Segment Information

9 Months Ended

Sep. 30, 2023

Segment Information

Segment Information

17. Segment Information

We provide financial products and services through the following segments: Retirement and Income Solutions, Principal Asset Management and Benefits and Protection. 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.

Prior to 2023, we separately reported Principal Global Investors and Principal International as segments. Those are now integrated into our Principal Asset Management segment. The new segment presentation has been applied retrospectively to our segment results, which have been recast for LDTI, but did not impact our consolidated financial statements.

The Retirement and Income Solutions segment provides retirement and related financial products and services primarily to businesses, their employees and other individuals. The segment includes workplace savings and retirement solutions, banking, trust and custodial services, individual variable annuities, pension risk transfer, investment only and our exited retail fixed annuities business.

The Principal Asset Management segment provides global investment solutions to institutional, retirement, retail and high net worth investors in the U.S. and select emerging markets. The segment is organized into Principal Global Investors, which provides public, multi-asset and private market capabilities across all asset classes, including equity, fixed income, real estate and alternatives, to serve a breadth of client investment objectives; and Principal International, which provides long-term savings and retirement solutions through pension accumulation, mutual funds and income annuities, along with retail asset management services in Asia and Latin America.

The Benefits and Protection (formerly known as U.S. Insurance Solutions) segment focuses on solutions primarily for small-to-mid sized businesses and their employees. The segment is organized into Specialty Benefits, which provides group dental, group life insurance, group disability insurance (including short-term disability, long-term disability and paid family and medical leave), supplemental health products (including vision, critical illness, accident and hospital indemnity) and individual disability insurance; and Life Insurance, which provides life insurance, with a focus on the business market customer, including universal life and variable universal life (including indexed universal life) and traditional life insurance (including term life insurance). All remaining customers are part of the legacy life block of business, including universal and variable universal life insurance (including indexed universal life), traditional life insurance (including participating whole life, adjustable life products and term life insurance) and our exited ULSG business.

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”); 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 income (loss) from exited business, 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 income (loss) from exited business includes amounts associated with our exited U.S. retail fixed annuity and ULSG businesses, including the change in fair value of the funds withheld embedded derivative, net realized capital gains (losses) on funds withheld assets, strategic review costs and impacts, amortization of reinsurance gain (loss) and other impacts of reinsured business. The strategic review costs and impacts primarily include actuarial balance re-cohorting impacts resulting from the Strategic Review and costs to close the Reinsurance Transaction. Other impacts of reinsured business primarily include DAC amortization.

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,

● Certain variable annuity fees,

● Market value adjustments of market risk benefits,

● Related changes in the amortization pattern of 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 variable annuity fees,

● Certain market value adjustments to fee revenues,

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

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

● Pre-tax revenues from exited business,

● 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 other postretirement employee benefits (“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, 2023		December 31, 2022
	(in millions)
Assets:
Retirement and Income Solutions	$	201,802.1	$	202,294.2
Principal Asset Management		43,789.9		45,950.7
Benefits and Protection		41,707.7		40,048.3
Corporate		648.3		2,285.1
Total consolidated assets	$	287,948.0	$	290,578.3

