Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following analysis discusses our financial condition as of December 31, 2025, compared with December 31, 2024, our consolidated results of operations for the years ended December 31, 2025 and 2024, and, where appropriate, factors that may affect our future financial performance. The discussion should be read in conjunction with our audited consolidated financial statements and the related notes to the financial statements and the other financial information included elsewhere in this Form 10-K.
For information and analysis relating to our financial condition and consolidated results of operations as of and for the year ended December 31, 2023, as well as for the year ended December 31, 2024 compared with the year ended December 31, 2023, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024.
Forward-Looking Information
Our narrative analysis below contains forward-looking statements intended to enhance the reader’s ability to assess our future financial performance. Forward-looking statements include, but are not limited to, statements that represent our beliefs concerning future operations, strategies, financial results or other developments, and contain words and phrases such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend” and similar expressions. Forward-looking statements are made based upon management’s current expectations and beliefs concerning future developments and their potential effects on us. Such forward-looking statements are not guarantees of future performance.
Actual results may differ materially from those included in the forward-looking statements as a result of risks and uncertainties. Those risks and uncertainties include, but are not limited to, the risk factors listed in Item 1A. “Risk Factors.”
Overview
We provide financial products and services through the following reportable segments:
Retirement and Income Solutions;
Principal Asset Management and
Benefits and Protection.
We also have a Corporate segment, which consists of the assets and activities that have not been allocated to any other segment. See Item 1. “Business” for a description of our reportable segments.
Economic Factors and Trends
Positive market performance led to an increase in account values in our Retirement and Income Solutions segment in 2025. Since account values are the base by which this business generates revenues, market performance volatility may impact our revenues in future quarters.
Positive market performance and foreign currency tailwinds led to an increase in AUM in our Principal Asset Management segment in 2025, which was partially offset by operations disposed. Since AUM is the base by which this business generates revenues, market performance and fluctuations in foreign currency exchange rates may impact our revenues in future quarters. Also included in revenues are borrower fees, transaction fees and performance fees, which can fluctuate between years.
In our Benefits and Protection segment, premium and fee growth is a key indicator of earnings growth. Higher levels of unemployment may impact new sales in our businesses and reduce in-group growth in our Specialty Benefits business in the short-term.
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Profitability
Our profitability depends in large part upon our amount of AUM and our ability to:
manage the difference between the investment income we earn and the interest we credit to policyholders;
generate fee revenues by providing trust and custody, administrative and investment management services;
price our insurance products at a level that enables us to earn a margin over the cost of providing benefits and the related expenses;
manage our investment portfolio to maximize investment returns and minimize risks such as interest rate changes or defaults or impairments of invested assets;
effectively hedge fluctuations in foreign currency to U.S. dollar exchange rates on certain transactions and
manage our operating expenses.
Critical Accounting Policies and Estimates
The increasing complexity of the business environment and applicable authoritative accounting guidance requires us to closely monitor our accounting policies. Our significant accounting policies are described in Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 1, Nature of Operations and Significant Accounting Policies.” We have identified critical accounting policies that are complex and require significant judgment and estimates about matters that are inherently uncertain. A summary of our critical accounting policies is intended to enhance the reader’s ability to assess our financial condition and results of operations and the potential volatility due to changes in estimates and changes in guidance. The identification, selection and disclosure of critical accounting policies and estimates have been discussed with the Board Audit Committee.
Valuation and Allowance for Credit Loss of Fixed Income Investments
Fixed Maturities. Fixed maturities include bonds, asset-backed securities (“ABS”), redeemable preferred stock and certain non-redeemable preferred securities. We classify our fixed maturities as either AFS or trading and, accordingly, carry them at fair value in the consolidated statements of financial position. Volatility in net income can result from changes in fair value of fixed maturities classified as trading. Volatility in other comprehensive income can result from changes in fair value of fixed maturities classified as AFS.
We measure the fair value of our financial assets and liabilities based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset, or nonperformance risk, including our own credit risk. For additional details concerning the methodologies, assumptions and inputs utilized see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 18, Fair Value Measurements” under the caption, “Determination of Fair Value.”
The fair values of our public fixed maturities are primarily based on market prices from third party pricing vendors. We have regular interactions with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information. In addition, 18% of our invested asset portfolio as of December 31, 2025, was invested in privately placed fixed maturities with no readily available market quotes to determine the fair market value. The majority of these assets are valued using a matrix pricing valuation approach that utilizes observable market inputs. In the matrix approach, securities are grouped into pricing categories that vary by sector, rating and average life. Each pricing category is assigned a risk spread based on observable public market data. The expected cash flows of the security are then discounted back at the current Treasury curve plus the appropriate risk spread. Although the matrix valuation approach provides a fair valuation of each pricing category, the valuation of an individual security within each pricing category may be impacted by company specific factors. This excludes privately placed securities subject to Rule 144A of the Securities Act of 1933 that are primarily based on market prices from third party pricing vendors, similar to public fixed maturities.
If we are unable to price a fixed maturity security using prices from third party pricing vendors or other sources specific to the asset class, we may obtain a broker quote or utilize an internal pricing model specific to the asset utilizing relevant market information, to the extent available and where at least one significant unobservable input is utilized. In addition, there may be certain securities managed by external managers where we obtain the valuation from the external manager when we are unable to obtain prices from third party pricing vendors or other sources. These are reflected in Level 3 in the fair value hierarchy and can include fixed maturities across all asset classes. As of December 31, 2025, approximately 3% of our total fixed maturities were Level 3 securities valued using internal pricing models. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 18, Fair Value Measurements” for further discussion.
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The $1,321.9 million decrease in net unrealized losses from U.S. investment operations for the year ended December 31, 2025, can be attributed to a decrease in interest rates, which was partially offset by a widening of credit spreads. For additional information about interest rate risk see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”
We have a process in place to identify fixed maturity securities that could potentially require an allowance for credit loss. This process involves monitoring market events that could impact issuers’ credit ratings, business climate, management changes, litigation and government actions and other similar factors. This process also involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues.
Each reporting period, all securities in an unrealized loss position are reviewed to determine whether a decline in value is due to credit. Relevant facts and circumstances considered include: (1) the extent the fair value is below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for structured securities, the adequacy of the expected cash flows. To the extent we determine an unrealized loss is due to credit, an allowance for credit loss is recognized through a reduction to net income. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 4, Investments” under the caption, “Allowance for Credit Loss” for further discussion.
A number of significant risks and uncertainties are inherent in the process of monitoring credit losses and determining the allowance for credit loss. These risks and uncertainties include: (1) the risk that our assessment of an issuer’s ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer; (2) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated; (3) the risk that our investment professionals are making decisions based on fraudulent or misstated information in the financial statements provided by issuers and (4) the risk that new information obtained by us or changes in other facts and circumstances lead us to change our intent to not sell the security prior to recovery of its amortized cost. Any of these situations could result in a charge to net income in a future period. As of December 31, 2025, we had $39,627.3 million in AFS fixed maturities with gross unrealized losses totaling $5,222.0 million. Included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as movement in credit spreads.
For more detailed information concerning allowances for credit loss, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 4, Investments” under the caption, “Allowance for Credit Loss.”
Mortgage Loans. Mortgage loans consist primarily of commercial mortgage loans on real estate. Commercial mortgage loans on real estate are generally reported at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method and net of valuation allowances. We establish a valuation allowance for the risk of credit losses inherent in our mortgage loans, which is maintained at a level believed adequate by management to absorb estimated expected credit losses. The valuation allowance is based on amortized cost excluding accrued interest receivable and includes reserves for pools of financing receivables with similar risk characteristics. Amounts on loans deemed to be uncollectible are charged off and removed from the valuation allowance. The change in the valuation allowance provision is included in net realized capital gains (losses) on our consolidated statements of operations.
For more detailed information concerning mortgage loan valuation allowances, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 4, Investments” under the caption, “Financing Receivables Valuation Allowance.”
Derivatives
We use derivatives primarily to hedge or reduce exposure to market risks. The fair values of exchange-traded derivatives are determined through quoted market prices. Exchange-traded derivatives include futures that are settled daily, which reduces their fair value in the consolidated statements of financial position. The fair values of privately negotiated contracts, which are usually referred to as over-the-counter (“OTC”) derivatives, that are cleared through centralized clearinghouses are determined through market prices published by the clearinghouses. Variation margin associated with OTC cleared derivatives is settled daily, which reduces their fair value in the consolidated statements of financial position. The fair values of non-cleared OTC derivatives are determined using either pricing valuation models that utilize market observable inputs or broker quotes. On an absolute fair value basis as of December 31, 2025, the majority of our OTC derivative assets and liabilities were valued using pricing valuation models using market observable data with approximately 2% using broker quotes. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 18, Fair Value Measurements” for further discussion. The fair values of our derivative instruments can be impacted by changes in interest rates, foreign exchange rates, credit spreads, equity indices and volatility, as well as other contributing factors. For additional information see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”
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We also issue certain annuity, universal life and other contracts that include embedded derivatives that have been bifurcated from the host contract. They are valued using a combination of historical data and actuarial judgment. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 18, Fair Value Measurements” for further discussion. We include our assumption for own nonperformance risk in the valuation of these embedded derivatives. As our credit spreads widen or tighten, the fair value of the embedded derivative liabilities decrease or increase, leading to an increase or decrease in net income. If the current market credit spreads reflecting our own creditworthiness move to zero (tighten), the reduction to net income would be approximately $99.5 million, net of income taxes, based on December 31, 2025, reported amounts. In addition, the policyholder behavior assumptions used in the valuation of embedded derivatives include risk margins, which increase the fair value of the embedded derivative liabilities.
We have entered into coinsurance with funds withheld reinsurance arrangements. For funds withheld agreements the economic benefit of the assets flow to reinsurance counterparties, however, we retain legal ownership of the assets within the funds withheld account. Therefore, the assets held under funds withheld agreements are included on our consolidated statements of financial position, with a corresponding funds withheld payable. The funds withheld payable also includes an embedded derivative that has been bifurcated from the host contract. The fair value of the embedded derivative is based on the change in the fair value of the underlying funds withheld investments using the valuation methods and assumptions described for our investments held.
The accounting for derivatives is complex and interpretations of the applicable accounting standards continue to evolve. Judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment. Judgment and estimates are used to determine the fair value of some of our derivatives. Volatility in net income can result from changes in fair value of derivatives that do not qualify or are not designated for hedge accounting and changes in fair value of embedded derivatives.
Market Risk Benefits
MRBs are contracts or contract features that provide protection to the policyholder from capital market risk such as equity, interest rate or foreign exchange risk and expose us to other-than-nominal capital market risk. We have certain annuity contracts that have GMWB and guaranteed minimum death benefit (“GMDB”) riders. These MRBs have been bifurcated from the host contract and are measured at fair value. The change in fair value is recognized in net income, with the exception of the change in fair value related to our own nonperformance risk, which is recognized in OCI. We use various derivative instruments to hedge against changes in fair value of MRBs related to market risk.
