PRINCIPAL FINANCIAL GROUP INC

Previous wording

The following analysis discusses our financial condition as of September 30, 2024, compared with December 31, 2023, and our consolidated results of operations for the three and nine months ended September 30, 2024 and 2023, prepared in conformity with U.S. GAAP. The discussion and analysis includes, where appropriate, factors that may affect our future financial performance. The discussion should be read in conjunction with our Form 10-K, for the year ended December 31, 2023, filed with the SEC and the unaudited condensed consolidated financial statements and the related notes to the financial statements and the other financial information included elsewhere in this Form 10-Q.

Current wording

The following analysis discusses our financial condition as of March 31, 2025, compared with December 31, 2024, and our consolidated results of operations for the three months ended March 31, 2025 and 2024, prepared in conformity with U.S. GAAP. The discussion and analysis includes, where appropriate, factors that may affect our future financial performance. The discussion should be read in conjunction with our Form 10-K, for the year ended December 31, 2024, filed with the SEC and the unaudited condensed consolidated financial statements and the related notes to the financial statements and the other financial information included elsewhere in this Form 10-Q.

Previous wording

Actual results may differ materially from those included in the forward-looking statements as a result of risks and uncertainties including, but not limited to, the following: (1) adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, as well as our access to capital and cost of capital; (2) conditions in the global capital markets, including the equity, bond or real estate markets, and the economy generally may materially and adversely affect our business and results of operations; (3) changes in interest rates or credit spreads or a prolonged low interest rate environment may adversely affect our results of operations, financial condition and liquidity, and our net income can vary from period to period; (4) our investment portfolio is subject to several risks that may diminish the value of our invested assets and the investment returns credited to customers, which could reduce our sales, revenues, AUM and net income; (5) our valuation of investments and the determinations of the amount of allowances and impairments taken on our investments may include methodologies, estimations and assumptions that are subject to differing interpretations and, if changed, could materially adversely affect our results of operations or financial condition; (6) any impairments of or valuation allowances against our deferred tax assets could adversely affect our results of operations and financial condition; (7) we may face losses on our insurance and annuity products if our actual experience differs significantly from our pricing and reserving assumptions; (8) the pattern of amortizing our DAC asset and other actuarial balances may change, impacting both the level of our DAC asset and other actuarial balances and the timing of our net income; (9) changes in laws or regulations may reduce our profitability or impact how we do business; (10) our ability to pay stockholder dividends, make share repurchases and meet our obligations may be constrained by the limitations on dividends or other distributions Iowa insurance laws impose on Principal Life; (11) changes in accounting standards may adversely affect our reported results of operations and financial condition; (12) litigation and regulatory investigations may affect our financial strength or reduce our profitability; (13) from time to time, we may become subject to tax audits, tax litigation or similar proceedings, and as a result we may owe additional taxes, interest and penalties in amounts that may be material; (14) applicable laws and our certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider in their best interests; (15) competition, including from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance, may impair our ability to retain existing customers, attract new customers and maintain our profitability; …

Excerpt shortened here; the source contains the full paragraph.

Current wording

Actual results may differ materially from those included in the forward-looking statements as a result of risks and uncertainties including, but not limited to, the following: (1) adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, as well as our access to capital and cost of capital; (2) conditions in the global capital markets, including the equity, bond or real estate markets, and the economy generally may materially and adversely affect our business and results of operations; (3) changes in interest rates or credit spreads or a prolonged low interest rate environment may adversely affect our results of operations, financial condition and liquidity, and our net income can vary from period to period; (4) our investment portfolio is subject to several risks that may diminish the value of our invested assets and the investment returns credited to customers, which could reduce our sales, revenues, AUM and net income; (5) our valuation of investments and the determinations of the amount of allowances and impairments taken on our investments may include methodologies, estimations and assumptions that are subject to differing interpretations and, if changed, could materially adversely affect our results of operations or financial condition; (6) any impairments of or valuation allowances against our deferred tax assets could adversely affect our results of operations and financial condition; (7) we may face losses on our insurance and annuity products if our actual experience differs significantly from our pricing and reserving assumptions; (8) the pattern of amortizing our DAC asset and other actuarial balances may change, impacting both the level of our DAC asset and other actuarial balances and the timing of our net income; (9) changes in laws or regulations may reduce our profitability or impact how we do business; (10) our ability to pay stockholder dividends, make share repurchases and meet our obligations may be constrained by the limitations on dividends or other distributions Iowa insurance laws impose on Principal Life; (11) changes in accounting standards may adversely affect our reported results of operations and financial condition; (12) litigation and regulatory investigations may affect our financial strength or reduce our profitability; (13) from time to time, we may become subject to tax audits, tax litigation or similar proceedings, and as a result we may owe additional taxes, interest and penalties in amounts that may be material; (14) applicable laws and our certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider in their best interests; (15) competition, including from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance, may impair our ability to retain existing customers, attract new customers and maintain our profitability; …

