Q2 2026 Principal Financial Group Inc Earnings Call

July 28, 2026

Speaker #1: Good morning. And welcome to the Principal Financial Group Q2 2026 financial results conference call. There will be a question-and-answer period after the speakers have completed their prepared remarks.

Speaker #1: To ask a question during the session, you'll need to press *11 on your telephone. To withdraw your question, please press *12. Please be respectful of others and limit your questions to one and a follow-up so we can get to everyone in the queue.

Speaker #1: I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations and FP&A.

Speaker #2: Thank you and good morning. Welcome to Principal Financial Group's Q2 2026 earnings conference call. As always, materials related to today's call are available on our website at investors.principal.com.

Speaker #2: Following a reading of the Safe Harbor provision, CEO Deanna Strabl and CFO Joel Pitz will deliver prepared remarks. We will then open the call for questions.

Speaker #2: Members of senior management are also 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.

Speaker #2: 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 thumb 10-K, filed by the company with the U.S.

Speaker #2: Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP measures are available.

Speaker #2: GAAP financial measures may be found in our earnings release, financial supplements, and slide presentation. Deanna,

Speaker #1: Thanks, Humphrey, and good morning to everyone on the call. This morning, I'll cover our Q2 performance, the progress we're making against our strategic priorities, and updates on our business portfolio.

Speaker #1: Joel will then provide additional details on our financial results and capital position. Turning to slide 2, we delivered another strong quarter, demonstrating the earnings power of our diversified business model and continued execution across the enterprise.

Speaker #1: Adjusted non-GAAP earnings per share increased 17% year over year, and 15% on a year-to-date basis, both above the high end of our target range.

Speaker #1: This was supported by strong enterprise earnings growth of 13%, with 6% net revenue growth and a 200 basis point margin expansion. Earnings growth was primarily driven by favorable underwriting results and improved mortality within our Benefits and Protection business, strong RIS fundamentals, and positive market conditions for our fee-based businesses.

Speaker #1: This more than offset the revenue impact from investment management net cash flow. We are delivering on our capital deployment plans, and in Q2 we returned nearly $430 million of capital to shareholders, including $250 million in share repurchases and nearly $180 million in common stock dividends.

Speaker #1: This brought our total capital return to shareholders to $800 million through the first half of the year, with $450 million of share repurchases and $350 million of common stock dividends.

Speaker #1: In addition, we raised our common stock dividend for the 13th consecutive quarter, an 8% increase on both a quarterly and trailing 12-month basis. Moving to slide 3, our strategic priorities continue to drive sustained growth across the enterprise.

Speaker #1: We strengthened our leadership in retirement, advanced our position in the small and midsize business segment, and continue to leverage the scale of our global asset management platform to meet evolving client needs.

Speaker #1: Within the retirement ecosystem, which includes record-keeping, asset management, income solutions and advice, we're seeing strong momentum across the platform. Transfer deposits increased 30% year over year, recurring deposits increased 6%, and participant engagement remains healthy, with growth in both planned participation and average contributions.

Speaker #1: Our customers continue to consolidate retirement savings onto our platform, resulting in $1.7 billion of roll-ins during the quarter and more than $7 billion over the trailing 12 months, both up nearly 20%.

Speaker #1: We are further expanding capabilities across the retirement ecosystem. During the quarter, we broadened our retirement income offering through new Lifetime Income Builder CITs, helping participants move seamlessly from saving for retirement to generating dependable income in retirement.

Speaker #1: This reflects our focus on delivering solutions that support plan participants across the key stages of their financial lives. Our retirement investment expertise continues to gain traction with third-party platforms, reflected in DCIO sales of $2 billion in the quarter and nearly $8 billion over the trailing 12 months.

Speaker #1: Finally, we had $500 million of PRT sales in the quarter after a slow start to the year for the industry. For the small and midsize business segment, our differentiated capabilities and deep expertise continue to drive results across retirement and benefits.

Speaker #1: In retirement, the SMB market remains a key contributor to growth. Transfer deposits grew 16% over the trailing 12 months, reflecting continued strength in client activity and long-term momentum.

Speaker #1: Recurring deposits increased 6% on both a year-over-year and trailing 12-month basis, demonstrating growth in ongoing contributions from both employers and employees. In Benefits and Protection, our SMB segment continues to deliver growth and deepen customer relationships.

Speaker #1: Specialty benefit sales increased 11% year over year, reflecting continued demand for our solutions and strong new business momentum. We are building on that momentum by deepening relationships with existing clients, with products per customer increasing steadily over the last several years, moving from $2.9 three years ago to nearly $3.2 today.

Speaker #1: Turning to Global Asset Management, I'd like to briefly address net cash flow before moving to key highlights. We had total company net outflows of approximately $11 billion in the quarter, concentrated in a small number of U.S.

Speaker #1: Active equity strategies, which are experiencing acute headwinds in an unusual market environment despite having extraordinary performance for many years. Notwithstanding recent net cash flow, our investment teams have maintained a disciplined approach and have a track record of successfully navigating periods of market dislocation in the past, supported by steady leadership and consistent investment processes.

Speaker #1: I am encouraged by the underlying momentum across the broader asset management platform, particularly in areas designed to support long-term client needs, including private markets, international, and institutional solutions.

Speaker #1: Moving to key highlights, investment management growth sales increased 2% year over year, and 13% on a trailing 12-month basis, supported by client demand for our investment capabilities and the strength of our distribution relationships.

Speaker #1: Private markets assets under management increased 10% year over year, while international pension assets under management increased 18%. Our active ETF business continues to see healthy growth, generating $500 million of net inflows in the quarter and $2 billion over the trailing 12 months.

Speaker #1: During the quarter, we expanded our ETF capabilities with the launch of a new fixed income ETF suite, broadening access to our investment expertise and providing clients with more flexible investment solutions aligned to their evolving portfolio needs.

Speaker #1: Looking across these three growth drivers, I'm proud of our year-to-date results and our ability to execute. Before I hand it over to Joel, I have a couple of updates related to our business portfolio.

Speaker #1: Earlier this month, we announced an agreement to acquire Beam Benefits, a digital-first employee benefits company focused on the SMB market. The company has over 25,000 employer customers and generated $175 million of premium in 2025.

Speaker #1: This acquisition strengthens our position in the SMB segment by expanding our customer reach and adding digital-first distribution capabilities, a powerful complement to our existing benefits platform.

Speaker #1: Importantly, the transaction remains aligned with our overall capital framework, with no change to our 2026 capital deployment plan or EPS growth targets. Finally, I am pleased to share that we have completed the transition of our Hong Kong pension business to BCT.

Speaker #1: This move strengthens our focus as a top provider of retirement investment solutions to the region. In closing, we have momentum across the business, supported by disciplined execution and the dedication of our 19,000 employees around the world.

Speaker #1: We are in a strong position to continue delivering on our financial targets. Joel?

Speaker #2: Thanks, Deanna. Good morning to everyone on the call. This morning, I'll share key highlights of our financial performance for the second quarter, as well as details on our capital position.

Speaker #2: Starting on slide 4, non-GAAP operating earnings were $547 million, an increase of 12% year over year. With earnings per share of $2.50, an increase of 16%.

Speaker #2: Significant variances, detailed on slide 12, had a positive after-tax impact of $18 million, or $0.08 per share in the second quarter. Excluding these items, non-GAAP operating earnings were $529 million, up 13% year over year, while earnings per share were $2.42, an increase of 17%, above the high end of our target range.

Speaker #2: Total company margin of 32% expanded 200 basis points, with net revenue growth of 6%. This demonstrates the strength of our underlying businesses while continuing to invest in strategic priorities.

Speaker #2: Non-GAAP operating ROE, excluding significant variances, was 16.4%, improving 120 basis points year over year. That's above the midpoint of our 15% to 17% targeted range.

Speaker #2: Net income, excluding exit business, was $535 million, an increase of 24% year over year, with minimal credit losses. Turning to capital liquidity, we ended the quarter in a strong position, with over $1.6 billion of excess and available capital.

Speaker #2: This includes $950 million at the holding company, $300 million in our subsidiaries, and $350 million in excess of our targeted $375% risk-based capital ratio, which is approximately 400% at quarter end.

Speaker #2: In the second quarter, we returned $427 million to shareholders, including $250 million of share repurchases, and $177 million of dividends. This brings year-to-date deployments to $800 million, and we remain on track to deliver on our full-year capital deployment target of $1.5 to $1.8 billion.

Speaker #2: Last night, we announced an $84 per share dividend, payable in the third quarter. This is a 2-cent increase from the prior quarter, an 8% higher than a year ago, demonstrating an ongoing commitment to our 40% dividend payout ratio.

Speaker #2: Total company managed AUM ended the quarter at $808 billion, an increase of 5% from the first quarter of 2026 and 7% from the year-ago quarter.

Speaker #2: Moving to the businesses, the following excludes significant variances. Turning to RIS, as shown on slide 5, pre-tax operating earnings increased 8% year over year, supported by 5% net revenue growth and continued expense discipline.

Speaker #2: Operating margin of 41% expanded 120 basis points compared to the year-ago quarter, slightly above the high end of our target range. This reflects our focus on profitable revenue growth, expense management, and strong business fundamentals.

Speaker #2: As Deanna mentioned, fundamentals across the business remain healthy, highlighted by robust transfer deposits and steady recurring deposit growth. These trends speak to the sustained demand for our solutions and the strength of our customer relationships.

Speaker #2: Turning to slide 6, Principal Asset Management delivered earnings growth of 6% on AUM growth and margin expansion. Within Investment Management, pre-tax operating earnings increased 4% from the prior year quarter.

Speaker #2: Slightly higher revenue, along with expense discipline, more than offset elevated severance within the quarter. This resulted in a $110 basis point improvement in operating margin.

Speaker #2: Performance fees were relatively muted in the quarter due to timing, but we continue to expect full-year 2026 performance fees to be in line with 2025.

Speaker #2: Moving to international pension, pre-tax operating earnings increased 11% year over year, driven by favorable foreign currency impacts and growth in the business. Operating margin improved 50 basis points to over 47%, well within our target range.

Speaker #2: AUM increased 6% from the prior quarter, and 18% year over year, to a record $169 billion. Turning to slide 7, Benefits and Protection generated strong pre-tax operating earnings of $191 million, a 29% year-over-year increase.

Speaker #2: This was driven by favorable Specialty Benefits underwriting results and improved life mortality. Starting with Specialty Benefits, premium fees increased 4% year over year. We continue to expect growth to increase in the second half of the year, and the acquisition of Beam Benefits will provide an additional uplift upon close.

Speaker #2: Record pre-tax operating earnings of $162 million, up 29% year over year, reflect more favorable underwriting experience and business growth. The Specialty Benefits loss ratio of 57.4% improved 280 basis points compared to the year-ago quarter, with better results across all products.

Speaker #2: This drove improved operating margin of 19%, up 360 basis points year over year and above our target range. In Life Insurance, pre-tax operating earnings of $29 million increased 29% year over year, driven by improved mortality experience.

Speaker #2: This contributed to a 13% operating margin, up 350 basis points year over year, within our target range. Turning to the Corporate segment, losses were elevated due to continued investment in the business.

Speaker #2: We expect to come in at the high end of our targeted range for the full year. To recap, we have delivered 15% EPS growth year to date, demonstrating the strength, resilience, and benefits of our diversified portfolio.

Speaker #2: The strategic actions we are taking this year enable us to focus on higher-growth opportunities. Their agreement to acquire Beam Benefits, the transition of our Hong Kong business to asset management, and the pending sale of our Chile annuity business further optimize our portfolio.

Speaker #2: We remain well-positioned to deliver on our financial targets supported by strong fundamentals, a healthy capital position, and continued focus on our strategic priorities. This concludes our prepared remarks.

Speaker #2: Operator, please open the call for questions.

Speaker #1: At this time, I'd like to remind everyone that to ask a question, please press *11 on your telephone. We'll pause for just a moment to compile the Q&A roster.

Speaker #1: The first question comes from Wes Carmichael from Wells Fargo.

Speaker #3: Hey, good morning. Thank you. My first question is just on the Beam Benefits acquisition. I was just wondering if we could get maybe a little bit more color on the strategic rationale there.

Speaker #3: And I know you said you don't expect any impact on 2026 capital deployment, but is there any impact to 2027?

Speaker #4: Yeah. Thanks, Wes, for the question. I'll have Amy talk about the strategic benefits of beam benefits and Joel talk about how that might impact our plans going forward.

Speaker #5: Yeah, Wes, thanks for the question. So, when I think of BEAM benefits—and again, I'm excited about this—we're not at close yet for this.

Speaker #5: So my ability to talk specifically about some things is going to be a little bit limited. But regarding strategic rationale, when I think about expanding our reach into small and midsize business segment, I get excited about things that allow us to do that.

Speaker #5: So Beam Benefits has some really interesting technologies. They've got some great things they've done with their underwriting and quoting, but what they've also got is a great relationship with 25,000 small business employers, and they have 400,000 members across the U.S.

Speaker #5: And so, when I look at that base, combined with $175 million of premium, I get excited about how that is additive to the whole block.

Speaker #5: What we know in our block is that we do a bunch of activity in what I would consider kind of that micro or small case.

Speaker #5: So when I look at their ability to put efficient effectiveness and efficiency in that micro end and extend that potentially to the full block, I get excited about the potential that will give us four kind of bringing in that full capabilities.

Speaker #5: So, the scale of business they have, the introduction of more footprint into small and midsize business owners, and then that extension of that potential effectiveness into our full block are the strategic rationale pieces that get me excited.

Speaker #3: And then, Wes, as it relates to funding, sitting here in the second quarter with $1.6 billion of excess and available capital, the reality is that our cash flow is typically back-end weighted, so we have more capital flow generation in the latter half of the year.

Speaker #3: And we had the proceeds from the Chile annuity sale that's coming in the latter half of the year as expected. We feel very good about our capital position and ability to deploy capital to our strategic objectives, like Beam Benefits.

Speaker #3: And, as we mentioned in the release earlier this quarter as well, we don't expect any changes to our outlook guidance that relates to earnings, free cash flow, or ROE as well.

Speaker #3: So everything very much intact.

Speaker #4: Wes, do you have a follow-up?

Speaker #3: Got it. I do. Thank you. Just the second one was on VII. It was a pretty good result in the quarter. It's roughly in line with long-term expectations.

Speaker #3: And it's the first quarter in a while where I think that's kind of trended in line. So any color on expectations for the third quarter going forward for VII?

Speaker #4: I'll have Joel take that one.

Speaker #3: Yeah, Wes, very pleased with the result for the quarter. As you said, in line with expectations. And importantly, that was a result of no real estate transactions in the quarter.

Speaker #3: So, for the first half of the year, you know how heavily weighted we are within real estate within our alternative portfolio, which is very unique relative to what you see from others.

Speaker #3: Because we didn't have any real estate transaction activity in the first half of the year. So as we indicated in Outlook, we expected there to be improvement in '26 versus '25, just as we had the year prior.

Speaker #3: And we fully expect that to continue not only for the second quarter of '26, but also for the remaining quarters of '26 as well. Thank you.

Speaker #1: The next question comes from Ryan Kruger from KBW.

Speaker #6: Hey, thanks. Good morning. I guess I'll shift to investment management. You talked about the drivers of the outflows in the quarter, but I was hoping to get a little bit more color on what you're seeing and thinking for the back half of the year-end.

Speaker #6: If you believe the elevated equity outflows are more isolated to the quarter or if there could be some ongoing headwinds there.

Speaker #4: Yeah, thanks, Ryan, for the question. I'll have Kamala address that.

Speaker #7: Sure. Good morning, Ryan. Since you asked about the outflows, let me address that directly, because it was a meaningful number this quarter. The first and most important point is that the impact is concentrated in a couple of U.S. active equity strategies.

Speaker #7: Those strategies make up slightly more than 5% of our firm AUM. So, it's not broad-based across global asset management. A few additional points to help you further with your question.

Speaker #7: This cohort of strategies is deeply affected by the acute and unusual market. That has neither rewarded high-quality companies nor valuation-aware stock picking. I would note for you that these strategies have a very good long-term track record of strong results.

Speaker #7: And they particularly outperform in normal return markets. So based on historical cycles, it would expect this type of environment to normalize over time, but it is very difficult to predict the timing of market turns.

Speaker #7: To your question on this quarter, growth sales in Q2 were also impacted by conflict in the Middle East as many institutional investors delayed mandates and engagements due to headlines and market volatility.

Speaker #7: So with respect to rest of the year, we do anticipate net flows to be somewhat challenged, but I am cautiously optimistic. In one data point, I would leave you on that is that our committed not-funded pipeline has now grown to around $10 billion this quarter.

Speaker #7: That is up from one Q, which is a testament to the diversity of our capabilities and our channel reach.

