With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

AI is a major force shaping this year’s list—but it’s far from the only story.

World's Most Admired Companies

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

The 300 companies on this year’s list brought in over $12.6 trillion in revenue for the latest 12 months, with the median revenue figure at $22 billion.

America's Most Innovative Companies

Leaders in all industries rely more than ever on Big Tech—and appreciate the giants that deliver, at scale, without drama.

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The 25th Fortune World’s Most Admired Companies list suggests that tech giants’ peers respect them as much as ever.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

Just as it dominates our economy, Big Tech now dominates Fortune’s annual ranking of corporate reputation.

This year’s Fortune 500 marks the 68th running of the list.

After a year in which humanity leaned more heavily than ever on tech giants, see which companies topped Fortune's ranking of corporate reputation.

This year’s Fortune 500 marks the 67th running of the list.

F500 2021-206- Principal Financial

The Des Moines-based financial services company helps clients with retirement planning and asset management and offers varied insurance coverage plans worldwide.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-201-Principal-Financial

A financial services provider offering retirement plans, insurance, and asset management, Principal Financial climbed 18 places on the this year's ranking.

This year's Fortune 500 marks the 65th running of the list.

Here are the World's Most Admired Companies for 2018 as ranked in their industries. See who made the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Sector

Culture rank

Process rank

Product rank

Years on list

Previous rank

Industry

Current All-Star Rank

Previous All-Star Rank

Industry Rank

Previous Industry Rank

Overall Score

Innovation

People Management

Use of Corporate Assets

Social Responsibility

Quality of Management

Financial Soundness

Long-Term Investment Value

Quality of Products/Services

Global Competitiveness

Key Financials (last Fiscal Year)

Revenues ($M)

Profits ($M)

Assets ($M)

Total Stockholder Equity ($M)

Profit Ratios

Profit as % of Revenues

Profits as % of Assets

Profits as % of Stockholder Equity

Earnings Per Share (last Fiscal Year)

Earnings Per Share ($)

EPS % Change (from prior fiscal year)

EPS % Change (5 year annual rate)

EPS % Change (10 year annual rate)

Total Return

Total Return to Investors (last year)

Total Return to Investors (5 year, annualized)

Total Return to Investors (10 year, annualized)

Q2 2026

Q1 2026

Q4 2025

Q3 2025

Q2 2025

Q1 2025

Q4 2024

Get insights into Principal Financial including business profile, stock information, news, and rankings from Fortune.

Principal Financial (PFG): Company Profile, Stock Price, News, Rankings

legacy

Principal Financial

principal financial

Good morning, and welcome to the Principal Financial Group Fourth Quarter twenty twenty four Financial Results and twenty twenty five Outlook Conference Call. There will be a question and answer period after the speakers have completed their prepared remarks. So we can get to everyone in the queue. I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group's Fourth Quarter and Full Year twenty twenty four Earnings and twenty twenty four Outlook Conference Call. As always, materials related to today's call are available on our website at investors.principal.com. Following a reading of the Safe Harbor provision, CEO, Deanna Strabo and Interim CFO, Joe Pitts will deliver some prepared remarks. We will then open the call for questions.

Members of senior management are also available for Q and A. Some of the comments made during this conference call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10 K filed by the company with the U. S.

Securities and Exchange Commission. Additionally,

the comments made during this conference call may refer to non GAAP financial measures. Reconciliations of the non GAAP financial measures to the most directly comparable U. S. GAAP financial measures may be found in our earnings release, financial supplement and slide presentation. Deanna?

Thanks, Humphrey, and welcome to everyone on the call. Before I begin this morning, I'd like to recognize Dan Houston for his leadership as our CEO over the last ten years. He has been instrumental in setting our growth agenda and has led us through significant transformation. Principal is in a position of strength today and is well positioned for continued growth, thanks to his tireless leadership. It has been an honor to work alongside Dan over the last seven years as his CFO.

I look forward to building upon the strong foundation we've established under Dan's leadership. I am extremely grateful to continue to have him serve as the Executive Chair of our Board. This morning, I will discuss key milestones and highlights from the fourth quarter and full year 2024. Joel will follow with additional details. Principal delivered a strong 2024.

