Principal: We’ll Be Ready For DOL Rule By April

The Principal Financial Group is churning on all cylinders toward compliance with the Department of Labor fiduciary rule by the April 10 deadline, its CEO said Tuesday.

Principal is a big player in the retirement plan business, providing services primarily to small and midsize companies.

The controversial rule raises investment advice standards for transactions involving retirement funds. Opponents expect President Donald J. Trump to at least delay the rule, but he has yet to comment on it. The rule begins taking effect on April 10, with full compliance set for Jan. 1, 2018.

"Regarding the impact of the new administration on the DOL fiduciary rule, while there's speculation around potential delays, we're still prepared for an April 2017 applicability date,” said Principal Chairman, President and CEO Dan Houston in a conference call with analysts.

In July, executives with Principal said complying with the rule would cost the company an estimated $1 million a month for 18 months to 24 months, and between $5 million to $10 million a year after that.

Other insurers have pointed to similar DOL rule-related expenditures.

Because of the company’s implementation efforts with distributors to comply with the sweeping rule, Principal is now ready to move forward with “stronger distribution relationships,” Houston explained.

He delivered his comments to Wall Street analysts and investors during the company’s fourth-quarter earnings call.

Earnings Beat Estimates

Fourth-quarter net income came to $318 million compared with $254 million in the year-ago period, the Des Moines, Iowa-based company reported.

The company reported net income of $1.09 per share. Earnings, adjusted for non-recurring costs, came to $1.27 per share, well above expectations.

The average estimate of five analysts surveyed by Zacks Investment Research was for earnings of $1.15 per share. Fourth-quarter revenue came to $3.59 billion, the company said.

Rising interest rates will mean new opportunities for pension plan managers to transfer pension liabilities to insurance and retirement companies like Principal Financial, Houston said, an activity known as “a pension close out.”

Higher rates will also offer new opportunities for fixed annuities and for insurance companies to reinvest investment portfolio assets at higher rates, he added.

Digital Initiatives Point to Early Results

Updating analysts on the company’s digital solutions, which Principal sees as the way many people will buy benefits in the future, Houston said an online insurance purchasing portal has shown “promising early results." More than 25 percent of the portal’s digital life insurance leads converted into a sale, he said.

Those insurance transactions have resulted in nearly $140 million in face amount sold, Houston said.

My Virtual Coach, an interactive retirement education enrollment platform, saw enrolled plan participants save at a rate 3 percentage points higher than workers opting for traditional enrollment channels, Houston said.

Workers enrolled in My Virtual Coach, which in 2016 completed its first full year of implementation, were nearly five times as likely to elect annual automatic rate increases than workers who were not enrolled through the platform, Houston said.

“We're having similar success with Easy Elect, our new group voluntary enrollment for specialty benefits,” he said. “Participation is up nearly 10 percent over traditional enrollment. In particular, employees are purchasing higher amounts of life insurance coverage.”

The earnings conference call was the last conference call for Terrance J. Lillis, the company’s chief financial officer.

Lillis will be succeeded by Deanna D. Strable, president and executive vice president of the company’s U.S. Insurance Solutions unit.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].