Business context and reporting period
Principal Financial Group, Inc. (Nasdaq: PFG) filed this Form 10-K for the fiscal year ended December 31, 2023. It provides retirement and workplace benefits, insurance, and asset management through Retirement and Income Solutions, Principal Asset Management, and Benefits and Protection; Corporate includes unallocated activities. At year-end, the company reported $1.579 trillion in assets under administration and $694.5 billion in assets under management.
This is a full-year report, not a standalone fourth-quarter report. The company adopted long-duration targeted improvements (LDTI) on January 1, 2023, applied it retrospectively, and recast 2022 and 2021 results. Segment presentation also changed in 2023.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change or context |
|---|---|---|---|
| Total revenue | $13.666 billion | $17.536 billion | Down $3.870 billion |
| Net income attributable to PFG | $623.2 million | $4.757 billion | Down $4.134 billion |
| Diluted EPS | $2.55 | $18.63 | GAAP results |
| Pre-tax operating earnings | $2.010 billion | $1.963 billion | Up $47.2 million; non-GAAP measure |
| Net cash from operating activities | $3.792 billion | $3.173 billion | Up $619.5 million |
| Cash and cash equivalents | $4.708 billion | $4.848 billion | At year-end |
| Total debt | $3.992 billion | $4.078 billion | Debt/equity 37%; debt/capitalization 27% |
| PFG-attributable stockholders’ equity | $10.916 billion | $9.977 billion | At year-end |
The steep reported earnings decline was driven primarily by the funds-withheld embedded derivative: a $1.086 billion loss in 2023 versus a $3.653 billion gain in 2022. Revenue also reflected lower realized gains on funds-withheld assets. These items relate to the 2022 Talcott reinsurance transaction and can cause significant period-to-period volatility. Net investment income increased to $4.092 billion from $3.839 billion, while premiums and other considerations rose to $6.471 billion from $5.340 billion.
Pre-tax operating earnings by segment were $1.051 billion for Retirement and Income Solutions (up $92.3 million), $817.7 million for Principal Asset Management (down $85.0 million), and $537.6 million for Benefits and Protection (down $32.7 million). Corporate reported a $396.8 million operating loss, an improvement of $72.6 million.
Year-end total assets were $305.047 billion, including $98.320 billion of investments and $167.606 billion of separate account assets, which are matched by separate account liabilities; investment risk on those accounts is generally borne by customers. The company returned $1.374 billion to common stockholders in 2023: $625.5 million in dividends and $748.8 million in share repurchases. Dividends declared were $2.60 per share.
Material changes, outlook, and risks
- Management attributed growth in retirement account values and asset-management AUM to positive market performance. Principal Global Investors’ AUM increased to $499.5 billion from $464.7 billion, largely on market gains, despite $10.6 billion of net outflows. Principal International AUM rose to $180.4 billion from $156.5 billion, supported by market performance, net inflows, and currency translation.
- Specialty Benefits premiums and fees grew with the business. Claims expenses also increased, partly offset by improved claims experience and lower COVID-19 claims. Pension risk transfer premiums increased substantially; these large single-premium sales can vary considerably between periods.
- Liquidity sources include operating cash flows, liquid assets, credit facilities, and capital-market access. The company reported $2.631 billion of cash and liquid assets at holding companies and other subsidiaries. Its $800 million revolving facility was undrawn; commercial paper outstanding was zero. Management stated it believed resources were adequate for foreseeable liquidity needs and long-term obligations. The next long-term debt maturity was in 2025.
- Statutory surplus at each U.S. life insurer exceeded minimum risk-based capital requirements. Principal Life’s ordinary dividend capacity for 2024 was approximately $1.498 billion, subject to regulatory rules; $1.200 billion of dividends paid by Principal Life to its parent in 2023 was extraordinary and received regulatory approval. The Board authorized an additional $1.5 billion share-repurchase program in February 2024.
- Investment and actuarial risks remain material. U.S. investment operations reported $4.022 billion of gross unrealized losses on fixed maturities at year-end, down from $5.297 billion in 2022; management attributed the improvement primarily to tighter credit spreads and stated it expected recovery of amortized cost. Commercial mortgage loans were $14.1 billion, with 25% concentrated in California; problem, potential problem, and restructured loans totaled $142.1 million, versus $15.5 million a year earlier.
- Other key exposures include interest-rate and equity-market movements, insurance claims and lapse assumptions, reinsurance collectability, counterparty and collateral demands, foreign exchange, regulatory change, cybersecurity, and competition. A hypothetical immediate 100-basis-point rate increase reduced the estimated fair value of specified financial assets and derivatives by $2.670 billion; this sensitivity is not a forecast and excludes several offsetting liabilities. Management reported no known cybersecurity incident that had materially affected, or was reasonably likely to materially affect, the company.
- The filing provides no numerical earnings guidance. Management’s stated outlook is qualitative: market volatility may affect fee revenue and account values, while higher unemployment could weigh on new sales and in-group benefits growth. The filing identifies ongoing litigation and regulatory inquiries but states that management does not believe pending matters will materially adversely affect business or financial position; potential losses generally could not be estimated. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Reconcile GAAP earnings to pre-tax operating earnings, with particular attention to the Talcott funds-withheld derivative and other excluded items.
- Review segment trends, including Principal Asset Management’s net outflows and the sustainability of retirement and specialty-benefit growth.
- Assess fixed-maturity unrealized losses, commercial real-estate exposures and credit-loss allowances against the company’s ability to hold assets to recovery.
- Confirm insurance statutory capital, Principal Life dividend capacity, reinsurance recoverables, and the restrictions and collateral terms affecting liquidity.
- Consider the effect of LDTI adoption, actuarial assumption updates, and the recast segment structure when comparing periods; verify the new 2024 repurchase authorization and subsequent capital returns.