Closed Block

12 Months Ended

Dec. 31, 2022

Closed Block

Closed Block

6. Closed Block

In connection with the 1998 MIHC formation, Principal Life formed a Closed Block to provide reasonable assurance to policyholders included therein that, after the formation of the MIHC, assets would be available to maintain dividends in aggregate in accordance with the 1997 policy dividend scales, if the experience underlying such scales continued. Assets of Principal Life were allocated to the Closed Block in an amount that produces cash flows which, together with anticipated revenue from policies and contracts included in the Closed Block, were expected to be sufficient to support the Closed Block policies. This includes, but is not limited to, provisions for payment of claims, certain expenses, charges and taxes, and to provide for continuation of policy and contract dividends in aggregate in accordance with the 1997 dividend scales, if the experience underlying such scales continues, and to allow for appropriate adjustments in such scales, if such experience changes. Due to adjustable life policies being included in the Closed Block, the Closed Block is charged with amounts necessary to properly fund for certain adjustments, such as face amount and premium increases, that are made to these policies after the Closed Block inception date. These amounts are referred to as Funding Adjustment Charges.

Assets allocated to the Closed Block inure solely to the benefit of the holders of policies included in the Closed Block. Closed Block assets and liabilities are carried on the same basis as other similar assets and liabilities. Principal Life will continue to pay guaranteed benefits under all policies, including the policies within the Closed Block, in accordance with their terms. If the assets allocated to the Closed Block, the investment cash flows from those assets and the revenues from the policies included in the Closed Block, including investment income thereon, prove to be insufficient to pay the benefits guaranteed under the policies included in the Closed Block, Principal Life will be required to make such payments from its general funds. No additional policies were added to the Closed Block, nor was the Closed Block affected in any other way, as a result of the demutualization.

A policyholder dividend obligation (“PDO”) is required to be established for higher than expected earnings in the Closed Block that will need to be paid as dividends unless future performance of the Closed Block is less favorable than originally expected. A model of the Closed Block was established to produce the pattern of expected earnings, assets and liabilities in the Closed Block. These projections are utilized to determine ratios that will allow us to compare actual cumulative earnings to expected cumulative earnings and determine the amount of the PDO. As of December 31, 2022 and 2021, the PDO was $0.0 million and $210.7 million, respectively.

Closed Block liabilities and assets designated to the Closed Block were as follows:

	December 31, 2022		December 31, 2021
	(in millions)
Closed Block liabilities
Future policy benefits and claims	$	3,128.1	$	3,286.0
Other policyholder funds		5.1		5.3
Policyholder dividends payable		168.2		176.6
Policyholder dividend obligation		—		210.7
Other liabilities		24.9		8.8
Total Closed Block liabilities		3,326.3		3,687.4
Assets designated to the Closed Block
Fixed maturities, available-for-sale		1,690.2		2,191.6
Fixed maturities, trading		2.0		2.4
Equity securities		0.8		1.0
Mortgage loans		544.9		554.9
Policy loans		407.4		425.2
Other investments		62.2		48.4
Total investments		2,707.5		3,223.5
Cash and cash equivalents		62.0		19.7
Accrued investment income		30.3		32.6
Reinsurance recoverable and deposit receivable		3.9		5.1
Premiums due and other receivables		4.1		3.3
Deferred tax asset		62.0		24.6
Other assets		0.1		—
Total assets designated to the Closed Block		2,869.9		3,308.8
Excess of Closed Block liabilities over assets designated to the Closed Block		456.4		378.6
Amounts included in accumulated other comprehensive income		(111.9)		0.6
Maximum future earnings to be recognized from Closed Block assets and liabilities	$	344.5	$	379.2

Closed Block revenues and expenses were as follows:

	For the year ended December 31,
	2022		2021		2020
	(in millions)
Revenues
Premiums and other considerations	$	178.0	$	196.1	$	217.6
Net investment income		129.1		137.6		143.6
Net realized capital gains (losses)		(21.2)		(4.6)		16.0
Total revenues		285.9		329.1		377.2
Expenses
Benefits, claims and settlement expenses		184.3		212.0		212.8
Dividends to policyholders		92.5		92.6		117.8
Operating expenses		2.2		2.3		2.7
Total expenses		279.0		306.9		333.3
Closed Block revenues, net of Closed Block expenses, before income taxes		6.9		22.2		43.9
Income taxes		0.7		3.9		8.4
Closed Block revenues, net of Closed Block expenses and income taxes		6.2		18.3		35.5
Funding adjustments and other transfers		28.5		(4.0)		(2.2)
Closed Block revenues, net of Closed Block expenses, income taxes and funding adjustments	$	34.7	$	14.3	$	33.3

The change in maximum future earnings of the Closed Block was as follows:

	For the year ended December 31,
	2022		2021		2020
	(in millions)
Beginning of year	$	379.2	$	393.5	$	426.9
Effects of implementation of accounting changes (1)		—		—		0.1
End of year		344.5		379.2		393.5
Change in maximum future earnings	$	(34.7)	$	(14.3)	$	(33.3)

(1) Includes the effects of implementation of accounting changes related to credit losses in 2020.

Principal Life charges the Closed Block with U.S. federal income taxes, payroll taxes, state and local premium taxes and other state or local taxes, licenses and fees as provided in the plan of reorganization.