Net income (loss) attributable to noncontrolling interest

4,852.2

1,757.4

1,428.5

40.6

46.8

32.7

Net income (loss) attributable to Principal Financial Group, Inc.

$ 4,811.6

$ 1,710.6

$ 1,395.8

Earnings per common share

Basic earnings per common share (in dollars per share)

$ 19.16

$ 6.36

$ 5.08

Diluted earnings per common share (in dollars per share)

$ 18.85

$ 6.27

$ 5.05

[1]	Includes realized and unrealized gains (losses). See Note 4, Investments, for further details.

Consolidated Statements of Comprehensive Income - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Consolidated Statements of Comprehensive Income
Net income (loss)	$ 4,852.2	$ 1,757.4	$ 1,428.5
Other comprehensive income (loss), net:
Net unrealized gains (losses) on available-for-sale securities	(8,988.9)	(670.9)	1,376.5
Net unrealized gains (losses) on derivative instruments	(19.9)	33.6	(35.2)
Foreign currency translation adjustment	(22.9)	(254.2)	30.6
Net unrecognized postretirement benefit obligation	90.6	115.8	(24.9)
Other comprehensive income (loss)	(8,941.1)	(775.7)	1,347.0
Comprehensive income (loss)	(4,088.9)	981.7	2,775.5
Comprehensive income (loss) attributable to noncontrolling interest	41.2	43.3	34.5
Comprehensive income (loss) attributable to Principal Financial Group, Inc.	$ (4,130.1)	$ 938.4	$ 2,741.0

Consolidated Statements of Stockholders' Equity - USD ($)
$ in Millions

Common stock

Additional paid-in capital

Retained earnings (accumulated deficit)

Effects of implementation of accounting change

Retained earnings (accumulated deficit)

Accumulated other comprehensive income (loss)

Treasury Stock

Noncontrolling interest

Effects of implementation of accounting change

Total

Balances (ASU 2016-13 - CECL) at Dec. 31, 2019

$ (8.4)

Balances at Dec. 31, 2019

$ 4.8

$ 10,182.6

$ 11,074.3

$ 1,037.9

$ (7,681.6)

$ 67.8

$ 14,685.8

Increase (decrease) in stockholders' equity

Common stock issued

42.8

Treasury stock acquired, common

96.3

(9.2)

87.1

(307.0)

Distributions to noncontrolling interest

(614.5)

(40.3)

Contributions from noncontrolling interest

6.0

Purchase of subsidiary shares from noncontrolling interest

^[1]

(1.4)

Adjustments to redemption amount of redeemable noncontrolling interest

(0.1)

(0.2)

Other comprehensive income (loss)

^[1]

1,395.8

25.2

1,421.0

^[1]

1,345.2

1.2

1,346.4

Balances (ASU 2016-13 - CECL) at Dec. 31, 2020

$ (8.4)

Balances at Dec. 31, 2020

4.8

10,321.6

11,838.0

2,383.1

(7,988.6)

58.4

16,617.3

Increase (decrease) in stockholders' equity

Common stock issued

86.7

Treasury stock acquired, common

106.1

(10.0)

0.1

96.2

(937.2)

Distributions to noncontrolling interest

(654.1)

(33.7)

Contributions from noncontrolling interest

7.4

Purchase of subsidiary shares from noncontrolling interest

^[1]

(16.4)

(1.7)

(18.1)

Adjustments to redemption amount of redeemable noncontrolling interest

(3.0)

(0.1)

(3.1)

Other comprehensive income (loss)

^[1]

1,710.6

29.3

1,739.9

^[1]

(772.2)

(3.3)

(775.5)

Balances at Dec. 31, 2021

4.8

10,495.0

12,884.5

1,610.9

(8,925.8)

56.4

16,125.8

Increase (decrease) in stockholders' equity

Common stock issued

0.1

181.6

181.7

Treasury stock acquired, common

102.7

(11.5)

0.4

91.6

(1,661.1)

Accelerated share repurchase

(33.9)

Distributions to noncontrolling interest

(642.3)

(86.2)

Contributions from noncontrolling interest

7.3

Purchase of subsidiary shares from noncontrolling interest

^[1]

(5.7)

(2.4)

(8.1)

Adjustments to redemption amount of redeemable noncontrolling interest

0.7

(0.5)

0.2

Adjustment for reinsurance

131.8

Other comprehensive income (loss)

^[1]

4,811.6

66.4

4,878.0

^[1]

(8,941.7)

(0.3)

(8,942.0)

Balances at Dec. 31, 2022

$ 4.9

$ 10,740.4

$ 17,042.3

$ (7,199.0)

$ (10,586.9)

$ 41.1

$ 10,042.8

[1]	Excludes amounts attributable to redeemable noncontrolling interest. See Note 14, Stockholders’ Equity, for further details.

Consolidated Statements of Cash Flows - USD ($)
$ in Millions

12 Months Ended

Dec. 31, 2022

Dec. 31, 2021

Dec. 31, 2020

Operating activities

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

$ 4,852.2

$ 1,757.4

$ 1,428.5

Net realized capital (gains) losses

^[1]

258.4

(2.5)

(302.6)

Net realized capital (gains) losses on funds withheld assets

^[1]

(749.4)

Change in fair value of funds withheld embedded derivative

(3,652.8)

(0.0)

Depreciation and amortization expense

295.9

275.3

251.9

Amortization of deferred acquisition costs and contract costs

420.0

317.8

412.9

Additions to deferred acquisition costs and contract costs

(421.4)

(518.7)

(499.9)

Amortization of reinsurance (gain) loss

84.5

(18.0)

67.4

(Income) loss from equity method investments, net of dividends received

91.3

96.1

87.2

(102.9)

(166.3)

(10.6)

Changes in:

Accrued investment income

(46.3)

13.8

(24.0)

Net cash flows for trading securities and equity securities with operating intent

(339.5)

99.9

144.2

Premiums due and other receivables

(3,630.0)

8.3

61.9

Contractholder and policyholder liabilities and dividends

1,426.9

1,415.1

1,532.1

Current and deferred income taxes (benefits)

