Q1 2024 Principal Financial Group Inc Earnings Call
Operator: Good morning, and welcome to the Principal Financial Group First Quarter 2024 Financial Results Conference Call. There will be a question and answer session after the speakers have completed their prepared remarks. If you would like to ask a question at that time, simply press star and the number 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. We would ask that you be respectful of others and limit your questions to one and one follow-up so that we can get to everyone in the queue. I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations.
Good morning, and welcome to the principal financial group's first quarter 2024 financial results Conference call.
There will be a question and answer session. After the speakers have completed their prepared remarks.
If you would like to ask a question at that time simply press star and the number one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
We would ask that you be respectful of others and limit your questions to one and one follow up so that we can get to everyone in the queue.
I would now like to turn the conference call over to Humphrey Lee Vice President of Investor Relations.
Humphrey Lee: Thank you and good morning. Welcome to Principal Financial Group's first quarter 2024 earnings conference call. As always, materials related to today's call are available on our website at investors.principal.com. Following a reading of the Safe Harbor Provision, CEO Dan Houston and CFO Deanna Strable will deliver some prepared remarks. We will then open up the call for questions. Other members of senior management will also be available for Q&A. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
Humphrey Lee: Thank you and good morning, welcome to principal financial group's first quarter 2024 earnings conference call as always materials related to today's call are available on our website at investors Dot principal dot com.
Humphrey Lee: Following a reading of our safe Harbor provision CEO, Dan Houston, and CFO Deanna Striegel will deliver some prepared remarks, we will then open up the call for questions.
Humphrey Lee: Other members of senior management will also be available for Q&A.
Humphrey Lee: Some of the comments made during this conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act.
Humphrey Lee: 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 conference call may refer to non-GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures may be found in our earnings release, financial supplement, and slide presentation.
Speaker Change: The company does not revise or update them to reflect new information subsequent events or changes in strategy.
Speaker Change: 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.
Speaker Change: Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures.
Speaker Change: Installations of the non-GAAP financial measures to the most directly comparable U S. GAAP financial measures maybe found in our earnings release financial supplement and slide presentation deck.
Daniel Joseph Houston: Thanks, Humphrey, and welcome to everyone on the call. This morning, I will discuss key milestones and highlights from the first quarter as we continue to execute our strategy with discipline and focus and deliver strong results for our customers and shareholders. Deanna will follow with additional details on our results and our capital position. The first quarter of 2024 was a good start to the year for Principal. We reported $394 million of non-GAAP operating earnings, or $1.65 per diluted share, an 11% increase in EPS over the first quarter of 2023.
Speaker Change: Dan.
So I'm free and welcome to everyone on the call. This morning, I will discuss key milestones and highlights from the first quarter as we continue to execute our strategy with discipline and focus.
And deliver strong results for our customers and shareholders.
Deanna will follow with additional details on our results and our capital position.
Deanna Dawnette Strable: The first quarter of 2024 was a good start to the year for principal we reported $394 million of non-GAAP operating earnings are $1.65 per diluted share an 11% increase in EPS over first quarter of 2023.
Daniel Joseph Houston: Across the enterprise, we continue to focus on growth while balancing disciplined expense management, investing for growth and innovation in our businesses, and returning excess capital to shareholders. We remain well positioned to deliver on our outlook for 2024, as well as our long-term financial targets. We returned more than $360 million of capital to shareholders in the first quarter, including $200 million of share repurchases. We raised our common stock dividend for the fourth consecutive quarter, aligned with our targeted 40% dividend payout ratio.
Deanna Dawnette Strable: Across the enterprise, we continue to focus on growth, while balancing disciplined expense management investing for growth and innovation in our businesses and returning excess capital to shareholders, we remain well positioned to deliver on our outlook for 2024 as well as our long term financial targets.
Deanna Dawnette Strable: We returned more than $360 million of capital to shareholders in the first quarter, including $200 million of share repurchases.
Deanna Dawnette Strable: We raised our common stock dividend for the fourth consecutive quarter aligned with our targeted 40% dividend payout ratio.
Daniel Joseph Houston: Strong sales and favorable market performance contributed to total company managed AUM of $709 billion at the end of the quarter. We generated nearly $1.5 billion of positive total company managed AUM net cash flow after adjusting for the redemption in PGI that we discussed on recent calls. In principal asset management, PGI generated positive institutional net cash flow as private real estate continued to attract investors, and we saw renewed demand for specially fixed-income investments.
Deanna Dawnette Strable: Strong sales and favorable market performance contributed to total company managed AUM of $709 billion at the end of the quarter.
Deanna Dawnette Strable: We generated nearly $1 $5 billion of positive total company net cash flow after adjusting for the redemption and pgi that we discussed on recent calls.
Deanna Dawnette Strable: In principal asset management Pgi generated positive institutional net cash flow as private real estate continued to attract investors and we saw renewed demand for specialty fixed income investments. In addition to general account flows were also strong in the quarter.
Daniel Joseph Houston: In addition, general account flows were also strong in the quarter. PGI sales were strong in the first quarter, including a rebound in U.S. mutual fund sales. It was the best quarter for mutual fund sales in two years, driven by wins across equities and preferred securities. Principal International net cash flow was positive, $1 billion, our strongest quarter since 2021, driven by robust sales in Brazil. Principal International ended the quarter with $179 billion in total reported AUM.
Deanna Dawnette Strable: P. G. I sales were strong in the first quarter, including a rebound in U S. Mutual fund sales. It was the best quarter for mutual funds sales in two years driven by wins across equities and preferred securities principal International net cash flow was positive $1 billion, our strongest quarter since 2021, driven by robust sale.
Deanna Dawnette Strable: In Brazil.
Deanna Dawnette Strable: Principal international ended the quarter with $179 billion of total reported AUM.
Daniel Joseph Houston: Favorable market performance and strong net cash flow were more than offset by foreign currency headwinds, primarily in Chile. While persistently high inflation and low unemployment could keep the Fed from cutting rates in the near term, we remain optimistic that investors will continue to move money into longer duration and higher yielding assets based on our engagements and conversations with customers and distribution partners. Turning to U.S. retirement, RIS generated strong revenue and earnings growth in the first quarter.
Deanna Dawnette Strable: Favorable market performance and strong net cash flow were more than offset by foreign currency headwinds primarily in Chile.
Deanna Dawnette Strable: And persistently high inflation and low unemployment could keep the fed from cutting rates in the near term we remain optimistic that investors will continue to move money into longer duration and higher yielding assets based on our engagements and conversations with customers and distribution partners.
Deanna Dawnette Strable: Turning to U S retirement, RIS generated strong revenue and earnings growth in the first quarter margins remained stable and at the high end of our guidance as we continue to focus on revenue generation, while investing for future growth.
Daniel Joseph Houston: Margins remained stable and at the high end of our guidance as we continue to focus on revenue generation while investing for future growth. Importantly, the fundamentals of our retirement business remain healthy, with strong contract retention, as well as increases in re-incurring deposits, participant deferrals, and employer matches. Total retirement sales grew 6% over the year-ago quarter, and the pipeline remained strong. This included more than $750 million of pension risk transfer sales in the first quarter, building on $2.9 billion of PRT sales in 2023 across 73 contracts.
Deanna Dawnette Strable: Importantly, the fundamentals of our retirement business remained healthy with strong contract retention as well as increases in reoccurring deposits participant deferrals and employer matches.
Deanna Dawnette Strable: Total retirement sales grew 6% over the year ago quarter and the pipeline remains strong.
Deanna Dawnette Strable: This included more than $750 million of pension risk transfer sales in the first quarter building on a $2.9 billion or PRT sales in 'twenty twenty-three across 73 contracts.
Daniel Joseph Houston: 2023 LMRA rankings for PRT were recently released, in principal rank number four in the industry based on premium and number three for number of contracts. We are the only PRT provider in the top five for both metrics, solidifying our leadership position in this attractive market and supported by our market-leading defined benefit business. We continue to leverage our favorable market position in the retirement industry with a full suite of solutions, and we are optimistic about the momentum we're seeing across our retirement platform.
Deanna Dawnette Strable: 2023 Liberum rankings for PRT were recently released in principle ranked number four in industry based on premium and number three for number of contracts.
Deanna Dawnette Strable: We are the only PRT provider in the top five for both metrics solidifying our leadership position in this attractive market and supported by our market leading defined benefit business.
Deanna Dawnette Strable: We continue to leverage our favorable market position in the retirement industry with a full suite of solutions and we are optimistic on the momentum we're seeing across our retirement platforms.
Daniel Joseph Houston: This week, the Department of Labor published its final rule defining fiduciary investment advice under ERISA and revised related regulatory exemptions. Principal has a history of effectively adapting and responding to regulatory change while continuing to meet customer needs and will do the same with this latest rule. We are analyzing the final rule and what it means for the intermediaries we work with, along with our plan sponsors and participants. We are encouraged that the DOL confirmed and protected the importance of financial education within workplace retirement plans, with language affirming that educational support to retirement savers enforces positive savings behaviors. Having said that, we remain concerned it will have the unintended consequence of limiting consumer access to meaningful financial tools and advice, on top of creating significant compliance costs for firms.
Deanna Dawnette Strable: This week Department of Labor published its final rule defining fiduciary investment advice under ERISA and revise related regulatory exemptions principal has a history of effectively adapting and responding to regulatory change while continuing to meet customer needs and we will do the same with this latest rule.
Deanna Dawnette Strable: We are analyzing the final rule and what it means for our intermediaries, we worked with along with our plan sponsors and participants we are encouraged that the D. O L confirmed and protected the importance of financial education within the workplace retirement plans with language affirming that educational support to retirement savers enforces posit.
Deanna Dawnette Strable: Savings behaviors.
Deanna Dawnette Strable: Having said that we remain concern it will have an unintended consequence of limiting consumer access to meaningful financial tools and advice on top of creating significant compliance costs for firms and benefits and protection record sales along with employment and wage growth drove an 8% increase in premiums and fees in specialty benefits over the.
Daniel Joseph Houston: In benefits and protection, record sales, along with employment and wage growth, drove an 8% increase in premiums and fees and specialty benefits over the first quarter of 2023. Additionally, more than half of this growth is from net new business, demonstrating our competitive advantage by focusing on the underserved small to mid-sized business market. We continue to grow faster than the industry by deepening relationships with key distribution partners and with our customers. The life insurance premium and fees for the total block increased 4% over the first quarter of 2023, including a 23% increase in the business market. Our focus on the business market and SMBs is driving growth across the enterprise. For example, more than half of our first quarter non-qualified sales were part of a total retirement solutions plan.
Deanna Dawnette Strable: The first quarter of 2023 more than half of this growth is from net new business, demonstrating our competitive advantage by focusing on the underserved small to mid size business market, we continue to grow faster than the industry by deepening our relationships with key distribution partners and with our customers.
The life insurance premium and fees for the total block increased 4% over the first quarter of 2023, including a 23% increase in the business market.
