Principal Financial Group, Inc. (PFG) Earnings Call Transcript & Summary

Hello. I'm John Egan, Vice President of Investor Relations. Welcome to Principal Financial Group's 2021 Investor Day from our world headquarters in Des Moines, Iowa. Thank you for joining us today. We are excited to share Principal's clear path forward, offering insight in how we will generate long-term shareholder value in the future. Materials related to today's event are available on our website at principal.com/investorday. Some of the comments made during this presentation 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 presentation may refer to non-GAAP financial measures. Reconciliation of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures may be found in the full slide presentation available for download on our website. We have a great lineup for you today. After my opening remarks, Dan Houston, our Chairman, President and CEO, will share specifics of our focused business portfolio, including the outcome of our recent strategic review; Deanna Strable, Chief Financial Officer, will discuss details of our strengthened capital management strategy and our clear path to deliver on our financial growth targets for the enterprise. You will then hear from several business leaders as a spotlight drivers of near-term growth. Renee Schaaf, President of Retirement and Income Solutions, will share how our U.S. Retirement business is fueling growth for the enterprise; Joel Pitz, Chief Financial Officer of Principal International, will discuss the near-term growth drivers of retirement and long-term savings in our emerging markets; Amy Friedrich, President of U.S. Insurance Solutions will highlight the strength of our Specialty Benefits business and our focus on the small- to medium-sized business market; and Pat Halter, President of Principal Global Asset Management, will share our focused strategies for growth in investment management. We will then end the day with a 30-minute question-and-answer session with all presenters available for questions. [Operator Instructions] We will do our best to get to everyone's questions during our live session. We all look forward to when we can see many of you in person again and continue this important discussion. Thank you for your interest and support in Principal. [Presentation]

Hi, I'm Dan Houston, Chairman, President and CEO, Principal Financial Group. Thank you for joining us for our 2021 Investor Day. It has certainly been a challenging 18 months, and I think we can all agree. We are forever changed. As we begin to emerge from this challenge of the global pandemic, more of our employees have begun returning to the office. Our sales and service teams are back on the road, meeting with customers and a new normal is beginning to emerge. I started working at Principal in 1984. That's 37 years ago, and I cannot recall a time of more opportunity. It is a transformative time indeed. At Principal, we've doubled the size of our U.S. retirement business in just the last 3 years, grown our total assets under management to $820 billion, launch new digital offering in the growing emerging markets and help more than 150,000 U.S. small- to medium-sized businesses with benefits and protection solutions. We lead in key markets and customer segments offering integrated solutions across our portfolio businesses to more than 38 million customers in 80-plus markets. And we've done this in the face of challenging macroeconomic conditions and a global pandemic, enabled by the dedication and commitment of our employees around the world and guided by our customers' strong and growing need for financial security. Throughout our 142-year history, we've strategically navigated market dynamics, competitive forces and changing customer preferences through intentional reinvention and transformation. We've pivoted along the way, recognizing as these forces evolve, we must also evolve to compete and lead in the U.S. retirement, we acquired the Institutional Retirement and Trust business in 2019. To capture demographic opportunities in emerging markets, we've expanded key relationships with joint venture partners, including China Construction Bank and CIMB. To meet the needs of institutional investors, we've grown and added new teams with specialized asset class capabilities, including emerging market debt in 2011 and European real estate in 2018. We've continually sharpened our focus to drive growth and value creation, leveraging where we have a right to lead and win. We have refined our portfolio as well as in existing markets of products that no longer provide long-term strategic and financial value. This led us to last year's announcement, we will divest our retail asset management business in India, exit our life insurance business in Mexico and see new sales of our universal life insurance with secondary guarantee products here in the United States. This transformation continues. We're committed to continuing to thoughtfully assess our go-to-market approach, business mix and capital management strategy, we are confident in our long-term strategy that puts the customer at the center of what we do, which positions us to win, grow and create shareholder value with sharp focus on growth drivers, retirement in the U.S. and select emerging markets, global asset management and U.S. benefits and protection, we target and invest in areas where Principal has established competitive advantages. Those advantages are differentiated and integrated solutions, leadership positions in higher growth markets and our deep and established customer reach. The company's growth and success enabled us by our trusted brand, powerful and diverse distribution network, growing technology and data capabilities and the compelling experience we offer our customers. All of this comes together through our people, 18,000 strong around the globe, working as one, living our core values to deliver our customers, shareholders alike. In February of 2021, we announced that our independent Board Finance Committee would lead an intensive strategic review of our business mix and approach to capital management. I applaud the Board Finance Committee, Board of Directors, our independent advisers and the entire management team for their hard work, forward thinking and dedication to making the best decisions for shareholders through this review. Along the way, we've consulted with many of you, our investors, to understand what you value about Principal today and where you see opportunities for the future. We appreciate your engagement in these conversations and are confident you'll continue to find Principal a good fit for your portfolios. Emerging from this process, Principal will be more capital-efficient company, poised to lead in a higher-growth spaces, expecting higher capital returns to shareholders. We remain diversified with our growth drivers, clearer than ever and with a stronger focus on leveraging the interplay and interdependencies of our businesses. The integrated nature of our business model is a force multiplier for shareholders, enabling us to deliver additional value. I am confident that we have reached the right decisions through this review, and that we have the right go-forward portfolio and capital management approach to help us execute our enterprise strategy. At the onset, our Board Finance Committee determined 4 principles for the review. We consider the long-term market growth potential for our business and how future macro trends would be supportive of future success, factoring in segment attractiveness and market access. We emphasized the areas where we've earned a right to win through our competitive positioning, our ability to differentiate and market leadership. We took an in-depth look at the capital needs of all of our businesses today and into the future. And we focused on opportunities that gave us the greatest likelihood of generating attractive returns in excess of the cost of capital for you, our shareholders. And we focus on how we ensure we're deploying capital to the most attractive value creating opportunities. Throughout this process, we were mindful of the impact on our overall desired risk profile, thinking through portfolio diversification, stability of returns, competitive and market risk and the ability to weather stress scenarios as well as macroeconomic sensitivities. In total, it was a comprehensive effort that considered external and internal viewpoints and focused on the future charting a clear path forward for the Principal. There were 3 key decisions resulting from the strategic review: First, we announced the areas of our portfolio that we will continue to expand and invest in. These are our growth drivers: retirement in the U.S. and select emerging markets, global asset management and U.S. benefits and protection. These businesses offer the greatest opportunity for growth, take advantage of our integrated business model and meet our financial thresholds of being more capital efficient with higher returns. We also announced areas where we are exiting, specifically U.S. retail fixed annuities and the U.S. life insurance retail segment, allowing us to shift our risk profile and focused investments and other businesses. As we apply our guiding principles, we determined they no longer met our strategic and financial thresholds and there are better owners for these businesses. Lastly, we aligned in key areas to strengthen our capital management strategy, including a focus on returning excess capital to shareholders and a new share repurchase authorization. As part of the review, we evaluated our approach to capital management and the company's financial targets, including 9% to 12% annual growth in earnings per share, our return on equity target of 15% plus and 70% to 80% free cash flow conversion. We committed to more actively returning capital to shareholders in the future through our targeted 40% common stock dividend payout ratio and increased share repurchases with a plan to return total capital to shareholders of approximately $3 billion by the end of 2022. This does not include any excess capital that may be generated from potential transactions. The Principal Board of Directors approved a new $1.2 billion share repurchase authorization, which is in addition to the $675 million that remains under the prior authorization as of March 31, 2021. This means that in total, we can complete between $1.3 billion and $1.7 billion of share repurchases from March 31, 2021, through the end of 2022. These changes underscore our deep commitment to continue to create long-term shareholder value. The outcome of our strategic review is a refined focused portfolio that positions us as a more capital-efficient company by focusing on customer outcomes we can bring to the marketplace, broaden integrated solution sets and high-value specialist capabilities, which differentiates us from our competition. We intentionally compete in geographies, industries and segments that offer opportunities for long-term growth. I am confident this focused approach positions Principal to win and grow in a meaningful way for shareholders, customers as well as our employees. During the balance of our sessions, you'll hear from our business leaders who will spotlight how each of the business drives long-term growth for the organization, including how our suite of total retirement solutions, expanded an opportunity with a planned sponsor from $330 million in record-keeping assets to $860 million in total retirement assets. Thanks to an addition of principal-defined benefit capabilities and nonqualified deferred compensation solutions. In fast-growing emerging markets, we'll share how through digital platform and e-Wallet solutions with key partners, we've been able to add more than 3 million customers in China in the first quarter of 2021 alone, and 1 million customers in Malaysia in the second quarter of 2021. We'll spotlight how our unique focus on providing specialty benefits and business owner solutions to the U.S. business market sets us apart from our peers, and allows us to tap into the underpenetrated network of more than 6 million business owners offering tremendous opportunities for organic growth. Since 2017, roughly 40% of the employers we have worked with are offering protection solutions for the very first time. And in the Global Asset Management, we've described how we'll focus on specialty investment capabilities, where active management can deliver significant alpha and investors are willing to pay attractive fees for strong performance, through a host of at-scale flagship capabilities, including real estate, quality domestic equity, specialty income and asset allocation, we're building deep and valuable relationships with the world's most sophisticated institutional investors. Harnessing the collective force of our businesses, I'm confident we can successfully execute against our clear long-term strategy, enabling us to achieve our financial targets, create shareholder value and deliver against our strengthened capital management strategy. I look forward to taking your questions later in the program. And now I'm very pleased to turn the program over to our CFO, Deanna Strable, who will speak further to the financial and capital aspects of the strategic review and our go-forward strategy. [Presentation]

