PRINCIPAL FINANCIAL GROUP IN earnings calls

Accounting change for annual assumption review

Q (Wes Carmichael · Wells Fargo): Why did you move the annual assumption review below the line this quarter? Also, how sensitive are Brazil pension earnings to Brazilian equities and currency after the recent election?

A: They said the assumption review was not material this quarter and they always focused on operating earnings excluding the annual review because it is a one-time item. They will make the change effective 2026, continue to highlight the one-time impacts on the slides, and noted Brazil pensions have less than 1% of AUM in Brazilian equities so equity moves are not expected to be meaningful; interest rates matter more.

"And know if we revisit the treatment, and decide to make the change effective 2026." — Joel Michael Pitz (CFO)

Investment management fee rate and Beam impact

Q (Joel Hurwitz · Dowling and Partners): Why did investment management fee rates fall further and what drove higher other revenue? Also, what was Beam's earnings impact this quarter and how will repapering affect future earnings?

A: They said fee rate pressure came from net cash flows concentrated in higher fee active equity strategies, while business diversification and growing nontraditional fees (private markets, real estate borrower fees, custom mandates) make a single fee stat less informative. For Beam, closing Sept 1 lets them start repapering on 1/1/2027; they described Beam as a capability and growth acquisition and handed follow-up to Amy for sizing.

"So I will start with the fee rate dynamic related to NCF." — Kamal Bhatia

Beam earnings drag and repapering timing

Q (Amy Christine Friedrich): How big was Beam's drag on earnings this quarter and when will earnings recover as you move policies to your paper and dental network?

A: They said Beam was a slight headwind of about $1 million or $2 million to earnings this quarter. Repapering (moving policies to their paper and dental network) starts on 1/1/2027, will occur through 2027 as small-case policies have staggered anniversaries, and will markedly decrease the earnings drag in the first half of 2027.

Active equity outflows and free capital conversion

Q (Jack Matten · BMO): Will U.S. active equity outflows continue and how is the pipeline for new mandates? Also, what drove the slight decline in the free capital conversion metric?

A: They said outflows remain concentrated in U.S. active equity strategies, though ETF business and private mandates show constructive trends; pipeline increased by $700 million and they put capital to work during the quarter. On free capital conversion, 77% is within their 75–85% target; strong free capital generation and significant organic and inorganic deployments (PRT sales, MTN issuance, Beam acquisition, Chile sale, buybacks, dividends) explain the quarter-to-quarter movement.

"As you said, 77% is comfortably within our 75 to 85% free capital flow." — Joel Michael Pitz (CFO)

Group disability loss ratio change

Q (Wilma Burdess · Raymond James): Can you explain the slightly higher loss ratio in group disability and specialty benefits this quarter?

A: They said the overall 59% loss ratio is strong and below their 60–64 target range, with dental and group life contributing materially; group disability can be volatile quarter to quarter, so they prefer trailing-12-month patterns and noted adjusted TTM results align with a gradual move toward historical disability performance. They are comfortable with the fundamentals of the group disability block.

AI demand and private fixed income benefits

Q (Amy Christine Friedrich · Raymond James): Are you seeing benefits in private fixed income or private infrastructure funds from AI-driven market demand?

A: They said they built a private infrastructure debt business emphasizing floating-rate strategies, anticipating a long period of higher rates, and they are now seeing client demand and results on their balance sheet. They won their first large institutional mandate in that asset class this quarter and view it as a positive tailwind for private markets.

Expense seasonality and specialty benefits strategy

Q (Wilma Burdess · KBW): Should we expect higher fourth-quarter expenses and would you accelerate investments now? Also, how do you view capabilities and potential to move upmarket in specialty benefits?

A: They expect a low-single-digit increase in Q4 expenses relative to the three-quarter average, similar to historical seasonality, and will align expenses with revenue to support margin expansion. On specialty benefits, they remain focused on the small-to-mid market where penetration is lower and growth opportunity is higher; Beam helps stretch into the lower end and they may move upmarket selectively but will avoid highly customized segments better served by other carriers.

Data center/AI exposure in general account

Q (Ryan Krueger · Barclays): What is your exposure to hyperscaler/data center assets in the general account and how do you limit risk there?

A: They said the GA portfolio is diversified with very manageable AI exposure; direct exposure to data centers is very low single digits and diversified by geography, structure, tenant, and maturity, with limits on single-asset or single-credit exposure. They emphasize targeted, tailored investments using property expertise and strong underwriting, focusing on diversification, quality, and liquidity to meet liabilities.

Korea market opportunity and M&A approach

Q (Alex Scott · UBS): How do you view the South Korean market opportunity, and do you comment on reports about Samsung? Also, how important is M&A to your strategy and would you pursue larger deals?

A: They declined to comment on market rumors and said they are disciplined and opportunistic as a public company. Korea is an important growth market for investment management and real estate; capital in Korea is similar to the U.S. with banks and insurers controlling capital and increasing global investing, and retirement system evolution is an area of interest. On M&A, they maintain a high bar: deals must make strategic, financial, and cultural sense and M&A is an opportunistic accelerator while organic growth remains primary.

Chile annuity sale vs Beam funding and earnings

Q (Mike Ward · Evercore): Did Chile annuity sale proceeds effectively fund Beam and what are the earnings/size implications of both transactions?

A: They said the capital from the Chile annuity sale largely offset the capital deployed for Beam, but sale proceeds and purchase price do not always align exactly; Chile was anticipated in outlook while Beam was not, so they funded Beam while still delivering share buybacks and other capital plans. On earnings, Chile annuities generated about $30 million pretax a year but was a closed block without growth; Beam offers growth and portfolio repositioning they prefer.

AI thematic investing approach for investment management

Q (Tom Gallagher · Evercore): How are you approaching AI-related investment themes in third-party fixed income and equity businesses—are you avoiding or targeting certain parts of the market?

A: They described an AI investment stance of favoring 'bricks' (real estate/infrastructure equity) over 'pick and shovel' exposure, preferring real estate equity where collateral helps the risk-reward profile. They focus on smaller-scale data center builds (around 50-megawatt) to lower execution risk, benefit from development economics, and ensure buyers at exit, while power constraints and market noise are considerations.

"Our view remains that being a real estate builder is the best place we want to be." — Kamal Bhatia

SMB customer caution and seasonality of earnings

Q (Sunit Kamath · Jefferies): Your SMB survey showed rising caution—what does that mean for retirement and specialty benefits business? Also, is the second-half earnings skew still valid?

A: They said SMB sentiment fell to levels similar to when tariffs were announced in April 2025, reflecting macro uncertainty, but company-level optimism is higher and 90% expect staffing to increase or stay the same; they still see positive growth across their nearly 200,000 employer relationships and SPD employment growth up nearly 2%. For seasonality, they said 2026 is more balanced (about 47%/53%) between halves, less exaggerated than 2025 because of strong first-half underwriting.

"You know, we are about 47%, 53% in each part of the year." — Joel Michael Pitz (CFO)