We began the year with an ambitious outlook. We committed to growing earnings per share in the 9% to 12% range, targeting a 75% to 85% free capital flow conversion and expanding our ROE toward our targeted range of 14% to 16%. I'm extremely pleased that we've delivered on this guidance. Our adjusted non GAAP earnings per share growth in 2024 was 11% with a strong 16% increase in the fourth quarter. This was driven by strong top line growth across the enterprise as well as the benefits from equity market tailwinds which more than offset impacts from foreign currency.

Our free capital flow conversion ratio ended the year at the midpoint of our 75% to 85% target and we improved our ROE by 90 basis points year over year and are on track to achieve our 14% to 16% target in 2025. Our strong capital position and free capital flow enabled us to deliver on our capital deployment guidance. We returned $1,700,000,000 of capital to shareholders in 2024. Our total capital return to shareholders included share buybacks, which were above the midpoint of our targeted range and a 10% increase in our annual common stock dividend. Our Board of Directors just approved a new share repurchase authorization for 1,500,000,000 This is in addition to the nearly $800,000,000 remaining under the prior authorization at the end of the year.

At our recent Investor Day, we laid out our strategic areas of focus for sustained growth, the broad retirement ecosystem, small and mid sized businesses and global asset management. I'm happy to highlight some of our achievements related to these. As part of our retirement ecosystem strategy, we've recently expanded our suite of target data offerings to now include both personalized and passive options, addressing the evolving needs of plan sponsors and participants. Our differentiated capabilities across retirement and asset management also led to an off platform retirement investment mandate win of nearly $1,000,000,000 into our hybrid target date in the fourth quarter. This highlights our opportunity to unlock incremental value at the intersection of our businesses.

Over decades, we have built a resilient and valuable SMB customer base. This segment is large with significant opportunities for growth. We remain uniquely positioned to serve this market and look to expand on our leadership position in a disciplined way. In RIS, we continue to experience strong growth in this segment with 8% recurring deposit growth in 2024 outpacing the large case segment. In Specialty Benefits, our customers on average have more than three products with us, up 4% compared to 2023.

We have deep customer relationships, a strong leadership position and a long track record of above market growth in the attractive SMB segment. In asset management, we continue to expand our private and multi asset solutions gaining traction in next generation real estate and credit strategies with clients globally. Our largest real estate fund, Data Center Growth and Income Fund has currently raised over 3,600,000,000 across 11 countries in eighteen months. This will materialize through net cash flow over time. Notably new institutional clients represent 36% of the Fund's total commitments.

Beyond real estate, we are advancing our private and multi asset capabilities, including the launch of a private credit refund and the build out of a private infrastructure debt team. Our clear strategy and strong execution across these three distinct growth platforms delivered strong results in 2024 and will continue going forward. We ended 2024 with $712,000,000,000 of total company managed AUM, down 4% sequentially, but up 3% from 2023. Strong market performance despite market volatility in the final weeks of the year more than offset the impacts from FX and net cash flow. Total company net cash flow improved for both the fourth quarter and full year 2024 compared to the year ago periods.

Specifically positive institutional and retail flows in the quarter helped to partially offset what is typically our weakest quarter due to seasonality in U. S. Retirement sales and lapse activity. Now turning to our business segments. In retirement, we generated strong revenue and earnings growth in 2024.

This was driven by favorable market conditions and continued growth in our business due to the breadth and depth of our integrated suite of retirement solutions spanning record keeping, asset management and retirement income. The underlying fundamentals across retirement remain healthy. Recurring deposits for our total block in 2024 increased 7% over 2023 driven by the strength in the SMB segment. The number of individuals deferring and receiving employer matches are up 3% compared to fourth quarter of twenty twenty three. In addition, the dollar amount of these deferrals and matches increased by over 7% during the same period.

There is growing interest and participation in employer sponsored retirement plans. Employers and plan sponsors are choosing to partner with us because of our full suite of solutions we offer and how we serve advisors, plan sponsors and participants. And while higher account values driven by strong equity markets over the last couple of years has led to an increase in withdrawal amounts, we are encouraged that the rate of participant withdrawals stabilized in the quarter. Contact retention rates also improved substantially in 2024 compared to the previous two years. Better retention and an improved sales pipeline are generating strong momentum in our business.