Hello. I'm Deanna Strable, Chief Financial Officer, with additional responsibilities for Enterprise Strategy and Capital Markets. Thanks for joining us today. As you heard from Dan, our drivers for growth, areas of differentiation and our path forward are clearer than ever. I will share details of the financial aspects of the strategic review, our enterprise financial and capital targets, including the drivers of achieving them and our strengthened capital management strategy. We are evolving our portfolio. We are investing in businesses that offer the greatest opportunity for growth, retirement in the U.S. and emerging markets, global asset management and U.S. benefits and protection. And we are exiting those that have become increasingly commoditized and are no longer able to drive needed value to Principal, including our U.S. retail fixed annuity business and our U.S. Individual Life Insurance retail segment. We are focusing our U.S. Life Insurance business solely on the business market, an area where we have a leadership position and differentiating capabilities that allow us to win. This focus makes our risk-return profile more attractive by reducing interest rate risk. We are pursuing strategic alternatives for several in-force blocks, including fixed deferred annuities and single premium income annuities with $18 billion of reserves and universal life secondary guarantees with $7 billion of reserves. As a result of these portfolio changes, we expect a 7 to 10 percentage point increase in free capital conversion. As we continue to work through the specifics of these transactions, we'll continue to update you as we know more, including timing, as well as the financial and capital impacts. The review validated our capital and leverage targets are appropriate, and we have increased our commitment to returning capital to shareholders through common stock dividends and higher levels of share repurchases. These changes will drive stronger financial performance and value creation for our shareholders. It is important to acknowledge that we have faced recent headwinds, including the impact of COVID, the IRT integration, unfavorable foreign exchange as well as the low interest rate environment, all of which have challenged our growth and pressured our financial results over the last few years. In spite of these challenges, we have a clear and compelling path forward. At the enterprise, we are targeting a 9% to 12% annual growth in earnings per diluted share. We have a path to a return on equity of at least 15%, and we expect a 70% to 80% free capital conversion. In reviewing our capital targets, we took a number of factors into consideration. The cash generation and earnings diversification of the enterprise, requirements to maintain our current financial ratings, the range of impacts from modeled stress scenarios, both domestically and internationally and our ability to access our contingent capital facility that allows us to borrow up to $850 million, its current fair value. For the review, we confirmed our current capital targets remain appropriate. We are targeting approximately $800 million of excess capital at the holding company to cover 12 months of obligations, a 400% risk-based capital ratio at the life company and a 20% to 25% leverage ratio. It's important to note that these financial and capital targets exclude any potential onetime impacts from the transactions we are pursuing for U.S. retail fixed annuities and portions of our individual life in-force blocks. Our focus on higher growth, more capital-efficient businesses will enable Principal to deliver 9% to 12% annual growth in earnings per diluted share from 2020 to 2023. Starting with 2.1% growth in reported EPS from 2016 to 2020, 3 items will increase growth to 9% to 12% through 2023. Eliminating the negative impact from the significant variances we called out in our 2020 results, including COVID and the IRT integration, increases the growth rate by 3.5 percentage points. We expect additional improvement in EPS from incremental earnings growth as a result of our more focused portfolio, the realization of the IRT synergies and our strong growth drivers, and 1 to 2 percentage points from an additional level of share repurchases. We are confident in our ability to deliver 9% to 12% annual growth in EPS, not only in the near term but over the long term as well. And this growth in EPS is one piece of the path to delivering a 15% return on equity by 2023, starting with the nearly 11% reported ROE, excluding AOCI other than foreign currency translation adjustment for full year 2020. Then adding back the negative 1.6 percentage point impact of 2020 significant variances, we get to an adjusted 12.5% ROE. To get to 15% by 2023, we expect to benefit from the realization of IRT synergies from returning excess capital to shareholders and as we deploy capital in a more purposeful manner to higher-return businesses. Moving to capital management and deployment. Through 2020, we built up excess capital to buffer against economic uncertainty and the potential impacts to our investment portfolio. We paused share repurchases at the onset of the pandemic in an effort to conserve capital, and we opportunistically issued $600 million of long-term debt at attractive rates last summer. At the end of first quarter of 2021, we had $1.8 billion of capital at the holding company, $1 billion above our $800 million target, and we had $575 million in excess of our 400% targeted RBC ratio. Having confirmed our capital structure and with increased certainty around the macro environment, we plan to return this $1.6 billion of excess capital to shareholders, managing more closely to our capital targets. We plan to bring our RBC ratio down to our targeted 400% by year-end 2021. This is inclusive of the 3 RBC changes for bonds, real estate and longevity risk, recently adopted by the NAIC that will go into effect at year-end. The net capital impact of these RBC changes is expected to be immaterial as favorable impacts from our real estate exposure, which is higher than many of our peers, will largely offset the other impacts. At the holding company, we plan to grade excess capital down to our target by the end of 2022 while maintaining a 20% to 25% leverage ratio. We also expect to pay down $300 million of long-term debt when it matures in 2022, and we plan to deploy $1.4 billion to $1.8 billion through share repurchases between 2021 and 2022, including the $100 million we completed in the first quarter, but excluding any onetime impacts from the transactions we are pursuing. We will continue to take a balanced and disciplined approach to capital deployment with an enhanced focus on returning excess capital to shareholders. Our strengthened approach to deploying our free capital flow establishes clear priorities and targets in 4 key areas. We are targeting to deploy 20% to 30% of net income to organic capital to support our refined portfolio of businesses, 40% to common stock dividends consistent with our targeted payout ratio and reflecting our business mix, 30% to 40% to share repurchases deployed after addressing organic and dividend priorities. This is an intentionally larger component than it has been in the past and up to 10% to disciplined M&A to supplement organic growth. This is a smaller component than it has been in the past. We'll continue to make the necessary investments in our business to support our positional advantages and ultimately drive growth. This refined approach to capital management will support our commitment of delivering long-term enterprise growth while allowing a significant amount of capital to be returned to shareholders, including dividends and share repurchases. This ultimately creates a clear path to shareholder value creation. Specific to dividends, we will continue to reward long-term shareholders with an attractive common stock dividend. We delivered a 15% compound annual growth rate in our dividend over the last 10 years as we generated growth in net income and increase to our targeted 40% payout ratio. Over the last 3 years, we paid quarterly dividends totaling approximately $1.8 billion or an average of $600 million each year. We're expecting to pay $1.3 billion to $1.4 billion in dividends between 2021 and 2022. This strategy reflects our confidence and conviction in our ability to generate growth in net income and stable free capital flow. Complementing common stock dividends, share repurchases is another critical component of deploying more capital to our shareholders. We have returned over $3 billion to shareholders through repurchases over the last decade. Our Board of Directors approved a new $1.2 billion share repurchase authorization which is in addition to the $675 million that remained under the prior authorization as of March 31, 2021. We plan to complete $1.4 billion to $1.8 billion of share repurchases between 2021 and 2022, including the $100 million we completed in the first quarter, excluding any onetime impact from anticipated transactions. Today, we have a significant amount of excess capital and a business mix that generates strong and consistent free capital flow. In total, we expect to return approximately $3 billion of capital to shareholders through common stock dividends and share repurchases between 2021 and 2022 to achieve our targeted capital levels. You'll hear more about our growth drivers next and how they will enable us to achieve our long-term financial targets of 9% to 12% earnings per share growth, 15% return on equity and 70% to 80% free capital conversion. Through our strengthened capital management strategy, we will continue to invest in areas where Principal has established competitive advantages while increasing our returns to shareholders. We have a clear path to becoming a higher growth, more capital efficient company, creating long-term value for shareholders. Thank you for taking the time to be with us today. [Presentation]