MRBs are valued using a combination of historical data and actuarial judgment. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11, Market Risk Benefits and Note 18, Fair Value Measurements” for further discussion. We include our assumption for own nonperformance risk in the valuation of these MRBs, which is based on the current market credit spreads for debt-like instruments we have issued and are available in the market. As our credit spreads widen or tighten, the fair value of MRB assets increase or decrease and the fair value of MRB liabilities decrease or increase, leading to an increase or decrease in OCI, respectively. If the current market credit spreads reflecting our own creditworthiness move to zero (tighten), the reduction to OCI would be approximately $51.5 million, net of income taxes, based on December 31, 2025, reported amounts. In addition, the policyholder behavior assumptions used in the valuation of MRBs include risk margins, which decrease the fair value of MRB assets and increase the fair value of MRB liabilities.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefinite lives are not amortized. Intangibles with finite lives are amortized over their estimated useful lives. We formally conduct our annual goodwill and other intangible asset impairment testing during the third quarter or more frequently if events or circumstances change that would more-likely-than-not create an impairment. Goodwill is tested at the reporting unit level, which is one level below the operating segment.
Annual goodwill impairment testing consists of qualitative or quantitative assessments. In the qualitative assessment, we assess relevant events and circumstances that could affect the significant inputs used to determine the fair value of the reporting unit. If when reviewing the qualitative factors it is determined it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test is performed.
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The determination of fair value for our reporting units is primarily based on an income approach whereby we use discounted cash flows for each reporting unit. We apply significant judgment to our discounted cash flow models when determining the estimated fair value of our reporting units. The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will in all likelihood differ in some responses from actual future results.
The key inputs, judgments and assumptions necessary in determining estimated fair value include:
weighted average cost of capital
long-term growth rate
corporate income tax rate
AUM growth rate
net revenue growth rate
business margins on AUM and net revenue
For reporting units that performed a qualitative test of goodwill, we concluded the estimated fair values of all such reporting units were in excess of their carrying values and, therefore, goodwill was not impaired. Similarly, for reporting units that performed a quantitative test of goodwill, the estimated fair values of all such reporting units were in excess of their carrying values and, therefore, goodwill was not impaired.
For information about our goodwill and other intangible assets, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 1, Nature of Operations and Significant Accounting Policies,” and “Note 2, Goodwill and Other Intangible Assets.”
Sensitivities. In connection with our annual impairment testing process, we performed a sensitivity analysis for goodwill impairment with respect to each of our reporting units and determined that a hypothetical 10% decline in the fair value would not result in an impairment of goodwill for any reporting unit. We cannot predict certain future events that might adversely affect the reported value of goodwill and other intangible assets that totaled $1,600.5 million and $1,267.0 million, respectively, as of December 31, 2025. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, interest rate movements, declines in the equity markets, the legal environment in which the businesses operate or a material negative change in our relationships with significant customers.
Insurance Reserves
Reserves are liabilities representing estimates of the amounts that will come due, at some point in the future, to or on behalf of our policyholders. U.S. GAAP, allowing for some degree of managerial judgment, provides guidance for establishing reserves.
Future policy benefits and claims include reserves for individual traditional life insurance, disability insurance and individual and group annuities that provide periodic income payments. These reserves are computed using assumptions of mortality, interest, morbidity and lapse. These assumptions are based on our experience, industry results, emerging trends and future expectations.
For long-duration insurance contracts, reserves for individual and group annuities are generally equal to the present value of expected future policy benefit payments, while the reserves for non-participating term life insurance and individual disability income contracts is generally equal to the present value of expected future policy benefits less the present value of expected net premiums. Issue-year cohorts are used for the reserve calculation and assumptions are periodically reviewed and updated. Separate cohorts are used for the calculation of ceded reserves. An interest accretion rate is determined for an identified cohort and remains unchanged after the issue year. Reserves are remeasured as of each reporting date to reflect the current upper-medium grade fixed income instruments yields, with the impact reported in OCI. If the current upper-medium grade yields decrease 100 basis points, the reduction in OCI would be approximately $2.4 billion, net of income taxes, based on December 31, 2025, reported amounts.
Reserves for participating life insurance contracts are based on the net level premium reserve for death and endowment policy benefits. This net level premium reserve is calculated based on dividend fund interest rates and mortality rates guaranteed in calculating the cash surrender values described in the contract.
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For short-duration contracts, significant changes in experience or assumptions may require us to provide for expected future losses on a product by establishing premium deficiency reserves. Our reserve levels are reviewed throughout the year using internal analysis including, among other things, experience studies, claim development analysis and annual loss recognition analysis. To the extent experience indicates potential loss recognition, we recognize losses on certain lines of business. The ultimate accuracy of the assumptions on these insurance products cannot be determined until the obligation of the entire block of business on which the assumptions were made is extinguished. Short-term variances of actual results from the assumptions used in the computation of the reserves are reflected in current period net income and can impact quarter-to-quarter net income.
Future policy benefits and claims also include reserves for incurred but unreported disability claims. We recognize claims costs in the period the service was provided to our policyholders. However, claims costs incurred in a particular period are not known with certainty until after we receive, process and pay the claims. We determine the amount of this liability using actuarial methods based on historical claim payment patterns as well as emerging cost trends, where applicable, to determine our estimate of claim liabilities. We also look back to assess how our prior periods’ estimates developed. To the extent appropriate, changes in such development are recorded as a change to current period claim expense. Historically, the amount of the claim reserve adjustment made in subsequent reporting periods for prior period estimates have been within a reasonable range given our normal claim fluctuations.
Future policy benefits and claims also include benefit reserves that are established for universal life-type contracts that provide benefit features that are expected to produce gains in early years followed by losses in later years. The liabilities are accrued in relation to estimated contract assessments.
See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 10, Future Policy Benefits and Claims” for further discussion.
We periodically review and update actuarial assumptions that are used to project cash flows that are used to compute reserves. For more information see “Transactions Affecting Comparability of Results of Operations — Actuarial Assumption Updates.”
Benefit Plans
The reported expense and liability associated with pension plans requires the use of assumptions. Numerous assumptions are made regarding the discount rate, expected long-term rate of return on plan assets, turnover, expected compensation increases, retirement rates and mortality. The discount rate and the expected return on plan assets have the most significant impact on the level of expense.
The assumed discount rate is determined by projecting future benefit payments inherent in the Projected Benefit Obligation and discounting those cash flows using a spot yield curve for high quality corporate bonds. Our assumed discount rate was 5.40% for our pension plans as of December 31, 2025. Typically, a 0.25% decrease in the discount rate would increase the pension benefits Projected Benefit Obligation by approximately $87.1 million and increase the Net Periodic Pension Cost (“NPPC”) by approximately $6.9 million. Typically, a 0.25% increase in the discount rate would result in a decrease in the benefit obligation and expense at a level generally commensurate with those noted above.
The assumed long-term rate of return on plan assets is set at the long-term rate expected to be earned based on the long-term investment policy of the plans and the various classes of the invested funds. Historical and future expected returns of multiple asset classes were analyzed to develop a risk-free real rate of return and risk premiums for each asset class. The overall long-term rate for each asset class was developed by combining a long-term inflation component, the real risk-free rate of return and the associated risk premium. A weighted average rate was developed based on long-term returns for each asset class, the plan’s target asset allocation policy and the tax structure of the trusts. For the 2025 NPPC, a 6.40% weighted average long-term rate of return was used. For the 2026 NPPC, a 6.50% weighted average long-term rate of return assumption will be used. Typically, a 0.25% decrease in the assumed long-term rate of return would increase the NPPC by approximately $7.0 million. Typically, a 0.25% increase in this rate would result in a decrease to expense at the same levels. The assumed return on plan assets is based on the fair market value of plan assets as of December 31, 2025.
The compensation increase assumption is generally set at a rate consistent with current and expected long-term compensation and salary policy, including inflation.
For pension costs, actuarial gains and losses are amortized using a straight-line amortization method over the average remaining service period of plan participants, which is approximately 10 years. The qualified pension plan does not utilize the allowable corridor, while the nonqualified pension plans utilize the 10% corridor. Prior service costs are amortized on a weighted average basis over approximately 3 years for pension costs. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 15, Employee and Agent Benefits” for further discussion.
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Income Taxes
We provide for income taxes based on our estimate of the liability for taxes due. Our tax accounting represents management’s best estimate of various events and transactions, such as completion of tax audits or establishment of, or changes to, a valuation allowance associated with certain deferred tax assets, which could affect our estimates and effective income tax rate in a particular quarter or annual period. Deferred tax assets and liabilities reflect differences between financial and tax bases, using enacted future tax rates. We assess deferred tax asset recoverability quarterly and establish valuation allowances as needed. We consider reversals of existing taxable temporary differences, future income, carrybacks, and tax planning strategies when evaluating the need for valuation allowances.
Deferred income taxes (including federal, state and foreign withholding) have not been provided on undistributed earnings from operations of foreign subsidiaries as of December 31, 2025. We do not record deferred income taxes on foreign earnings not expected to be distributed to the U.S. We apply an exception to the general rule, which under U.S. GAAP otherwise requires the recording of deferred income taxes on the anticipated repatriation of foreign earnings as recognized for financial reporting purposes. The exception permits us to not record a deferred income tax liability on foreign earnings we expect to be indefinitely reinvested in our foreign operations. The related deferred income taxes will be recorded in the period it becomes apparent we can no longer positively assert some or all the undistributed earnings will remain invested into the foreseeable future.
The amount of income taxes paid is subject to audits in the U.S. as well as various state and foreign jurisdictions. Tax benefits are recognized for book purposes when the more-likely-than-not threshold is met with regard to the validity of an uncertain tax position. Once this threshold is met, for each uncertain tax position we recognize in earnings the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with the Internal Revenue Service or other income taxing authorities for audits ongoing or not yet commenced. We do not anticipate the ultimate resolution of audits ongoing or not yet commenced to have a material impact on our net income.
See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Income Taxes” for further discussion.
Recent Event
Principal Compañía de Seguros de Vida Chile S.A.
On January 19, 2026, an agreement with Banco Santander, S.A. (“Santander”) was announced whereby Santander will acquire our annuities business in Chile, Principal Compañía de Seguros de Vida Chile S.A. (“Vida”), subject to regulatory approvals. The transaction is structured such that the Vida legal entity will be sold excluding its universal life and asset management business, which will be carved out prior to the sale. We expect the transaction to close in the third quarter of 2026. We expect to incur an estimated $280.0 million pre-tax net realized capital loss on the disposal primarily due to recognizing into income our accumulated foreign currency translation adjustment in a loss position. We do not expect a material impact to our Principal Asset Management segment pre-tax operating earnings upon completion of the sale.
Transactions Affecting Comparability of Results of Operations
Principal Mandatory Provident Funds
On January 16, 2025, we announced the signing of an agreement with BCT to expand our investment management capabilities and exit our sponsor and trustee (pension) roles in Hong Kong for MPF Schemes. BCT will be assuming the role as sponsor and trustee for the Principal MPF Schemes. The transaction is expected to close in 2026, subject to regulatory approval; however, certain transaction impacts were recognized in first quarter 2025. We impaired our distribution agreement intangible asset and contract cost asset, resulting in a $65.4 million loss reported in operating expenses on our consolidated statements of operations. Additionally, we classified our customer relationship intangible asset as held-for-sale, resulting in a $77.0 million loss reported in net realized capital gains (losses) on our consolidated statements of operations. For segment reporting, the impairments are reflected in loss from exited business and the held-for-sale write-down is reflected in net realized capital losses. As such, they had no impact on our Principal Asset Management segment pre-tax operating earnings.