Deanna Dawnette Strable: Our focus on business market and Smbs are driving growth across the enterprise more than half of our first quarter Nonqualified sales were part of a total retirement solutions plan.
Daniel Joseph Houston: I'm excited about the opportunities across principal and remain confident that our focus on higher growth markets, combined with our integrated product portfolio and important distribution partnerships, will continue to create value and drive growth. Before turning it over to Deanna, I'd like to highlight the strong progress we've made against our sustainability goals. We've taken a measured approach to sustainability, ensuring our commitments, such as supporting the growth of diverse small businesses, and accelerating the execution of our business strategy.
Deanna Dawnette Strable: I'm excited about the opportunities across principle and remain confident that our focus on higher growth markets combined with our integrated product portfolio, an important distribution partnerships will continue to create value and drive growth.
Deanna Dawnette Strable: Before turning it over to Deanna I'd like to highlight the strong progress we've made against our sustainability goals, we've taken a measured approach to sustainability, ensuring our commitments such as supporting the growth of diverse small businesses accelerating the execution of our business strategy.
Daniel Joseph Houston: And in recognition of strong corporate governance, Principal has once again been named one of the world's most ethical companies by ethosphere, recognizing ethical leadership and business practices. This is Principal's 13th time on this list since it was launched in 2006. Approaching our 145th anniversary, we've always recognized the importance of keeping our promises while building a track record of progress on issues that matter to our customers, employees, businesses, and communities. Building trusted, meaningful relationships across all stakeholders continues to be a bedrock for driving growth into the future.
Deanna Dawnette Strable: And in recognition of strong corporate governance principles. Once again named one of the world's most ethical companies by Ethisphere, recognizing ethical leadership and business practices. This is our 13th time on this list since it was launched in 2006.
Deanna Dawnette Strable: Approaching a 145th anniversary, we've always recognized the importance of keeping our promises while building a track record of progress on issues that matter to our customers employees businesses and communities building trusted meaningful relationships across all stakeholders continues to be a bedrock for driving growth into the future.
Deanna Dawnette Strable: Deanna.
Deanna Dawnette Strable: Deanna?
Deanna Dawnette Strable: Thanks, Dan. Good morning to everyone on the call. This morning, I'll share the key contributors to our financial performance for the quarter, as well as details of our capital position. First quarter reported net income was $533 million. Excluding exited business, net income was $376 million, with minimal credit losses of $19 million.
Deanna Dawnette Strable: Thanks, Dan Good morning to everyone on the call. This morning, I'll share the key contributors to our financial performance for the quarter as well as details of our capital position first quarter reported net income was $533 million, excluding exited business net income was $376 million.
Deanna Dawnette Strable: With minimal credit losses of $19 million, excluding significant variances first quarter non-GAAP operating earnings were $419 million or $1 75 per diluted share.
Deanna Dawnette Strable: Excluding significant variances, first quarter non-GAAP operating earnings were $419 million, or $1.75 per diluted share. EPS increased nearly 10% over the first quarter of 2023, stronger than we expected heading into the quarter. This was aided by top-line growth and market outperformance despite pressured foreign currency translation impacts. We are confident in our ability to deliver on our targeted 9-12% EPS growth for the full year. As detailed on slide 12, significant variances impacted non-GAAP operating earnings by a net negative $34 million pre-tax, $25 million after tax, and $0.10 per diluted share.
Deanna Dawnette Strable: E. P S increased nearly 10% over the first quarter of 2023 stronger than we expected heading into the quarter. This was aided by topline growth and market outperformance. Despite pressured foreign currency translation impacts were confident in our ability to deliver on our targeted 9% to 12% EPS growth for the <unk>.
For year.
Deanna Dawnette Strable: As detailed on slide 12 significant variances impacted non-GAAP operating earnings by a net negative $34 million pretax $25 million after tax and 10 cents per diluted share.
Deanna Dawnette Strable: Favorable and CAGE performance was more than offset by impacts from variable investment income and a gap only regulatory closed block dividend adjustment in life. Looking at macroeconomics in the first quarter, while markets were generally favorable across the board, the S&P 500 performed better than mid-cap, small-cap, and international equities as well as fixed income and alternatives. While the S&P 500 is a conventional gauge for market performance, it is important to note that our equity exposure is more diversified.
Deanna Dawnette Strable: We're buying high performance was more than offset by impacts from variable investment income and a GAAP only regulatory closed block dividend adjustment and life looking.
Deanna Dawnette Strable: Looking at macroeconomics in the first quarter, while markets were generally favorable across the board. The S&P 500 performed better than mid cap small cap and international equities as well as fixed income and alternatives.
Deanna Dawnette Strable: While the S&P 500, as a conventional gauge from market performance. It is important to note that our equity exposure is more diversified when.
Deanna Dawnette Strable: When you break down the equity portion of PGI-AUM, approximately 40% of our exposure is S&P 500, 30% small and mid-cap, 20% international, and 10% REIT. Foreign exchange rates were a headwind relative to both the first quarter and fourth quarter of 2023, but remained a tailwind on a trailing 12-month basis. Turning to the business units, the following comments exclude significant variances.
Deanna Dawnette Strable: When you break down the equity portion of P. G. I a O N approximately 40% of our exposure is S&P, 530% small and mid cap, 20% international and 10% rates.
Deanna Dawnette Strable: Foreign exchange rates were a headwind relative to about the first quarter and fourth quarter of 2023, but remained a tailwind on a trailing 12 month basis.
Deanna Dawnette Strable: Turning to the business units the following comments excluding significant variances.
Deanna Dawnette Strable: RIS pre-tax operating earnings increased 7% in the first quarter of 2023, driven by growth in the business, higher net investment income, and favorable market performance. Margin remains strong and at the high end of our guided range. PGI's pre-tax operating earnings increased 4% over the first quarter of 2023 as the benefit from market performance was partially offset by the impact of recent redemptions as well as lower transaction and borrower fees and immaterial performance fees.
Deanna Dawnette Strable: <unk> pre tax operating earnings increased 7% over the first quarter of 2023, driven by growth in the business higher net investment income and favorable market performance margin remains strong and at the high end of our guided range.
Deanna Dawnette Strable: E. G is pretax operating earnings increased 4% over the first quarter of 2023 as the benefit from market performance was partially offset by the impact of recent redemptions as well as lower transaction and borrower fees and immaterial performance fees.
Deanna Dawnette Strable: The expected first quarter seasonality that we discussed on last quarters call played out as we anticipated.
Deanna Dawnette Strable: The expected first quarter seasonality that we discussed on last quarter's call played out as we anticipated. PGI had approximately $25 million of higher deferred compensation and elevated payroll taxes, slightly higher than the impact in the first quarter of 2023. NPI's strong performance in Latin America was muted by the impacts of unfavorable foreign exchange as well as macroeconomic headwinds in Asia.
P. G I had approximately $25 million of higher deferred compensation and elevated payroll taxes.
Deanna Dawnette Strable: Lightly higher than the impact in the first quarter of 2023.
Deanna Dawnette Strable: N P. I strong performance in Latin America was muted by impacts of unfavorable foreign exchange as well as macroeconomic headwinds in Asia.
Deanna Dawnette Strable: Specialty benefits pre tax operating earnings increased 12% from the first quarter of 2023, driven by growth in the business and more favorable underwriting experience.
Deanna Dawnette Strable: Specialty Benefits Pre-Tax Operating Earnings increased 12% from the first quarter of 2023, driven by growth in the business and more favorable underwriting experience. The underwriting results reflect the seasonal pattern of dental claims, which tend to be higher in the first half of the year. In life, pre-tax operating earnings were impacted by typical first quarter seasonality and some higher non-qualified surrenders, which can be volatile quarter to quarter. Across the businesses, we remain confident in delivering on our revenue growth and margin guidance for the full year, anchored to our long-term financial targets.
Deanna Dawnette Strable: The underwriting results reflect the seasonal pattern of Dunhill claims, which tend to be higher in the first half of the year.
Deanna Dawnette Strable: In life pretax operating earnings were impacted by typical first quarter seasonality and some higher nonqualified surrenders, which can be volatile quarter to quarter.
Deanna Dawnette Strable: Across the businesses, we remain confident in delivering on our revenue growth and margin guidance for the full year anchored to our long term financial targets.
Deanna Dawnette Strable: Turning to capital and liquidity, we are in a strong position with approximately $1 $4 billion of excess and available capital, including approximately $1.1 billion at the holding company, which is above our $800 million targeted level and $300 million in our subsidiaries.
Deanna Dawnette Strable: Turning to capital and liquidity, we are in a strong position with approximately $1.4 billion of excess and available capital, including approximately $1.1 billion at the holding company, which is above our $800 million targeted level and $300 million in our subsidiaries. Our risk-based capital ratio was approximately 400%, in line with our RBC target. As shown on slide 3, we returned more than $360 million to shareholders in the first quarter, including $200 million of share repurchases and $162 million of common stock dividends.
Our risk based capital ratio was approximately 400% in line with our RBC target.
Deanna Dawnette Strable: As shown on slide three we returned more than $360 million to shareholders in the first quarter, including $200 million of share repurchases and $162 million of common stock dividends.
Deanna Dawnette Strable: We continue to expect to deliver on our targeted 75% to 85% free capital flow for the full year as discussed on last quarters call free capital flow is always the lightest in the first quarter due to timing of capital generation and increases throughout the year.
Deanna Dawnette Strable: We continue to expect to deliver on our targeted 75-85% free capital flow for the full year. As discussed on last quarter's call, free capital flow is always the lightest in the first quarter due to the timing of capital generation and increases throughout the year. We are committed to returning excess capital to shareholders and continue to expect $1.5 to $1.8 billion of capital deployment for the full year, including $800 million to $1.1 billion of shares we purchase. The pace of share repurchases will increase throughout the year as free capital flow increases.
Deanna Dawnette Strable: We are committed to returning excess capital to shareholders and continue to expect $1.5 million to $1.8 million of capital deployment for the full year, including 800 million to $1.1 billion of share repurchases.
Deanna Dawnette Strable: The pace of share repurchases will increase throughout the year as free capital flow increases.
Deanna Dawnette Strable: Last night, we announced a 71 common stock dividend payable in the second quarter of two cent increase from the dividend paid in the first quarter and an 11% increase over the second quarter 2023 dividend.
Deanna Dawnette Strable: Last night, we announced a $0.71 Common Stock Dividend payable in the second quarter, a $0.02 increase from the dividend paid in the first quarter, and an 11% increase over the second quarter 2023 dividend. This is in line with our targeted 40% dividend payout ratio and demonstrates our confidence in continued growth and overall performance. Our disciplined capital management strategy is aligned with our commitment to deliver long-term enterprise growth while allowing a significant amount of capital to be returned to shareholders.
This is in line with our targeted 40% dividend payout ratio and demonstrates our confidence in continued growth and overall performance.
