Principal Financial CEO Lifts ROE Target, Highlights SMB Growth and AI Push at BofA Conference

Principal Financial Group (NASDAQ:PFG) President and CEO Deanna Strable used an appearance at Bank of America’s U.S. Financial Services Conference to reinforce the company’s view that it is carrying strong momentum out of 2025 and into 2026, while highlighting strategic priorities in small and midsize business (SMB) retirement and benefits, global asset management, and technology investments tied to artificial intelligence.

Strable said Principal’s 2025 performance followed “a really strong 2024,” with adjusted EPS growth of 12% for the year, which she described as the top end of the company’s targeted range. On a reported basis, she said results were “nearly 20%.” She added that free cash flow came in at the top end or above the top end of Principal’s targeted range, and return on equity increased 120 basis points, landing in the “top half” of its targeted range.

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Looking ahead, Strable characterized the 2026 outlook as consistent with recent delivery. Principal is still targeting 9% to 12% EPS growth and 75% to 85% free cash flow. She also noted the company raised its ROE target to 15% to 17% from 14% to 16%, saying the change reflects both current positioning and confidence in continued trajectory.

Strable emphasized that SMB has been a core U.S. focus for decades and remains one of Principal’s key growth priorities alongside the retirement ecosystem and global asset management. She defined SMB as employers with up to 1,000 employees and said Principal’s retirement business spans that range, skewing more toward the “M” side, while also participating in the large-case market. In employee benefits, she said the company is concentrated in SMB and tends to skew toward smaller employers, where it has seen “outsized growth.”

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Addressing perceptions that SMB may be riskier, Strable pointed to internal data shared at the company’s investor day indicating SMB customers have been in business for around 30 years, and many have been clients for more than 10 years. Through economic cycles, she said the segment has been resilient and stable, with customers “slow to hire and slow to fire.” She cited natural employee growth around 2% in recent years, adding that recurring deposits and in-group employment growth have shown stability.

She also referenced a recent Principal research study of SMB employers that included questions about job and salary growth and the impact of AI. According to Strable, 95% of surveyed employers expect to increase salaries or keep them stable, and about 85% plan for employment levels to be stable or increase.

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Asked about cross-selling retirement and benefits, Strable said the SMB strategy is not “all grounded in cross-sell,” in part because Principal goes to market through third-party advisors who are often bifurcated between retirement and benefits. Instead, she emphasized leveraging the company’s platform advantages to drive growth in each line, then expanding where it fits.

Within retirement, she highlighted “Total Retirement Solutions,” describing Principal as more than a 401(k) provider and citing leadership positions in defined benefit, non-qualified plans (often funded by life insurance), and ESOPs. Within benefits, she said customers continue adding coverages, and Principal averages more than 3.1 coverages per benefits customer, including supplemental and voluntary solutions.

Strable also described two areas where Principal is pursuing additional expansion:

• Executive and business-owner solutions in life and disability, often sold through individual distribution, as a cross-sell opportunity into core group benefits.

• Partnering with asset management advisors by using Principal’s SMB expertise to help them pursue the business owner and SMB market, even when not tied to the same customer relationship.

Strable said Principal’s employee benefits business differs from some peers because dental is its largest premium, alongside life and disability, and the company often approaches the market with a bundled offering. She said claims trends changed after COVID, with dental claims rising on both cost and incidence, while life and disability loss ratios have declined.

She pointed to work-from-home as a meaningful driver in disability outcomes, suggesting it may be a fundamental shift affecting incidence, duration, and termination because employees can return to work more flexibly after surgeries or medical events.

For 2025, Strable said Principal posted a “very strong” loss ratio overall. Dental was “a little bit elevated” versus the company’s preference, while life and disability were “more positive” than expected. Even so, she said the combined loss ratio was below the lower end of Principal’s loss ratio target range.

She also emphasized that annual repricing in SMB is an advantage, enabling the company to adjust dental pricing while potentially reducing life and disability pricing, creating a more stable total premium for customers. On dental utilization, Strable said dental is a highly valued benefit and noted changes in provider behavior, including more reminders and upselling. She also said Principal’s sizable in-house dental network supports contracting and cost management over time.

On how risk differs across products, she said dental carries lower risk and a lower capital charge than life and disability, which affects targeted margins. And on group life trends, Strable said Principal’s group life exposure is entirely working population and that the company has not yet seen changes related to factors such as cancer trends or GLP-1 medications, though she said it is something to monitor over the next 5 to 10 years.

Strable described an international strategy focused on exporting U.S. strengths where appropriate, and said the company has reorganized its structure by bifurcating what had been Principal Global Investors and Principal International into a clearer focus under the asset management umbrella. She said the firm has customers in 80 countries, with investment and distribution teams across multiple jurisdictions. She added that international pension is now concentrated in four markets—China, Brazil, Chile, and Mexico—following divestitures.

In real estate and other private markets, Strable said Principal has seen flows rebound, citing six consecutive quarters of growth in real estate returns and suggesting lower interest rates could further support attractiveness. She said that when combining real estate with other private capabilities such as private credit and infrastructure, the company generated roughly $3.5 billion to $4 billion in positive flows during 2025. She also referenced interest from clients in Asia and the Middle East and noted the launch of a data center fund in Europe.

On AI, Strable said it should be viewed as a broad-based tool rather than a replacement for advisors, particularly in SMB where customers still value local relationships. She said Principal has invested in both proprietary tools and third-party tools within its own environment. Strable reported that employee access to AI tools expanded from fewer than 1,000 people at the start of 2025 to about 17,000 of the company’s 19,000 employees by year-end, with roughly 7,000 using the tools on a typical day. Use cases she cited included meeting preparation, code development, engagement centers, claims, underwriting, RFP development, and distribution targeting.

She said AI investments have upfront costs—reflected in last year’s results—while overall expenses were up 2%. Over time, she expects benefits to show up in a combination of margin improvement, capacity gains, growth, and competitiveness.

Strable also addressed capital return priorities, saying Principal targets a 40% dividend payout ratio and a total payout ratio of 75% to 85% when including share buybacks. She added that Principal remains open to inorganic opportunities but said the bar is high and acquisitions are not necessary to achieve current objectives, noting a 22% leverage ratio that provides flexibility if needed.

Principal Financial Group (NASDAQ: PFG) is a global financial services company headquartered in Des Moines, Iowa, that provides a range of retirement, investment and insurance solutions to individuals, employers and institutional clients. The firm’s business is organized around retirement services, asset management, and insurance products designed to help clients plan, invest for, and protect income over the long term.

Principal’s product and service offerings include retirement plan recordkeeping and administration for employer-sponsored plans, individual and group retirement annuities, life and disability insurance, employee benefits solutions, and wealth management services.

The article “Principal Financial CEO Lifts ROE Target, Highlights SMB Growth and AI Push at BofA Conference” was originally published by MarketBeat.