Yearly Renewable Term Reinsurance Transactions
During 2024, we terminated, executed and amended certain YRT reinsurance agreements with unaffiliated reinsurance companies for insurance risks associated with universal life insurance in the Benefits and Protection segment, primarily related to ULSG (“YRT Reinsurance Transactions”).
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Other
Actuarial Assumption Updates. We periodically review and update actuarial assumptions that are inputs to the models for the liability for future policy benefits for traditional limited-payment long-duration contracts and other actuarial balances. Assumption updates, model refinements and other updates made resulted in a change in cash flow assumptions that decreased consolidated net income attributable to Principal Financial Group, Inc. by $59.3 million and $78.0 million for the years ended December 31, 2025 and 2024, respectively.
The following table presents the increase (decrease) to pre-tax operating earnings for each segment.
For the year ended December 31,
(in millions)
Retirement and Income Solutions
Principal Asset Management
Benefits and Protection
Other Factors Affecting Comparability of Results of Operations
Fluctuations in Foreign Currency to U.S. Dollar Exchange Rates
Fluctuations in foreign currency to U.S. dollar exchange rates for locations in which we have operations can affect reported financial results. In years when foreign currencies weaken against the U.S. dollar, translating foreign currencies into U.S. dollars results in fewer U.S. dollars to be reported. When foreign currencies strengthen, translating foreign currencies into U.S. dollars results in more U.S. dollars to be reported.
Foreign currency exchange rate fluctuations create variances in our financial statement line items. The most significant impact occurs within our Principal Asset Management segment where pre-tax operating earnings were negatively impacted $4.4 million for the year ended December 31, 2025, as a result of fluctuations in foreign currency to U.S. dollar exchange rates. This impact was calculated by comparing (a) the difference between current year results and prior year results to (b) the difference between current year results and prior year results translated using current year exchange rates for both periods. We use this approach to calculate the impact of exchange rates on all revenue and expense line items. For a discussion of our approaches to managing foreign currency exchange rate risk, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency Risk.”
Effects of Inflation
The impact of inflation has not had a material effect on our annual consolidated results of operations over the past two years. However, we may be materially affected by inflation in the future.
Variable Investment Income
Variable investment income includes certain types of investment returns such as prepayment fees and income (loss) from certain elements of our other alternative asset classes, including results of value-add real estate sales activity. Due to its unpredictable nature, variable investment income may or may not be material to our financial results for a given reporting period and may create variances when comparing different reporting periods. For additional information, see “Investment Results.”
Recent Accounting Changes
For recent accounting changes, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 1, Nature of Operations and Significant Accounting Policies” under the caption “Recent Accounting Pronouncements.”
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Results of Operations
The following table presents summary consolidated financial information for the years indicated:
For the year ended December 31,
Increase
(decrease)
(in millions)
Revenues:
Premiums and other considerations
Fees and other revenues
Net investment income
Net realized capital gains (losses)
Net realized capital gains on funds withheld assets
Change in fair value of funds withheld embedded derivative
Total revenues
Expenses:
Benefits, claims and settlement expenses
Liability for future policy benefits remeasurement loss
Market risk benefit remeasurement loss
Dividends to policyholders
Operating expenses
Total expenses
Income before income taxes
Income taxes
Net income
Net income attributable to noncontrolling interest
Net income attributable to Principal Financial Group, Inc.
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Net Income Attributable to Principal Financial Group, Inc.
The most significant items that contributed to the decrease in net income attributable to Principal Financial Group, Inc. were a $654.5 million decrease due to the change in fair value of the funds withheld embedded derivative and a $119.7 million decrease due to the impact from asset write-downs related to exiting our sponsor and trustee (pension) roles in Hong Kong for MPF schemes. These decreases were partially offset by the $170.4 million unfavorable one-time impact of the YRT Reinsurance Transactions in 2024. Net increases in segment earnings are discussed in “Results of Operations by Segment.”
Total Revenues
Premiums and other considerations decreased $157.8 million for the Retirement and Income Solutions segment primarily due to lower sales of single premium group annuities with life contingencies. Premiums and other considerations decreased $22.8 million for the Principal Asset Management segment primarily due to lower sales of annuities in our Chile closed block. Premiums and other considerations increased $111.0 million for the Benefits and Protection segment primarily due to growth in the Specialty Benefits business.
Fees and other revenues increased $64.8 million for the Principal Asset Management segment primarily due to higher management fee revenue as a result of increased average AUM managed by our Investment Management operations. Fees and other revenues increased $21.5 million for the Benefits and Protection segment primarily due to growth in our Life Insurance business.
For net investment income and net realized capital gains (losses) variance information, see “Investments — Investment Results” under the captions “Net Investment Income” and “Net Realized Capital Gains (Losses),” respectively.
Net realized capital gains on funds withheld assets decreased primarily due to $70.6 million lower gains on sales of funds withheld assets as a result of reduced sales in 2025 by an external reinsurer partially offset by a $25.9 million change due to net unrealized gains on funds withheld assets in 2025 as compared to net unrealized losses in 2024.
The change in fair value of the funds withheld embedded derivative resulted in a loss in 2025 as compared to a gain in 2024 due to changes in interest rates and credit spreads.
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Total Expenses
Benefits, claims and settlement expenses increased $108.1 million for the Retirement and Income Solutions segment primarily due to an increase in interest credited to policyholders, which resulted from an increase in average monthly account values. Benefits, claims and settlement expenses decreased for the Principal Asset Management segment $49.3 million due to lower interest credited to customers, $26.6 million primarily due to the closure of our Hong Kong guaranteed constituent funds in the prior year and $23.1 million due to lower new sales of annuities in our Chile closed block. Benefits, claims and settlement expenses increased for the Benefits and Protection segment $345.4 million due to the one-time impact of the YRT Reinsurance Transactions in 2024 and $49.7 million due to unfavorable claims experience in our Life Insurance business.
The liability for future policy benefits remeasurement (gain) loss change was primarily due to the effect of changes in cash flow assumptions related to a one-time unfavorable impact of the YRT Reinsurance Transactions in 2024.
The market risk benefit remeasurement (gain) loss change was primarily due to the $136.4 million unfavorable impact from the change in fair value of the MRB asset (liability), excluding impacts of nonperformance risk, primarily driven by changes in market movements. This change was offset by a $103.6 million favorable impact from periodic and final settlements for derivatives used to hedge MRBs. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11, Market Risk Benefits” for further information on market effects.
Operating expenses increased primarily due to a $95.3 million increase in compensation costs, $65.4 million of impairments of our distribution agreement intangible asset and contract cost asset in Hong Kong and a $64.6 million increase in nondeferrable commission expense. The increases were partially offset by a $78.1 million decrease in amounts credited to employee accounts in a nonqualified defined contribution pension plan, a $41.0 million decrease resulting from a one-time expense accrual release in 2025 and a $21.1 million decrease in management fees.
Income Taxes
The effective income tax rate decreased to 11% for the year ended December 31, 2025 from 15% for the year ended December 31, 2024, primarily due to a 2% impact from a decrease in pre-tax income, a 1% impact from our foreign valuation allowance and a 1% impact from foreign tax credits. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Income Taxes” under the caption, “Effective Income Tax Rate” for further discussion.
Results of Operations by Segment
For results of operations by segment see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 20, Segment Information.”
Retirement and Income Solutions Segment
Retirement and Income Solutions Trends
Several key factors impact revenue and earnings growth in the Retirement and Income Solutions segment. These factors include: the ability of our distribution channels to generate new sales and retain existing business; pricing decisions that take account of competitive conditions, persistency, investment returns, mortality trends, and operating expense levels; investment management performance; equity market returns and interest rate changes. Profitability ultimately depends on our ability to price products and invest assets at a level that enables us to earn a margin over the cost of providing benefits and the expense of acquiring and administering those products.
Net revenue and average monthly account values are key metrics used to understand Retirement and Income Solutions earnings growth. Net revenue, which is used only at the segment level, is defined as operating revenues less benefits, claims and settlement expenses; liability for future policy benefits remeasurement (gain) loss; market risk benefit remeasurement (gain) loss and dividends to policyholders. Net revenue is impacted by: (1) changes in the equity markets and interest rates and (2) the difference between investment income earned on the underlying general account assets and the interest rate credited to the contracts. Average monthly account values include the net balances that customers have accumulated within their account, along with future policy benefits for retirement payout products. Average monthly account values are primarily impacted by net customer cash flows and credit market performance.
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The following table presents the Retirement and Income Solutions segment net revenue and average monthly account values for the years indicated:
For the year ended December 31,
Increase
(decrease)
Net revenue (in millions)
Average monthly account values (in billions)
Retirement and Income Solutions Segment Summary Financial Data
The following table presents certain summary financial data relating to the Retirement and Income Solutions segment for the years indicated:
For the year ended December 31,
Increase
(decrease)
(in millions)
Operating revenues:
Premiums and other considerations
Fees and other revenues
Net investment income
Total operating revenues
Expenses:
Benefits, claims and settlement expenses, including dividends to policyholders
Liability for future policy benefits remeasurement gain
Market risk benefit remeasurement loss
Operating expenses
Total expenses
Pre-tax operating earnings (losses) attributable to noncontrolling interest
Pre-tax operating earnings
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Pre-Tax Operating Earnings
Pre-tax operating earnings increased due to an increase in net revenue, which was slightly offset by an increase in operating expenses as described below.
Net Revenue
Net revenue increased primarily due to an $82.7 million increase due to growth in the business, a $28.7 million impact associated with actuarial assumption updates and model refinements, which were favorable in 2025 compared to unfavorable in 2024, and a $12.9 million increase in variable investment income.
Operating Expenses
Operating expenses increased primarily due to a $37.1 million increase in staff-related costs, partially offset by a $19.4 million impact from a one-time expense accrual release in 2025.
Principal Asset Management Segment
AUM
AUM forms the basis for generating our management fee revenues. However, in Chile, the Cuprum business operates differently, as most fees are collected with each deposit made by mandatory retirement customers, based on a capped salary level rather than asset levels. AUM growth is primarily driven by two factors: market performance and net cash flow. Market performance encompasses the returns from equity, fixed income, real estate and other alternative investments, while net cash flow reflects client deposits and withdrawals. Revenue growth increasingly depends on the fee levels associated with these deposits and withdrawals, which can vary significantly depending on the business or product mix. Additionally, our non-U.S. results are influenced by fluctuations in foreign currency exchange rates relative to the U.S. dollar. The AUM of our foreign subsidiaries is converted to U.S. dollars at the end of the reporting period using spot exchange rates, while revenue and expenses are translated using average exchange rates for the reporting period.
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The following table presents the AUM rollforward for assets managed by the Principal Asset Management segment for the periods indicated.
For the year ended December 31,
(in billions)
AUM, beginning of period
Net cash flow
Market performance
Other (1)
Operations disposed (2)
Effect of exchange rates
AUM, end of period
(1) Includes a $(1.3) billion from a capped-fee arrangement in 2024. This redemption has no impact on future fee revenues.