Speaker #4: Thanks, Ryan. Do you have a follow-up?

Speaker #3: Yeah, just—I think just two really quick related ones. One, I think the fee rate has trended down a bit in Investment Management.

Speaker #3: Do you think we should kind of continue in that lower 28 basis point range and then can you quantify the severance impact this quarter?

Speaker #4: Yeah, I think there were a couple of drivers to that fee rate decline, and again, you can quantify the severance as well.

Speaker #7: Sure. So, Ryan, as you know, our fee rate generally has remained—the core fee rate has remained—generally stable within a band. As you mentioned, this quarter was slightly softer, but generally within that range.

Speaker #7: Partly volatile public markets do create downward pressure given our business mix and outflows do have some impact on it. As we continue to drive growth in private markets and particularly our international emerging local market clients, I do see more stabilization of these rates.

Speaker #7: To drive more sustained growth and operating leverage. With respect to severance, you are right, we had elevated severance across IM and IP of around $7 billion in the quarter.

Speaker #7: And partly that is given that we are always trying to actively manage our expenses to our revenue, to continue to generate the strong margin, and create operating leverage in the business.

Speaker #4: Thanks, Ryan.

Speaker #3: Thank you.

Speaker #1: The next question comes from Wilma Bertis from Raymond James. Wilma, your line may be on mute.

Speaker #5: Hey. Hey, good morning. Could you go into some of the specifics driving lower dental ratios versus prior years, and how we can expect that to evolve?

Speaker #5: Thank you.

Speaker #4: Yeah, I'll ask Amy to address that. It was great to see such strong results, especially in Benefits this quarter, and also very broad-based loss ratio improvement across all of the products.

Speaker #4: And as you know, that team's been very focused on dental, as we've tried to ensure that we continue to focus on profitable growth. But I'll have Amy get into the details.

Speaker #5: Yeah. Wilma, thanks. So when I think of dental and Deanna, Deanna definitely hit the right point at the beginning, which is we have intentionally been taking a lot of efforts against our dental portfolio.

Speaker #5: It's a product, just as a quick reminder, it's a product that definitely has a lot of inflationary and cost inflation sits on top of that.

Speaker #5: It's also a product that when you're utilization or severity begins to kind of move differently on you, you can you have the ability to kind of change that pricing.

Speaker #5: But one of the things that really underpins that is if you have the ability to impact some of that dental network. So, I'm going to go first to some of the pieces we've done on that dental network optimization.

Speaker #5: We know that as the dental network ownership structure maybe even private equity, some other things entering into some of that ownership structure, the ability to stay really current on understanding how the providers are utilizing that network and where we're seeing more of our members utilize which services being able to line up those schedules and do that in a way that's very dynamic is really paying off for our owned dental network.

Speaker #5: What I'd also point to is when I think of dental investment, I also put the announcement of the acquisition we did in first quarter, that Dentinette acquisition as an investment in that.

Speaker #5: That's going to have a little bit of regional impact, but in Alabama, it brought us 1,500 providers in network. It's the largest network in the state.

Speaker #5: And that gives us the ability to serve our customers even better in those states and to impact the claims costs that they're feeling on those visits to the dentist.

Speaker #5: So those investments in dental network are also paying off on a regional basis. We're also making sure that the pricing changes we made in the past are persisting through our block.

Speaker #5: So all of those changes that we've made investments in dental network, optimizing that network, and also doing the things that we need to do for our pricing changes are making it so when I look at the second half of the year, my assumption is that loss ratio, not just from a seasonality basis, but from the intentional impacts we've been taking on that will continue to go down.

Speaker #4: Thanks, Wilma. Do you have a follow-up?

Speaker #5: Yes, thank you. How could we expect the Beam acquisition to improve the existing business, and where will we see the biggest impacts? Thank you.

Speaker #4: Yeah. I'll again turn that back over to Amy.

Speaker #5: Yeah, so I feel like I always need to start with this: we are not closed on that acquisition announcement yet, and so I’m somewhat limited in what I can offer.

Speaker #5: But I would say, here's how I'm thinking about it. I'm thinking about being benefits. I went through the strategic rationale in the question that was asked earlier.

Speaker #5: I do think when we think of both revenue and expense synergies, there are things in both categories. So, I'll give you a quick example.

Speaker #5: Beam currently leases their dental network today, so we would expect, from an expense synergy standpoint—and a fairly immediate one—to remove some of those leased network costs.

Speaker #5: Additionally, they've got a quoting and acquisition front end in that small micro market that, as I mentioned before, is really efficient but also really effective.

Speaker #5: And I would expect we could bring those capabilities across our broader small case market block. So, again, taking them across our broader market block means 10 times the power that they're currently able to put against their own block.

Speaker #5: So bringing them across the bottom block would free up capability to win more business for us even slightly up market because we aren't spending as much time and attention kind of doing those things down market.

Speaker #5: So, I would expect some of those results to certainly come through on premium and fee growth. I would also expect those results to come through in some of the efficiency we think we can drive against our expense ratio.

Speaker #4: Yeah. Wilma, just a few follow-up comments to that. As Amy said, we're very excited about this acquisition. It's a very strong company in the SMB benefits space in and of itself.

Speaker #4: And it'll really complement our strong performance that we've had in that business over decades. I think you know and we've said it a lot, we have a high bar for M&A.

Speaker #4: Every target has to have strong strategic fit, be financially accretive, and have very strong cultural alignment. And Beam definitely meets all of these criteria, and we're very excited about having them join Principal.

Speaker #5: Thank you very much.

Speaker #2: The next question comes from Joel Hurwitz from Dowling & Partners.

Speaker #6: Hey, good morning. Amy, one more for you—sticking with the benefits business. Can you just unpack what you saw on some of your other group businesses, with the life and disability results continuing to run very favorably?

Speaker #4: Yeah. I'll have Amy talk about that and really talk about the drivers this quarter, but also how she's kind of thinking about both sustainability of loss ratio earnings on a go forward basis.

Speaker #5: Yeah. Joel, so when I think about that, underwriting performance, it really was across all the lines of business. So that improved performance, the performance of 57.4 was across all our product groupings.

Speaker #5: Probably the more notable ones are the ones that we want to dig into a little bit more are dental disability and life. You heard some comments just on dental, but dental results were improved and continue to be attributable to that dental network optimization efforts as well as past pricing actions.

Speaker #5: I have noted that dental seasonality is probably present a little bit in the second quarter, and we did see that tick up just a little bit in Q2 as we expected.

Speaker #5: Again, it wasn't as marked as we saw in last year's second quarter, but we did see that, and that was something that we had anticipated.

Speaker #5: Disability was really driven by lower incidence, and that's across all disability lines. I should note there that recoveries for group LTD were right in line with expectations.

Speaker #5: So this was an incidents-driven overperformance, not really a recoveries or severity-driven overperformance. Group life and again, we sometimes don't talk as much about group life, but again, group life continues to perform well.

Speaker #5: And that was driven by lower frequency as well. So the full-year outlook remains favorable, and I do want to mention that I now expect loss ratios to emerge below the low end of the guidance range for the full year.

Speaker #5: When I deconstruct that more towards the second half, we've talked a little bit about dental loss ratios continuing to trend down given those past pricing actions, network optimization as well as normal second half seasonality.

Speaker #5: I don't expect disability loss ratios to improve further from first half results. And I do think it's appropriate to expect some upward movement in products like group LTD from the first half, but certainly not back to historical levels.

Speaker #5: I think it's worth noting that wage growth, which is an important factor for a product like disability, is positive and it's holding steady in our block. Employment growth is also positive and tracking to our expectations as well.

Speaker #5: So when I summarize all that, I'm really pleased with our underwriting performance across SBD. I think the way we run our business with consistent underwriting discipline, balanced with an eye toward growth, has really been on display.

Speaker #5: This first half of the year, I'd reiterate then that I expect full year underwriting results for SBD in total to emerge below the end of the range on that 60 to 64% that was communicated in Outlook.

Speaker #5: And we do expect dental underwriting results to improve that second half driven by both seasonality and network optimization.

Speaker #4: Thanks, Joel. Next question, or a follow-up?

Speaker #6: Great, yeah, thank you for that. That was very helpful. And Deanna, maybe just going back to M&A, wanted to get your thoughts on potential further M&A for Principal right there.

Speaker #6: There were some media reports out earlier this month suggesting interest in larger scale deals. Just your thoughts on whether it's further M&A and retirement to asset management or benefits.

Speaker #4: Yeah, I'll start with just a boilerplate answer, which is: we don't comment on market rumors. What I would say is that, as many of you have heard me talk about before, our M&A philosophy has not changed, and we have a very high bar for any transaction.

Speaker #4: We're not going to shy away from pursuing M&A. You saw that with Beam, but any transaction has to be a financial, strategic, and cultural fit.

Speaker #4: And we view M&A more as an opportunistic accelerator than a requirement, with organic growth being our primary path to achieving our objectives. I'd also say we're not interested in doing deals solely for scale, especially ones that would require a premium paid to transact.

Speaker #4: And ultimately, we're really looking for transactions that bring us new strategic capabilities that really can be scaled across the overall enterprise. I think I'll come back to Benefits as a really good example of that.

Speaker #4: It added capabilities. It strengthened our SMB value proposition. And those are the types of things that we'll be focused on as we go forward.

Speaker #6: Makes sense. Thank you.

Speaker #2: The next question comes from Pablo Singson from JP Morgan.

Speaker #7: Hi, good morning. In the retirement business, there are structural reasons why I think flows will have a negative bias, right? So, if you think about caps and contributions and large balances that are available for withdrawal. But I guess if you think about other metrics, such as plan counts and number of active participants, how have those measures been trending for Principal?

Speaker #4: Yeah. I'll ask Chris to address that.

Speaker #3: Yeah. Good morning, Pablo. Thanks for the question. Yeah. If you just look at sort of participant growth, we've shown consistent participant growth over the last several quarters.

Speaker #3: So we are seeing positive trends. In participant growth, participants with account values, we've seen deferrals rising. And on top of that, we see really strong retention.

Speaker #3: So all of those underlying fundamentals in the business are really strong. On plan counts also, we see really good growth. We have the emphasized a bit the micro market.

Speaker #3: So that has a lot of plan count, but also comes with a little less economics. And so we've really focused on those areas and those plans that give us greater assets, greater opportunities to look at investment mandates and the like.

Speaker #3: And so we have trended a little bit up. So you would see our plan counts staying flat to maybe slightly down, but participants deferrals up, retention very high, transfer deposits and new sale wins also very strong over the past several quarters.

Speaker #4: Yeah, Pablo, I think if you look across, our retirement fundamentals remain strong across the things that we're focused on. We've talked about how market increases do have a negative impact on flows, but a positive impact on revenue and earnings.

Speaker #4: And ultimately, Chris and his team continue to do a great job, focused on, again, strong fundamentals and driving revenue growth. So, do you have a follow-up question?

Speaker #7: Yes, I do. Thank you. So my follow-up is for Amy just on group benefits. So I think principal is not unique in that most of other group insurers have experienced good results as well.

Speaker #7: In their line. So I was wondering have the good results affected the competitive environment in any way? Are you seeing other companies or start to bring down prices to filter in these very good margins that they're experiencing?

Speaker #7: Thank you.

Speaker #4: Yeah, I'll have Amy talk about that, but I do think you have to remember two things that are different about our block of business.

Speaker #4: One is the SMB focus, and one is the portfolio of premiums, where dental continues to have a significant impact on our overall bundle. But, Amy, if you'll talk about the competitive nature.

Speaker #5: Yeah, I'll answer kind of just broadly about the competitive environment that I'm seeing, and then I'll dig down into our block just a little bit more.

Speaker #5: General competitive environment—I think we had commented a few times in past calls, and this was probably more last year and maybe even the prior year—that we were seeing some pricing in dental that we just simply didn't want to participate in.

Speaker #5: We didn't think it would give us the profitability that we needed. We were willing to say, we'll slow growth down a little bit so that we can get the type of underwriting results.

Speaker #5: We think, really, drive and build a great business. I point back to—we feel like that trade-off was definitely the right one to make.

Speaker #5: Now, we are continuing to see more opportunities to write business at rates that make sense. Here’s one of the things I’ll start blending in, though—our block of business.

Speaker #5: And Deanna mentioned this in one of her opening comments, and I think it's worth us coming back to. One of the opening comments Deanna made was that our average employer relationships across our whole benefits block is continuing to grow.

Speaker #5: So that's nearly at 3.2 products today. So that means a product, and again, there's a lot of people who want to sort of dissect with me what's going on with disability, what's going on with dental, what's going on with the specific product.

Speaker #5: But when I look at a product like disability for us, it's rarely standalone. In fact, over 95% of our disability premium is going to be tied to another product.

Speaker #5: So that means when we look at admin, servicing, product designs, and pricing, we do that all, whether it's new case or renewal, it's designed with that multiple product in mind.

Speaker #5: And I bring that up because I do think the pricing flexibility, the product design flexibility, and even some of the administrative flexibility that this gives us across that bundle simply isn't present for some of our competitors.

Speaker #5: So in the end, when we end up winning in that small- to mid-sized space, it's often because that bundle is outperforming, and that bundle is giving us the ability to have the flexibility that we need in that marketplace.

Speaker #5: So product by product, yes, we do see some competitiveness. We see some pockets where we wouldn't participate in that pricing, but for our market position, which is relatively unique in that small and mid-sized case, with that bundle, we see that we're getting the types of rates and pricing that we need to drive the type of growth we think makes great sense for this business.

Speaker #7: Thanks, Amy.

Speaker #4: Pablo. Next question.

Speaker #7: The next question comes from Suneet Kamath. From Jeffrey's.

Speaker #6: Thanks. Good morning. I wanted to go back to Beam for a second. Deanna, I think in the past you've talked about an M&A budget of 0 to 10% of net income.

Speaker #6: That would probably put you somewhere in the $150 to $200 million is Beam in line with that range or is it bigger? And if it's bigger, does it mean that you're sort of out of the M&A game for a while?

Speaker #5: Yeah. I think when

Speaker #4: I've talked about that in the past, Suneet, and first of all, thank you for the question. I have talked about how we will dedicate 0 to 10% of our annual free cash flow toward M&A, but I've also talked about that one of the reasons that we keep our leverage ratio at such a low level is that will also give us additional flexibility.

Speaker #4: And so again, we will continue to be inquisitive around M&A activities. Ultimately, it's the combination of both of those, as well as things like the proceeds from divestitures as well, that we will continue to look to deploy both organically and inorganically as we continue to focus on driving long-term shareholder value.

Speaker #6: Okay, got it. And then I guess you had mentioned earlier the scale deal, or not doing exclusively a scale deal, but when we think about the defined contribution business, how do you think about scale?

Speaker #6: I've heard it expressed in terms of AUM. I've heard it expressed in terms of participant headcount. Just curious, kind of where you think companies need to be to have scale, and how you think technology advancements could influence that.

Speaker #6: Thanks.

Speaker #4: Yeah, I'll have Chris address that. Obviously, there's not one science definition of scale, and it really goes into the ability to compete, as well as the ability to continue investing in your platform. The great news is I feel that we have the scale needed in our retirement business to compete, but I'll have Chris add to that as well.

Speaker #3: Yeah. Thanks for the question. Yeah. I think Deanna, handled it. I think when we look at scale, we look at multiple measures of scale.

Speaker #3: We think the most important right now is the number of participants that you serve because that's where we believe the future value will accrete from.

Speaker #3: And so that's kind of how we think about scale at $14 million Americans covered by the plans that we serve. We feel like we're at scale.

Speaker #3: That doesn't mean that we won't look to get scale, but as I've mentioned on past calls, we already see a lot of the consolidation happening.

Speaker #3: It may not be as inorganic active as active inorganically as it has been in the past, but it's definitely happening organically. And the plans and the participants are moving to the larger scale players like us as top three in participant count in the 401(k) space to be able to serve their needs invest in platform and be able to provide them the solutions that they need to get to and through their retirement.

Speaker #3: And so, we feel very well positioned given where we're at. We look at multiple measures, but we probably lean a little more heavily toward participant, because we believe that's where future value will derive.

Speaker #4: Thanks, Suneet, for your questions.

Speaker #6: Yep. Thank you.

Speaker #7: The next question comes from Josh Shanker from Bank of America.

Speaker #2: Yes. Thank you for taking my question. I appreciate it. I guess Kamal, again, I just want to follow up a little more with Ryan's questions about the outflows in the equity strategies.

Speaker #2: Over the past quarter-day period, quality has been back in favor, although maybe it's just factor trading with semis down—or who knows the reasons why—but factor trading seems to be a key positioning for a lot of investors.

Speaker #2: A, is a return of this kind of stocks that you own and specialize in going to be a benefit, such that we should see inflows in the quarter?