873.1

160.2

442.5

Real estate acquired through operating activities

(164.4)

(73.7)

(16.4)

Real estate sold through operating activities

7.9

1.8

195.5

Funds withheld, net of reinsurance recoverable and deposit receivable

3,750.3

(105.5)

(75.3)

Other assets and liabilities

345.0

8.8

(99.3)

Other

(125.9)

(15.4)

113.3

Net adjustments

(1,679.3)

1,497.0

2,280.8

Net cash provided by (used in) operating activities

3,172.9

3,254.4

3,709.3

Investing activities

Fixed maturities available-for-sale and equity securities with intent to hold: Purchases

(19,352.6)

(16,625.5)

(15,713.4)

Fixed maturities available-for-sale and equity securities with intent to hold: Sales

14,729.7

2,735.3

3,043.9

Fixed maturities available-for-sale and equity securities with intent to hold: Maturities

6,853.7

10,960.0

8,819.5

Mortgage loans acquired or originated

(3,731.2)

(5,223.5)

(3,249.5)

Mortgage loans sold or repaid

2,614.6

2,853.2

2,477.2

Real estate acquired

(245.2)

(281.4)

(230.6)

Real estate sold

374.0

133.7

2.3

Net (purchases) sales of property and equipment

(116.3)

(129.9)

(108.8)

Sale of interests in subsidiaries

27.0

Net change in other investments

(68.2)

(142.6)

(37.1)

Net cash provided by (used in) investing activities

1,058.5

(5,693.7)

(4,996.5)

Financing activities

Issuance of common stock

181.7

86.7

42.8

Accelerated stock repurchase settlement

(33.9)

Acquisition of treasury stock

(1,661.1)

(937.2)

(307.0)

Payments for financing element derivatives

(50.6)

(39.9)

(30.9)

Purchase of subsidiary shares from noncontrolling interest

(9.2)

(24.2)

(1.4)

Issuance of long-term debt

(642.3)

(654.1)

(614.5)

15.4

608.9

Principal repayments of long-term debt

(302.0)

(1.8)

(65.8)

Net proceeds from (repayments of) short-term borrowings

0.9

10.2

(12.6)

Investment contract deposits

7,346.7

9,359.8

10,284.4

Investment contract withdrawals

(7,647.3)

(8,801.0)

(8,852.7)

Net increase (decrease) in banking operation deposits

1,086.3

2,922.9

569.7

Other

0.1

0.2

Net cash provided by (used in) financing activities

(1,715.4)

1,921.5

1,621.1

Net increase (decrease) in cash and cash equivalents

2,516.0

(517.8)

333.9

Cash and cash equivalents at beginning of period

2,332.0

2,849.8

2,515.9

Cash and cash equivalents at end of period

4,848.0

2,332.0

2,849.8

Supplemental information:

Cash paid for interest

175.8

166.1

162.8

Cash paid for (received from) income taxes

142.1

109.9

(172.0)

Asset changes resulting from deconsolidation of residential whole loan securitizations:

Decrease in mortgage loans

(220.7)

Increase in fixed maturities, available-for-sale

167.6

Assets transferred in kind for settlement to reinsurer

$ (428.5)

Changes from re-designation of other postretirement employee benefits ("OPEB") plan assets to cover non-retiree benefits:

Increases in equity securities re-designated from funded status of OPEB plan

548.1

Increases in other investments re-designated from funded status of OPEB plan

117.5

Decrease in tax receivable re-designated from funded status of OPEB plan

(9.1)

Decrease in accumulated other comprehensive income ("AOCI") due to reclassifying excess assets out of funded status of OPEB plan

9.1

Decrease in other assets due to reclassifying excess assets out of funded status of OPEB plan

(665.6)

Assets received in kind from pension risk transfer transactions

$ 109.5

$ 1,325.2

[1]	Includes realized and unrealized gains (losses). See Note 4, Investments, for further details.

Nature of Operations and Significant Accounting Policies

12 Months Ended

Dec. 31, 2022

Nature of Operations and Significant Accounting Policies

Nature of Operations and Significant Accounting Policies

1. Nature of Operations and Significant Accounting Policies

Description of Business

Principal Financial Group, Inc. (“PFG”) is a leader in global investment management offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through our diverse family of financial services companies.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of PFG and all other entities in which we directly or indirectly have a controlling financial interest as well as those variable interest entities (“VIEs”) in which we are the primary beneficiary. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). All significant intercompany accounts and transactions have been eliminated.

Uncertainties, including those associated with the novel coronavirus (“COVID-19”), may impact our business, results of operations, financial condition and liquidity. Our use of estimates and assumptions affect amounts reported and disclosed and includes, but is not limited to, the fair value of investments in the absence of quoted market values, investment impairments and valuation allowances, the fair value of derivatives, funds withheld embedded derivative, deferred acquisition costs (“DAC”) and other actuarial balances, measurement of goodwill and intangible assets, the liability for future policy benefits and claims, the value of pension and other postretirement benefits and accounting for income taxes and the valuation of deferred tax assets. Our estimates and assumptions could change in the future. Our results of operations and financial condition may also be impacted by other uncertainties including evolving regulatory, legislative and standard-setter accounting interpretations and guidance.

During the second quarter of 2022, we closed a coinsurance with funds withheld reinsurance transaction with Talcott Life &Annuity Re, Ltd. (“Talcott Life & Annuity Re”), a limited liability company organized under the laws of the Cayman Islands and an affiliate of Talcott Resolution Life, Inc., a subsidiary of Sixth Street, pursuant to which we ceded our in-force U.S. retail fixed annuity and universal life insurance with secondary guarantee (“ULSG”) blocks of business (the “Reinsurance Transaction”). The economics of the Reinsurance Transaction were effective as of January 1, 2022. As such, we recorded impacts for January through June 2022 in our second quarter 2022 results. See Note 9, Reinsurance, for further details.

Reclassifications have been made to prior periods to report the reinsurance recoverable and deposit receivable on the consolidated statements of financial position. Those amounts were previously reported in premiums due and other receivables. Certain reclassifications have been made to prior period consolidated statements of cash flows to conform to the December 31, 2022, presentation. This included presenting separate line items within operating activities for amortization of reinsurance (gain) loss and funds withheld, net of reinsurance recoverable and deposit receivable, among other reclassifications.