Deanna Dawnette Strable: Our disciplined capital management strategy is aligned with our commitment to deliver long term enterprise growth, while allowing a significant amount of capital to be returned to shareholders based on net income excluding exited business, we target, 15% to 25% to organic capital to support growth in our businesses.
Deanna Dawnette Strable: 40% to common stock dividends, 35% to 45% of share repurchases and up to 10% to strategic M&A to enhance our capabilities and support organic growth.
Deanna Dawnette Strable: Based on net income excluding exited businesses, we target 15-25% of organic capital to support growth in our businesses, 40% of common stock dividends, 35-45% of share repurchases, and up to 10% of strategic M&A to enhance our capabilities and support organic growth.
Deanna Dawnette Strable: We remain focused on maintaining our capital and liquidity targets at both the life company and the holding company and we will continue our balanced and disciplined approach to capital deployment.
Deanna Dawnette Strable: We remain focused on maintaining our capital and liquidity targets at both the life company and the holding company and will continue a balanced and disciplined approach to capital deployment. Our investment portfolio remains high quality, aligned with our liability profile, and well positioned for a variety of economic conditions. The Commercial Mortgage Loan Portfolio remains healthy. As discussed on our last call, we had one scheduled loan maturity in the first quarter in our office portfolio, and it was paid off in January.
Deanna Dawnette Strable: Our investment portfolio remains high quality aligned with our liability profile and well positioned for a variety of economic conditions, the commercial mortgage loan portfolio remains healthy.
Deanna Dawnette Strable: As discussed on our last call. We had one scheduled loan maturity in the first quarter in our office portfolio and it was paid off in January.
Deanna Dawnette Strable: The remainder of the office portfolio and the underlying metrics are relatively unchanged from last quarter.
Speaker Change: In closing I am proud of our first quarter results demonstrating the power of our higher growth higher return and more capital efficient portfolio.
Deanna Dawnette Strable: The remainder of the office portfolio and the underlying metrics are relatively unchanged from last quarter. In closing, I am proud of our first quarter results, demonstrating the power of our higher growth, higher return, and more capital efficient portfolio. We are in a strong financial position and are well positioned to deliver on our Enterprise 2024 targets, including 9 to 12% growth in earnings per share, increasing return on equity, and 75 to 85% free capital flow conversion.
Speaker Change: We are in a strong financial position and are well positioned to deliver on our enterprise 'twenty 'twenty four targets, including 9% to 12% growth in earnings per share increasing return on equity and 75% to 85% free capital flow conversion, we are grounded in our growth drivers a retirement asset management.
Speaker Change: And benefits and protection and executing on our strategy focused on continuing to drive long term shareholder value. This concludes our prepared remarks operator, please open the call for questions.
Speaker Change: At this time I would like to remind everyone that to ask a question press Star and then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Deanna Dawnette Strable: We are grounded in our growth drivers of retirement, asset management, and benefits and protection and executing on a strategy focused on continuing to drive long-term shareholder value. This concludes our prepared remarks. Operator, please open the call to questions.
Speaker Change: The first question comes from Ryan Krueger of K P. W. Please go ahead.
Ryan Joel Krueger: Hey, Thanks. Good morning. My first question was on Pgi flows then I guess in particular can you provide some more color on.
Operator: At this time, I would like to remind everyone that to ask a question, press star and then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. The first question comes from Ryan Krueger of KBW. Please go ahead.
Ryan Joel Krueger: The conversations you're having and kind of about the optimism you discussed in the prepared remarks for continued improvement and allocations to yield products going forward.
Speaker Change: Yes, and good morning, Ryan Thanks for joining the call and carload, but he is here with us to replace older. He's.
Ryan Joel Krueger: Hey, thanks. Good morning. My first question was on PGI flows. And I guess, in particular, can you provide some more color on the conversations you're having and the kind of the optimism you discussed in the prepared remarks for continued improvement and allocations to yield products going forward.
Certainly getting a well grounded after having been with US now for four years in an industry that so with that I'll ask com will respond directly one sure. Good morning, Ryan. Thank you for your question. Thanks, Dan.
Brian I'll, just reiterate something that I didn't give you additional data points that will help you with your question regarding what we see from a sentiment perspective.
Daniel Joseph Houston: Yeah, and good morning Ryan. Thanks for joining the call, and Kamal Bhatia is here with us to replace Pat Halter. He's certainly getting well-grounded after having been with us now for four years and an industry vet, so with that, I'll ask Kamal to respond directly. So, good luck.
Speaker Change: As you saw we had a very good flow quarter, particularly on the institutional side with real estate than fixed income.
Speaker Change: Also as we as Dan mentioned, we had our best quarter in mutual fund sales in two years. So I'll give you three data points.
Speaker Change: A global perspective, the first one is retail and as you saw we are seeing encouraging signs of turnaround in retail.
Kamal Bhatia: Good morning, Ryan. Thank you for your question. Thanks, Dan. Ryan, I'll just reiterate something Dan said and give you additional data points that will help you with your question regarding what we see from a sentiment perspective. As you saw, we had a very good flow quarter, particularly on the institutional side with real estate and fixed income. And also, as Dan mentioned, we had our best quarter in mutual fund sales in two years. So I'll give you three data points from a global perspective. The first one is retail.
Speaker Change: More interestingly retail flows are difficult to predict but we have a different momentum with our client base right now we see interest expanding across sophisticated gatekeepers, particularly with without higher revenue fundamental equity strategies and some of these mandates are significantly higher sized but they will continue to.
Speaker Change: Be lumpy.
Speaker Change: That is the big change in the veto.
Speaker Change: Unlike.
Speaker Change: Trickled that would come from the advisory based the other data I would point to you is.
Kamal Bhatia: And as you saw, we are seeing encouraging signs of a turnaround in retail. More interestingly, retail flows are difficult to predict, but we have a different momentum with our client base right now. We see interest expanding across sophisticated gatekeepers, particularly with our higher revenue fundamental equity strategies. And some of these mandates are significantly higher sized, but they will continue to be lumpy.
Speaker Change: We are seeing early signs with real estate business as you know, we have roughly 6 million of unfunded capital commitments.
Speaker Change: In our institutional real estate strategies, which we project to call over the next 18 to 24 months. These are predominantly in closed end funds and separate accounts.
Speaker Change: We are seeing early signs of value emerging in that market to call capital, but we will have to do so on a selective basis as these opportunities emerge.
Kamal Bhatia: That is the big change in the retail space, unlike a trickle that would come from the advisory base. The other data I would point to you is that we are seeing early signs with our real estate business. As you know, we have roughly $6 billion of unfunded capital commitments in our institutional real estate strategies, which we project to call over the next 18 to 24 months. These are predominantly in closed-end funds and separate accounts.
Speaker Change: One of the things I would highlight for you is sellers are finally reconciling to a higher plateau in rates and that is creating a better environment for us as investors in that space and then the last thing to your question on where we see in global asset management.
Speaker Change: This was a very strong quarter put out international business, particularly in Latin America, and we anticipate positive momentum for the rest of the year, particularly with our Brazil pension business.
Speaker Change: Mexico funds business as well, so overall encouraging signs in retail.
Speaker Change: Continue to see more interest from other institutional client base and our international segment is continuing to scale up.
Kamal Bhatia: We are seeing early signs of value emerging in that market to call capital, but we will have to do so on a selective basis as these opportunities emerge. One of the things I would highlight for you is sellers are finally reconciling to a higher plateau in rates, and that's creating a better environment for us as investors in that space. And then, to answer your question on where we stand in global asset management, this was a very strong quarter for our international business, particularly in Latin America.
Brian does that help.
Brian: Yeah that was great. Thanks, and then just the follow up was on the fee rate down some year over year 28 basis points in the quarter what are your expectations on the fee rate in pgi going forward.
Speaker Change: Yeah, you know at 28 to 29 is where we said it would be and it falls within that range and maybe comment on any additional comments like maker sure.
Kamal Bhatia: And we anticipate positive momentum for the rest of the year, particularly with our Brazil pension business and our Mexico funds business as well. So overall, encouraging signs in retail, we continue to see more interest from our institutional client base, and our international segment is continuing to grow.
Speaker Change: Couple of.
Speaker Change: The data points on that Ryan as well, maybe three data points as Dan said.
Speaker Change: We remain comfortable in managing to our 28 to 29 data points.
Speaker Change: So just with respect to <unk> market conditions did shift the product mix.
Ryan Joel Krueger: Yeah, that was great. Thanks. And then just a follow-up question on the fee rate, which was down some year over year by 28 basis points in the quarter. What are your expectations for the fee rate and PGI going forward?
Speaker Change: Which impacted our revenue as you heard in our comments earlier.
Speaker Change: If you exclude the previously communicated large outflow at the beginning though.
Speaker Change: <unk> flows were positive the other change in the revenue rate for <unk> was based on annual price reviews on our U S mutual funds and some of the real estate valuations late in fourth quarter, which also had some additional effect.
Daniel Joseph Houston: Yeah, you know, that 28 to 29 is where we said it would be, and it falls within that range. And maybe Kamal, any additional comments you'd like to make there? Sure.
Kamal Bhatia: I'll give you a couple of data points on that, Ryan, as well, maybe three data points. As Dan said, we remain comfortable in managing to our 28 to 29 data points. So just with respect to 1Q, market conditions did shift the product mix, which impacted our revenue. As you heard in our comments earlier, if you exclude the previously communicated large outflow at the beginning of 1Q, our flows were positive. The other change in the revenue rate for 1Q was based on annual price reviews on our U.S. mutual funds and some of the real estate valuations late in the fourth quarter, which also had some additional effects.
Speaker Change: I would point to the moving forward when I look at the revenue rate.
Speaker Change: The strong institutional real estate fluids and fixed income flows.
Speaker Change: Fixed income sales are continuing to happen in the high yield credit space, which is a strength of ours, but also in the area. We are generally it's good for management fee rate and we also are continuing to see retail flows improved we traditionally go into higher revenue and higher margin products such as equity mutual funds.
Speaker Change: I would also reiterate for you because clients, obviously pay keen attention to performance and that drives flows and growth in management fee rate, we had a very very strong investment performance track record.
Kamal Bhatia: I would point to the moving forward when I look at the revenue rate. I think the strong institutional real estate flows and fixed income flows, our fixed income sales are continuing to happen in the high yield credit space, which is a strength of ours but also an area where, generally, it's good for the management fee rate. And we are also continuing to see retail flows improve, which traditionally go to higher revenue and higher margin products such as equity mutual loans.
Speaker Change: Last quarter in particular I would highlight for you the.
Speaker Change: Substantial improvement in our multi asset strategies that drive that future retirement flows so the shift towards private assets, which we see improving over as the year goes by should help at the performance rate as well.
Speaker Change: Questions Ryan.
Speaker Change: Yeah.
Ryan Joel Krueger: Thank you. The next question is coming from Sydney to come off of Jefferies. Please go ahead.
Sydney: Thanks. Good morning, just a question on RIS fee I guess, we're all sort of.