Pension risk transfer sales were nearly $900,000,000 in the fourth quarter bringing our full year sales to over $3,000,000,000 at attractive returns. The PRT market remains robust and we are positioned to take advantage of it. Our defined benefits business continues to be a valuable source for PRT new business with nearly 40% of our twenty twenty four new contracts coming from existing defined benefit customer relationships. In Asset Management, we realigned our businesses into Investment Management and International Pension in the fourth quarter. Asset management ended the year with $683,000,000,000 of AUM.

Strong market performance in 2024 was partially offset by nearly $28,000,000,000 of FX impacts. Net flows for the year improved compared to 2023 in investment management as non affiliated flows benefited from improvement across all channels. We continue to evolve our global asset management business positioning against new opportunities for growth and even stronger client outcomes. Our strategic focus remains on attractive businesses that leverage our competitive differentiators and leadership positions. As evidence of this evolution, we recently took several actions to streamline our business portfolio within asset management.

Most impactful is Hong Kong, where a changing regulatory environment necessitates us evolving our presence in the market, focusing on our core expertise of retirement asset management, while pursuing a new partnership with an industry leader in pension services. Our transaction with Bank Consortium Trust or BCT when approved would transition our NPF schemes to BCT and expand our role as an investment manager with assets from the combined pension schemes. The financial impact has been factored into our outlook. Turning to benefits and protection, we continue to generate above market growth of 7% in specialty benefits in 2024. This reflects net new business growth while maintaining pricing discipline.

In life, our focus on the business owner is resonating as our business market premium and fees grew over 16% in 2024. As I look at the opportunities in front of us, I am confident in our ability to drive value through deeper market penetration in SMB, expanding our offering within the retirement ecosystem and sharpening our focus in global asset management. Before turning it over to Joel, I'd like to highlight two important recognitions we received recently. Principal was named one of America's Most Just Companies by Just Capital, ranking number 11 on the 2025 Just 100 list. This recognition reflects our leadership in the industry and our commitment to serving our employees, customers, communities and shareholders.

Additionally, for the thirteenth consecutive year, Principal Asset Management was named a Best Place to Work in Money Management by Pensions and Investments, earning this recognition every year since the inception of the award. Recognitions like this reinforce our culture and core values, help us attract and retain top talent and allow us to stand out in the competitive marketplace. We closed 2024 with momentum across our diverse portfolio of businesses. Our success is a testament to the focus and hard work of our 20,000 global employees. Their ongoing commitment to excellence and to our customers enabled us to seize opportunities and has set the stage for future growth.

Thanks, Deanna. Good morning to everyone on the call. I'll walk through our financial performance for the fourth quarter and full year, provide updates on our investment portfolio and capital position and share details of our outlook for 2025. As shown on slides three and four, excluding significant variances, full year non GAAP operating earnings were $1,800,000,000 or $7.65 per diluted share. This represents an 11% increase in EPS over twenty twenty three, comfortably within our 9% to 12% EPS guidance.

Results for the quarter were equally strong with non GAAP operating earnings excluding significant variances of $485,000,000 or $2.1 per diluted share, a 16% increase over the year ago quarter. You can find the significant variance items on Slide 17 through 19. Full year reported net income excluding exited business was $1,500,000,000 with modest credit losses and drift, both slightly better than our expectations at the beginning of the year. Non GAAP operating ROE for 2024, excluding our actuarial assumption review, was 13.7%, an improvement of 90 basis points compared to the year ago period. We remain on track to deliver our 14% to 16% targeted ROE by 2025.

'20 '20 '4 equity markets created favorable tailwinds with strong total returns across major indices. The S and P five hundred gained 25% for the year with more modest growth in small cap, mid cap, real estate and international equities. Our diversified equity asset mix along with our allocation to fixed income asset classes results in market performance that varies from the S and P 500. This underscores the importance of recognizing the asset mix within our AUM, which can be found in the appendix on Slide 16. Foreign exchange rates negatively impacted AUM by $28,000,000,000 for the full year and $17,000,000,000 for the quarter.