2025 includes withdrawals related to certain exited pension business in Hong Kong and the divestment of Post Advisory Group. 2025 and 2024 include the divestment of Origin Asset Management.
Principal Asset Management Segment Summary Financial Data
The following table presents certain summary financial data relating to the Principal Asset Management segment for the periods indicated:
For the year ended December 31,
Increase
(decrease)
(in millions)
Operating revenues:
Premiums and other considerations
Fees and other revenues
Net investment income
Total operating revenues
Expenses:
Benefits, claims and settlement expenses
Liability for future policy benefits remeasurement (gain) loss
Operating expenses
Total expenses
Pre‑tax operating earnings attributable to noncontrolling interest
Pre‑tax operating earnings
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Pre-Tax Operating Earnings
Pre-tax operating earnings increased in our Investment Management operations primarily due to $58.3 million higher management fee revenue as a result of increased average AUM. This was partially offset by an $11.4 million increase in non-variable staff costs and a $6.2 million increase in variable compensation expense. Pre-tax operating earnings increased in our International Pension operations due to $29.6 million of favorable relative market performance on our required regulatory investments and $19.4 million increased variable investment income. These improvements were partially offset by $7.5 million of foreign currency headwinds.
Benefits and Protection Segment
Benefits and Protection Segment Summary Financial Data
Premium and fees are a key metric for growth in the Benefits and Protection segment. We receive premiums on our specialty benefits insurance products as well as our traditional life insurance products. Fees are generated from our universal life, variable universal life and indexed universal life insurance products. We use several reinsurance programs to help manage the mortality and morbidity risk. Premium and fees are reported net of reinsurance premiums.
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The following table presents the Benefits and Protection segment premium and fees for the years indicated:
For the year ended December 31,
Increase
(decrease)
(in millions)
Premium and fees:
Specialty Benefits
Life Insurance
The following table presents certain summary financial data relating to the Benefits and Protection segment for the years indicated:
For the year ended December 31,
Increase
(decrease)
(in millions)
Operating revenues:
Premiums and other considerations
Fees and other revenues
Net investment income
Total operating revenues
Expenses:
Benefits, claims and settlement expenses
Dividends to policyholders
Liability for future policy benefits remeasurement loss
Operating expenses
Total expenses
Pre‑tax operating earnings
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Pre-Tax Operating Earnings
Pre-tax operating earnings in our Specialty Benefits business increased $40.0 million from improved claims experience, $16.2 million due to favorable actuarial assumption updates in 2025 compared to unfavorable in 2024 and $13.0 million due to higher yields on invested assets. Pre-tax operating earnings in our Life Insurance business decreased $18.6 million due to more unfavorable actuarial assumption updates, model refinements and other updates in 2025 compared to 2024, partially offset by $3.5 million due to lower net commissions and $3.2 million due to a one-time expense accrual release in 2025.
Operating Revenues
Premiums and fees in our Specialty Benefits business increased $105.5 million due to growth in the business. Premiums and fees in our Life Insurance business increased $17.8 million due to growth in the business and $11.4 million due to the one-time impact of the YRT Reinsurance Transactions in 2024.
Net investment income in our Specialty Benefits business increased $13.0 million due to higher yields on invested assets and $3.5 million due to growth in invested assets. Net investment income in our Life Insurance business increased $21.4 million from growth in invested assets.
Total Expenses
Benefits, claims and settlement expenses in our Specialty Benefits business increased $63.5 million due to growth in the business and $16.1 million due to unfavorable actuarial assumption updates in 2025 compared to favorable in 2024, offset by $40.0 million from improved claims experience. Benefits, claims and settlement expenses in our Life Insurance business increased $65.0 million due to the one-time impact of the YRT Reinsurance Transactions in 2024 and $49.7 million from unfavorable claims experience.
Liability for future policy benefits remeasurement (gain) loss in our Specialty Benefits business changed $31.7 million due to favorable actuarial assumption updates in 2025 compared to unfavorable in 2024. Liability for future policy benefits remeasurement loss in our Life Insurance business decreased $44.8 million due to the one-time impact of the YRT Reinsurance Transactions in 2024 and $26.5 million due to changes in underlying claims experience, partially offset by $22.4 million due to more unfavorable actuarial assumption updates, model refinements and other updates in 2025 compared to 2024.
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Operating expenses in our Specialty Benefits business increased $33.1 million due to growth in the business and $28.1 million due to higher net commissions, partially offset by a $7.1 million decrease due to a one-time expense accrual release in 2025. Operating expenses in our Life Insurance business decreased $3.5 million due to lower net commissions and $3.2 million due to a one-time expense accrual release in 2025.
Corporate Segment
Corporate Segment Summary Financial Data
The following table presents certain summary financial data relating to the Corporate segment for the years indicated:
For the year ended December 31,
Increase
(decrease)
(in millions)
Operating revenues:
Total operating revenues
Expenses:
Total expenses
Pre-tax operating earnings (losses) attributable to noncontrolling interest
Pre-tax operating losses
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Pre-Tax Operating Losses
Pre-tax operating losses increased primarily due to an $18.6 million increase in compensation costs, partially offset by $8.4 million higher net investment income largely resulting from mark-to-market gains on investments and a $7.8 million increase in interest income related to tax settlements.
Liquidity and Capital Resources
Liquidity and capital resources represent the overall strength of a company and its ability to generate strong cash flows, borrow funds at a competitive rate and raise new capital to meet operating and growth needs. We are monitoring our liquidity closely and feel confident in our ability to meet all long-term obligations to customers, policyholders and debt holders. Our sources of strength include our laddered long-term debt maturities with the next maturity occurring in November 2026, access to revolving credit facility and contingent funding arrangements, a strong risk-based capital position and our available cash and liquid assets. Our legal entity structure has an impact on our ability to meet cash flow needs as an organization. Following is a simplified organizational structure.
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Liquidity
Our liquidity requirements have been and will continue to be met by funds from consolidated operations as well as the issuance of commercial paper, common stock, debt or other capital securities and borrowings from credit facilities. We believe the cash flows from these sources are sufficient to satisfy the current liquidity requirements of our operations, including reasonably foreseeable contingencies.
We maintain a level of cash and securities which, combined with expected cash inflows from investments and operations, we believe to be adequate to meet anticipated short-term and long-term payment obligations. We will continue our prudent capital management practice of regularly exploring options available to us to maximize capital flexibility, including accessing the capital markets and careful attention to and management of expenses.
We perform rigorous liquidity stress testing to ensure our asset portfolio includes sufficient high quality liquid assets that could be utilized to bolster our liquidity position under increasingly stressed market conditions. These assets could be utilized as collateral for secured borrowing transactions with various third parties or by selling the securities in the open market if needed.
We also manage liquidity risk by limiting the sales of liabilities with features such as puts or other options that can be exercised at inopportune times. For example, as of December 31, 2025, approximately $13.9 billion, or 99%, of our institutional guaranteed investment contracts and funding agreements cannot be redeemed by contractholders prior to maturity. Our individual annuity liabilities also contain surrender charges and other provisions limiting early surrenders.
The following table summarizes the withdrawal characteristics of our domestic general account investment contracts as of December 31, 2025.
Contractholder funds,
net of reinsurance
Percentage
(in millions)
Not subject to discretionary withdrawal
Subject to discretionary withdrawal with adjustments:
Specified surrender charges
Market value adjustments
Subject to discretionary withdrawal without adjustments
Total domestic investment contracts
Universal life insurance and certain traditional life insurance policies are also subject to discretionary withdrawals by policyholders. However, life insurance policies tend to be less susceptible to withdrawal than our investment contracts because policyholders may be subject to a new underwriting process in order to obtain a new life insurance policy. In addition, our life insurance liabilities include surrender charges to discourage early surrenders.
We had the following short-term credit financing structures available with various financial institutions as of December 31, 2025:
Financing
Amount
Obligor/Applicant
structure
Maturity
Capacity
outstanding (3)
(in millions)
Principal Life (1)
Credit facility
October 2027
Principal Compañía de Seguros de Vida Chile S.A. (2)
Unsecured lines of credit
Principal International de Chile S.A. (2)
Unsecured lines of credit
Total
The credit facility is supported by sixteen banks.
The unsecured lines of credit can be used for repurchase agreements or other borrowings. Each line has a maturity of less than one year.
The amount outstanding is reported in short-term debt on the consolidated statements of financial position.
The revolving credit facility is committed and available for general corporate purposes. The credit facility also provides 100% back-stop support for our commercial paper program, of which we had no outstanding balances as of December 31, 2025 and December 31, 2024. Most of the banks supporting the credit facility have other relationships with us. Due to the financial strength and the strong relationships we have with these providers, we are comfortable we have very low risk the financial institutions would be unable or unwilling to fund this facility.
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The Holding Companies: PFG and PFS. The principal sources of funds available to our parent holding company, PFG, are dividends from subsidiaries as well as its ability to borrow funds at competitive rates and raise capital to meet operating and growth needs. These funds are used by PFG to meet its obligations, which include the payment of dividends on common stock, debt service and the repurchase of stock. The declaration and payment of common stock dividends is subject to the discretion of our Board and will depend on our overall financial condition, results of operations, capital levels, cash requirements, future prospects, receipt of dividends or other distributions from Principal Life (as described below), risk management considerations and other factors deemed relevant by the Board. No significant restrictions limit the payment of dividends by PFG, except those generally applicable to corporations incorporated in Delaware.
Dividends or other distributions from Principal Life, our primary subsidiary, are limited by Iowa law. Under Iowa law, Principal Life may pay dividends or make other distributions only from the earned surplus arising from its business and must receive the prior approval of the Commissioner of Insurance of the State of Iowa (the “Commissioner”) to pay stockholder dividends or make any other distribution if such distribution would exceed certain statutory limitations. Iowa law gives the Commissioner discretion to disapprove requests for distributions in excess of these limitations. Extraordinary dividends include those made, together with dividends and other distributions, within the preceding twelve months that exceed the greater of (i) 10% of statutory policyholder surplus as of the previous year-end excluding admitted disallowed interest maintenance reserve or (ii) the statutory net gain from operations from the previous calendar year, not to exceed earned surplus. Based on statutory results for the year ended December 31, 2025, the ordinary stockholder dividend limitation for Principal Life is approximately $1,234.0 million in 2026. However, because the dividend test is based on dividends previously paid over rolling twelve month periods, if paid before a specified date during 2026, some or all of such dividends may be extraordinary and require regulatory approval.
Total stockholder dividends paid by Principal Life to its parent in 2025 were $1,055.0 million, all of which was extraordinary and approved by the Commissioner. As of December 31, 2025, we had $2,362.3 million of cash and liquid assets held in our holding companies and other subsidiaries, which is available for corporate purposes. Corporate balances held in foreign holding companies meet the indefinite reinvestment exception.
In 2024, total stockholder dividends paid by Principal Life to its parent were $1,010.0 million, all of which was extraordinary and approved by the Commissioner.
Operations. Our primary consolidated cash flow sources are premiums from insurance products, pension and annuity deposits, asset management fee revenues, administrative services fee revenues, income from investments and proceeds from the sales or maturity of investments. Cash outflows consist primarily of payment of benefits to policyholders and beneficiaries, income and other taxes, current operating expenses, payment of dividends to policyholders, payments in connection with investments acquired, payments made to acquire subsidiaries, payments relating to policy and contract surrenders, withdrawals, policy loans, interest payments and repayment of short-term debt and long-term debt. Our investment strategies are generally intended to provide adequate funds to pay benefits without forced sales of investments. For a discussion of our investment objectives and strategies, see “Investments.”
