PRINCIPAL FINANCIAL GROUP INC

Previous wording

Item7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Current wording

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Previous wording

Positive market performance led to an increase in AUM in our Principal Asset Management segment in 2024, which was partially offset by foreign currency headwinds. Since AUM is the base by which this business generates revenues, market performance and fluctuations in foreign currency exchange rates may impact our revenues in future quarters. Also included in revenues are borrower fees, transaction fees and performance fees, which can fluctuate between years.

Current wording

Positive market performance and foreign currency tailwinds led to an increase in AUM in our Principal Asset Management segment in 2025, which was partially offset by operations disposed. Since AUM is the base by which this business generates revenues, market performance and fluctuations in foreign currency exchange rates may impact our revenues in future quarters. Also included in revenues are borrower fees, transaction fees and performance fees, which can fluctuate between years.

Previous wording

The fair values of our public fixed maturities are primarily based on market prices from third party pricing vendors. We have regular interactions with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information. In addition, 16% of our invested asset portfolio as of December 31, 2024, was invested in privately placed fixed maturities with no readily available market quotes to determine the fair market value. The majority of these assets are valued using a matrix pricing valuation approach that utilizes observable market inputs. In the matrix approach, securities are grouped into pricing categories that vary by sector, rating and average life. Each pricing category is assigned a risk spread based on observable public market data. The expected cash flows of the security are then discounted back at the current Treasury curve plus the appropriate risk spread. Although the matrix valuation approach provides a fair valuation of each pricing category, the valuation of an individual security within each pricing category may be impacted by company specific factors. This excludes privately placed securities subject to Rule 144A of the Securities Act of 1933 that are primarily based on market prices from third party pricing vendors, similar to public fixed maturities.

Current wording

The fair values of our public fixed maturities are primarily based on market prices from third party pricing vendors. We have regular interactions with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information. In addition, 18% of our invested asset portfolio as of December 31, 2025, was invested in privately placed fixed maturities with no readily available market quotes to determine the fair market value. The majority of these assets are valued using a matrix pricing valuation approach that utilizes observable market inputs. In the matrix approach, securities are grouped into pricing categories that vary by sector, rating and average life. Each pricing category is assigned a risk spread based on observable public market data. The expected cash flows of the security are then discounted back at the current Treasury curve plus the appropriate risk spread. Although the matrix valuation approach provides a fair valuation of each pricing category, the valuation of an individual security within each pricing category may be impacted by company specific factors. This excludes privately placed securities subject to Rule 144A of the Securities Act of 1933 that are primarily based on market prices from third party pricing vendors, similar to public fixed maturities.

Previous wording

The $227.0 million increase in net unrealized losses from U.S. investment operations for the year ended December 31, 2024, can primarily be attributed to an increase in interest rates, which was partially offset by a tightening of credit spreads. For additional information about interest rate risk see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”

Current wording

The $1,321.9 million decrease in net unrealized losses from U.S. investment operations for the year ended December 31, 2025, can be attributed to a decrease in interest rates, which was partially offset by a widening of credit spreads. For additional information about interest rate risk see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”

Previous wording

A number of significant risks and uncertainties are inherent in the process of monitoring credit losses and determining the allowance for credit loss. These risks and uncertainties include: (1) the risk that our assessment of an issuer’s ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer; (2) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated; (3) the risk that our investment professionals are making decisions based on fraudulent or misstated information in the financial statements provided by issuers and (4) the risk that new information obtained by us or changes in other facts and circumstances lead us to change our intent to not sell the security prior to recovery of its amortized cost. Any of these situations could result in a charge to net income in a future period. As of December 31, 2024, we had $46,367.3 million in AFS fixed maturities with gross unrealized losses totaling $6,475.2 million. Included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as movement in credit spreads.

Current wording

A number of significant risks and uncertainties are inherent in the process of monitoring credit losses and determining the allowance for credit loss. These risks and uncertainties include: (1) the risk that our assessment of an issuer’s ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer; (2) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated; (3) the risk that our investment professionals are making decisions based on fraudulent or misstated information in the financial statements provided by issuers and (4) the risk that new information obtained by us or changes in other facts and circumstances lead us to change our intent to not sell the security prior to recovery of its amortized cost. Any of these situations could result in a charge to net income in a future period. As of December 31, 2025, we had $39,627.3 million in AFS fixed maturities with gross unrealized losses totaling $5,222.0 million. Included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as movement in credit spreads.