Despite this impact, equity market performance more than offset the FX impacts for the full year. The following commentary excludes significant variances. Our full year results demonstrate the strength of our integrated businesses, which enabled us to deliver on our 2024 enterprise guidance of 9% to 12% EPS growth. We delivered top line growth of 5% across the company in 2024. This coupled with expense discipline, while investing in our business, resulted in non GAAP margin expansion of 60 basis points during the year.

Starting with RIS, full year pre tax operating earnings increased 9% over 2023, driven by strong business growth, favorable market conditions and higher net investment income. Net revenue growth of 7% for the full year exceeded our long term target and our guidance for 2024. The 40 margin was at the high end of our guided range. These results highlight our disciplined focus on profitable revenue growth supported by favorable macroeconomic tailwinds. Principal Asset Management delivered strong results for the year.

Specifically, Investment Management's pre tax operating earnings increased 6% over 2023, driven by higher management fees resulting from strong market performance. Full year operating margin of 35% expanded 100 basis points from a year ago, a noteworthy accomplishment in a year with limited contributions from performance fees. International Pensions pretax operating earnings were relatively flat compared to 2023 due to $26,000,000 of FX impacts in the year. On a constant currency basis, earnings increased 9% driven by 4% growth in net revenue. Operating margin improved by 100 basis points reflecting growth and strong execution in our targeted markets.

Although we revised the presentation, it is worth noting that PGI delivered on full year guidance as did Principal International on a constant currency basis. Specialty Benefits continues to deliver attractive premium and fees growth, up 7% compared to full year 2023. Quarter over quarter comparisons are impacted by a large single premium sale in the fourth quarter of twenty twenty three, which makes direct comparisons less meaningful. Notably, Specialty Benefits produced record earnings in the fourth quarter as well as full year 2024. Loss ratio for the year of 60.4% was favorable and at the low end of our guided range.

And operating margin of 15% was above the midpoint of our guided range. These results underscore the effectiveness of management actions to drive profitable growth. In our Life business, growth in our business market continues to outpace the roll off of the legacy block. Full year Life premium and fees increased 1% overall with business market premium and fees up 16% year over year. We executed another YRT reinsurance transaction as we continue to derisk the legacy life portfolio.

This had an immaterial impact on earnings and a slight decrease to premium and fees. Excluding the 2024 reinsurance transactions, premium and fees growth was 3% in 2024. Turning to our investment portfolio, we maintain a well diversified and high quality portfolio that aligns with our liability profile. It is well positioned to perform across a variety of economic conditions. While commercial mortgage loans may still be on some investors' minds, our portfolio is of high quality with an average loan to value ratio of 50% and debt service coverage ratio of 2.3 times.

We continue to re underwrite our office loans each quarter. After successfully resolving our 2024 office loan maturities, we enter 2025 with continued optimism. Maturities in the coming year are lower than in 2024 at $310,000,000 We are off to a good start with $75,000,000 already having been paid off. Revival in capital market activity will help the office market continue its recovery path. For more detailed information, we have provided supplemental investment slides available on our website.

Turning to capital and liquidity. We ended the year in a very strong position with $1,600,000,000 of excess and available capital. This includes $830,000,000 at the holding company above our $800,000,000 targeted level, $300,000,000 in our subsidiaries and $430,000,000 in excess of our targeted 375% risk based capital ratio, which is 404% at year end. On a full year basis, we delivered 80% free capital flow conversion comfortably within our 75% to 85% targeted range. As shown on slide three, we returned $1,700,000,000 to shareholders in 2024, including $1,000,000,000 via share repurchases and $660,000,000 in common stock dividends.

As Deanna noted previously, this was above the midpoint of our 2024 guidance. This included just under $470,000,000 of capital returned to shareholders in the fourth quarter, '3 hundred million dollars in share repurchases and $170,000,000 in dividends. Last night, we announced a $0.75 common stock dividend payable in the first quarter. This represents a $0.02 increase over the prior quarter's dividend, a 10% dividend growth rate on a trailing twelve month basis and aligns with our targeted 40% dividend payout ratio, underscoring our confidence and continued growth and strong performance. Our results reinforce our balanced approach to capital deployment, creating long term value for shareholders, while maintaining financial flexibility to support growth opportunities.

