276.4

 

 

281.2

 

*U.S. GAAP (GAAP) net income attributable to PFG versus non-GAAP operating earnings

Management uses non-GAAP operating earnings, which is a financial measure that excludes the effect of net realized capital gains and losses, as adjusted, and other after-tax adjustments the company believes are not indicative of overall operating trends, for goal setting, as a basis for determining employee and senior management awards and compensation, and evaluating performance on a basis comparable to that used by investors and securities analysts. Note: it is possible these adjusting items have occurred in the past and could recur in future reporting periods. While these items may be significant components in understanding and assessing our consolidated financial performance, management believes the presentation of non-GAAP operating earnings enhances the understanding of results of operations by highlighting earnings attributable to the normal, ongoing operations of the company’s businesses.

Selected Balance Sheet Statistics

 

 

Period Ended,

6/30/20

12/31/19

Total assets (in billions)

$

271.3

$

276.1

Stockholders’ equity (in millions)

$

15,311.0

$

14,685.8

Total common equity (in millions)

$

15,243.1

$

14,618.0

Total common equity excluding accumulated other comprehensive income (AOCI) other than foreign currency translation adjustment (in millions)

$

12,183.5

$

12,238.3

End of period common shares outstanding (in millions)

 

274.0

 

276.6

Book value per common share

$

55.63

$

52.85

Book value per common share excluding AOCI other than foreign currency translation adjustment

$

44.47

$

44.25

Principal Financial Group, Inc.
Reconciliation of U.S. GAAP to Non-GAAP Financial Measures
(in millions, except as indicated)

 

 

Period Ended,

 

6/30/20

12/31/19

Stockholders’ Equity, Excluding AOCI Other Than Foreign Currency Translation Adjustment, Available to Common Stockholders:

 

 

Stockholders’ equity

$

15,311.0

 

$

14,685.8

 

Noncontrolling interest

 

(67.9

)

 

(67.8

)

Stockholders’ equity available to common stockholders

 

15,243.1

 

 

14,618.0

 

Net unrealized capital (gains) losses

 

(3,473.8

)

 

(2,815.3

)

Net unrecognized postretirement benefit obligation

 

414.2

 

 

435.6

 

Stockholders’ equity, excluding AOCI other than foreign currency translation adjustment, available to common stockholders

$

12,183.5

 

$

12,238.3

 

 

 

 

Book Value Per Common Share, Excluding AOCI Other Than Foreign Currency Translation Adjustment:

 

 

Book value per common share

$

55.63

 

$

52.85

 

Net unrealized capital (gains) losses

 

(12.67

)

 

(10.17

)

Net unrecognized postretirement benefit obligation

 

1.51

 

 

1.57

 

Book value per common share, excluding AOCI other than foreign currency translation adjustment

$

44.47

 

$

44.25

 

Principal Financial Group, Inc.
Reconciliation of U.S. GAAP to Non-GAAP Financial Measures
(in millions)

 

 

Three Months Ended,

Trailing Twelve Months,

 

6/30/20

6/30/19

6/30/20

6/30/19

Income Taxes:

 

 

 

 

Total GAAP income taxes (benefits)

$

82.5

 

$

58.2

 

$

242.8

 

$

252.4

 

Net realized capital gains (losses) tax adjustments

 

(7.6

)

 

11.5

 

 

10.2

 

 

38.3

 

Income taxes related to equity method investments and noncontrolling interest

 

10.2

 

 

16.4

 

 

54.2

 

 

48.8

 

Income taxes

$

85.1

 

$

86.1

 

$

307.2

 

$

339.5

 

 

 

 

 

 

Net Realized Capital Gains (Losses):

 

 

 

 

GAAP net realized capital gains (losses)

$

(27.4

)

$

(4.0

)

$

(29.3

)

$

(37.2

)

 

 

 

 

 

Recognition of front-end fee revenues

 

0.5

 

 

4.2

 

 

17.4

 

 

10.1

 

Net realized capital gains (losses) related to equity method investments

 

2.3

 

 

1.2

 

 

(3.3

)

 

(0.6

)

Derivative and hedging-related revenue adjustments

 

(35.1

)

 

(21.4

)

 

(96.2

)

 

(65.1

)

Sponsored investment fund adjustments

 

3.5

 

 

6.8

 

 

16.2

 

 

22.6

 