Speaker #2: Or, B, is this factor trading sort of experience going to be a weight on flows for the foreseeable future?

Speaker #3: Yeah, good morning, Josh. Sorry about that. Yeah, it's a great question. So let me start with part A first, which was spot on, which is how you highlighted this market has been highly unusual and abnormal—particularly, you highlighted the quality abnormality in the marketplace.

Speaker #3: One statistic, just to further highlight that within our book, we have observed that over the last year, dispersion has worsened substantially. In fact, when you look at U.S. companies, the highest quality companies, for the period ending 6/30, returned 4%, whereas the lowest quality companies returned 70%.

Speaker #3: So to your question, there could be some longer-term statistical aberration, but that gap is too large and it has to normalize over a period of time.

Speaker #3: And as that gap normalizes, clearly it will benefit our style of investing. Even though this is early to see in 3Q for the month of July, as those factors have reversed, our performance has become quite strong for that short period.

Speaker #3: So I do think the market is going to normalize, and we will benefit from it. And longer term, when these momentum trades reverse and a certain style of investing, like our quality style of investing, comes back in vogue, flows do follow.

Speaker #3: They do take time. To your second-order question, which is a good one, what has changed in the marketplace is a lot of new products, particularly very niche ETFs, do exploit these anomalies more than historically have been exploited.

Speaker #3: So, the market has changed over time, where particularly retail investors can get access to these float trends, and it could persist longer than you'd like.

Speaker #3: In fact, over the last 12 to 18 months, that's been one of the reasons why the abnormality has persisted longer than we would have liked.

Speaker #3: So, hopefully that answers your question, Josh.

Speaker #2: Yeah, yeah. Let's presume that one year from today, the performance is outstanding because the styles that you guys specialize in are in vogue. Is that going to take time to turn the train?

Speaker #2: Do we still expect in Q3 '26, maybe Q4 '26, that the muscle memory of how people have been behaving for the last couple of years is a drag on flows, or at this point in time, is it really quarter to quarter?

Speaker #3: Well, first, predicting the timing of a marketing turn is very difficult. I would also highlight for you that predicting an immediate flow reversal, or even predicting it over the next six months, would not be prudent.

Speaker #3: I could, however, point you to what I see with client behavior. One behavior I would highlight for you is in our retail book, where we have a lot of shareholders who have been owners of these strategies. There is a subset of clients that continues to add new money to the strategy, that believes in the process, and looks at dislocations.

Speaker #3: So I would say it does take time. It's very difficult to predict timing, but there is a certain subset of clients that keeps on adding money to these strategies.

Speaker #3: So it will take longer compared to the past.

Speaker #4: Thanks, Josh, for your questions.

Speaker #7: The next question comes from Mike Ward from UBS.

Speaker #2: Thanks, guys. Good morning. Just back to benefits—definitely a solid result there. And it sounds like you guys expect to get seasonally better in the back half.

Speaker #2: But I'm wondering, you were favorable in Q2. So if we think about kind of like a normal year, I'm just wondering if you could kind of help quantify how this result compared to kind of a normal quarter?

Speaker #4: And you cut out a little bit, Mike. Was that specific to dental or more broader across specialty benefits?

Speaker #2: Well, I guess both would be very helpful, but it was benefits mainly.

Speaker #4: Yeah. I'll have Amy talk about that from an earnings perspective. Obviously, every quarter you're going to have some positive outliers and some places where you have pressure.

Speaker #4: I think the great news is especially benefits had a phenomenon quarter. And I think ultimately there's pieces of that that we feel will continue to benefit us going forward.

Speaker #4: But I'll have Amy go a little bit deeper on her outlook for earnings as we go forward.

Speaker #5: Yeah. So I'm probably going to head up to the top of the question, which is sort of getting after the spirit of the sustainability of earnings in total.

Speaker #5: And so, we have to start with the underwriting results, because those underwriting results are clearly what's been driving that performance. So, I'm really pleased with those under—.

Speaker #5: Underwriting results. And what I've said is we want to sustain those where it makes sense. I've given a little bit of color earlier on the call to some of those answers in terms of what I think will happen with dental. With dental, I do think we see that second-half seasonality, which tends to be better.

Speaker #5: We tend to improve that from the first half of the year. And then our intentional efforts that we've been taking with past pricing actions and network investments and improvements should continue to pay off.

Speaker #5: So, I'd say first, we do expect dental underwriting results to continue to improve in the second half of the year, and that will be helpful in terms of that earnings emergence.

Speaker #5: I'd also say that we do expect total premium and growth to accelerate in the second half of the year, so I don't think we've really addressed that at this point.

Speaker #5: So that second half of the year should look like better premium and fee growth than we have seen in the first half of the year.

Speaker #5: And again, this isn't just driven by new sales, persistency plays a role in that, but there's also been a build going on for us behind the scenes about capabilities on things like building capabilities to improve participation for our voluntary products.

Speaker #5: Those are also adding in an organic way to our premium and base. And that's a boost, then, obviously, for earnings growth as well. The third thing is we've talked a bit on this call about some of the acquisitions.

Speaker #5: Historically, our story has been nearly purely organic. We've added a little inorganic dimension to that, and that should help us in terms of our future growth prospects.

Speaker #5: And then finally, I'd kind of come back to the goal of this whole business. It's not just to have great underwriting results—we'll certainly take them when those emerge—but it's really to make sure we balance profit and growth.

Speaker #5: We deliver to the customers—the things that protect those small and growing businesses and ultimately then also help us drive that earnings growth. So our current underwriting results put us in what I think is a really enviable position to consider some pricing decreases over time, returning some of those back to our customers to help the customers grow, but then also helping our price competitiveness so that we grow.

Speaker #5: Our intention is to keep that SBD growth engine going strong over time, and to continue seeing that build from earnings growth.

Speaker #4: Hey, Mike, the other thing I would mention—and Amy answered this earlier in the call—is that the driver across all of the loss ratios in the quarter was really incidence and frequency, rather than severity.

Speaker #4: Severity tends to be lumpy. And can be more quickly returned to the norm, whereas incidence and frequency-driven underwriting results tend to last longer because it shows a trend across your entire block of business.

Speaker #4: So that'd be the other point I'd make there as well. Do you have a follow-up question?

Speaker #2: Thanks, Deanna. That was very comprehensive. I was hoping to ask Kamal just about the environment, including in fixed income, and across the business, frankly.

Speaker #2: But is there a dynamic where there's just so much new money going into AI and data center build-outs, where you guys participate but maybe in a more measured way?

Speaker #2: How frothy is that market, that asset class?

Speaker #4: Yeah, and I do think that question gets to a broader discussion on how he feels about the entire platform that he has. I think there are some great strengths both on the private side as well as fixed income.

Speaker #4: But Kamal, I'll have you add.

Speaker #3: Sure. Good morning, Mike. Great question. So you had two-part question. One was just our fixed income book and how do I feel about that.

Speaker #3: And then the second part is a little bit more in the private market area related to data centers. So let me start with the fixed income business we have.

Speaker #3: I actually feel quite good about it. There are a couple of reasons for that. Earlier in the call, there were questions on how our investment performance is doing.

Speaker #3: And our investment performance in fixed income continues to improve. Particularly when I look at our client engagement in areas like high yield credit, our ETF business is benefiting from them.

Speaker #3: Internationally, we have done quite well with emerging market debt, so that's allowed us to scale up. And in the US, we have pretty strong, unique credit strategies.

Speaker #3: Deanna also mentioned we continue to innovate. She mentioned earlier in our comments that we recently launched a unique set of innovative fixed income ETFs. So, I do think our fixed income business on the public side continues to scale up and, over time, will contribute more to our earnings power.

Speaker #3: And our growth power. The data center question is a good one. So, first, right off the bat, you know our focus in the AI data center space is pretty much as a real estate equity investor.

Speaker #3: We don't generally tend to participate on the private credit side of that equation, where there have been more concerns recently regarding the size of deals being done and the risks involved there. My view is that even on the real estate equity side, particularly on the data center side, it is becoming more nuanced.

Speaker #3: One of the key things is the business has moved away from being less about technology and more about being real estate. You have heard noise around the challenges of acquiring properties, getting power access, and the challenges of working through the regulatory environment.

Speaker #3: My view is that the winners in this space will require real estate negotiation skills. It will be lumpy, but that's going to be key in the space.

Speaker #3: So from my side, I think we are on the right side of how that plays out—where the value creation would happen—and we also tend to generally focus on the small to mid-market size of those deals, which I do think stay under the radar. That allows us to create returns and value for our shareholders.

Speaker #4: Thanks, Mike, for the questions.

Speaker #2: Thank you.

Speaker #1: Our final question comes from Alex Scott, from Barclays.

Speaker #5: Hey, thanks for putting me in. I wanted to ask a higher-level one about expense margins as we head into the back half of the year.

Speaker #5: I know some of your businesses, I think, tend to generate a little bit better margin in the back half of the year. And how will you approach the trade-off between investing in the business and letting it flow through to earnings?

Speaker #5: And I ask this just because there's a fair amount of tech spend that's being contemplated out there, probably. And you also have the benefit of markets that you're back in, in some of your businesses too.

Speaker #5: So, just any thoughts on how you'll approach that at a high level?

Speaker #4: Yeah, I'll make a couple of comments and then have Joel add on. I think if you've looked at us and followed us for years, you know that we have a proven track record of aligning expenses with revenue.

Speaker #4: And ultimately still making investments in the business because we need to make sure that we're driving those capabilities that will drive sustained long-term growth by even look at the last year with only 2% increase in expenses.

Speaker #4: And knowing the investments that we're making across AI, across technology, across driving enhanced capabilities—and again, that's relative to a 5% increase in revenue.

Speaker #4: We're going to continue to have that discipline, but also not shrink ourselves to greatness; make sure that we're investing in growth. And I think the other thing I'd mention is, as Kamal mentioned, when we do see a business that has some more revenue headwinds, that business will lean even further into how do they make sure that they're aligning expenses with the revenue outlook as well.

Speaker #4: But I'll see if Joel has any additional comments.

Speaker #5: Yeah. Alex, the only thing I'll add is that we have the privilege of being at scale within all of our businesses. We're well positioned in the markets we're in.

Speaker #5: We're very differentiated. We know how to compete and where to compete, which allows us to be very effective in that regard. And you've heard us say—and Deanna said it before—we're going to meaningfully save so we can meaningfully invest.

Speaker #5: And so, again, the reality that we need to invest in our business isn't going to be an excuse not to hit our numbers. We're going to continue to make sure we extract savings where we can and should, so we can make those meaningful investments to position our company for not only short-term, but also long-term success.

Speaker #5: Thanks for all that. I appreciate it.

Speaker #4: Yeah. A follow-up?

Speaker #5: Yeah, quick follow-up. On investment management, I just noticed the Morningstar data that you guys provide in your deck—the 10-year equity performance declined a bit more meaningfully.

Speaker #5: And I assume it probably just has to do with something rolling off, but it was a pretty big move. I just wanted to understand, what kind of impact does that specifically have?

Speaker #5: Is that a metric? Is that a metric that people focus on? And could there be a tail to the outflows just associated with some of those metrics getting a little worse?

Speaker #4: Yeah, I'll have Kamal address that.

Speaker #3: Yeah, good morning. So the 10-year number is important. I would argue that it's way more important on the alpha side, given that's what institutions focus on.

Speaker #3: The Morningstar metrics are important, but probably the 3- and 5-year numbers are more important metrics in that regard. You rightly observed that some of the equity performance has deteriorated on the Morningstar 10-year number.

Speaker #3: I explained earlier that a lot of it is driven by our style of investing, which, clearly, given the normal market, the recent returns have suffered given the market conditions.

Speaker #3: And that obviously rolls into the 10-year number. One of the things I will highlight for one of the strategies—one of our larger strategies—the 10-year number, even on Morningstar, is still very strong.

Speaker #3: And my view of this is, for our larger AUM strategies, where their 10-year number stands and if they are of institutional interest, how they are performing.

Speaker #3: So I feel good from an alpha perspective on those strategies. But certainly, monitoring the Morningstar numbers is important for us. It's important for our retirement clients as well.

Speaker #3: So we continue to stay focused on it.

Speaker #5: Got it. Thank you.

Speaker #1: We've reached the end of our Q&A. Mr. Abel, your closing comments, please.

Speaker #4: Thank you. As we close today's call, I want to thank all of you for your time and questions. As you look at our second quarter results, they reflect disciplined execution, the strength of our strategy, and value from the diversification of our businesses.

Speaker #4: We are driving sustainable growth with balanced contributions across revenue growth, margin expansion, and impact of capital deployment. In addition, the actions were taken to sharpen our portfolio alongside momentum, a healthy capital position, and strong fundamentals.

Speaker #4: This positions us well to deliver on our targets and create long-term value for shareholders. We look forward to connecting with many of you in the months ahead.

Speaker #4: Thank you again for your time, and have a great day.

Speaker #1: Good morning. And welcome to the Principal Financial Group's second quarter 2026 financial results conference call. There will be a question-and-answer period after the speakers have completed their prepared remarks.

Operator: Good morning. Welcome to the Principal Financial Group Q2 2026 Financial Results Conference Call. There will be a question and answer period after the speakers have completed their prepared remarks. To ask a question during the session, you'll need to press star one one on your telephone. To withdraw your question, please press star one one again. We would ask that you be respectful of others and limit your questions to one and a follow-up so 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 and FP&A.

Speaker #1: To ask a question during the session, you'll need to press star, 1, 1 on your telephone. To withdraw your question, please press star, 1, 1 again.

Speaker #1: We would ask that you be respectful of others and limit your questions to one and to follow up so we can get to everyone in the queue.

Speaker #1: I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations and FP&A.

Speaker #2: Thank you and good morning. Welcome to Principal Financial Group's second quarter 2026 earnings conference call. As always, materials related to today's call are available on our website at investors.principal.com.

Humphrey Lee: Thank you. Good morning. Welcome to Principal Financial Group's Q2 2026 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 Deanna Strable and CFO Joel Pitz will deliver prepared remarks. We will then open the call for questions. Members of senior management are also 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. 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 US Securities and Exchange Commission.

Humphrey Lee: Thank you and good morning. Welcome to Principal Financial Group's Q2 2026 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 Deanna Strable and CFO Joel Pitz will deliver prepared remarks. We will then open the call for questions. Members of senior management are also 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. 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 US Securities and Exchange Commission.

Speaker #2: Following a reading of the Safe Harbor provision, CEO Deanna Strabl and CFO Joel Pitz will deliver prepared remarks. We will then open the call for questions.

Humphrey Lee: Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable US GAAP financial measures may be found in our earnings release, financial supplements, and slide presentation. Deanna?

Speaker #2: GAAP financial measures may be found in our earnings release, financial supplements, and slide presentation. Deanna,.

Speaker #1: Thanks, Humphrey, and good morning to everyone on the call. This morning, I'll cover our second quarter performance, the progress we're making against our strategic priorities, and updates on our business portfolio.

Deanna Strable: Thanks, Humphrey. Good morning to everyone on the call. This morning I'll cover our Q2 performance, the progress we're making against our strategic priorities, and updates on our business portfolio. Joel will then provide additional details on our financial results and capital position. Turning to slide two, we delivered another strong quarter, demonstrating the earnings power of our diversified business model and continued execution across the enterprise. Adjusted non-GAAP earnings per share increased 17% year-over-year and 15% on a year-to-date basis, both above the high end of our target range. This was supported by strong enterprise earnings growth of 13% with 6% net revenue growth and 200 basis points of margin expansion. Earnings growth was primarily driven by favorable underwriting results and improved mortality within our Benefits and Protection business, strong RIS fundamentals, and positive market conditions for our fee-based businesses.

Speaker #1: Joel will then provide additional details on our financial results and capital position. Turning to slide 2, we delivered another strong quarter. Demonstrating the earnings power of our diversified business model, and continued execution across the enterprise.

Speaker #1: Adjusted non-GAAP earnings per share increased 17% year over year and 15% on a year-to-date basis, both above the high end of our target range.

Speaker #1: This was supported by strong enterprise earnings growth of 13% with 6% net revenue growth and 200 basis points of margin expansion. Earnings growth was primarily driven by favorable underwriting results and improved mortality within our benefits and protection business, strong RIS fundamentals, and positive market conditions for our fee-based businesses.

Speaker #1: This more than offset the revenue impact from investment management net cash flow. We are delivering on our capital deployment plans, and the second quarter we returned nearly $430 million of capital to shareholders, including $250 million in share repurchases and nearly $180 million in common stock dividends.