Previous wording

We use derivatives primarily to hedge or reduce exposure to market risks. The fair values of exchange-traded derivatives are determined through quoted market prices. Exchange-traded derivatives include futures that are settled daily, which reduces their fair value in the consolidated statements of financial position. The fair values of privately negotiated contracts, which are usually referred to as over-the-counter (“OTC”) derivatives, that are cleared through centralized clearinghouses are determined through market prices published by the clearinghouses. Variation margin associated with OTC cleared derivatives is settled daily, which reduces their fair value in the consolidated statements of financial position. The fair values of non-cleared OTC derivatives are determined using either pricing valuation models that utilize market observable inputs or broker quotes. On an absolute fair value basis as of December 31, 2024, the majority of our OTC derivative assets and liabilities were valued using pricing valuation models using market observable data with approximately 3% using broker quotes. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 18, Fair Value Measurements” for further discussion. The fair values of our derivative instruments can be impacted by changes in interest rates, foreign exchange rates, credit spreads, equity indices and volatility, as well as other contributing factors. For additional information see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”

Current wording

We use derivatives primarily to hedge or reduce exposure to market risks. The fair values of exchange-traded derivatives are determined through quoted market prices. Exchange-traded derivatives include futures that are settled daily, which reduces their fair value in the consolidated statements of financial position. The fair values of privately negotiated contracts, which are usually referred to as over-the-counter (“OTC”) derivatives, that are cleared through centralized clearinghouses are determined through market prices published by the clearinghouses. Variation margin associated with OTC cleared derivatives is settled daily, which reduces their fair value in the consolidated statements of financial position. The fair values of non-cleared OTC derivatives are determined using either pricing valuation models that utilize market observable inputs or broker quotes. On an absolute fair value basis as of December 31, 2025, the majority of our OTC derivative assets and liabilities were valued using pricing valuation models using market observable data with approximately 2% using broker quotes. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 18, Fair Value Measurements” for further discussion. The fair values of our derivative instruments can be impacted by changes in interest rates, foreign exchange rates, credit spreads, equity indices and volatility, as well as other contributing factors. For additional information see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”

Previous wording

We also issue certain annuity, universal life and other contracts that include embedded derivatives that have been bifurcated from the host contract. They are valued using a combination of historical data and actuarial judgment. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 18, Fair Value Measurements” for further discussion. We include our assumption for own nonperformance risk in the valuation of these embedded derivatives. As our credit spreads widen or tighten, the fair value of the embedded derivative liabilities decrease or increase, leading to an increase or decrease in net income. If the current market credit spreads reflecting our own creditworthiness move to zero (tighten), the reduction to net income would be approximately $35.1 million, net of income taxes, based on December 31, 2024, reported amounts. In addition, the policyholder behavior assumptions used in the valuation of embedded derivatives include risk margins, which increase the fair value of the embedded derivative liabilities.

Current wording

We also issue certain annuity, universal life and other contracts that include embedded derivatives that have been bifurcated from the host contract. They are valued using a combination of historical data and actuarial judgment. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 18, Fair Value Measurements” for further discussion. We include our assumption for own nonperformance risk in the valuation of these embedded derivatives. As our credit spreads widen or tighten, the fair value of the embedded derivative liabilities decrease or increase, leading to an increase or decrease in net income. If the current market credit spreads reflecting our own creditworthiness move to zero (tighten), the reduction to net income would be approximately $99.5 million, net of income taxes, based on December 31, 2025, reported amounts. In addition, the policyholder behavior assumptions used in the valuation of embedded derivatives include risk margins, which increase the fair value of the embedded derivative liabilities.

Previous wording

MRBs are contracts or contract features that provide protection to the policyholder from capital market risk such as equity, interest rate or foreign exchange risk and expose us to other-than-nominal capital market risk. We have certain annuity and other investment contracts that have GMWB and GMDB riders or a guarantee on the minimum account balance under certain qualifying events. These MRBs have been bifurcated from the host contract and are measured at fair value. The change in fair value is recognized in net income, with the exception of the change in fair value related to our own nonperformance risk, which is recognized in OCI. We use various derivative instruments to hedge against changes in fair value of MRBs related to market risk.

Current wording

MRBs are contracts or contract features that provide protection to the policyholder from capital market risk such as equity, interest rate or foreign exchange risk and expose us to other-than-nominal capital market risk. We have certain annuity contracts that have GMWB and guaranteed minimum death benefit (“GMDB”) riders. These MRBs have been bifurcated from the host contract and are measured at fair value. The change in fair value is recognized in net income, with the exception of the change in fair value related to our own nonperformance risk, which is recognized in OCI. We use various derivative instruments to hedge against changes in fair value of MRBs related to market risk.