Kamal Bhatia: I would also reiterate for you because clients obviously pay keen attention to performance, and that drives flows and growth in management fee rates. We had a very, very strong investment performance track record this last quarter. In particular, I would highlight for you the substantial improvement in our multi-asset strategies that drives our future retirement flows. So the shift towards private assets, which we see improving as the year goes by, should help with the performance rate as well.
Sydney: Going on the assumption that we're going to be in a high for a longer rate environment. So just curious if that's having any impact on the participant level withdrawals, one way or the other and maybe if you can talk a little bit about what you're seeing at the participant level, maybe currently versus prior years.
Speaker Change: Yeah of course, yeah.
Speaker Change: Yeah. Thanks for the question Seth.
Speaker Change: Yeah on the participant basis.
Speaker Change: We are seeing a little bit of an uptick in departure participant retirement withdrawals.
Suneet Laxman L. Kamath: Thank you. The next question is coming from Suneet Kamath of Jefferies. Please go ahead. Thanks.
Speaker Change: So again, that's going to really be impacted both by the strong equity markets, which actually increases account values and then when they take the withdrawals that has a has a bit of an impact. So we are seeing some elevated activity in participant withdrawals in the first quarter and we'll be monitoring those elevated withdrawals through the through the.
Suneet Laxman L. Kamath: Thanks, good morning. Just a question on RISV. I guess we're all sort of...
Daniel Joseph Houston: I'm going on the assumption that we're going to be in a high for longer rate environment, so just curious if that's having any impact on the participant level withdrawals one way or the other. And maybe if you could talk a little bit about what you're seeing at the participant level, maybe currently versus prior years.
Speaker Change: Balance of the year.
Speaker Change: Got it and then Chris.
Speaker Change: Sorry go ahead go ahead I'm sorry go.
Speaker Change: Can you just make any comments with regards to the higher interest rate environment, and how we might see that play its way through in terms of asset capture perhaps at benefit event.
Unknown Executive: Yeah, thanks for the question, Suneet. Yeah, on a participant basis, we are seeing a little bit of an uptick in participant retirement withdrawals. So, again, that's going to really be impacted both by the strong equity markets, which actually increases account values, and then when they take the withdrawals, that has a bit of an impact. So, we are seeing some elevated activity in participant withdrawals in the first quarter, and we'll be monitoring those elevated withdrawals through the balance sheet.
Chris: Oh, well, we definitely are seeing the benefit from higher interest rates in our U S and certainly we're.
Chris: We're getting some benefit as recapture participant accounts on rollover.
Chris: To the extent that recapture those accounts either an IRA rollover faithful we definitely are seeing some benefit in bank in terms of those higher interest rates as well. So we do see retirement withdrawals recapture some of those withdrawals on rollover and to the extent they ended up within our bank products, we do see some benefits from that as well.
Suneet Laxman L. Kamath: Got it. And then, Dan, I need you to... Go ahead, I'm sorry, I was going to ask if you could make any comments with regard to the higher interest rate environment and how we might see that play out in terms of asset capture, perhaps, and non-fitting.
Speaker Change: Art interruption you go ahead.
Art: That's actually where I was going to go next I think Dan in the past you actually used to give us a stat on that like what when you have a benefit event what percentage of the assets you guys retain so I'm just curious if there is a stat that you can give us there and I don't know if you have any sense on how that would compare to sort of the overall industry.
Daniel Joseph Houston: Well, we definitely are seeing the benefit from higher interest rates in RAS, and certainly we're getting some benefit as we capture participant accounts on rollover. To the extent that we capture those accounts either in IRA rollover or stateful, we definitely are seeing some benefit in banks in terms of those higher interest rates as well. So we do see retirement withdrawals; we capture some of those withdrawals on rollover, and to the extent they end up within our bank product, we do see some benefit from that as well. Sorry to interrupt, Suneet. Go ahead. No, that's actually where I was going to go next.
Speaker Change: Yes to meet on that one.
Speaker Change: Think competitors generally don't disclose that and so we don't disclose that at this point.
Speaker Change: Got it if I can correct somewhere in the wintertime.
Daniel Joseph Houston: Yeah, we used to share that they had a number of years ago and you know at benefit event Theres job changers. Their retirees. It's it's really trying to identify the best prospects for principal and whether thats retained through partnering with our brokers that brought the business to us or to do it on a direct basis, but it's.
Daniel Joseph Houston: Again, it is a significant part of our value creation for our participants to be able to give them that choice at benefit event for either purchasing of principal products or in many cases, leaving the money in the plan and that's another area that's sort of hard to measure because we don't know how long that money will stay within the plants, but anyway. It is.
Suneet Laxman L. Kamath: I think, Dan, in the past, you actually used to give us a stat on that, like when you have a benefit event, what percentage of the assets you guys retain. So I'm just curious if there is a stat that you can give us there, and I don't know if you have any sense of how that would compare to sort of the overall industry. Yeah, to me on that one, you know, I think competitors generally don't disclose that. And so we don't disclose that.
Daniel Joseph Houston: If theres a real mix of measurements out there in the industry.
Daniel Joseph Houston: Hopefully that helps.
Speaker Change: It does thanks.
Speaker Change: Thank you.
Thank you. The next question is coming from Wes Carmichael of Autonomous Research. Please go ahead.
Wesley Collin Carmichael: Hey, good morning, and thank you for taking my question I wanted to stick with our I ask maybe for a moment you mentioned the pipeline.
Wesley Collin Carmichael: Strong and he called out PRT is one of those areas can you maybe just help us with what the size of that pipeline looks like and how much you might be targeting in terms of sales or a capital you want to deploy there for the year.
Daniel Joseph Houston: Yeah, we used to share that number years ago. And, you know, a benefit event, there are job changers, retirees, it's really trying to identify the best prospects for principal, and whether that's retained through partnering with our brokers that brought the business to us, or doing it on a direct basis. But it's again, it is a significant part of our value creation for participants to be able to get involved in that choice of benefit event, or either purchasing a principal product, or, in many cases, leaving the money in the plan.
Speaker Change: Hey, Wes congratulations on joining autonomous I appreciate you being on the call and one other thing I'm just going to add before Chris jumps into those specifics. We just actually were on the west coast together, Chris and I and his team with our institutional client Council and our institutional client.
Hum.
Speaker Change: Advisory group and the feedback was really positive we really are seeing a strong momentum with our customers in terms of them embracing helping their participants be better educated very open to providing additional services to those plan sponsors and frankly.
Daniel Joseph Houston: And that's another area that's sort of hard to measure because we don't know how long the money will stay within the plans. But anyway, there's a real mix of measurements out there in the industry. Hopefully, that helps.
Operator: Transcribed by https://otter.ai
Wesley Collin Carmichael: Thank you. The next question is coming from Wes Carmichael of Autonomous Research. Please go ahead.
Wesley Collin Carmichael: Good morning, and thank you for taking my question. I wanted to stick with RIS for a moment, but you mentioned the pipeline remains strong, and you called out PRT as one of those areas. Can you maybe just help us with what the size of that pipeline looks like and how much you might be targeting in terms of sales or capital you want to deploy there for the year? Hey Wes, congratulations on joining Autonomous. I appreciate you being on the call.
Speaker Change: The IRT integration is well behind us at this point in time and the sentiment is quite positive Chris you want to go ahead and respond directly to the question sure. Yeah. I think what's your question was about PRT and the momentum in PRT and what we expect for the year I mean, we certainly had a strong start to the year in the first quarter with PR T cells.
Chris: At close to $800 million.
Daniel Joseph Houston: One other thing I'm just going to add before Chris jumps into those specifics, we just actually were on the West Coast together, Chris and I and his team with our Institutional Client Council and our Institutional Client Advisory Group. And the feedback was really positive. We really are seeing strong momentum with our customers in terms of them embracing, helping their participants be better educated, and very open to providing additional services to those plan sponsors. And frankly, the IRT integration is well behind us at this point in time. And the sentiment was quite positive. Chris, do you want to go ahead and respond directly to the question? Sure.
Chris: Certainly saw that carryover benefit from the fourth quarter, we saw good fourth quarter momentum and that carried into the first quarter and so we continue to take advantage of that and most importantly, we did that above our targeted returns as we've talked about in the past, we really tried to get the right balance between gross and net door growth.
Chris: Growth in our PRT business and overall returns as we look toward the balance of the year. The industry is expecting another strong year in PRT at about $30 billion to $40 billion in total industry sales we.
Chris: We are targeting and we said on the first quarter at the end of the year call, we're targeting somewhere in the neighborhood of two and a half to $3 billion in PRT sales for the full year and we expect it.
Christopher James Littlefield: Yeah. I think, Wes, your question was about PRT and the momentum in PRT and what we expect for the year. I mean, we certainly had a strong start to the year in the first quarter with PRT sales at close to $800 million. We certainly saw that carryover benefit from the fourth quarter. We saw good fourth-quarter momentum, and that carried into the first quarter.
Chris: Most of that to come a little bit now later in the year as people.
Chris: Close out their defined benefit pension liabilities and look at that as they head into 25. So we do generally see a ramp up in PRT activity.
Chris: In the late third and fourth quarters, and we expect that sort of skews.
Chris: Seasonality of the sales to continue.
Speaker Change: Thank you.
Speaker Change: And just on the department of Labor I know you're still in early innings of analyzing very big document, but you know you mentioned it a little bit in terms of increased compliance costs is there any way you can help us with sizing that and you know what you think the increased expense might be associated with that based on what you know today.
Christopher James Littlefield: And so we continue to take advantage of that. And most importantly, we did so above our targeted returns. As we've talked about in the past, we really tried to get the right balance between growth in our PRT business and overall returns. As we look toward the balance of the year, the industry is expecting another strong year in PRT at about $30 to $40 billion in total industry sales. We are targeting, and we said on the first quarter, the end of the year call, somewhere in the neighborhood of $2.5 to $3 billion in PRT sales for the full year.
Speaker Change: Yeah. My guess is that's going to be sorted out over the next six to 12 months as we continue to digest. This this most recent.
Speaker Change: Decisions on the department of Labor, it's something I've been involved with all the way back to 2010, you know one of the pieces of good news that came out of that as the regulation that provides a bit more clarity on guidance.
Speaker Change: And advice and education at the work site, which we find very very positive, but I don't think we've got this all sorted out except to say that it will require more licensing on the part of some of our internal personnel. There's training they will need to take place and of course, just the appropriate oversight and overseeing these news.
Christopher James Littlefield: And we expect most of that to come a little bit later in the year as people close out there on their defined benefit pension liabilities and look at that as they head into 25. So we do generally see a ramp up in PRT activity in the late third and fourth quarters, and we expect that sort of seasonality of the sales to continue. And just on the Department of Labor, I know you're still in the early innings of analyzing a very big document, but, you know, you mentioned a little bit in terms of increased compliance costs.
Speaker Change: Registered reps and staying in compliance.