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Transactions Affecting Comparability of Results of Operations

Current wording

Transaction Affecting Comparability of Results of Operations

Previous wording

Foreign currency exchange rate fluctuations create variances in our financial statement line items. The most significant impact occurs within our Principal International operations where pre-tax operating earnings were negatively impacted $7.5 million and $14.8 million for the three and nine months ended September 30, 2024, respectively, 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 3. “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 $6.0 million for the three months ended March 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 3. “Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency Risk.”

Previous wording

Net income (loss) attributable to Principal Financial Group, Inc. decreased primarily due to the change in fair value of the funds withheld embedded derivative.

Current wording

Net income (loss) attributable to Principal Financial Group, Inc. decreased $321.4 million due to the change in the fair value of the funds withheld embedded derivative and $119.7 million due to the impact from asset write-downs related to exiting our sponsor and trustee (pension) roles in Hong Kong for MPF Schemes.

Previous wording

Premiums and other considerations decreased $89.3 million for the Retirement and Income Solutions segment primarily due to lower 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. This decrease was partially offset by a $41.7 million increase for the Benefits and Protection segment primarily due to growth in our Specialty Benefits business.

Current wording

Premiums and other considerations increased $44.7 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 $22.3 million for the Benefits and Protection segment primarily from growth in our Specialty Benefits business.

Previous wording

Fees and other revenues increased $84.5 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 $49.4 million higher management fee revenue as a result of increased average AUM managed by our Principal Global Investors operations, which was partially offset by $20.3 million lower performance fee revenue for our Principal Global Investors operations primarily in our real estate business. Fees and other revenues increased $19.5 million for the Benefits and Protection segment primarily due to growth in our Life Insurance business.

Current wording

Fees and other revenues increased $15.5 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 $5.5 million for the Benefits and Protection segment primarily due to growth in our Life Insurance business.

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 reduced portfolio re-positioning by an external reinsurer.

Current wording

Net realized capital gains on funds withheld assets decreased due to $38.5 million lower net gains on sales of funds withheld assets as a result of reduced sales in 2025 by an external reinsurer partially offset by a $15.4 million increase 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 loss in 2024 due primarily to a decrease in interest rates as compared to a gain in 2023 due primarily to an increase in interest rates.

Current wording

The change in the fair value of the funds withheld embedded derivative resulted in a loss in 2025 compared to a gain in 2024 driven by changes in interest rates.

Previous wording

Benefits, claims and settlement expenses increased for the Benefits and Protection segment primarily due to a $30.7 million increase from negative claims experience in our Specialty Benefits business and a $27.3 million increase from growth in our Specialty Benefits business.

Current wording

Benefits, claims and settlement expenses increased $109.2 million for the Retirement and Income Solutions segment primarily due to an increase in reserves, largely stemming from higher sales of single premium group annuities with life contingencies. Benefits, claims and settlement expenses increased for the Benefits and Protection segment primarily due to an $18.3 million increase from growth in our Specialty Benefits business and a $13.9 million increase due to unfavorable claims experience in our Life Insurance business.

Previous wording

The market risk benefit remeasurement loss increased primarily due to a $140.1 million unfavorable impact from the change in fair value of the MRB asset (liability), excluding impacts of nonperformance risk, primarily driven by changes in market movements. This change was partially offset by a $104.7 million favorable impact from periodic and final settlements for derivatives used to hedge MRBs.

Current wording

The market risk benefit remeasurement (gain) loss change is primarily due to a $154.6 million unfavorable impact from the change in fair value of the MRB asset (liability), excluding impacts of nonperformance risk, primarily driven by changes in market movements. This change was partially offset by a $105.4 million favorable impact from periodic and final settlements for derivatives used to hedge MRBs. See Item 1. “Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, Note 10, Market Risk Benefits” for further information on market effects.

Previous wording

Operating expenses increased primarily due to a $101.3 million increase in compensation costs, a $60.1 million increase in amounts credited to employee accounts in a nonqualified defined contribution pension plan and a $59.5 million increase in nondeferrable commission expense.

