Principal Financial Group, Inc. (PFG) Earnings Call Transcript & Summary
May 16, 2023
Earnings Call Speaker Segments
Operator
operatorWelcome to the 2023 Annual Meeting of Shareholders of Principal Financial Group. Please submit any questions or comments for today's meeting by clicking on the Q&A icon in the upper right-hand corner of the virtual meeting site. The polls for this meeting are open and will close just prior to the inspector's report. Closing will be announced. If you've already sent in your proxy or otherwise voted, you don't need to do anything else today. You may vote during the meeting by clicking on the Vote icon in the upper right-hand corner of the virtual meeting site where we list all company proposals. It's now my pleasure to turn today's meeting over to Dan Houston, Chairman, President and Chief Executive Officer of Principal Financial Group.
Daniel Houston
executiveGood morning. Will the meeting please come to order? Welcome to the 2023 Annual Meeting of Shareholders of Principal Financial Group. The agenda and rules for today's meeting are available on the virtual meeting site by clicking on the Documents icon in the upper right-hand side of the page. I'm Dan Houston, Chairman, President and Chief Executive Officer of Principal Financial Group. With me today is Natalie Lamarque, Executive Vice President, General Counsel and Secretary; Deanna Strable, Executive Vice President and Chief Financial Officer; and Humphrey Lee, Vice President, Investor Relations. Along with this company's executive management team, members of the company's Board of Directors are participating in our meeting today, including Jonathan Auerbach, Mary E. "Maliz" Beams, Jocelyn Carter-Miller, Roger Hochschild, Scott Mills, Elizabeth Mitchell, Claudio Muruzabal, Diane Nordin, Blair Pickerell, Clare Richer, Alfredo Rivera, and Michael Dan, who is retiring from the Board effective at the end of the meeting, having served our organization since 2006. I invite your questions and comments during today's meeting. Any questions or comments related to any proposal being voted on today will be addressed first. We will address the other questions and comments at the end of the meeting. I'd like to introduce the Directors who are standing for election today, Jonathan S. Auerbach, Mary E. "Maliz" Beams, Jocelyn Carter-Miller, Scott M. Mills, Claudio N. Muruzabal, and Elizabeth Mitchell. The skills and experience of each Director candidate brings to our Board of Directors are detailed in the proxy materials you received, but I'll summarize a few of them for you. Jonathan Auerbach has been on the board since 2019. He serves on our Finance and Nominating and Governance Committees. Jonathan has been Executive Vice President, Chief Strategy, Growth and Data Officer of PayPal since 2015. Prior to joining PayPal, he was Chief Executive Officer of Singtel's Group Digital Life from 2013 to 2014 and spent over 26 years with McKinsey & Company, serving in a variety of executive roles in Asia and North America. Jonathan also brings executive-level experience in executive compensation, financial services, human resources and talent management, international operations, marketing, mergers and acquisitions, product development, risk management, retail consumer, strategic planning, sustainability and technology. Maliz Beams joined our Board in 2021 and serves on the Audit and Finance Committees. She is the Chief Executive Officer of Long Term Stock Exchange and served as Chief Executive Officer of Retirement Solutions at Voya Financial from 2011 to 2015. Maliz brings executive-level experience in accounting and finance, asset and investment management, executive compensation, financial services, human resources and talent management, international operations, marketing, mergers and acquisitions, product development, risk management, strategic planning, sustainability and technology. Jocelyn Carter-Miller has been a Director since 2001 and was a Director of Principal Mutual Life Insurance Company before that. Joining the Board in 1999, she serves as the Chair of the Human Resources Committee and is also on our Nominating and Governance and Executive Committees. Jocelyn has been President of TechEd Ventures since 2004 and also leads Jocelyn Carter-Miller, LLC, a business consulting firm. In addition to her marketing leadership background, Jocelyn has executive-level experience in accounting and finance, brand management, retail consumer, executive compensation, advertising sales, multinational companies, international operations, human resources and talent management, risk management, strategic planning, sustainability, technology and leadership development and training. Scott Mills joined our Board in 2016 and has served as Lead Director since 2020. He is on the Audit, Human Resources and Executive Committees. He has held a number of executive roles at BET Media, including President and Chief Executive Officer. Scott brings executive-level experience in accounting and finance, asset and investment management, executive compensation, human resources and talent management, marketing, product development, strategic planning and technology. Claudio Muruzabal has been on the board since 2021 and serves on our Human Resources and Nominating and Governance Committees. He is President of SAP Cloud Success Services and has over 25 years of experience leading large technology organizations. Claudio brings executive-level experience in accounting and finance, asset and investment management, executive compensation, human resources and talent management, international operations, marketing, mergers and acquisitions, product development, strategic planning, sustainability and technology. And Elizabeth Mitchell is the newest addition to our Board, joining in 2022 and currently serves on the Audit and Finance committees. She was Chief Executive Officer of Renaissance Reinsurance U.S., and its predecessor, Platinum Underwriters Reinsurance until her retirement in 2016. Elizabeth has executive-level experience in accounting and finance, executive compensation, financial services, human resources and talent management, international operations, mergers and acquisitions, risk management, strategic planning, sustainability and technology. The Board has appointed Computershare to serve as the inspector of the election for the meeting. Representatives from Computershare as well as our independent auditing firm, Ernst & Young, are participating in today's meeting. Natalie, do we have a quorum?
