Principal Financial Group delivered strong full-year 2025 results, with adjusted non-GAAP EPS growth of 12% (reported growth nearly 20%) and an operating ROE of 15.7%, both at the high end of target ranges. Operating margins expanded 80 basis points to 31%, driven by top-line growth and disciplined expense management, while the company generated $1.5 billion in excess capital to return to shareholders via buybacks and dividends. Strategic momentum was evident across the retirement ecosystem ($35B in transfer deposits) and global asset management, where private markets sales surged 50%. Looking to 2026, management raised its ROE target to 15-17% and projects 9-12% EPS growth, reflecting confidence in its diversified, capital-efficient business mix.
| Metric | Value | Change |
|---|---|---|
| Adjusted EPS Growth (2025) | 12% | +12% (High end of 9-12% target) |
| Reported EPS Growth (2025) | ~20% | +20% |
| Operating ROE (2025) | 15.7% | +120 bps |
| Operating Margin (2025) | 31% | +80 bps |
| Total AUM | $781 Billion | +10% YoY |
| Capital Returned (2025) | $1.5 Billion | Within Target |
| Share Repurchases (2025) | $851 Million | N/A |
| Common Dividend (2026) | $0.80 | +$0.01 (7% increase) |
| Private Markets Sales Growth | 50% | N/A |
| Retirement Transfer Deposits | $35 Billion | +9% YoY |
Principal Financial Group is aggressively pivoting toward higher-margin private markets to drive asset management growth. Management reported that private markets sales increased 50% in 2025, contributing to a 16% overall increase in investment management gross sales to $127 billion. This strategic shift is supported by a record $9 billion in ETF AUM and $3.5 billion in positive net cash flow from private credit, real estate, and infrastructure. This focus on alternative assets differentiates PFG from peers and supports higher fee rates and revenue growth, as evidenced by the 9% revenue growth in the private markets segment despite industry headwinds.
The company is successfully leveraging its integrated retirement ecosystem to drive stickier customer relationships and higher revenue per client. In the Retirement segment, transfer deposits grew 9% year-over-year to $35 billion, while Pension Risk Transfer (PRT) sales hit $3 billion. Crucially, management noted that 'nearly a quarter of PRT premiums came from existing clients,' highlighting the success of cross-selling strategies. This integration creates a competitive moat, making it harder for clients to leave and increasing the lifetime value of retirement customers.
PFG is executing a disciplined portfolio optimization strategy to shed lower-growth, capital-intensive businesses and redeploy capital into higher-return areas. The company announced the sale of its runoff annuities business in Chile and divested certain international asset management units. While these moves create revenue headwinds (impacting IM revenue growth by 150bps), management emphasized they are 'accretive to EPS and ROE' and allow for increased share buybacks. This capital discipline ensures resources are focused on the three core profit pools: retirement, SMB, and global asset management.
The company is deepening its penetration in the Small and Mid-sized Business (SMB) market through a bundled product approach, driving 'share of wallet' expansion. Management reported that group benefits customers now hold an average of 3.13 products, up nearly 3% year-over-year. This strategy is yielding positive net cash flows of $1.5 billion in the SMB retirement segment and 15% growth in life insurance premiums for business owners. By bundling retirement, life, and specialty benefits, PFG creates a sticky, diversified revenue stream that is resilient to economic cycles.
The Life Insurance segment faced margin pressure in 2025, reporting an operating margin of 10%, which is below the company's 12-16% target range. CFO Joel Pitz attributed this to 'higher claim severity during the first half of the year.' While long-term mortality assumptions remain intact, the miss highlights the volatility inherent in the life insurance block and the potential for unexpected claims to impact profitability, particularly as the company relies on this segment to help offset runoff in legacy blocks.
Ongoing divestitures, while strategically sound, are creating near-term revenue headwinds that mask underlying organic growth potential. The company noted that divested businesses had a '150 basis point impact on net revenue growth in 2025' within the investment management unit. Additionally, the exit from the Hong Kong business and the sale of the Chile annuity runoff business will continue to depress reported revenue and AUM figures in 2026, potentially confusing investors analyzing top-line growth trends.
Management acknowledged that dental claims are 'typically higher in the first half of the year,' introducing seasonality risk to the Benefits and Protection segment's earnings. While the company raised its margin target for this segment to 14-17% based on improved underwriting and network optimization, the reliance on pricing actions to counteract high claim frequency in H1 could pressure margins if medical inflation trends worse than anticipated or if network optimization fails to deliver expected savings.
The International Pension segment reported a 2% decline in net revenue for 2025, driven by foreign currency headwinds and the exit from Hong Kong. While management predicts a turnaround in 2026 due to emerging FX tailwinds, the segment's reliance on favorable currency movements introduces external risk. Furthermore, the company's guidance expects to be at the 'low end' of the 47% net revenue growth target, suggesting that the recovery in this segment may be slower than investors might hope.