Current wording

Operating expenses increased primarily due to $65.4 million of impairments of our distribution agreement intangible asset and contract cost asset in Hong Kong, a $34.2 million increase in compensation costs and an $18.3 million increase in nondeferrable commission expense. These increases were partially offset by a $65.6 million decrease in amounts credited to employee accounts in a nonqualified defined contribution pension plan.

Previous wording

The effective income tax rate increased to 34% for the three months ended September 30, 2024, from 22% for the three months ended September 30, 2023, primarily due to a decrease in pre-tax income with no proportionate change in permanent tax differences. See Item 1. “Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, Note 11, Income Taxes” for a reconciliation between the U.S. corporate income tax rate and the effective income tax rate.

Current wording

The effective income tax rate of (118)% for the three months ended March 31, 2025, changed from 15% for the three months ended March 31, 2024, primarily due to a decrease in pre-tax income with no proportionate change in permanent tax differences. See Item 1. “Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, Note 13, Income Taxes” for a reconciliation of the corporate income tax rate to the effective income tax rate.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

Pre-tax operating earnings increased due to an increase in our net revenue partially offset by an increase in operating expenses as described below.

Previous wording

Net revenue increased primarily due to an $87.9 million increase in fee revenue stemming from an increase in average monthly account values, which largely resulted from more favorable financial markets, and a $46.9 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 growth in the business.

Previous wording

The following table presents the AUM rollforward for assets managed by Principal Global Investors for the periods indicated. The amounts include assets managed by Principal Global Investors on behalf of Principal International, which are also reported in the Principal International AUM table below.

Current wording

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

Previous wording

Net investment income in our Specialty Benefits business increased $5.3 million due to growth in invested assets. Net investment income in our Life Insurance business increased $8.5 million from mark-to-market changes on options associated with our indexed universal life insurance.

Current wording

Net investment income in our Specialty Benefits business increased $2.9 million due to higher yields on invested assets and $2.5 million due to growth in invested assets. Net investment income in our Life Insurance business decreased $16.1 million from mark-to-market changes on options associated with our indexed universal life insurance, partially offset by a $6.6 million increase due to higher yields on invested assets.

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 September 30, 2024, approximately $15.0 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 March 31, 2025, approximately $14.6 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, 2023, the ordinary stockholder dividend limitation for Principal Life is approximately $1,497.8 million in 2024. However, because the dividend test is based on dividends previously paid over rolling twelve month periods, if paid before a specified date during 2024, 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, 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.

Previous wording

Total stockholder dividends paid by Principal Life to its parent for the nine months ended September 30, 2024, were $885.0 million, all of which was extraordinary and approved by the Commissioner. As of September 30, 2024, we had $3,337.5 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 for the three months ended March 31, 2025, were $350.0 million, all of which was extraordinary and approved by the Commissioner. As of March 31, 2025, we had $1,599.4 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

Net cash provided by operating activities was $3,143.9 million and $2,848.4 million for the nine months ended September 30, 2024 and 2023, respectively. Our insurance business typically generates positive cash flows from operating activities, as premiums collected from our insurance products and investment income received exceed acquisition costs, benefits paid, redemptions and operating expenses. These positive cash flows are then invested to support the obligations of our insurance and investment products and required capital supporting these products. Our cash flows from operating activities are affected by the timing of premiums, fees and investment income received and benefits and expenses paid. The increase in cash provided by operating activities was primarily due to a one-time impact of the YRT Reinsurance Transactions in 2024.

Current wording

Net cash provided by operating activities was $977.3 million and $584.2 million for the three months ended March 31, 2025 and 2024, respectively. Our insurance business typically generates positive cash flows from operating activities, as premiums collected from our insurance products and investment income received exceed acquisition costs, benefits paid, redemptions and operating expenses. These positive cash flows are then invested to support the obligations of our insurance and investment products and required capital supporting these products. Our cash flows from operating activities are affected by the timing of premiums, fees and investment income received and benefits and expenses paid. The increase in cash provided by operating activities in 2025 compared to 2024 was primarily due to fluctuations in receivables and payables associated with the timing of settlements.

Previous wording

Net cash used in investing activities was $1,628.6 million and $1,131.9 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in cash used in investing activities was due to higher net purchases of available-for-sale securities in 2024 as compared to 2023.

Current wording

Net cash used in investing activities was $952.7 million and $1,343.2 million for the three months ended March 31, 2025 and 2024, respectively. The decrease in cash used in investing activities was primarily due to higher net sales of mortgage loans in 2025 as compared to 2024.

