01—Abstract
Summary
Summary of the 10-K filed February 12, 2014. Cited figures are marked; the original filing is the authoritative source.
Principal Financial Group, Inc. (PFG) reported that it is a global investment management leader offering retirement services, insurance solutions and asset management, with $483.2 billiona in assets under management and approximately 19.4 million customers worldwide as of December 31, 2013.
The company focuses on small and medium-sized businesses and describes itself as the leading provider of corporate defined contribution plans in the U.S. according to Spectrum Group. Its reportable segments are Retirement and Investor Services, Principal Global Investors, Principal International and U.S. Insurance Solutions, plus a Corporate segment. Financially, total revenues rose to $9,289.5 millionb in 2013 from $9,215.1 million in 2012, while net income attributable to Principal Financial Group, Inc. was $912.7 million compared with $806.6 million a year earlier.
Net income available to common stockholders was $879.7 millionc, or $2.95 diluted earnings per share, versus $2.58 in 2012. Total assets grew to $208,191.4 million from $161,830.2 million, largely reflecting separate account assets, and total stockholders' equity was $9,777.0 million. The 2013 results were supported by higher fee revenues in Retirement and Investor Services and Principal International, the February 2013 acquisition of Cuprum in Chile for a purchase price of $1.3 billion, and positive equity market performance.
Key risks highlighted include net realized capital losses of $225.2 milliond in 2013, low interest rate pressures on spreads, a Moody's downgrade of Principal Life's financial strength rating to A1 in November 2013, and ongoing litigation and regulatory inquiries. Capital returned to stockholders totaled $442.0 million in 2013, including $288.4 million in common dividends and $153.6 million in share repurchases.
02—Key points
Key Highlights
- Assets under management of $483.2 billion and approximately 19.4 million customers worldwide as of December 31, 2013.
- Net income attributable to Principal Financial Group, Inc. rose to $912.7 million in 2013 from $806.6 million in 2012.
- Diluted earnings per share were $2.95 in 2013, up from $2.58 in 2012.
- Total revenues increased to $9,289.5 million from $9,215.1 million, while net realized capital losses were $225.2 million in 2013 versus gains of $114.1 million in 2012.
- Acquired Cuprum, a Chilean pension manager, in February 2013 for a purchase price of $1.3 billion, which drove higher Principal International fee revenues and operating expenses.
- Moody's downgraded the financial strength rating of Principal Life Insurance Company to A1 in November 2013, with a stable outlook; A.M. Best, Fitch and S&P maintained their ratings.
- Returned $442.0 million to stockholders in 2013, including $288.4 million in common dividends and $153.6 million in share repurchases.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 12, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $9.29B$9.22B | +0.8% |
| Net Income | $912.70M$806.60M | +13.2% |
| EPS (Basic) | $2.99$2.60 | +15.0% |
| EPS (Diluted) | $2.95$2.58 | +14.3% |
| Shares Outstanding (Basic) | 294.60M297.50M | −1.0% |
| Shares Outstanding (Diluted) | 298.20M300.40M | −0.7% |
05—Questions
Frequently Asked Questions
What drove the increase in net income in 2013?
The filing attributes higher net income available to common stockholders primarily to higher earnings in the Retirement and Investor Services segment, stemming from positive equity market performance and business growth. This was partly offset by an after-tax increase in net realized capital losses, which followed a 2012 gain associated with the merger of Catalyst Health Solutions, Inc.
How much of the company's assets are exposed to interest rate risk?
As of December 31, 2013, the company's U.S. investment operations held $46.0 billion of fixed maturities, representing 76% of total U.S. invested assets. The filing notes that a sustained low interest rate environment may compress spreads and that a 100 basis point rise would produce a net estimated potential loss in fair value of $1,847.1 million.
What are the main risks related to the company's credit ratings?
The filing states that a ratings downgrade could increase policy surrenders and withdrawals, reduce new sales, terminate distributor relationships, accelerate certain liabilities and raise the cost of capital. Moody's downgraded Principal Life to A1 in November 2013, while A.M. Best affirmed A+ and S&P affirmed A+ with a stable outlook.
How did the company's capital return activity change in 2013?
Total cash returned to stockholders was $442.0 million in 2013, compared with $504.0 million in 2012. Dividends to stockholders rose to $288.4 million from $231.3 million, while share repurchases declined to $153.6 million from $272.7 million, and 4.4 million shares were repurchased in 2013 versus 10.5 million in 2012.
What is the status of the company's significant pending litigation?
The filing describes several matters, including In re Principal U.S. Property Account Litigation, an American Chemicals & Equipment Section 36(b) fee suit, and a Lehman bankruptcy estate action seeking approximately $500.0 million. Management does not believe any matter will have a material adverse effect, and no losses were accrued because the losses were not considered probable and reasonably estimable.
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