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October 28, 2019 at 02:28 AM
Principal Financial Group Inc. is now assuming that interest rates will be lower than it had hoped, and take longer than it had hoped to climb back to a reasonable level.
Executives at the Des Moines, Iowa-based life insurer talked about the company’s response to the recent interest rate rollercoaster Friday, during a conference call the company held to go over earnings with securities analysts.
(Related: Here’s Why Interest Rates Made Supporting Annuities Trickier for Ameriprise This Summer)
Principal is reporting $277 million in net income for the third quarter on $4.5 billion in revenue, compared with $456 million in net income on $4.3 billion in revenue for the third quarter of 2018.
Here’s how two major Principal units did in the latest quarter, when compared with results for the year-earlier quarter:
- The U.S. Retirement and Income Solutions unit is reporting $170 million in pretax operating earnings on $2.6 billion in revenue, compared with $184 million in pretax operating earnings on $2.4 billion in revenue.
- The U.S. Insurance Solutions unit is reporting $120 million in pretax operating earnings on $1.2 billion in revenue, compared with $126 million in pretax operating earnings on $1 billion in revenue.
Dan Houston, Principal’s chief executive officer, acknowledged during the conference call that, even after adjustments, operating earnings were down about 10%.
“The decline reflects macroeconomic headwinds,” Houston said.
Earnings were down partly because the third quarter of 2018 was a strong quarter, and partly because of increased investments in the business, Houston said.
But company executives said an adjustment to interest assumptions also affected earnings.
Deanna Strable, Principal’s chief financial officer, said the company lowered its assumption for the key 10-year Treasury note rate by 0.5 percentage points, to 4%.