Previous wording

Net cash used in financing activities was $48.5 million and $2,000.2 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease in cash used in financing activities was due to an increase in banking operation deposits in 2024 as compared to a decrease in 2023 and net investment contract deposits in 2024 as compared to net investment contract withdrawals in 2023. These were partially offset by higher acquisitions of treasury stock in 2024 as compared to 2023.

Current wording

Net cash used in financing activities was $360.8 million for the three months ended March 31, 2025, compared to net cash provided by financing activities of $219.7 million for the three months ended March 31, 2024. The increase in cash used in financing activities was due to lower net investment contract deposits in 2025 as compared to 2024 and a net decrease in banking operation deposits in 2025 as compared to an increase in 2024.

Previous wording

Contingent Funding Agreements for Senior Debt Issuance. In March 2018, we entered into two contingent funding agreements that give us the right at any time over a ten-year or thirty-year period to issue up to $400.0 million or $350.0 million, respectively, of senior notes.

Current wording

Contingent Funding Agreements for Senior Debt Issuance. On March 6, 2025, we entered into a contingent funding agreement that gives us the right at any time over a thirty-year period to issue up to $500.0 million of senior notes.

Previous wording

In February 2024, our Board authorized a share repurchase program of up to $1.5 billion of our outstanding common stock, which has no expiration. See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds,” for information about our share repurchase authorizations. For additional stockholders’ equity information, see Item 1. “Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, Note 14, Stockholders’ Equity.”

Current wording

In February 2024, our Board authorized a share repurchase program of up to $1.5 billion of our outstanding common stock, which has no expiration date. In February 2025, our Board authorized a share repurchase program of up to $1.5 billion of our outstanding common stock, which has no expiration date. See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds,” for information about our share repurchase authorizations. For additional stockholders’ equity information, see Item 1. “Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, Note 16, Stockholders’ Equity.”

Previous wording

As of December 31, 2023, 46% of our net assets (liabilities) were Level 1, 51% were Level 2 and 3% were Level 3. Excluding separate account assets as of December 31, 2023, 3% of our net assets (liabilities) were Level 1, 88% were Level 2 and 9% were Level 3.

Current wording

As of March 31, 2025, 46% of our net assets (liabilities) were Level 1, 51% were Level 2 and 3% were Level 3. Excluding separate account assets as of March 31, 2025, 4% of our net assets (liabilities) were Level 1, 87% were Level 2 and 9% were Level 3.

Previous wording

As of September 30, 2024, 47% of our net assets (liabilities) were Level 1, 50% were Level 2 and 3% were Level 3. Excluding separate account assets as of September 30, 2024, 3% of our net assets (liabilities) were Level 1, 89% were Level 2 and 8% were Level 3.

Current wording

As of December 31, 2024, 47% of our net assets (liabilities) were Level 1, 50% were Level 2 and 3% were Level 3. Excluding separate account assets as of December 31, 2024, 4% of our net assets (liabilities) were Level 1, 87% were Level 2 and 9% were Level 3.

Previous wording

Net assets (liabilities) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2024, were $7,022.2 million as compared to $7,447.8 million as of December 31, 2023. The decrease was primarily due to a decrease in the funds withheld payable embedded derivative net asset.

Current wording

Net assets (liabilities) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2025, were $7,736.7 million as compared to $8,046.3 million as of December 31, 2024. The decrease was primarily related to a decrease in the funds withheld payable embedded derivative net asset.

Previous wording

We had total consolidated assets as of September 30, 2024, of $322,857.7 million, of which $102,647.7 million were invested assets. A portion of our invested assets represent funds withheld backing reserves as part of coinsurance with funds withheld reinsurance agreements. The funds withheld assets and associated net investment income and net realized capital gains (losses) are not included in the discussions below as the investment risk is passed to the reinsurer. See Item 1. “Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, Note 10, Reinsurance” for more information on the funds withheld assets. The rest of our total consolidated assets are comprised primarily of separate account assets for which we do not bear investment risk; therefore, the discussion and financial information below does not include such assets.

Current wording

We had total consolidated assets as of March 31, 2025, of $313,003.3 million, of which $105,294.6 million were invested assets. A portion of our invested assets represent funds withheld backing reserves as part of coinsurance with funds withheld reinsurance agreements. The funds withheld assets and associated net investment income and net realized capital gains (losses) are not included in the discussions below as the investment risk is passed to the reinsurer. See Item 1. “Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, Note 11, Reinsurance” for more information on the funds withheld assets. The rest of our total consolidated assets are comprised primarily of separate account assets for which we do not bear investment risk; therefore, the discussion and financial information below does not include such assets.