Cash Flows. Cash flow activity, as reported in our consolidated statements of cash flows, provides relevant information regarding our sources and uses of cash. The following discussion of our operating, investing and financing portions of the cash flows excludes cash flows attributable to the separate accounts.
Net cash provided by operating activities was $4,536.7 million and $4,602.9 million for the years ended December 31, 2025 and 2024, respectively. Our insurance business typically generates positive cash flows from operating activities, as premiums collected from our insurance products and investment income received exceed acquisition costs, benefits paid, redemptions and operating expenses. These positive cash flows are then invested to support the obligations of our insurance and investment products and required capital supporting these products. Our cash flows from operating activities are affected by the timing of premiums, fees and investment income received and benefits and expenses paid. The decrease in cash provided by operating activities in 2025 compared to 2024 was primarily due to fluctuations in receivables and payables associated with the timing of settlements, and due to a one-time impact of the YRT Reinsurance Transactions in 2024.
Net cash used in investing activities was $4,135.8 million and $5,399.0 million for the years ended December 31, 2025 and 2024, respectively. The decrease in cash used in investing activities was primarily due to lower net purchases of available-for-sale securities in 2025 as compared to 2024.
Net cash used in financing activities was $181.8 million for the year ended December 31, 2025, compared to net cash provided by financing activities of $300.3 million for the year ended December 31, 2024. The increase in cash used in financing activities was primarily due to a $400.0 million repayment of long-term debt that matured during 2025.
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Guarantors and Issuers of Guaranteed Securities. PFG has issued certain notes pursuant to transactions registered under the Securities Act of 1933. Such notes include all currently outstanding senior notes (the “registered notes”). For additional information on the senior notes, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 13, Debt.”
PFS, a wholly owned subsidiary of PFG, has guaranteed each of the registered notes on a full and unconditional basis. The full and unconditional guarantees require PFS to satisfy the obligations of the guaranteed security immediately, if and when PFG has failed to make a scheduled payment thereunder. If PFS does not make such payment, any holder of the guaranteed security may immediately bring suit directly against PFS for payment of amounts due and payable. No other subsidiary of PFG has guaranteed any of the registered notes.
Summary financial information is presented below on a combined basis for PFG and PFS (the “obligor group”) and transactions between the obligor group have been eliminated. The summary financial information excludes subsidiaries that are not issuers or guarantors. Any investments by the obligor group in other subsidiaries have been excluded.
December 31, 2025
December 31, 2024
(in millions)
Summary Statements of Financial Position Information:
Total investments
Cash and cash equivalents
Goodwill
Other intangibles
Other assets
Due from non-obligor subsidiaries
Total assets
Long-term debt
Other liabilities
Due to non-obligor subsidiaries
Total liabilities
For the year ended
For the year ended
December 31, 2025
December 31, 2024
(in millions)
Summary Statements of Operations Information:
Total revenues
Total expenses
Net loss
Shelf Registration. Under our current shelf registration, we have the ability to issue, in unlimited amounts, unsecured senior debt securities or subordinated debt securities, junior subordinated debt, preferred stock, common stock, warrants, depositary shares, purchase contracts and purchase units of PFG. Our wholly owned subsidiary, PFS, may guarantee, fully and unconditionally or otherwise, our obligations with respect to any non-convertible securities, other than common stock, described in the shelf registration. For information on senior notes issued from our shelf registration, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 13, Debt.”
Short-Term Debt. For short-term debt information, see “Liquidity” and Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 13, Debt.”
Long-Term Debt. For long-term debt information, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 13, Debt.”
Contingent Funding Agreements for Senior Debt Issuance. For information on the contingent funding agreements, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 13, Debt” under the caption “Contingent Funding Agreements for Senior Debt Issuance.”
Stockholders’ Equity. Proceeds from the issuance of our common stock were $43.7 million and $67.7 million in 2025 and 2024, respectively.
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The following table summarizes our return of capital to common stockholders.
For the year ended December 31,
($ in millions)
Dividends to stockholders
Repurchase of common stock (1)
Total cash returned to common stockholders
Number of shares repurchased (1)
(1) Includes common stock utilized to execute certain stock incentive awards and shares purchased as part of publicly announced programs.
In February 2024, our Board authorized a share repurchase program of up to $1.5 billion of our outstanding common stock, which was completed in December 2025. In February 2025, our Board authorized a share repurchase program of up to $1.5 billion of our outstanding common stock, which has no expiration date. See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” for information about our share repurchase authorizations. For additional stockholders’ equity information, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 17, Stockholders’ Equity.”
Capitalization
The following table summarizes our capital structure:
December 31, 2025
December 31, 2024
($ in millions)
Debt:
Short-term debt
Long-term debt
Total debt
Total stockholders’ equity attributable to PFG
Total capitalization
Debt to equity
Debt to capitalization
Pension and OPEB Plan Funding
We have defined benefit pension plans covering substantially all of our U.S. employees and certain agents. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11, Employee and Agent Benefits” for a complete discussion of these plans and their effect on the consolidated financial statements.
We report the net funded status of our pension and OPEB plans in the consolidated statements of financial position. The net funded status represents the difference between the fair value of plan assets and the projected benefit obligation for pension and OPEB plans. The measurement of the net funded status can vary based upon the fluctuations in the fair value of the plan assets and the actuarial assumptions used for the plans as discussed below. The net underfunded status of the pension and OPEB obligation was $330.7 million pre-tax and $391.8 million pre-tax as of December 31, 2025 and 2024, respectively. Nonqualified pension plan assets are not included as part of the funding status mentioned above. The nonqualified pension plan assets are held in Rabbi trusts for the benefit of all nonqualified plan participants. The assets held in a Rabbi trust are available to satisfy the claims of general creditors only in the event of bankruptcy. Therefore, these assets are fully consolidated in our consolidated statements of financial position and are not reflected in our funded status as they do not qualify as plan assets under U.S. GAAP. The market value of assets held in these trusts was $352.7 million and $348.8 million as of December 31, 2025 and 2024, respectively.
Our funding policy for the qualified pension plan is to fund the plan annually in an amount at least equal to the minimum annual contributions required under ERISA and, generally, not greater than the maximum amount that can be deducted for U.S. federal income tax purposes. We do not anticipate contributions will be needed in 2026 to satisfy the minimum funding requirements of ERISA for our qualified pension plan. We are unable to estimate the amount that may be contributed, but it is possible that we may fund the plans in 2026 up to $70.0 million. This includes funding for both our qualified and nonqualified pension plans. We may contribute to our other postretirement benefit plans in 2026 pending future analysis.
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Contractual Obligations and Contractual Commitments
We have contractual obligations identified within Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements; Note 9, Contractholder Funds, Note 10, Future Policy Benefits and Claims, Note 12, Reinsurance, Note 13, Debt and Note 16, Contingencies, Guarantees, Indemnifications and Leases.” As of December 31, 2025, we had no unique material cash requirements from known contractual and other obligations.
We have made commitments to fund certain limited partnerships and other funds. As of December 31, 2025, the amount of unfunded commitments was $1,861.4 million. We are only required to fund additional equity under these commitments when called upon to do so by the partnership or fund; therefore, these commitments are not liabilities on our consolidated statements of financial position.
Off-Balance Sheet Arrangements
Variable Interest Entities. We have relationships with various types of special purpose entities and other entities where we have a variable interest as described in Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 3, Variable Interest Entities.” We have made commitments to fund certain limited partnerships, as previously discussed in “Contractual Obligations and Contractual Commitments”, some of which are classified as unconsolidated variable interest entities.
Guarantees and Indemnifications. As of December 31, 2025, no significant changes to guarantees and indemnifications have occurred since December 31, 2024. For guarantee and indemnification information, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 16, Contingencies, Guarantees, Indemnifications and Leases” under the caption, “Guarantees and Indemnifications.”
Financial Strength and Credit Ratings
Our ratings are influenced by the relative ratings of our peers/competitors as well as many other factors including our operating and financial performance, capital levels, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), risk exposures, operating leverage and other factors.
We have had no significant changes or actions in ratings and rating outlooks that have occurred from January 1, 2025, through the date of this filing.
The following table summarizes our significant financial strength and debt ratings from the major independent rating organizations. A rating is not a recommendation to buy, sell or hold securities. Such a rating may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
A.M. Best
Fitch
Moody’s
Last review date
April 2025
May 2025
June 2025
April 2025
Current outlook
Stable
Stable
Stable
Stable
Principal Financial Group
Senior Unsecured Debt
Baa1
Long-Term Issuer Default Rating
Principal Life Insurance Company
Insurer Financial Strength
Issuer Credit Rating
Commercial Paper
AMB-1+
Principal National Life Insurance Company
Insurer Financial Strength
Impacts of Income Taxes
For income tax information, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Income Taxes.”
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Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The fair value hierarchy gives the highest priority (Level 1) to unadjusted quoted prices in active markets for identical assets or liabilities and gives the lowest priority (Level 3) to unobservable inputs. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety considering factors specific to the asset or liability. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 18, Fair Value Measurements” for further details, including a reconciliation of changes in Level 3 fair value measurements.
As of December 31, 2025, 46% of our net assets (liabilities) were Level 1, 51% were Level 2 and 3% were Level 3. Excluding separate account assets as of December 31, 2025, 3% of our net assets (liabilities) were Level 1, 89% were Level 2 and 8% were Level 3.
As of December 31, 2024, 47% of our net assets (liabilities) were Level 1, 50% were Level 2 and 3% were Level 3. Excluding separate account assets as of December 31, 2024, 4% of our net assets (liabilities) were Level 1, 87% were Level 2 and 9% were Level 3.
Changes in Level 3 Fair Value Measurements
Net assets (liabilities) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2025, were $7,042.6 million as compared to $8,046.3 million as of December 31, 2024. The decrease was primarily related to issuances of investment and universal life contracts, a decrease in the funds withheld payable embedded derivative net asset and settlements of mortgage loans.
Investments
We had total consolidated assets as of December 31, 2025, of $341,376.5 million, of which $110,901.5 million were invested assets. A portion of our invested assets represent funds withheld backing reserves as part of coinsurance with funds withheld reinsurance agreements. The funds withheld assets and associated net investment income and net realized capital gains (losses) are not included in the discussions below as the investment risk is passed to the reinsurer. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 12, Reinsurance” for more information on the funds withheld assets. The rest of our total consolidated assets are comprised primarily of separate account assets for which we do not bear investment risk; therefore, the discussion and financial information below does not include such assets.
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Overall Composition of Invested Assets
Invested assets as of December 31, 2025, were predominantly high quality and broadly diversified across asset class, individual credit, industry and geographic location. Asset allocation is determined based on cash flow and the risk/return requirements of our products. As shown in the following table, the major categories of invested assets are fixed maturities and mortgage loans.