Previous wording

MRBs are valued using a combination of historical data and actuarial judgment. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11, Market Risk Benefits and Note 18, Fair Value Measurements” for further discussion. We include our assumption for own nonperformance risk in the valuation of these MRBs, which is based on the current market credit spreads for debt-like instruments we have issued and are available in the market. As our credit spreads widen or tighten, the fair value of MRB assets increase or decrease and the fair value of MRB liabilities decrease or increase, leading to an increase or decrease in OCI, respectively. If the current market credit spreads reflecting our own creditworthiness move to zero (tighten), the reduction to OCI would be approximately $42.0 million, net of income taxes, based on December 31, 2024, reported amounts. In addition, the policyholder behavior assumptions used in the valuation of MRBs include risk margins, which decrease the fair value of MRB assets and increase the fair value of MRB liabilities.

Current wording

MRBs are valued using a combination of historical data and actuarial judgment. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11, Market Risk Benefits and Note 18, Fair Value Measurements” for further discussion. We include our assumption for own nonperformance risk in the valuation of these MRBs, which is based on the current market credit spreads for debt-like instruments we have issued and are available in the market. As our credit spreads widen or tighten, the fair value of MRB assets increase or decrease and the fair value of MRB liabilities decrease or increase, leading to an increase or decrease in OCI, respectively. If the current market credit spreads reflecting our own creditworthiness move to zero (tighten), the reduction to OCI would be approximately $51.5 million, net of income taxes, based on December 31, 2025, reported amounts. In addition, the policyholder behavior assumptions used in the valuation of MRBs include risk margins, which decrease the fair value of MRB assets and increase the fair value of MRB liabilities.

Previous wording

Sensitivities. In connection with our annual impairment testing process, we performed a sensitivity analysis for goodwill impairment with respect to each of our reporting units and determined that a hypothetical 10% decline in the fair value would not result in an impairment of goodwill for any reporting unit. We cannot predict certain future events that might adversely affect the reported value of goodwill and other intangible assets that totaled $1,549.7 million and $1,389.9 million, respectively, as of December 31, 2024. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, interest rate movements, declines in the equity markets, the legal environment in which the businesses operate or a material negative change in our relationships with significant customers.

Current wording

Sensitivities. In connection with our annual impairment testing process, we performed a sensitivity analysis for goodwill impairment with respect to each of our reporting units and determined that a hypothetical 10% decline in the fair value would not result in an impairment of goodwill for any reporting unit. We cannot predict certain future events that might adversely affect the reported value of goodwill and other intangible assets that totaled $1,600.5 million and $1,267.0 million, respectively, as of December 31, 2025. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, interest rate movements, declines in the equity markets, the legal environment in which the businesses operate or a material negative change in our relationships with significant customers.

Previous wording

For long-duration insurance contracts, reserves for individual and group annuities are generally equal to the present value of expected future policy benefit payments, while the reserves for non-participating term life insurance and individual disability income contracts is generally equal to the present value of expected future policy benefits less the present value of expected net premiums. Issue-year cohorts are used for the reserve calculation and assumptions are periodically reviewed and updated. Separate cohorts are used for the calculation of ceded reserves. An interest accretion rate is determined for an identified cohort and remains unchanged after the issue year. Reserves are remeasured as of each reporting date to reflect the current upper-medium grade fixed income instruments yields, with the impact reported in OCI. If the current upper-medium grade yields decrease 100 basis points, the reduction in OCI would be approximately $2.2 billion, net of income taxes, based on December 31, 2024, reported amounts.

Current wording

For long-duration insurance contracts, reserves for individual and group annuities are generally equal to the present value of expected future policy benefit payments, while the reserves for non-participating term life insurance and individual disability income contracts is generally equal to the present value of expected future policy benefits less the present value of expected net premiums. Issue-year cohorts are used for the reserve calculation and assumptions are periodically reviewed and updated. Separate cohorts are used for the calculation of ceded reserves. An interest accretion rate is determined for an identified cohort and remains unchanged after the issue year. Reserves are remeasured as of each reporting date to reflect the current upper-medium grade fixed income instruments yields, with the impact reported in OCI. If the current upper-medium grade yields decrease 100 basis points, the reduction in OCI would be approximately $2.4 billion, net of income taxes, based on December 31, 2025, reported amounts.

Previous wording

The assumed discount rate is determined by projecting future benefit payments inherent in the Projected Benefit Obligation and discounting those cash flows using a spot yield curve for high quality corporate bonds. Our assumed discount rate was 5.50% for our pension plans as of December 31, 2024. Typically, a 0.25% decrease in the discount rate would increase the pension benefits Projected Benefit Obligation by approximately $84.8 million and increase the Net Periodic Pension Cost (“NPPC”) by approximately $6.1 million. Typically, a 0.25% increase in the discount rate would result in a decrease in the benefit obligation and expense at a level generally commensurate with those noted above.