Previous wording

Net investment income increased primarily due to higher yields and average invested assets in fixed maturities and cash in our U.S. operations.

Current wording

Net investment income increased primarily due to higher average invested assets and yields in fixed maturities for our U.S. operations. These increases were partially offset by lower income in other investments, particularly related to hedge funds for our U.S. operations.

Previous wording

Net realized capital gains decreased primarily due to losses versus gains on non-hedged interest rate derivatives due to changes in rates, increased losses on commercial mortgage loan reserve changes and decreased gains on equity real estate. These decreases were partially offset by gains versus losses on currency derivatives due to changes in rates and gains versus losses from noncredit available-for-sale fixed maturities.

Current wording

Net realized capital losses increased primarily due to a held-for-sale write-down of an intangible asset in 2025, increased non-credit losses on available-for-sale fixed maturities and increased losses on non-hedged interest rate derivatives due to changes in interest rates. These increases were partially offset by gains versus losses on currency derivatives, increased gains on GMWB/RILA activities and gains versus losses on commercial mortgage loan reserve changes.

Previous wording

In the following sections, we provide details about U.S. Investment Operations, excluding investments held as part of coinsurance with funds withheld agreements. We believe the details of the composition of our investment portfolio excluding the funds withheld are most relevant to an understanding of our operations that are pertinent to investors because all funds withheld assets support obligations and liabilities relating to reinsurance transactions. Guidelines are in place to ensure the investment risk associated with these fund withheld assets are appropriately managed. See Footnote 10, Reinsurance, for further information on the funds withheld assets.

Current wording

In the following sections, we provide details about U.S. Investment Operations, excluding investments held as part of coinsurance with funds withheld agreements. We believe the details of the composition of our investment portfolio excluding the funds withheld are most relevant to an understanding of our operations that are pertinent to investors because all funds withheld assets support obligations and liabilities relating to reinsurance agreements. Guidelines are in place to ensure the investment risk associated with these fund withheld assets are appropriately managed. See Note 11, Reinsurance, for further information on the funds withheld assets.

Previous wording

Of our invested assets, $77,830.2 million were held by our U.S. operations as of September 30, 2024. Our U.S. invested assets are managed primarily by Principal Global Investors. Our Investment Committee, appointed by our Board, is responsible for establishing investment policies and monitoring risk limits and tolerances. Our primary investment objective is to maximize after-tax returns consistent with acceptable risk parameters. We seek to protect customers’ benefits by optimizing the risk/return relationship on an ongoing basis, through asset/liability matching, reducing credit risk, avoiding high levels of investments that may be redeemed by the issuer, maintaining sufficiently liquid investments and avoiding undue asset concentrations through diversification. We are exposed to two primary sources of investment risk:

Current wording

Of our invested assets, $81,720.7 million were held by our U.S. operations as of March 31, 2025. Our U.S. invested assets are managed primarily by Principal Asset Management–Investment Management. Our Investment Committee, appointed by our Board, is responsible for establishing investment policies and monitoring risk limits and tolerances. Our primary investment objective is to maximize after-tax returns consistent with acceptable risk parameters. We seek to protect customers’ benefits by optimizing the risk/return relationship on an ongoing basis, through asset/liability matching, reducing credit risk, avoiding high levels of investments that may be redeemed by the issuer, maintaining sufficiently liquid investments and avoiding undue asset concentrations through diversification. We are exposed to two primary sources of investment risk:

Previous wording

We purchase credit default swaps to hedge certain credit exposures in our investment portfolio. We economically hedged credit exposure in our portfolio by purchasing credit default swaps with a notional amount of $105.0 million and $85.0 million as of September 30, 2024 and December 31, 2023, respectively. We sell credit default swaps and total return swaps to offer credit protection to investors when entering into synthetic replicating transactions. When selling credit protection, if there is an event of default by the referenced name, we are obligated to pay the counterparty the referenced amount of the contract and receive in return the referenced security. When selling total return swaps, if there is an event of default by the referenced name, we are obligated to compensate the protection buyer for any decline in the price of the referenced security. For further information on credit derivatives sold, see Item 1. “Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, Note 4, Derivative Financial Instruments” under the caption, “Credit Derivatives Sold.”