Consolidation

We have relationships with various special purpose entities and other legal entities that must be evaluated to determine if the entities meet the criteria of a VIE or a voting interest entity (“VOE”). This assessment is performed by reviewing contractual, ownership and other rights, including involvement of related parties, and requires use of judgment. First, we determine if we hold a variable interest in an entity by assessing if we have the right to receive expected losses and expected residual returns of the entity. If we hold a variable interest, then the entity is assessed to determine if it is a VIE. An entity is a VIE if the equity at risk is not sufficient to support its activities, if the equity holders lack a controlling financial interest or if the entity is structured with non-substantive voting rights. In addition to the previous criteria, if the entity is a limited partnership or similar entity, it is a VIE if the limited partners do not have the power to direct the entity’s most significant activities through substantive kick-out rights or participating rights. A VIE is evaluated to determine the primary beneficiary. The primary beneficiary of a VIE is the enterprise with (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. When we are the primary beneficiary, we are required to consolidate the entity in our financial statements. We reassess our involvement with VIEs on a quarterly basis. For further information about VIEs, refer to Note 3, Variable Interest Entities.

If an entity is not a VIE, it is considered a VOE. VOEs are generally consolidated if we own a greater than 50% voting interest. If we determine our involvement in an entity no longer meets the requirements for consolidation under either the VIE or VOE models, the entity is deconsolidated. Entities in which we have management influence over the operating and financing decisions but are not required to consolidate, other than investments accounted for at fair value under the fair value option, are reported using the equity method.

Recent Accounting Pronouncements

Description

Date of
adoption

Effect on our consolidated
financial statements or other
significant matters

Standards not yet adopted:

Targeted improvements to the accounting for long-duration insurance contracts

This authoritative guidance updates certain requirements in the accounting for long-duration insurance and annuity contracts.

1.

The assumptions used to calculate the liability for future policy benefits on traditional and limited-payment contracts will be reviewed and updated periodically. Cash flow assumptions will be reviewed at least annually and updated when necessary with the impact recognized in net income. Discount rate assumptions are prescribed as the current upper-medium grade (low credit risk) fixed income instrument yield and will be updated quarterly with the impact recognized in other comprehensive income (“OCI”).

2.

Market risk benefits, which are contracts or contract features that provide protection to the policyholder from capital market risk and expose us to other-than-nominal capital market risk, are measured at fair value. The periodic change in fair value is recognized in net income with the exception of the periodic change in fair value related to our own nonperformance risk, which is recognized in OCI.

3.

DAC and other actuarial balances for all insurance and annuity contracts will be amortized on a constant basis over the expected term of the related contracts.

4.

Additional disclosures are required, including disaggregated rollforwards of significant insurance liabilities and other account balances as well as disclosures about significant inputs, judgments, assumptions and methods used in measurement.

The guidance for the liability for future policy benefits for traditional and limited-payment contracts and DAC will be applied on a modified retrospective basis; that is, to contracts in force as of the beginning of the earliest period presented (January 1, 2021, also referred to as the transition date) based on their existing carrying amounts. An entity may elect to apply the changes retrospectively. The guidance for market risk benefits will be applied retrospectively.

January 1, 2023

We created a governance framework and a plan to support implementation of the standard. Our implementation and evaluation process included, but was not limited to the following:

● identifying and documenting contracts and contract features in scope of the guidance;

● identifying the actuarial models, systems and processes to be updated;

● evaluating and selecting our systems solutions for implementing the new guidance;

● building models and evaluating preliminary output as models are developed;

● evaluating and finalizing our key accounting policies;

● assessing the impact to our chart of accounts;

● developing format and content of new disclosures;

● conducting financial dry runs using model output and updated chart of accounts;

● evaluating transition requirements and impacts and

● establishing and documenting appropriate internal controls.

This guidance will change how we account for many of our insurance and annuity products.

The transition date impact from adoption of this standard is a decrease to our total stockholders’ equity of approximately $5.3 billion, of which approximately $5.1 billion impacted AOCI and approximately $0.2 billion impacted retained earnings. The most significant driver of the AOCI adjustment is due to the requirement to update the discount rate assumption to reflect an upper-medium grade fixed-income instrument, which will generally be equivalent to a single-A interest rate matched to the duration characteristics of our insurance liabilities. The most significant driver of the retained earnings adjustment is the valuation of contracts as market risk benefits.


Description	Date of adoption	Effect on our consolidated financial statements or other significant matters
Troubled debt restructurings and vintage disclosures This authoritative guidance eliminates the accounting requirements for troubled debt restructurings (“TDRs”) by creditors and enhances the disclosure requirements for certain loan refinancing and restructuring by creditors when a borrower is experiencing financial difficulty. The update requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. The amendments in this update should be applied prospectively, except for the transition method related to the recognition and measurement of troubled debt restructurings, for which an entity has the option to apply a modified retrospective transition method. Early adoption is permitted.	January 1, 2023	The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
Targeted improvements to accounting for hedging activities – portfolio layer method This authoritative guidance intends to further align the economics of a company’s risk management activities in its financial statements with hedge accounting requirements. The guidance expands the current single-layer method to allow multiple hedge layers of a single closed portfolio. Non-prepayable assets can also be included in the same portfolio. This guidance also clarifies the current guidance on accounting for fair value basis adjustments applicable to both a single hedged layer and multiple hedged layers. Upon adoption, the application of these hedge strategies would be applied prospectively. Early adoption is permitted.	January 1, 2023	This guidance will not have a material impact on our consolidated financial statements.
Standards adopted:
Simplifying the accounting for income taxes This authoritative guidance simplifies the accounting for income taxes by removing certain exceptions, including exceptions related to the incremental approach for intraperiod tax allocation, calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. Also, the guidance clarifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of goodwill and enacted changes in tax laws or rates. It specifies that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements, although an entity may elect to do so. The guidance will be applied based on varying transition methods defined by amendment. Early adoption is permitted.	January 1, 2021	This guidance did not have a material impact on our consolidated financial statements.


