1Q 2023: Strong results, buoyed by our integrated business model

You’ve often heard us say that our integrated business model is built to be resilient during periods of macroeconomic volatility. First quarter 2023 was a good example.

?

The strength and resilience of our diversified business strategy, combined with focused execution and foreign currency headwinds, helped to deliver:

?

• $367 million of non-GAAP operating earnings, or $1.48 per diluted share.
• $600 million of positive total company net cash flow—a strong result during a period of outflows across much of the industry.
• $660 billion of total company assets under management, an increase of 4 percent from year-end 2022.

?

While news headlines cited growing concerns around credit and commercial real estate exposures, we’ve remained confident in our high-quality, diversified investment portfolio—which is well aligned with our liability profile and well positioned for a variety of economic conditions.

?

Over the last decade, we have reduced office exposure in our commercial mortgage portfolio as we saw signs of stress coming in this segment—a move that has proven to be appropriate as the recent stress on the banking sector has raised financing concerns for office properties, in particular. We are confident in the quality of our portfolio and remain diligent in monitoring and proactive in servicing it.

?

Looking at the growth drivers for our business (asset management, retirement, and benefits and protection):

?

• We continue to benefit from strong employment and wage growth in the U.S. across our retirement and benefits and protection businesses—particularly in the small to midsize business (SMB) segment.
• In retirement, we generated strong sales across all segments, growth in net participant activity, and positive net cash flow with recurring deposits up 11 percent on a trailing 12-month basis. We have good momentum, and our pipeline is strong for the rest of the year.
• In benefits and protection, over the last 12 months, the SMB market has experienced record sales, strong retention, and demonstrated continued strong employment growth, all of which are contributing to our above industry growth in premium and fees for specialty benefits.?
• In asset management, our broad distribution, integrated business model, differentiated investment capabilities, and geographic footprint continues to produce benefits.
• Principal Global Investors-managed net cash flow was a positive $400 million in the first quarter, compared to negative flows for many active managers. Looking forward, we continue to see active engagement with global institutional clients involving investment strategies in private debt and credit, specialized investment income capabilities, and opportunistic investing in real estate.
• We also drove strong quarterly net cash flows of $800 million in Principal International—well-diversified across Southeast Asia, Brazil, Mexico, and Hong Kong.

?

We remain in a strong financial position, ending the first quarter with $1.8 billion of excess and available capital. We returned $306 million to shareholders in the first quarter and accelerated our organic capital deployment, as we saw attractive return opportunities in our businesses.

?

Thanks to the Principal team for their hard work in meeting the needs of our clients. I’m proud of the strong start we made to the year. We’re well-positioned to maximize our growth drivers, enabling long-term growth for the enterprise and long-term shareholder value.?