Speaker Change: Working on matters related to transparency and disclosure, so we'll sort it out over the course of the next six months to 12 months to keep you apprised of how that's impacting our business bottom line is it's it's something we view as manageable and quantifying the cost is not something we put a finger on yet.
Christopher James Littlefield: Is there any way you can help us with sizing that and, you know, what you think the increased expense might be associated with that based on what you know today? My guess is that's going to be sorted out over the next 6 to 12 months as we continue to digest this most recent decision by the Department of Labor. It's something I've been involved with all the way back to 2010.
Speaker Change: Thank you.
Speaker Change: Thanks, a lot.
Speaker Change: Thank you. The next question is coming from Joel Hurwitz of Dowling. Please go ahead.
Joel Hurwitz: Hey, good morning wanted to start on RIS fee rates. So the theory it looked to be down around two basis points from where it ran in 'twenty three to just provide some color on sort of the fee rate compression you saw in the quarter and the expectations moving forward and then also in terms of the fee business how much of the business has revenue with that.
Daniel Joseph Houston: One of the pieces of good news that came out of that is the regulation that provides a bit more clarity on guidance and advice and education at the work site, which we find very positive. But I don't think we've got this all sorted out, except to say that it will require more licensing on the part of some of our internal personnel. There's training that will need to take place and, of course, just the appropriate oversight and oversight of these registered reps and staying in compliance and working on matters related to transparency and disclosure.
Joel Hurwitz: Based off of account value versus a per participant fee.
Speaker Change: Yeah, great questions that I'll, just have critical and pick that one up Joe Yeah, great. Thank you Joe for the question so.
Speaker Change: So we we think fee revenue rate performed largely in line with our expectations. This quarter. We've previously guided that we expect in the neighborhood of two to three bits of compression in normal markets, but one thing a couple of factors I'd point out strong equity markets and impact.
Daniel Joseph Houston: So we'll sort it out over the course of the next 6 to 12 months to keep you apprised of how that's impacting our business. The bottom line is it's something we view as manageable, and quantifying the cost is not something we've put a figure on yet.
Speaker Change: Fee revenue rate and when you think about the proportion that's asset based versus either per member or transaction or flat fee based.
Joel Hurwitz: Thank you. The next question is coming from Joel Hurwitz of Dowling. Please go ahead.
Speaker Change: About 80% of that revenue is asset based and around 20% is not.
Joel Hurwitz: Hey, good morning. I wanted to start on the RIS fee rate. So the fee rate looked to be down around two basis points from where it ran at 23. Can you just provide some color on sort of the fee rate compression you saw in the quarter and the expectations moving forward? And also, in terms of the fee business, how much of the business has revenue that's based on account value versus a per participant fee?
Speaker Change: Non asset based so as a result, when you see a significant equity market performance. It can impact fee revenue right as the denominator tends to be more sensitive to equity markets than the numerator.
Speaker Change: In addition, there is fluctuation in fee revenue collection from period to period and reminder, that fourth quarter of last year. The revenue was quite strong due to seasonal demand for consulting and other billable services.
Daniel Joseph Houston: Great questions, and I'll just have Chris go ahead and pick that one up, Joel. Yeah, great.
Speaker Change: And as a result, because of that fee revenue rates fluctuate from quarter to quarter, whether it's supermarkets or seasonal seasonality of fees or or or expensive fees. It's fair to look at it on a long term basis and when you look at the trailing 12 month period. The fee revenue rate held steady at about 40 bps. So that's that's the comment I'd give you on the run rate.
Christopher James Littlefield: Thank you, Joel, for the question. So, we think the fee revenue rate performed largely in line with our expectations this quarter. We've previously guided that we expect in the neighborhood of 2 to 3 bits of compression in normal markets.
Christopher James Littlefield: One big couple of factors I'd point out is that strong equity markets impact fee revenue rates. And when you think about the proportion that's asset based versus either per member or transaction or flat fee based, about 80% of that revenue is asset based, and around 20% is non-asset based. So as a result, when you see a significant equity market performance, it can impact the fee revenue rate as the denominator tends to be more sensitive to equity markets than the numerator.
Speaker Change: That's helpful.
Speaker Change: That helps.
Speaker Change: And then switching gears to the specialty benefits sales were very strong.
Speaker Change: Particularly in group disability I could you just provide some color on on what you saw in terms of the group disability sales and then in terms of group disability topline overall, I guess I was sort of surprised though to see it down.
Speaker Change: From where it was in Q4, given the strong sales and anything that drove the.
Speaker Change: The sequential decline and in group disability premiums and fees.
Christopher James Littlefield: In addition, there's fluctuation in fee revenue collection from period to period. And reminder that in the fourth quarter of last year, revenue was quite strong due to seasonal demand for some consulting and other billable services. And as a result, because that fee revenue rate fluctuates from quarter to quarter, whether it's the markets or seasonability of fees or expenses of fees, it's better to look at on a long-term basis. And when you look at the trailing 12-month period, the fee revenue rate held steady at about $40. So that's the comment I'd give you on pre-reference.
Speaker Change: I think it's another example of where principal focuses on that SMB marketplace, where we still see growth in strong vibrant SMB place in which we do business. So.
Speaker Change: Joe I'm going to cover that Amy Yeah sure.
Amy: Thanks for the question. So a couple of questions embedded in there kind of what's going on in that line and then let's look at it sort of sequentially and the answer actually to both of those questions kind of comes back to the same product. So one of the newer products in that group and keep in mind. When we look at group disability. We're gonna have long term disability short term disability and.
Amy: They paid family medical leave is gonna be on that line.
Joel Hurwitz: That helps. And then switch gears to specialty benefits. So sales were very strong, particularly in group disability. Could you just provide some color on what you saw in terms of group disability sales and in terms of the group disability top line overall? I guess I was sort of surprised though to see it down from where it was in Q4, given the strong sales and anything that drove the sequential decline in group disability premiums and fees.
Amy: One of the things we've seen happen is that markets state by state has kind of been opening up with paid family medical leave our products. So we participate in that marketplace. There's markets that we participate in Massachusetts, Connecticut, Oregon, Colorado, and one of the things you've seen floating.
Amy: Through those sales results is when you open up a state and when basically you say, we have put our product in front of the state they've qualified that product states approved private plane carrier and helps meet the state driven mandate for meeting that coverage when you're part of that grouping then those new.
Amy Christine Friedrich: I think it's another example of where Principal focuses on that SMB marketplace where we still see growth and a strong, vibrant SMB place in which we do business. So do you want to go ahead and cover that, Amy? Yeah, sure.
Amy Christine Friedrich: State by state has kind of been opening up with paid family and medical leave products. So we participate in that marketplace; there are markets that we participate in in Massachusetts, Connecticut, Oregon, and Colorado. And one of the things you're seeing flowing through those sales results is when you open up a state and when, basically, you say, we have put a product in front of the state, they've qualified that product, say it's an approved private plan carrier, and helps meet the state-driven mandate for meeting that coverage. When you're part of that grouping, then those new products all kind of come in at the same time. So those have been a little bit lumpier.
Speaker Change: Alex I'll kind of come in at the same time, so those have been a little bit lumpy or what you're seeing in our fourth quarter last year for P. S. N. L was one of the states that are opened up that came in that quarter and then you're seeing that again in first quarter actually the one that came in fourth quarter last year on that line item was even a little.
Speaker Change: Bit larger than what we saw in first quarter, but it's a good explainer for why that smoothing out when I look at short term disability and long term disability those are growing in ways. We expect them to grow. So we're seeing more like that you know three to five 3% to 7% growth in some of those products in terms of new sales.
Amy Christine Friedrich: What you're seeing in the fourth quarter last year for PFML was one of the states that opened up that came in that quarter. And then you're seeing that again in the first quarter. Actually, the one that came in the fourth quarter last year on that line item was even a little bit larger than what we saw in the first quarter. But it's a good explanation for why that's moving up. When I look at short-term disability and long-term disability, those are growing in ways we didn't expect them to grow. So we're seeing more like that, you know, three to five, three to 7% growth in some of those products in terms of new sales. Does that help give some color to that? That does very well.
Speaker Change: Does that help give some color to that.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Thank you the next question.
Speaker Change: The next question is coming from John Barnidge of Piper Sandler. Please go ahead.
John Bakewell Barnidge: Good morning, Thank you for the opportunity maybe if we can stick with that strong specialty benefits sales in the quarter can you maybe talk about growth from pricing versus employee count and it sounds it seems like there's a pretty strong growth outside of just.
John Bakewell Barnidge: The paid family leave expansion.
Sure.
Speaker Change: Yeah, Yeah happy to talk about that one of the things that we always keep track of it because we wanted to make sure that what's happening with our growth and again, we're really pleased with the growth. We're seeing we like the growth rates, we're seeing across our specialty benefits find them, but one of the things. We look at consistently is what's coming from.
Joel Hurwitz: That's very helpful. Thank you.
John Bakewell Barnidge: Thank you. The next question. The next question is coming from John Barnidge of Piper Sandler. Please go ahead.
John Bakewell Barnidge: Good morning. Thank you for the opportunity.
John Bakewell Barnidge: Maybe if we could stick with that strong specialty benefit sales in the quarter. Can you maybe talk about growth from pricing versus employee count? It seems like there's pretty strong growth outside of just, you know, the paid family leave. Sure. Yeah, yeah. I
Speaker Change: What we would consider net new business versus what's coming from that employment wage growth and then what's coming from rate actions. When we divide that up in this quarter, we're getting about 55% of our premium growth from that net new business. So by far the biggest number in there is that net new business. So that's going to be new business, we brought on.
Amy Christine Friedrich: Yeah, yeah, I'm happy to talk about that. One of the things that we always keep track of because we want to make sure that what's happening with our growth is happening, and again, we're really pleased with the growth we're seeing. We like the growth rates we're seeing across our specialty benefits lines, but one of the things we look at consistently is what's coming from what we would consider net new business versus what's coming from that employment or wage growth. And then what's coming from rate action?
Speaker Change: Minus any of the lapses that happened at 40% is going to be from a combination of employment growth and wage growth.
Bigger driver there is it is still in play and that growth and then 15% is going to be from rate actions within the employment growth picture and we are still seeing the smaller market being the driver of that employment growth. So under if you're an employee that has under 200 folks that's been strong.
Amy Christine Friedrich: When we divide that up in this quarter, we're getting about 55% of our premium growth from that net new business. So by far, the biggest number in there is that net new business. So that's going to be new business we bring on minus any of the lapses that happened.
Speaker Change: Employment growth, that's still happening that what we would consider mid market 200 to 500 has seen good growth as well our block over 500 lives. It's the place where that growth in terms of employment growth is really moderating.
Amy Christine Friedrich: 40% is going to be from a combination of employment growth and wage growth. The bigger driver there is still employment growth, and then 15% is going to be from rate action. Within that employment growth picture, we are still seeing the smaller market be the driver of that employment growth. So if you're an employer that has under 200 folks, that's the strongest employment growth that's still happening, and what we would consider mid-market 200 to 500 has seen good growth as well. But our block where over 500 lives is the place where that growth, in terms of employment growth, is really moderating.