Natalie Lamarque
executiveYes. The Board of Directors set March 22, 2023, as the record date for determining shareholders entitled to vote at this meeting. The representatives of Computershare, the inspector of election present today, have subscribed their oath of office and report to us that on the record date, there were a total of 242,979,687 shares of the company's common stock outstanding. The holders of 1/3 or more shares of common stock entitled to vote at this meeting are present today by virtual participation or by proxy. We have a quorum. An affidavit of mailing has been delivered to us by Computershare attesting to the fact that the notice of meeting, the proxy statement and the 2022 Annual Report were all properly made available to all shareholders of record beginning April 3, 2023. As stated in the notice for this meeting that you received, the purpose is to vote on proposals presented in our proxy statement as well as any other business as may properly come before the meeting.
Daniel Houston
executiveOn the basis of the Secretary's report, the meeting is duly convened. Let's turn to the meeting's agenda available to you on the meeting's website. The polls for each proposal voted on at this meeting are open and I will announce the closing of the poll shortly. If you've already sent in your proxy card or otherwise voted, you don't need to do anything else today. But if you want to vote now or revoke and change your earlier vote, click on the Vote icon on the meeting website. If you want to use either of those options, please vote now. Natalie, will you present the proposals, please?
Natalie Lamarque
executiveYes. Proposal #1. On behalf of the Board of Directors, I nominate the following persons, Jonathan S. Auerbach, Mary E. Beams, Jocelyn Carter-Miller, Scott M. Mills and Claudio N. Muruzabal, for election as Directors to serve in the class whose terms expire in 2026 or until each of their respective successors have been elected and qualified; and H. Elizabeth Mitchell for election as director to serve in the class whose term expires in 2025 or until their respective successors have been elected and qualified. Proposal #2. On behalf of the Board of Directors, I move adoption of the following resolution. Resolve that the compensation paid to the company's named executive officers as disclosed pursuant to Item 402 of Regulation S-K, including the compensation discussion and analysis, compensation tables and narrative discussion, each as presented in our proxy statement, is hereby approved. Proposal #3. On behalf of the Board of Directors, I move adoption of the Board's recommendation that the frequency on which shareholders shall have an advisory vote on the compensation of the company's named executive officers be every 1 year. Proposal #4. On behalf of the Board of Directors, I move adoption of the Board's recommendation that shareholders vote for the ratification of the appointment of Ernst & Young LLP to audit the consolidated financial statements of the company for the fiscal year ending December 31, 2023.
Daniel Houston
executiveAre there any questions from the shareholders regarding any of the proposals on the ballot? If you have questions and haven't already done so, please submit those questions or comments regarding any of these proposals. To submit a question, click on the Q&A icon in the upper right-hand corner of the page. We will pause for a moment while we gather the questions and comments. Humphrey?
Humphrey Lee
executiveThere are no questions pertaining to the proposals. All other questions will be answered at the end of the meeting. The polls will close momentarily. We will now pause to allow time for final voting. Please submit your final votes now. [Voting]
Daniel Houston
executiveWith no further business for the meeting and all ballots collected, the polls are now closed. We are ready for the inspector of election to report on the vote. Natalie, will you please read the report?
Natalie Lamarque
executiveA substantial majority of shares entitled to vote at this meeting have been voted by proxy. Those results plus any shares voted at this meeting will be tallied and the final results announced publicly within a few days. The inspector of the election reports that each of the directors nominated by the Board for election received substantially more than a majority of the votes cast. The advisory vote on the company's executive compensation program indicated approval of the program by a substantial majority of the votes cast. The advisory vote on the frequency of a shareholder vote on the company's executive compensation program indicated by a substantial majority of the votes cast that the vote be held every year. And a substantial majority of the votes cast were cast in favor of the ratification of the appointment of Ernst & Young LLP.