Current wording

The assumed discount rate is determined by projecting future benefit payments inherent in the Projected Benefit Obligation and discounting those cash flows using a spot yield curve for high quality corporate bonds. Our assumed discount rate was 5.40% for our pension plans as of December 31, 2025. Typically, a 0.25% decrease in the discount rate would increase the pension benefits Projected Benefit Obligation by approximately $87.1 million and increase the Net Periodic Pension Cost (“NPPC”) by approximately $6.9 million. Typically, a 0.25% increase in the discount rate would result in a decrease in the benefit obligation and expense at a level generally commensurate with those noted above.

Previous wording

The assumed long-term rate of return on plan assets is set at the long-term rate expected to be earned based on the long-term investment policy of the plans and the various classes of the invested funds. Historical and future expected returns of multiple asset classes were analyzed to develop a risk-free real rate of return and risk premiums for each asset class. The overall long-term rate for each asset class was developed by combining a long-term inflation component, the real risk-free rate of return and the associated risk premium. A weighted average rate was developed based on long-term returns for each asset class, the plan’s target asset allocation policy and the tax structure of the trusts. For the 2024 NPPC, a 6.10% weighted average long-term rate of return was used. For the 2025 NPPC, a 6.40% weighted average long-term rate of return assumption will be used. Typically, a 0.25% decrease in the assumed long-term rate of return would increase the NPPC by approximately $6.7 million. Typically, a 0.25% increase in this rate would result in a decrease to expense at the same levels. The assumed return on plan assets is based on the fair market value of plan assets as of December 31, 2024.

Current wording

The assumed long-term rate of return on plan assets is set at the long-term rate expected to be earned based on the long-term investment policy of the plans and the various classes of the invested funds. Historical and future expected returns of multiple asset classes were analyzed to develop a risk-free real rate of return and risk premiums for each asset class. The overall long-term rate for each asset class was developed by combining a long-term inflation component, the real risk-free rate of return and the associated risk premium. A weighted average rate was developed based on long-term returns for each asset class, the plan’s target asset allocation policy and the tax structure of the trusts. For the 2025 NPPC, a 6.40% weighted average long-term rate of return was used. For the 2026 NPPC, a 6.50% weighted average long-term rate of return assumption will be used. Typically, a 0.25% decrease in the assumed long-term rate of return would increase the NPPC by approximately $7.0 million. Typically, a 0.25% increase in this rate would result in a decrease to expense at the same levels. The assumed return on plan assets is based on the fair market value of plan assets as of December 31, 2025.

Previous wording

For pension costs, actuarial gains and losses are amortized using a straight-line amortization method over the average remaining service period of plan participants, which is approximately 10 years. The qualified pension plan does not utilize the allowable corridor, while the nonqualified pension plans utilize the 10% corridor. Prior service costs are amortized on a weighted average basis over approximately 4 years for pension costs. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 15, Employee and Agent Benefits” for further discussion.

Current wording

For pension costs, actuarial gains and losses are amortized using a straight-line amortization method over the average remaining service period of plan participants, which is approximately 10 years. The qualified pension plan does not utilize the allowable corridor, while the nonqualified pension plans utilize the 10% corridor. Prior service costs are amortized on a weighted average basis over approximately 3 years for pension costs. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 15, Employee and Agent Benefits” for further discussion.

Previous wording

We provide for income taxes based on our estimate of the liability for taxes due. Our tax accounting represents management’s best estimate of various events and transactions, such as completion of tax audits or establishment of, or changes to, a valuation allowance associated with certain deferred tax assets, which could affect our estimates and effective income tax rate in a particular quarter or annual period. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect during the years in which the basis differences reverse. We are required to evaluate the recoverability of our deferred tax assets each quarter and establish a valuation allowance, if necessary, to reduce our deferred tax assets to an amount that is more-likely-than-not to be realizable. In determining the need for a valuation allowance, we consider many factors, including future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years and implementation of any feasible and prudent tax planning strategies management would employ to realize the tax benefit.

Current wording

We provide for income taxes based on our estimate of the liability for taxes due. Our tax accounting represents management’s best estimate of various events and transactions, such as completion of tax audits or establishment of, or changes to, a valuation allowance associated with certain deferred tax assets, which could affect our estimates and effective income tax rate in a particular quarter or annual period. Deferred tax assets and liabilities reflect differences between financial and tax bases, using enacted future tax rates. We assess deferred tax asset recoverability quarterly and establish valuation allowances as needed. We consider reversals of existing taxable temporary differences, future income, carrybacks, and tax planning strategies when evaluating the need for valuation allowances.

