16. Segment Information

We provide financial products and services through the following segments: Retirement and Income Solutions, Principal Global Investors, Principal International and U.S. Insurance Solutions. In addition, we have a Corporate segment. The segments are managed and reported separately because they provide different products and services, have different strategies or have different markets and distribution channels.

The Retirement and Income Solutions segment provides retirement and related financial products and services primarily to businesses, their employees and other individuals.

The Principal Global Investors segment provides asset management services to our asset accumulation business, our insurance operations, the Corporate segment and third party clients. This segment also includes our mutual fund business.

The Principal International segment has operations in Latin America (Brazil, Chile and Mexico) and Asia (China, Hong Kong Special Administrative Region, India and Southeast Asia). We focus on locations with large middle classes, favorable demographics and growing long-term savings, ideally with voluntary or mandatory pension markets. We entered these locations through acquisitions, start-up operations and joint ventures.

The U.S. Insurance Solutions segment provides specialty benefits insurance, which consists of group dental and vision insurance, individual and group disability insurance, critical illness, group life insurance and non-medical fee-for-service claims administration, and individual life insurance, which provides solutions for the business market as well as our retail customers throughout the United States.

Our Corporate segment manages the assets representing capital that has not been allocated to any other segment. Financial results of the Corporate segment primarily reflect our financing activities (including financing costs and preferred stock dividends), income on capital not allocated to other segments, inter-segment eliminations, income tax risks and certain income, expenses and other adjustments not allocated to the segments based on the nature of such items. Results of Principal Securities, Inc., our retail broker-dealer and registered investment advisor, and our exited group medical and long-term care insurance businesses are reported in this segment.

Management uses segment pre-tax operating earnings in evaluating performance, which is consistent with the financial results provided to and discussed with securities analysts. We determine segment pre-tax operating earnings by adjusting U.S. GAAP income before income taxes for pre-tax net realized capital gains (losses), as adjusted, pre-tax other adjustments that management believes are not indicative of overall operating trends and certain adjustments related to equity method investments and noncontrolling interest. Pre-tax net realized capital gains (losses), as adjusted, are net of related changes in the amortization pattern of DAC and related actuarial balances, recognition of deferred front-end fee revenues for sales charges on retirement and life insurance products and services, amortization of hedge accounting book value adjustments for certain discontinued hedges, net realized capital gains and losses distributed, certain adjustments related to equity method investments, certain adjustments related to sponsored investment funds and certain market value adjustments to fee revenues. Pre-tax net realized capital gains (losses), as adjusted, exclude periodic settlements and accruals on derivative instruments not designated as hedging instruments and exclude certain market value adjustments of embedded derivatives and realized capital gains (losses) associated with our exited group medical insurance business. Segment operating revenues exclude net realized capital gains (losses) (except periodic settlements and accruals on derivatives not designated as hedging instruments), including their impact on recognition of front-end fee revenues, certain market value adjustments to fee revenues, certain adjustments related to equity method investments, certain adjustments related to sponsored investment funds and amortization of hedge accounting book value adjustments for certain discontinued hedges; certain adjustments related to equity method investments, pre-tax other adjustments management believes are not indicative of overall operating trends and revenue from our exited group medical insurance business. While these items may be significant components in understanding and assessing the consolidated financial performance, management believes the presentation of pre-tax operating earnings enhances the understanding of our results of operations by highlighting pre-tax earnings attributable to the normal, ongoing operations of the business.

The accounting policies of the segments are consistent with the accounting policies for the consolidated financial statements, with the exception of: (1) pension and OPEB cost allocations and (2) income tax allocations. For purposes of determining pre-tax operating earnings, the segments are allocated the service component of pension and other postretirement benefit costs. The Corporate segment reflects the non-service components of pension and other postretirement benefit costs as assumptions are established and funding decisions are managed from a company-wide perspective. The Corporate segment functions to absorb the risk inherent in interpreting and applying tax law. For purposes of determining non-GAAP operating earnings, the segments are allocated tax adjustments consistent with the positions we took on tax returns. The Corporate segment results reflect any differences between the tax returns and the estimated resolution of any disputes.

The following tables summarize select financial information by segment, including operating revenues for our products and services, and reconcile segment totals to those reported in the consolidated financial statements:

	December 31, 2017		December 31, 2016
	(in millions)
Assets:
Retirement and Income Solutions	$	169,757.8	$	152,721.7
Principal Global Investors		2,322.9		1,952.1
Principal International		51,684.0		45,118.3
U.S. Insurance Solutions		25,092.9		23,144.2
Corporate		5,083.6		5,078.0

Total consolidated assets	$	253,941.2	$	228,014.3

	For the year ended December 31,
	2017			2016			2015
	(in millions)
Operating revenues by segment:
Retirement and Income Solutions:
Retirement and Income Solutions — Fee	$	1,821.0		$	1,743.2		$	1,774.0
Retirement and Income Solutions — Spread		5,344.6			4,407.5			4,392.9

Total Retirement and Income Solutions (1)		7,165.6			6,150.7			6,166.9
Principal Global Investors (2)		1,444.4			1,387.1			1,343.5
Principal International		1,251.5			1,252.0			1,220.6
U.S. Insurance Solutions:
Specialty benefits insurance		2,171.8			2,011.4			1,868.1
Individual life insurance		1,731.0			1,626.1			1,572.7
Eliminations		(0.2	)		(0.2	)		(0.2	)