Hello. I'm Renee Schaaf, President of Retirement and Income Solutions. I'm pleased to spend the next several minutes spotlighting our U.S. retirement business and the 4 key growth drivers that will fuel our results. We are excited for our future, and we are well positioned for continued success. As you saw in the preview video, Principal holds industry-leading market positions across the full spectrum of retirement plan types, defined contribution, defined benefit, nonqualified deferred compensation, stock plan and trust and custody solutions. We are a top 3 provider in the industry with a balanced footprint across small, medium and large-sized plans and with customers that span a wide spectrum of industries. We have the scale, capabilities and talent to drive success in the U.S. retirement business. Growth in earnings for our full-service accumulation business is fueled by our workplace retirement record-keeping platform. Net revenue generated from this platform and reported within RIS-Fee totaled $1.3 billion in 2020. Our workplace retirement recordkeeping platform is also a meaningful revenue generator for other lines of business throughout Principal. In fact, 2020 net revenue related to retirement and reported in business lines outside of Full-Service Accumulation, totaled $456 million. This means for every $1 of revenue that is generated through our workplace retirement record-keeping platform another $0.32 is generated and reported in lines of business outside of RIS-Fee, and we expect this to continue to grow. This speaks to the integrated nature of our businesses and the power of the Principal enterprise strategy. Looking forward, our U.S. business has 4 key growth engines. These include leveraging momentum from the IRT acquisition; continuing to harness the power of Total Retirement Solutions; delivering an engaging participant experience; and finally, leveraging PGI's world-class investment management solutions that result in higher than industry percentages of planned assets invested in proprietary investment strategies. Let's take a closer look at each of these. First, we will continue to leverage growth through the IRT acquisition. We are thrilled to report that we have successfully completed the migration of the IRT retirement business from Wells Fargo to Principal. As a result of this acquisition, we have added 2.4 million participants, approximately $150 billion in account value, and we've welcomed 1,500 IRT employees to the Principal. We are very pleased with the seamless experience we provided to our customers through this migration. We have received positive feedback from plan sponsors, advisers and consultants regarding the overall pace and quality of communications and the smooth migration. Participants report positive reviews on the new digital experience and tools that are now available to them. The strategic benefits of the acquisition are beginning to emerge. We have seen our sales pipeline almost double with the strongest growth reported in the large plan market, which will materialize more fully in 2022. This pipeline growth is driven by new relationships with consultants that specialize in the large plan market and with whom the principal story has resonated well. We have added significant new and enhanced capabilities for plan sponsors and expanded the participant digital experience. For plan sponsors, we have dramatically expanded our platform capabilities. This includes more robust plan sponsor reporting, new managed and self-directed brokerage account capabilities, participant engagement dashboard and an innovative planned health view that includes benchmarking against plans of similar industry, participant count and total plan assets. Participants now enjoy an expanded digital experience, including motivational peer comparisons and financial wellness resources with filters for individual interests. These expanded capabilities help us attract new business and better serve existing customers, benefiting legacy and IRT customers alike. We are beginning to see revenue synergies. This takes the form of proprietary investment management, IRA rollovers, managed accounts and opportunities to place additional retirement plans with Principal. We are also on track to deliver $90 million of net expense synergies and expect to reach our acquisition financial targets of $425 million in net revenue and 28% to 32% in pretax return on net revenue on a run rate basis by the end of 2023. As a reminder, the economics for this business will emerge in reporting segments across the enterprise. Next, Total Retirement Solutions continues to be a powerful differentiator for us in the U.S. retirement market. Our expansive Total Retirement Solutions, or TRS, offer a unique value proposition to plan sponsors and participants by integrating tools, services and financial wellness into a single unified customer experience across multiple retirement plan types. This results in a more cohesive, comprehensive and effective retirement program for plan sponsors and participants. This is truly a competitive differentiator. The scope and breadth of our offering is industry-leading and includes pension risk transfer, equity compensation and private ESOP. Plan types not typically bundled with Total Retirement Solutions. Our proprietary record-keeping system is specifically designed and architected to handle multiple retirement plan types and complexities. Most competitors cannot deliver the same depth and breadth of solutions on a proprietary, fully integrated basis. Not only is TRS a differentiator for our clients and distribution partners, it drives meaningful business results. Total Retirement Solutions represents approximately 50% of annual Full-Service Accumulation sales and accounts for 42% of our total assets under administration. We also see lower lapse rates for TRS customers. In fact, in 2020, our TRS lapse rate was close to 40% lower than our non-TRS lapse rate, which helps to drive higher client retention across our block of business compared to other record keepers. Last of all, we see a higher percentage of assets invested in our proprietary investment management strategies for large plans that use our total retirement plan solutions. Next, our award-winning retirement participant experience serves as an important growth engine for our future. Our participant experience engages the user, elevates retirement planning, expand holistic financial wellness and boost understanding of planned strategies. Starting the day, the participant becomes eligible for the retirement plan and extending through retirement. We've invested heavily in digital technology and customer experience resulting in third-party recognition and awards. Our mobile app is rated 4.8 out of 5 stars in the iOS App Store and our participant onboarding experience delivers a healthy 8% deferral rate with 30% of users deferring 10% or more and an additional 1 out of 3 users are escalating to 10%. We also provide participants with education, guidance and advice they need to achieve a financially secure retirement. We delivered this personalized outcome-oriented experience through a combination of online tools backed by a large specialized team of education professionals and licensed financial counselors. As a result of this focus, we've seen recurring deposits increased an average of 8% per year over the past 5 years. This is 33% higher than the industry average growth rate of 6%. And our guidance and advice doesn't stop when participants leave their employer's plan. We continue to help former plan participants accumulate assets and turn assets into an income stream throughout the retirement years. In 2019, we launched SimpleInvest. Our proprietary digital advice and allocation solution. Although personal assistance is available through our team of 120 licensed financial professionals, nearly 70% of users were able to fully self-serve using this new technology. In 2020, we delivered $2.1 billion in IRA rollovers and $2.9 billion in planned roll-ins off of average defined contribution account value of $240 billion. We expect IRA rollovers and planned roll-ins to continue to increase with the addition of the IRT plans and growth in our block of business. We also expect our conversion rate to accelerate through continuous investments and improvements in service and product offerings. Our world-class investment management capabilities available through Principal Global Investors also serves as one more powerful growth engine for our U.S. retirement business. We offer retirement customers an extensive array of proprietary investment management strategies that span multiple asset classes and managers and are delivered through mutual funds, separate accounts, CITs, ETFs and general account-backed investment strategies. Our suite of actively managed and hybrid Target Date Funds deliver top tier performance, a topic Pat Halter will speak to in just a few minutes. We also offer competitive in-plan income guarantees and variable annuities to help plan participants accumulate assets and later turn those assets into an income stream. Principal has a higher-than-industry average percentage of account values invested in proprietary investments. And that's been true a long time. This is especially the case with small- to medium-sized plans, defined as less than $25 million of planned assets. For this plan size, 65% of total account values are invested in Principal investment management strategies far exceeding the industry average of 39%. We know plan sponsors, advisers and consultants have a wide spectrum of investment managers and strategies to choose from as they select their retirement plan investment lineups. We support and respect the need for those choices to be made within the parameters of sound fiduciary management. However, our investment management strategies stand up through rigorous independent third-party performance evaluation and fiduciary review. Our investment management strategies continue to resonate in the marketplace as evidenced by a new sales proprietary asset rate of 64% for the under $5 million market and 41% for the $5 million to $25 million market, proprietary asset rates that we believe outpaced industry averages. The 4 key drivers will position us well for growth over the next 3 years. Our continuous investments into this business has resulted in above industry average growth rates in new sales, recurring deposits and customer retention. And our current financial position is strong with over $1.9 billion in net revenue and $477 million in pretax operating earnings on a trailing 12-month basis as of the end of first quarter of 2021 for RIS-Fee. Despite fee compression in the industry, our growth engine will continue to produce good results. We anticipate 8% to 10% growth in forecasted pretax operating earnings over the next 3 years for RIS-Fee, helped in part by realization of IRT synergies. This forecast does not include the additional revenue and earnings we anticipate will be generated as a result of our Full-Service Accumulation record-keeping platform and reported through other lines of business across the enterprise. Before I close, I want to make special mention of solutions that are included in our U.S. retirement business and are core to supporting workplace retirement needs. This includes pension risk transfer that helps employers manage to find benefit liabilities and derisk their balance sheet. And as I mentioned earlier, represents a key differentiator in our Total Retirement Solutions. Variable annuities and bank solutions provide valuable choice for IRA rollovers and retirement planning. Through the IRT acquisition, we are expanding trust and custody solutions, which advances our Total Retirement Solutions and drives additional value throughout the enterprise. We expect trust and custody to be stood up to serve new and existing clients before March 2022. Last of all, we continue to pursue investment-only opportunities when we can capture attractive returns. In summary, I want to leave you with 3 key takeaways. First, Principal is a leader in the retirement industry. Next, our business fundamentals are strong with 4 powerful engines to drive future growth. And last of all, the U.S. retirement platform drives growth across the enterprise. I'm excited about the opportunities that lie ahead for our business. Thank you. [Presentation]

Hello. I'm Joel Pitz, Chief Financial Officer of Principal International. I'm here today representing the interest of both Thomas Cheong and Roberto Walker. As you know, upon Luis Valdés' retirement in March, we made the decision to locate our international leadership in their local markets to be closer to our business and customers. Thomas Cheong, Executive Vice President, leads our operations in Asia; and Roberto Walker, Executive Vice President, leads our efforts in Latin America. As a result of the pandemic, they were unable to join us today. I am happy to be here to share the growth strategy of Principal International. As a premier provider of retirement and long-term savings solutions in emerging markets, we manage $316 billion in assets under management when including China. We are proud to execute our company's important mission of providing financial security for individuals. Our strong competitive position across Latin America and Asia highlights our ability to meet the needs of our customers. We are the #1 voluntary pension provider in both Chile and Brazil, #3 unit trust provider in Malaysia and the 14th largest retail mutual fund provider in all of China. As evidenced by the 26 million customers we currently serve, our voluntary and mandatory solutions are well suited to meet their financial security needs. However, much work remains and we are excited about the opportunities that lie ahead. You will hear us reference chosen markets, conveying their strategic and disciplined approach to where and how we compete. Since establishing our emerging market business, we have thoughtfully and strategically entered and exited markets and business segments. We routinely review our portfolio to ensure the macroeconomics, demographic trends alongside regulatory and political stability, create an environment in which we can serve our customers and provide value to our shareholders. A recent example was our decision to exit the retail asset management business in India. This business was subscale and would have required too much time and resources to produce an acceptable return. As a result, we found a buyer that would appropriately serve our customers and value the talent within the company. We expect this transaction to close in the third quarter of this year. We take great pride in our history of successfully deploying capital, demonstrating our conviction to invest and divest as necessary. Principal International has delivered strong local currency results, a trend that we fully expect to continue. During the past several years, foreign currency translation has been a meaningful headwind for our emerging market businesses, particularly in Latin America. In fact, if you apply the FX environment that existed in 2014 to our 2020 adjusted results, the pretax operating earnings would have increased from the $290 million reported in 2020 to $480 million. When looking at our results during this period, our reported earnings have decreased 6% in U.S. dollars. When adjusting for FX, encaje and Brazil inflation, the result is a compound annual growth rate of 10%. Current consensus indicates the U.S. dollar strengthening of the past several years will not continue. As such, we are optimistic about our future growth in local currency and U.S. dollars. Principal International has and remains committed to being a meaningful provider of capital. Since year-end 2014, we have returned an excess of $1 billion in capital in the form of dividends, a 74% payout ratio. With our fee-based business model, this will continue to be a priority. Our global footprint had allowed us to establish a portfolio that has become increasingly diversified. As a result of very strong growth in Asia, the segment earnings have evolved from 10% Asia and 90% Latin America in 2015 to a 30% weighted towards Asia today. This trend will continue with an expectation of 40% of Principal International earnings attributable to Asia by 2025. Importantly, this is not a product of lack of local currency growth in Latin America. Rather, it is a product of the exponential growth in our Asia business. There is no one-size-fits-all approach to achieve financial security as the dynamics in each market are unique. One such example is the ongoing pension reform discussions within our markets. Though models differ, the objective of helping individuals achieve adequate retirement income is shared. As a global retirement leader, we have and will continue to advocate for responsible, sustainable and accessible pension policies. The OECD recommends that individuals save enough to maintain 70% of their income in retirement. This 70% goal, referred to as a replacement rate, ranges from 26% in Mexico to 59% in Brazil, highlighting the pressing need for our voluntary and mandatory solutions. A recent example of customer-centric advocacy was the outcome of pension reform in Mexico. In late 2020, reform was enacted, that will increase mandatory contribution rates from the current 6.5% to 15% through 2030, a change that is expected to improve replacement rates to approximately 60% over time. When a system is defined and in place, we are confident in our ability to compete. In addition to the compelling need for our solutions, the strong industry and GDP growth outlook in our chosen markets further demonstrates we are in the right markets and will continue to be a growth engine for Principal. In addition to the right strategy and conditions that serve as a catalyst for future growth, we have the differentiating capabilities needed to win within our chosen markets. Key differentiators for Principal International include a strong offering of both local and global investment capabilities; the right joint venture partners providing meaningful access, distribution and brand recognition; and a digital strategy that allows us to access and service customers where they are. Our Principal International businesses compete locally, benefiting greatly from the capabilities that exist within the enterprise, none more important than Principal's global asset management expertise. Our strong local investment teams on the ground leverage the tools and capabilities across the globe to meet the local and regional investment needs of our clients. As markets mature and as demand for global investments increase, we are well positioned to leverage the capabilities and expertise that exist within Principal Global Investors. This combination of local and global investment expertise is a differentiator and a competitive advantage. Hong Kong serves as a proof point for our holistic view of a particular market. In Hong Kong, we have an established mandatory pension business reported in the Principal International segment and asset management franchise reported in Principal Global Investors segment. Given our presence in the mandatory pension and asset management space, we are currently managing $2.6 billion on competitor mandatory platforms as of the first quarter of 2021. This is a prime example of being better together. Speaking of being better together, we could not ask for better JV partners within Asia and Latin America. We are aligned strategically and culturally and recognize the importance of leveraging the capabilities of each other. We leverage our partners' strong local presence, brand and distribution while contributing our asset management and retirement expertise. These partnerships enable us to grow in a more accelerated and less capital-intensive way. For example, in 2005, we deployed minimal capital to partner in the asset management space with China Construction Bank, CCB, the second largest bank in the world. This partnership combines Principal's premier asset management capabilities with CCB's strong distribution and more than 700 million retail customers. As of the first quarter, this partnership has accumulated more than $155 billion in assets under management and is the third largest contributor of earnings within the Principal International segment. Our relations with CCB have never been stronger, and we remain optimistic in our ability to enter the China pension space in partnership with CCB. In Southeast Asia, we have a successful joint venture partnership with Commerce International Merchant Bankers, CIMB, the second largest bank in Malaysia. In 2018, we became majority owner of the joint venture, increasing our ownership to 60%. The results of this JV continued to exceed our initial expectations. Finally, in Brazil, since 1999, we have partnered with Banco do Brasil, the second largest bank in Latin America. Together, we have formed the largest pension company in Brazil, capturing more than 30% of the industry AUM. We are thoughtful and purposeful in how we enter and compete in our chosen markets, and are proud to be affiliated with quality partners that share our vision and purpose. In addition to our strong JV partners and the robust distribution that comes from these relationships, our distribution strategy leverages digital capabilities and channels to ensure we are able to meet our customers where they are. Digital distribution will continue to be a fundamental and increasingly important part of our strategy in order to best serve existing customers and reach new ones. The success of our digital strategy is evident in our recent results. Specifically, through our well-positioned presence on the Ant Group financial platform in China, we added more than 3 million new customers in the first quarter of 2021, bringing total Ant customers to 11 million, resulting in assets under management of $15 billion through this important channel. Most recently, we launched a first of its kind e-wallet solution in Malaysia in partnership with Touch 'n Go, acquiring more than 1 million customers during the second quarter alone. This customer acquisition is 3x the entire customer base we acquired traditionally in the market since entering Malaysia in 2003. Finally, in Chile, we developed an app for our mandatory business that was voted Best Financial Services App, allowing us to provide differentiated service to our customers. As evidenced by our expected 9% to 11% growth in pretax operating earnings, our portfolio of businesses are on a good trajectory, benefiting from a healthy emerging market outlook; our ability to attract, retain and move up the value chain within our current customer base, which in some locations is heavily weighted in money market funds and basic fixed income products; and through ongoing disciplined expense management and efficient operations, whereby we will continue to scale our business by leveraging the Principal infrastructure. We remain well positioned and confident in our ability to provide meaningful returns and meaningful capital for our shareholders. In closing, I want to leave you with these key takeaways. The winning combination of the right strategy, the right markets and the right capabilities has yielded strong results for our customers and other stakeholders. In local currency, our businesses have performed well, and we've established a solid foundation for continued growth. We have great confidence that Principal International will continue to be a growth engine, will provide relevant diversification and will continue to be a meaningful source of capital. This combination, coupled with our key and unique differentiators, positions us well to navigate the inherent volatility that comes with doing business in emerging markets as we continue to deliver value for our customers and other stakeholders in the years to come. Thank you very much for your time.

