How did PFG's earnings and revenue change in 2016?

Net income attributable to Principal Financial Group, Inc. was $1,316.5 million in 2016, compared with $1,234.0 million in 2015. Diluted earnings per share were $4.50, versus $4.06. Total revenues increased to $12,394.1 million from $11,964.4 million. The filing attributes the net income increase to after-tax net realized capital gains in 2016 compared with losses in 2015, higher net investment income, and higher variable investment income, partially offset by a $105.2 million benefit recognized in 2015 from a Chilean legal entity merger and a $95.0 million after-tax decrease from actuarial assumption updates.

What drove growth in assets under management?

Principal Global Investors AUM increased to $390.5 billion at December 31, 2016, from $360.8 billion a year earlier. The filing attributes the $29.7 billion increase to $9.0 billion of net cash flow and $21.7 billion of investment performance, partly offset by $1.0 billion of other changes. Total company AUM reached $591.6 billion, compared with $527.4 billion at December 31, 2015.

What are the main risks the filing highlights for investors?

The filing identifies sustained low interest rates as a key risk, which may compress investment spreads, increase reserves and accelerate DAC amortization. It also cites exposure to commercial mortgage loans, with $9.9 billion of balloon maturities, and to equity market declines that reduce asset-based fees. Regulatory changes are a further risk, including principles-based reserving for life insurance beginning in 2017, NAIC proposals to revise risk-based capital requirements and possible revisions to variable annuity statutory reserve and capital frameworks. Ratings downgrades could increase policy surrenders and raise the cost of capital.

How much did PFG return to shareholders and how strong is its capital position?

In 2016 PFG returned $742.2 million to common stockholders, consisting of $464.9 million in dividends and $277.3 million in share repurchases. Total stockholders' equity was $10,293.8 million at year-end 2016. Debt to equity excluding AOCI was 29%, compared with 34% in 2015. Principal Life paid $1,175.0 million in dividends to its parent in 2016, of which $650.0 million was extraordinary and approved by the Iowa Insurance Commissioner.

What debt and financing activity occurred in 2016?

On November 10, 2016, PFG issued $650.0 million of senior notes in two tranches, with a $350.0 million series at 3.1% due 2026 and a $300.0 million series at 4.3% due 2046. Proceeds were used to redeem notes due in 2017 and 2019, which resulted in a one-time extinguishment cost. Long-term debt was $3,125.7 million at year-end 2016, compared with $3,265.2 million at year-end 2015. Short-term debt was $51.4 million, and the company had $1,005.0 million of short-term credit facilities.

PFG 10-K FY2016 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 8, 2017. Cited figures are marked; the original filing is the authoritative source.

Principal Financial Group, Inc. (PFG) reported $591.6 billion^a in assets under management (AUM) and approximately 22.1 million customers worldwide as of December 31, 2016.

The company operates four reportable segments: Retirement and Income Solutions, Principal Global Investors, Principal International and U.S. Insurance Solutions, plus a Corporate segment. Net income attributable to Principal Financial Group, Inc. was $1,316.5 million^b in 2016, compared with $1,234.0 million in 2015, and diluted earnings per share were $4.50 versus $4.06. Total revenues rose to $12,394.1 million from $11,964.4 million, and total assets reached $228,014.3 million.

The 2016 results included an unfavorable $68.8 million^c net income impact from actuarial assumption updates and model refinements, and $86.4 million of one-time costs to extinguish long-term debt. The filing shows growth in the asset management and accumulation franchise. Principal Global Investors AUM rose to $390.5 billion from $360.8 billion, driven by $9.0 billion of net cash flow and $21.7 billion of investment performance.

Pre-tax operating earnings were $794.5 million^d for Retirement and Income Solutions, $443.8 million for Principal Global Investors, $288.1 million for Principal International and $361.2 million for U.S. Insurance Solutions, with the Corporate segment reporting a pre-tax operating loss of $218.9 million. Net cash provided by operating activities was $3,857.8 million. Shareholders received $742.2 million in total cash returns, including $464.9 million in dividends and $277.3 million in share repurchases, and dividends declared per share increased to $1.61 from $1.50.

The filing also highlights risk factors tied to the low interest rate environment, regulatory changes such as principles-based reserving and NAIC capital reforms, and market exposure in commercial mortgage loans and equity-linked products. Financial strength ratings were affirmed in 2016, with A.M.

Best at A+ (stable), Fitch at AA- (stable), Moody's at A1 (stable) and S&P at A+ (stable) for Principal Life, and A.M. Best, Moody's and Fitch changed their outlook on the U.S. life insurance sector to negative from stable.

