Segment Information

9 Months Ended

Sep. 30, 2021

Segment Information

Segment Information

11. 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 segment is organized into Retirement and Income Solutions – Fee, which includes full service accumulation, trust services, individual variable annuities, the pieces of the Institutional Retirement & Trust (“IRT”) business of Wells Fargo Bank, N.A. (“Acquired Business”) that have not yet migrated to Principal (migration of retirement business completed in the second quarter of 2021; remaining migration estimated to be completed in 2022) and acquisition, integration and migration expenses associated with the purchase of the Acquired Business; and Retirement and Income Solutions – Spread, which includes individual fixed annuities, investment only, pension risk transfer and banking services.

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 focuses on solutions for small-to-medium sized businesses and their employees. The segment is organized into Specialty Benefits insurance, which provides group dental and vision insurance, individual and group disability insurance, critical illness, accident, group life insurance and non-medical fee-for-service claims administration; and Individual Life insurance, which provides universal life, variable universal life, indexed universal life and traditional life insurance.

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), 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. (“PSI”), our retail broker-dealer and registered investment advisor (“RIA”); RobustWealth, Inc. (“RobustWealth”), our financial technology company; 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. 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 pre-tax net realized capital gains (losses), as adjusted, excluded from pre-tax operating earnings reflects consolidated U.S. GAAP pre-tax net realized capital gains (losses) excluding the following items that are included in pre-tax operating earnings:

● Periodic settlements and accruals on derivative instruments not designated as hedging instruments,

● Certain market value adjustments of derivatives and embedded derivatives and

● Certain market value adjustments of derivative instruments used to economically hedge embedded derivatives.

Pre-tax net realized capital gains (losses), as adjusted, are further adjusted for:

● Amortization of hedge accounting book value adjustments for certain discontinued hedges,

● Certain hedge accounting market value revenue adjustments,

● Certain market value adjustments to fee revenues,

● Pre-tax net realized capital gains (losses) adjustments related to equity method investments,

● Pre-tax net realized capital gains (losses) adjustments related to sponsored investment funds,

● Recognition of deferred front-end fee revenues for sales charges on retirement and life insurance products and services,

● Related changes in the amortization pattern of DAC and related actuarial balances,

● Certain hedge accounting market value expense adjustments and

● Net realized capital gains (losses) distributed.

Segment operating revenues reflect consolidated U.S. GAAP total revenues excluding:

● Net realized capital gains (losses), except periodic settlements and accruals on derivatives not designated as hedging instruments and certain market value adjustments of derivative instruments used to economically hedge embedded derivatives, and their impact on:

● Amortization of hedge accounting book value adjustments for certain discontinued hedges,

● Certain hedge accounting market value revenue adjustments,

● Certain market value adjustments to fee revenues,

● Pre-tax net realized capital gains (losses) adjustments related to equity method investments,

● Pre-tax net realized capital gains (losses) adjustments related to sponsored investment funds and

● Recognition of deferred front-end fee revenues for sales charges on retirement and life insurance products and services.

● Pre-tax other adjustments and income taxes of equity method investments and

● Pre-tax other adjustments management believes are not indicative of overall operating trends.

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, (2) certain expenses deemed to benefit the entire organization and (3) 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. Additionally, the Corporate segment reflects expenses that benefit the entire organization for which the segments are not able to influence the spend. This includes expenses such as public company costs, executive management costs, acquisition and disposition costs, among others. 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:

	September 30, 2021		December 31, 2020
	(in millions)
Assets:
Retirement and Income Solutions	$	216,039.3	$	207,288.4
Principal Global Investors		2,358.4		2,294.3
Principal International		43,524.9		51,707.6
U.S. Insurance Solutions		32,702.7		31,438.9
Corporate		4,283.1		3,898.5
Total consolidated assets	$	298,908.4	$	296,627.7