Overall: Management exhibited a highly confident and assured demeanor throughout the call, consistently emphasizing 'momentum,' 'strength,' and 'execution.' There was a distinct lack of defensiveness; instead, executives proactively highlighted their ability to exceed targets and raised future guidance. The tone shifted from reporting past success to articulating a clear, optimistic vision for 2026, reinforcing their conviction in the strategic pivot toward higher-growth areas like private markets and SMB benefits.
Confidence: HIGH - Management raised the 2026 ROE target range to 15-17% (up from 14-16%) and increased the dividend, signaling strong internal conviction. They used definitive language regarding their ability to hit targets ('we are well positioned to, once again, deliver') and provided specific, data-backed answers to analyst questions regarding margins and capital deployment.
9% to 12%
15% to 17% (Target increased from 14-16%)
75% to 85%
$1.5 Billion to $1.8 Billion
$800 Million to $1.1 Billion
38% to 41% (Target increased)
14% to 17% (Target increased)
Hedging & Uncertainty: Management utilized minimal hedging regarding their core financial capabilities, instead using strong, definitive verbs like 'delivered,' 'expect,' and 'positioned.' However, they did employ standard probabilistic hedges regarding external factors, stating that 2026 targets 'assume normal market conditions.' When discussing the Chile divestiture, CFO Joel Pitz used temporal hedging, saying the transaction 'likely be the third quarter of 2026 when that transaction closes.' This suggests confidence in the deal but caution on specific timing. Overall, the lack of hedging around EPS and ROE targets signals high internal conviction.
"We delivered our enterprise financial targets in both years, demonstrating the strength and quality of our execution." - Deanna Strable, CEO
"Our performance showcases the power of our diversified and resilient business mix." - Deanna Strable, CEO
"We are increasing our margin target to 35% to 39%, and we remain confident in our ability to deliver on our 4% to 7% adjusted revenue growth target." - Joel Pitz, CFO
"We have a high bar with organic as well." - Joel Pitz, CFO
"I feel strongly we have the portfolio we need to deliver consistently on our financial aspirations." - Deanna Strable, CEO
"We're actually seeing that AI adoption as more of a growth driver for them." - Amy Friedrich, President, Benefits and Protection
Analyst Sentiment: Analysts were generally inquisitive and focused on the sustainability of the company's strong margins and growth, specifically probing into dental underwriting, the mechanics of the ROE target increase, and the revenue impact of recent divestitures. There was also notable interest in the competitive landscape regarding industry consolidation and AI impacts on employment.
Management Responses: Management responses were detailed and data-rich, effectively using specific metrics (e.g., dental loss ratios, SMB employment data) to counter concerns. They maintained a consistent narrative of 'momentum' and 'discipline,' even when pressed on legacy business runoff or divestiture impacts. Executives deflected concerns about AI job losses by citing proprietary survey data showing SMBs expect to maintain or increase staffing.
Discussion on the sustainability of dental underwriting margins and the impact of network optimization versus pricing actions.
Inquiry into the mechanics behind the raised ROE target and the capital efficiency of the business mix.
Questions regarding the revenue headwinds from divestitures (Chile, Hong Kong) and the strategic rationale for exiting these markets.
Analysis of the competitive landscape in retirement recordkeeping and the potential for industry consolidation.
Exploration of AI's impact on the SMB market and employment levels within PFG's customer base.
Principal Financial Group is executing at a high level, successfully leveraging its diversified business mix to generate consistent double-digit EPS growth and robust capital returns. The strategic pivot toward higher-margin private markets and the deepening of SMB relationships provide durable growth vectors that insulate the company from traditional market volatility. The decision to raise the 2026 ROE target to 15-17% signals management's confidence in the capital efficiency of the portfolio and the success of their optimization efforts. While legacy life insurance runoff and divestiture-related revenue headwinds create near-term noise, the underlying fundamentals—expanding margins, strong free cash flow conversion (92%), and disciplined capital deployment—paint a picture of a resilient, compounding franchise. The company's ability to integrate retirement, asset management, and protection offerings creates a sticky customer base that drives long-term shareholder value.
Management cited proprietary survey data indicating that SMBs view AI as a growth driver rather than a cost-cutting tool. 85% of SMBs expected staffing levels to stay the same or increase, and 95% expected wages to remain stable or increase, suggesting resilience in the employment and wage trends that drive PFG's retirement and benefits businesses.
Management noted that 2025 results benefited from 'favorable market conditions' and 'variable investment income improved from the third quarter.' The guidance assumes 'normal market conditions,' implying stability rather than a need for a drastic rate hike or cut scenario to meet targets.
After facing FX headwinds in 2025 that impacted International Pension revenue, management noted that 'there are some, finally, some FX tailwinds emerging within these businesses,' which should support reported earnings growth in 2026.