Updated with correction
Principal Financial Group is prioritizing its higher-growth businesses at the expense of retail-oriented insurance products after a review of the company.
Daniel J. Houston, chairman, president and CEO of Principal Financial, said in an interview Tuesday that the firm's new focus is trained on three fee-based businesses: U.S. and emerging markets retirement plans, including Latin America and Asia; Principal Global Investors, the firm's global asset manager; and U.S. benefits and insurance for small- and midsize business owners, which includes investment management of non-qualified deferred compensation plans by the company's asset management team.
Principal Financial plans to complete the integration of Wells Fargo & Co.'s institutional retirement and trust business on July 1 after acquiring the business in October 2020, which, Mr. Houston said, was a major milestone for the firm.
The now-combined business has $470 billion in assets under administration as of March 31, Mr. Houston said.
"New innovations are coming every day in defined contribution plans. The defined contribution industry is not static and innovation is essential," he said.
Technology is hugely important in the defined contribution segment, Mr. Houston stressed, noting that Principal Financial is "leveraging technology and digitizing in all DC plan markets," including development and enhancement of total return solutions; simple investment applications for onboarding new plan participants; and innovations in target-date funds to include direct investment in preferred securities, real estate and other alternative asset classes.
As for Principal Global Investors, Mr. Houston said big changes aren't planned for the asset management unit which managed $550.6 billion as of March 31. Principal Financial Group managed a total of $820.3 billion as of that date.
"We are reaffirming what we already have in the asset management unit," Mr. Houston said, adding that "bolt-on talent" additions of teams from other firms and "modest acquisitions" of money managers are possible.
Principal Financial's U.S. benefits and insurance unit, which Mr. Houston said basically is "business-owner insurance."
"The company will continue to support business owners and key executives, allowing for an even sharper focus on the business market and products with limited interest-rate exposure," Principal Financial said in a news release Monday. As for the business lines Principal Financial is dropping, the firm said in its statement that it plans to discontinue sales of U.S. retail fixed annuities except for variable annuities, "which (play) an important part role within its suite of retirement solutions."
The company said it also plans to fully withdraw from the U.S. retail consumer insurance market.
Further, the company plans to "pursue strategic alternatives, including divestiture" for the $25 billion in policy reserves of the retail businesses it is exiting, according to the release.
The changes to Principal Financial's operations resulted from a review in February.
"We identified opportunities to reduce complexity and risk, improve our return profile and increase our cash flow conversion to better enable us to execute on our strategy, reinvest in growth and support our financial growth," Mr. Houston said in the release. The review was undertaken as part of a settlement agreement with hedge fund manager Elliott Investment Management, one of its largest investors, Principal Financial said in the release.
Elliott was pleased with Principal Financial's changes, "which represent a significant step on a path towards higher growth, higher returns and greater capital efficiency," Mark Cicirelli, Elliott's U.S. head of insurance, said in the release.
Principal Financial is "committed to actively returning excess capital to shareholders," the the release said, and plans to repurchase up to $1.2 billion of the firm's outstanding common stock.