Principal Financial(PFG) - 2024 Q4 - Annual Report

Financial Performance and Assets - As of December 31, 2024, Principal Financial Group had $1,663.9 billion in assets under administration (AUA) and$712.1 billion in assets under management (AUM) [11]. - The Workplace Savings and Retirement Solutions (WSRS) segment managed over 43,000 defined contribution plans with $550.7 billion in assets, covering approximately 11.3 million eligible participants [22]. - Approximately 31$8.3 billion variable annuity account balances were allocated to mutual funds managed by Principal Asset Management [26]. - The company reported that $5.6 billion of the variable annuity separate account values had the Guaranteed Minimum Withdrawal Benefit (GMWB) rider [27]. - Principal Bank had approximately 772,000 customers and$8.8 billion in assets as of December 31, 2024 [36]. - Principal Trust Company managed approximately $658.6 billion in assets under administration as of December 31, 2024 [38]. - As of December 31, 2024, the Investment Management teams managed$559.1 billion in assets [45]. Insurance and Employee Benefits - The company had over 123,000 group dental and vision insurance policies in force covering over 3.0 million employees as of December 31, 2024 [68]. - The group life insurance business provided nearly $186 billion of group life insurance in force covering approximately 3.1 million employee lives as of December 31, 2024 [69]. - Long-term disability represented 59$555.0 billion of individual life insurance in force as of December 31, 2024 [73]. - Interest sensitive products represented 18% of individual life insurance in force and generated 72% of individual life insurance annualized first year premium sales for the year ended December 31, 2024 [75]. - The company served approximately 2.2 million employee lives through over 69,000 contracts in group disability insurance as of December 31, 2024 [70]. - As of December 31, 2024, term life insurance products represented 80% of individual life insurance in force and 28% of individual life insurance annualized first year premium sales [78]. - Small and medium-sized business sales accounted for 100% of individual life sales and 71% of individual disability sales for the year ended December 31, 2024 [83]. Market Opportunities and Strategy - The company believes that small and medium-sized businesses represent an underserved market with attractive growth opportunities in retirement and employee benefit markets [13]. - The group insurance market is shifting towards voluntary/worksite products, presenting growth opportunities for the company [81]. - The company focuses on the Nonqualified Deferred Compensation and Business Solutions market to address financial challenges for business owners [83]. - The voluntary benefits platform is being enhanced to capitalize on the expanding market due to employer funding shifts [81]. Employee and Organizational Insights - As of December 31, 2024, the company employed approximately 19,700 people globally, with 12,000 in the U.S. and 7,700 outside the U.S. [112]. - The average tenure of employees was 8.8 years globally and 11.2 years in the U.S., with an annual turnover rate of 17.4% globally and 11.0% in the U.S. [119]. - The company has established eight employee resource groups (ERGs) to enhance inclusion and provide cultural insights as of December 31, 2024 [115]. - The company utilizes an enterprise people scorecard to monitor employee retention, learning, hiring, engagement, and productivity trends [117]. Risk Management and Regulatory Environment - The company’s risk management includes ongoing monitoring of various risk metrics and quarterly risk reporting to manage established risk appetites and tolerances [111]. - The company anticipates that acquisition and investment activities may increase the number and magnitude of mark-to-market adjustments on equity securities, trading securities, and derivative instruments, potentially reducing profitability and causing volatility in net income [145]. - Changes in laws or regulations could significantly increase compliance costs and reduce profitability, impacting how the company conducts business [164]. - The company is subject to various federal, state, and international regulations that may increase compliance costs and reduce profitability, particularly in the context of emerging ESG requirements [178]. - The company faces potential liabilities from assessments by state insurance guaranty associations, which could impact financial strength [167]. - Regulatory changes regarding cybersecurity and privacy may increase compliance costs and limit data insights, affecting business operations [175]. Financial Stability and Investment Risks - Financial strength ratings for Principal Life and PNLIC include A+ ("Superior") from A.M. Best and AA− ("Very Strong") from Fitch, indicating strong financial stability [88]. - The statutory surplus of each of the U.S. life insurance companies exceeded the minimum risk-based capital requirements as of December 31, 2024 [95]. - The company held $53.0 billion in fixed maturities, representing 66$2.5 billion in fixed maturities, accounting for 41% of total international invested assets as of December 31, 2024 [142]. - The commercial mortgage loan portfolio was valued at $14.7 billion, representing 17$12.3 billion, or 85%, of the U.S. commercial mortgage loans had balloon payment maturities, which historically have a higher default rate [144]. - The company reported gross unrealized losses on fixed maturities of $4,246.2 million pre-tax as of December 31, 2024, with$4,081.7 million of these losses being in a continuous unrealized loss position for over twelve months [152]. - The company faces risks related to environmental liability exposure from its commercial mortgage loan portfolio and real estate investments, which may harm financial strength and reduce profitability [150]. Competitive Landscape and Market Challenges - The company faces pressure to lower prices due to competition from other insurance companies, which may adversely affect revenues and profitability [192]. - A downgrade in financial strength or credit ratings could lead to increased policy surrenders, reduced new sales, and higher costs of capital, negatively impacting profitability [193]. - Revenues from asset management and accumulation products are primarily fee-based, and significant client terminations or withdrawals may reduce assets under management (AUM), adversely affecting revenues [195]. - The company is exposed to risks from guarantees in certain products, which may decrease net income or increase volatility if hedging strategies prove ineffective [197]. - International operations face political, legal, and operational risks that could reduce profitability, particularly in emerging markets [198]. Technological and Operational Risks - Cybersecurity risks pose significant threats, including unauthorized access and potential reputational damage, which could adversely affect profitability [220]. - Disruptions in information technology and infrastructure could lead to operational impairments and reputational damage [219]. - The company may face costly litigation related to intellectual property infringement claims, which could result in significant liability and operational restrictions [215]. - Loss of key vendor relationships could adversely affect business operations and lead to financial losses [221]. - The company must maintain effective controls to prevent cybersecurity incidents, as failures could result in legal liabilities and competitive disadvantages [220]. Future Outlook and Strategic Considerations - The company may need to fund deficiencies in its Closed Block assets, which could impact financial stability if cash flows are insufficient [202]. - Future acquisitions may present integration challenges and unforeseen liabilities, potentially impairing expected benefits and goodwill [206]. - Technological advances and societal changes may disrupt the business model, requiring significant expenditures to adapt to evolving customer preferences [211]. - Climate change may impact mortality and morbidity rates, asset prices, and overall economic conditions, posing risks to profitability [210]. - The company's ability to attract and retain qualified employees is critical for operational success, facing intense competition in various professional fields [216]. - The performance of investments directly impacts the ability to increase and retain Assets Under Management (AUM), with potential cash outflows if qualified portfolio managers are not retained [218]. - The company relies on a variety of distribution channels, including internal digital channels and independent brokers, to sell its products and services [217].