Speaker Change: Hopefully that helps John that's very helpful. Yes. It does thank you. That's very helpful. My follow up question you have a capital allocation to strategic M&A in the presentation with the change of noncompete laws, how does that impact maybe how you approach recruitment of asset management.
Speaker Change: Yes, great Great question, and you know frankly, we don't use a lot of employment agreements here at principal I'd like to think that the culture that we've built allows us to attract retain talent for the organization within asset management, we're paying competitive fees, we're having a lot of flexibility and we.
John Bakewell Barnidge: Hopefully, that helps, John. That's very helpful. Yeah, it does. Thank you.
Daniel Joseph Houston: It's very helpful. My follow-up question. You have a temporary capital allocation to strategic M&A in the presentation. With the change in non-compete laws, how does that impact, maybe, how you approach recruitment and asset management? Yeah, great, great question.
Frankly, not a lot of turnover so in the Grand scheme of things I don't really anticipate that that's going to alter the principals ability to attract retain talent as it relates to our clients in terms of opportunity. We know from the studies that go out there that employee benefits matter.
Daniel Joseph Houston: And, you know, frankly, we don't use a lot of employment agreements here at principal. I'd like to think that the culture that we've built allows us to attract and retain talent for the organization. Within asset management, we're paying competitive fees, we have a lot of flexibility, and we've had, frankly, not a lot of turnover. So in the grand scheme of things, I don't really anticipate that that's going to alter principals' ability to attract or retain talent.
Speaker Change: The.
Speaker Change: Retirement plans health care specialty benefits. So we actually think it plays to the strength of making sure that the employment environment is healthy and people want to be part of that.
Speaker Change: The other thing as you very well know is where we're a big player in the nonqualified deferred comp in <unk>.
Speaker Change: <unk> space, which is another one of those areas, where you think about locking in talent.
Speaker Change: The proper plan doesn't mean, we do a lot of work with employers and designing ways to retain talent, having said all of that I'll show you a combo has anything as it relates to anything within asset management.
Daniel Joseph Houston: As it relates to our clients in terms of opportunity, we know from the studies that go out there that employee benefits matter, strong retirement plans, health care, and specialty benefits. So we actually think it plays to the strength of making sure that the employment environment is healthy, and people want to be part of that. The other thing is, you very well know, we're a big player in the non-qualified deferred compensation space, which is another one of those areas where you think about locking in talent and having the proper plan design. We do a lot of work with employers and designing ways to retain talent. Having said all that, I'll see if Kamal has anything as it relates to anything within asset management. Now, John, just to add to that.
Speaker Change: John just to add on <unk> covered it very well I think you'll remember.
Speaker Change: That we are one of those firms that continues to get year over ear. They reward for being best places to work in money management and one of the reasons for that is the culture. We have created in our investment management or asset management Division and two of those are reasons out obviously the investment culture that really encourages independent.
Speaker Change: King and independent growth, which is what the top theater investment talent always looks for we don't have a top down view and our view is is you can create an environment, where the best investors can do their best work without without having a big legal structure around it and so I would just point to that is there just as a data point.
Kamal Bhatia: Now, John, just to add on what Dan covered very well. I think you'll remember that we are one of those firms that continues to get, year over year, the reward for being the best places to work in money management. And one of the reasons for that is the culture we've created in our investment management or asset management division. And two of those reasons are obviously the investment culture that really encourages independent thinking and independent growth, which is what top-tier investment talent always looks for. We don't have a top-down view, and our view is that you can create an environment where the best investors can do their best work without having a big legal structure around it.
Speaker Change: Hope that helps drug.
Speaker Change: Thank you very much.
Speaker Change: Thank you. The next question is coming from well Novartis of Raymond James. Please go ahead.
Novartis: Hey, good morning, everyone I'm, just talking about the specialty benefits loss ratio, that's going to be a little bit favorable despite the seasonal impacts.
Novartis: Could you talk about some of the some of the repricing and should we expect that to continue throughout 'twenty 'twenty four.
Novartis: Amy.
Novartis: So it it is looking favorable what I would say is we continue to reiterate that that long term range that we have is we're gonna be probably towards the lower end of that range. We have definitely seen that market as well as our portfolio to do a little bit of re pricing what I would say is though.
Kamal Bhatia: And so I would just point to that as an additional data point. That helps, John. Thank you very much. Thank you. The next question is coming from Wilma Burdis.
Novartis: That's not been in one consists interaction so are some of the things we've had to do with our pricing to realign the experience we're seeing emerging in dental means we did a little bit of that rate increase action. Some of the things we were seeing in some of our disability block has meant that we've taken that down so in sum total what.
Wilma Carter Jackson Burdis: Thank you. The next question is coming from Wilma Burdis of Raymond James. Please go ahead. Hey, good morning, everyone. I'm just talking about the specialty benefits loss ratio appearing to be a little bit favorable despite the seasonal impact. Can you talk about some of the simple repricing and should we expect it to continue throughout 2020?
Novartis: We see is that we think the rate actions that we're taking the rate environment. The competitive environment that we're seeing is going to mean, we're still gonna sit towards that lower end of the range.
Amy Christine Friedrich: Amy? Yeah, so it is looking favorable. What I would say is that we continue to reiterate that that long-term range that we have is probably going to be towards the lower end of that range. We have definitely seen the market, as well as our portfolio, do a little bit of repricing. What I would say is, though, that's not been in one consistent direction. So some of the things we've had to do with our pricing to realign the experience we're seeing emerging in dental means we did a little bit of that rate increase action.
Novartis: Yeah.
Okay. Thank you and then can you talk a little.
Speaker Change: Oh Hello.
Speaker Change: Could you talk more about that.
Speaker Change: Oh, Okay all.
Speaker Change: But can you just talk about some of the competitors at the small end of the PRT market and just talk about the sourcing of those small PRT deals as a whole. Please thanks.
Speaker Change: Yeah. Thanks, Thanks for the question Yeah. So we certainly over the last couple of years. So I've seen a lot of new entrants into the PRT market I think what distinguishes us and gives us competitive advantage is the fact that we know the defined benefit business extremely well we've been involved in that.
Amy Christine Friedrich: Some of the things we were seeing in some of our disability block have meant that we've taken that down. So, in sum, what we see is that we think the rate actions that we're taking, the rate environment, and the competitive environment that we're seeing are going to mean we're still going to sit towards that lower end of the range.
Speaker Change: We know of we provide consulting services on it and as a result, when our customers look for solutions to defease that liability.
Talk to us a and are able we're able to provide them a solution.
Christopher James Littlefield: Yeah, thanks. Thanks for the question. Yeah, so we certainly have seen a lot of new entrants into the PRT market. I think what distinguishes us and gives us a competitive advantage is the fact that we know the defined benefit business extremely well. We've been involved in it, we know it, we provide consulting services on it. And as a result, when our customers look for solutions to defeat that liability, they talk to us.
Speaker Change: That allows them to secure a good outcome for them. So if we think about our overall business in this type of business, we get we get about 20% in the first quarter about 20% of the business came from existing customers visiting customers of principal and so we just play in a different part of the market. We also as we talked about it in the fourth quarter.
Speaker Change: Very strong onboarding capabilities that lets us take advantage of times when the PRT market is very fair.
Christopher James Littlefield: And we're able to provide them with a solution that allows them to secure a good outcome for them. So if we think about our overall business and the type of business we get, we get about 20% of the business in the first quarter came from existing customers, existing customers of principal. And so we just play in a different part of the market, and I believe that gives us a competitive advantage in the PRT space.
Speaker Change: Favorable because onboarding tends to be a little bit of the the pipeline a thing that can close the pipeline for others. So we're used to doing lots of different contracts, which also gives us a diversity of the risk and then able to source a lot of them from existing customers of principle, which again.
Really believe gives us a competitive advantage in the PRT space.
Thomas George Gallagher: Thank you. The next question is coming from Tom Gallagher of Evercore ISI. Please go ahead.
Speaker Change: Thanks Shlomo.
Shlomo: Thank you.
Speaker Change: Thank you. The next question is coming from Tom Gallagher of Evercore ISI. Please go ahead.
Thomas George Gallagher: Good morning. On another earnings call this morning, they mentioned that group life pricing is the widest they've ever seen it, which sounded a bit extreme, but they were suggesting that they're seeing some aggressive price competition, and they lost some business. Just curious what you're seeing specifically in group life. I know your results were pretty good this quarter there from an underwriting perspective. But would you share that view? And if so, how are you responding to it?
Speaker Change: Okay.
Thomas George Gallagher: Good morning.
Thomas George Gallagher: On another earnings call. This morning, they mentioned that group life pricing is is the widest I think they've ever seen it which sounded a bit extreme but and they they were suggesting that they're seeing some aggressive price competition and they lost.
Some business.
Thomas George Gallagher: Just curious what youre seeing specifically in group life I know your results were pretty good this quarter. There from an underwriting perspective, but are you are you would you share that view and if so how are you responding to it.
Amy Christine Friedrich: Good morning, and good to hear from you, Tom, and Amy. Yeah, so I'll give you a call.
Speaker Change: Good morning, and good to hear from you Tom Amy Yeah. So I'll give you a night perspective on that.
Amy Christine Friedrich: Yeah, so I'll give you my perspective on that. But keep in mind that our portfolio is going to be squarely in that small to mid-sized marketplace. So when we work with smaller or mid-sized employers, the things that we typically have to do in terms of the maximums we put in, the types of coverage they want maybe on some of their executive populations, the types of standards, and what we will do in terms of what is underwritten as a group, we tend to stay closer to sort of a fundamental smaller box.
Amy: Keep in mind that our portfolio is gonna be squarely in that small to mid sized marketplace. So when we work with a smaller or mid sized employers the things that we typically have to do in terms of the maximum as we put in the types of coverage. They want maybe on some of their executive population.
Amy: And the types of standards and what we will do in terms of what is underwritten as a group we tend to stay closer to sort of a fundamental smaller box. So we tend to have.
Amy Christine Friedrich: So we tend to have, you know, amounts that are more standard, coverage that is a bit more standard, and we don't have to do as many things as we look at getting coverage out there for either some of those, you know, kind of executive-type populations.
Amy: Mountain sit or more standard coverages that are a bit more standard and we don't have to do it in as many things as we look at getting coverage out there for either some of those you know kind of executive type population and so what I would say is yes, I understand the comment in terms of the competitiveness, but give.
Thomas George Gallagher: And so what I would say is, yes, I understand the comment in terms of competitiveness, but given Principles' nearly sole focus in the small to mid-sized marketplace, we don't have to compete on that. We don't have to offer three and four and five-year rate guarantees. We offer single, sometimes two-year rate guarantees. We don't tend to have to compete on some of the maximums, and we don't have to tend to extend beyond our underwriting parameters consistently.