Turning to our outlook, starting on Slide 11, we are well positioned to deliver on our enterprise long term financial targets again in 2025. These were reaffirmed at Investor Day with 9% to 12% growth in earnings per share, 75% to 85 free capital flow conversion and 14% to 16% return on equity. As a reminder, these targets are excluding significant variances. We expect to see even stronger EPS growth on a reported basis. We remain committed to returning excess capital to shareholders and are targeting 1,400,000,000 to $1,700,000,000 of capital deployments in 2025.

This includes $700,000,000 to $1,000,000,000 of share repurchases and a 40% dividend payout ratio. Our guidance assumes run rate variable investment income or VII. We will continue to quantify the impact to reported results from higher or lower than expected VII as a significant variance in our earnings call throughout the year. For 2025, we expect VII to improve compared to 2024. Turning to our business units, Slide 12 outlines our 2025 enterprise outlook.

Medium term business unit expectations for 2025 through 2027 and modeling considerations for 2025. Business unit guidance assumes normal market conditions. Taken together, this guidance reinforces our confidence in the sustained delivery of our financial targets at the enterprise level. In RIS, building on the strong results in 2024, we are revising our margin guidance upward and net revenue guidance of 2% to 5% remains intact. In Investment Management, medium term guidance reflects the underlying strength of our global asset management business.

We expect revenue growth and margin to be within these ranges in 2025. In International Pension, our guidance looks different from what we showed in the past for Principal International due to the re segmentation and the change in the net revenue metric to better align with the rest of the enterprise. We expect net revenue to be at the midpoint of the range on a constant currency basis, but below the range on a reported basis due to the strengthening of the U. S. Dollar relative to last year.

Margin is expected to improve from 2024 levels, be at the low end of the range in 2025 and improving thereafter. In Specialty Benefits, the Dental market was dynamic during 2024. We maintained our underwriting discipline resulting in lower sales in the second half of the year. As a result, we are revising our medium term premium fees guidance to 6% to 9%, which remains above industry growth. In 2025, we expect growth to be near the low end of this range with growth improving throughout the year.

The ongoing discipline in underwriting is contributing to continued strength in our block, leading us to improve our loss ratio and margin targets, reflecting confidence in the overall business fundamentals and health of this business. In Life, premium fees growth is expected to be at or above the high end of the range for the year, with high teens growth in our business market block, partially offset by the runoff of our legacy block. Our revised margin guidance reflects improvement over 2024. Before opening for questions, I want to remind you of a few seasonality impacts. In Investment Management, the first quarter is typically our lowest quarter for earnings due to the seasonality of deferred compensation and elevated payroll taxes.

Specifically, we expect approximately $40,000,000 of seasonally higher expenses in the first quarter with no impact of full year outlook. In Specialty Benefits, dental claims are typically higher in the first half of the year. Similar to the pattern in 2024, these factors will contribute to earnings being meaningfully higher in the second half than the first half of twenty twenty five. Additionally, they drive the seasonal pattern of free capital flow, which is typically lightest in the first half of the year and increases in the second half. We have good momentum as we start 2025 with a strong capital position and we are well positioned to deliver on our long term financial targets.

We are grounded in our growth drivers of the retirement ecosystem, small and mid sized businesses and global asset management, while continuing to drive long term shareholder value. This concludes our prepared remarks. Operator, please open the call for questions.

The first question comes from Ryan Krueger from KBW.

Hey, thanks. Good morning. My first question was, can you provide some initial thoughts on the pension reform that was passed in Chile and how to think about how that may impact principal going forward?

Yes. Thanks, Ryan, for the question. I'll give a brief comment and then pass it over to Kamal. As you know, we've been in Chile for a long time and we remain committed to supporting our customers there. We are optimistic that this reform will provide additional clarity on how we navigate the future, but will take time to play out.

With that, I'll ask Tom to give a further update on what we're seeing there.

Sure. Thanks, Diana. Good morning, Ryan. Just to add to Diana's comments. So first, the reform will bring some positive changes, particularly they are reaffirming the defined contribution system, which is important to us and reducing encahe, which will improve the which will help improve the system's efficiency.

