Principal Financial(PFG) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported non-GAAP operating earnings of $395 million or$1.60 per diluted share in the first quarter, despite macroeconomic pressures on AUM levels during 2022 [77] - The total company managed AUM increased by 4% from year-end 2022 to $660 billion, reflecting favorable equity and fixed income markets [67] - The company generated$600 million of positive net cash flow, highlighting the benefits of a diversified business model [67] Business Line Data and Key Metrics Changes - The Retirement and Income Solutions (RIS) business saw a strong start to the year with $600 million in pension risk transfer sales, indicating a favorable environment due to higher interest rates [13][4] - Specialty Benefits experienced above-industry growth in premium and fees, driven by strong retention and sales in the small to midsized employer market [76] - The Asset Management segment reported positive net cash flow of$400 million, benefiting from integrated business models and differentiated investment capabilities [76] Market Data and Key Metrics Changes - The company noted strong employment and wage growth in the U.S., particularly in the small to midsize segment, contributing to growth in the Retirement, Benefits, and Protection business [76] - International markets, particularly in Asia and Latin America, showed positive cash flows despite a volatile macroeconomic environment [59] Company Strategy and Development Direction - The company aims to focus on maximizing growth drivers in retirement, global asset management, and Benefits and Protection to drive long-term growth and shareholder value [81] - The company is committed to a disciplined approach to capital deployment, balancing investments for growth with returning excess capital to shareholders [70] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating through macroeconomic volatility, highlighting a strong financial position with $1.8 billion of excess and available capital [54] - The company anticipates free cash flow generation to increase throughout the year, despite seasonality affecting the first quarter [108] Other Important Information - The company has reduced its office exposure in the commercial mortgage portfolio from 37$2.3 billion in sales [13] Question: Can you elaborate on the drivers of net investment income increase? - The increase is attributed to higher short-term interest rates, timing differences in rate credits, and overall growth in the business block [22] Question: How does the company assess its commercial real estate exposure? - The company conducts quarterly reevaluations of loans and cash flows, ensuring a robust analysis of debt service coverage ratios [14][15] Question: What is the expected pace of share buybacks moving forward? - Management indicated that while there may be volatility quarter-to-quarter, the annualized pace of buybacks is expected to be consistent with the first quarter's $150 million [21] Question: How is the company managing expenses in the RIS business? - Management highlighted disciplined expense management and noted some one-time benefits from prior period accruals, with expectations for flat expenses year-over-year [44]