Description	Date of adoption	Effect on our consolidated financial statements or other significant matters
Facilitation of the effects of reference rate reform on financial reporting This authoritative guidance provides optional expedients and exceptions for contracts and hedging relationships affected by reference rate reform. An entity may elect not to apply certain modification accounting requirements to contracts affected by reference rate reform and instead account for the modified contract as a continuation of the existing contract. Also, an entity may apply optional expedients to continue hedge accounting for hedging relationships in which the critical terms change due to reference rate reform. This guidance eases the financial reporting impacts of reference rate reform on contracts and hedging relationships and is effective until December 31, 2022. A subsequent amendment issued in December 2022 extended the relief date from December 31, 2022, to December 31, 2024, and was effective upon issuance.	March 12, 2020	We adopted the guidance upon issuance prospectively and elected the applicable optional expedients and exceptions for contracts and hedging relationships impacted by reference rate reform through December 31, 2024. The guidance did not have an impact on our consolidated financial statements upon adoption.
Goodwill impairment testing This authoritative guidance simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 (which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill to the carrying amount of that goodwill) from the goodwill impairment test. A goodwill impairment loss will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.	January 1, 2020	This guidance reduced complexity and costs associated with performing a Step 2 test, should one be needed in the future. This guidance did not have a material impact on our consolidated financial statements at adoption.
Credit losses This authoritative guidance requires entities to use a current expected credit loss (“CECL”) model to measure impairment for most financial assets that are not recorded at fair value through net income. Under the CECL model, an entity will estimate lifetime expected credit losses considering available relevant information about historical events, current conditions and reasonable and supportable forecasts. The CECL model does not apply to available-for-sale debt securities; however, the credit loss calculation and subsequent recoveries for available-for-sale securities are required to be recorded through an allowance. This guidance also expands the required credit loss disclosures.	January 1, 2020	We adopted the guidance using the modified retrospective approach. A cumulative effect adjustment of $8.4 million was recorded as a decrease to retained earnings. We recorded an offsetting increase in the allowance for credit loss for mortgage loans, reinsurance recoverables and commitments and a decrease for deferred tax impacts. See Note 4, Investments, for further details.

When we adopt new accounting standards, we have a process in place to perform a thorough review of the pronouncement, identify the financial statement and system impacts and create an implementation plan among our impacted business units to ensure we are compliant with the pronouncement on the date of adoption. This includes having effective processes and controls in place to support the reported amounts. Each of the standards listed above is in varying stages in our implementation process based on its issuance and adoption dates. We are on track to implement guidance by the respective effective dates.

Use of Estimates in the Preparation of Financial Statements

The preparation of our consolidated financial statements and accompanying notes requires management to make estimates and assumptions that affect the amounts reported and disclosed. These estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed in the consolidated financial statements and accompanying notes. The most critical estimates include those used in determining:

●

the fair value of investments in the absence of quoted market values;

●

investment impairments and valuation allowances;

●

the fair value of and accounting for derivatives;

●

the DAC and other actuarial balances where the amortization is based on estimated gross profits (“EGPs”);

●

the measurement of goodwill, indefinite lived intangible assets, finite lived intangible assets and related impairments or amortization, if any;

●

the liability for future policy benefits and claims;

●

the value of our pension and other postretirement benefit obligations and

●

accounting for income taxes and the valuation of deferred tax assets.

A description of such critical estimates is incorporated within the discussion of the related accounting policies that follow. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Actual results could differ from these estimates.

Closed Block

Principal Life Insurance Company (“Principal Life”) operates a closed block (“Closed Block”) for the benefit of individual participating dividend-paying policies in force at the time of the 1998 mutual insurance holding company (“MIHC”) formation. See Note 6, Closed Block, for further details.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, money market instruments and other debt issues with a maturity date of three months or less when purchased.

Investments

Fixed maturities include bonds, asset-backed securities (“ABS”), redeemable preferred stock and certain non-redeemable preferred securities. Equity securities include mutual funds, common stock, non-redeemable preferred stock and required regulatory investments. We classify fixed maturities as either available-for-sale or trading at the time of the purchase and, accordingly, carry them at fair value. Equity securities are also carried at fair value. See Note 15, Fair Value Measurements, for methodologies related to the determination of fair value. Unrealized gains and losses related to fixed maturities, available-for-sale, excluding those in fair value hedging relationships, are reflected in stockholders’ equity, net of adjustments associated with DAC and related actuarial balances, derivatives in cash flow hedge relationships and applicable income taxes. Mark-to-market adjustments on certain equity securities and mark-to-market adjustments on certain fixed maturities, trading are reflected in net realized capital gains (losses). Unrealized gains and losses related to hedged portions of fixed maturities, available-for-sale in fair value hedging relationships are reflected in net investment income. Mark-to-market adjustments related to certain securities carried at fair value with an investment objective to realize economic value through mark-to-market changes are reflected in net investment income.

The amortized cost of fixed maturities includes cost adjusted for amortization of premiums and discounts, computed using the interest method. The amortized cost of fixed maturities, available-for-sale is adjusted for changes in fair value of the hedged portions of securities in fair value hedging relationships and excludes accrued interest receivable. Accrued interest receivable is reported in accrued investment income on the consolidated statements of financial position. Fixed maturities, available-for-sale are subject to an allowance for credit loss and changes in the allowance are reported in net income as a component of net realized capital gains (losses). Interest income, as well as prepayment fees and the amortization of the related premium or discount, is reported in net investment income. For loan-backed and structured securities, we recognize income using a constant effective yield based on currently anticipated cash flows.

Commercial and residential mortgage loans are generally reported at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method and net of valuation allowances. Amortized cost excludes accrued interest receivable. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Interest income, as well as prepayment of fees and the amortization of the related premium or discount, is reported in net investment income on the consolidated statements of operations. Accrued interest receivable is reported in accrued investment income on the consolidated statements of financial position. Any changes in the loan valuation allowances are reported in net realized capital gains (losses) on the consolidated statements of operations. See Note 4, Investments, for further details of our valuation allowance.

