Principal Financial Group, Inc. 2026 Q3 Earnings Call

Thank you, and good morning. Welcome to Principal Financial Group's third quarter 2026 earnings conference call. As always, materials related to today's call are available on our website at investors.principal.com. Following a reading of the safe harbor provision, CEO Deanna Strable and CFO Joel Pitz will deliver prepared remarks. We will then open the call for questions. Members of senior management are also available for Q&A. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events, or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10-K filed by the company with the U.S. Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures.

Reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures may be found in our earnings release, financial supplement, and slide presentation.

Deanna? Thanks, Humphrey, and good morning to everyone on the call.

This morning I will cover our third quarter performance and the continued progress we are making against our strategic priorities. Joel will then provide additional details on our financial results and capital position. Starting on slide 2, our third quarter results build on our strong year-to-date performance and reinforce our confidence in delivering on our 2026 financial targets. Adjusted non-GAAP earnings per share increased 12% year to date at the high end of our target range, including 7% growth in the third quarter against a strong prior year comparison. Underlying performance in the quarter remained strong against an environment that was volatile and dynamic. On an adjusted basis, third quarter non-GAAP pre-tax operating earnings increased 3% on 4% net revenue growth.

This was primarily driven by higher revenue and disciplined expense management in RIS, improved mortality experience in Life, and growth in International Pension. Adjusted non-GAAP year to date pre-tax operating earnings increased 10%, supported by 5% net revenue growth and 120 basis points of margin expansion. We also continue to deliver strong results in capital generation with ROE above 16% and trailing 12-month free capital flow conversion of 77%, both within our targeted ranges. In the third quarter, we returned nearly $430 million of capital to shareholders, bringing our year to date return to more than $1.2 billion. We remain on track to deliver on our full year capital deployment target. Moving to slide 3, we continue to make progress against our three strategic growth priorities, retirement ecosystem, small and mid-sized businesses, and global asset management.

Within the retirement ecosystem, which includes record keeping, asset management, income solutions, and advice, our scale and breadth of capabilities create multiple opportunities to drive value and deepen relationships with our customers. We're continuing to grow our participant base and helping them save more for retirement. Recurring deposits increased 8% year over year, while the number of participants contributing to their retirement plans and the average deferrals per participant both increased by 4%. Participants are also consolidating more of their retirement savings onto our platform. In the quarter, we had $1.8 billion of roll-ins and $7.4 billion over the trailing 12 months, up 9% and 15% respectively. The attractiveness of our retirement solutions and expertise drove $1.5 billion of DCIO sales and $900 million of PRT sales during the quarter.

We're also further expanding the investment management options available across our retirement platform, including through our featured partner program, which now supports private market strategies and retirement plans. Our partnership with leading alternative asset managers, including Principal Asset Management, allows us to offer more holistic and innovative solutions through professionally managed retirement accounts. This builds on our longstanding experience supporting private assets on our record-keeping platform and is another example of how we're leveraging our scale and expertise to meet the evolving needs of plan sponsors, advisors, and participants. Notably, our strength continues to be recognized. In the 2026 NAPA Advisors' Choice Awards, Principal was named a top retirement service provider across all market segments for both participant experience capabilities and plan sponsor and advisor support. This recognition reflects our partnership and strong commitment to the financial professionals we serve.

For the small and mid-size business segment, our focus and differentiated capabilities in this attractive market continue to drive growth across our businesses. While not shown on the slide, we recently fielded our latest Well-Being Index, a survey of U.S. employers on business health and outlook. Results collected in September and October show small and mid-sized businesses are increasingly more cautious about the economic environment and future growth. Despite that caution, staffing and benefits remain a top priority for business owners. We are seeing a similar trend in our own customer base, with positive employment growth across both B&P and RIS. As seen on slide 3, Specialty Benefits employment grew nearly 2% over the trailing 12 months. In retirement, SMB transfer deposits increased 21%, and recurring deposits increased 7% year over year, reflecting the attractive value proposition of our solutions for this market segment.

In Specialty Benefits, sales grew 10% from the prior year quarter and 15% over the trailing 12 months, contributing to a third consecutive quarter of sequential premium growth improvement. We are excited to build on that momentum with Beam Benefits. on September 1st, we completed this acquisition, adding more than 26,000 small business customers and a digital-first cloud native platform. Beam strengthens our ability to serve SMBs with greater speed and ease, expanding our reach and accelerating growth in this attractive market. Turning to Global Asset Management, I want to first address net cash flow before highlighting the progress we continue to make across the broader platform. Total company net cash flow was negative $11 billion in the quarter, largely driven by select active equity strategies in investment management.

We recognize that net cash flow needs to improve, and we are focused on the actions within our control to strengthen investment performance and drive enhanced growth over time. Active equity flows remain challenged across the industry, and we expect near-term pressure to continue. At the same time, we are seeing demand in areas where we have been investing to grow the platform. Private markets generated $800 million of positive net cash flow during the quarter, and active ETFs generated positive $500 million. Over the trailing 12 months, each has generated approximately $2 billion of positive flows. We continue to build on that momentum, most recently with the launch of the Principal Equity Premium Income ETF to meet growing demand for income-oriented strategies. Importantly, our international capabilities continue to provide another source of diversification and growth.

International Pension generated more than $400 million of positive net cash flow, with positive flows across all locations and AUM up 10% year-over-year. We are also extending the reach of our global capabilities. Earlier this month, we partnered with ASB Capital in the Middle East to launch a multi-asset fund that brings together our expertise across equities, fixed income, and private markets. Broadridge named us a best in class top five provider for international fund distribution in Latin America. Both reflect how our global investment capabilities and local distribution expertise help clients access opportunities beyond their home markets. While we have more work to do, the growth we are seeing in private markets, ETFs, and our international businesses reflect the steps we have taken to diversify our platform and position it for long-term growth.

Before I hand it over to Joel, I also want to recognize that last Friday marked the 25th anniversary of Principal becoming a publicly traded company. We IPO'd at an initial stock price of $18.50, and since then have generated strong annualized returns of 10% for our shareholders. That was a pivotal moment in our history, creating new opportunities to grow, compete globally, and meet the needs of our customers. 25 years later, the same willingness to evolve continues to shape how we position Principal for the future. Today, our focus on the retirement ecosystem, small and mid-sized businesses, and global asset management reflects where we are best positioned to win, and we will continue investing in these areas to drive growth and attractive returns to generate long-term value for our customers and shareholders.

Joel? Thanks, Deanna. Good morning to everyone on the call.