Deanna Strable: This more than offset the revenue impact from investment management net cash flow. We are delivering on our capital deployment plans. In Q2, we returned nearly $430 million of capital to shareholders, including $250 million in share repurchases and nearly $180 million in common stock dividends. This brought our total capital return to shareholders to $800 million through H1, with $450 million of share repurchases and $350 million of common stock dividends. In addition, we raised our common stock dividend for the 13th consecutive quarter, an 8% increase on both a quarterly and trailing 12-month basis. Moving to slide three, our strategic priorities continue to drive sustained growth across the enterprise.

Deanna Strable: We strengthened our leadership in retirement, advanced our position in the small and mid-sized business segment, and continue to leverage the scale of our global asset management platform to meet evolving client needs. Within the retirement ecosystem, which includes recordkeeping, asset management, income solutions, and advice, we're seeing strong momentum across the platform. Transfer deposits increased 30% year-over-year. Recurring deposits increased 6%, and participant engagement remains healthy, with growth in both plan participation and average contributions. Our customers continue to consolidate retirement savings onto our platform, resulting in $1.7 billion of roll-ins during the quarter and more than $7 billion over the trailing 12 months, both up nearly 20%. We are further expanding capabilities across the retirement ecosystem.

Speaker #1: Within the retirement ecosystem, which includes record-keeping, asset management, income solutions and advice, we're seeing strong momentum across the 30% year over year, recurring deposits increased 6%, and participant engagement remains healthy, with growth in both planned participation and average contributions.

Speaker #1: We are further expanding capabilities across the retirement ecosystem. During the quarter, we broadened our retirement income offering through new lifetime income builder CITs, helping participants move seamlessly from saving for retirement to generating dependable income in retirement.

Deanna Strable: During the quarter, we broadened our retirement income offering through new lifetime income builder CITs, helping participants move seamlessly from saving for retirement to generating dependable income in retirement. This reflects our focus on delivering solutions that support plan participants across the key stages of their financial lives. Our retirement investment expertise continues to gain traction with third-party platforms, reflected in DCIO sales of $2 billion in the quarter and nearly $8 billion over the trailing 12 months. Finally, we had $500 million of PRT sales in the quarter after a slow start to the year for the industry. For the small and mid-sized business segment, our differentiated capabilities and deep expertise continue to drive results across retirement and benefits. In retirement, the SMB market remains a key contributor to growth. Transfer deposits grew 16% over the trailing 12 months, reflecting continued strength in client activity and long-term momentum.

Speaker #1: This reflects our focus on delivering solutions that support planned participants across the key stages of their financial lives. Our retirement investment expertise continues to gain traction with third-party platforms, reflected in DCIO sales of $2 billion in the quarter and nearly $8 billion over the trailing 12 months.

Speaker #1: Finally, we had $500 million of PRT sales in the quarter, after a slow start to the year for the industry. For the small and midsize business segment, our differentiated capabilities and deep expertise continue to drive results across retirement and benefits.

Speaker #1: Recurring deposits increased 6% on both a year-over-year and trailing 12-month basis, demonstrating growth in ongoing contributions from both employers and employees. In benefits and protection, our SMB segment continues to deliver growth and deepen customer relationships.

Deanna Strable: Recurring deposits increased 6% on both a year-over-year and trailing 12-month basis, demonstrating growth in ongoing contributions from both employers and employees. In benefits and protection, our SMB segment continues to deliver growth and deepen customer relationships. Specialty benefit sales increased 11% year-over-year, reflecting continued demand for our solutions and strong new business momentum. We are building on that momentum by deepening relationships with existing clients, with products per customer increasing steadily in the last several years, moving from 2.9 three years ago to nearly 3.2 today. Turning to Global Asset Management, I'd like to briefly address net cash flow before moving to key highlights. We had total company net outflows of approximately $11 billion in the quarter, concentrated in a small number of US active equity strategies, which are experiencing acute headwinds in an unusual market environment, despite having extraordinary performance for many years.

Speaker #1: Specialty benefit sales increased 11% year over year, reflecting continued demand for our solutions and strong new business momentum. We are building on that momentum by deepening relationships with existing clients, with products per customer increasing steadily in the last several years, moving from $2.9 three years ago to nearly $3.2 today.

Speaker #1: Turning to global asset management, I'd like to briefly address net cash flow before moving to key highlights. We had total company net outflows of approximately $11 billion in the quarter, concentrated in a small number of U.S.

Speaker #1: active equity strategies, which are experiencing acute headwinds in an unusual market environment despite having extraordinary performance for many years. Notwithstanding recent net cash flow, our investment teams have maintained a disciplined approach and have a track record of successfully navigating periods of market dislocation in the past, supported by steady leadership and consistent investment processes.

Deanna Strable: Notwithstanding recent net cash flow, our investment teams have maintained a disciplined approach and have a track record of successfully navigating periods of market dislocation in the past, supported by steady leadership and consistent investment processes. I am encouraged by the underlying momentum across the broader asset management platform, particularly in areas designed to support long-term client needs, including private markets, international, and institutional solutions. Moving to key highlights, investment management growth sales increased 2% year-over-year and 13% on a trailing 12-month basis, supported by client demand for our investment capabilities and the strength of our distribution relationships. Private markets assets under management increased 10% year-over-year, while international pension assets under management increased 18%. Our active ETF business continues to see healthy growth, generating $500 million of net inflows in the quarter and $2 billion over the trailing 12 months.

Speaker #1: During the quarter, we expanded our ETF capabilities with the launch of a new fixed income ETF suite. Broadening access to our investment expertise, and providing clients with more flexible investment solutions aligned to their evolving portfolio needs.

Deanna Strable: During the quarter, we expanded our ETF capabilities with the launch of a new fixed income ETF suite, broadening access to our investment expertise and providing clients with more flexible investment solutions aligned to their evolving portfolio needs. Looking across these three growth drivers, I'm proud of our year-to-date results and our ability to execute. Before I hand it over to Joel, I have a couple of updates related to our business portfolio. Earlier this month, we announced an agreement to acquire Beam Benefits, a digital-first employee benefits company focused on the SMB market. The company has over 25,000 employer customers and generated $175 million of premium in 2025. This acquisition strengthens our position in the SMB segment by expanding our customer reach and adding digital-first distribution capabilities, a powerful complement to our existing benefits platform.

Speaker #1: Earlier this month, we announced an agreement to acquire Beam Benefits. A digital-first employee benefits company focused on the SMB market. The company has over 25,000 employer customers and generated $175 million of premium in 2025.

Speaker #1: This acquisition strengthens our position in the SMB segment by expanding our customer reach, and adding digital-first distribution capabilities, a powerful complement to our existing benefits platform.

Speaker #1: Importantly, the transaction remains aligned with our overall capital framework, with no change to our 2026 capital deployment plan or EPS growth targets. Finally, I'm pleased to share that we have completed the transition of our Hong Kong pension business to BCT.

Deanna Strable: Importantly, the transaction remains aligned with our overall capital framework with no change to our 2026 capital deployment plan or EPS growth targets. Finally, I am pleased to share that we have completed the transition of our Hong Kong pension business to BCT. This move strengthens our focus as a top provider of retirement investment solutions to the region. In closing, we have momentum across the business, supported by disciplined execution and the dedication of our 19,000 employees around the world. We are in a strong position to continue delivering on our financial targets. Joel?

Speaker #1: We are in a strong position to continue delivering on our financial targets. Joel?

Joel Pitz: Thanks, Deanna. Good morning to everyone on the call. This morning, I'll share key highlights of our financial performance for Q2, as well as details on our capital position. Starting on slide four, non-GAAP operating earnings were $547 million, an increase of 12% year-over-year, with earnings per share of $2.50, an increase of 16%. Significant variances, detailed on slide 12, had a positive after-tax impact of $18 million, or $0.08 per share in Q2. Excluding these items, non-GAAP operating earnings were $529 million, up 13% year-over-year, while earnings per share of $2.42 increased 17%, above the high end of our target range. Total company margin of 32% expanded 200 basis points on net revenue growth of 6%. This demonstrates the strength of our underlying businesses while continuing to invest in strategic priorities.

Speaker #2: Starting on slide 4, non-GAAP operating earnings were $547 million, an increase of 12% year over year. With earnings per share of $2.50, an increase of 16%.

Speaker #2: Significant variances, detailed on slide 12, had a positive after-tax impact of $18 million, or $0.08 per share in the second quarter. Excluding these items, non-GAAP operating earnings were $529 million, up 13% year over year, while earnings per share of $2.42, increased 17%, above the high end of our target range.

Speaker #2: Total company margin of 32%, expanded 200 basis points, on net revenue growth of 6%. This demonstrates the strength of our underlying businesses while continuing to invest in strategic priorities.

Speaker #2: Non-GAAP operating ROE, excluding significant variances, was 16.4%, improving 120 basis points year over year. Above the midpoint of our 15 to 17 percent targeted range.

Joel Pitz: Non-GAAP operating ROE, excluding significant variances, was 16.4%, improving 120 basis points year-over-year, above the midpoint of our 15% to 17% targeted range. Net income excluding exit business was $535 million, an increase of 24% year-over-year with minimal credit losses. Turning to capital liquidity, we ended the quarter in a strong position with over $1.6 billion of excess and available capital. This includes $950 million at the holding company, $300 million in our subsidiaries, and $350 million in excess of our targeted 375% risk-based capital ratio, which is approximately 400% at quarter end. In Q2, we returned $427 million to shareholders, including $250 million of share repurchases and $177 million of dividends. This brings year-to-date deployments to $800 million. We remain on track to deliver on our full-year capital deployment target of $1.5 to 1.8 billion.

Speaker #2: Last night, we announced an $84 per share dividend, payable on the third quarter. This is a 2-cent increase from the prior quarter, an 8% higher than a year ago, demonstrating an ongoing commitment to our 40% dividend payout ratio.

Joel Pitz: Last night, we announced a $0.84 per share dividend payable in Q3. This is a $0.02 increase from the prior quarter and 8% higher than a year ago, demonstrating an ongoing commitment to our 40% dividend payout ratio. Total company managed AUM ended the quarter at $808 billion, an increase of 5% from Q1 2026 and 7% from the year-ago quarter. Moving to the businesses, the following excludes significant variances. Turning to RIS, as shown on slide five, pre-tax operating earnings increased 8% year-over-year, supported by 5% net revenue growth and continued expense discipline. Operating margin of 41% expanded 120 basis points compared to the year-ago quarter, slightly above the high end of our target range.

Speaker #2: Total company managed AUM ended the quarter at $808 billion, an increase of 5% from first quarter 2026, and 7% from the year ago quarter.

Speaker #2: Operating margin of 41%, expanded 120 basis points, compared to the year ago quarter. Slightly above the high end of our target range. This reflects our focus on profitable revenue growth, expense management, and strong business fundamentals.

Joel Pitz: As Deanna mentioned, fundamentals across the business remain healthy, highlighted by robust transfer deposits and steady recurring deposit growth. These trends speak to the sustained demand for our solutions and the strength of our customer relationships. Turning to slide six, Principal Asset Management delivered earnings growth of 6% on AUM growth and margin expansion. Within Investment Management, pre-tax operating earnings increased 4% from the prior year quarter. Slightly higher revenue, along with expense discipline, more than offset elevated severance within the quarter. This resulted in a 110 basis point improvement in operating margin. Performance fees were relatively muted in the quarter due to timing. We continue to expect full-year 2026 performance fees to be in line with 2025. Moving to International Pension, pre-tax operating earnings increased 11% year-over-year, driven by favorable foreign currency impacts and growth in the business.

Speaker #2: Turning to slide 6, principal asset management delivered earnings growth of 6%, on AUM growth and margin expansion. Within investment management, pre-tax operating earnings increased 4% from the prior year quarter.

Speaker #2: Slightly higher revenue, along with expense discipline, more than offset elevated severance within the quarter. This resulted in a $110 basis point improvement in operating margin.

Speaker #2: Performance fees were relatively muted in the quarter due to timing, but we continue to expect full-year 2026 performance fees to be in line with 2025.

Joel Pitz: Operating margin improved 50 basis points to over 47%, well within our target range. AUM increased 6% from the prior quarter and 18% year-over-year to a record $169 billion. Turning to slide seven, Benefits and Protection generated strong pre-tax operating earnings of $191 million, a 29% year-over-year increase. This was driven by favorable specialty benefits underwriting results and improved life mortality. Starting with specialty benefits, premium fees increased 4% year-over-year. We continue to expect growth to increase in H2, and the acquisition of Beam Benefits will provide an additional uplift upon close. Record pre-tax operating earnings of $162 million, up 29% year-over-year, reflects more favorable underwriting experience and business growth. The specialty benefits loss ratio of 57.4% improved 280 basis points compared to the year-ago quarter, with better results across all products.

Speaker #2: AUM increased 6% from the prior quarter, and 18% year over year, to a record $169 billion. Turning to slide 7, benefits of protection generated strong pre-tax operating earnings of $191 million, a 29% year over year increase.

Speaker #2: This was driven by favorable specially benefits underwriting results, and improved life mortality. Starting with specially benefits, premium fees increased 4% year over year. We continue to expect growth to increase in the second half of the year, and the acquisition of beam benefits will provide an additional uplift upon close.

Speaker #2: Record pre-tax operating earnings of $162 million, up 29% year over year, reflects more favorable underwriting experience and business growth. The specially benefits loss ratio of 57.4% improved 280 basis points, compared to the year ago quarter, with better results across all products.

Speaker #2: This drove improved operating margin of 19%, up 360 basis points year over year, and above our target range. In life insurance, pre-tax operating earnings of $29 million increased 29% year over year, driven by improved mortality experience.

Joel Pitz: This drove improved operating margin of 19%, up 360 basis points year over year and above our target range. In life insurance, pre-tax operating earnings of $29 million increased 29% year over year, driven by improved mortality experience. This contributed to a 13% operating margin, up 350 basis points year over year, within our target range. Turning to the corporate segment, losses were elevated due to continued investment in the business. We expect to come in at the high end of our targeted range for the full year. To recap, we have delivered 15% EPS growth year to date, demonstrating the strength, resilience, and benefits of our diversified portfolio. The strategic actions we are taking this year enable us to focus on higher growth opportunities.

Speaker #2: This contributed to a 13% operating margin, up 350 basis points year over year, within our target range. Turning to the corporate segment, losses were elevated due to continued investment in the business.

Speaker #2: The strategic actions we are taking this year enable us to focus on higher growth opportunities, their agreement to acquire beam benefits, the transition of our Hong Kong business to asset management, and the pending sale of our Chile annuity business, further optimize our portfolio.

Joel Pitz: The agreement to acquire Beam Benefits, the transition of our Hong Kong business to Principal Asset Management, and the pending sale of our Chile annuity business further optimize our portfolio. We remain well-positioned to deliver on our financial targets, supported by strong fundamentals, a healthy capital position, and continued focus on our strategic priorities. This concludes our prepared remarks. Operator, please open the call for questions.

Speaker #2: We remain well positioned to deliver on our financial targets, supported by strong fundamentals, a healthy capital position, and continued focus on our strategic priorities.

Speaker #2: This concludes our prepared remarks. Operator, please open the call for questions.

Speaker #1: At this time, I'd like to remind everyone that to ask a question, press star 11 on your telephone. We'll pause for just a moment to compile the Q&A roster.

Operator: At this time, I'd like to remind everyone that to ask a question, press star one one on your telephone. We'll pause for just a moment to compile the Q&A roster. The first question comes from Wes Carmichael from Wells Fargo.

Speaker #1: The first question comes from Wes Carmichael, from Wells Fargo.

Speaker #3: Hey, good morning. Thank you. First question was just on the beam benefits acquisition. Just wondering if we can get maybe a little bit more color on the strategic rationale there, and I know you said you don't expect any impact on 2026 capital deployment, but is there any impact to 2027?

Wes Carmichael: Hey, good morning. Thank you. First question was just on the Beam Benefits acquisition. Just wondering if we can get maybe a little bit more color on the strategic rationale there. I know you said you don't expect any impact on 2026 capital deployment, but is there any impact to 2027?

Speaker #4: Yeah. Thanks, Wes, for the question. I'll have Amy talk about the strategic benefits of beam benefits, and Joel talk about how that might impact our plans going forward.

Deanna Strable: Yeah. Thanks, Wes, for the question. I'll have Amy talk about the strategic benefits of Beam Benefits and Joel to talk about how that might impact our plans going forward.

Speaker #5: Yeah. Wes, thanks for the question. So when I think of beam benefits, and again, I'm excited about this, we're not at close yet for this.

Amy Friedrich: Yeah, Wes, thanks for the question. When I think of Beam Benefits, and again, I'm excited about this, we're not at close yet for this, so my ability to talk specifically about some things is going to be a little bit limited. Regarding strategic rationale, when I think about expanding our reach into small and mid-size business segment, I get excited about things that allow us to do that. Beam Benefits has some really interesting technology. They've got some great things they've done with their underwriting and quoting. What they've also got is a great relationship with 25,000 small business employers, and they have 400,000 members across the US. When I look at that base, combined with $175 million of premium, I get excited about how that is additive to the whole block.