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in millions)
Operating revenues by segment:
Retirement and Income Solutions (1)	$	1,651.1	$	1,563.8	$	4,940.9	$	4,144.6
Principal Asset Management:
Principal Global Investors		424.6		406.0		1,207.4		1,304.9
Principal International		249.6		382.7		857.0		1,154.7
Eliminations		(5.4)		(5.7)		(16.2)		(18.3)
Total Principal Asset Management (2)		668.8		783.0		2,048.2		2,441.3
Benefits and Protection:
Specialty Benefits		816.6		749.0		2,391.0		2,218.3
Life Insurance		335.0		336.9		989.6		1,014.6
Eliminations		(0.2)		(0.1)		(0.5)		(0.4)
Total Benefits and Protection		1,151.4		1,085.8		3,380.1		3,232.5
Corporate		6.7		(10.2)		48.9		(4.9)
Total segment operating revenues		3,478.0		3,422.4		10,418.1		9,813.5
Net realized capital gains (losses), net of related revenue adjustments		226.2		(21.2)		141.6		(365.9)
Revenues from exited business (3)		924.9		1,249.6		508.2		5,010.8
Adjustments related to equity method investments		(18.5)		(16.9)		(57.9)		(47.7)
Market risk benefit derivative settlements		(11.9)		(8.6)		(35.0)		(25.4)
Total revenues per consolidated statements of operations	$	4,598.7	$	4,625.3	$	10,975.0	$	14,385.3
Pre-tax operating earnings (losses) by segment:
Retirement and Income Solutions	$	304.7	$	206.3	$	786.8	$	755.1
Principal Asset Management		222.4		206.0		598.4		686.4
Benefits and Protection		169.0		181.8		393.2		432.2
Corporate		(114.8)		(100.8)		(308.3)		(382.7)
Total segment pre-tax operating earnings		581.3		493.3		1,470.1		1,491.0
Pre-tax net realized capital gains (losses), as adjusted (4)		155.5		(16.2)		70.1		(413.6)
Pre-tax income from exited business (5)		879.2		1,178.9		352.3		4,903.4
Adjustments related to equity method investments and noncontrolling interest		(11.1)		(15.6)		(46.5)		8.6
Income before income taxes per consolidated statements of operations	$	1,604.9	$	1,640.4	$	1,846.0	$	5,989.4

(1) Reflects inter-segment revenues of $101.8 million and $89.9 million for the three months ended September 30, 2023 and 2022, respectively, $293.6 million and $275.9 million for the nine months ended September 30, 2023 and 2022, respectively.

(2) Reflects inter-segment revenues of $79.9 million and $69.4 million for the three months ended September 30, 2023 and 2022, respectively, $220.5 million and $231.1 million for the nine months ended September 30, 2023 and 2022, respectively.

(3) Revenues from exited business is derived as follows:

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in millions)
Revenues from exited business:
Change in fair value of funds withheld embedded derivative	$	925.6	$	1,237.7	$	392.9	$	4,305.0
Net realized capital gains on funds withheld assets		1.0		8.5		119.8		697.5
Amortization of reinsurance gain		1.6		3.4		4.5		8.3
Other impacts of reinsured business		(3.3)		—		(9.0)		—
Total revenues from exited business	$	924.9	$	1,249.6	$	508.2	$	5,010.8

(4) 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,
	2023		2022		2023		2022
	(in millions)
Net realized capital gains (losses):
Net realized capital gains (losses)	$	179.3	$	(27.4)	$	40.5	$	(353.4)
Derivative and hedging-related revenue adjustments		26.6		(24.3)		23.7		(81.3)
Market value adjustments to fee revenues		0.1		—		0.3		0.1
Certain variable annuity fees		18.5		18.7		55.3		57.8
Adjustments related to equity method investments		(4.1)		6.6		4.2		(6.0)
Adjustments related to sponsored investment funds		5.8		5.2		17.6		16.9
Net realized capital gains (losses), net of related revenue adjustments		226.2		(21.2)		141.6		(365.9)
Amortization of deferred acquisition costs and other actuarial balances		(0.3)		0.1		(0.2)		—
Capital (gains) losses distributed		(31.8)		25.5		(30.2)		146.1
Derivative and hedging-related expense adjustments		0.8		—		0.9		—
Market value adjustments of market risk benefits		(30.1)		(16.1)		(41.0)		(152.7)
Market value adjustments of embedded derivatives		(9.3)		(4.5)		(1.0)		(41.1)
Pre-tax net realized capital gains (losses), as adjusted (a)	$	155.5	$	(16.2)	$	70.1	$	(413.6)

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

(5) Pre-tax income (loss) from exited business included:

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in millions)
Pre-tax income from exited business
Change in fair value of funds withheld embedded derivative	$	925.6	$	1,237.7	$	392.9	$	4,305.0
Net realized capital gains on funds withheld assets		1.0		8.5		119.8		697.5
Strategic review costs and impacts		—		(27.6)		—		36.4
Amortization of reinsurance loss		(8.1)		(7.7)		(50.5)		(38.2)
Other impacts of reinsured business		(39.3)		(32.0)		(109.9)		(97.3)
Total pre-tax income from exited business	$	879.2	$	1,178.9	$	352.3	$	4,903.4