Previous wording

Deferred income taxes (including federal, state and foreign withholding) have not been provided on approximately $1,276.3 million of accumulated but undistributed earnings from operations of foreign subsidiaries as of December 31, 2024. We do not record deferred income taxes on foreign earnings not expected to be distributed to the U.S. We apply an exception to the general rule, which under U.S. GAAP otherwise requires the recording of deferred income taxes on the anticipated repatriation of foreign earnings as recognized for financial reporting purposes. The exception permits us to not record a deferred income tax liability on foreign earnings we expect to be indefinitely reinvested in our foreign operations. The related deferred income taxes will be recorded in the period it becomes apparent we can no longer positively assert some or all the undistributed earnings will remain invested into the foreseeable future.

Current wording

Deferred income taxes (including federal, state and foreign withholding) have not been provided on undistributed earnings from operations of foreign subsidiaries as of December 31, 2025. We do not record deferred income taxes on foreign earnings not expected to be distributed to the U.S. We apply an exception to the general rule, which under U.S. GAAP otherwise requires the recording of deferred income taxes on the anticipated repatriation of foreign earnings as recognized for financial reporting purposes. The exception permits us to not record a deferred income tax liability on foreign earnings we expect to be indefinitely reinvested in our foreign operations. The related deferred income taxes will be recorded in the period it becomes apparent we can no longer positively assert some or all the undistributed earnings will remain invested into the foreseeable future.

Previous wording

On January 16, 2025, we announced the signing of an agreement with BCT to expand our investment management capabilities and exit our sponsor and trustee (pension) roles in Hong Kong for MPF Schemes. BCT will be assuming the role as sponsor and trustee for the Principal MPF Schemes. The transaction is expected to close during the first quarter of 2026, subject to regulatory approval, and will be reported within the Principal Asset Management segment. We expect to record a one-time charge of approximately $140.0 million in the first quarter of 2025 primarily attributable to the write-down of certain intangible assets and deferred contract cost assets, which will reduce pre-tax net income. For segment reporting purposes, the charge will be reported as exited business and net realized capital loss from exiting our roles as MPF Scheme sponsor and trustee. As such, it will have no impact on segment pre-tax operating earnings.

Current wording

On January 16, 2025, we announced the signing of an agreement with BCT to expand our investment management capabilities and exit our sponsor and trustee (pension) roles in Hong Kong for MPF Schemes. BCT will be assuming the role as sponsor and trustee for the Principal MPF Schemes. The transaction is expected to close in 2026, subject to regulatory approval; however, certain transaction impacts were recognized in first quarter 2025. We impaired our distribution agreement intangible asset and contract cost asset, resulting in a $65.4 million loss reported in operating expenses on our consolidated statements of operations. Additionally, we classified our customer relationship intangible asset as held-for-sale, resulting in a $77.0 million loss reported in net realized capital gains (losses) on our consolidated statements of operations. For segment reporting, the impairments are reflected in loss from exited business and the held-for-sale write-down is reflected in net realized capital losses. As such, they had no impact on our Principal Asset Management segment pre-tax operating earnings.

Previous wording

Actuarial Assumption Updates. We periodically review and update actuarial assumptions that are inputs to the models for the liability for future policy benefits for traditional limited-payment long-duration contracts and other actuarial balances. Assumption updates, model refinements and other updates made resulted in a change in cash flow assumptions that decreased consolidated net income attributable to Principal Financial Group, Inc. by $78.0 million and $9.7 million for the years ended December 31, 2024 and 2023, respectively.

Current wording

Actuarial Assumption Updates. We periodically review and update actuarial assumptions that are inputs to the models for the liability for future policy benefits for traditional limited-payment long-duration contracts and other actuarial balances. Assumption updates, model refinements and other updates made resulted in a change in cash flow assumptions that decreased consolidated net income attributable to Principal Financial Group, Inc. by $59.3 million and $78.0 million for the years ended December 31, 2025 and 2024, respectively.

Previous wording

Foreign currency exchange rate fluctuations create variances in our financial statement line items. The most significant impact occurs within our Principal Asset Management segment where pre-tax operating earnings were negatively impacted $25.2 million for the year ended December 31, 2024, as a result of fluctuations in foreign currency to U.S. dollar exchange rates. This impact was calculated by comparing (a) the difference between current year results and prior year results to (b) the difference between current year results and prior year results translated using current year exchange rates for both periods. We use this approach to calculate the impact of exchange rates on all revenue and expense line items. For a discussion of our approaches to managing foreign currency exchange rate risk, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency Risk.”

Current wording

Foreign currency exchange rate fluctuations create variances in our financial statement line items. The most significant impact occurs within our Principal Asset Management segment where pre-tax operating earnings were negatively impacted $4.4 million for the year ended December 31, 2025, as a result of fluctuations in foreign currency to U.S. dollar exchange rates. This impact was calculated by comparing (a) the difference between current year results and prior year results to (b) the difference between current year results and prior year results translated using current year exchange rates for both periods. We use this approach to calculate the impact of exchange rates on all revenue and expense line items. For a discussion of our approaches to managing foreign currency exchange rate risk, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency Risk.”