Amortization of deferred acquisition costs

 

82.2

 

 

(16.3

)

 

(75.8

)

 

(47.5

)

Capital gains distributed – operating expenses

 

(6.4

)

 

(2.9

)

 

(11.9

)

 

11.5

 

Amortization of other actuarial balances

 

7.4

 

 

(12.8

)

 

(49.3

)

 

(31.8

)

Market value adjustments of embedded derivatives

 

0.4

 

 

8.9

 

 

27.7

 

 

26.9

 

Capital gains distributed – cost of interest credited

 

(9.0

)

 

(12.3

)

 

(4.4

)

 

(23.3

)

Net realized capital gains (losses) tax adjustments

 

(7.6

)

 

11.5

 

 

10.2

 

 

38.3

 

Net realized capital gains (losses) attributable to noncontrolling interest, after-tax

 

(15.2

)

 

(3.7

)

 

(0.1

)

 

(19.6

)

Total net realized capital gains (losses) after-tax adjustments

 

23.0

 

 

(36.8

)

 

(169.5

)

 

(78.5

)

 

 

 

 

 

Net realized capital gains (losses), as adjusted

$

(4.4

)

$

(40.8

)

$

(198.8

)

$

(115.7

)

Principal Financial Group, Inc.
Reconciliation of U.S. GAAP to Non-GAAP Financial Measures
(in millions)

 

 

Three Months Ended,

Trailing Twelve Months,

 

6/30/20

6/30/19

6/30/20

6/30/19

Principal Global Investors Operating Revenues Less Pass-Through Expenses:

 

 

 

 

Operating revenues

$

352.9

 

$

359.5

 

$

1,551.0

 

$

1,686.7

 

Commissions and other expenses

 

(36.1

)

 

(35.9

)

 

(169.7

)

 

(151.4

)

Operating revenues less pass-through expenses

$

316.8

 

$

323.6

 

$

1,381.3

 

$

1,535.3

 

 

 

 

 

 

Principal International Combined Net Revenue (at PFG Share)

 

 

 

 

Pre-tax operating earnings

$

94.5

 

$

93.2

 

$

311.7

 

$

299.1

 

Combined operating expenses other than pass-through commissions (at PFG share)

137.2

151.2

606.8

650.4

Combined net revenue (at PFG share)

$

231.7

 

$

244.4

 

$

918.5

 

$

949.5

 

1 Use of non-GAAP financial measures is discussed in this release after segment results. Non-GAAP operating earnings for total company is after tax.

2 Represents the percentage of Principal actively managed mutual funds, exchange traded funds (ETFs), insurance separate accounts, and collective investment trusts (CITs) in the top two Morningstar quartiles. Excludes Money Market, Stable Value, Liability Driven Investment, Hedge Fund Separate Account and US Property Separate Account.

3 RIS-Fee reported sales, net cash flow, and account values do not include the Institutional Retirement and Trust (IRT) business.

4 Premium and fees = premiums and other considerations plus fees and other revenues. Pre-tax return on premium and fees = pre-tax operating earnings divided by premium and fees.

5 Pre-tax operating earnings = operating earnings before income taxes and after noncontrolling interest.

6 Net revenue = operating revenues less benefits, claims and settlement expenses less dividends to policyholders.

7 Pre-tax return on net revenue = pre-tax operating earnings divided by net revenue.

8 The company has provided reconciliations of the non-GAAP measures to the most directly comparable U.S. GAAP measures at the end of the release. The company has determined this measure is more representative of underlying operating revenues growth for PGI as it removes commissions and other expenses that are collected through fee revenue and passed through expenses with no impact to pre-tax operating earnings.

9 Pre-tax return on operating revenues less pass-through expenses = pre-tax operating earnings, adjusted for noncontrolling interest divided by operating revenues less pass-through expenses.

10 Combined net revenue (a non-GAAP financial measure): net revenue for all PI companies at 100% less pass-through commissions. The company has determined combined net revenue (at PFG share) is more representative of underlying net revenue growth for PI as it reflects our proportionate share of consolidated and equity method subsidiaries. In addition, using this net revenue metric provides a more meaningful representation of our profit margins.

11 Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.

Media Contact: Jane Slusark, 515-362-0482, slusark.jane@principal.com
Investor Contact: John Egan, 515-235-9500, egan.john@principal.com

Source: Principal Financial Group

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