Principal Financial Group this morning announced significant changes to its product portfolio and capital management strategy, following a comprehensive review of the company’s business mix and capital management options. The strategic review was part of a cooperation agreement with one of Principal’s largest investors, Elliott Investment Management, aimed at driving profitable growth and generating greater long-term value for shareholders, the Des Moines-based company said in a release. The changes have been approved by Principal’s board of directors.

“This thorough and intensive review considered strategic fit, client needs, financial impact, and the risk profile of our business lines,” said Dan Houston, chairman, president, and CEO of Principal. “The outcome will result in a more focused portfolio and stronger capital management strategy that we believe positions Principal for strengthened leadership in higher growth markets and greater capital efficiency, leading to higher expected shareholder returns.”

Principal’s board of directors has also approved a new authorization for the repurchase of up to $1.2 billion of the company’s outstanding common stock. This authorization is in addition to the approximately $675 million that remains under the company’s prior authorization as of March 31.

The review, initiated in February, was led by the independent finance committee of Principal’s board of directors. The key actions as a result of the review are that Principal will:

– Discontinue sales of U.S. retail fixed annuities and consumer life insurance products and pursue strategic alternatives for related in-force blocks of products.

– Fully exit U.S. retail fixed annuities — discontinuing new sales of its deferred annuities, payout annuities and indexed annuities — and pursue strategic alternatives, including divestiture, to the related in-force blocks, which have policy reserves of approximately $18 billion. Principal will continue selling its variable annuity offering.

– In U.S. individual life insurance, Principal will fully exit the retail consumer market, discontinuing new sales of term life and universal life products to retail consumers. Principal will pursue strategic alternatives, including divestiture, to its in-force universal life with secondary guarantees block (approximately $7 billion of policy reserves) as well as other related in-force blocks. Principal will continue to support business owners’ and key executives’ policies, aiming for a sharper focus on the business market and products with limited interest rate exposure.

A media spokeswoman said the changes will have no impact on current customers who hold these products or policies, and that Principal will continue to service them as it always has. Additionally, Principal expects a “very limited impact to our workforce” from today’s announcement, she said.  

Principal said it will prioritize fee-based businesses and focus on three key areas: retirement in the U.S. and select emerging markets, global asset management, and U.S. specialty benefits and protection in the small-to-medium-sized business market.

“These businesses are poised for continued growth, are more capital-efficient, and leverage Principal’s leading position and other competitive advantages, including integrated and differentiated solutions, presence in high-growth markets and preferred customer access,” the company said in the release.

Principal said it expects to repurchase between $1.3 billion and $1.7 billion of common shares from March 31 through the end of 2022 by using capital generated from operations and reducing excess capital to target levels, while retiring $300 million of debt maturing in 2022.

Mark Cicirelli, U.S. head of insurance for Elliott, said: “We applaud today’s announcements, which represent a significant step on a path towards higher growth, higher returns, and greater capital efficiency. We appreciate the constructive dialogue and the company’s demonstrated commitment to build a less capital-intensive business and to focus on its higher-growth target markets.”

Principal’s stock price was down 1.5% in morning trading following the announcement; shares of PFG have rallied 55.7% in a year compared with the industry’s increase of 52.1% and the finance sector’s growth of 44.3%, according to Zack’s Equity Research.

Further details of the strategic review will be discussed at the company’s June 29 investor day. To register, visit principal.com/investorday.