Previous wording

Premiums and other considerations increased $201.9 million for the Retirement and Income Solutions segment primarily due to higher sales of single premium group annuities with life contingencies. The single premium group annuity product, which is typically used to fund defined benefit plan terminations, can generate large premiums from very few customers and therefore premiums tend to vary from period to period. Premiums and other considerations increased $168.4 million for the Benefits and Protection segment primarily due to growth in the Specialty Benefits business.

Current wording

Premiums and other considerations decreased $157.8 million for the Retirement and Income Solutions segment primarily due to lower sales of single premium group annuities with life contingencies. Premiums and other considerations decreased $22.8 million for the Principal Asset Management segment primarily due to lower sales of annuities in our Chile closed block. Premiums and other considerations increased $111.0 million for the Benefits and Protection segment primarily due to growth in the Specialty Benefits business.

Previous wording

Fees and other revenues increased $109.6 million for the Retirement and Income Solutions segment primarily due to an increase in fee revenue stemming from an increase in average monthly account values, which largely resulted from more favorable financial markets. Fees and other revenues increased for the Principal Asset Management segment due to $92.7 million higher management fee revenue as a result of increased average AUM managed by our Investment Management operations, which was partially offset by $24.2 million lower performance fee revenue for our Investment Management operations primarily in our real estate business.

Current wording

Fees and other revenues increased $64.8 million for the Principal Asset Management segment primarily due to higher management fee revenue as a result of increased average AUM managed by our Investment Management operations. Fees and other revenues increased $21.5 million for the Benefits and Protection segment primarily due to growth in our Life Insurance business.

Previous wording

For net investment income and net realized capital losses variance information, see “Investments — Investment Results” under the captions “Net Investment Income” and “Net Realized Capital Gains (Losses),” respectively.

Current wording

For net investment income and net realized capital gains (losses) variance information, see “Investments — Investment Results” under the captions “Net Investment Income” and “Net Realized Capital Gains (Losses),” respectively.

Previous wording

Net realized capital gains on funds withheld assets decreased due to lower net gains on sales of funds withheld assets as a result of lower sales in 2024 resulting from less portfolio re-positioning by an external reinsurer.

Current wording

Net realized capital gains on funds withheld assets decreased primarily due to $70.6 million lower gains on sales of funds withheld assets as a result of reduced sales in 2025 by an external reinsurer partially offset by a $25.9 million change due to net unrealized gains on funds withheld assets in 2025 as compared to net unrealized losses in 2024.

Previous wording

The change in fair value of the funds withheld embedded derivative resulted in a gain in 2024 due primarily to an increase in interest rates as compared to a loss in 2023 due primarily to a tightening of credit spreads.

Current wording

The change in fair value of the funds withheld embedded derivative resulted in a loss in 2025 as compared to a gain in 2024 due to changes in interest rates and credit spreads.

Previous wording

The liability for future policy benefits remeasurement (gain) loss change was primarily due to the unfavorable effect of changes in cash flow assumptions related to a $544.5 million one-time impact of the YRT Reinsurance Transactions in 2024 and a $131.6 million impact driven by actuarial assumption updates and model refinements.

Current wording

The liability for future policy benefits remeasurement (gain) loss change was primarily due to the effect of changes in cash flow assumptions related to a one-time unfavorable impact of the YRT Reinsurance Transactions in 2024.

Previous wording

Operating expenses increased primarily due to a $148.4 million increase in compensation costs, an $85.9 million increase in nondeferrable commission expense and an $81.4 million increase in amounts credited to employee accounts in a nonqualified defined contribution pension plan.

Current wording

Operating expenses increased primarily due to a $95.3 million increase in compensation costs, $65.4 million of impairments of our distribution agreement intangible asset and contract cost asset in Hong Kong and a $64.6 million increase in nondeferrable commission expense. The increases were partially offset by a $78.1 million decrease in amounts credited to employee accounts in a nonqualified defined contribution pension plan, a $41.0 million decrease resulting from a one-time expense accrual release in 2025 and a $21.1 million decrease in management fees.

Previous wording

The effective income tax rate increased to 15% for the year ended December 31, 2024 from 9% for the year ended December 31, 2023, primarily due to an increase in pre-tax income with no proportionate change in permanent tax differences. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Income Taxes” under the caption, “Effective Income Tax Rate” for further discussion.

Current wording

The effective income tax rate decreased to 11% for the year ended December 31, 2025 from 15% for the year ended December 31, 2024, primarily due to a 2% impact from a decrease in pre-tax income, a 1% impact from our foreign valuation allowance and a 1% impact from foreign tax credits. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Income Taxes” under the caption, “Effective Income Tax Rate” for further discussion.