Hello. I'm Amy Friedrich, President of U.S. Insurance Solutions. As mentioned, we are taking a set of strategic actions with respect to U.S. individual life insurance retail segment. The set of actions we recently announced allows us to retain the small to medium-sized business, or SMB, focus across our protection businesses, a successful strategy we've been deploying over a decade. The SMB market creates 3 distinct opportunity sets for Principal: first, the opportunity to help business owners protect their employees through a comprehensive benefits program that helps attract and retain talent; second, the opportunity to help business owners protect their business, their key executives and plan for business succession; and third, the opportunity to protect business owners themselves and their families. The combination of the solutions we offer, the expertise we provide and the experiences we deliver to customers has resulted in a leadership position in the business market. Whether looking at small-case business life insurance, corporate-sponsored individual life insurance or overhead expense disability solutions, Principal is the small market leader. This leadership position translates into a significant portion of annual sales in the business market for our life insurance and individual disability business. We will maintain this business market focus going forward and drive future growth and shareholder value by doing so. One of our high-growth businesses at Principal is the Specialty Benefits division. This business is made up of our group benefits and individual disability insurance product lines. The Specialty Benefits division is a leading provider of comprehensive employee benefits packages for small and medium-sized businesses. We partner with more than 93,000 employers, and we help 3.1 million individuals through our protection solutions. Through our group benefits business and our focus on the small to medium-sized businesses, we have been a growth engine for Principal. Our overall business mix provides diversification, creating more stable financial results over time. Our premium and fees mix is 80% group benefits and 20% individual disability insurance. Within group benefits, 50% of the premiums and fees are dental and vision, with the remaining 50% split roughly between group life and group disability. We are unique in group benefits marketplace given the percentage of business that is dental insurance. Roughly 35% of our earnings are from the dental and vision solutions we offer. We are also unique for owning a proprietary 50-state dental network. This network is a competitive advantage because it allows better pricing and choice for our customers. We also gain additional insights into the dental market and are able to work with dental providers to ensure market competitiveness for them and for us. Another advantage of group benefits business is that it renews every year. This allows us to introduce rate changes annually, if needed, to drive profitable growth. It helps customers evaluate their benefit programs at the annual renewal time and identify additional needs to review every year as we communicate with business owners and their advisers. These reviews may result in additional protection solutions being added to the customer's benefit program, changes to features within the program as well as opportunities for entirely new business owner and executive solutions, all of which drive additional revenue. We focus on small employers, which account for 99% of all businesses in the U.S. This is different than many of our peers who are focused on the large employer market. Their success is based on taking over business from one another. Our success is based on expanding the market. Not only do we successfully win business from our peers, but we also work with employers just starting their benefits programs. In fact, roughly 40% of the employers we've worked with since 2017 are employers offering protection solutions for the first time. With our focus on the SMB market, less than 25% of our premium is in a rate guarantee at any point in time. This is different than our peers in the large employer market where rate guarantees are expected to be longer to be competitive. This means we can be nimble in responding to the experience in our business or introducing actions to retain competitive position in the market. We also have less customer concentration risk. Losing 1 employer customer when the average customer has 30 employees is a very different risk than losing 1 large employer customer with thousands of employees. Through our extensive work with SMBs and the ongoing primary research we conduct, we know more about smaller businesses and their owners. We have insights into their business challenges, and we know what they value. Driven by our investments in technology, we've created an experience that's simple and seamless from initial setup to ongoing administration to claims payment. While others have focused on the onboarding or the claims payment experiences, we've spent just as much time streamlining all the processes in between. One of the important characteristics to acknowledge about small businesses is that they typically don't have a dedicated human resources professional. This means business owners need us and the advisers who serve them to be their benefit support. We've made significant investments to simplify offering benefits and providing unique services, such as a single bill for all the protection solutions our customers are offering to their employees. Differentiating based on experience means that we've spent more time figuring out how to exchange data for streamlined onboarding and ongoing administration. We were the first to offer application programming interfaces, or APIs, for ongoing administration of group benefits. This makes it easy for an employer to add a new employee to the protection solutions they are offering or when they are updating an employee's information. We now have more active cases connected in this way than any of our peers. Through first quarter of this year, we had over 18,000 employers, representing $830 million in premium using our API or other data connectivity alternatives. Because these transactions process automatically, our customers benefit from a seamless experience and we are able to grow efficiently. This is winning us business and helping us retain business. Working with fewer companies is also important to SMBs. So bundling protection solutions is a key way that we meet this need. We have one of the broadest protection solution sets available, and we offer flexibility in how these solutions are paid for. Our 2 most recent protection solutions are work site benefits, specifically critical illness and accident insurance. In the last 5 calendar years, we've increased the number of protection solutions per employer by almost 20%, in part due to the addition of these work site solutions. And for our customers with 25 to 500 employees, we have, on average, 3 group protection solutions in force with them. We understand SMBs' value cash flow predictability. And with this in mind, we've developed a unique approach to the annual renewal process. This approach provides stability that smaller employers, in particular, appreciate when offering a benefits program. These businesses are less able to withstand significant swings in expenses. Our renewal approach provides them with the confidence they want when offering a benefits program. Rate increases, when needed, will be smaller and more predictable. Smaller employers want to know what other businesses like them are doing. We provide our expertise through tools that help SMBs identify and prioritize their needs. This is often the biggest pain point a smaller employer has when starting to research a benefits program. We try to make evaluating benefits options as simple as possible. One example is our benefits design tool. This is a web-based resource, and it helps business owners compare their benefits to businesses like them in the same geographic area. Users gain insights on whether their current benefits program is positioned to attract and retain employees. Because we know the SMB market better than others, we are uniquely positioned to develop and deploy resources like this. These are just some of the unique capabilities that we make available to smaller employers based on the insights we have about the SMB market. These capabilities make it easier for SMBs to offer benefit programs that allow them more time to focus on running their business. And our customers recognize this, with over 90% saying we're easy to do business with. The brokers we work with also recognize this, rating us #1 in company competitiveness based on service. This differentiated SMB experience we just reviewed helps fuel our financial projections. Going forward, we're projecting 7% to 9% pretax operating earnings growth over the coming 3 years. This will be driven by delivering on our differentiators to increase our market base and drive revenue through strong sales, retention and in-group growth; continuing our effective underwriting practices to manage experience and expanding our margins by making ongoing investments to further streamline operations, leveraging data and analytics; and continuing to shift our mix of business to higher-margin solutions. Specialty Benefits is a capital-light business that has high returns. With the proven historical success of Specialty Benefits and the market opportunity that exists, this business will continue to provide significant benefits for shareholders. Although I've been focusing on Specialty Benefits, I do want to go back to where we started, which is that business owners have needs beyond taking care of their employees through their benefit plans. They also have needs related to protecting their business, taking care of key executives, planning for succession, and protecting themselves and their families in case of disability or death. When we pull all of these solutions together, group benefits, business-focused life insurance and individual disability, we end up with a unique value proposition and a set of capabilities for the business market that is unmatched in the industry. In summary, I want to leave you with 3 key takeaways. First, we are the SMB experts. Our ability to know more and do more for businesses translates into above-market growth. Next, we have an infrastructure built for SMBs, which gives us the ability to drive experiences and scale, creating differentiation and supporting attractive margins. Finally, this is a business that uses capital efficiently with consistent 60% to 80% free capital flow and high returns. SMBs think, act and purchase differently than larger companies. Our research helps us understand their pain points, cater to their purchasing behaviors and adapt to their growth patterns. Our capabilities align to what they value. Products may become commoditized, but what cannot be replicated is the experience and the expertise we offer at Principal.