Our commercial and residential mortgage loan portfolios can include loans that have been modified. We assess loan modifications on a case-by-case basis to evaluate whether a TDR has occurred. In response to COVID-19, the Coronavirus Aid, Relief and Economic Security Act, which was subsequently amended by the Consolidated Appropriations Act, 2021, (collectively the “CARES Act”) provides a temporary suspension of TDR accounting for certain COVID-19 related loan modifications where the loan was not more than 30 days past due as of December 31, 2019. We elected the TDR relief in the CARES Act beginning in the second quarter of 2020. The CARES Act TDR relief does not apply to modifications completed subsequent to the earlier of 60 days after the national emergency related to COVID-19 ends, or January 1, 2022. In addition, the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (As Revised on April 7, 2020) (“Interagency Statement”) provides additional guidance to determine if a short-term COVID-19 related loan modification is a TDR. We consider the CARES Act and the Interagency Statement when assessing loan modifications to determine whether a TDR has occurred. As of January 1, 2022, the TDR relief ended. See Note 4, Investments, under the caption “Mortgage Loan Modifications” for further details.

Real estate investments are reported at cost less accumulated depreciation. The initial cost bases of properties acquired through loan foreclosures are the lower of the fair market values of the properties at the time of foreclosure or the outstanding loan balance. Buildings and land improvements are generally depreciated on the straight-line method over the estimated useful life of improvements and tenant improvement costs are depreciated on the straight-line method over the term of the related lease. We recognize impairment losses for properties when indicators of impairment are present and a property’s expected undiscounted cash flows are not sufficient to recover the property’s carrying value. In such cases, the cost basis of the property is reduced to fair value. Real estate expected to be disposed is carried at the lower of cost or fair value, less cost to sell, with valuation allowances established accordingly and depreciation no longer recognized. The carrying amount of real estate held for sale was $240.6 million and $88.7 million as of December 31, 2022 and 2021, respectively. Any impairment losses and any changes in valuation allowances are reported in net income.

Net realized capital gains and losses on sales of investments are determined on the basis of specific identification. In general, in addition to realized capital gains and losses on investment sales and periodic settlements on derivatives not designated as hedges, we report gains and losses related to the following in net realized capital gains (losses) on the consolidated statements of operations: mark-to-market adjustments on certain equity securities, mark-to-market adjustments on certain fixed maturities, trading, mark-to-market adjustments on sponsored investment funds, mark-to-market adjustments on derivatives not designated as hedges, cash flow hedge gains (losses) when the hedged item impacts realized capital gains (losses), changes in the valuation allowance for fixed maturities, available-for-sale and certain financing receivables, impairments of real estate held for investment and impairments of equity method investments. Investment gains and losses on sales of certain real estate held for sale due to investment strategy and mark-to-market adjustments on certain securities carried at fair value with an investment objective to realize economic value through mark-to-market changes are reported as net investment income and are excluded from net realized capital gains (losses).

Policy loans and certain other investments are reported at cost. Interests in unconsolidated entities, joint ventures and partnerships are generally accounted for using the equity method. We had certain real estate ventures for which the fair value option had been elected in prior periods. See Note 15, Fair Value Measurements, for detail on these investments.

Derivatives

Overview

Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices or the values of securities. Derivatives generally used by us include swaps, options, futures and forwards. Derivative positions are either assets or liabilities in the consolidated statements of financial position and are measured at fair value, generally by obtaining quoted market prices or through the use of pricing models. See Note 15, Fair Value Measurements, for policies related to the determination of fair value. Fair values can be affected by changes in interest rates, foreign exchange rates, financial indices, values of securities, credit spreads, and market volatility and liquidity.

Accounting and Financial Statement Presentation

We designate derivatives as either:

(a)

a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, including those denominated in a foreign currency (“fair value hedge”);

(b)

a hedge of a forecasted transaction or the exposure to variability of cash flows to be received or paid related to a recognized asset or liability, including those denominated in a foreign currency (“cash flow hedge”);

(c)

a hedge of a net investment in a foreign operation or

(d)

a derivative not designated as a hedging instrument.

Our accounting for the ongoing changes in fair value of a derivative depends on the intended use of the derivative and the designation, as described above, and is determined when the derivative contract is entered into or at the time of redesignation. Hedge accounting is used for derivatives that are specifically designated in advance as hedges and that reduce our exposure to an indicated risk by having a high correlation between changes in the value of the derivatives and the items being hedged at both the inception of the hedge and throughout the hedge period. Cash flows associated with derivatives are included within operating and financing activities in the consolidated statements of cash flows.

Fair Value Hedges. When a derivative is designated as a fair value hedge and is determined to be highly effective, changes in its fair value, along with changes in the fair value of the hedged asset, liability or firm commitment attributable to the hedged risk, are reported in the same consolidated statements of operations line item that is used to report the earnings effect of the hedged item. For fair value hedges of fixed maturities, available-for-sale, these changes in fair value are reported in net investment income. A fair value hedge determined to be highly effective may still result in a mismatch between the change in the fair value of the hedging instrument and the change in the fair value of the hedged item attributable to the hedged risk. Certain fair value hedges use the last-of-layer method to hedge a designated amount (the “last layer”) within a closed portfolio of prepayable assets that is expected to remain outstanding for the length of the hedging relationship and is not expected to be impacted by prepayments, defaults or other factors that affect the timing and amount of cash flows. Prepayment risk is excluded when measuring the change in fair value attributable to the hedged risk under the last-of-layer method.

Cash Flow Hedges. When a derivative is designated as a cash flow hedge and is determined to be highly effective, changes in its fair value are recorded as a component of OCI. At the time the variability of cash flows being hedged impacts net income, the related portion of deferred gains or losses on the derivative instrument is reclassified and reported in net income.

Net Investment in a Foreign Operation Hedge. When a derivative is used as a hedge of a net investment in a foreign operation, its change in fair value, to the extent effective as a hedge, is recorded as a component of OCI. If the foreign operation is sold or upon complete or substantially complete liquidation, the deferred gains or losses on the derivative instrument are reclassified into net income.

