Tom Gallagher

Tom Gallagher asked about Principal Financial Group's M&A philosophy, noting a shift from M&A-focused capital deployment to primarily common dividends and buybacks, and whether the company would consider lumpy defined contribution assets coming to market.

Answer

CEO Deanna Strable stated that Principal's disciplined M&A philosophy remains unchanged, prioritizing strategic alignment, increased growth potential, meeting financial targets, and cultural fit. She emphasized the ability to meet financial targets organically but confirmed the company remains inquisitive and has capital flexibility for inorganic opportunities, especially where scale is critical. She noted that after integrating Wells Fargo and divesting other businesses, Principal is now on the 'front foot' for growth opportunities.

Tom Gallagher asked about the performance of Principal Financial Group's commercial real estate (CRE) returns, asset management flows, and commercial mortgage loan exposure, seeking insight into a potential market inflection point. He also questioned the company's M&A philosophy, particularly regarding large defined contribution assets.

Answer

CEO Deanna Strable and President Kamal Bhatia noted CRE is in its strongest position in three years, with stability in occupancy and pricing, improving capital flows, and increased transaction volume, positioning Principal's institutional book for outperformance. CEO Deanna Strable reiterated a disciplined M&A philosophy focused on strategic alignment, capabilities, financial targets, and cultural fit, emphasizing organic growth but maintaining capital flexibility for opportunistic, high-bar inorganic growth after recent integrations and divestitures.

Questioned the risk of long-term care (LTC) incidence trends being permanently revised higher in the next actuarial review and challenged the sustainability of the low 62% disability loss ratio, which is significantly better than pre-pandemic levels and peers.

Answer

Management declined to preview the LTC review results but emphasized the large statutory reserve buffer. For disability, they expressed confidence in the sustainability of the low loss ratio, attributing it to their best-in-class claims management operations and a sales approach focused on integrated solutions rather than just price, which supports fair returns.