Hello, I'm Pat Halter, President of Principal Global Asset Management. I'm excited to share an overview of our global asset management business and describe how it serves as the investment engine that supports Principal's growth strategy. As always, let's start with the customer. We serve institutional, retirement, high net worth and retail investors in 68 countries. Principal Global Investors manages $508 billion in assets under management across asset classes and client segments. Our diversification provides multiple paths to growth and buffers against macroeconomic or other headwinds that impact a particular region, customer segment or asset class. I am confident in our ability to achieve our global asset management growth aspirations. First, we have demonstrated strength in high-growth investment capabilities, including private and specialty public market capabilities and in multi-asset solutions. Second, we leverage Principal's global, multichannel distribution to develop and deepen valuable customer relationships. Third, our globally integrated operating model is highly efficient. We are consistently below industry average cost per assets under management and industry benchmarking surveys. And finally, we are successful in attracting and retaining top talent. As a global asset manager, our first responsibility to our clients is to deliver strong investment performance, period. We have consistently delivered strong long-term investment performance across asset classes. Across all asset classes, 3/4 are Principal mutual funds, ETFs, separate accounts and collective investment trusts performed in the top 2 Morningstar quartiles on a 3-, 5- and 10-year basis. I want to draw particular attention to our outperformance versus the passive peer median. This is a convincing demonstration of our ability to deliver alpha. This is a good place to comment on our strong commitment to ESG. We have been a signatory to the United Nations' Principles for Responsible Investing since 2010, and we earned an A+ score on strategy and governance in 2020. Our investment teams across asset classes have integrated ESG into their investment philosophies and processes. We are an industry leader in responsible real estate investing with a Global Real Estate Sustainability Benchmark 4-star rating for the fifth consecutive year in 2020, along with numerous other recognitions. 86% of our Principal funds have high, above-average or average sustainability ratings from Morningstar, and Principal Funds is a recognized leader in climate-friendly proxy voting. Another point I want to emphasize is our mix of assets. Our focus on private and specialist public market investment capabilities insulates us from the fee compression that has impacted many passive managers and active managers who have not delivered alpha. Our average fee in 2020, across both affiliated and nonaffiliated assets, was 28.4 basis points, and that has held very steady over the past 5 years. Importantly, looking at our $250 billion in nonaffiliated assets, 64% earn over 35 basis points, 17% earn 25 to 35 basis points and only 19% earn less than 25 basis points. Clearly, our business continues to demonstrate pricing power. Sustaining that pricing power is a key strategic focus for me and my leadership team. Now let's talk about how asset management adds value to the enterprise, and then I'll focus on the power of our diversification. Global asset management adds significant value to Principal in both financial and strategic terms. Financially, asset management delivers strong margins and is highly capital efficient. Our 37% 5-year average margins are well ahead of the 31% registered by our industry peers. Free capital flow over that time has been consistent with a range averaging over 100%. And it is very important to recognize that throughout the time frame, we made significant investments for growth and new investment capabilities, expanded distribution and technology. Strategically, asset management drives value through the other Principal businesses. We support the U.S. and international asset accumulation distribution teams through engagement by our investment professionals and by being very active in delivering investment thought leadership through sponsored content in The Wall Street Journal and Bloomberg, our speaker series, a wide range of webcasts and our very well-attended global summit series for clients and key business partners. We also deliver innovative products and solutions. In the U.S. retirement market, we are a top 10 target date provider. Internationally, we deliver global products to local market investors and, at the same time, partner with Principal International to provide global investors with compelling local and regional products. Finally, our general account management enables competitive pricing in the other businesses. And strong returns from our real estate, private debt and other capabilities provide Principal with a clear competitive advantage. Moving on to diversification. Here is a 5-year historical look at assets under management growth rates in our target geographies and customer segments. It also shows growth rates for the investment styles that are a strategic focus for us: active specialty strategies, real estate and alternatives, and multi-asset solutions. The overall point here is that we have plenty of room for future growth using our global expertise to benefit local market investors and delivering local expertise to global investors. Now I want to detail 2 of our important differentiators and then focus on 3 exciting opportunities going forward. I noted the first differentiator earlier. We are focused on private and specialty public market investment capabilities where active management can deliver significant alpha and where investors are willing to pay for strong performance. The key point here is that we have a host of at-scale flagship capabilities across asset classes with a very strong pipeline of capabilities we are scaling now and others we're developing for the future. I will call out just a few of those strategies from the broad array. First, I want to focus on real estate as a flagship capability. We have over 60 years of experience in real estate, and our capabilities span all 4 quadrants, public and private, debt and equity. Private real estate, in particular, provides dynamic growth opportunities with attractive management and performance fees. We serve more than 550 clients in 27 countries. With over 275 investment professionals across 10 countries, averaging 18 years of industry experience, our real estate franchise is and will remain a very strong growth engine. Emerging market equity and debt are good examples of strategies we are scaling. Principal Global Investors currently manages $24 billion in a broad range of emerging market equity and debt strategies across several of our teams. We include emerging markets under scaling though because we see very significant room to grow. There is strong investor interest in our emerging market capabilities. And as I described earlier, aligning our global investment teams with the teams on the ground in Asia and Latin America is further expanding our opportunity set. Private debt is a good example of a strategy we are building for the future. We are well along in our accelerated buildout of Principal private credit team. We started with an experienced core of internal fixed income professionals and augmented that group with external hires, particularly loan originators. We now have a team of 14 and expect to double that in the next 12 months. The team has $225 million in assets under management and is on pace for $500 million to $600 million by year-end and is targeting $1.5 billion by year-end 2022. We are excited about the near-term growth prospects and by the opportunity to expand on this capability in the future. In the context of differentiated products and solutions, our target date expertise warrants a closer look. Principal has been a leader in the target date space since 2001, when we launched the first multi-managed target date solution in the industry. We followed that innovation with the launch of our hybrid strategy in 2009, again a first of its kind. We have been and remain thoughtful in the design and diversification of our target date solutions. This has led to consistently strong long-term results, including consistent outperformance against peer groups and passive benchmarks. It is important to recognize target date remains a very attractive growth opportunity in the U.S. because it makes so much sense for the average investor. It is anticipated that target date assets as a percent of total 401(k) assets will exceed 36% by 2023, meaning target date will continue to provide growth in the 401(k) marketplace over the next few years. Target date is also gaining momentum in emerging markets, and we are and have already partnered with Principal International for early wins. We are fully committed to sustaining our leadership position in target date, and we are acting on that commitment. For example, we adjusted pricing to our hybrid CIT earlier this year to be more competitive in the large plan market. We also launched a robust marketing campaign on a theme, "Active Opportunities. Passive Efficiencies." And we continue to innovate across our retirement offerings, including managed accounts and solutions for income and retirement, which will gain momentum in the future. Now let's turn to another differentiator: the access to clients provided by Principal's global multi-channel distribution. Here are just 2 examples of how we've leveraged our broad access to clients across geographies and channels to get our investment capabilities to scale. Origin and Finisterre are among capabilities we are currently scaling. To illustrate our focus on and strengthen emerging market investing, Origin has grown its assets under management by $2 billion since year-end 2019. And the team's expanding asset base is nicely diversified across institutional, U.S. retirement, U.S. mutual funds and UCITS funds. Finisterre has gotten around $1 billion in new sales recently. This includes a sub-advisory mandate with a major U.S. insurer, an Australian fund win and strong flows into the team strategies via our U.S. mutual fund and international UCITS platforms. Let me now describe 3 ways we will leverage these differentiators to derive future growth. As I mentioned at the beginning of my remarks, I am incredibly excited about what's ahead for Principal global asset management business, and I am confident that we will be able to accelerate growth by leveraging our strategic strengths. First, we'll continue to expand relationships with sophisticated institutional and wealth investors. We already have a broad base of over 750 institutional clients, and we are uniquely positioned with a highly effective distribution model centered on close alignment between sales, marketing, product and investment to drive success. Our U.S. and international institutional and wealth sales teams take a client-centric approach and have the skills to go deep in private and specialist capabilities and solutions. These deep client relationships are powerful. As an example, our top 5 real estate clients currently have $16.4 billion invested in 13 real estate strategies. In 2010, that same set of clients had $3.4 billion invested in 4 real estate strategies. Second, we will increase market share in U.S. retirement assets management by leveraging our asset allocation expertise in partnership with Principal's investment team. As I have noted, we are well positioned in target date to drive growth in full-service accumulation and defined contribution investment only, and we continue to apply our asset allocation expertise to innovate across managed accounts and other solutions, as I noted earlier. Principal is also uniquely positioned to provide a wide array of outsourced CIO services. Third, we will capture growth in emerging market investing in 2 ways. One is by expanding our already strong emerging market investment capabilities that is being accomplished in part by aligning the PGI and PI investment teams, as I noted earlier, to blend global expertise with deep local knowledge that can only come from having strong teams on the ground in emerging markets. This seamless blend will be a further differentiator for Principal going forward. The other way is through partnering with Principal International in Asia and Latin America to drive retail growth. In this regard, we are executing on joint go-to-market strategies and delivering global products and investment marketing for Principal International retail markets. Our ability to attract and retain top talent provides a strong foundation for all of our growth initiatives. We have earned Best Places to Work recognition for the past 9 years, one of very few organizations with that distinction. We have a globally diverse workforce of 1,860 employees, 40% of whom are female, and a strong culture of inclusion. We also have a robust talent strategy focused on advancing our growth goals. We are thoughtful about retaining key talent while also bringing in new perspectives and skill sets required to drive aggressive growth in a rapidly changing industry. In this regard, we've recognized that many areas require more focused roles with greater technical depth going forward. While our average tenure is 10 years and 13 years for investment professionals, we've made impressive additions to our senior leadership team across distribution, investments, data analytics and other functions. Here is how all these translates into our key forecast metrics. As you see, we continue to have confidence in our ability to deliver strong pretax margins in the 37% to 40% range. We expect OE growth of 10% to 12% over the next 3 years, and we will continue to generate attractive free capital flow in the 90% to 105% range. In closing, I want to recap why I am enthusiastic about the future and confident we will achieve our forecast growth. My confidence is based on our strength in high-growth private and specialty capabilities and solutions; the power of Principal's global multichannel distribution; our efficient, globally integrated operating model; and most important, the deep expertise and strong commitment of our teams. Thank you.