December 31, 2025
Investments
excluding
Funds
funds withheld
withheld
Total
(in millions)
Fixed maturities
Equity securities
Mortgage loans
Real estate
Policy loans
Other investments
Total invested assets
Cash and cash equivalents
Total invested assets and cash
December 31, 2024
Investments
excluding
Funds
funds withheld
withheld
Total
(in millions)
Fixed maturities
Equity securities
Mortgage loans
Real estate
Policy loans
Other investments
Total invested assets
Cash and cash equivalents
Total invested assets and cash
Investment Results
Net Investment Income
The following table presents the yield and investment income, excluding net realized capital gains and losses, for our invested assets for the years indicated. We calculate annualized yields using a simple average of asset classes at the beginning and end of the reporting period. The yields for available-for-sale fixed maturities are calculated using amortized cost. All other yields are calculated using carrying amounts.
For the year ended December 31,
Increase (decrease)
Yield
Amount
Yield
Amount
Yield
Amount
($ in millions)
Fixed maturities
Equity securities
Mortgage loans - commercial
Mortgage loans - residential
Real estate
Policy loans
Cash and cash equivalents
Other investments
Total
Investment expenses
Net investment income
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Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Net investment income increased primarily due to higher average invested assets and yields in fixed maturities and mortgage loans for our U.S. operations. These increases were partially offset by lower income associated with derivatives in fair value hedges for our U.S. operations and decreases in federal fund rates tied to our short-term investments.
Net Realized Capital Gains (Losses)
The following table presents the contributors to net realized capital gains and losses for the periods indicated. The amounts below do not include net realized capital gains (losses) on funds withheld assets that are not passed to the reinsurer, which are separately reported on the consolidated statements of operations.
For the year ended December 31,
Increase
(decrease)
(in millions)
Fixed maturities, available-for-sale – credit losses, including credit sales (1)
Commercial mortgage loans ̶ credit losses
Other ̶ credit losses
Fixed maturities, available-for-sale and trading – noncredit
Derivatives and related hedge activities
Other gains
Net realized capital gains (losses) (2)
Includes credit sales, adjustments to the credit loss valuation allowance, write-offs and recoveries on available-for-sale securities.
Net realized capital gains (losses) can be volatile due to credit losses from invested assets, mark-to-market adjustments of certain invested assets and our decision to sell invested assets.
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Net realized capital gains increased primarily due to gains versus losses on GMWB/RILA activities, decreased losses on commercial mortgage loans reserve changes and increased gains on equity securities and sponsored investment funds due to equity market movement. These increases were partially offset by increased losses on non-hedged interest rate derivatives due to changes in rates and reduced gains on currency derivatives.
U.S. Investment Operations
In the following sections, we provide details about U.S. Investment Operations, excluding investments held as part of coinsurance with funds withheld agreements. We believe the details of the composition of our investment portfolio excluding the funds withheld are most relevant to an understanding of our operations that are pertinent to investors because all funds withheld assets support obligations and liabilities relating to reinsurance agreements. Guidelines are in place to ensure the investment risk associated with these fund withheld assets are appropriately managed. See Note 12, Reinsurance, for further information on the funds withheld assets.
Of our invested assets, $86,927.3 million were held by our U.S. operations as of December 31, 2025. Our U.S. invested assets are managed primarily by Principal Asset Management – Investment Management. Our Investment Committee, appointed by our Board, is responsible for establishing investment policies and monitoring risk limits and tolerances. Our primary investment objective is to maximize after-tax returns consistent with acceptable risk parameters. We seek to protect customers’ benefits by optimizing the risk/return relationship on an ongoing basis, through asset/liability matching, reducing credit risk, avoiding high levels of investments that may be redeemed by the issuer, maintaining sufficiently liquid investments and avoiding undue asset concentrations through diversification. We are exposed to two primary sources of investment risk:
credit risk, relating to the uncertainty associated with the continued ability of an obligor to make timely payments of principal and interest and
interest rate risk, relating to the market price and/or cash flow variability associated with changes in market yield curves.
Our ability to manage credit risk is essential to our business and our profitability. We devote considerable resources to the credit analysis of each new investment. We manage credit risk through industry, issuer and asset class diversification.
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A dedicated committee, comprised of senior investment professional staff members, approves the credit rating for the fixed maturities we purchase. We have teams of security analysts, organized by industry and asset class, that analyze and monitor these investments. Investments held in the portfolio are monitored on a continuous basis with a formal review annually or more frequently if material events affect the issuer. The analysis includes both fundamental and technical factors. The fundamental analysis encompasses both quantitative and qualitative analysis of the issuer. The qualitative analysis includes an assessment of both accounting and management aggressiveness of the issuer. In addition, technical indicators such as stock price volatility and credit default swap levels are monitored. We regularly review our investments to determine whether we should re-rate them, employing the following criteria:
material changes in the issuer’s revenues, margins, capital structure or collateral values;
significant management or organizational changes;
significant changes regarding the issuer’s industry;
debt service coverage or cash flow ratios that fall below industry-specific thresholds;
violation of financial covenants and
other business factors that relate to the issuer.
We purchase credit default swaps to hedge certain credit exposures in our investment portfolio. We economically hedged credit exposure in our portfolio by purchasing credit default swaps with a notional amount of $85.0 million and $155.0 million as of December 31, 2025 and December 31, 2024, respectively. We sell credit default swaps and total return swaps to offer credit protection to investors when entering into synthetic replicating transactions. When selling credit protection, if there is an event of default by the referenced name, we are obligated to pay the counterparty the referenced amount of the contract and receive in return the referenced security. When selling total return swaps, if there is an event of default by the referenced name, we are obligated to compensate the protection buyer for any decline in the price of the referenced security. For further information on credit derivatives sold, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 5, Derivative Financial Instruments” under the caption, “Credit Derivatives Sold.”
Our use of derivatives exposes us to counterparty risk, or the risk that the counterparty fails to perform the terms of the derivative contract. We actively manage this risk by:
obtaining approval of all new counterparties by the Investment Committee;
establishing exposure limits that take into account non-derivative exposure we have with the counterparty as well as derivative exposure;
performing similar credit analysis prior to approval on each derivatives counterparty that we do when lending money on a long-term basis;
diversifying our risk across numerous approved counterparties;
implementing credit support annex (collateral) agreements (“CSAs”) for over-the-counter derivative transactions or similar agreements with a majority of our counterparties to further limit counterparty exposures, which provide for netting of exposures;
limiting exposure to A credit or better for over-the-counter derivative counterparties without CSAs;
conducting stress-test analysis to determine the maximum exposure created during the life of a prospective transaction;
daily monitoring of counterparty credit ratings, exposures and associated collateral levels and
trading mandatorily cleared contracts through centralized clearinghouses.
We manage our exposure on a net basis, whereby we net positive and negative exposures for each counterparty with agreements in place. For further information on derivative exposure, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 4, Investments” under the caption, “Balance Sheet Offsetting.”
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A dedicated risk management team is responsible for centralized monitoring of the commercial mortgage loan portfolio. We apply a variety of guidelines to minimize credit risk in our commercial mortgage loan portfolio. When considering new commercial mortgage loans, we review the cash flow fundamentals of the property, make a physical assessment of the underlying commercial real estate, conduct a comprehensive market analysis and compare against industry lending practices. We use a proprietary risk rating model to evaluate all new and substantially all existing loans within the portfolio. The proprietary risk model is designed to stress projected cash flows under simulated economic and market downturns. Our lending guidelines are typically 75% or less loan-to-value ratio and a debt service coverage ratio of at least 1.2 times. We analyze investments outside of these guidelines based on cash flow quality, tenancy and other factors. The following table presents loan-to-value and debt service coverage ratios for our brick and mortar commercial mortgage loans:
Weighted average loan ‑ to ‑ value ratio
Debt service coverage ratio
December 31, 2025
December 31, 2024
December 31, 2025
December 31, 2024
New mortgages
Entire mortgage portfolio
We also seek to manage call or prepayment risk arising from changes in interest rates. We assess and price for call or prepayment risks in all of our investments and monitor these risks in accordance with asset/liability management policies.
The amortized cost and weighted average yield, calculated using amortized cost, of non-structured fixed maturity securities that will be callable at the option of the issuer, excluding securities with a make-whole provision, were $3,990.4 million and 4.8%, respectively, as of December 31, 2025, and $2,091.5 million and 4.0%, respectively, as of December 31, 2024. In addition, the amortized cost and weighted average yield of residential mortgage-backed pass-through securities (“RMBS”), residential collateralized mortgage obligations, and asset-backed securities - home equity with material prepayment risk were $9,021.4 million and 4.2%, respectively, as of December 31, 2025, and $8,401.9 million and 4.1%, respectively, as of December 31, 2024.
Our investment decisions and objectives are a function of the underlying risks and product profiles of each primary business operation. In addition, we diversify our product portfolio offerings to include products that contain features that will protect us against fluctuations in interest rates. Those features include adjustable crediting rates, policy surrender charges and market value adjustments on liquidations. For further information on our management of interest rate risk, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk.”
Overall Composition of U.S. Invested Assets
As shown in the following table, the major categories of U.S. invested assets are fixed maturities and mortgage loans.
December 31, 2025
December 31, 2024
Carrying amount
% of total
Carrying amount
% of total
($ in millions)
Fixed maturities
Equity securities
Mortgage loans
Real estate
Policy loans
Other investments
Total invested assets
Cash and cash equivalents
Total invested assets and cash
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Fixed Maturities
Fixed maturities include bonds, ABS, redeemable preferred stock and certain non-redeemable preferred securities that were diversified by category of issuer, as shown in the following table for the years indicated.
December 31, 2025
December 31, 2024
Carrying amount
Percent of total
Carrying amount
Percent of total
($ in millions)
U.S. government and agencies
Non-U.S. governments
States and political subdivisions
Corporate - public
Corporate - private
Residential mortgage-backed pass-through securities
Commercial mortgage-backed securities
Residential collateralized mortgage obligations
Asset-backed securities
Total fixed maturities
We believe it is desirable to hold residential mortgage-backed pass-through securities due to their credit quality and liquidity as well as portfolio diversification characteristics. Our portfolio is comprised of Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation pass-through securities. In addition, our residential collateralized mortgage obligation portfolio offers structural features that allow cash flows to be matched to our liabilities.
We purchase commercial mortgage-backed securities (“CMBS”) to diversify the overall credit risks of the fixed maturities portfolio and to provide attractive returns. The primary risks in holding CMBS are structural and credit risks. Structural risks include the security’s priority in the issuer’s capital structure, the adequacy of and ability to realize proceeds from the collateral and the potential for prepayments. Credit risks involve collateral and issuer/servicer risk where collateral and servicer performance may deteriorate. CMBS are predominantly comprised of large pool securitizations that are diverse by property type, borrower and geographic dispersion. The risks to any CMBS deal are determined by the credit quality of the underlying loans and how those loans perform over time. Another key risk is the vintage of the underlying loans and the state of the markets during a particular vintage.
Similar to CMBS, we purchase ABS for diversification and to provide attractive returns. The primary risks in holding ABS are also structural and credit risks, which are similar to those noted above for CMBS. Our ABS portfolio is diversified by type of asset, issuer, and vintage. We actively monitor holdings of ABS to recognize adverse changes in the risk profile of each security. Prepayments in the ABS portfolio are, in general, insensitive to changes in interest rates or are insulated from such changes by call protection features. In the event we are subject to prepayment risk, we monitor the factors that impact the level of prepayment and prepayment speed for those ABS. In addition, we hold a diverse class of securities, which limits our exposure to any one security.