02—Key points

Key Highlights

AUM of $591.6 billion and approximately 22.1 million customers worldwide as of December 31, 2016.
Net income attributable to Principal Financial Group, Inc. of $1,316.5 million in 2016, up from $1,234.0 million in 2015; diluted EPS of $4.50 versus $4.06.
Total revenues of $12,394.1 million in 2016 versus $11,964.4 million in 2015; total assets of $228,014.3 million.
Principal Global Investors AUM grew to $390.5 billion from $360.8 billion, with $9.0 billion of net cash flow and $21.7 billion of investment performance in 2016.
Third-quarter 2016 actuarial assumption updates reduced total company net income by $68.8 million, and $86.4 million of one-time costs were incurred to extinguish long-term debt in 2016.
Total cash returned to stockholders was $742.2 million in 2016, including $464.9 million of dividends and $277.3 million of share repurchases; dividends declared per share rose to $1.61 from $1.50.
Financial strength ratings for Principal Life and PNLIC were affirmed in 2016 at A+ (A.M. Best), AA- (Fitch), A1 (Moody's) and A+ (S&P), while A.M. Best, Moody's and Fitch moved the U.S. life insurance sector outlook to negative.

03—One dollar

04—Financials

Financial Highlights

10-KFY2016filed February 8, 2017

Revenue$12.39B Net Income$1.32B10.6% Net Margin EPS (Diluted)$4.50 Total Assets$228.01B Cash & Equivalents$2.72B Free Cash Flow$3.86B

Financial Statements

FY2016 against FY2015

Line item	FY2016FY2015	FY2015	Change
Revenue	$12.39B$11.96B	$11.96B	+3.6%
Net Income	$1.32B$1.23B	$1.23B	+6.7%
EPS (Basic)	$4.55$4.11	$4.11	+10.7%
EPS (Diluted)	$4.50$4.06	$4.06	+10.8%
Shares Outstanding (Basic)	289.40M294.40M	294.40M	−1.7%
Shares Outstanding (Diluted)	292.70M298.00M	298.00M	−1.8%

05—Questions

Frequently Asked Questions

How did PFG's earnings and revenue change in 2016?
Net income attributable to Principal Financial Group, Inc. was $1,316.5 million in 2016, compared with $1,234.0 million in 2015. Diluted earnings per share were $4.50, versus $4.06. Total revenues increased to $12,394.1 million from $11,964.4 million. The filing attributes the net income increase to after-tax net realized capital gains in 2016 compared with losses in 2015, higher net investment income, and higher variable investment income, partially offset by a $105.2 million benefit recognized in 2015 from a Chilean legal entity merger and a $95.0 million after-tax decrease from actuarial assumption updates.
What drove growth in assets under management?
Principal Global Investors AUM increased to $390.5 billion at December 31, 2016, from $360.8 billion a year earlier. The filing attributes the $29.7 billion increase to $9.0 billion of net cash flow and $21.7 billion of investment performance, partly offset by $1.0 billion of other changes. Total company AUM reached $591.6 billion, compared with $527.4 billion at December 31, 2015.
What are the main risks the filing highlights for investors?
The filing identifies sustained low interest rates as a key risk, which may compress investment spreads, increase reserves and accelerate DAC amortization. It also cites exposure to commercial mortgage loans, with $9.9 billion of balloon maturities, and to equity market declines that reduce asset-based fees. Regulatory changes are a further risk, including principles-based reserving for life insurance beginning in 2017, NAIC proposals to revise risk-based capital requirements and possible revisions to variable annuity statutory reserve and capital frameworks. Ratings downgrades could increase policy surrenders and raise the cost of capital.
How much did PFG return to shareholders and how strong is its capital position?
In 2016 PFG returned $742.2 million to common stockholders, consisting of $464.9 million in dividends and $277.3 million in share repurchases. Total stockholders' equity was $10,293.8 million at year-end 2016. Debt to equity excluding AOCI was 29%, compared with 34% in 2015. Principal Life paid $1,175.0 million in dividends to its parent in 2016, of which $650.0 million was extraordinary and approved by the Iowa Insurance Commissioner.
What debt and financing activity occurred in 2016?
On November 10, 2016, PFG issued $650.0 million of senior notes in two tranches, with a $350.0 million series at 3.1% due 2026 and a $300.0 million series at 4.3% due 2046. Proceeds were used to redeem notes due in 2017 and 2019, which resulted in a one-time extinguishment cost. Long-term debt was $3,125.7 million at year-end 2016, compared with $3,265.2 million at year-end 2015. Short-term debt was $51.4 million, and the company had $1,005.0 million of short-term credit facilities.

06—Continue

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