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Principal Sees COVID-19 Impacting Earnings

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Executives at Principal Financial Group Inc. now assume that COVID-19 will kill about 300,000 people in the United States in 2021, with more of the deaths occurring in the first half of the year.

The company is continuing to estimate that it will incur about $10 million in direct mortality and morbidity impact on earnings, after taxes, for every 100,000 U.S. COVID-19-related deaths.

The company recorded about $14 million in direct COVID-19-related mortality and morbidity impact in the fourth quarter.

Resources

The Des Moines, Iowa-based life and health insurer talked about its pandemic assumptions Thursday, when it released its earnings for the fourth quarter of 2020.

Company executives said that, overall, business overall has held up well.

Group benefits sales have been lower, but retention has been strong, and consumer interest in term life has also been strong, the company said.

At the Retirement and Income Solutions unit, which sells individual annuities, group annuities, pension plan products and services, and related services, sales of fixed annuities were down, because of low interest rates and pricing discipline. But a pandemic-related increase in mortality added $15 million to fixed annuity earnings, Principal estimated.

Variable annuity sales were down, and about 2% of retirement plan participants took COVID-19-related hardship withdrawals. But the amount of withdrawal fell to $800 million in the fourth quarter of 2020, from $1 billion in the third quarter of 2020, and recurring deposits increased 7% between the fourth quarter of 2019 and the latest quarter, according to Principal.

The company said it expects to see participant withdrawals return to pre-pandemic levels this year, and for sales to recover as the economy stabilizes.

Principal is known for having a large commercial mortgage loan business.

Principal recorded only $70 million in impact in the fourth quarter from loan losses and lender downgrades, and only 2% of Principal’s U.S. commercial mortgage loans have been modified or granted forbearance as a result of the economic turmoil, the company said.

One sign of confidence: In addition to maintaining the company’s regular stock dividend, the company has resumed using cash to buy back shares of its own stock.

Earnings

Principal is reporting $473 million in net income for the fourth quarter on $3.8 billion in revenue, up from $301 million in net income on $4 billion in revenue for the fourth quarter of 2019.

Commission expense fell to $241 million, from $242 million.

Pre-tax operating earnings increased to $267 million on $1.8 billion in operating revenue, from $207 million on $2.3 billion operating revenue, at the company’s Retirement and Income Solutions unit.

Commissions at that unit fell to $57 million, from $66 million.

Earnings at the U.S. insurance solutions unit, which sells products such as life insurance, disability insurance and dental insurance, fell to $89 million on $1.1 billion in operating revenue, from $144 million on $1.1 billion in operating revenue.

U.S. insurance solutions unit commission expense increased to $108 million, from $103 million.

Sales

Here’s what happened to Principal’s U.S. sales of certain types of products, when compared with the fourth quarter of 2019, in terms of annualized premium revenue:

  • Group Dental and Vision: $35 million (down from $46 million)
  • Group Life: $16 million (up from $14 million)
  • Group Disability: $21 million (up from $19 million)
  • Individual Disability: $15 million (down from 15.4)
  • Universal and Variable Life: $35 million (down from $57 million)
  • Traditional Life: $30 million (up from $22 million)

— Read Q4 Life, Health and Annuity Earnings Calendaron ThinkAdvisor.

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