We also anticipate a smoother transition to target date investment vehicles, which we believe is a key step forward for the marketplace. At this stage, we are confident in our ability to navigate these changes over time as we have done in the past and are optimistic about the long term outlook for our business in Chile.

Yes, Ryan. And obviously, we'll continue to update as more of this gets firmed up as we move forward. But do you have an additional question?

Yes. This is a bit of a higher level question. There has been more talk of, I guess, particularly by alternative asset managers about getting more private assets within four zero one plans. Would be interested in your thoughts on that and how that could evolve over time for the industry?

Yes. As you know, we've obviously have a focus on privates and have been in real estate for decades, but I'll see if Chris has some comments specifically around privates within the 04/2001 lineup.

Yes. Thanks for the question, Ryan. Yes, I think we see and I think the industry sees some significant opportunity for increased use of privates in retirement plans. There's obviously some regulatory hurdles that need to be overcome and some other issues in terms of liquidity buffers and the like that would need to be paired along for retirement customers. So we do think that there is a significant potential for privates in retirement, but I think there is a little bit of work to do still on the regulatory environment and getting a product and a vehicle that works for sort of retirement customers.

And I think that will take a little bit of time before we see momentum. I think you'll see it initially packaged in target dates or managed account offerings. So I think you'll see some innovation in that space over the course of the next year or two.

Our next question comes from the line of Joel Herwitz with Dowling and Partners.

Hey, good morning. I want to unpack some of the comments you guys made on RIS flows. Could you provide some more color on just the level of stabilization you saw with participant withdrawals? And then just how much contract lapses improved year over year? And then I guess just any color on the pipeline as we enter 2025 and how the outlook at least maybe for the first quarter looks on flows?

Yes. Joel, thanks for the question. RIS had a great year when you look at their revenue growth and how that translated into margin and earnings. And as we've talked about in the past, that really is our primary focus. But I'll have Chris talk about all the specifics that you mentioned there both for the year and the quarter as well as as we think about first quarter of twenty twenty five.

Yes. Thanks, Joel. And thanks for that, Deanna. I think as we've stated in previously quarters before I dive deeply into flows, I mean, we do prioritize revenue and margin overflows. Those are important, but our focus is on generating profitable revenue growth, which we did in 2024, exceeding our net revenue guidance and being at the top end of our margin.

So we feel really good about that. I think as you all know on the call as well, rising equity markets are positive for our fee based businesses, but they do create pressures for us in other metrics, including net flows and fee revenue rates. In the fourth quarter, our fee based flows were improved sequentially and over the year ago because we saw a healthy recurring deposit growth of like over 6%. We saw strong transfer deposits and we had record retention in WSRS, which resulted largely from a slightly lower participant withdrawal rate as well as lower contract lapses, particularly in the large market. So again, what we saw in the fourth quarter is lower withdrawal rate and so all of the flows are really attributable to those higher performing equity markets.

I want to note with respect to flows is if you look at the sort of full year, we are seeing pressure from VA lapses, VAs with GMWB of about $1,000,000,000 over the course of 2024. And many of those are being exchanged into our RILA, which are registered index linked annuity product with income. And we're capturing a very significant percentage in Ryla, but that is converting from a fee based flow to a spread based flow. So we are seeing that dynamic as well. The other thing I'd say about flows is we do see continue to see very good health in SMB flows.

Our recurring deposit growth is higher than the averages and we're seeing positive net cash flow in SMB. So again, feel really good about the position in SMB. As we turn to the outlook for 2025, we currently forecast the participant withdrawal rate will stabilize and that we'll continue to see health in recurring and transfer deposits, but we do expect the flows to be impacted by higher market performance and the lingering impact of the strong equity markets from 2024. We could expect to see continued net outflows from the VA traditional block, which is an overall industry trend, but capturing those some of those are a good portion of those in Ryla. In the first quarter, we do know that we have one large market outflow of about $2,300,000,000 with minimal fee revenue impact.