Previous wording

The following table presents the Retirement and Income Solutions segment net revenue for the years indicated:

Current wording

The following table presents the Retirement and Income Solutions segment net revenue and average monthly account values for the years indicated:

Previous wording

Pre-tax operating earnings slightly increased due to an increase in net revenue, which was offset by an increase in operating expenses as described below.

Current wording

Pre-tax operating earnings increased due to an increase in net revenue, which was slightly offset by an increase in operating expenses as described below.

Previous wording

Net revenue increased primarily due to a $115.4 million increase in fee revenue stemming from an increase in average monthly account values, which largely resulted from more favorable financial markets, and a $62.1 million increase in variable investment income. These increases were partially offset by a $70.1 million impact associated with actuarial assumption updates and model refinements, which was unfavorable in 2024 compared to favorable in 2023.

Current wording

Net revenue increased primarily due to an $82.7 million increase due to growth in the business, a $28.7 million impact associated with actuarial assumption updates and model refinements, which were favorable in 2025 compared to unfavorable in 2024, and a $12.9 million increase in variable investment income.

Previous wording

The following table presents the AUM rollforward for assets managed by Principal Asset Management for the periods indicated.

Current wording

The following table presents the AUM rollforward for assets managed by the Principal Asset Management segment for the periods indicated.

Previous wording

Pre-tax operating earnings increased in our Investment Management operations primarily due to $92.7 million higher management fee revenue as a result of increased average AUM. This was partially offset by $24.2 million lower performance fee revenue primarily in our real estate business, a $17.0 million increase in variable compensation expense, a $10.9 million increase in variable AUM expenses and a $5.8 million increase in non-variable staff costs. Pre-tax operating earnings increased in our International Pension operations primarily due to $33.2 million of increased earnings from our equity method investments in Brazil primarily as a result of our actuarial assumption review and other updates and $7.4 million of favorable relative market performance on our required regulatory investments. These improvements were partially offset by $25.7 million of foreign currency headwinds.

Current wording

Pre-tax operating earnings increased in our Investment Management operations primarily due to $58.3 million higher management fee revenue as a result of increased average AUM. This was partially offset by an $11.4 million increase in non-variable staff costs and a $6.2 million increase in variable compensation expense. Pre-tax operating earnings increased in our International Pension operations due to $29.6 million of favorable relative market performance on our required regulatory investments and $19.4 million increased variable investment income. These improvements were partially offset by $7.5 million of foreign currency headwinds.

Previous wording

Net investment income in our Specialty Benefits business increased $13.4 million due to growth in invested assets and $3.8 million due to higher yields on invested assets. Net investment income in our Life Insurance business increased $10.4 million due to higher yields on invested assets.

Current wording

Net investment income in our Specialty Benefits business increased $13.0 million due to higher yields on invested assets and $3.5 million due to growth in invested assets. Net investment income in our Life Insurance business increased $21.4 million from growth in invested assets.

Previous wording

Benefits, claims and settlement expenses in our Specialty Benefits business increased $122.0 million due to growth in the business, offset by $8.7 million due to more favorable actuarial assumption updates and model refinements in 2024 compared to 2023. Benefits, claims and settlement expenses in our Life Insurance business decreased $65.0 million due to the one-time impacts of the YRT Reinsurance Transactions in 2024, offset by $12.1 million due to growth in business and $4.0 million due to unfavorable actuarial assumption updates, model refinements and other updates in 2024 compared to favorable in 2023.

Current wording

Benefits, claims and settlement expenses in our Specialty Benefits business increased $63.5 million due to growth in the business and $16.1 million due to unfavorable actuarial assumption updates in 2025 compared to favorable in 2024, offset by $40.0 million from improved claims experience. Benefits, claims and settlement expenses in our Life Insurance business increased $65.0 million due to the one-time impact of the YRT Reinsurance Transactions in 2024 and $49.7 million from unfavorable claims experience.

Previous wording

Liability for future policy benefits remeasurement loss in our Specialty Benefits business increased $18.5 million due to unfavorable actuarial assumption updates and model refinements in 2024 compared to favorable in 2023. Liability for future policy benefits remeasurement loss in our Life Insurance business increased $55.9 million due to more unfavorable actuarial assumption updates, model refinements and other updates in 2024 compared to 2023 and $44.8 million due to the one-time impacts of the YRT Reinsurance Transactions in 2024.

Current wording

Liability for future policy benefits remeasurement (gain) loss in our Specialty Benefits business changed $31.7 million due to favorable actuarial assumption updates in 2025 compared to unfavorable in 2024. Liability for future policy benefits remeasurement loss in our Life Insurance business decreased $44.8 million due to the one-time impact of the YRT Reinsurance Transactions in 2024 and $26.5 million due to changes in underlying claims experience, partially offset by $22.4 million due to more unfavorable actuarial assumption updates, model refinements and other updates in 2025 compared to 2024.