Non-Hedge Derivatives. If a derivative does not qualify or is not designated for hedge accounting, all changes in fair value are reported in net income without considering the changes in the fair value of the economically associated assets or liabilities.

Hedge Documentation and Effectiveness Testing. At inception, we formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking various hedge transactions. This process includes associating all derivatives designated as fair value or cash flow hedges with specific assets or liabilities on the consolidated statements of financial position or with specific firm commitments or forecasted transactions. Documentation of fair value hedges that use the last-of-layer method supports the expectation that the hedged last layer amount is anticipated to be outstanding at the end of the hedging relationship and includes expectations of prepayments, defaults or other factors that affect the timing and amount of cash flows. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship. Even if a hedge is determined to be highly effective, the hedge may still result in a mismatch between the change in the fair value of the hedging instrument and the change in the fair value of the hedged item attributable to the hedged risk.

We use qualitative and quantitative methods to assess hedge effectiveness. Qualitative methods may include monitoring changes to terms and conditions and counterparty credit ratings. Quantitative methods may include statistical tests including regression analysis and minimum variance and dollar offset techniques. For last-of-layer method hedges, the assessment of hedge effectiveness includes confirming we expect the hedged last layer amount to be outstanding at the end of the hedging relationship.

Termination of Hedge Accounting. We prospectively discontinue hedge accounting when (1) the criteria to qualify for hedge accounting is no longer met, e.g., a derivative is determined to no longer be highly effective in offsetting the change in fair value or cash flows of a hedged item; (2) the derivative expires, is sold, terminated or exercised or (3) we remove the designation of the derivative being the hedging instrument for a fair value or cash flow hedge.

If it is determined that a derivative no longer qualifies as an effective hedge, the derivative will continue to be carried on the consolidated statements of financial position at its fair value, with changes in fair value recognized prospectively in net realized capital gains (losses). The asset or liability under a fair value hedge will no longer be adjusted for changes in fair value pursuant to hedging rules and the existing basis adjustment is amortized to the consolidated statements of operations line associated with the asset or liability. If a last-of-layer method hedging relationship is discontinued, the outstanding basis adjustment is allocated to the individual assets in the closed portfolio and those amounts are amortized consistent with the amortization of other discounts or premiums associated with those assets.

The component of AOCI related to discontinued cash flow hedges that are no longer highly effective is amortized to the consolidated statements of operations consistent with the net income impacts of the original hedged cash flows. If a cash flow hedge is discontinued because it is probable the hedged forecasted transaction will not occur, the deferred gain or loss is immediately reclassified from AOCI into net income.

Embedded Derivatives. We purchase and issue certain financial instruments and products that contain a derivative that is embedded in the financial instrument or product. We assess whether this embedded derivative is clearly and closely related to the asset or liability that serves as its host contract. If we deem that the embedded derivative’s terms are not clearly and closely related to the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the derivative is bifurcated from that contract and held at fair value on the consolidated statements of financial position, with changes in fair value reported in net income.

Contractholder and Policyholder Liabilities

Contractholder and policyholder liabilities (contractholder funds, future policy benefits and claims and other policyholder funds) include reserves for investment contracts, individual and group annuities that provide periodic income payments, universal life insurance, variable universal life insurance, indexed universal life insurance, term life insurance, participating traditional individual life insurance, group dental and vision insurance, group critical illness, group accident, paid family and medical leave (“PFML”), group short-term and long-term disability insurance, group life insurance, individual disability insurance and long-term care insurance. It also includes a provision for dividends on participating policies.

Investment contracts are contractholders’ funds on deposit with us and generally include reserves for pension and annuity contracts. Reserves on investment contracts are equal to the cumulative deposits less any applicable charges and withdrawals plus credited interest. Reserves for universal life, variable universal life and indexed universal life insurance contracts are equal to cumulative deposits less charges plus credited interest, which represents the account balances that accrue to the benefit of the policyholders.

We hold additional reserves on certain long-duration contracts where benefit features result in gains in early years followed by losses in later years; universal life, variable universal life and indexed universal life insurance contracts that contain no lapse guarantee features; and annuities with guaranteed minimum death benefits.

Reserves for individual and group annuities that provide periodic income payments, nonparticipating term life insurance and disability income contracts are computed on a basis of assumed investment yield, mortality, morbidity and expenses, including a provision for adverse deviation, which generally varies by plan, year of issue and policy duration. Investment yield is based on our experience. Mortality, morbidity and withdrawal rate assumptions are based on our experience and are periodically reviewed against both industry standards and experience. For long-duration insurance contracts, significant changes in experience or assumptions may require us to provide for expected future losses on a product by establishing premium deficiency reserves. Premium deficiency reserves may also be established for short-duration contracts to provide for expected future losses.

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.

Participating business represented approximately 3%, 4% and 5% of our life insurance in force and 17%, 18% and 20% of the number of life insurance policies in force as of December 31, 2022, 2021 and 2020, respectively. Participating business represented approximately 17%, 22% and 24% of life insurance premiums for the years ended December 31, 2022, 2021 and 2020, respectively. The amount of dividends to policyholders is declared annually by Principal Life’s Board of Directors. The amount of dividends to be paid to policyholders is determined after consideration of several factors including interest, mortality, morbidity and other expense experience for the year and judgment as to the appropriate level of statutory surplus to be retained by Principal Life. At the end of the reporting period, Principal Life establishes a dividend liability for the pro rata portion of the dividends expected to be paid on or before the next policy anniversary date.

Some of our policies and contracts require payment of fees or other policyholder assessments in advance for services that will be rendered over the estimated lives of the policies and contracts. These payments are established as unearned revenue liabilities upon receipt and included in other policyholder funds in the consolidated statements of financial position. These unearned revenue reserves are amortized to net income over the estimated lives of these policies and contracts in relation to the emergence of EGPs.

Short-Duration Contracts

We include the following group products in our short-duration insurance contracts disclosures: long-term disability (“LTD”), group life waiver, dental, vision, short-term disability (“STD”), critical illness, accident, PFML and group life.

