Principal Financial : 2021 Annual Report on Form 10-K (PDF)

Annual Report

Transformation

OUR STRATEGIC PATH FORWARD

With so much around us forever changed, this past year left the world wondering what's next.

Vaccines in sight, we glimpsed an end to the global pandemic-until new variants postponed our return to "normal." Social unrest forced communities to take a hard look at equity, or lack of it. In a rapidly digitalized world, business owners adapted as best they could. Some thrived; others closed their doors forever.

Principal took stock of all of it, assessing in real time what this sea change meant for our customers and our communities, for us.

Amid chaos, we found clarity.

We reviewed and sharpened our strategy to drive even stronger shareholder value.

Amid chaos, we found clarity.

We deepened our knowledge of what our customers need and want in these tumultuous times.

We doubled down on critical work to modernize our digital platforms, creating a more personalized customer experience.

We announced sustainability goals-with measurable outcomes that hold us accountable.

To meet the moment and chart our path forward, we relied on our ability to adapt and evolve, which we've honed over decades of intentional transformation.

From our CEO

DAN HOUSTON

Chairman, President, and CEO Principal Financial Group

Twenty years ago, Principal debuted as a public company. Employees around the world celebrated in unison as our Chair rang the bell at the New York Stock Exchange. I joined thousands of colleagues on the plaza of our global headquarters in Des Moines to witness the moment, broadcast live on an enormous screen. We waited excitedly, a collective cheer going up as the bell began to ring. Our new path forward had begun.

We made the decision to go public because it had become clear we needed to change to compete in our chosen markets. To grow, and to lead.

That decision launched two decades of exponential growth. Since the IPO, our assets under management (AUM) soared to more than six times the 2001 level, and the number of customers we serve has nearly quadrupled.

It's a powerful and timely reminder of how Principal continually evolves to meet the moment.

In 2021, we again evaluated what it takes to continue to win in our chosen markets. We spent considerable time diving deep into strategy-distilling what makes this company great and what delivers sustained success. And we evolved our path forward.

Doing more of what we do best

Led by our Board Finance Committee, with significant contribution from our Chief Financial Officer Deanna Strable and our Chief Risk Officer Ken McCullum, our senior management team took a hard look at our product portfolio and identified prime opportunities for investment to amplify what we do best. Moving forward, we'll focus on and continue to invest in our chosen growth drivers:

• • Retirement in the United States and select emerging markets

• • Global asset management

• • U.S. benefits and protection, focused on small and midsize businesses (SMBs)

These areas are poised for growth and leverage our differentiators. They thrive on our integrated business model and allow for greater capital efficiency and increased return of capital to shareholders.

We'll continue to offer variable annuities as part of our retirement offerings and life insurance for the business and business-owner market, but we made the decision to exit two product lines in the U.S. that no longer meet our strategic and financial thresholds-retail fixed annuities and retail life insurance. In January 2022, we announced a reinsurance transaction on two related in-force blocks of business-retail fixed annuities and universal life insurance with secondary guarantee-expected to close in 2Q 2022. This demonstrates our ongoing commitment to improving capital efficiency and returns, positioning ourselves to create additional long-term shareholder value.

We strengthened our capital management strategy, announcing our plan to return up to $4.6 billion of capital to shareholders between 2021 and 2022 through share repurchases and common stock dividends.

We plan to return up to $4.6 billion of capital to shareholders between 2021 and 2022.

We successfully completed the integration of one of the largest acquisitions in our history-making us a Top 3 retirement provider in the U.S. The business we acquired brought 2.4 million participants and $140 billion in account values to Principal. Our increased scale, expanded platform capabilities, and additional distribution channels enable us to deliver unmatched breadth and depth of retirement solutions to companies of all sizes.

We accelerated digital transformation, devoting substantially more resources and energy to creating compelling and relevant customer experiences, making financial security more accessible to people and businesses around the globe. Our top-notch technology organization delivered innovative, personalized, digital-driven solutions to customers. Our mobile apps in Malaysia and Chile earned accolades in 2021. And in our quest to support advisors, businesses, and their employees, we continued our work simplifying the benefits experience, including one innovation that recently earned a U.S. patent.

We responded to investor demand for securities that drive higher yields. Principal Alternative Credit built a middle market direct lending team with 22 dedicated investment professionals and more than $750 million of committed capital-an eightfold increase over its initial year.

As businesses faced unprecedented challenges throughout the year, we brought our expertise in the SMB market to bear. As leaders in this market, we helped business owners navigate the array of relief programs set up to assist them-with tools to help them evaluate options and case studies of businesses managing similar situations. And our Business Needs Assessment Tool identified best practices to help them protect their business, employees, and personal financial security.

We reimagined some of the most critical interactions and experiences across the end-to-end journey for business leaders and their employees, pledging to improve transparency and make it easier to do business with Principal.

What was true 20 years ago is true today: Our unique and complementary mix of businesses, deep expertise, and global reach are a winning combination. As we continue to sharpen our focus, we'll deliver even greater results for shareholders, customers, and employees.

Holding ourselves accountable

Standing up for what we believe in has always been a priority at Principal. As we continue to strengthen our financials, we're also focused on building a stronger and brighter future for the communities we serve. To do this, we're accessing the power of our people, embedding sustainable practices in our business, and developing accessible products and inclusive services. These actions reach beyond our business. This is who we are, and it's more critical than ever, as consumers increasingly seek out companies with values that align to their own.

In April, we set multiyear corporate responsibility commitments as part of our environmental, social, and governance (ESG) strategy. These clearly defined measures demonstrate how we're creating a more inclusive and sustainable world.

These clearly defined measures demonstrate how we're creating a more inclusive and sustainable world.

As part of these efforts, we proudly announced:

• • Our first sustainability bond in the amount of $600 million, supporting green and social initiatives that reinforce our ESG commitments.

• • Our first Municipal Bond Impact strategy in the U.S., primarily offered to high-net-worth clients as a separately managed account. Proceeds are used to create positive social and environmental impact.

• • Our Foundation's commitment of $15 million to strengthen the financial health and security of the communities in which we operate. These funds support:

  • • coaching and microfinance programs to strengthen diverse SMBs,

  • • expanded access to social and cultural institutions for underserved communities, and

  • • programs to address food insecurity and homelessness, restoring dignity and the ability to pursue physical and financial wellness.

And we'll keep going.

Fostering a winning culture

It's clear the COVID-19 pandemic shifted the employer/employee dynamic. Certain jobs can be done remotely, and employees expect flexibility. In a highly competitive talent market, our culture sets us apart.

It starts with meaningful work-the privilege of helping customers achieve and maintain financial security for themselves and their families. It extends to the purposeful ways we connect and inspire our employees every day-through development, inclusion, flexibility, and giving back.

In 2021, we:

• • concluded the first year of our global mentoring program, connecting 1,500 mentoring pairs, representing 17 countries, and including every member of our Executive Management Group.

• • identified critical skills needed for future success and encouraged employees, leaders, and teams to collaborate on upskilling. For example: To improve cloud fluency across the organization, we trained nearly 1,700 technology employees in eight months, boosting collaboration globally and accelerating our speed of innovation.

• • engaged 96% of our leaders in a development experience called INCLUDE: The neuroscience of smarter teams, which focuses on creating optimal dynamics for greater team success.

• • outlined global principles we'll adhere to as we begin to emerge from the COVID-19 pandemic and establish our new normal. These include a greater emphasis on hybrid work arrangements-an option for many of our employees going forward.

Our culture enables success, and it makes Principal a great place to be.

Our culture enables success, and it makes Principal a great place to be.