Amy: Principal nearly sole focus in small to mid sized marketplace. We don't have to compete on that we don't have to offer three and four and five year rate guarantees. We offer single sometimes two year rate guarantees. We don't tend to have to compete on some of the maximum and we don't have to tend to extend beyond are under.
Amy: Writing parameters consistently so am I I feel really good about the marketplace. We're in we are seeing rational competition for group life in the marketplace. We're in we rarely right group life alone at Canton tend to write it with a bundle meeting the needs of the full employer and.
Thomas George Gallagher: So I feel really good about the marketplace we're in. We are seeing rational competition for group life in the marketplace we're in. We rarely write group life alone. We tend to write it as a bundle, meeting the needs of the full employer, so we don't have to get into that competition just based on a single product. It's a bundle. We're in a small market, and it's pretty rational in that way.
Amy: So we don't have to get into that competition, just based on a single product, it's a bundle where in the small market and it's pretty rational in that space.
Amy Christine Friedrich: Yeah, that's a great color. So it sounds like that's really in the larger end of the market, then it's not filtering down to small to mid. Is that fair?
Amy: Yes.
Speaker Change: Yes, that's great color. So it sounds like that's really in the larger end of the market.
Speaker Change: It is not filtering down to small to mid is that is that fair.
Speaker Change: I have not seen it filter down correct alright.
Thomas George Gallagher: I have not seen it filter down yet. Correct.
Thomas George Gallagher: All right, great. And then, Dan, for my follow-up, just as Joel asked a question earlier on the fee proportion that's non-asset based, and Chris, I think you said it was 20%. Just curious for that per participant price business, what has the growth rate actually been? Is this a fee pool that's growing or shrinking, and by how much?
Speaker Change: Alright, Great and then Dan for my follow up I'm.
Daniel Joseph Houston: Just a I guess Joel asked a question earlier on.
Daniel Joseph Houston: The fee proportion, that's non asset based and Chris I think you said it was 20% just curious.
Daniel Joseph Houston: For that per participant price business, what has the growth rate actually Ben is this a fee pool that is growing or shrinking and by how much.
Chris: Yeah, Tom I would say that has stayed relatively stable in that call. It anywhere between 17% to 20%. So we're not seeing a big increase the big increase happened when we integrated the I R T block, which tended to be larger customer.
Christopher James Littlefield: Yeah, Tom, I would say that it stayed relatively stable on that call at anywhere between 17 to 20%. So we're not seeing a big increase. The big increase happened when we integrated the IRT block, which tended to be a larger customer. But we are in a little bit more of a steady state now that we're five years beyond that acquisition. So, I would say it's staying relatively stable.
Chris: We were a little bit more steady state now that we're five years beyond that acquisition. So so I would say, it's staying relatively constant.
Christopher James Littlefield: and relatively constant, but is it actually growing like is that having Is that does that look different or very similar to the overall blocks from a net growth or shrinkage perspective? organically. It looks pretty. Pretty similar to the overall block.
Speaker Change: And relatively constant but is it is it actually growing like is that having.
Speaker Change: Is that does that look different a very similar to the overall blocks from a net growth or shrinkage perspective organically.
Speaker Change: Organically it looks pretty.
Speaker Change: Pretty similar to the overall block.
Thomas George Gallagher: Thank you. The next question is coming from Jimmy Buehler of J.P. Morgan.
Speaker Change: Okay, great. Thanks.
Speaker Change: Yeah. Thanks, Tom.
Jimmy Pillar: Thank you. The next question is coming from Jimmy pillar of J P. Morgan. Please go ahead.
Jimmy Buehler: Hey, good morning. So most of my questions were answered, but maybe on an individual level. To what extent were the weak margins this quarter an aberration or seasonality driven versus indicative of the earning power of that? Good morning, Amy.
Jimmy Pillar: Hey, good morning, So most of my questions were answered, but maybe on individual life.
Jimmy Pillar: To what extent were the weak margins. This quarter are an aberration or he's not seasonality driven versus are indicative of the earnings power of that business.
Jimmy Pillar: Hey, good morning, Jimmy Yeah, I'm happy to answer that at it I see it more as a one off more as an aberration as you're saying then indicative we continue to see some seasonality with it with the business, we built a bit of that seasonality at expectation in especially for kind of that first quarter claims what I would.
Amy Christine Friedrich: Yeah, happy to answer that. I see it more as a one-off, more as an aberration, as you're saying, than indicative. We continue to see some seasonality with the business. We build a bit of that seasonality expectation in, especially for kind of that first quarter claim. What I would say is we do expect 2024 earnings to be higher than 2023, and we think the margin results, as we communicated in Outlook, are going to be just below that lower end of that long-term guidance range.
Jimmy Pillar: Say is we do expect 2024, our earnings to be higher than 2023, and we think that margin results as we communicated in and out like expectations are going to be just below that lower end of that long term guidance range. So we're seeing more of an adjusted margin expectations to be in that 30%.
Amy Christine Friedrich: So we're seeing more of an adjusted margin expectation to be in that 13 to 15 percent range for the bulk of the year for life. And then Dan, on the DOL rule, it seems like there was a possibility that it could have been negative for you guys, but the carve out for employers not being considered fiduciaries seems like somewhat of a positive. I don't know if there are any other things within the rule that are potentially positive or negative for principal based on your initial assessment? Yeah, Jimmy. I appreciate the question.
Jimmy Pillar: The 15% range for the bulk of the year for life.
Jimmy Pillar: Okay.
Jimmy Pillar: And then Dan on the D C.
Daniel Joseph Houston: Seemed like there was a possibility that it could have been negative for you guys, but the carve out for our employers not being considered fiduciary seemed like somewhat of a positive I don't know if there do you agree with that or not but then any other things within the laws that are potentially potentially positive or negative for principle based on your.
Jimmy Pillar: Initial assessment.
Daniel Joseph Houston: Yeah, Jimmy, I appreciate the question. So you're exactly right.
Speaker Change: Yeah, Jamie I appreciate the question so you're exactly right you know one of our primary concern was our ability to in the normal course of working with plan participants providing them with the education and guidance and then it wouldn't fall underneath the definition of the fiduciary rule because if you think about.
Daniel Joseph Houston: You know, one of our primary concerns was our ability to, in the normal course of working with plan participants, provide them with education and guidance, and then it wouldn't fall under the definition of the fiduciary rule. Because if you think about it, so many of those plan participants, in particular the lower income, smaller account balances, they don't have a financial advisor; they are looking for us to help them and guide them in the right direction. And a lot of these products that are available were chosen by the employer. And so, you know, defaulting to a target date option can really help out a great deal.
Speaker Change: So many of those plan participants in particular, the lower income smaller account balances. They don't have the financial adviser. They are looking for us to help them and guide them in the right direction and a lot of these products that are available we're chosen from the employer and so defaulting to a target date option.
Speaker Change: Effectively can really help out a great deal before we were even having some limitations on being able to provide guidance on whether or not to take out or providing insights on loans and hardship withdrawals. So without question the ability for us to continue in the normal course of business of providing that participant ensue.
Daniel Joseph Houston: Before, we were even having some limitations on being able to provide guidance on whether or not to take out loans and hardship withdrawals. So without question, the ability for us to continue in the normal course of business of providing that participant insights is now affirmed, it seems from the initial read on the on the reg. Likewise, for those individuals who are asking for advice, Principal has had a 25-year history of having that capability inside Principal to help provide the guidance and the advice necessary to have the right products to do so.
Speaker Change: <unk> is now affirmed it seems from the initial read on the on the Red Likewise for those individuals who are asking for advice principle has had a 25 year history of having that capability inside principle to help provide the guidance and the advice necessarily have the right products.
Speaker Change: To do so and as I said earlier on that call. There are instances where were handing that call back off to the original plans.
Daniel Joseph Houston: And as I said earlier on that call, there are instances where we're handing that call back off to the original plan, the advisor who sold the plan originally. At the end of the day, this is going to be around making sure that we have all the proper rules in place, all of the scripts where necessary, and then, of course, maintaining compliance. So I think, you know, the bottom line is we'll manage our way through this as we have all the other times that we've had these sort of regulatory opportunities and manage it accordingly. Hopefully, that helps.
Speaker Change: Advisor, who sold the plan.
Speaker Change: Originally.
Speaker Change: At the end of the day. This is gonna be around making sure that we have all the proper rules in place all of the scripts were necessary and then of course, maintaining compliance. So I think the bottom line is we'll manage our way through this as we have all the other times that we've had these sort of regulatory.
Speaker Change: Opportunities and manage it accordingly, hopefully that helps.
Michael Augustus Ward: Thank you. The next question is coming from Michael Ward of Citi. Please go ahead. Thanks.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question is coming from Michael Ward of Citi. Please go ahead.
Michael Augustus Ward: Thanks, Good morning, maybe for Commvault.
Michael Augustus Ward: Thanks, good morning. Maybe for Kamal, and I'm just a little bit curious about private credit. It seems like, you know, a pretty solid growth area across the industry. Just wondering if you could remind us, you know, how you're participating in that, and if that could maybe bolster flows over the near term.
Michael Augustus Ward: And I'm, just a little bit curious about private credit it seems like a you know a pretty solid growth area across the industry. It has been.
Michael Augustus Ward: Just wondering if you could remind us you know like how you're participating in that and if that could maybe bolster our flows over the over the near term.
Michael Augustus Ward: Cool.
Kamal Bhatia: Mike, a great question. Thank you for asking.
Michael Augustus Ward: Sure.
Speaker Change: A great question. Thank you for asking I think you know the restart there.
Kamal Bhatia: I think, you know, we started organically a private credit business insight principle. We are quite proud of the investment results we have generated with our business over the past three years. And, as you highlighted, it's one of the high growth areas in asset management. I'll give you a couple of observations on the marketplace today.
Speaker Change: Organically, our private credit business inside principle.
Speaker Change: We are quite proud of the investment was done for you are generated with that business over the past three years and as you highlighted it. It's one of the high growth areas in asset management I'll give you a couple of observations on the market place today, one of the things we purposefully designed our expertise around was.
Kamal Bhatia: One of the things we purposefully designed our expertise around was to be at the smaller and middle end of the direct lending space, which gives us an edge both in terms of generating long-term performance, but also because it was less covered by the larger private credit payers. As you've observed, the industry has grown bigger and bigger. And many of the large private credit operations are only operating at the large end of the marketplace, where I would observe there has been some reduction in pricing in terms of management fees, but also, the quality of underwriting has become slightly less stringent.
Speaker Change: To be to the smaller and middle end of the direct lending space.
Speaker Change: Give us an edge both in terms of generic things long term performance, but also it was less colored by the larger private payers as you've observed the industry is growing bigger and bigger and many of the large private credit operations.
Speaker Change: Only operating at the large end of the marketplace, what I would observe that there has been some reduction in pricing in terms of management piece, but also the quality of underwriting has.
Speaker Change: Has become slightly less stringent and so we remain focused on the smaller end, where do we find more alpha but I'd also observe that from our seat we have become more risk aware also in that space.