Speaker #5: So my ability to talk specifically about something is going to be a little bit limited. But regarding strategic rationale, when I think about expanding our reach into small and mid-sized business segment, I get excited about things that allow us to do that.

Speaker #5: So beam benefits has some really interesting technologies. They've got some great things they've done with their underwriting and quoting. But what they've also got is a great relationship with 25,000 small business employers, and they have 400,000 members across the US.

Speaker #5: And so when I look at that base, combined with 175 million dollars of premium, I get excited about how that is additive to the whole block.

Speaker #5: What we know in our block is that we do a bunch of activity in what I would consider kind of that micro or small case.

Amy Friedrich: What we know in our block is that we do a bunch of activity in what I would consider kind of that micro or small case. When I look at their ability to put effectiveness and efficiency in that micro end and extend that potentially to the full block, I get excited about the potential that will give us for kind of bringing in that full capabilities. The scale of business they have, the introduction of more footprint into small and mid-size business owners, and then that extension of that potential effectiveness into our full block are the strategic rationale pieces that get me excited.

Speaker #5: So when I look at their ability to put efficient, effectiveness, and efficiency in that micro end, and extend that potentially to the full block, I get excited about the potential that will give us four kind of bringing in that full capabilities.

Speaker #5: So the scale of business they have, the introduction of more footprint into small and mid-sized business owners, and then that extension of that potential effectiveness into our full block are the strategic rationale pieces that get me excited.

Speaker #5: Excellent.

Deanna Strable: Joel.

Speaker #3: And then, Wes, as it relates to funding, sitting here in second quarter with $1.6 billion of excess and available capital, the reality is that our cash flows typically back end weighted.

Joel Pitz: Wes, as it relates to funding, sitting here at Q2 with $1.6 billion of excess and available capital, the reality that our cash flow is typically back end weighted, so we have more capital flow generation latter half of the year, and we had the proceeds from the Chile annuity sale that's coming in the latter half of the year as expected. We feel very good about our capital position and ability to deploy capital to our strategic objectives like Beam Benefits. As we mentioned in the release earlier this quarter as well, we don't expect any changes to our outlook guidance as it relates to earnings, free capital flow or ROE as well. Everything very much intact.

Speaker #3: So we have more capital flow generation latter half of the year. And we had the proceeds from the Chile annuity sale that's coming in the latter half of the year, as expected.

Speaker #3: We feel very good about our capital position and ability to deploy capital to our strategic objectives like beam benefits. And as we mentioned in the release earlier this quarter as well, we don't expect any changes to our outlook guidance that relates to earnings, free capital flow, or ROE as well.

Speaker #3: So everything very much intact.

Speaker #4: Wes, do you have a follow-up?

Deanna Strable: Wes, do you have a follow-up?

Wes Carmichael: Got it. I do. Thank you. The second one was on VII. It was a pretty good result in Q2. It's roughly in line with long-term expectations, and it's the first Q2 in a while where I think that's kind of trended in line. Any color on expectations for Q3 or going forward for VII?

Speaker #3: Got it. I do. Thank you. Just the second one was on VII. It was a pretty good result in the quarter. It's roughly in line with long-term expectations.

Speaker #3: And it's the first quarter in a while where I think that's kind of trended in line. So any color on expectations for the third quarter going forward for VII?

Speaker #4: I'll have Joel take that one.

Deanna Strable: I'll have Joel take that one.

Speaker #3: Yeah. Wes, very pleased with the result for the quarter. As you said, in line with expectations. And importantly, that was as a result of no real estate transactions in the quarter.

Joel Pitz: Yeah, Wes, very pleased with the result for Q2, as you said, in line with expectations. Importantly, that was as a result of no real estate transaction in Q2. For H1, you know how heavily weighted we are within the real estate within our alternatives portfolio, which is very unique relative to what you see from others, because we didn't have any real estate transaction activity in H1. As we indicated in outlook, we expected there to be improvement in 2026 versus 2025, just as we had the year prior, and fully expect that to continue not only for Q2 2026, but also for the remaining quarters of 2026 as well.

Speaker #3: So for the first half of the year, you know how heavily weighted we are within the real estate, within our alternative portfolio, which is very unique relative to what you see from others.

Speaker #3: And fully expect that to continue not only for second quarter '26, but also for the remaining quarters of '26 as well. Thank you.

Deanna Strable: Thanks, Wes.

Wes Carmichael: Thank you.

Speaker #1: The next question comes from Ryan Kruger from KBW.

Operator: The next question comes from Ryan Krueger from KBW.

Ryan Krueger: Hey, thanks. Good morning. I guess I'll shift to investment management. You talked about the drivers of the outflows in the quarter, but I was hoping to get a little bit more color on what you're seeing and thinking for H2 and if you believe the elevated equity outflows were more isolated to the quarter or if there could be some ongoing headwinds there.

Speaker #6: Hey, thanks. Good morning. I guess I'll shift that investment management. You talked about the drivers of the outflows in the quarter, but I was hoping to get a little bit more color on what you're seeing and thinking for the back half of the year end.

Speaker #6: If you believe the elevated equity outflows were more isolated to the quarter, or if there could be some ongoing headwinds there.

Speaker #4: Yeah. Thanks, Ryan, for the question. I will have Kamala address that.

Deanna Strable: Yeah. Thanks, Ryan, for the question. I will have Kamal address that.

Speaker #2: Sure. Good morning, Ryan. So since you asked about the outflows, let me address that directly because it was a meaningful number this quarter. The first most important point is that the impact is concentrated with a couple of US active equity strategies.

Kamal Ahmad: Sure. Good morning, Ryan. Since you asked about the outflows, let me address that directly because it was a meaningful number this quarter. The first most important point is that the impact is concentrated with a couple of US active equity strategies. Those strategies make up slightly more than 5% of our firm AUM. It's not broad-based across global asset management. Few additional points to help you further with your question. This cohort of strategies is deeply affected by the acute and unusual market that has neither rewarded high-quality companies or valuation-aware stock picking. I would note for you that these strategies have a very good long-term track record of strong results, and they particularly outperform in normal return markets. Based on historical cycles, it would expect this type of environment to normalize over time, but it is very difficult to predict the timing of market turns.

Kamal Bhatia: Sure. Good morning, Ryan. Since you asked about the outflows, let me address that directly because it was a meaningful number this quarter. The first most important point is that the impact is concentrated with a couple of US active equity strategies. Those strategies make up slightly more than 5% of our firm AUM. It's not broad-based across global asset management. Few additional points to help you further with your question. This cohort of strategies is deeply affected by the acute and unusual market that has neither rewarded high-quality companies or valuation-aware stock picking. I would note for you that these strategies have a very good long-term track record of strong results, and they particularly outperform in normal return markets. Based on historical cycles, it would expect this type of environment to normalize over time, but it is very difficult to predict the timing of market turns.

Speaker #2: Those strategies make up slightly more than 5% of our firm AUM. So it's not broad-based across global asset points to help you further with your question.

Speaker #2: This cohort of strategies is deeply affected by the acute and unusual market. That has neither rewarded high-quality companies or valuation-aware stock picking. I would note for you that these strategies have a very good long-term track record of strong results.

Speaker #2: And they particularly outperform in normal return markets. So based on historical cycles, it would expect this type of environment to normalize over time, but it is very difficult to predict the timing of a market turns.

Speaker #2: To your question on this quarter, gross sales in Q2 were also impacted by conflict in the Middle East, as many institutional investors delayed mandates and engagements due to headlines and market volatility.

Kamal Ahmad: To your question on this quarter, growth sales in Q2 were also impacted by conflict in Middle East as many institutional investors delayed mandates and engagements due to headlines and market volatility. With respect to rest of the year, we do anticipate net flows to be somewhat challenged, but I am cautiously optimistic. One data point I would leave you on that is that our committed not funded pipeline has now grown to around $10 billion this quarter. That is up from Q1, which is a testament to the diversity of our capabilities and our channel reach.

Kamal Bhatia: To your question on this quarter, growth sales in Q2 were also impacted by conflict in Middle East as many institutional investors delayed mandates and engagements due to headlines and market volatility. With respect to rest of the year, we do anticipate net flows to be somewhat challenged, but I am cautiously optimistic. One data point I would leave you on that is that our committed not funded pipeline has now grown to around $10 billion this quarter. That is up from Q1, which is a testament to the diversity of our capabilities and our channel reach.

Speaker #2: So with respect to rest of the year, we do anticipate net flows to be somewhat challenged, but I am cautiously optimistic. In one data point, I would leave you on that is that our committed not-funded pipeline has now grown to around $10 billion this quarter.

Speaker #2: That is up from one Q, which is a testament to the diversity of our capabilities and our channel reach.

Speaker #4: Thanks, Ryan. Do you have a follow-up?

Deanna Strable: Thanks, Ryan. Do you have a follow-up?

Speaker #6: Yeah. Just I think you just two really quick related ones. One, I think the fee rate has trended down a bit in investment management.

Ryan Krueger: Yeah. Just two really quick related ones. One, I think the fee rate has trended down a bit in Principal Asset Management. Do you think we should kind of continue in that lower 28 basis point range? Can you quantify the severance impact this quarter?

Speaker #6: Do you think we should kind of continue in that lower 28 basis point range? And then can you quantify the severance impact this quarter?

Speaker #4: Yeah. I think there were a couple of drivers to that fee rate decline. And again, you can quantify the severance as well.

Deanna Strable: Yeah. Kamal, I think there were a couple of drivers to that fee rate decline, again, you can quantify the severance as well.

Speaker #2: Sure. So Ryan, as you know, we are fee rate generally has remained the core fee rate has remained generally stable within a band. As you mentioned, this quarter was slightly softer, but generally within that range.

Kamal Ahmad: Sure. Ryan, as you know, the core fee rate has remained generally stable within a band. As you mentioned, this quarter was slightly softer, generally within that range. Partly volatile public markets do create downward pressure given our business mix, outflows do have some impact on it. As we continue to drive growth in private markets, particularly our international emerging local market clients, I do see more stabilization of these rates to drive more sustained growth and operating leverage. With respect to severance, you are right. We had elevated severance across IM and IP of around $7 million in the quarter. Partly that is given that we are always trying to actively manage our expenses to our revenue to continue to generate the strong margin and create operating leverage in the business.

Kamal Bhatia: Sure. Ryan, as you know, the core fee rate has remained generally stable within a band. As you mentioned, this quarter was slightly softer, generally within that range. Partly volatile public markets do create downward pressure given our business mix, outflows do have some impact on it. As we continue to drive growth in private markets, particularly our international emerging local market clients, I do see more stabilization of these rates to drive more sustained growth and operating leverage. With respect to severance, you are right. We had elevated severance across IM and IP of around $7 million in the quarter. Partly that is given that we are always trying to actively manage our expenses to our revenue to continue to generate the strong margin and create operating leverage in the business.

Speaker #2: Partly volatile public markets do create downward pressure given our business mix and outflows do have some impact on it. As we continue to drive growth in private markets and particularly our international emerging local market clients, I do see more stabilization of these rates to drive more sustained growth and operating leverage.

Speaker #2: With respect to severance, you are right. We had elevated severance across IM and IP. Of around $7 million in the quarter. And partly that is given that we are always trying to actively manage our expenses to our revenue, to continue to generate the strong margin, and create operating leverage in the business.

Speaker #4: Thanks, Ryan.

Deanna Strable: Thanks, Ryan.

Speaker #6: Thank you.

Ryan Krueger: Thank you.

Speaker #1: The next question comes from Wilma Bertis from Raymond James. Wilma, your line may be on mute.

Operator: The next question comes from Wilma Burdis from Raymond James. Wilma, your line may be on mute.

Speaker #5: Hey. Hey. Good morning. Could you go into some of the specifics driving lower dental ratios versus prior years and how we can expect that to evolve?

Wilma Burdis: Hey, good morning. Could you go into some of the specifics driving lower dental ratios versus prior years, and how we can expect that to evolve? Thank you.

Speaker #5: Thank you.

Speaker #4: Yeah. I'll ask Amy to address that. It was great to see such great results in, especially benefits this quarter. And also very broad-based loss ratio improvement across all of the products.

Deanna Strable: Yeah. I'll ask Amy to address that. It was great to see such great results in Specialty Benefits this quarter, and also very broad-based loss ratio improvement across all of the products. As you know, that team's been very focused on dental as we've tried to ensure that we continue to focus on profitable growth. I'll have Amy get into the details.

Speaker #4: And as you know, that team's been very focused on dental as we've tried to ensure that we continue to focus on profitable growth. But I'll have Amy get into the details.

Amy Friedrich: Wilma, thanks. When I think of dental, Deanna definitely hit the right point at the beginning, which is we have intentionally been taking a lot of efforts against our dental portfolio. Just as a quick reminder, it's a product that definitely has a lot of inflationary and cost inflation sits on top of that. It's also a product that when your utilization or severity begins to kind of move differently on you have the ability to kind of change that pricing. One of the things that really underpins that is if you have the ability to impact some of that dental network. I'm going to go first to some of the pieces we've done on that dental network optimization.

Speaker #5: It's a product just as a quick reminder. It's a product that definitely has a lot of inflationary and cost inflation sits on top of that.

Speaker #5: It's also a product that when you're utilization or severity begins to kind of move differently on you, you can you have the ability to kind of change that pricing.

Speaker #5: But one of the things that really underpins that is if you have the ability to impact some of that dental network. So I'm going to go first to some of the pieces we've done on that dental network optimization.

Amy Friedrich: We know that as the dental network ownership structure, maybe even private equity, some other things entering into some of that ownership structure, the ability to stay really current on understanding how the providers are utilizing that network and where we're seeing more of our members utilize which services, being able to line up those schedules and do that in a way that's very dynamic is really paying off for our owned dental network. What I'd also point to is when I think of dental investment, I also put the announcement of the acquisition we did in Q1, that DentaNet acquisition, as an investment in that. That's going to have a little bit of regional impact, but in Alabama, it brought us 1,500 providers in network.

Speaker #5: That's going to have a little bit of regional impact. But in Alabama, it brought us $1,500 providers in network. It's the largest network in the state.

Amy Friedrich: It's the largest network in the state, and that gives us the ability to serve our customers even better in those states and to impact the claims cost that they're feeling on those visits to the dentist. Those investments in dental network are also paying off on a regional basis. We're also making sure that the pricing changes we made in the past are persisting through our block. All of those changes that we've made, investments in dental network, optimizing that network, and also doing the things that we need to do for our pricing changes are making it so when I look at the H2, my assumption is that loss ratio, not just from a seasonality basis, but from the intentional impacts we've been taking on that, will continue to go down.

Speaker #5: And that gives us the ability to serve our customers even better in those states and to impact the claims costs that they're feeling on those visits to the dentist.

Speaker #5: So those investments in dental network are also paying off on a regional basis. We're also making sure that the pricing changes we made in the past are persisting through our block.

Speaker #5: So all of those changes that we've made, investments in dental network, optimizing that network, and also doing the things that we need to do for our pricing changes are making it so when I look at the second half of the year, my assumption is that loss ratio, not just from a seasonality basis, but from the intentional impacts we've been taking on that will continue to go down.

Speaker #4: Thanks, Wilma. Do you have a follow-up?

Deanna Strable: Thanks, Wilma. Do you have a follow-up?

Wilma Burdis: Yes. Thank you. How could we expect the Beam acquisition to improve the existing business, and where will we see the biggest impacts? Thank you.

Speaker #5: Yes. Thank you. How could we expect the Beam acquisition to improve the existing business? And where will we see the biggest impacts? Thank you.

Speaker #4: Yeah. I'll again turn that back over to Amy.

Deanna Strable: I'll again turn that back over to Amy.

Speaker #5: Yeah. So I feel like I always need to start with this. We are not closed on that acquisition announcement yet. And so somewhat limited in what I can offer.

Amy Friedrich: Yeah. I feel like I always need to start with this. We are not closed on that acquisition announcement yet, somewhat limited in what I can offer. I would say here's how I'm thinking about it. I'm thinking about Beam Benefits. I went through the strategic rationale in the question that was asked earlier. I do think when we think of both revenue and expense synergies, there are things in both categories. I'll give you a quick example. Beam currently leases their dental network today, we would expect from an expense synergy, and a fairly immediate one, to remove some of those leased network costs. Additionally, they've got a quoting and acquisition front end in that small micro market that I see.

Speaker #5: But I would say here's how I'm thinking about it. I'm thinking about being benefits. I went through the strategic rationale in the question that was asked earlier.

Speaker #5: I do think when we think of both revenue and expense synergies, there are things in both categories. So I'll give you a quick example.

Speaker #5: Beam currently leases their dental network today. So we would expect from an expense synergy and a fairly immediate one to remove some of those leased network costs.

