Business Context and Reporting Period
Company: Principal Financial Group, Inc.
Filing Type: Form 8-K (Current Report)
Reporting Period: Quarter ended March 31, 2013
Report Date: April 25, 2013
Principal Financial Group, Inc. announced its first-quarter 2013 results, highlighting an 8% increase in operating earnings and record assets under management. The quarter included the successful completion of the Cuprum acquisition in Chile and a shift toward a fee-based business model.
Key Financial Metrics
| Metric | 1Q 2013 | 1Q 2012 |
|---|---|---|
| Operating Earnings | $233.3 million ($0.79 per diluted share) | $215.3 million ($0.71 per diluted share) |
| Net Income (Common Stockholders) | $178.3 million ($0.61 per diluted share) | $203.9 million ($0.68 per diluted share) |
| Operating Revenues | $2,238.3 million | $2,107.4 million |
| Net Realized Capital Losses | ($56.4 million) | ($9.9 million) |
| Total Company Net Cash Flows | $6.5 billion | Filing text does not provide a clear value |
| Assets Under Management (AUM) | $456.1 billion (Record) | Filing text does not provide a clear value |
| Book Value per Share (excl. AOCI) | $29.19 | $27.45 |
| Risk-Based Capital Ratio | ~415% | Filing text does not provide a clear value |
Material Changes vs. Prior Period
- Operating Earnings Growth: Increased 8% year-over-year, driven by growth in average account values and the Cuprum acquisition.
- Net Income Decline: Decreased 13% year-over-year primarily due to a significant increase in net realized capital losses ($56.4 million in 1Q13 vs. $9.9 million in 1Q12).
- Revenue Expansion: Operating revenues rose 6% to $2.24 billion, with fees and other revenues growing double digits.
- Segment Performance:
- Retirement & Investor Services (Accumulation): Operating earnings up 18%.
- Principal Global Investors: Operating earnings up 25% with record unaffiliated AUM of $102.7 billion.
- Individual Life: Operating earnings down 53% due to adverse mortality fluctuations and low interest rates, despite a 38% increase in premiums and fees.
- Specialty Benefits: Operating earnings up 12% with improved incurred loss ratios.
Guidance, Outlook, and Management Commentary
- Dividend Declaration: The Board declared a second-quarter 2013 dividend of $0.23 per share, payable June 28, 2013.
- Capital Deployment: Management plans to focus on onboarding Cuprum and deploying additional capital in the second half of the year. Since early 2012, the company has allocated $2.4 billion to acquisitions, dividends, and share repurchases.
- Share Repurchases: Repurchased 2.4 million shares in 1Q13 at an average price of $31.37.
- Accounting Recast: The company revised accounting treatment for its AFORE product in Mexico from an investment contract to a long-term service contract to align with the Cuprum acquisition. This results in fewer capitalized acquisition costs and straight-line amortization.
- Risks: Forward-looking statements warn of risks including adverse capital market conditions, equity market volatility, interest rate changes, credit spreads, and international business risks.
Investor Verification Checklist
- Verify the impact of the $56.4 million net realized capital losses on future quarters, specifically regarding credit-related losses on commercial mortgage-backed securities.
- Confirm the integration progress and financial contribution of the Cuprum acquisition in Chile.
- Monitor the Individual Life segment's margin compression due to mortality fluctuations and the low interest rate environment.
- Review the details of the accounting policy change for the Mexican AFORE business and its effect on future earnings recognition.
- Assess the sustainability of the 15% growth in accumulation sales and the record $456.1 billion AUM.