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in millions)
Operating revenues by segment:
Retirement and Income Solutions:
Retirement and Income Solutions – Fee	$	580.9	$	531.6	$	1,723.9	$	1,584.1
Retirement and Income Solutions – Spread		1,072.0		1,048.3		2,823.9		4,081.5
Total Retirement and Income Solutions (1)		1,652.9		1,579.9		4,547.8		5,665.6
Principal Global Investors (2)		465.2		382.8		1,334.1		1,126.5
Principal International		328.1		225.3		942.3		802.2
U.S. Insurance Solutions:
Specialty Benefits insurance		684.4		618.1		2,007.9		1,884.1
Individual Life insurance		505.7		503.3		1,539.1		1,448.8
Eliminations		—		—		(0.1)		(0.1)
Total U.S. Insurance Solutions		1,190.1		1,121.4		3,546.9		3,332.8
Corporate		(14.3)		(17.0)		(21.8)		(24.0)
Total segment operating revenues		3,622.0		3,292.4		10,349.3		10,903.1
Net realized capital gains (losses), net of related revenue adjustments		(188.2)		31.6		(157.0)		105.4
Adjustments related to equity method investments		(10.1)		(13.3)		(20.7)		(31.9)
Total revenues per consolidated statements of operations	$	3,423.7	$	3,310.7	$	10,171.6	$	10,976.6
Pre-tax operating earnings (losses) by segment:
Retirement and Income Solutions	$	243.2	$	281.1	$	811.4	$	700.1
Principal Global Investors		190.1		140.9		515.6		361.0
Principal International		81.0		58.7		203.8		184.0
U.S. Insurance Solutions		151.6		(134.1)		373.4		150.4
Corporate		(97.1)		(69.7)		(273.6)		(244.8)
Total segment pre-tax operating earnings		568.8		276.9		1,630.6		1,150.7
Pre-tax net realized capital gains (losses), as adjusted (3)		(133.5)		9.9		(141.7)		(41.1)
Adjustments related to equity method investments and noncontrolling interest		(7.2)		(11.7)		(14.3)		(7.7)
Income before income taxes per consolidated statements of operations	$	428.1	$	275.1	$	1,474.6	$	1,101.9

(1) Reflects inter-segment revenues of $106.0 million and $87.5 million for the three months ended September 30, 2021 and 2020, respectively, $307.7 million and $249.1 million for the nine months ended September 30, 2021 and 2020, respectively.

(2) Reflects inter-segment revenues of $79.7 million and $65.6 million for the three months ended September 30, 2021 and 2020, respectively, $223.9 million and $200.7 million for the nine months ended September 30, 2021 and 2020, respectively.

(3) Pre-tax net realized capital gains (losses), as adjusted, is derived as follows:

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in millions)
Net realized capital gains (losses):
Net realized capital gains (losses)	$	(152.0)	$	65.5	$	(41.7)	$	169.5
Derivative and hedging-related revenue adjustments		(30.6)		(37.0)		(108.4)		(85.7)
Market value adjustments to fee revenues		(0.2)		—		(0.6)		—
Adjustments related to equity method investments		(10.8)		0.2		(18.3)		(4.9)
Adjustments related to sponsored investment funds		5.8		5.1		15.9		12.5
Recognition of front-end fee revenue		(0.4)		(2.2)		(3.9)		14.0
Net realized capital gains (losses), net of related revenue adjustments		(188.2)		31.6		(157.0)		105.4
Amortization of deferred acquisition costs and other actuarial balances		9.9		62.1		22.8		(67.7)
Capital gains distributed		(33.0)		(43.7)		(86.3)		(15.7)
Market value adjustments of embedded derivatives		77.8		(40.1)		78.8		(63.1)
Pre-tax net realized capital gains (losses), as adjusted (a)	$	(133.5)	$	9.9	$	(141.7)	$	(41.1)

(a) As adjusted before noncontrolling interest capital gains (losses).