Coming off a very profitable fourth quarter, Principal Financial Group CEO Dan Houston sees more opportunity in the future thanks to the SECURE Act.
The first direct writer of life insurance to report fourth-quarter earnings, Principal posted operating net income of $1.41 per share, which matched estimates and is up 27% year over year.
The Des Moines, Iowa-based company reported $315 million in net income and $4 billion in revenue for the quarter, compared with $236 million in net income on $3.8 billion in revenue for the fourth quarter of 2018.
Speaking on a conference call, Houston and his team credited improved performance at Principal's Retirement and Income Solution-Fee business, Principal Global Investors and U.S. Insurance Solutions segments. The company recorded also recorded strong growth in assets under management.
The April sale of Wells Fargo Bank's Institutional Retirement and Trust business to Principal, a $1.2 billion deal, set the company up to take advantage of a burgeoning retirement plan market, Houston said.
"This acquisition doubled the size of our U.S. retirement business and positions us as a top three retirement player," he said. "The integration remains on track and we'll be hard at work throughout 2020 to make sure the transition is as seamless as possible."
In a stroke of fortunate timing, Principal expanded its retirement business just as Congress rather surprisingly reached agreement on retirement security legislation.
The Setting Every Community Up for Retirement Act is being called the most significant pension reform in a decade. The law not only makes it comfortable for sponsors to fortify 401(k)s with annuities but also adds favorable portability rules to make it easier to roll them out to other retirement plans or individual retirement accounts.
The law, a surprise late addition to the budget deal, makes a host of other changes designed to make it easier for Americans to save for retirement.
Principal was among those firms lobbying for passage of the bill, Houston noted, but few are better positioned to take advantage of the changes in the law.
"We're excited about the approval of the SECURE Act in the U.S.," Houston said. "Today, 30% of the retirement plans we onboard annually in the U.S. are with companies that have never offered a plan."
The big thing for Principal is having the experience and the company infrastructure in place to quickly provide the services and sales now allowed by the SECURE Act, Houston explained. For example, the multiple-employer plans that are now allowed.
"We've been in that business for a very long time," Houston said. "So we understand how to work with contracts that have adopting employers. So the fundamentals are very much in place.
"We'll end up partnering with a third party, to help us facilitate that. But there's very much a battle plan in place to help, provide small- to medium-sized employers, gain coverage and improve adequacy."
The enhanced ability to sell annuities into plans is another area where Principal can excel, he added.
"We've been in the annuity business for 75 years. We know how to do that," Houston said. "The safe harbor is going to give customers more confidence about adding that provision."
'Won't Happen Overnight'
Principal's retirement and income solutions spread unit, which includes annuity sales, reported $92 million in pretax operating earnings on $142 million in revenue in the fourth quarter. The fourth quarter 2018 yielded $95 million in pretax operating earnings on $146 million in revenue.
It will take time for the SECURE Act changes to impact Principal's bottom line, Houston told analysts.
"This won't happen overnight," he cautioned. "But just like the last major piece of pension legislation, which for me was auto enrolling and auto escalate, these things collectively put us in a better position to cover more American workers, so, that is positive for the SECURE Act."
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.
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