Thank you for your time and attention today. Throughout the course of our presentations, I hope you've come to appreciate how our long-term strategy creates a highly compelling clear path forward for Principal, creating value for our shareholders. As we transform our portfolio to be more capital efficient, we can focus our investments on maximizing our growth drivers, which are: one, retirement in the U.S. and select emerging markets; secondly, global asset management; and third, U.S. benefits and protection. Our focus and continued execution will enable us to achieve our financial targets. This, combined with our strengthened capital management strategy, will lead to a robust long-term value creation for our shareholders. If you haven't already done so, please submit any questions you might have, and we'll begin our Q&A session here in just the next couple of minutes. [Presentation]

I want to thank you again for joining us today. If you haven't already done so, please submit any questions you may have at this point. John Egan will be moderating the Q&A, and we'll try to get as many questions as we possibly can answer. We've already had a number of questions submitted in the queue. So with that, let's go and get started. John, first question, please.

Great, Dan. So the first question is from Humphrey Lee at Dowling & Partners. It was actually asked by quite a few analysts. You indicated that the actions announced yesterday will improve your free capital flow conversion rate by 7% to 10%. Why isn't the overall free capital flow conversion rate remaining unchanged at 70% to 80%?

Yes, it's a great question. Deanna, do you want to go head and take that for me, please?

Yes. Thanks, Dan. Humphrey, thanks for the question. You are correct that we had previously talked about the same range of 70% to 80% as our annual free cash flow conversion. But if you think about the last couple of years, this metric has actually been challenged. If you think about the realities of FX, low interest rates, COVID, the IRT integration, those would have all put pressure on that range. And so you are correct. The outcomes of this review, we do feel, will have a positive impact on free capital flow in that range of 7 to 10 percentage points. And so I think what this does is it confidently puts us in that range and could give us the ability to gravitate towards the top end of this range over time.

Very good. Thanks, Deanna. John, next question, please.

Okay. Next question is from Jimmy at JPMorgan. Can you discuss the use of capital freed up from potential reinsurance transactions in the future? To what extent is this already in share buyback goals? And what is the likelihood of buybacks above the target?

Yes. It's a really good question, Jimmy. Appreciate that. The reality is we do not have it embedded into our projections today. It's over and above what we would have currently as we build out our modeling for the next couple of years. As those transactions close, as we move further down the path, we'll give you more clear insights on the use of those proceeds. Deanna, anything you want to add to that?

Yes. What I would say there is we'll continue to be prudent managers of our capital. At that time, when we do have proceeds from those transactions, our intent would be to return those to shareholders unless there's an accretive value use of those capital, either organic or inorganically, that would make more sense at that time.

Very good. John, next question, please.

Okay. Next question is from Suneet at Citibank. Can you help us size the level of earnings currently being generated by businesses you intend to divest?

Yes, it's a good question, Suneet. So with that, let me go right to Deanna. We're getting a lot of CFO questions today.

Yes. So thanks for that question. One of the things that I think would be premature for us to do is to talk about the earnings impact of these transactions. A lot of that's going to depend on the actual transaction and structure of those arrangements. Our thought is that this will be slightly dilutive to earnings per share and book value per share. We have sized the GAAP reserves of these blocks of business, $18 billion for the fixed annuity business, $7 billion for the ULSG business. In addition, about $1.5 billion of capital back in those blocks. But as Dan mentioned, we'll continue to update you as we know more. And we're confident that we can execute on these over the next 12 months.

Yes. I think as our investors know, there's quite a range of different options and -- will impact pricing significantly as we talk about our fixed annuity business and the potential transactions. But again, we'll keep investors updated on those -- on the progress on those transactions. John, next question, please.

Okay. Next question is also from Suneet at Citibank. Can you help us size up any overhead that will be stranded post the divestitures?

Well, the first thing I'd say with regard to the stranded overhead is we've included in our projections already. And they are, again, estimates given that we don't know the outcome of the transactions and how they might be organized, it'd be very difficult for us to have a definitive comment, but we have used a plug number that helps us appropriately estimate what our earnings are going into the future. Anything to add, Deanna?

Yes. I would also say that we have exited businesses before and have a proven track record of being able to manage that overhead cost over time. And ultimately, our ultimate goal is to continue to align our expenses with revenue. And as our revenue is impacted by these transactions, we will be very disciplined to ensure that our cost structure aligns with that.

Thanks for the question. John, please.

Okay. So one more from Suneet at Citibank. How much of the margin upside in retirement comes from the IRT-related cost savings that you've discussed in the past?

One that's not for Deanna. So with that, let's have Renee. Please take that question, Renee.

Okay. Absolutely. So we provided for you in the presentation a breakdown of the drivers of the 8% to 10% pretax operating earnings growth over the course of the next -- through 2023. And as you can see in that, we did categorize expense savings as being about 5% to 7%. The largest impact of that is synergies that we would anticipate getting from the IRT transaction. So we're really pleased with the -- what the opportunity that we see here. The fact that we -- how we approach this transition allows us to capture greater expense synergies than what we had originally forecasted when we announced this transaction. So the fact that we took the time to move this all onto a single platform, while that might have delayed the migration waves a tiny bit, what it did do was allow for greater expense synergies on an ongoing basis.

So Renee, it's been a while since we've visited with investors about the migration. I think we had 3 migrations complete by the time we had our last call. We've had 2 since then. It's now complete. Maybe just sort of an overview of how you feel about how smoothly it went, net results and customer insights, adviser feedback at this point.

Yes, absolutely. So one of the things that the team, Jerry Patterson, the entire management team, really focused on was making sure that we had a steady cadence of communications to advisers, consultants and plan sponsors and that participants knew what to expect as we went into this migration. And we did everything that we could to put the customer at the center of all of the migration work. And we're really pleased with what we see as a result of that. The migration was incredibly smooth. And we also took the time to survey plan sponsors, advisers, consultants, participants after each wave to make sure that we were hitting the mark with our customer service. And the good news is, is that we did. And so now we have successfully onboarded $150 billion of account values and 2.4 million participants. And we couldn't be more pleased with where we stand with this migration. So we feel very positive and optimistic about our opportunities to continue to work with this group of clients on the ability to add more Total Retirement Solutions options, to work with them on the various components of their retirement plan to strengthen those and help employers meet their objectives.

Also exciting. 5,000 new customer relationships and 1,500 new employees. So we're very proud of Renee and the group for a successful migration. John, next question, please.

Yes, sure, Dan. So next question is from Humphrey. The updated guidance of 8% to 10% top line growth for PGI is stronger than the previous guidance of 4% to 7%. What are the drivers for the more bullish outlook? Do you expect that to come from AUM growth or product?

Pat, it sounds like one for you. And I'd say D, all the above, you're going to be looking for sources of revenue and growth for the company.

Thanks. Thanks, Humphrey, for the question. Absolutely, we have confidence on 8% to 10% between now and the end of 2023. It's a combination of both assets under management growth and, I think, product mix. On the asset under management growth, Humphrey, we've seen some very strong, I think, industry tailwinds in terms of market appreciation. And our ability to retain and attract customers through that period of time has allowed us to really have a good head start in terms of achieving that 8% to 10% annual growth in the next 3 years. In addition, we are continuing to leverage on our high-margin capabilities. As I mentioned in our sort of presentation, we have flagship products like real estate. We think that's going to become a bigger part of our asset mix as we go forward in the next year or 2. We obviously have capabilities that we're scaling, as I mentioned, emerging market equities, emerging market debt, again, higher fee-generating assets. And then we're building sort of new capabilities in the private credit space, again, higher fee-generating assets. So feel really good about being able to sort of produce that 8% to 10% between now and the 2023 time horizon.

Thanks, Pat. Great insights. John, please, next question.

Okay. Next question is from Tracy at Barclays. What are your expense savings targets that come with your strategic review?

Yes. As I framed it earlier, the projections that we currently have include expense reductions. It is trying to, as we always have, align our expenses with the revenues that we're going to generate, will migrate over the course of the next 12 to 18 months and making sure that they're properly aligned. Deanna, anything you'd like to add to that?

Yes. The only other thing I would say is you saw for each of the 4 businesses that we highlighted some margin expectations over the next 3 years. And embedded in that would be some expenses growing slower than revenue growth. So again, we're not giving an absolute dollar of expenses, but I think embedded in the outlook that we gave you for each of those businesses, there is expense efficiencies that are gained as we grow those businesses.

Thank you for the question. John, next question, please.

Okay. One more question from Tracy. How worried are you if Chile's communist contender for President wins and pushes for a public pension system?

Yes, good question. I'll take a first shot at that and throw it over to Joel. The first thing I would say is around the world, there's a lot of pension reform going on. It's just the nature of it. And I think it's the realization that a lot of the systems that were government run weren't necessarily hitting the mark or the plan designs of these government compulsory plans were not adequately replacing the income at retirement, and there's a little bit of pushback. And so you've seen a change in Mexico already with a change in the compulsory system in Mexico, and we've made our adjustments to reflect that. I think down in Chile, they'll have a national constitution amendment likely changing this. But we are -- certainly have a front row seat and doing a lot to try to influence the outcome. Joel, you want to provide some additional color on the Chilean pension system?

Yes. Thanks for the question, Tracy. The objective, whether you're a politician, legislator, regulator or in the industry, is to improve retirement income. As I mentioned in my prepared remarks, replacement rates are unsufficient. And so we're doing what we can in order to make sure that we can make it more accessible, make it more adequate and make it more sustainable. And so it's unknown what form it's going to take in Chile. But as Dan mentioned, in Mexico, about 18 months ago, it was also uncertain within that market. We're really pleased with the outcome of Mexico reform. And when you look at now, there's going to be -- instead of a 6.5% contribution, there's going to be going up to 15% by 2030. That's going to make a sustainable system, more adequate, and we're hoping for the same outcome in Chile. In every discussion we've heard within Chile, increasing contributions is a priority, and we certainly hope that comes to fruition.

One of the additional challenges in Chile, of course, is to help with offsetting some of the financial strains of family in Chile was to allow withdrawals. And there's been 3 of those so far at 10% each, which frankly just sort of undermines that system. But we do have regular dialogue with the regulators and Finance Minister to encourage reform and to do so in a very thoughtful way. And so we'll continue to do our part in trying to strengthen the Chilean pension system. Next question, John.

Okay. Next question is from Andrew at Credit Suisse. Your anticipated M&A payout ratio of 0 to 10% is low relative to your past objectives. What is the possibility that a large opportunistic acquisition becomes available and PFG exceeds that 10% objective? And if this were to happen, in which segment would it most likely occur?