Daniel Houston
executiveThank you, Natalie. Based on the preliminary report of the Inspector of Election, I declare that Jonathan S. Auerbach, Mary E. "Maliz" Beams, Jocelyn Carter-Miller, Scott M. Mills, Claudio N. Muruzabal, and Elizabeth Mitchell are elected directors. The advisory vote on the executive compensation indicates approval of the company's executive compensation program as set forth in the proxy statement. The advisory vote on the frequency of shareholders' approval on executive compensation indicates that a vote on the company's executive compensation plan be held every year. The appointment of Ernst & Young LLP as independent auditors for 2023 is ratified. The meeting is now adjourned. On behalf of the Board of Directors and all Principal employees, thank you for your continued support. I'll now share with you some business highlights from 2022, an update on our strong capital and financial position as well as some sustainability highlights. Following that, we will address any remaining questions that you may have submitted. In 2021, we outlined our strategic path forward, one balanced with a focus on higher growth, more capital-efficient portfolio and a commitment to return more capital to shareholders. This guided our successful execution in 2022 despite a challenging macroeconomic environment. We have made meaningful progress towards our goals and continue to invest in our long-term growth drivers of retirement, global asset management and benefits and protection. In January 2022, we announced an agreement to reinsure our U.S. retail fixed annuity and universal life insurance with secondary guarantee blocks of business. The transaction closed in May of 2022 and was a key milestone reinforcing our strategic focus on continuing to evolve into a higher growth, higher return, more capital-efficient portfolio while improving our overall risk profile. We delivered on our strengthened capital deployment strategy and our commitment to right size and return excess capital that we had built up during the pandemic with $2.3 billion returned to shareholders in 2022 through share repurchases and common stock dividends. We've continued to adapt to the volatile and uncertain macro environment and have taken appropriate action to manage our expenses with pressured revenue while continuing to serve the needs of our customers, invest for growth and deliver strong total shareholder return. Turning to our financial results. Principal reported $1.7 billion of full year 2022 non-GAAP operating earnings or $6.66 per diluted share. Excluding significant variances, earnings per share increased 2% over 2021, a strong result given pressured macroeconomic environment. We ended 2022 with $635 billion of total company managed assets under management. Unfavorable equity and fixed income markets pressured assets under management throughout 2022, and $23 billion was transferred out in the second quarter as part of the reinsurance transaction. During a volatile and pressured year for asset managers, we generated a positive $3.9 billion of full year total company net cash flow in 2022. This was $1 billion higher than our 2021 net cash flow and included $4.4 billion of positive PGI-managed net cash flow. This was a very strong result during a period of outflows across the industry. Despite the volatile environment, we remain in a strong financial position in 2023. At the end of 2022, we had $1.5 billion of excess and available capital. Our risk-based capital ratio of 406% was above our 400% target as we intentionally drew down excess capital over the course of the year. Our debt-to-capital ratio was low at 22% and within our 20% to 25% targeted range. We remain focused on maintaining our capital and liquidity targets at both the life company and the holding company and will continue with a balanced and disciplined approach to capital deployment in 2023. We are delivering on our go-forward strategy, transforming our portfolio of businesses resulting in a higher multiple and increased shareholder value. We have derisked our portfolio, reduced our balance sheet risk and are less capital intensive. 2023 will not be without its challenges, but we're positioned to focus on maximizing our growth drivers of retirement, global asset management and benefits and protection, which will drive long-term growth for the enterprise and long-term shareholder value. We have the financial flexibility, discipline and a track record of managing through times of macro volatility and uncertainty. I'd like to take a moment to highlight some recent changes to our Board of Directors and our executive management team. As I mentioned at the beginning of the meeting, Michael Dan is retiring from the Board effective today. Michael joined the Board in 2006. He's been a member of the Human Resources and Nominating and Governance Committees. On a very personal note, I'd like to thank Michael for his significant contribution to the company's success. And we welcome 2 new members to our executive management team. Natalie Lamarque, who you heard earlier in the meeting, stepped into the role of Executive Vice President, General Counsel and Secretary in August of 2022, taking over the role as Mark Lagomarcino entered retirement. Natalie was previously employed by New York Life Insurance Company, where she held various positions, including Senior Vice President and General Counsel. And Vivek Agrawal joined the company in March of 2023 as Executive Vice President, Chief Growth Officer, a new role for Principal aimed at accelerating the company's strategic initiatives and growth opportunities to drive greater value for customers and shareholders. Vivek was previously a Senior Partner at McKinsey & Company with his tenure spanning more than 2 decades. I also want to recognize Mark Lagomarcino on his recent retirement after 20 years with Principal, most recently holding the role as Senior Vice President, General Counsel and Secretary. Mark previously served as Senior Vice President and Deputy General Counsel. If you haven't already done so, please submit any questions or comments you may have. To submit a question, click on the Q&A icon in the upper right-hand corner of the page. We'll now address any questions or comments we've received. Humphrey?
Humphrey Lee
executiveThere are no questions. Dan, your closing comments, please.
Daniel Houston
executiveAs there are no further questions and the business portion of the meeting has adjourned, Principal's 2023 Shareholder Meeting is now ended. Thank you for your time. Have a wonderful day.
Operator
operatorThis concludes the meeting. You may now disconnect.
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