A client again as we look at profitable business that we chose to terminate that relationship, but that will be one outflow in the first quarter. And then we expect to see a more normalized, maybe slightly lower contract retention rate compared to the record retention we saw in 2024. All that being said, again, net cash flow is a measure and we do look at it, but flows all have a different profile on revenue and profit and our focus is really remaining disciplined on pricing, generating profitable revenue growth and delivering on our net revenue and margin guidance in 2025.

Well, hope that helps. Do you have an additional question?

Yes. Then just shifting to sort of real estate transactional activity, what are you expecting for 2025? And just any more color on variable investment income expectations and performance fees and investment management for the year?

Yes. Thank you for that question. Obviously, real estate is a core competency, both as we drive flows to unaffiliated clients, but also within our general account. I'm going to ask Kamal to give some general comments regarding kind of the state of the real estate market. And then I'll ask Joel to add in specific color regarding our general account and the implications on VII.

Good morning, Joel. So let me pick up where Diana left off on the state of the real estate market. So from where we sit, we do see commercial real estate sort of entering this early stages of a gradual, but probably a more volatile recovery period than we have seen in the past. One of the things that has started to happen is we are actually seeing real transactional activity happen in the marketplace. And in parallel, there has been robust growth in CRE credit that is available to real estate transactions.

Those are very important signals for this market to continue to expand. In fact, when you look at 4Q, there has been a substantial increase in equity transaction activity, 32% year over year. So clearly, transactions are starting to happen now, which is important because it leads to two price discovery and that allows the marketplace to find a floor. The CMBS market has been unusually strong. We had over $100,000,000,000 of new issuance just in 2024.

So that's certainly helping on the credit side. Just to look at our own book, in 4Q, we almost put $1,900,000,000 of private capital to work. That was up from $1,000,000,000 earlier in the year. So almost 2x increase. So I feel confident on the transactional side.

I'll turn it over to Joel on the second part.

Yes. So Joel, good morning and thanks for the question. We do expect improved returns in 2025 relative to 2024 for all of our BII portfolio. And importantly with key asset classes at or approaching long term expectations in 2025. And as you know within our alts portfolio, real estate is a very prominent part of that, making up 50% of our portfolio.

We have much less concentration in PE and hedge funds. Real estate returns have improved from 2023 to 2024 and we expect that trend to continue in 2025. Given our strong capabilities that Kamal referenced, we invest directly in real estate. Therefore, these assets are not fair valued every quarter as would be the case if we're investing under a fund structure. So as you can see in the investment supplement that we provided on Slide five, these real estate properties are sitting on a meaningful unrealized gain position.

So this appreciation and those unrealized gains will be recognized at the time of sale resulting in some quarterly volatility within our BII metric. When this emerges, we'll be sure to highlight that activity over time on which we expect to be weighted towards the middle and latter half of the year in 2025. So in summary, with some volatility along the way due to timing of sales, we do expect relevant improvement in VII for the upcoming year.

The next question comes from Wilma Burtis from Raymond James.

Hey, good morning. There's been some litigation in the larger end of the PRT market. Understand that the status have been different for PFG, given some of that's been more a little bit more focused on the offshore model. But could you see this moving into the smaller end of the market? Or have you, I guess, observed any activity yet?

Yes. Thanks, Wilma, for the question. We've obviously been in the PRC business for decades, have a great expertise there. And I'll see if Chris can directly answer your question regarding the recent litigation.

Yes. Thanks, Wilma. I mean, I think as Deanna pointed out, we've been in this business for over eighty years and haven't ever missed a payment to a customer. I think we haven't seen the litigation migrate down. I think certainly it's focused more on PE backed providers of PRT transactions with one notable exception in a more traditional carrier.

I suspect that they'll wait and see how those lawsuits turn out in terms of the validity of those lawsuits or not. Again, note, I don't believe any of those customers have not received their payments under those transactions. So I think from our perspective, it hasn't impacted our business. We haven't seen a lot of activity in the small to mid sized business and we remain a very trusted, reliable provider of risk transfer solutions for people that have pensions.

Thanks Wilma for that. We had a great TRT year and we are confident that that's going to continue as we move into 2025. Do you have an additional question?