Future policy benefits and claims include reserves for group life and disability insurance that provide periodic income payments. These reserves are computed using assumptions of mortality, morbidity and investment performance. These assumptions are based on our experience, industry results, emerging trends and future expectations. Future policy benefits and claims also include reserves for incurred but unreported group disability, dental, vision, critical illness, accident, PFML and life insurance 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 have defined claim frequency as follows for each short-duration product:

●

LTD: Claim frequency is based on submitted reserve claim counts.

●

Group Life Waiver: Claim frequency is based on submitted reserve claim counts, consistent with LTD.

●

Dental and Vision: Claim frequency is based on the claim form, which may include one or more procedures.

●

STD, Critical Illness, Accident and PFML: Claim frequency is based on submitted claims.

●

Group Life: Claim frequency is based on submitted life claims (lives, not coverages).

We did not make any significant changes to our methodologies or assumptions used to calculate the liability for unpaid claims for short-duration contracts during 2022.

Liability for Unpaid Claims

The liability for unpaid claims for both long-duration and short-duration contracts is an estimate of the ultimate net cost of reported and unreported losses not yet settled. This liability is estimated using actuarial analyses and case basis evaluations. Although considerable variability is inherent in such estimates, we believe the liability for unpaid claims is adequate. These estimates are continually reviewed and, as adjustments to this liability become necessary, such adjustments are reflected in net income. Our liability for unpaid claims does not include any allocated claim adjustment expenses.

We incur claim adjustment expenses for both long-duration and short-duration contracts that cannot be allocated to a specific claim. Our claim adjustment expense liability is estimated using actuarial analyses based on historical trends of expenses and expected claim runout patterns.

See Note 8, Insurance Liabilities, under the caption “Liability for Unpaid Claims” for further details.

Recognition of Premiums and Other Considerations, Fees and Other Revenues and Benefits

Products with fixed and guaranteed premiums and benefits consist principally of whole life and term life insurance policies and individual disability income. Premiums from these products are recognized as premium revenue when due. Related policy benefits and expenses for individual life products are associated with earned premiums and result in the recognition of profits over the expected term of the policies and contracts.

Immediate annuities with life contingencies include products with fixed and guaranteed annuity considerations and benefits and consist principally of group and individual single premium annuities with life contingencies. Annuity considerations from these products are recognized as premium revenue. However, the collection of these annuity considerations does not represent the completion of the earnings process, as we establish annuity reserves using estimates for mortality and investment assumptions, which include provision for adverse deviation as required by U.S. GAAP. We anticipate profits to emerge over the life of the annuity products as we earn investment income, pay benefits and release reserves.

Group life, dental, vision, critical illness, accident, PFML and disability premiums are generally recorded as premium revenue over the term of the coverage. Certain group contracts contain experience premium refund provisions based on a pre-defined formula that reflects their claim experience. Experience premium refunds reduce revenue over the term of the coverage and are adjusted to reflect current experience. Related policy benefits and expenses are associated with earned premiums and result in the recognition of profits over the term of the policies and contracts. Fees for contracts providing claim processing or other administrative services are recorded as revenue over the period the service is provided.

Universal life-type policies are insurance contracts with terms that are not fixed. Amounts received as payments for such contracts are not reported as premium revenues. Revenues for universal life-type insurance contracts consist of policy charges for the cost of insurance, policy initiation and administration, surrender charges and other fees that have been assessed against policy account values and investment income. Policy benefits and claims that are charged to expense include interest credited to contracts and benefit claims incurred in the period in excess of related policy account balances.

Investment contracts do not subject us to significant risks arising from policyholder mortality or morbidity and consist primarily of guaranteed investment contracts (“GICs”), funding agreements and certain deferred annuities. Amounts received as payments for investment contracts are established as investment contract liability balances and are not reported as premium revenues. Revenues for investment contracts consist of investment income and policy administration charges. Investment contract benefits that are charged to expense include benefit claims incurred in the period in excess of related investment contract liability balances and interest credited to investment contract liability balances.

Fees and other revenues are earned for asset management, investment advisory and distribution services provided to retail and institutional clients based largely upon contractual rates applied to the specified amounts in the clients’ portfolios, which include various platforms such as mutual funds, collective investment trusts and business trusts. Additionally, fees and other revenues are earned for administrative services performed including recordkeeping, trust and custody and reporting services for retirement savings plans, insurance companies, endowments and other financial institutions and other products. Fees and other revenues received for performance of asset management and administrative services are recognized as revenue when earned, typically when the service is performed.

Fees for managing customers’ mandatory retirement savings accounts in Chile are collected with each monthly deposit made by our customers. If a customer stops contributing before retirement age, we collect no fees but services are still provided. We recognize revenue from these long-term service contracts as services are performed over the life of the contract.

Deferred Acquisition Costs

Incremental direct costs of contract acquisition as well as certain costs directly related to acquisition activities (underwriting, policy issuance and processing, medical and inspection and sales force contract selling) for the successful acquisition of new and renewal insurance policies and investment contract business are capitalized to the extent recoverable. Commissions and other incremental direct costs for the acquisition of long-term service contracts are also capitalized to the extent recoverable. Maintenance costs and acquisition costs that are not deferrable are charged to net income as incurred.

DAC for universal life-type insurance contracts and certain investment contracts are amortized over the expected lifetime of the contracts in relation to EGPs or, in certain circumstances, estimated gross revenues (“EGR”). This amortization is adjusted in the current period when EGPs or EGRs are revised. EGRs include similar assumptions as the revenue component of EGPs and the changes of future estimates and reflection of actual experience and market conditions is done in the same manner as EGPs.

For individual variable universal life insurance, individual variable annuities and group annuities that have separate account U.S. equity investment options, we utilize a mean reversion methodology (reversion to the mean assumption), a common industry practice, to determine the future domestic equity market growth rate assumption used for the calculation of EGPs.

DAC for participating life insurance policies are amortized in proportion to estimated gross margins (“EGM”) rather than EGPs. EGMs include similar assumption items as EGPs. We stopped selling participating business in the early 2000s. Some products allow for underwritten death benefit increases and cost of living adjustments, resulting in a small amount of new DAC each year, and the amortization schedules are modified as appropriate.

