Principal Financial(US:PFG)2023-02-16 21:59Assets Under Management and Administration - As of December 31, 2022, Principal Financial Group had $1,455.8 billion in assets under administration (AUA) and $635.3 billion in assets under management (AUM) [12]. - The company provided WSRS products to over 42,000 defined contribution plans, totaling $401.4 billion in assets and covering over 10.8 million eligible plan participants as of December 31, 2022 [23]. - Approximately 31% of WSRS account values were managed by Principal Global Investors, while 57% were managed by third-party asset managers not under contract to sub-advise a PFG product as of December 31, 2022 [23]. - As of December 31, 2022, 92% of the $9.0 billion in variable annuity account balances was allocated to mutual funds managed by Principal Global Investors and the guaranteed option [28]. - As of December 31, 2022, Principal Global Investors managed $464.7 billion in assets [43]. - Principal Global Equities and related teams managed $200.7 billion in global equity assets as of December 31, 2022 [47]. - Principal Global Fixed Income and related teams managed $189.2 billion in global fixed income assets as of December 31, 2022 [48]. - The alternative asset classes managed by Principal amounted to $74.8 billion as of December 31, 2022 [49]. - Brasilprev, a joint venture in Brazil, had $66.3 billion of AUM as of December 31, 2022 [59]. - Cuprum, a subsidiary in Chile, had $41.2 billion of AUM as of December 31, 2022 [61]. - Principal's operations in Mexico managed $17.5 billion of AUM as of December 31, 2022 [65]. - CCB Principal Asset Management Co., Ltd. in China had $181.2 billion of AUM as of December 31, 2022 [69]. - The joint ventures in Southeast Asia managed $20.5 billion of AUM as of December 31, 2022 [72]. Insurance and Employee Benefits - As of December 31, 2022, over 108,000 group dental and vision insurance policies were in force, covering over 2.7 million employees [78]. - As of December 31, 2022, the company had over 89,000 group life policies providing nearly $167.0 billion of group life insurance in force, covering approximately 2.9 million employee lives [79]. - Long-term disability represented 59% of total group disability premium, while short-term disability represented 41% as of December 31, 2022 [80]. - The company served approximately 219,000 individual disability policyholders as of December 31, 2022, ranking 4th in the U.S. in terms of premium in force in the non-cancellable segment [81]. - As of December 31, 2022, the company administered approximately 729,000 individual life insurance policies with over $524.0 billion of individual life insurance in force [83]. - Interest sensitive products represented 19% of individual life insurance in force and generated 83% of individual life insurance annualized first year premium sales for the year ended December 31, 2022 [85]. - Term life insurance products represented 17% of individual life insurance annualized first year premium sales and 79% of individual life insurance in force as of December 31, 2022 [87]. - As of December 31, 2022, small and medium-sized business sales represented 100% of individual life sales and 68% of individual disability sales [92]. - The company plans to expand its Paid Family and Medical Leave (PFML) offerings to additional states in the future, having already sold PFML in two states as of December 31, 2022 [80]. - The group insurance market is shifting towards voluntary/worksite products, which presents growth opportunities for the company [90]. Financial Strength and Ratings - The company has been assigned strong financial strength ratings, including A+ ("Superior") from A.M. Best and AA− ("Very Strong") from Fitch Ratings [97]. - The company achieved a statutory surplus exceeding minimum risk-based capital requirements as of December 31, 2022 [104]. - As of December 31, 2022, the company employed approximately 19,300 people globally [121]. - The average tenure for global employees was 9.3 years, with an annual turnover rate of 20.9% [127]. Market Opportunities and Growth - The company believes there are significant growth opportunities in the retirement and employee benefit markets, particularly among small and medium-sized businesses [14]. - The company’s retirement services sales representatives maintained relationships with over 11,000 independent advisors, consultants, and agents as of December 31, 2022 [24]. Investment Portfolio and Risks - As of December 31, 2022, the company held $44.7 billion in fixed maturities, representing 65% of total U.S. invested assets, with approximately 7% rated below investment grade [160]. - The commercial mortgage loan portfolio amounted to $14.0 billion, accounting for 18% of total invested assets as of December 31, 2022 [161]. - Approximately $11.4 billion, or 84%, of the U.S. investment operations' commercial mortgage loans had balloon payment maturities, which historically have a higher default rate [162]. - The company’s international investment operations held $3.1 billion in fixed maturities, representing 