Speaker #5: Additionally, they've got a quoting and acquisition front end in that small micro market that I see. Again, I mentioned before it's really efficient but it's also really effective.

Amy Friedrich: Again, I mentioned before, it's really efficient, but it's also really effective, and I would expect we could bring those capabilities across our broader small case market block. Again, taking them across our broader market block means 10 times the power that they're currently able to put against their own block. Bringing them across the broader block would free up capability to win more business for us, even slightly up market, because we aren't spending as much time and attention kind of doing those things down market. I would expect some of those results to certainly come through on premium and fee growth. I would expect those results to also come through on some of the efficiency we think we can drive against our expense ratio.

Speaker #5: And I would expect we could bring those capabilities across our broader small case market block. So again, taking them across our broader market block means 10 times the power that they're currently able to put against their own block.

Speaker #5: So bringing them across the broader block would free up capability to win more business for us, even even slightly up market because we aren't spending as much time and attention kind of doing those things down market.

Speaker #5: So I would expect some of those results to certainly come through on premium and fee growth. And I would expect those results to also come through on some of the efficiency we think we can drive against our expense ratio.

Speaker #4: Yeah. Wilma, just a few follow-up comments to that. As Amy said, we're very excited about this acquisition. It's a very strong company in the SMB benefits space in and of itself.

Deanna Strable: Well, just a few follow-up comments to that. As Amy said, we're very excited about this acquisition. It's a very strong company in the SMB benefits space in and of itself, and it'll really complement our strong performance that we've had in that business over decades. I think you know, we've said it a lot, we have a high bar for M&A. Every target has to have strong strategic fit, be financially accretive, and have very strong cultural alignment. Beam definitely meets all of these criteria, and we're very excited about having them join Principal.

Speaker #4: And it'll really complement our strong performance that we've had in that business over decades. I think you know and we've said it a lot, we have a high bar for M&A.

Speaker #4: Every target has to have strong strategic fit, be financially accretive, and have very strong cultural alignment. And Beam definitely meets all of these criteria.

Speaker #4: And we're very excited about having them join principal.

Speaker #5: Thank you very much.

Amy Friedrich: Thank you very much.

Speaker #1: The next question comes from Joel Hurwitz from Dowling & Partners.

Operator: The next question comes from Joel Hurwitz from Dowling & Partners.

Speaker #6: Hey. Good morning. Amy, one more for you sticking with the benefits business. Can you just unpack what you saw on some of your other group businesses with the life and disability results continuing to run very favorable?

Joel Hurwitz: Hey, good morning. Amy, one more for you, sticking with the benefits business. Can you just unpack what you saw in some of your other group businesses, with the life and disability results continuing to run very favorable?

Deanna Strable: Yeah. I'll have Amy talk about that, and really talk about the drivers this quarter, but also how she's kind of thinking about both sustainability of loss ratio and earnings on a go-forward basis.

Amy Friedrich: Yeah, Joel.

Joel Hurwitz: Sure.

Amy Friedrich: When I think about that underwriting performance, it really was across all the lines of business. That improved performance, the performance of 57.4 was across all our product groupings. Probably the more notable ones, or the ones that we want to dig into a little bit more are dental, disability, and life. You heard some comments just on dental, but dental results were improved and continued to be attributable to that dental network optimization effort, as well as past pricing actions. I have noted that dental seasonality probably is present a little bit in Q2, and we did see that tick up just a little bit in Q2 as we expected. Again, it wasn't as marked as we saw in last year's Q2, but we did see that, and that was something that we had anticipated.

Speaker #5: I have noted that dental seasonality probably is present a little bit in second quarter. And we did see that tick up just a little bit in second quarter as we expected.

Speaker #5: Again, it wasn't as market as we saw in last year's second quarter, but we did see that and that was something that we had anticipated.

Speaker #5: Disability was really driven by lower incidents. And that's across all disability lines. I should note there that recoveries for group LTD were right in line with expectations.

Amy Friedrich: Disability was really driven by lower incidents, and that's across all disability lines. I should note there that recoveries for group LTD were right in line with expectations. This was an incidence-driven overperformance, not really a recoveries or severity-driven overperformance. Group life, and again, we sometimes don't talk as much about group life, but again, group life continues to perform well, and that was driven by lower frequency as well. The full year outlook remains favorable, and I do want to mention that I now expect loss ratios to emerge below the low end of the guidance range for the full year. When I deconstruct that more towards the H2, we've talked a little bit about dental loss ratios continuing to trend down given those past pricing actions, network optimization, as well as normal H2 seasonality.

Speaker #5: So this was an incident-driven overperformance, not really a recovery or severity-driven overperformance. Group life and again, we sometimes don't talk as much about group life, but again, group life continues to perform well.

Speaker #5: And that was driven by lower frequency as well. So the full-year outlook remains favorable. And I do want to mention that I now expect loss ratios to emerge below the low end of the guidance range for the full year.

Speaker #5: When I deconstruct that more towards the second half, we've talked a little bit to trend down given those past pricing actions, network optimization as well as normal second half seasonality.

Amy Friedrich: I don't expect disability loss ratios to improve further from H1 results, and I do think it's appropriate to expect some upward movement in products like group LTD from H1, but certainly not back to historical levels. I think it's worth noting that wage growth, which is an important factor for a product like disability, is positive, and it's holding steady in our block, and employment growth is also positive and tracking to our expectations as well. When I summarize all that, I'm really pleased with our underwriting performance across SBD. I think the way we run our business with consistent underwriting discipline that's balanced with an eye towards growth has really been on display this H1 of the year.

Speaker #5: I think it's worth noting that wage growth, which is an important factor for a product like disability, is positive. And it's holding steady in our block and employment growth is also positive and tracking to our expectations as well.

Speaker #5: So when I summarize all that, I'm really pleased with our underwriting performance across SBD. I think the way we run our business with consistent underwriting discipline that's balanced with an eye towards growth has really been on display.

Speaker #5: This first half of the year, I'd reiterate then that I expect full-year underwriting results for SBD in total, to emerge below the end of the range on that 60 to 64 percent that was communicated in Outlook.

Amy Friedrich: I'd reiterate that I expect full year underwriting results for SBD in total to emerge below the end of the range on that 60% to 64% that was communicated in Outlook, and we do expect dental underwriting results to improve that H2, driven by both seasonality and network optimization.

Speaker #5: And we do expect dental underwriting results to improve that second half driven by both seasonality and network optimization.

Speaker #4: Thanks, Joel. Next question or a follow-up?

Deanna Strable: Thanks, Joel. Next question or a follow-up?

Speaker #6: Great. Yeah. Thank you for that. That was very helpful. And Deanna, maybe just going back to M&A, wanted to get your thoughts on potential further M&A for principal, right?

Joel Hurwitz: Great. Yeah. Thank you for that. That was very helpful. Deanna, maybe just going back to M&A, wanted to get your thoughts on potential further M&A for Principal. There were some media reports out earlier this month suggesting interest in larger scale deals. Just your thoughts on whether it's further M&A in retirement, asset management, or benefits.

Speaker #4: Yeah. I'll start with just a boilerplate answer, which is we don't comment on market rumors. What I would say is that as many of you have heard me talk about before, our M&A philosophy has not changed.

Deanna Strable: Yeah. I'll start with just a boilerplate answer, which is we don't comment on market rumors. What I would say is that as many of you have heard me talk about before, our M&A philosophy has not changed, and we have a very high bar for any transaction. We're not going to shy away from pursuing M&A. You saw that with Beam, but any transaction has to be a financial, strategic, and cultural fit. We view M&A more as an opportunistic accelerator than a requirement, with organic growth being our primary path to achieving our objectives. I'd also say we're not interested in doing deals solely for scale, especially one that would require a premium paid to transact. Ultimately, we're really looking for transactions that bring us new strategic capabilities that literally can be scaled across the overall enterprise.

Speaker #4: And we have a very high bar for any transaction. We're not going to shy away from pursuing M&A. You saw that with Beam. But any transaction has to be a financial strategic and cultural fit.

Speaker #4: And we view M&A more as an opportunistic accelerator than a requirement with organic growth being our primary path to achieving our objectives. I'd also say we're not interested in doing deals solely for scale, especially one that would require a premium paid to transact.

Deanna Strable: I think I'll come back to Beam Benefits as a really good example of that. It added capabilities, it strengthened our SMB value proposition. Those are the types of things that we'll be focused on as we go forward.

Speaker #4: It added capabilities. It strengthened our SMB value proposition. And those are the types of things that we'll be focused on as we go forward.

Speaker #6: Makes sense. Thank you.

Joel Hurwitz: Makes sense. Thank you.

Speaker #1: The next question comes from Pablo Singson from JPMorgan.

Operator: The next question comes from Pablo Singzon from J.P. Morgan.

Speaker #7: Hi. Good morning. In the retirement business, there are structural reasons why I think flows will have a negative bias, right? So if you think about caps and contributions and large balances that are available for withdrawal, but I guess if you think about other metrics such as plan counts and number of active participants, how have those measures been trending for principal?

Pablo Singzon: Hi, good morning. In the retirement business, there are structural reasons why I think flows will have a negative bias, right? Think about caps on contributions and large balances that are available for withdrawal. I guess if you think about other metrics, such as plan count and number of active participants, how have those measures been trending for Principal?

Speaker #4: Yeah. I'll ask Chris to address that.

Deanna Strable: Yeah, I'll ask Chris to address that.

Speaker #3: Yeah. Good morning, Pablo. Thanks for the question. Yeah. If you just look at sort of participant growth, we've shown consistent participant growth over the last several quarters.

Chris Littlefield: Yeah. Good morning, Pablo. Thanks for the question. Yeah, if you just look at participant growth, we've shown consistent participant growth over the last several quarters. We are seeing positive trends in participant growth, participants with account values. We've seen deferrals rising. On top of that, we see really strong retention. All of those underlying fundamentals in the business are really strong. Plan counts also, we see really good growth. We have de-emphasized a bit the micro-market. That has a lot of plan count, but also comes with a little less economics. We've really focused on those areas and those plans that give us greater assets, greater opportunities to look at investment mandates and the like. We have trended a little bit up.

Speaker #3: So we are seeing positive trends. In In participant growth, participants with account values, we've seen deferrals rising. And on top of that, we see really strong retention.

Speaker #3: So all of those underlying fundamentals in the business are really strong. On plan counts also, we see really good growth. We have the emphasized a bit the micro market.

Chris Littlefield: You would see our plan count staying flat to maybe slightly down, participants up, deferrals up, retention very high, transfer deposits and new sale wins also very strong over the past several quarters.

Speaker #4: Yeah. Pablo, I think if you look across our retirement fundamentals, remain strong across the things that we're focused on. We've talked about how market increase does have a negative impact on flows, but a positive impact on revenue and earnings.

Deanna Strable: Yeah. Pablo, I think if you look across our retirement fundamentals remain strong across the things that we're focused on. We've talked about how market increase does have a negative impact on flows, but a positive impact on revenue and earnings. Ultimately, Chris and his team continue to do a great job focused on, again, strong fundamentals and driving revenue growth. Do you have a follow-up question?

Speaker #4: And ultimately, Chris and his team continue to do a great job focused on, again, strong fundamentals and driving revenue growth. So do you have a follow-up question?

Pablo Singzon: Yes, I do. Thank you. My follow-up is for Amy, just on group benefits. I think Principal is not unique in that most other group insurers have experienced good results as well in their line. I was wondering, have the good results affected the competitive environment in any way? Are you seeing other companies sort of start to bring down prices to filter in these very good margins that they're experiencing? Thank you.

Speaker #7: Yes, I do. Thank you. So my follow-up is for Amy, just on group benefits. So I think principal is not unique in that most of other group insurers have experienced good results as well.

Speaker #7: In their line. So I was wondering have the good results affected the competitive environment in any way? Are you seeing other companies start to bring down prices to filter in these very good margins that they're experiencing?

Speaker #7: Thank you.

Speaker #4: Yeah. I'll have Amy talk about that. But I do think you have to remember two things that are different about our block of business.

Deanna Strable: Yeah, I'll have Amy talk about that, I do think you have to remember two things that are different about our block of business. One is the SMB focus, and one is the portfolio of premiums where dental continues to have a significant impact on our overall bundle. Amy, if you'll talk about the competitive nature.

Speaker #4: One is the SMB focus. And one is the portfolio of premiums where dental continues to have a significant impact on our overall bundle. But Amy, if you'll talk about the competitive nature.

Speaker #5: Yeah. I'll answer kind of just broadly about the competitive environment that I'm seeing. And then I'll go dig down into our block just a little bit more.

Amy Friedrich: Yeah. I'll answer kind of just broadly about the competitive environment that I'm seeing, and then I'll go dig down into our block just a little bit more. General competitive environment, I think we had commented a few times in past calls, and this was probably more last year and maybe even the prior year, that we were seeing some pricing in dental that we just simply didn't want to participate in. We didn't think it would give us the profitability that we needed. We were willing to say we'll slow growth down a little bit so that we can get the type of underwriting results we think really drive and build a great business. I'd point back to, we feel like that trade-off was definitely the right one to make. Now we are continuing to see more opportunities to write business at rates that make sense.

Speaker #5: General competitive environment, I think we had commented a few times in past calls, and this is probably more last year and maybe even the prior year, that we were seeing some pricing in dental that we just simply didn't want to participate in.

Speaker #5: We didn't think it would give us the profitability that we needed. We were willing to say, we'll slow growth down a little bit so that we can get the type of underwriting results we think really drive and build a great business.

Speaker #5: I point back to we feel like that trade-off was definitely the right one to make. Now we are continuing to see more opportunities to write business at rates that make sense.

Speaker #5: Here's one of the things I'll start blending in, though, our block of business. And Deanna mentioned this in one of her opening comments. And I think it's worth us coming back to.

Amy Friedrich: Here's one of the things I'll start blending in, though, our block of business. Deanna mentioned this in one of her opening comments, and I think it's worth us coming back to. One of the opening comments Deanna made was that our average employer relationships across our whole benefits block is continuing to grow. That's nearly at 3.2 products today. That means a product, and again, there's a lot of people who want to sort of dissect with me what's going on with disability, what's going on with dental, what's going on with a specific product. When I look at a product like disability, for us, it's rarely standalone. In fact, over 95% of our disability premium is going to be tied to another product.

Speaker #5: One of the opening comments Deanna made was that our average employer relationships across our whole benefits block is continuing to grow. So that's nearly at 3.2 products today.

Speaker #5: So that means a product and again, there's a lot of people who want to sort of dissect with me what's going on with disability, what's going on with dental, what's going on with the specific product.

Speaker #5: But when I look at a product like disability for us, it's rarely standalone. So in fact, over 95% of our disability premium is going to be tied to another product.

Speaker #5: So that means when we look at admin, servicing, product designs, and pricing, we do that all, whether it's new case or renewal, it's designed with that multiple product in mind.

Amy Friedrich: That means when we look at admin, servicing, product designs, and pricing, we do that all, whether it's new case or renewal, it's designed with that multiple product in mind. I bring that up because I do think the pricing flexibility, the product design flexibility, even some of the administrative flexibility that gives us across that bundle simply isn't present for some of our competitors. In the end, when we end up winning in that small to mid-size space, it's often because that bundle is outperforming and that bundle is giving us the ability to have the flexibility that we need in that marketplace. Product by product, yes, we do see some competitiveness. We see some pockets where we wouldn't participate in that pricing.

Speaker #5: And I bring that up because I do think the pricing flexibility, the product design flexibility, even some of the administrative flexibility that gives us across that bundle simply isn't present for some of our competitors.

Speaker #5: So in the end, when we end up winning in that small to mid-sized space, it's often because that bundle is outperforming and that bundle is giving us the ability to have the flexibility that we need in that marketplace.

Speaker #5: So product by product, yes, we do see some competitiveness. We see some pockets where we wouldn't participate in that pricing. But for our market position, which is relatively unique in that small and mid-sized case, with that bundle, we see that we're getting the types of rates and pricing that we need to drive the type of growth we think makes great sense for this business.

Amy Friedrich: For our market position, which is relatively unique in that small and mid-size case with that bundle, we see that we're getting the types of rates and pricing that we need to drive the type of growth we think makes great sense for this business.

Speaker #7: Thanks, Amy.

Pablo Singzon: Thanks, Amy.

Deanna Strable: Thanks, Pablo. Next question?

Speaker #4: Pablo. Next question.

Speaker #2: The next question comes from Suneet Kamath. From Jeffrey's.

Operator: The next question comes from Suneet from Jefferies.

Speaker #6: Thanks. Good morning. I wanted to go back to Beam for a second. Deanna, I think in the past you've talked about an M&A budget of 0 to 10% of net income.