Current wording

We purchase credit default swaps to hedge certain credit exposures in our investment portfolio. We economically hedged credit exposure in our portfolio by purchasing credit default swaps with a notional amount of $155.0 million as of both March 31, 2025 and December 31, 2024. We sell credit default swaps and total return swaps to offer credit protection to investors when entering into synthetic replicating transactions. When selling credit protection, if there is an event of default by the referenced name, we are obligated to pay the counterparty the referenced amount of the contract and receive in return the referenced security. When selling total return swaps, if there is an event of default by the referenced name, we are obligated to compensate the protection buyer for any decline in the price of the referenced security. For further information on credit derivatives sold, see Item 1. “Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, Note 5, Derivative Financial Instruments” under the caption, “Credit Derivatives Sold.”

Previous wording

The amortized cost and weighted average yield, calculated using amortized cost, of non-structured fixed maturity securities that will be callable at the option of the issuer, excluding securities with a make-whole provision, were $2,193.6 million and 4.1%, respectively, as of September 30, 2024, and $2,159.0 million and 4.0%, respectively, as of December 31, 2023. In addition, the amortized cost and weighted average yield of RMBS, residential collateralized mortgage obligations, and asset-backed securities - home equity with material prepayment risk were $8,011.0 million and 4.1%, respectively, as of September 30, 2024, and $6,959.0 million and 3.7%, respectively, as of December 31, 2023.

Current wording

The amortized cost and weighted average yield, calculated using amortized cost, of non-structured fixed maturity securities that will be callable at the option of the issuer, excluding securities with a make-whole provision, were $2,344.8 million and 4.3%, respectively, as of March 31, 2025, and $2,091.5 million and 4.0%, respectively, as of December 31, 2024. In addition, the amortized cost and weighted average yield of RMBS, residential collateralized mortgage obligations, and asset-backed securities - home equity with material prepayment risk were $8,637.1 million and 4.2%, respectively, as of March 31, 2025, and $8,401.9 million and 4.1%, respectively, as of December 31, 2024.

Previous wording

Fixed maturities were diversified by category of issuer, as shown in the following table for the periods indicated.

Current wording

Fixed maturities include bonds, ABS, redeemable preferred stock and certain non-redeemable preferred securities that were diversified by category of issuer, as shown in the following table for the periods indicated.

Previous wording

The international exposure held in our U.S. operation’s fixed maturities portfolio was 15% of total fixed maturities as of September 30, 2024, and 14% as of December 31, 2023. It is comprised of corporate and foreign government fixed maturities.

Current wording

The international exposure held in our U.S. operation’s fixed maturities portfolio was 14% of total fixed maturities as of both March 31, 2025 and December 31, 2024. It is comprised of corporate and foreign government fixed maturities.

Previous wording

International fixed maturities exposure is determined by the country of risk of the obligor entity. All international fixed maturities held by our U.S. operations are either denominated in U.S. dollars or have been swapped into U.S. dollar equivalents. Our international investments are analyzed internally by country and industry credit investment professionals. We control concentrations using issuer and country level exposure benchmarks, which are based on the credit quality of the issuer and the country. Our investment policy limits total international fixed maturities investments and we are within those internal limits. Exposure to Canada is not included in our international exposure. As of September 30, 2024 and December 31, 2023, our investments in Canada totaled $1,020.1 million and $958.0 million, respectively.

Current wording

International fixed maturities exposure is determined by the country of risk of the obligor entity. All international fixed maturities held by our U.S. operations are either denominated in U.S. dollars or have been swapped into U.S. dollar equivalents. Our international investments are analyzed internally by country and industry credit investment professionals. We control concentrations using issuer and country level exposure benchmarks, which are based on the credit quality of the issuer and the country. Our investment policy limits total international fixed maturities investments and we are within those internal limits. Exposure to Canada is not included in our international exposure. As of March 31, 2025 and December 31, 2024, our investments in Canada totaled $969.5 million and $966.1 million, respectively.

Previous wording

Fixed Maturities Credit Concentrations. One aspect of managing credit risk is through industry, issuer and asset class diversification. Our credit concentrations are managed to established limits. The top 10 exposures comprised 5.3% of single-name credit fixed maturity exposures as of September 30, 2024, and 4.8% as of December 31, 2023.

Current wording

Fixed Maturities Credit Concentrations. One aspect of managing credit risk is through industry, issuer and asset class diversification. Our credit concentrations are managed to established limits. The top 10 exposures comprised 5.4% of single-name credit fixed maturity exposures as of both March 31, 2025 and December 31, 2024.