Kamal Bhatia: And so we remain focused on the smaller end, where we find more alpha. But I'll also observe that from our seat, we have become more risk aware in that space. We are passing on more deals than we have historically because we want to make sure the deals we get into will generate the IRRs we expect. And this comes a little bit from our culture as a principle. Our legacy around high-yield credit has been to be much smarter about risk management through a full market cycle. And that's our approach to private credit. I hope that answers the question.
Speaker Change: We are passing on more deals than we have historically, because we want to make sure the deals we get into the agenda the dogs.
We expect and this comes a little bit from a culture that's been simple.
Legacy around high yield credit has been to be much more smarter about risk management through a full market cycle and that type of approach to private credit.
Speaker Change: Hope that answers the question Mike.
Michael Augustus Ward: Yeah, no, that's helpful. Thanks, Kamal.
Mike: Yeah, No. That's helpful. Thanks, Komal, maybe maybe for Dan I was just wondering on the Bermuda entity.
Deanna Dawnette Strable: Um, maybe, maybe for Deanna, I was just wondering about the Bermuda entity. I think that freed up like 200 million in the fourth quarter, last quarter. I'm assuming, you know, you've kind of used that for PRT a little bit, maybe some life in one queue, just curious if there's any change. Should we think about that as maybe bolstering free cash generation or is it just kind of supporting the profile as it stands? Mike, I'm glad you asked the question because you're on the verge of breaking a record of never having a question from the CFO So I think Deanna is very enthusiastic about this response. Yeah, thanks.
Speaker Change: Think that freed up like $200 million in the fourth quarter of last quarter.
Daniel Joseph Houston: Assuming you know you've kind of use that for PRT, a little bit maybe some life in <unk>. Just curious if there's any change you know should we think about that as maybe bolstering free cash generation or is it just kind of.
Daniel Joseph Houston: Supporting the profile as it stands.
Speaker Change: Mike I'm glad you asked the question because you're on the verge of breaking a record of never having a question from the CFO. So I think Dan is very enthusiastic about this response.
Daniel Joseph Houston: Thanks, a lot Mike for the question I actually just woke up and so I can now answer the questions. So a couple of things. There you know as you remember from our last call. We had we really started that entity to really support new business both.
Deanna Dawnette Strable: the question. So, there are a couple of things there.
Deanna Dawnette Strable: You know, as you remember from our last call, we really started that entity to really support new business, both on the term life side as well as PRT. It really is going to allow us to look at more growth opportunities for the same amount of capital usage. And so, if you actually just think about the first quarter, all of our new business for term was seeded over to the Bermuda entity. PRT is a little bit different in that we evaluate that on a case-by-case basis to understand whether that Bermuda entity is advantageous.
Daniel Joseph Houston: Both on the term life side as well as PRT them. It really is going to allow us to.
Daniel Joseph Houston: Look at more growth opportunities for the same amount on capital usage.
And so if you're absolutely just think about the first quarter all of our new business for term life seen it over to the Bermuda entity PRT is a little bit different in that we evaluate that on a case by case basis to understand whether that Bermuda.
Daniel Joseph Houston: Entity is advantageous and there actually wasn't any of our first quarter sales that utilized.
Deanna Dawnette Strable: And there actually weren't any of our first quarter sales that utilized Bermuda, but we're still optimistic that it will continue to be a good move for us as we continue to grow those businesses, but doing it in a more capital-efficient way. Is that a help, Mike?
Daniel Joseph Houston: Uh huh.
Daniel Joseph Houston: We're still.
Daniel Joseph Houston: Optimistic that will continue to be a good move for us as we continue to.
Daniel Joseph Houston: Grow those businesses, but doing it in a more capital efficient way.
Speaker Change: That help Mike.
Mike: Yeah, that's great. Thank you.
Michael Augustus Ward: Yeah, that's great. Thank you.
Speaker Change: Thanks for the questions.
Wesley Collin Carmichael: Thank you. The next question is coming from Wes Carmichael of Autonomous Research. Please go ahead.
Speaker Change: Thank you. The next question is coming from West Carmichael of Autonomous Research. Please go ahead.
Wesley Collin Carmichael: Hey, thanks for taking my follow-up. And maybe we can keep Deanna awake. But on unvariable investment income, it was softer in the quarter, which I think is probably to be expected with lower real estate transactions, but maybe not quite to the magnitude that it was. So just hoping you could maybe share your perspective on the next couple of quarters and what your expectations are there.
Wesley Collin Carmichael: Hey, Thanks for taking my follow up and maybe let's kick Deanna woken up but on variable investment income it was soft during the quarter, which I think.
Wesley Collin Carmichael: He's probably to be expected with lower real estate transactions, but maybe not quite to the magnitude that it was so just hoping you could maybe share your perspective in the next couple of quarters and what your expectations are there.
Speaker Change: Yeah. Thanks, Yeah, Thanks for coming back and you're correct. We did have some pressure variable investment income in the quarter.
Deanna Dawnette Strable: investment income in the quarter. Actually, the drivers were a little bit different than what we have seen. You know, if you look at it in total, it was a little bit lower than what we would have seen in the second half of the year, more similar to the first half of 23. But some of the drivers were a little bit different.
Speaker Change: Actually the drivers were a little bit different than what we have seen them. You know if you look at it in total it was a little bit lower than what we would've seen in the second half of the year more similar to the first half of 'twenty three.
Speaker Change: Some of the drivers were a little bit different you know again, we continue to see minimal prepays in the quarter. We also saw lower real estate activity in the quarter, but the real the two bigger drivers of the underperformance in the current quarter.
Deanna Dawnette Strable: You know, again, we continue to see minimal prepays in the quarter. We also saw lower real estate activity in the quarter. But the two bigger drivers of the underperformance in the current quarter, actually, the majority of that actually came from principal international, which would be something that we wouldn't anticipate repeating for the rest of the year, where they do have within their general account some real estate funds. And we took a mark to market on that, which caused that $13 million of lower than expected variable investment income in the quarter.
Speaker Change: Actually the majority of that actually came in principal international which would be something that we wouldn't anticipate repeating for the rest of the year, where they do have within their general account. Some real estate funds and we took a mark to market on that which caused that $13 million of lower than expected variable investment.
Speaker Change: Income in the quarter and then the other place where we did see positive returns, but lower than expected within our alts portfolio and in particular private equity holdings and so as I look for the rest of the year as I mentioned that P. E. I piece, it should more normalize them well will likely continue to see pressure.
Deanna Dawnette Strable: And then the other place where we did see positive returns, but lower than expected, within our ALTS portfolio and, in particular, our private equity holdings. And so as I look for the rest of the year, as I mentioned, that PIP should more normalize. We'll likely continue to see pressured prepays. But again, we did lower our actual run rate expectations for prepays as we came into 2024, just understanding the interest rate environment as well as the specifics of our bond portfolio.
Speaker Change: Prepays, but again, we did lower our actual run rate expectations for Prepays as we came into 2024, just understanding the interest rate.
Speaker Change: Environment as well as the specifics of our bond portfolio them, but I think also is the one that it's just harder to protect her death M and we will expect some more quarterly volatility relative to that.
Deanna Dawnette Strable: But I think ALTS is the one that it's just harder to predict. And we will expect some more quarterly volatility relative to that. Just to size it a little bit on ALTS, in the quarter, we saw about a 5% to 6% annualized return. And again, our run rate is more in that 8% to 9% return. And PE was even lower, but still positive than that 5% to 6%. Hope that helps.
Speaker Change: The size it a little bit on ops in the quarter, we saw about a 5% to 6% annualized return.
Speaker Change: And again, our run rate is more in that 8% to 9% return and P. He was even lower but still positive in that five to six hope that helps.
Speaker Change: Yeah. Thanks, so much.
Wesley Collin Carmichael: Yeah, thanks so much. And maybe just a higher-level question, but, you know, with higher rates now, I guess one area where the insurance industry or the retirement industry has seen more growth has been in retail annuities. And I know you guys exited the fixed annuity business when you did your new LSG transaction, but I'm curious if there's any, you know, consideration of maybe reentering that market, especially now with the Bermuda entity. Thanks. Yeah, Wes, thanks for that.
Speaker Change: And maybe just at a higher level question, but.
Speaker Change: With higher rates now I guess, one area, where the insurance industry with the retirement industry see more growth has been in retail annuities.
Speaker Change: You guys exited the fixed annuity business. When you did your due L Street transaction, but curious if there's any consideration of maybe reentering that market, especially now with that with the Bermuda entity right.
Speaker Change: Right.
Speaker Change: Yeah.
Speaker Change: Oh less things that you know we continue to participate in the variable annuity market and the only other thing I'd point out is in mid year last year, we did launch a registered index linked annuity product.
Wesley Collin Carmichael: Um, you know, we continue to participate in the variable annuity market. And the only other thing I'd point out is that, in mid-year last year, we did launch a registered index-linked annuity product, which shows up a little bit more as, in our spread base. That is a business that has grown nicely since its launch, and we see nice momentum in the Ryla business. If you've been following the annuity trend, you know that the Ryla space is the largest growing portion of the annuity market.
Speaker Change: It shows up a little bit more as a and our spread based.
Speaker Change: That is a business that has grown nicely since its launch and we've seen nice momentum in that line of business that you've been following the annuity trends that the wireless space is the largest growing portion of the river market. So we do like that product. We think it's a nice product provides a nice risk profile, but that's probably.
Wesley Collin Carmichael: So we do like that product. We think it's a nice product, provides a nice risk profile. But that's probably too much. We are not looking to launch new retail fixed annuities. We're focused on the variable annuity and the Ryla offerings at this. Thanks, Wes. I appreciate it.
Speaker Change: Incentives are not looking to launch new retail fixed annuities were focused on the variable annuity and the bylaw offerings at this point.
Speaker Change: Thanks, Wes I appreciate it.
Daniel Joseph Houston: Thank you. We have reached the end of our Q&A session. Mr. Houston, your closing comments, please.
Speaker Change: Thank you we have reached the end of our Q&A Mr. Houston Your closing comments please.
Operator: Well, we feel good about the start of the year, and we remain laser-like focused on delivering our 2024 outlook, including profitable growth, leveraging technology, and innovating products. We want to make sure that we are maintaining our disciplined approach to capital deployment, which I discussed earlier. And, of course, we always want to be mindful of aligning our expenses with revenues. And so, with that, I look forward to visiting for any follow-up and appreciate the support for the company.
Houston: Well, we feel good about the start of the year and we remain laser like focus on delivering our 2024 outlook, including profitable growth leveraging technology and innovating products.
Speaker Change: To make sure that we are.
Daniel Joseph Houston: Maintaining our disciplined approach to capital deployment, which I discussed earlier and of course, we wouldn't want to be mindful of aligning our expenses with revenues and so with that I look forward to visiting and any follow up and I. Appreciate the support for the company a good day.
Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time, and we thank you for your participation.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time and we thank you for your participation.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Uh huh.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yeah.
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