Suneet Kamath: Thanks. Good morning. I wanted to go back to Beam for a second. Deanna, I think in the past, you've talked about an M&A budget of 0% to 10% of net income. That would probably put you somewhere in the $150 to 200 million. Is Beam in line with that range, or is it bigger? If it's bigger, does it mean that you're sort of out of the M&A game for a while?

Speaker #6: That would probably put you somewhere in the $150 to $200 million is Beam in line with that range, or is it bigger? And if it's bigger, does it mean that you're sort of out of the M&A game for a while?

Speaker #4: Yeah. I think when I've talked about that in the past, Suneet, and first of all, thank you for the question. I have talked about how we will dedicate 0 to 10% of our annual free cash flow toward M&A, but I've also talked about that one of the reasons that we keep our leverage ratio at such a low level is that will also give us additional flexibility.

Deanna Strable: Yeah, I think when I've talked about that in the past, Suneet, and first of all, thank you for the question, I have talked about how we will dedicate 0% to 10% of our annual free cash flow toward M&A. I've also talked about that one of the reasons that we keep our leverage ratio at such a low level is that will also give us additional flexibility. Again, we'll continue to be inquisitive around M&A activities. Ultimately, it's the combination of both of those, as well as things like the proceeds from divestitures as well, that we'll continue to look to deploy both organically and inorganically as we continue to focus on driving long-term shareholder value.

Speaker #4: And so again, we will continue to be inquisitive around M&A activities. And ultimately, it's the combination of both of those as well as things like the proceeds from divestitures as well that will continue to look to deploy both organically and inorganically as we continue to focus on driving long-term shareholder value.

Speaker #6: Okay. Got it. And then I guess you had mentioned earlier in the call, you talked about not doing a scale deal or not doing exclusively a scale deal.

Suneet Kamath: Okay, got it. I guess you had mentioned earlier in the call, you talked about not doing a scale deal or not doing exclusively a scale deal. When we think about the defined contribution business, how do you think about scale? I've heard it expressed in terms of AUM. I've heard it expressed in terms of participant headcount. Just curious where you think companies need to be to have scale and how you think technology advancements could influence that. Thanks.

Speaker #6: But when we think about the defined contribution business, how do you think about scale? I've heard it expressed in terms of AUM. I've heard it expressed in terms of participant headcount.

Speaker #6: Just curious kind of where you think companies need to be to have scale and how you think technology advancements could influence that. Thanks.

Speaker #4: Yeah. I'll have Chris address that. Obviously, there's not one science definition of scale, and it really goes into the ability to compete as well as the ability to continue investing in your platform, which the great news is I feel that we have the scale needed in our retirement business to compete, but I'll have Chris add to that as well.

Deanna Strable: Yeah, I'll have Chris address that. Obviously, there's not one science definition of scale, and it really goes into the ability to compete, as well as the ability to continue investing in your platform. Which the great news is I feel that we have the scale needed in our retirement business to compete. I'll have Chris add to that as well.

Speaker #3: Yeah. Thanks for the question. Yeah. I think Deanna, handled it. I think when we look at scale, we look at multiple measures of scale.

Chris Littlefield: Yeah. Thanks for the question. Yeah, I think Deanna handled it. I think when we look at scale, we look at multiple measures of scale. We think the most important right now is the number of participants that you serve because that's where we believe the future value will accrete from. That's kind of how we think about scale. At 14 million Americans covered by the plans that we serve, we feel like we're at scale. That doesn't mean that we won't look to get scale. As I've mentioned on past calls, we already see a lot of the consolidation happening. It may not be as active inorganically as it has been in the past. It's definitely happening organically.

Speaker #3: We think the most important right now is the number of participants that you serve because that's where we believe the future value will accrete from.

Speaker #3: And so that's kind of how we think about scale at $14 million Americans covered by the plans that we serve. We feel like we're at scale.

Speaker #3: That doesn't mean that we won't look to get scale, but as I've mentioned on past calls, we already see a lot of the consolidation happening.

Chris Littlefield: The plans and the participants are moving to the larger scale players like us as top three in participant count in the 401(k) space to be able to serve their needs, invest in platform, and be able to provide them the solutions that they need to get to and through their retirement. We feel very well positioned given where we're at. We look at multiple measures. We probably lean a little heavily toward participant because we believe that's where future value will derive.

Speaker #3: And so we feel very well positioned given where we're at. So we look at multiple measures, but we probably lean a little heavily toward participant because we believe that's where future value will derive.

Speaker #4: Thanks, Suneet, for your questions.

Deanna Strable: Thanks, Suneet, for your questions.

Speaker #6: Yep. Thank you.

Suneet Kamath: Yep. Thank you.

Speaker #2: The next question comes from Josh Shanker from Bank of America.

Operator: The next question comes from Josh Shanker from Bank of America.

Speaker #5: Yes. Thank you for taking my question. I appreciate it. I guess calm again, I just want to follow up a little more with Ryan's questions about the outflows in the equity strategies.

Josh Shanker: Yes. Thank you for taking my question. I appreciate it. I guess, Kamal, again, I just want to follow up a little more with Ryan's questions about the outflows in the equity strategies. Over the past quarter date period, quality is back in favor, although maybe it's just factor trading with semis down or who knows the reasons why, but factor trading seems to be a key positioning for a lot of investors. A, is a return of the kind of stocks that you own and specialize in going to be a benefit that we should see inflows in the quarter? Or B, is this factor trading sort of experience going to be a weight on flows for the foreseeable future?

Speaker #5: Over the past quarter-day period, quality is back in favor although maybe it's just factor trading with semis down or who knows the reasons why, but factor trading seems to be a key positioning for a lot of investors.

Speaker #5: A, is a return of this kind of stocks that you own and specialize in going to be a benefit that we should see inflows in the quarter?

Speaker #5: Or B, is this factor trading sort of experience going to be a weight on flows for the foreseeable future?

Speaker #3: Yeah. Good morning, Josh.

Kamal Ahmad: Yeah.

Kamal Bhatia: Yeah.

Deanna Strable: Thanks.

Kamal Ahmad: Good morning, Josh.

Kamal Bhatia: Good morning, Josh.

Speaker #4: Yeah. Go ahead, Pablo.

Deanna Strable: Yeah, go ahead, Kamal.

Kamal Ahmad: Sorry. Yeah, it's a great question. Let me start with part A first, which was right on, which is how you highlighted this market has been highly unusual and abnormal. Particularly, you highlighted the quality abnormality in the marketplace. One statistic just to further highlight that within our book, we have observed that over the last year, that dispersion has worsened substantially. In fact, when you look at US companies, the highest quality companies on the period ending 30 June returned 4%, whereas the lowest quality companies returned 70%. To your question, there could be some longer-term statistical aberration, but that gap is too large, and it has to normalize over a period of time. As that gap normalizes, clearly it will benefit our style of investing.

Kamal Bhatia: Sorry. Yeah, it's a great question. Let me start with part A first, which was right on, which is how you highlighted this market has been highly unusual and abnormal. Particularly, you highlighted the quality abnormality in the marketplace. One statistic just to further highlight that within our book, we have observed that over the last year, that dispersion has worsened substantially. In fact, when you look at US companies, the highest quality companies on the period ending 30 June returned 4%, whereas the lowest quality companies returned 70%. To your question, there could be some longer-term statistical aberration, but that gap is too large, and it has to normalize over a period of time. As that gap normalizes, clearly it will benefit our style of investing.

Speaker #3: Sorry. Yeah. It's a great question. So let me start with part A first, which was right on, which is how you highlighted this market has been highly unusual and abnormal, particularly you highlighted the quality abnormality in the marketplace.

Speaker #3: One statistic just to further highlight that within our book, we have observed that over the last year, that dispersion has worsened substantially in fact, when you look at US companies, the highest quality companies on the period ending 6/30 returned 4%, whereas the lowest quality companies returned 70%.

Speaker #3: So to your question, there could be some longer-term statistical aberration, but that gap is too large and it has to normalize over a period of time.

Kamal Ahmad: Even though this is early to see in Q3 for the month of July, as those factors have reversed, our performance has become quite strong for that short period. I do think the market is going to normalize, and we will benefit from it. Longer term, when these momentum trades reverse and certain style of investing, like our quality style of investing comes back in vogue, flows do follow. They do take time. To your second order question, which is a good one, what has changed in the marketplace is a lot of new products, particularly very niche-y ETFs, do exploit these anomalies more than historically have been exploited. The market has changed over time, where particularly retail investors can get access to these flow trends, and it could persist longer than you like.

Kamal Bhatia: Even though this is early to see in Q3 for the month of July, as those factors have reversed, our performance has become quite strong for that short period. I do think the market is going to normalize, and we will benefit from it. Longer term, when these momentum trades reverse and certain style of investing, like our quality style of investing comes back in vogue, flows do follow. They do take time. To your second order question, which is a good one, what has changed in the marketplace is a lot of new products, particularly very niche-y ETFs, do exploit these anomalies more than historically have been exploited. The market has changed over time, where particularly retail investors can get access to these flow trends, and it could persist longer than you like.

Speaker #3: So I do think the market is going to normalize and we will benefit from it. And longer-term, when these momentum trades reverse, and certain style of investing like our quality style of investing comes back in vogue, flows do follow.

Speaker #3: So the market has changed over time where particularly retail investors can get access to these flow trends and it could persist longer than you like.

Speaker #3: In fact, over the last 12 to 18 months, that's been one of the reasons why the abnormality has persisted longer than we would have liked.

Kamal Ahmad: In fact, over the last 12 to 18 months, that's been one of the reasons why the abnormality has persisted longer than we would have liked. Hopefully that answers your question, Josh.

Kamal Bhatia: In fact, over the last 12 to 18 months, that's been one of the reasons why the abnormality has persisted longer than we would have liked. Hopefully that answers your question, Josh.

Speaker #3: So hopefully that answers your question, Josh.

Speaker #5: Yeah. Yeah. Let's presume that one year from today, the performance is outstanding because the styles that you guys specialize in are in vogue. Is that going to take time to turn the train?

Josh Shanker: Yeah. Let's presume that one year from today, the performance is outstanding because the styles that you guys specialize in are in vogue. Is that going to take time to turn the train? Do we expect still in Q3 2026, maybe Q4 2026, that the muscle memory of how people have been behaving for the last couple of years is a drag on flows? Or at this point in time, it's really quarter-to-quarter?

Speaker #5: Do we expect still in 3Q 26, maybe 4Q 26, that the muscle memory of how people have been hating for the last couple of years is a drag on flows?

Speaker #5: Or at this point in time, it's really quarter to quarter?

Speaker #3: Well, first, predicting timing of a marketing turn is very difficult. I would also highlight for you predicting an immediate flow reversal or even predicting it over the next six months would not be prudent.

Kamal Ahmad: Well, first, predicting timing of a market turn is very difficult. I would also highlight for you predicting an immediate flow reversal or even predicting it over the next six months would not be prudent. I could, however, point you to what I see with client behavior. One behavior I would highlight for you is in our retail book where we have a lot of shareholders who have been owners of these strategies, there is a subset of clients that continues to add new money to this strategy that believes in the process and looks at dislocation. I would say it does take time. It's very difficult to predict timing, but there is a certain subset of clients that keeps on adding money to these strategies. It will take longer compared to the past.

Kamal Bhatia: Well, first, predicting timing of a market turn is very difficult. I would also highlight for you predicting an immediate flow reversal or even predicting it over the next six months would not be prudent. I could, however, point you to what I see with client behavior. One behavior I would highlight for you is in our retail book where we have a lot of shareholders who have been owners of these strategies, there is a subset of clients that continues to add new money to this strategy that believes in the process and looks at dislocation. I would say it does take time. It's very difficult to predict timing, but there is a certain subset of clients that keeps on adding money to these strategies. It will take longer compared to the past.

Speaker #3: I could, however, point you to what I see with client behavior. One behavior I would highlight for you is in our retail book where we have a lot of shareholders who have been owners of these strategies, there is a subset of clients that continues to add new money to the strategy that believes in the process and looks at dislocations.

Speaker #3: So I would say it does take time it's very difficult to predict timing, but there is a certain subset of clients that keeps on adding money to these strategies.

Speaker #3: So it will take longer compared to the past.

Speaker #4: Thanks, Josh, for your questions.

Deanna Strable: Thanks, Josh, for your question.

Josh Shanker: You're very welcome.

Speaker #2: The next question comes from Mike Ward from UBS.

Operator: The next question comes from Michael Ward from UBS.

Speaker #5: Thanks, guys. Good morning. Just on back to benefits. So definitely solid result there. And it sounds like you guys expect it to get seasonally better in the back half.

Mike Ward: Thanks, guys. Good morning. Just on back to benefits. Definitely, solid result there, and sounds like you guys expect it to get seasonally better in the H2. I'm wondering, you also kind of characterized it as favorable in Q2. If we think about kind of like a normal year, I'm just wondering if you could kind of help quantify how this result compared to kind of a normal quarter.

Speaker #5: But I'm wondering, you also kind of characterized it as favorable in 2Q. So if we think about kind of like a normal year, I'm just wondering if you could kind of help quantify how this result compared to kind of a normal quarter?

Speaker #4: And you cut out a little bit, Mike. Was that specific to dental or more broader across specialty benefits?

Deanna Strable: You cut out a little bit, Mike. Was that specific to dental or more broader across specialty benefits?

Speaker #5: Well, I guess both would be very helpful, but it was benefits mainly.

Mike Ward: Well, I guess both would be very helpful, but it was benefits mainly.

Speaker #4: Yeah. I'll have Amy talk about that on an earnings perspective. Obviously, every quarter you're going to have some positive outliers and some places where you have pressure.

Deanna Strable: Yeah. I'll have Amy talk about that on an earnings perspective. Obviously, every quarter you're going to have some positive outliers and some places where you have pressure. I think the great news is, specialty benefits had a phenomenal quarter, and I think ultimately there's pieces of that that we feel will continue to benefit us going forward. I'll have Amy go a little bit deeper on her outlook for earnings as we go forward.

Speaker #4: I think the great news is specialty benefits had a phenomenon quarter and I think ultimately there's pieces of that that we feel will continue to benefit us going forward.

Speaker #4: But I'll have Amy go a little bit deeper on her outlook for earnings as we go forward.

Speaker #6: Yeah. So I'm probably going to I'm going to head up to the top of the question, which is sort of that getting after the spirit of the sustainability of earnings in total.

Amy Friedrich: Yeah. I'm going to head up to the top of the question, which is sort of that getting after the spirit of the sustainability of earnings in total. We have to start with the underwriting results, because those underwriting results are clearly what's been driving that performance. I'm really pleased with those underwriting results. What I've said is we want to sustain those where it makes sense. I've given a little bit of color earlier on the call with some of those answers in terms of what I think will happen with dental. With dental, I do think we see that H2 seasonality, which tends to be better. We tend to improve that from H1 of the year, and then our intentional efforts that we've been taking with past pricing actions and network investments and improvements should continue to pay off.

Speaker #6: And so I want we have to start with the underwriting results because those underwriting results are clearly what's been driving that performance. So I'm really pleased with those underwriting results.

Speaker #6: And what I've said is we want to sustain those where it makes sense. I've given a little bit of color earlier on the call to some of those answers in terms of what I think will happen with dental, with dental, I do think we see that second half seasonality, which tends to be better.

Speaker #6: We tend to improve that from first half of the year and then our intentional efforts that we've been taking with past pricing actions and network investments and improvements should continue to pay off.

Speaker #6: So I'd say first, we do expect dental underwriting results to continue to improve in the second half of the year. And that will be helpful in terms of that earnings emergence.

Amy Friedrich: I'd say first, we do expect dental underwriting results to continue to improve in the H2 of the year, and that will be helpful in terms of that earnings emergence. I'd also say that we do expect total premium and growth to accelerate in the H2 of the year. I don't think we've really addressed that at this point. That H2 of the year should look like better premium and fee growth than we have seen in the H1 of the year. Again, this isn't just driven by new sales. Persistency plays a role in that. There's also been a build going on for us behind the scenes about capabilities on things like building capabilities to improve participation for our voluntary products.

Speaker #6: I'd also say that we do expect total premium and growth to accelerate in the second half of the year. So I don't think we've really addressed that at this point.

Speaker #6: So that second half of the year should look like better premium and fee growth than we have seen in the first half of the year.

Speaker #6: And again, this isn't just driven by new sales, persistency plays a role in that, but there's also been a build going on for us behind the scenes about capabilities on things like building capabilities to improve participation for our voluntary products.

Speaker #6: Those are also adding in an organic way to our premium and base. And that's a boost then, obviously, for earnings growth as well. The third thing is we've talked a bit on this call about some of the acquisitions.