The international exposure held in our U.S. operation’s fixed maturities portfolio was 14% of total fixed maturities as of both December 31, 2025 and December 31, 2024. It is comprised of corporate and foreign government fixed maturities.
December 31, 2025
December 31, 2024
(in millions)
European Union
United Kingdom
Australia/New Zealand
Latin America
Middle East and Africa
Asia-Pacific
Europe, non-European Union
Other
Total
International fixed maturities exposure is determined by the country of risk of the obligor entity. All international fixed maturities held by our U.S. operations are either denominated in U.S. dollars or have been swapped into U.S. dollar equivalents. Our international investments are analyzed internally by country and industry credit investment professionals. We control concentrations using issuer and country level exposure benchmarks, which are based on the credit quality of the issuer and the country. Our investment policy limits total international fixed maturities investments and we are within those internal limits. Exposure to Canada is not included in our international exposure. As of December 31, 2025 and December 31, 2024, our investments in Canada totaled $938.0 million and $966.1 million, respectively.
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Fixed Maturities Credit Concentrations. One aspect of managing credit risk is through industry, issuer and asset class diversification. Our credit concentrations are managed to established limits. The top 10 exposures comprised 5.5% of single-name credit fixed maturity exposures as of December 31, 2025, and 5.4% as of December 31, 2024.
Fixed Maturities Valuation and Credit Quality. Valuation techniques for the fixed maturities portfolio vary by security type and the availability of market data. The use of different pricing techniques and their assumptions could produce different financial results. See Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 18, Fair Value Measurements” for further details regarding our pricing methodology. Once prices are determined, they are reviewed by pricing analysts for reasonableness based on asset class and observable market data. Investment analysts who are familiar with specific securities review prices for reasonableness through direct interaction with external sources, review of recent trade activity or use of internal models. All fixed maturities placed on the “watch list” are periodically analyzed by investment analysts. These analysts periodically meet with the Chief Investment Officer and the Portfolio Managers to determine reasonableness of the analysts’ prices. The valuation of bonds for which a credit loss exists and there is no quoted price is typically based on relative value analysis and the present value of the future cash flows expected to be received. Although we believe these values reasonably reflect the fair value of those securities, the key assumptions about risk premiums, performance of underlying collateral (if any) and other market factors involve qualitative and unobservable inputs.
The Securities Valuation Office (“SVO”) of the NAIC monitors the bond investments of insurers for regulatory capital and reporting purposes and, when required, assigns securities to one of six categories referred to as NAIC designations. Although NAIC designations are not produced to aid the investment decision making process, NAIC designations may serve as a reasonable proxy for Nationally Recognized Statistical Rating Organizations’ (“NRSRO”) credit ratings for certain bonds. For most corporate bonds, NAIC designations 1 and 2 include bonds generally considered investment grade by such rating organizations. Bonds are considered investment grade when rated ‘‘Baa3’’ or higher by Moody’s, or ‘‘BBB-’’ or higher by S&P. NAIC designations 3 through 6 include bonds generally referred to as below investment grade. Bonds are considered below investment grade when rated ‘‘Ba1’’ or lower by Moody’s, or ‘‘BB+’’ or lower by S&P.
For loan-backed and structured securities, as defined by the NAIC, the NAIC designation is not always a reasonable indication of an NRSRO rating as described below. For CMBS and non-agency RMBS, Blackrock Solutions undertakes the modeling of those NAIC designations. This may result in a final designation being higher or lower than the NRSRO credit rating.
The following table presents our total fixed maturities by NAIC designation as of the years indicated as well as the percentage, based on fair value, that each designation comprises.
December 31, 2025
December 31, 2024
Percent of
Percent of
Amortized
Carrying
carrying
Amortized
Carrying
carrying
NAIC designation
cost
amount
amount
cost
amount
amount
($ in millions)
Unallocated portfolio layer method basis adjustment (1)
Total fixed maturities
(1) Amounts represent unallocated basis adjustments related to fair value hedges utilizing the portfolio layer method.
Fixed maturities included 67 securities with an amortized cost of $618.4 million, gross gains of $12.5 million, gross losses of $17.8 million, valuation allowance of $5.4 million and a carrying amount of $607.7 million as of December 31, 2025, that were still pending a review and assignment of a designation by the SVO or NRSRO ratings to be assigned. Due to the timing of when fixed maturities are purchased, legal documents are filed and the review by the SVO is completed, or NRSRO ratings that have expired or been withdrawn, we will always have securities in our portfolio that are unrated over a reporting period. In these instances, an equivalent designation is assigned based on our fixed income analyst’s assessment.
Commercial Mortgage-Backed Securities. As of December 31, 2025, based on amortized cost, 96% of our CMBS portfolio had an NAIC designation of 1.
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The following table presents our exposure by credit quality based on NAIC designations for our CMBS portfolio as of the years indicated.
December 31, 2025
December 31, 2024
Amortized
Carrying
Amortized
Carrying
NAIC designation
cost
amount
cost
amount
(in millions)
Total (1)
Amortized cost amounts of our CMBS portfolio exclude unallocated basis adjustments related to fair value hedges utilizing the portfolio layer method. The CMBS portfolio included agency CMBS with a $497.9 million amortized cost and a $484.7 million carrying amount as of December 31, 2025, and a $616.1 million amortized cost and a $589.9 million carrying amount as of December 31, 2024.
Fixed Maturities Watch List. We monitor any decline in the credit quality of fixed maturities through the designation of “problem securities,” “potential problem securities” and “restructured securities”. We define problem securities in our fixed maturity portfolio as securities: (i) with principal and/or interest payments in default or where default is perceived to be imminent in the near term, or (ii) issued by a company that went into bankruptcy subsequent to the acquisition of such securities. We define potential problem securities in our fixed maturity portfolio as securities included on an internal “watch list” for which management has concerns as to the ability of the issuer to comply with the present debt payment terms and which may result in the security becoming a problem or being restructured. The decision whether to classify a performing fixed maturity security as a potential involves significant subjective judgments by our management as to the likely future industry conditions and developments with respect to the issuer. We define securities in our fixed maturity portfolio as securities where a concession has been granted to the borrower related to the borrower’s financial that would not have otherwise been considered. We determine that should occur in those instances where economic value will be realized under the new terms than through or other disposition and may involve a change in contractual cash flows. If the present value of the cash flows is less than the current cost of the asset being , a realized capital is recorded in net income and a new cost basis is established.
The following table presents the total carrying amount of our fixed maturities portfolio, as well as its problem, potential problem and restructured fixed maturities for the years indicated.
December 31, 2025
December 31, 2024
($ in millions)
Total fixed maturities
Problem fixed maturities (1)
Potential problem fixed maturities
Total problem, potential problem and restructured fixed maturities
Total problem, potential problem and restructured fixed maturities as a percent of total fixed maturities
The problem fixed maturities carrying amount is net of the credit loss valuation allowance.
Fixed Maturities Credit Losses. Each reporting period, a group of individuals including the Chief Investment Officer, our Portfolio Managers, the assigned analysts and representatives from Investment Accounting review all securities to determine whether a credit loss exists. The analysis focuses on each issuer’s ability to service its debts in a timely fashion. Formal documentation of the analysis and our decision is prepared and approved by management. For additional details regarding our process to identify and evaluate securities with credit losses, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 4, Investments” under the caption, “Allowance for Credit Loss.”
We would not consider a security with unrealized losses to have a decline in value due to credit when it is not our intent to sell the security, it is not more likely than not that we would be required to sell the security before recovery of the amortized cost, which may be maturity, and we expect to recover the amortized cost basis. However, we do sell securities under certain circumstances, such as when we have evidence of a change in the issuer’s creditworthiness, when we anticipate poor relative future performance of securities, when a change in regulatory requirements modifies what constitutes a permissible investment or the maximum level of investments held or when there is an increase in capital requirements or a change in risk weights of debt securities. Sales generate both gains and losses.
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A number of significant risks and uncertainties are inherent in the process of monitoring credit losses and determining the allowance for credit loss. These risks and uncertainties include: (1) the risk that our assessment of an issuer’s ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer, (2) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated, (3) the risk that our investment professionals are making decisions based on fraudulent or misstated information in the financial statements provided by issuers and (4) the risk that new information obtained by us or changes in other facts and circumstances lead us to change our intent to not sell the security prior to recovery of its amortized cost. Any of these situations could result in a charge to net income in a future period.
The net realized loss relating to the change in the allowance for credit loss and credit related sales of fixed maturities was $44.5 million and $28.3 million for the years ended December 31, 2025 and 2024, respectively.
Fixed Maturities Available-For-Sale
The following tables present our fixed maturities available-for-sale by industry category, as of the years indicated.
December 31, 2025
Gross
Gross
Allowance
Amortized
unrealized
unrealized
for credit
Carrying
cost
gains
losses
loss
amount
(in millions)
Finance — Banking
Finance — Brokerage
Finance — Finance Companies
Finance — Financial Other
Finance — Insurance
Finance — Real estate investment trusts (“REITs”)
Industrial — Basic Industry
Industrial — Capital Goods
Industrial — Communications
Industrial — Consumer Cyclical
Industrial — Consumer Non-Cyclical
Industrial — Energy
Industrial — Other
Industrial — Technology
Industrial — Transportation
Utility — Electric
Utility — Natural Gas
Utility — Other
Government guaranteed
Total corporate securities
Residential mortgage-backed pass-through securities
Commercial mortgage-backed securities
Residential collateralized mortgage obligations
Asset-backed securities — Home equity (1)
Asset-backed securities — All other
Collateralized debt obligations — Credit
Collateralized debt obligations — Loans
Total mortgage-backed and other asset-backed securities
U.S. government and agencies
States and political subdivisions
Non-U.S. governments
Total fixed maturities, available-for-sale excluding portfolio layer method basis adjustment
Unallocated portfolio layer method basis adjustment
Total fixed maturities, available-for-sale
This exposure is all related to sub-prime mortgage loans.
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December 31, 2024
Gross
Gross
Allowance
Amortized
unrealized
unrealized
for credit
Carrying
cost
gains
losses
loss
amount
(in millions)
Finance — Banking
Finance — Brokerage
Finance — Finance Companies
Finance — Financial Other
Finance — Insurance
Finance — REITs
Industrial — Basic Industry
Industrial — Capital Goods
Industrial — Communications
Industrial — Consumer Cyclical
Industrial — Consumer Non-Cyclical
Industrial — Energy
Industrial — Other
Industrial — Technology
Industrial — Transportation
Utility — Electric
Utility — Natural Gas
Utility — Other
Government guaranteed
Total corporate securities
Residential mortgage-backed pass-through securities
Commercial mortgage-backed securities
Residential collateralized mortgage obligations
Asset-backed securities — Home equity (1)
Asset-backed securities — All other
Collateralized debt obligations — Credit
Collateralized debt obligations — Loans
Total mortgage-backed and other asset-backed securities
U.S. government and agencies
States and political subdivisions
Non-U.S. governments
Total fixed maturities, available-for-sale excluding portfolio layer method basis adjustment
Unallocated portfolio layer method basis adjustment
Total fixed maturities, available-for-sale
This exposure is all related to sub-prime mortgage loans.