Yes, eighty years, pretty good track record. Yes, could you just talk a little bit about what's going on in Specialty Benefits that you're exercising a little underwriting discipline in 2025? Thanks.

Yes, thanks Wilma for the question. Specialty Benefits had an incredible quarter and a really great year when you look at it from an earnings perspective, which again is, our focus has been for decades on making sure we're driving profitable growth. And with that, I'll move it over to Amy to talk specifically about what we're seeing and how that translates to our discipline and our approach to underwriting and pricing. Sure.

Thanks, Wilma. Thanks, Deanna. I do think when we look at SVD looking across, all of the metrics that we've given guidance on for outlook, it's probably helpful to understand how the underwriting discipline comes back in. So just as a reminder, we've tightened both the loss ratio and the margin ranges for outlook. So we're moving the margin to the lower end up to 13 and then the loss ratio down to 64%.

So we've also adjusted that overall premium growth to reflect those competitive factors that are really at the heart of your question. So when I look at the competition, what we're seeing is, especially in the second half of twenty twenty four, we saw the market get a little bit more aggressive. We think that will continue in 2025. And the product that we've probably seen the most competitive pressures on is dental. We along with the whole industry have experienced pretty high utilization of dental and that's meant that we're doing some re pricing in 2024.

So this has impacted some of the new sales in the back half of twenty twenty four and it will impact we think at least that front half of twenty twenty five. Do keep in mind that we sell as a bundle of products. And so dental does tend to be a meaningful product in that bundle. And when dental is impacted, you can see some impacts on some of the other products. What we know though is that over the long term disciplined underwriting for all of our products is really critical to building and maintaining a profitable growth and a profitable block.

It's critical to maintaining stable, predictable renewals too. So it's not just that front end new sale, it's creating those stable, predictable renewals that are both our brokers and our employer customers need from us. When we think about our expertise in that small market, we've got to have something that's a bit more predictable in that small market. Cash flow concerns are very significant for small and mid sized customers. So keeping that stable, predictable flow is really important.

And sometimes the trade off is we'll take a little bit less looking a little bit less growthy to make sure that we've got the margin and make sure we've got the type of loss ratio that we need for that business. So I'm really confident that that underwriting discipline is just part of the package over the course of time and our ability to grow above the industry is going to be focused on that knowledge of the SMB market, that broad and deep broker relationships we have, our use of technology and then the service that we provide. So it's all a package and I feel really comfortable with how 2025 looks.

The next question comes from Alex Scott from Barclays.

Hey, good morning. First one I have for you is on the free cash flow. It looks like the outlook for capital return is pretty strong. And I think in the last few years, it's sort of time spent in excess of what you guide to in terms of free cash flow conversion of earnings. So I was just interested in commentary there.

I mean, is it further drawdown of excess capital or is the free cash flow conversion getting better? How do I think through all that?

Yes, Alex, thanks for the question. When we think about it, we look at both kind of the ongoing free cash flow that is generated for our business and then how that translates into our capital deployment. And you're right, over the last few years, partially just because of how we've started each of the years and drawn that down. There's been a little bit higher of deployment from that perspective. But again, we like our business model and I'll just ask Joel to add some additional flavor there.

Yes, Alex, thanks for the question. As you said, we're starting the position of strength, $1,600,000,000 of excess available capital coming into 2025. And if you look at our long term guidance, which is 40% dividend payout ratio and share repurchase of 35% to 45%, Our share buyback plan for 2025 is outsized and a lot of that is because of we do have a strong excess capital position coming into the year. And so again really proud of the results that we're delivering there on that front and we feel really good about our $700,000,000 to $1,000,000,000 target that we have for the year. We did hear some comments, some looking at the reports about it seems less.

And the big reason it's less is because we drew down more coming into '25 than we did coming into '24. If you look at our RBC ratio coming into the year, it was 427% coming into 2024. And as we sit here today, it's 404%. So again, we're still at excess, but just not to the excess we had one year ago. So again, outsized share buyback $700,000,000 to $1,000,000,000 translates to about 40% to 60% payout ratio above our guidance and that's a product of our strong capital flow generation.

Principal Financial (PFG) Q4 2024 Earnings Call Transcript

Company Participants