Principal Sees Strong Interest in Its Life and Annuity Blocks

Principal Financial Group executives say efforts to wind down unwanted U.S. life and annuity operations are going well.

Dan Houston, the Des Moines, Iowa-based company’s CEO, briefed securities analysts on the company’s realignment Wednesday, during a conference call the company held to go over earnings for the second quarter, which ended June 30.

Principal announced June 28 that it intends to end the sale of U.S. individual fixed annuities and of retail U.S. individual life insurance.

The company is planning to stay in the market for the kinds of individual life policies sold through executive compensation plans.

“Our resulting go-forward strategy is focused on our growth drivers of retirement in the U.S. and emerging markets, global asset management, and U.S. benefits and protection,” Houston said during the call. “These businesses offer the greatest opportunity for growth, leverage our differentiators and integrated business model, and meet our financial objectives of being more capital-efficient with higher returns.”

Houston said Principal is looking for new homes for the blocks of in-force business associated with the lines now being discontinued, to free up capital and to reduce the company’s overall level of risk.

“We are focused on executing on the transactions and expect they are actionable in the near-term,” Houston said.

Deanna Strable, Principal’s chief financial officer, said the annuity blocks that are now on the block are backed by about $18 billion in reserves, and that the universal life block now in the block is backed by $7 billion in reserves.

“While we don’t have details to share on transactions, we will continue to update you as we know more, including timing as well as the financial and capital impacts,” Strable said.

“There’s no shortage of interest in these blocks, whether it’s the annuity or the life,” Houston said. “We feel like there are good buyers out there.”

Executives also talked about COVID-19. A year ago, pandemic-related mortality was a major concern, and mortality spiked in January this year.

But in the second quarter, mortality was a little higher than expected but still low, and Principal is hoping pandemic mortality will be immaterial to earnings for the rest of the year.

The Earnings

Principal is reporting $362 million in net income for the second quarter on $3.5 billion in revenue, compared with $398 million in net income on $3.1 billion in revenue for the second quarter of 2020.

At the retirement and income solutions unit, which sells annuities, pre-tax operating earnings increased to $280 million on $1.7 billion in operating revenue, from $214 million on $1.5 billion operating revenue.

Commissions at that unit increased to $63 million, from $54 million.

Earnings at the U.S. insurance solutions unit, which sells products such as life insurance, disability insurance and dental insurance, fell to $127 million on $1.2 billion in operating revenue, from $155 million on $1.1 billion in operating revenue.

U.S. insurance solutions unit commission expenses increased to $105 million, from $95 million.

Here’s what happened to Principal’s U.S. sales of certain types of products, when compared with the second quarter of 2020, in terms of annualized premium revenue:

• Group Dental and Vision: $32 million (up from $24 million)
• Group Life: $11 million (up from $8.6 million)
• Group Disability: $15 million (up from $13 million)
• Individual Disability: $15 million (about the same)
• Individual Universal and Variable Life: $27 million (down from $29 million)
• Traditional Life: $25 million (up from $21 million)

Dan Houston (Photo: Principal Financial)