Of the $3,281.5 million in gross unrealized losses as of December 31, 2025, $7.0 million in losses were attributed to securities scheduled to mature in one year or less, $173.4 million attributed to securities scheduled to mature between one to five years, $298.8 million attributed to securities scheduled to mature between five to ten years, $2,104.9 million attributed to securities scheduled to mature after ten years and $697.4 million related to mortgage-backed and other ABS that are not classified by maturity year. As of December 31, 2025, we were in a $2,448.0 million net unrealized loss position as compared to a $3,769.9 million net unrealized loss position as of December 31, 2024. The $1,321.9 million decrease in net unrealized losses for the year ended December 31, 2025, can be attributed to a decrease in interest rates, which was partially offset by a widening of credit spreads.
Fixed Maturities Available-For-Sale Unrealized Losses. We believe our long-term fixed maturities portfolio is well diversified among industry types and between publicly traded and privately placed securities. Each year, we direct the majority of our net cash inflows into investment grade fixed maturities. Our current policy is to limit the percentage of fixed maturities invested in below investment grade assets to 15%.
We invest in privately placed fixed maturities to enhance the overall value of the portfolio, increase diversification and obtain higher yields than are possible with comparable quality public market securities. Generally, private placements provide broader access to management information, strengthened negotiated protective covenants, call protection features and, where applicable, a higher level of collateral. They are, however, generally not freely tradable because of restrictions imposed by U.S. federal and state securities laws and illiquid trading markets.
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The following table presents our fixed maturities available-for-sale by investment grade and below investment grade as of the years indicated.
December 31, 2025
December 31, 2024
Gross
Gross
Allowance
Gross
Gross
Allowance
Amortized
unrealized
unrealized
for credit
Carrying
Amortized
unrealized
unrealized
for credit
Carrying
cost
gains
losses
loss
amount
cost
gains
losses
loss
amount
(in millions)
Investment grade:
Public
Private
Below investment grade:
Public
Private
Total fixed maturities, available-for-sale (1)
(1) Excludes unallocated basis adjustments related to fair value hedges utilizing the portfolio layer method.
Included in the public category carrying amount as of December 31, 2025 and December 31, 2024, were $16,411.2 million and $15,165.7 million, respectively, of securities subject to certain holding periods and resale restrictions pursuant to Rule 144A of the Securities Act of 1933.
The following tables present the fair value and the gross unrealized losses on our fixed maturities available-for-sale for which an allowance for credit loss has not been recorded by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2025 and December 31, 2024, respectively.
December 31, 2025
Less than
Greater than or
twelve months
equal to twelve months
Total
Gross
Gross
Gross
Fair
unrealized
Fair
unrealized
Fair
unrealized
value
losses
value
losses
value
losses
(in millions)
Fixed maturities, available-for-sale (1):
U.S. government and agencies
Non-U.S. governments
States and political subdivisions
Corporate
Residential mortgage-backed pass-through securities
Commercial mortgage-backed securities
Collateralized debt obligations (2)
Other debt obligations
Total fixed maturities, available-for-sale
Fair value and gross unrealized losses are excluded for available-for-sale securities for which an allowance for credit loss has been recorded. Gross unrealized losses exclude unallocated basis adjustments related to fair value hedges utilizing the portfolio layer method.
Primarily consists of collateralized loan obligations backed by secured corporate loans.
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December 31, 2024
Less than
Greater than or
twelve months
equal to twelve months
Total
Gross
Gross
Gross
Fair
unrealized
Fair
unrealized
Fair
unrealized
value
losses
value
losses
value
losses
(in millions)
Fixed maturities, available-for-sale (1):
U.S. government and agencies
Non-U.S. governments
States and political subdivisions
Corporate
Residential mortgage-backed pass-through securities
Commercial mortgage-backed securities
Collateralized debt obligations (2)
Other debt obligations
Total fixed maturities, available-for-sale
Fair value and gross unrealized losses are excluded for available-for-sale securities for which an allowance for credit loss has been recorded. Gross unrealized losses exclude unallocated basis adjustments related to fair value hedges utilizing the portfolio layer method.
Primarily consists of collateralized loan obligations backed by secured corporate loans.
Mortgage Loans
Mortgage loans consist of commercial mortgage loans on real estate and residential mortgage loans. For further details about residential mortgage loans, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 4, Investments” under the caption, “Financing Receivables.”
Commercial Mortgage Loans. We generally report commercial mortgage loans on real estate at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method and net of valuation allowances.
Commercial mortgage loans play an important role in our investment strategy by:
providing strong risk-adjusted relative value in comparison to other investment alternatives;
enhancing total returns and
providing strategic portfolio diversification.
As a result, we have focused on constructing a high quality portfolio of mortgages. Our portfolio is generally comprised of mortgages originated with conservative loan-to-value ratios, high debt service coverages and general purpose property types with a strong credit tenancy.
Our commercial mortgage loan portfolio consists primarily of non-recourse, fixed rate mortgages on fully or near fully leased properties. The mortgage portfolio is comprised primarily of office properties, apartments, well-anchored retail properties and general-purpose industrial properties.
Our commercial mortgage loan portfolio is diversified by geography and specific collateral property type. Commercial mortgage lending in the state of California accounted for 21% and 24% of our commercial mortgage loan portfolio before valuation allowance as of December 31, 2025 and December 31, 2024, respectively. We are, therefore, exposed to potential losses resulting from the risk of catastrophes, including but not limited to earthquakes, fires, drought, extreme heat, flooding, and tsunamis, that may affect the region. For the years ended December 31, 2025 and December 31, 2024, we did not experience any material losses due to the aforementioned catastrophe risks.
The typical borrower in our commercial mortgage loan portfolio is a single purpose entity or single asset entity. As of December 31, 2025 and December 31, 2024, the total number of commercial mortgage loans outstanding were 602 and 620, of which 32% and 35% were for loans with principal balances less than $10.0 million as of December 31, 2025 and December 31, 2024, respectively. The average loan size of our commercial mortgage portfolio was $23.2 million as of both December 31, 2025 and December 31, 2024. As of December 31, 2025, approximately $12.1 billion, or 86%, of our U.S. investment operations commercial mortgage loans before valuation allowance had balloon payment maturities.
Commercial Mortgage Loan Credit Monitoring. For further details on monitoring and management of our commercial mortgage loan portfolio, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 4, Investments” under the caption, “Financing Receivables Credit Monitoring.”
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We categorize loans that are 60 days or more delinquent, loans in process of foreclosure and loans with borrowers or credit tenants in bankruptcy that are delinquent as “problem” loans. We categorize loans that are delinquent less than 60 days where the default is expected to be cured and loans with borrowers or credit tenants in bankruptcy that are current as “potential problem” loans. The decision whether to classify a loan delinquent less than 60 days as a potential problem involves significant subjective judgments by management as to the likely future economic conditions and developments with respect to the borrower. We categorize loans for which the original note rate has been reduced below market and loans for which the principal has been reduced as “restructured” loans. We also consider loans that are refinanced more than one year beyond the original maturity or call date at below market rates as .
We had five delinquent problem commercial mortgage loans with a carrying amount of $123.7 million for which we had a valuation allowance of $62.1 million as of December 31, 2025. We also had one potential problem commercial mortgage loan with a carrying amount of $140.1 million for which we had a valuation allowance of $25.1 million as of December 31, 2025. We did not have any restructured problem commercial mortgage loans as of December 31, 2025. We had three delinquent problem commercial mortgage loans with a carrying amount of $20.6 million for which we had a valuation allowance of $18.9 million as of December 31, 2024. We also had two potential problem commercial mortgage loans with a carrying amount of $140.5 million for which we had a valuation allowance of $33.0 million and one restructured problem commercial mortgage loan with a carrying amount of $34.1 million for which we had a valuation allowance of $34.1 million as of December 31, 2024.
December 31, 2025
December 31, 2024
($ in millions)
Total commercial mortgage loans
Problem commercial mortgage loans
Potential problem commercial mortgage loans
Total problem, potential problem and restructured commercial mortgage loans
Total problem, potential problem and restructured commercial mortgage loans as a percent of total commercial mortgage loans
Commercial Mortgage Loan Valuation Allowance. We establish the commercial mortgage loan valuation allowance at levels considered adequate to absorb estimated expected credit losses within the portfolio. For further details on the commercial mortgage loan valuation allowance, see Item 8. “Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 4, Investments” under the caption, “Financing Receivables Valuation Allowance.”
Real Estate
Real estate consists primarily of commercial equity real estate. As of December 31, 2025 and December 31, 2024, the carrying amount of our equity real estate investment was $2,408.4 million and $2,463.7 million, respectively. Our commercial equity real estate is held in the form of wholly owned real estate, real estate acquired upon foreclosure of commercial mortgage loans and majority owned interests in real estate joint ventures.
Equity real estate is categorized as either “real estate held for investment” or “real estate held for sale.” The carrying value of real estate held for investment is generally adjusted for impairments whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Such impairment adjustments are recorded as net realized capital losses in our consolidated results of operations. No such impairment adjustments were recorded for the year ended December 31, 2025 or for the year ended December 31, 2024.
Once we identify a real estate property to be sold and it is probable that it will be sold, we classify the property as held for sale. We establish a valuation allowance subject to periodic revisions, if necessary, to adjust the carrying value of the property to reflect the lower of its current carrying value or the fair value, less associated selling costs. The valuation allowance did not change for the year ended December 31, 2025 or for the year ended December 31, 2024.
We use research, both internal and external, to recommend appropriate product and geographic allocations and changes to the equity real estate portfolio. We monitor product, geographic and industry diversification separately and together to determine the most appropriate mix.
Equity real estate is distributed across geographic regions of the country. As of December 31, 2025, our largest equity real estate portfolio concentration was in the Pacific (45%) region of the United States. By property type, our largest concentrations were in Office (35%) and Apartments (28%) as of December 31, 2025.
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Other Investments
Our other investments totaled $5,885.3 million as of December 31, 2025, compared to $4,844.7 million as of December 31, 2024. Other investments include interests in unconsolidated entities, which include real estate properties owned jointly with venture partners and operated by the partners; sponsored investment funds; the cash surrender value of company owned and trust owned life insurance; derivative assets and other investments.
International Investment Operations
Of our invested assets, $6,682.9 million were held by our international operations as of December 31, 2025. Due to the regulatory constraints in each location, each company maintains its own investment policies. As shown in the following table, the major category of international invested assets is fixed maturities. The following table excludes invested assets of the separate accounts.
December 31, 2025
December 31, 2024
Carrying
Percent
Carrying
Percent
amount
of total
amount
of total
($ in millions)
Fixed maturities
Equity securities
Mortgage loans
Real estate
Policy loans
Other investments:
Direct financing leases
Investment in unconsolidated operating entities
Derivative assets and other investments
Total invested assets
Cash and cash equivalents
Total invested assets and cash
Regulations in certain locations require investment in the funds we manage. These required regulatory investments are classified as equity securities within our consolidated statements of financial position, with all mark-to-market changes reflected in net investment income. Our investment is primarily dictated by client activity and all investment performance is retained by us.
