Release Date: October 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Principal Financial Group Inc (PFG, Financial) reported $412 million of non-GAAP operating earnings, translating to $1.76 per diluted share, with an EPS of $2.05 after adjustments, marking a 12% increase over the previous year.
- The company returned $416 million of capital to shareholders in the third quarter, including $251 million in share repurchases, and raised its common stock dividend for the sixth consecutive quarter.
- Total company managed assets under management (AUM) reached $741 billion, reflecting a 6% growth from the previous quarter, driven by robust returns and positive market performance.
- Principal International ended the quarter with a record $185 billion of AUM, up 8% from the second quarter, driven by robust net cash flows and favorable market performance.
- The company is experiencing strong momentum in its retirement business, with recurring deposits increasing by 10% year-over-year and contract retention rates on track to achieve the best full-year retention rates over the past five years.
Negative Points
- Principal Financial Group Inc (PFG) reported a net loss of $220 million for the third quarter, driven by non-economic impacts from exited businesses.
- The actuarial assumption review had a net negative impact on non-GAAP operating earnings, although it was immaterial to free capital flow and run rate earnings.
- PGI experienced net outflows, driven by lower fee and yield products and rebalancing activities by institutional clients.
- The specialty benefits segment saw a slowdown in growth, attributed to no new Paid Family and Medical Leave (PFML) sales and a competitive environment, particularly in dental.
- Variable investment income was lower than expected, primarily due to negative private equity returns in the quarter.
Q & A Highlights
Q: Can you discuss the drivers behind the 6% growth in specialty benefits, which is below your long-term target? Is competition affecting the small to medium-sized market?
A: The 6% growth is largely due to no new Paid Family and Medical Leave (PFML) sales this quarter, compared to last year's lumpy sales. The competitive environment, especially in dental, is notable, and we are aligning pricing with experience. We expect some impact on growth for the remainder of 2024 but remain confident in our disciplined approach to pricing and renewals.
Q: What are you seeing in terms of dental experience, and what are your expectations for repricing?
A: The dental loss ratio improved by nearly 400 basis points sequentially. We are taking measured actions to address pricing, with over 90% of our dental block repriced annually. We have invested in AI-based dental claims technologies, which should improve results. We expect dental loss ratios to continue declining in the fourth quarter.
Q: Regarding RIS fee and participant withdrawals, how do these withdrawals compare historically?
A: The average account value (AV) is up significantly, impacting withdrawals. About 75% of the overall withdrawals are due to market impact, with a slight uptick in withdrawal rates from older participants accounting for the remaining 25%. Despite this, we feel good about the underlying fundamentals, with strong recurring deposit growth and high contract retention.
Q: Can you provide insight into PGI's performance fees for the fourth quarter?
A: In the third quarter, we recognized $6 million in performance fees from real estate transactions, bringing the year-to-date total to $7 million. Typically, we see $30 million to $35 million in a normal year. We expect improvement in 2025, but it will not ramp up quickly due to the current real estate cycle.
Q: What are the drivers behind Principal International's strong performance, and is it sustainable?
A: Principal International had record operating earnings and AUM, with strong net cash flows. We are confident in delivering on our 2024 outlook, with low single-digit revenue growth and margin expansion. Despite FX headwinds, we see strong underlying fundamentals leading to solid earnings growth and positive net cash flows in the fourth quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