Yes. So we'll tag team this one. I'll have Deanna speak specifically to what our historical pattern has been with regards to capital deployment for M&A. Let me take the first one as it relates to what would we consider. Right now, I would tell you that with the acquisition of the IRT block, we have really great scale within the retirement system. All that's come together. We've enjoyed great scale in our group benefits business. And Pat and his team have done a great job adding on within existing capabilities to augment those and to expand our capabilities in asset management. We've done some things on the margin to make modest acquisitions. And frankly, our cash flow in the future would allow us to continue to pursue those sorts of transactions. Internationally, we're in the markets we want to be in. And again, we increased our ownership stake in CIMB, which gave us majority control. And again, we all know that -- we're hopeful that we'll get some closure to the enterprise annuity opportunity in China. As it relates to large transactions, they'd most likely be around retirement or in the asset management space. But again, the standards that we would set in terms of having that be accretive to shareholders -- and frankly, we'll need some time to fully digest what we've already acquired, make sure we've got a good run rate. We'll have our hands full divesting of the fixed deferred annuities, the SPIAs and the universal life with secondary guarantees. So we're always, of course, trying to look into the future to strengthen the overall franchise. But right now, we think that our organic capital is sufficient. Deanna?

Yes. Just a couple of things to add on to that. First I would say is that percentage, which again was less than 10%, is the percent of our free capital flow in a given year. And so it would be not inclusive of anything that we would finance with debt or equity. If we look back over the last 5 years or 10 years and even though it can be a little bit lumpy year by year, we've actually averaged more around 13% net of debt issuance. Obviously, a higher percentage if we included on the gross amount. And so this is slightly lower than that. But I do think a lot of what we actually did with our Finance Committee is really looked at our capital levels. We confirmed those targets that we went over with you. We have a commitment to get down to those levels. And really, one of the reasons that we have a low debt ratio of that 20% to 25% is because we can use that as a currency if an attractive opportunity comes our way.

Awesome. Thanks, Deanna. John, next question, please.

Okay. Next question is from John at Piper Sandler. M&A allocation is subdued at $200 million to $400 million. This is coming in the form of use of excess capital. PFG has stated interest in being a consolidator in the retirement space. Would this use of excess capital plan preclude a more meaningful stock-based transaction for retirement should it present itself?

Yes, I think the question is very similar to the last one. And again, I would just reiterate that we have scale. We have great scale in defined benefit, defined contribution. We have it in our deferred comp area and certainly ESOP. We're market leaders in all 4 of those areas. And so it would have to be very accretive and very strategic in terms of bringing in additional capabilities that we might already have today. So again, this is one of those things that takes a long time. But as I said earlier, we've got our hands full right now in successfully migrating these current blocks to a third party. And we're excited about our ability to do that, effectuate change for the organization. But it is transformational. And it is something that we're enthusiastic about, sets us up for a lot of success. And the process that the Board Finance Committee had gone through was to look backwards at our financial success and our strategy and also to look forward. And so each one of those businesses that are being discussed here today have been interrogated for what is the long-term future. And right now, the capital plan that Deanna laid out for you is representative of the Finance Committee's view on how that capital should be best invested for shareholders going forward. Hopefully, that helps. John, Next question.

Okay. Next question is Ryan at KBW. Does the 15% ROE target include the ongoing impacts of the onetime fixed annuity and ULSG transactions?

Deanna?

Yes, Ryan. Thanks for that question. It does not include the onetime impacts of any transactions, but it does include the run rate impacts of those. So it would have the earnings impact. It would have the free capital impact. It would have some of the stranded cost impacts, but it would not have any of the onetime impacts of any capital generated from that.

And we'll be sure to update investors as any of these transactions -- as they take place and make sure and update our -- all of our assumptions at that point in time. John, next question, please.

Okay. Next question is from Erik at Autonomous. It looks like a sizable portion of the expected earnings growth in RIS-Fee, PI and PGI is coming from the macro environment. Can you walk through the key assumptions that you're making for the equity markets, interest rates, FX and other variables?

Yes. So I'll have Deanna take it first. But I would just say this, I think what you're seeing is not that different than it historically has been. Markets have in large part contributed to the success of not only Principal but the industry in its totality. But you want to hit it at a high level, Deanna? Then we'll have each one of the business unit leaders update their assumptions.

Yes. What I would talk about there -- and we have given you some earnings sensitivities to those macroeconomic factors. But what would be in our baseline assumptions is a 2% increase in U.S. equities. That's made up of 2% per quarter, 1.5% from price appreciation, 0.5% from dividends, a little bit higher in emerging markets equity. We have a modest increase in interest rates over the period that we're talking about here. I think we have it at the end of this year to be in the 1.5% to 2% range and then a modest increase that builds upon that. Our FX assumptions aligned with the consensus estimates at this point in time. And then the other thing I would say is we do have a diversification of those macro assumptions as well. And I'd also say that the changes that we are laying out today actually make us less interest rate sensitive than we have been in the past, which has still been less interest sensitive than many of our peers.

Excellent. So maybe I'll start with Renee and then Pat and Joel and hit -- and we'll get Amy in this as well.

That would be fantastic.

But why don't we just talk about some of the growth drivers and how that leads to revenue growth for the -- for your business unit. Renee?

Yes, absolutely. So when we think about RIS moving forward, clearly, we have 4 key growth drivers. And I covered those just a few minutes ago in the presentation. But first off, just really harnessing the power and the strength of the IRT acquisition. That has created incredible momentum in the marketplace. And we see that in our sales pipeline. We see that in new relationships with consultants. We see that in the ability to work with the clients that are coming over from IRT in terms of expanding their offerings to include other retirement plan types in addition to defined contribution. All of that is really important to us as we continue to leverage this acquisition. But in addition to that, the Total Retirement Solutions is incredibly powerful with over 50% of our sales being in the category of Total Retirement Solutions, which also, interesting, helps us hedge a little bit the fee compression that we see in the defined contribution pillar. And then, of course, that participant experience that continues to drive really attractive recurring deposits allows us to attract and retain employers as well and the fact that we have under the Principal umbrella a world-class asset management arm with us and continually bringing to the table interesting, relevant and competitive investment management options that help keep us well positioned for growth in the marketplace.

Thanks, Renee. Pat, your key drivers to hit your revenue targets?

Yes. I think the main point I'd like to really highlight there is that we have really a great deal of confidence in our talent and our capabilities, both in terms of the specialist public market capabilities and in terms of the private investment capabilities. And to Renee's point, we actually have an incredible opportunity to continue to leverage on the broader organization in terms of its multichannel distribution capabilities globally. And clearly, within the retirement space marketplace, we have a great deal of opportunity there. So I think if we continue to work very closely as an enterprise in terms of our strong distribution capabilities and our -- I think as Renee said, our world-class investment management capabilities, I think we're going to continue to attract clients throughout the world in the segments that we're operating. And those segments are deep in terms of the interest and our capabilities.

So Amy, you have one of our highest revenue growth areas for the organization, and it's performed exceedingly well. What's getting you excited and motivated about your growth trajectory?

Yes. I think when we look at the business, and I'm particularly going to talk about specialty benefits, the things that really make a difference there are going to be that we're growing our customer base. So we talked about this a little bit earlier, but we're growing that customer base. We're doing that through new sales, but we're also doing that through making sure we've got great persistency and we've got great in-group growth as well. The other piece I would say is that claims are performing really well and have performed very steadily for a long period of time. Those are kind of a push when we look ahead in the next 3 years. The other area that makes a difference really is scale. So scale, growing scale in the business, continuing to invest and use that infrastructure that we've built for that SMB market is going to be a good driver to get us to scale.

100,000-plus relationships in that group benefits business. Joel?

Yes. Right strategy. We're fulfilling a pressing need that exists within our markets. And like we talked about, the replacement rates that need to be bridging that gap, right markets, very high-growth markets. We've been very selective and purposeful in where we decide to compete and how we decide to compete. Sometimes it's alone. Sometimes it with JV partners. That's extremely important. And also the right capabilities. We have local investment knowledge, local knowledge of the market. We're able to leverage the global capabilities that exist within Pat Halter and team's area. So again, very well positioned to capture the growth that exists in those markets.

So thanks for that question. John, next question, please.

Okay. Next question is from Jimmy at JPMorgan. Could you discuss the likelihood of PFG having to make an earn-out payment on the IRT deal?

I think that's a fairly easy one. We've gone past that, and we didn't have an earn-out payment that we paid on the Wells Fargo IRT business. As a matter of fact, what I would have said is our capital markets area deserves a lot of credit because they size that up in terms of its likelihood and how the businesses would transfer and what that might look like. And we are very close to being spot on the number. And as you realize, when we negotiated that deal, it was only over and above those assumptions that we would have paid an earn-out to Wells Fargo. So effectively, our assumptions were correct. It's been onboarded, and we're very excited about seeing the revenue synergies and expense synergies materialize at this point. I probably just took everything there was in that question from you, Renee, so...

I think you did a great job.

I apologize. So with that, let's go to the next question.

Okay. Next question is from Andrew at Credit Suisse with regard to RIS-Fee. Fees and other revenue as a percentage of average AUM are currently around 55 to 60 basis points. Do you anticipate that this fee level can hold? Or might we see maybe a 5 basis point reduction over each of the next 3 years? What are your expectations? And per your presentation, you expect revenue and margins to rise over the next 3 years.

Very good. Renee, insights on the question?

Yes, absolutely. We do anticipate fee compression continuing into the future. And if you look at the chart, it was a waterfall chart that outlined the key drivers behind the 8% to 10% growth in pretax operating earnings between 2020 and 2023. You saw that we did isolate the amount that we anticipate we experienced through fee compression. And that, of course, assumes a normal market, but we do anticipate seeing that fee compression. That's being offset, of course, by market growth. It's being offset by growth in the customer base, that 1% to 4% growth in customer base. And of course, we anticipate we will continue to see good expense synergies evolve as we further integrate the IRT block of business, and that creates another 5% to 7% lift in that overall pretax operating earnings to drive towards that 8% to 10%. Fee compression, unfortunately, remains with us. But the fact that our model and the way that we approach this marketplace engages so many growth drivers. It doesn't result in a -- we still are able to overcome that and create very attractive growth rates for pretax operating earnings over the course of the next couple of years.