Previous wording

Operating expenses in our Specialty Benefits business increased $62.4 million due to growth in the business. Operating expenses in our Life Insurance business increased $11.7 million due to higher net commissions and $6.8 million due to growth in the business.

Current wording

Operating expenses in our Specialty Benefits business increased $33.1 million due to growth in the business and $28.1 million due to higher net commissions, partially offset by a $7.1 million decrease due to a one-time expense accrual release in 2025. Operating expenses in our Life Insurance business decreased $3.5 million due to lower net commissions and $3.2 million due to a one-time expense accrual release in 2025.

Previous wording

We also manage liquidity risk by limiting the sales of liabilities with features such as puts or other options that can be exercised at inopportune times. For example, as of December 31, 2024, approximately $14.9 billion, or 99%, of our institutional guaranteed investment contracts and funding agreements cannot be redeemed by contractholders prior to maturity. Our individual annuity liabilities also contain surrender charges and other provisions limiting early surrenders.

Current wording

We also manage liquidity risk by limiting the sales of liabilities with features such as puts or other options that can be exercised at inopportune times. For example, as of December 31, 2025, approximately $13.9 billion, or 99%, of our institutional guaranteed investment contracts and funding agreements cannot be redeemed by contractholders prior to maturity. Our individual annuity liabilities also contain surrender charges and other provisions limiting early surrenders.

Previous wording

Dividends or other distributions from Principal Life, our primary subsidiary, are limited by Iowa law. Under Iowa law, Principal Life may pay dividends or make other distributions only from the earned surplus arising from its business and must receive the prior approval of the Commissioner of Insurance of the State of Iowa (the “Commissioner”) to pay stockholder dividends or make any other distribution if such distribution would exceed certain statutory limitations. Iowa law gives the Commissioner discretion to disapprove requests for distributions in excess of these limitations. Extraordinary dividends include those made, together with dividends and other distributions, within the preceding twelve months that exceed the greater of (i) 10% of statutory policyholder surplus as of the previous year-end excluding admitted disallowed interest maintenance reserve or (ii) the statutory net gain from operations from the previous calendar year, not to exceed earned surplus. Based on statutory results for the year ended December 31, 2024, the ordinary stockholder dividend limitation for Principal Life is approximately $1,313.1 million in 2025. However, because the dividend test is based on dividends previously paid over rolling twelve month periods, if paid before a specified date during 2025, some or all of such dividends may be extraordinary and require regulatory approval.

Current wording

Dividends or other distributions from Principal Life, our primary subsidiary, are limited by Iowa law. Under Iowa law, Principal Life may pay dividends or make other distributions only from the earned surplus arising from its business and must receive the prior approval of the Commissioner of Insurance of the State of Iowa (the “Commissioner”) to pay stockholder dividends or make any other distribution if such distribution would exceed certain statutory limitations. Iowa law gives the Commissioner discretion to disapprove requests for distributions in excess of these limitations. Extraordinary dividends include those made, together with dividends and other distributions, within the preceding twelve months that exceed the greater of (i) 10% of statutory policyholder surplus as of the previous year-end excluding admitted disallowed interest maintenance reserve or (ii) the statutory net gain from operations from the previous calendar year, not to exceed earned surplus. Based on statutory results for the year ended December 31, 2025, the ordinary stockholder dividend limitation for Principal Life is approximately $1,234.0 million in 2026. However, because the dividend test is based on dividends previously paid over rolling twelve month periods, if paid before a specified date during 2026, some or all of such dividends may be extraordinary and require regulatory approval.

Previous wording

Total stockholder dividends paid by Principal Life to its parent in 2024 were $1,010.0 million, all of which was extraordinary and approved by the Commissioner. As of December 31, 2024, we had $1,941.5 million of cash and liquid assets held in our holding companies and other subsidiaries, which is available for corporate purposes. Corporate balances held in foreign holding companies meet the indefinite reinvestment exception.

Current wording

Total stockholder dividends paid by Principal Life to its parent in 2025 were $1,055.0 million, all of which was extraordinary and approved by the Commissioner. As of December 31, 2025, we had $2,362.3 million of cash and liquid assets held in our holding companies and other subsidiaries, which is available for corporate purposes. Corporate balances held in foreign holding companies meet the indefinite reinvestment exception.

Previous wording

In 2023, total stockholder dividends paid by Principal Life to its parent were $1,200.0 million, all of which was extraordinary and approved by the Commissioner.

Current wording

In 2024, total stockholder dividends paid by Principal Life to its parent were $1,010.0 million, all of which was extraordinary and approved by the Commissioner.