42% of total international invested assets [160]. - An increase in defaults on the fixed maturities portfolio could harm the company's financial strength and reduce profitability [160]. - The company is exposed to credit risk from derivative instruments, with collateral agreements in place to limit exposure [166]. - Environmental liability exposure may arise from the commercial mortgage loan portfolio and real estate investments, potentially harming financial strength [168]. - The company’s revenues are significantly influenced by the value of assets under management (AUM) and assets under administration (AUA), which are affected by market volatility [152]. - Changes in interest rates may adversely affect the company's results of operations, financial condition, and liquidity, impacting net income [153]. - The transition from LIBOR to SOFR may affect the value of certain derivatives and floating rate securities held by the company [157]. - Commercial mortgage lending in California accounted for 26%, or $3.5 billion, of the U.S. investment operations commercial mortgage loan portfolio as of December 31, 2022, exposing the company to potential losses from economic downturns in the state [169]. - The U.S. investment operations had gross unrealized losses on fixed maturities of $5,296.7 million pre-tax as of December 31, 2022, with $1,572.3 million of these losses being for securities in a continuous unrealized loss position for over twelve months [170]. - The company is exposed to foreign currency risk in its international operations, which could adversely affect profitability if foreign currencies weaken against the U.S. dollar [171]. - The valuation of investments and the determination of allowances and impairments may significantly impact the company's results of operations or financial condition due to the use of estimates and assumptions [172]. Regulatory and Compliance Risks - Changes in laws or regulations could significantly increase compliance costs and reduce profitability, impacting how the company conducts its business [182]. - The SECURE 2.0 Act of 2022 may affect the company's retirement system operations, with potential benefits contingent on proper implementation [183]. - The NAIC's adoption of a principle-based reserving approach could lead to more volatile and less predictable reserve and capital levels for life insurance and annuities [188]. - The company may face losses on insurance and annuity products if actual experience differs significantly from pricing and reserving assumptions, impacting profitability [178]. - The company is required to evaluate the recoverability of deferred tax assets each quarter, which could lead to a valuation allowance that adversely affects results of operations [176]. - The determination of allowances and impairments varies by investment type and requires significant judgment, with potential future adjustments impacting financial strength [174]. - Changes in employee benefit regulations may reduce profitability due to potential increases in liability for damages in future litigation [194]. - The DOL is expected to release proposed rules regarding fiduciary investment advice, which could impact business operations [195]. - Financial services regulatory reform, including the Dodd-Frank Act, may reduce profitability and affect capital expenditures [196]. - Changes in cybersecurity and privacy regulations may increase compliance costs and lead to increased scrutiny [197]. - Environmental, social, and governance (ESG) requirements may impact financial and operational results due to emerging risks and regulatory changes [200]. - Changes in tax laws could reduce the attractiveness of insurance, annuity, and investment products, adversely affecting sales and profitability [202]. - A downgrade in financial strength or credit ratings could lead to increased policy surrenders and withdrawals, impacting profitability [215]. - Client terminations or withdrawals may reduce revenues for asset management and accumulation businesses, affecting assets under management (AUM) [217]. - Changes in accounting standards may adversely affect reported results of operations and financial condition, particularly regarding long-duration insurance contracts [206]. - Legal liability or adverse publicity from regulatory actions may affect financial strength and profitability [208]. - The company faces risks related to guarantees in certain products, which may decrease net income or increase volatility if hedging strategies are ineffective [220]. - International operations are exposed to political, legal, and operational risks that could negatively impact profitability, particularly in emerging markets [221]. - Compliance with stringent data security laws in some countries may lead to increased expenses and inefficiencies in business processes [222]. - The company is at risk of fraudulent activities, which can result in higher claims and operational expenses [223]. - Participation in joint ventures limits the company's control and may hinder efforts to protect or enhance investment value [224].