Amy Friedrich: Those are also adding in an organic way to our premium base, that's a boost then obviously for earnings growth as well. The third thing is we've talked a bit on this call about some of the acquisitions we've been making. Our story historically has been nearly purely organic. We've added a little inorganic dimension to that should help us in terms of our future growth prospects. Finally, I'd kind of come back to the goal of this whole business is not to just have great underwriting results. We'll certainly take them when those emerge, but it's to really make sure we balance profit and growth, we deliver to the customers the things that protect those small and growing businesses, ultimately then also help us drive that earnings growth.

Speaker #6: We've been making our story historically has been nearly purely organic. We've added a little inorganic dimension to that. And that should help us in terms of our future growth prospects.

Speaker #6: And then finally, I'd kind of come back to the goal of this whole business is not to just have great underwriting results. We'll certainly take them when those emerge, but it's to really make sure we balance profit and growth.

Speaker #6: We deliver to the customers. The things that protect those small and growing businesses and ultimately then also help us drive that earnings growth. So our current underwriting results put us in what I think is a really enviable position to consider some pricing decreases over time, returning some of those back to our customers to help the customers grow, but then also helping our price competitives so that we grow.

Amy Friedrich: Our current underwriting results put us in what I think is a really enviable position to consider some pricing decreases over time, returning some of those back to our customers to help the customers grow, also helping our price competitive so that we grow. Our intention is to keep that SBD growth engine going strong over time, continuing to see that build from earnings growth.

Speaker #6: Our intention is to keep that SBD growth engine going strong over time and continuing to see that build from earnings growth.

Speaker #4: Hey, Mike, the other thing I would mention and Amy answered this earlier in the call is that the driver across all of the loss ratios in the quarter was really incidence and frequency rather than severity.

Deanna Strable: Hey, Mike, the other thing I would mention, Amy answered this earlier in the call, is that the driver across all of the loss ratios in the quarter was really incidence and frequency rather than severity. Severity tends to be lumpy, can be more quickly returned to the norm, whereas incidence and frequency driven underwriting results tend to last longer because it shows a trend across your entire block of business. That'd be the other point I'd make there as well. Do you have a follow-up question?

Speaker #4: Severity tends to be lumpy and can be more quickly returned to the norm, whereas incidence and frequency-driven underwriting results tend to last longer because it shows a trend across your entire block of business.

Speaker #4: So that'd be the other point I'd make there as well. Do you have a follow-up question?

Speaker #5: Thanks, Deanna. That was very comprehensive. I was hoping to ask Kamal just about the environment, including in fixed income. And across the business, frankly.

Mike Ward: Thanks. Yeah, no, that was very comprehensive. I was hoping to ask Kamal just about the environment, including in fixed income and across the business, frankly. Is there a dynamic where there's just so much new money going into AI and data center build-outs where you guys participate, but maybe in a more measured way? How frothy is that market, that asset class?

Speaker #5: But is there a dynamic where there's just so much new money going into AI and data center build-outs where you guys participate, but maybe in a more measured way?

Speaker #5: How frothy is that market, that asset class?

Speaker #4: Yeah. And I do think that question gets to a broader discussion on how he feels about the entire platform that he has. And I think there's some great strengths both on the private side as well as fixed income.

Deanna Strable: Yeah, I do think that question gets to a broader discussion on how he feels about the entire platform that he has, and I think there's some great strengths both on the private side as well as fixed income. Kamal, I'll have you add.

Speaker #4: But Kamal, I'll have you add.

Speaker #3: Sure. Good morning, Mike. Great question. So you had two-part question. One was just our fixed income book and how do I feel about that.

Kamal Ahmad: Sure. Good morning, Mike. Great question. You had a two-part question. One was just our fixed income book and how do I feel about that, the second part is a little bit more in the private market area related to data centers. Let me start with the fixed income business we have. I actually feel quite good about it. A couple of reasons for that. Earlier in the call, there were questions on how our investment performance is doing, our investment performance in fixed income continues to improve. Particularly when I look at our client engagement in areas like high yield credit, our ETF business is benefiting from them internationally. We have done quite well with emerging market debt, that's allowed us to scale up. In the US, we have a pretty strong muni credit strategy. Deanna also mentioned we continue to innovate.

Kamal Bhatia: Sure. Good morning, Mike. Great question. You had a two-part question. One was just our fixed income book and how do I feel about that, the second part is a little bit more in the private market area related to data centers. Let me start with the fixed income business we have. I actually feel quite good about it. A couple of reasons for that. Earlier in the call, there were questions on how our investment performance is doing, our investment performance in fixed income continues to improve. Particularly when I look at our client engagement in areas like high yield credit, our ETF business is benefiting from them internationally. We have done quite well with emerging market debt, that's allowed us to scale up. In the US, we have a pretty strong muni credit strategy. Deanna also mentioned we continue to innovate.

Speaker #3: And then the second part is a little bit more in the private market area related to data center. So let me start with the fixed income business we have.

Speaker #3: I actually feel quite good about it. A couple of reasons for that. Earlier in the call, there were questions on how our investment performance is doing.

Speaker #3: Internationally, we have done quite well with emerging market debt. So that's allowed us to scale up. And in US, we have a pretty strong muni credit strategies.

Speaker #3: Deanna also mentioned we continue to innovate. She mentioned earlier in her comments we recently launched a unique set of innovative fixed income ETFs. So I do think our fixed income business on the public side continues to scale up and over time will contribute more to our earnings power and our growth power.

Kamal Ahmad: She mentioned earlier in her comments, we recently launched a unique set of innovative fixed income ETFs. I do think our fixed income business on the public side continues to scale up, over time, will contribute more to our earnings power and our growth power. The data center question is a good one. First, right off the bat, our focus in the AI data center space is pretty much as a real estate equity investor. We don't generally tend to participate on the private credit side of that equation, where there has been recently more concern on the size of deals that is being done and the risk involved there. My view of this is that, even on the real estate equity side, on the data center side, it is becoming more nuanced.

Kamal Bhatia: She mentioned earlier in her comments, we recently launched a unique set of innovative fixed income ETFs. I do think our fixed income business on the public side continues to scale up, over time, will contribute more to our earnings power and our growth power. The data center question is a good one. First, right off the bat, our focus in the AI data center space is pretty much as a real estate equity investor. We don't generally tend to participate on the private credit side of that equation, where there has been recently more concern on the size of deals that is being done and the risk involved there. My view of this is that, even on the real estate equity side, on the data center side, it is becoming more nuanced.

Speaker #3: The data center question is a good one. So first, right off the bat, you know our focus in the AI data center space is pretty much as a real estate equity investor.

Speaker #3: We don't generally tend to participate on the private credit side. Of that equation, where there has been recently more concern on the size of deals that is being done and the risk involved there, my view of this is that the even on the real estate equity side, on the data center side, it is becoming more nuanced.

Speaker #3: One of the key things is the business has moved away from being less about technology and more about being real estate. You have heard noise around the challenges of acquiring properties, getting power access, the challenges of working through the regulatory environment.

Kamal Ahmad: One of the key things is the business has moved away from being less about technology and more about being real estate. You have heard noise around the challenges of acquiring properties, getting power access, the challenges of working through the regulatory environment. My view is the winners in this space will require real estate negotiation skills, and it will be lumpy, but that's going to be key in this space. From my side, I think we are on the right side of how that plays out, where the value creation will happen. We also tend to generally focus on the small to mid-market size of those deals, which I do think stay under the radar, which allows us to create returns and value for our shareholders.

Kamal Bhatia: One of the key things is the business has moved away from being less about technology and more about being real estate. You have heard noise around the challenges of acquiring properties, getting power access, the challenges of working through the regulatory environment. My view is the winners in this space will require real estate negotiation skills, and it will be lumpy, but that's going to be key in this space. From my side, I think we are on the right side of how that plays out, where the value creation will happen. We also tend to generally focus on the small to mid-market size of those deals, which I do think stay under the radar, which allows us to create returns and value for our shareholders.

Speaker #3: My view is the winners in this space will require real estate negotiation skills. And it will be lumpy, but that's going to be key in the space.

Speaker #3: So from my side, I think we are on the right side of how that plays out, where the value creation will happen and we also tend to generally focus on the small to mid-market size of those deals, which I do think stay under the radar, which allows us to create returns and value for our shareholders.

Speaker #4: Thanks, Mike, for the questions.

Deanna Strable: Thanks, Mike, for the questions.

Speaker #5: Thank you.

Joel Pitz: Thank you.

Speaker #1: Our final question comes from Alex Scott, from Barclays.

Operator: Our final question comes from Alex Scott from Barclays.

Speaker #5: Hey, thanks for putting me in. I wanted to ask a higher-level one about expense margins as we head into the back half of the year.

Alex Scott: Hey, thanks for fitting me in. I wanted to ask a higher level one about expense margins as we head into H2. I know some of your businesses, I think, tend to generate a little bit better margin in H2. How will you approach the trade-off between investing in the business and letting it flow through to earnings? I ask this just because there's a fair amount of tech spend that's being contemplated out there, probably. You also have the benefit of markets at your back in some of your businesses, too. Just any thoughts on how you'll approach that at a high level.

Speaker #5: And you also have the benefit of markets that you're back in some of your businesses too. So just any thoughts on how you'll approach that at a high level?

Deanna Strable: I'll make a couple comments and then have Joel add on. I think if you've looked at us and followed us for years, you know that we have a proven track record of aligning expenses with revenue, and ultimately still making investments in the business because we need to make sure that we're driving those capabilities that will drive sustained long-term growth. If I even look at the last year with only 2% increase in expenses and knowing the investments that we're making across AI, across technology, across driving enhanced capabilities, that's relative to a 5% increase in revenue. We're going to continue to have that discipline, but also not shrink ourselves to greatness, make sure that we're investing in growth.

Speaker #4: And ultimately, still making investments in the business because we need to make sure that we're driving those capabilities that will drive sustained long-term growth by even look at the last year with only 2% increase in expenses.

Speaker #4: And knowing the investments that we're making across AI, across technology, across driving enhanced capabilities, and again, that's relative to a 5% increase in revenue.

Speaker #4: We're going to continue to have that discipline, but also not shrink ourselves to greatness, make sure that we're investing in growth. And I think the other thing I'd mention is as Kamal mentioned, when we do see a business that has some more revenue headwinds, that business will lean even further into how do they make sure that they're aligning expenses with revenue outlook as well.

Deanna Strable: I think the other thing I'd mention is, as Kamal mentioned, when we do see a business that has some more revenue headwinds, that business will lean even further into how do they make sure that they're aligning expenses with revenue outlook as well. I'll see if Joel has some additional comments.

Speaker #4: But I'll see if Joel has some additional comments.

Speaker #5: Yeah, Alex, the only thing I'll add is that we have the privilege of being at scale within all of our businesses. We're well positioned on the markets we're at.

Joel Pitz: Alex, the only thing I'll add is that we have the privilege of being at scale within all of our businesses. We're well-positioned in all the markets we're at. We're very differentiated. We know how to compete and where to compete, which allows us to be very effective in that regard. You've heard us say, Deanna said it before, we're going to meaningfully save so we can meaningfully invest. Again, the reality that we need to invest in our business isn't going to be an excuse not to hit our numbers. We're going to continue to make sure we extract savings where we can and should, so we can make those meaningful investments to position our company for not only short-term but also long-term success.

Speaker #5: We're very differentiated. We know how to compete and where to compete. Which allows us to be very effective in that regard. And you've heard us say, and Deanna said it before, we're going to meaningfully save so we can meaningfully invest.

Speaker #5: And so again, the reality that we need to invest in our business isn't going to be excused not to hit our numbers. We're going to continue to make sure we extract savings where we can and should so we can make those meaningful investments to position our company for not only short-term but also long-term success.

Speaker #5: Thanks for all that. I appreciate it.

Alex Scott: Thanks for all that.

Deanna Strable: Yeah.

Alex Scott: I appreciate it.

Speaker #4: Yep. A follow-up?

Deanna Strable: Yeah. A follow-up?

Alex Scott: Yeah, quick follow-up on investment management. I just noticed the Morningstar data that you guys provide in your deck. The 10-year equity performance declined a bit more meaningfully, and I assume it probably just has to do with something rolling off, but it was a pretty big move. I just wanted to understand, what kind of impact does that specifically have? Is that a metric that people focus on, and could there be a tail to the outflows just associated with some of those metrics getting a little worse?

Speaker #5: Yeah, quick follow-up. On investment management, I just noticed the morning star data that you guys provide in your deck, the 10-year equity performance declined a bit more meaningfully.

Speaker #5: And I assume it probably just has to do with something rolling off. But it was a pretty big move. And I just wanted to understand, what kind of impact does that specifically have?

Speaker #5: Is that a metric? Is that a metric that people focus on? And could there be a tale to the outflows just associated with some of those metrics getting a little worse?

Speaker #4: Yeah, I'll have Kamal address that.

Deanna Strable: Yeah, I'll have Kamal address that.

Speaker #3: Yeah. Good morning. So the 10-year number is important. I would argue that it's way more important on the alpha side given that's what institutions focus on.

Kamal Ahmad: Yeah. Good morning. The 10-year number is important. I would argue that it is way more important on the alpha side, given that is what institutions focus on. The Morningstar metrics are important. Probably the three and five-year number is a more important metric in that regard. You would actually observe that some of the equity performance has deteriorated on the Morningstar 10-year number. I explained earlier that a lot of it is driven by our style of investing, which clearly given the normal market, the recent returns have suffered given the market conditions, and that obviously rolls into the 10-year number. One of the things I will highlight for one of the strategies, one of our larger strategies, the 10-year number, even on Morningstar, is still very strong.

Kamal Bhatia: Yeah. Good morning. The 10-year number is important. I would argue that it is way more important on the alpha side, given that is what institutions focus on. The Morningstar metrics are important. Probably the three and five-year number is a more important metric in that regard. You would actually observe that some of the equity performance has deteriorated on the Morningstar 10-year number. I explained earlier that a lot of it is driven by our style of investing, which clearly given the normal market, the recent returns have suffered given the market conditions, and that obviously rolls into the 10-year number. One of the things I will highlight for one of the strategies, one of our larger strategies, the 10-year number, even on Morningstar, is still very strong.

Speaker #3: The morning star metrics are important, but probably the 3 and 5-year number is a more important metric in that regard. You're rightfully observed that some of the equity performance has deteriorated on the morning star 10-year number.

Speaker #3: I explained earlier that a lot of it is driven by our style of investing, which clearly, given the normal market, the recent returns have been have suffered given the market conditions.

Speaker #3: And that obviously rolls into the 10-year number. One of the things I will highlight for one of the strategies, one of our larger strategies the 10-year number, even on morning star, is still very strong.

Speaker #3: And my view of this is our larger AUM strategies where their 10-year number stands and if they are of institutional interest, how they are performing.

Kamal Ahmad: My view of this is our larger AUM strategies, where their 10-year number stands, and if they are of institutional interest, how they are performing. I feel good from an alpha perspective on those strategies. Certainly monitoring the Morningstar numbers is important for us. It is important for our retirement clients as well. We continue to stay focused on it.

Kamal Bhatia: My view of this is our larger AUM strategies, where their 10-year number stands, and if they are of institutional interest, how they are performing. I feel good from an alpha perspective on those strategies. Certainly monitoring the Morningstar numbers is important for us. It is important for our retirement clients as well. We continue to stay focused on it.

Speaker #3: So I feel good from an alpha perspective on those strategies. But certainly monitoring the morning star numbers is important for us. It's important for our retirement clients as well.

Speaker #3: So we continue to stay focused on it.

Speaker #5: Got it. Thank you.

Alex Scott: Got it. Thank you.

Speaker #1: We've reached the end of our Q&A. Ms. Drable, your closing comments, please.

Operator: We have reached the end of our Q&A. Ms. Strable, your closing comments, please.

Speaker #4: Thank you. As we close today's call, I want to thank all of you for your time and questions. As you look at our second quarter results, it reflects disciplined execution, the strength of our strategy, and value from diversification of our businesses.

Deanna Strable: Thank you. As we close today's call, I want to thank all of you for your time and questions. As you look at our Q2 results, it reflects disciplined execution, the strength of our strategy, and value from diversification of our businesses. We are driving sustainable growth with balanced contributions across revenue growth, margin expansion, and impact of capital deployment. In addition, the actions we're taking to sharpen our portfolio, alongside momentum, a healthy capital position, and strong fundamentals, positions us well to deliver on our targets and deliver long-term value for shareholders. We look forward to connecting with many of you in the months ahead. Thank you again for your time, and have a great day.

Speaker #4: We are driving sustainable growth with balanced contributions across revenue growth, margin expansion, and impact of capital deployment. In addition, the actions we're taking to sharpen our portfolio alongside momentum, a healthy capital position, and strong fundamentals positions us well to deliver on our targets and deliver long-term value for shareholders.

Speaker #4: We look forward to connecting with many of you in the months ahead. Thank you again for your time and have a great 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.

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