This morning, I was participating in a finalist presentation for a very large plan that we're trying to win. And one of the key takeaways was the leveraging of the technology, the automation, not only helping drive down cost for the processing of what we do, but more importantly, improving the customer experience for the participant to be able to dial up on their mobile device, to use their iPad. Better overall experience, less cost to us. So all the things Renee said plus a huge deployment of capital -- I'm sorry, a huge deployment of digital capabilities. It's one of the things we had come to investors and talked about 3 years ago. Those are paying off, frankly, quite nicely across all of our businesses. And it's a good thing we made that investment at the time. John, we'll take the next question, please.

Okay. Next question is from Tracy at Barclays. Can you share some early insights on the Secure Act 2.0 and if you are constructive that this can provide growth opportunities for Principal?

I've never seen any of the pension regulatory changes or legislation not improve the overall picture because ideally, it's trying to improve coverage and adequacy in retirement. And 2.0 actually has teed up already for us, and Renee and her team have a number of initiatives that support the 2.0 retire security. You want to cover those, Renee?

Absolutely. So yes, we're enthusiastic about any type of policy that continues to expand and strengthen the workplace retirement market, and 2.0 absolutely does that for us. And I think when we think about good policies and things that are being advanced to help us really expand the marketplace, I think this -- starting even with the Secure Act and what that has done to our industry has been -- is pretty remarkable, really. When you stop to think about the in-plan income guarantees that were strengthened as a result of the Secure Act, making the right kinds of fiduciary protections, making those more portable, we're well positioned. We've been offering in-plan guarantees now for several years. And of course, we'll continue to do that. The low interest rate, ultimately, you have to believe that interest rates will begin to rise. And certainly, those provisions become far more popular. The other thing that is in the marketplace right now that we're excited about is the pooled employer plans, PEPs, and multiple employer plans. And we're beginning to see some interesting take-up on those. We have -- we've been an active participant in that market with our Principal EASE, which is really targeted towards the under $10 million plan market. We recently announced in teaming with Lockton (k)Praetorian, which is a PEP that is geared more towards that $10 million to $300 million plan size. Some really interesting things are beginning to occur there in the marketplace as plan sponsors begin to look at alternatives for ways that they can offer retirement plans with simplified administration, increased fiduciary protections and taking advantage of scaled pricing. And then, of course, last of all, the Secure Act really helped propel the way or pave the way for increased plan start-ups by making greater plan start-up credits. And we're seeing, as a result of that, I think, a very consistent level of plan start-ups, which is encouraging as we're coming out of the impact of the pandemic. So we're very optimistic about what could occur with Secure 2. And we're very optimistic about what is beginning to emerge with the Secure Act.

What I think is interesting is what was once popular is once again here because we've been in the multi-employer plan business for 50-plus years. And so we were already geared up to be able to handle these PEPs quite nicely. And so hats off to your team for getting us ready. John, next question, please.

Okay, Dan. Next question is from Ryan at KBW. In light of the strategic changes, will there be any material changes to the Principal career agency strategy?

Yes, it's a great question for Amy. What I think was most interesting through our strategic review is to really look closely at the production of our advisers and how pleased we were with the broad range. But Amy, you want to sort of frame that for us...

Yes, sure. Thanks for the question, Ryan. I think one of the things just in terms of context that we should keep in mind is that we do have an affiliated network of financial professionals that's about 1,100 strong. And again, they do production across all of the enterprise. So they're a heavy producer outside of not just within U.S. Insurance Solutions but outside. In fact, Dan referenced talking a little bit more about some of the things we've been updating our information set on. And one of those is that the production -- 90% of our affiliated adviser force production is really coming from something that's outside of our life insurance business. And so when we think of the strategic review making changes, that won't necessarily be the driver. What I would say might be the driver a little bit more might be making sure that we're giving those practices that are business market and business owner focused, the support that they need to continue to grow because that's been a priority for us in the last 5 to 10 years. I would also say we're making sure that that's a really modern force that has a great set of tools to do the job and to serve the entire enterprise. So changes that we'd see coming there would probably be driven more by a natural evolution, not necessarily this strategic review.

And what also is sort of maybe misunderstood, if 90% is still here, the other 10% could be sourced. There are people that would very much want to be on the platform, providing fixed annuities, providing other life insurance solutions. So again, it's meeting what the customer demands and needs are, and we'll help facilitate that for our career agents. We're frankly very excited about that opportunity. John, next question, please.

Okay. Next question is from Suneet at Citi. Are you open to hedging your FX exposure? If not, why not?

Well, we've always been open to it. It gets a little pricy. Doesn't it, Joel? So maybe you can talk a little bit about our capital, our dividends and our approach to hedging our currencies.

Yes. Thanks for the question, Suneet. So importantly, what we do hedge is the dividends that we expect out of our international locations. And so we do that up to 2 years out. So the cash flow is absolutely hedged to make sure we can lock in what U.S. dollars we're going to return back from those locations. Importantly, from an OpEx perspective, we do not hedge earnings. Unlike other businesses, we do not export or import product. Our revenues and expenses are in the same location, in the same currency. So therefore, the revenues and expenses are very well correlated. It's the earnings that has impact to FX between when translating local currency to U.S. dollar. So that's another important aspect of this. And it's also important to note that we don't want to do it for OpEx reason because if you were to hedge earnings, you're hedging what the market anticipates. And again, there would be -- we'll just be betting against what the market is going to do, and we still think that's a responsible thing to do.

And we had a pretty good 10- to 15-year run where it was a big tailwind for the company. Now it's been a bit of a headwind for the last decade. But as you say, it's very difficult to predict.

I think the other thing I would say, and it's a strategy that Joel talked about, is making sure we're diversifying the countries that we operate in because not all of those currencies tend to move at the same direction or the same rate. And so that will be another strategy that we have that can continue to try to mute some of that impact as well.

Thanks, Deanna. John, next question, please.

Okay. Next question is from Michael at UBS. With the streamlined business mix and focus on capital light, are there any specific core segments you'd target for inorganic growth should opportunities arise?

Yes. I think I hit on this earlier. When you think about our go-forward strategy, we talked about the scale that we already have. I think it's around capabilities where we want to supplement that. Again, we feel we have -- where we need to be on the scale side, these would be tuck-ins, bolt-ons in asset management, in retirement. And again, Amy's had phenomenal organic growth within her businesses. But if the right opportunity arose, we'd want to take a look at that. Internationally, we feel, again, very good about the countries we're in. We talked about exiting India. We feel that was the right choice. We made some adjustments in Mexico. But we have a generous portion of the world's population in the countries in which we do business, and now it's around organic execution within those markets. Hopefully, that helps. Next question, John.

Okay. Next question is from Joel at ICMA Retirement. Please give me more details regarding plans for the [ IO ] retirement programs, especially stable value, traditional GICs and [ wraps ] and MTN programs.

Excellent. And that's certainly been a strong suit for us for a very long time, Renee, and well run and certainly meets with our hurdle rates. So please.

Yes, absolutely. So the good news is we're continuing on that line of business. That's a very attractive opportunity for us. We'll continue to offer guaranteed interest contracts, medium-term notes, Federal Home Loan Bank lending. All of those types of programs that we have done in the investment-only sphere, we will continue with. We'll continue to be very selective about those opportunities to make sure that they meet our -- meet our hurdle rates, our rates of return requirements. But it's been a wonderful opportunity for us to leverage our balance sheet, and we continue to believe that there will be attractive opportunities in the future. And it's certainly a part of our portfolio as we move forward.

And I think you could have added pension risk transfer into that same list and...

Absolutely, absolutely.

Basically the same comments. Yes.

Absolutely. Yes. That's -- pension risk transfer remains a very attractive market for us. We have some very unique skill sets in the pension risk transfer business. Our ability to understand deeply the defined benefit market, how it's administered, some of the interesting contractual provisions that come in with some of the more complex plans, our understanding of how to use data to create bids that make sense, RFPs, responses that make sense that carefully manage the risk that we're taking on our ability to be selective and to gain really attractive returns is something that we continue to see in the future, and we're very excited about that.

Thanks, Renee. John, next question, please.

Okay. Next question is from Tom at Evercore. You left RIS-Spread in Individual Life out of the earnings guidance through 2023. What type of growth rates are embedded in the EPS guidance, recognizing that parts of the business will be put in runoff?

Deanna, some thoughts there?

Do you want to take that?

No, that's all you.

So the first thing I would say, the 3 segments we did not go into would have been the spread business, the life business and also corporate. All of those will have some impact from the strategic review that we just announced. And so we felt that we didn't have the ability to go as deep into those 3 lines of business, but it was rolled up into the enterprise metrics that we had. If we actually do look at it though, what I would say is both the spread business and the life business post transactions still have good growth, probably more at the low end of what we're saying for the enterprise. And then corporate obviously would be a negative to the sum of all of those businesses to get you to those enterprise levels.

Thanks. Appreciate that. Next question, John.

Okay. So Dan, this is the last question. Coming out of the strategic review, what are you most excited about looking forward?

Wow, good question. I think, John, in large part, it has to do with the definitive nature of the work that's been completed here in the last 4 or 5 months to really look closely at what historical returns have been, how that capital was deployed, how shareholders have been rewarded and then like -- also to look at the other end, which is to look out into the future and understand where the greatest growth opportunities are, and to do that in a capital-efficient manner, to recognize that in a capital lighter formation, we'll have more capital return to shareholders. We're focusing in on those areas that are, frankly, just high-growth markets. I mean these are very attractive from a competitive perspective. Returns are attractive. And it's a great opportunity for us to deploy capital in the most attractive opportunities for the organization. So all in all, we couldn't be more pleased with having gone through this intense review. And again, I got to give a lot of credit to the to the Board Finance Committee and Clare Richer, who's the leader; and our Lead Director, Scott Mills, have just been really wonderful. In addition, Deanna did a lot of the heavy lifting along with her team. But it was very much a team effort. And we're very enthusiastic about the go-forward strategy. It is, frankly, transformational for the organization. We've been in the life insurance business, individual life insurance business 142 years. We've been in the annuity business a very long time. And this change in strategy is indeed transformational. We're very excited about that. Appreciate the question. Well, with that, thanks again for taking the time to be with us today. I hope our conversation has helped understand how our long-term strategy creates compelling clear path forward that will deliver value for our customers as well as you, our shareholders. I'd like to thank my team for their outstanding leadership during this process and very much look forward to getting back out on the road soon and seeing all of you. We obviously have an earnings call coming up here on July 28, where we'll give you more of an update on the second quarter. So with that, thanks for taking time this afternoon to be part of this conversation. Have a wonderful day.