Total U.S. Insurance Solutions		3,902.6			3,637.3			3,440.6
Corporate		(60.8	)		(46.3	)		(50.5	)

Total segment operating revenues		13,703.3			12,380.8			12,121.1
Net realized capital gains (losses), net of related revenue adjustments		472.2			80.9			(162.7	)
Adjustments related to equity method investments		(82.3	)		(67.6	)		(55.5	)
Other income on a tax indemnification		—			—			60.2
Exited group medical insurance business		—			—			1.3

Total revenues per consolidated statements of operations	$	14,093.2		$	12,394.1		$	11,964.4


Pre-tax operating earnings (losses) by segment:
Retirement and Income Solutions	$	899.8		$	794.5		$	740.1
Principal Global Investors		469.7			443.8			388.5
Principal International		330.0			288.1			271.3
U.S. Insurance Solutions		384.7			361.2			429.5
Corporate		(210.5	)		(218.9	)		(192.3	)

Total segment pre-tax operating earnings		1,873.7			1,668.7			1,637.1
Pre-tax net realized capital gains (losses), as adjusted (3)		520.3			46.3			(170.7	)
Pre-tax other adjustments (4)		(70.0	)		(86.4	)		11.7
Adjustments related to equity method investments and noncontrolling interest		(71.8	)		(36.9	)		(47.3	)

Income before income taxes per consolidated statements of operations	$	2,252.2		$	1,591.7		$	1,430.8

(1)	Reflects inter-segment revenues of $402.8 million, $373.3 million and $424.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.
(2)	Reflects inter-segment revenues of $250.9 million, $235.7 million and $220.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.
(3)	Pre-tax net realized capital gains (losses), as adjusted, is derived as follows:

	For the year ended December 31,
	2017			2016			2015
	(in millions)
Net realized capital gains (losses)	$	524.2		$	171.1		$	(51.1	)
Derivative and hedging-related adjustments		(59.4	)		(94.1	)		(111.7	)
Market value adjustments to fee revenues		(0.1	)		(2.5	)		(1.1	)
Adjustments related to equity method investments		1.4			0.1			—
Adjustments related to sponsored investment funds		6.3			6.1			1.3
Recognition of front-end fee revenue		(0.2	)		0.2			(0.1	)

Net realized capital gains (losses), net of related revenue adjustments		472.2			80.9			(162.7	)
Amortization of deferred acquisition costs and other actuarial balances		55.0			(77.4	)		(14.0	)
Capital (gains) losses distributed		(55.0	)		(7.2	)		6.2
Market value adjustments of embedded derivatives		48.1			50.0			(0.2	)

Pre-tax net realized capital gains (losses), as adjusted (a)	$	520.3		$	46.3		$	(170.7	)

(a)	As adjusted before noncontrolling interest capital gains (losses) and net realized capital gains (losses) associated with exited group medical insurance business.

(4)		For the year ended December 31, 2017, pre-tax other adjustments included the negative effect of a contribution to The Principal Financial Group Foundation, Inc.

For the year ended December 31, 2016, pre-tax other adjustments included the negative effect of one-time costs incurred to extinguish long-term debt.

For the year ended December 31, 2015, pre-tax other adjustments included the positive effect of the impact of a court ruling on some uncertain tax positions ($15.1 million) and the negative effect of losses associated with our exited group medical insurance business that did not qualify for discontinued operations accounting treatment under U.S. GAAP ($3.4 million).

The following is a summary of income tax expense (benefit) allocated to our segments for purposes of determining non-GAAP operating earnings. Segment income taxes are reconciled to income taxes reported on our consolidated statements of operations.

	For the year ended December 31,
	2017			2016			2015
	(in millions)
Income tax expense (benefit) by segment:
Retirement and Income Solutions	$	109.5		$	98.6		$	76.1
Principal Global Investors		181.9			166.8			148.4
Principal International		81.8			62.7			51.5
U.S. Insurance Solutions		124.2			118.8			143.1
Corporate		(102.3	)		(109.3	)		(77.2	)

Total segment income taxes from operating earnings		395.1			337.6			341.9
Tax expense (benefit) related to net realized capital losses, as adjusted		209.1			(6.6	)		(45.6	)
Tax benefit related to other after-tax adjustments (1)		(594.5	)		(34.4	)		(63.2	)
Certain adjustments related to equity method investments and noncontrolling interest		(82.0	)		(66.7	)		(55.5	)

Total income taxes per consolidated statements of operations	$	(72.3	)	$	229.9		$	177.6

(1)	The 2017 tax benefit includes $568.3 million associated with the U.S. tax reform.

The following is a summary of depreciation and amortization expense allocated to our segments for purposes of determining pre-tax operating earnings. Segment depreciation and amortization is reconciled to depreciation and amortization included in operating expenses in our consolidated statements of operations.

	For the year ended December 31,
	2017		2016		2015
	(in millions)
Depreciation and amortization expense by segment:
Retirement and Income Solutions	$	30.6	$	30.4	$	28.3
Principal Global Investors		19.8		18.8		16.5
Principal International		53.1		50.1		69.3
U.S. Insurance Solutions		28.1		26.8		23.1
Corporate		8.2		7.4		6.5

Total depreciation and amortization expense included in our consolidated statements of operations	$	139.8	$	133.5	$	143.7