DAC for non-participating term life insurance and individual disability policies are amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policyholder liabilities. Once these assumptions are made for a given policy or group of policies, they will not be changed over the life of the policy unless a loss recognition event occurs.

DAC on insurance policies and investment contracts are subject to recoverability testing at the time of policy issue and loss recognition testing on an annual basis, or when an event occurs that may warrant loss recognition. If loss recognition or impairment is necessary, DAC would be written off to the extent it is determined that future policy premiums and investment income or gross profits are not adequate to cover related losses and expenses.

DAC on short-duration group benefits policies are amortized over the estimated term of the underlying contracts.

Deferred Acquisition Costs on Internal Replacements

All insurance and investment contract modifications and replacements are reviewed to determine if the internal replacement results in a substantially changed contract. If so, the acquisition costs, sales inducements and unearned revenue associated with the new contract are deferred and amortized over the lifetime of the new contract. In addition, the existing DAC, sales inducement costs and unearned revenue balances associated with the replaced contract are written off. If an internal replacement results in a substantially unchanged contract, the acquisition costs, sales inducements and unearned revenue associated with the new contract are immediately recognized in the period incurred. In addition, the existing DAC, sales inducement costs or unearned revenue balance associated with the replaced contract is not written off, but instead is carried over to the new contract.

Long-Term Debt

Long-term debt includes notes payable, nonrecourse mortgages and other debt with a maturity date greater than one year at the date of issuance. Current maturities of long-term debt are classified as long-term debt in our consolidated statements of financial position. Long-term debt is primarily recorded at the unpaid principal balance, net of unamortized discount, premium and issuance costs.

Reinsurance

We enter into reinsurance agreements with other companies in the normal course of business in order to limit losses and minimize exposure to significant risks.

We evaluate each insurance agreement to determine whether the agreement provides indemnification against loss or liability related to insurance risk. For agreements that expose the reinsurer to reasonable possibility of significant loss from insurance risk, the reinsurance method of accounting is used for the agreement. Assets and liabilities related to reinsurance ceded are reported on a gross basis on the consolidated statements of financial position. Insurance liabilities are reported before the effects of reinsurance and we record an offsetting reinsurance recoverable, net of valuation allowance. Premiums and expenses are reported net of reinsurance ceded on the consolidated statements of operations.

If an agreement does not expose the reinsurer to reasonable possibility of significant loss from insurance risk, the deposit method of accounting is used for the agreement. We record a deposit receivable, net of valuation allowance, if necessary. The deposit receivable is adjusted as amounts are paid or received on the underlying contracts. Accretion on the deposit receivable is calculated using an effective interest method and is reported in fees and other revenues and operating expense on the consolidated statements of operations.

The cost of reinsurance related to long-duration contracts is amortized over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies.

We have entered into coinsurance with funds withheld reinsurance agreements in which we record a funds withheld payable that contains an embedded derivative for which the fair value is estimated based on the change in fair value of the assets supporting the funds withheld payable. The change in fair value of the funds withheld embedded derivative is separately reported on the consolidated statements of operations. Gains and losses that do not flow to the reinsurer are reported in net realized capital gains (losses) on funds withheld assets on the consolidated statements of operations.

For further information about reinsurance, refer to Note 9, Reinsurance. For further information about the financing receivables valuation allowance on the reinsurance recoverable and deposit receivable, refer to Note 4, Investments.

Separate Accounts

The separate accounts are legally segregated and are not subject to the claims that arise out of any of our other business. The client, rather than us, directs the investments and bears the investment risk of these funds. The separate account assets represent the fair value of funds that are separately administered by us for contracts with equity, real estate and fixed income investments and are presented as a summary total within the consolidated statements of financial position. An equivalent amount is reported as separate account liabilities, which represent the obligation to return the monies to the client. We receive fees for mortality, withdrawal and expense risks, as well as administrative, maintenance and investment advisory services that are included in the consolidated statements of operations. Net deposits, net investment income and realized and unrealized capital gains and losses of the separate accounts are not reflected in the consolidated statements of operations.

Separate account assets and separate account liabilities include certain international retirement accumulation products where the segregated funds and associated obligation to the client are consolidated within our financial statements. We have determined that summary totals are the most meaningful presentation for these funds.

As of December 31, 2022 and December 31, 2021, the separate accounts included a separate account valued at $101.4 million and $95.1 million, respectively, which primarily included shares of our stock that were allocated and issued to eligible participants of qualified employee benefit plans administered by us as part of the policy credits issued under our 2001 demutualization. These shares are included in both basic and diluted earnings per share calculations. In the consolidated statements of financial position, the separate account shares are recorded at fair value and are reported as separate account assets with a corresponding separate account liability. Changes in fair value of the separate account shares are reflected in both the separate account assets and separate account liabilities and do not impact our results of operations.

Income Taxes

We file a U.S. consolidated income tax return that includes all of our qualifying subsidiaries. In addition, we file income tax returns in all states and foreign jurisdictions in which we conduct business. Our policy of allocating income tax expenses and benefits to companies in the group is generally based upon pro rata contribution of taxable income or operating losses. We are taxed at corporate rates on taxable income based on existing tax laws. Current income taxes are charged or credited to net income based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year. Deferred income taxes are provided for the tax effect of temporary differences in the financial reporting and income tax bases of assets and liabilities, net operating loss carryforwards and tax credit carryforwards using enacted income tax rates and laws. The effect on deferred income tax assets and deferred income tax liabilities of a change in tax rates is recognized in net income in the period in which the change is enacted. Subsequent to a change in tax rates and laws, any stranded tax effects remaining in AOCI will be released only if an entire portfolio is liquidated, sold or extinguished.

Foreign Exchange

Assets and liabilities of our foreign subsidiaries and affiliates denominated in non-U.S. dollars, where the U.S. dollar is not the functional currency, are translated into U.S. dollar equivalents at the year-end spot foreign exchange rates. Resulting translation adjustments are reported as a component of stockholders’ equity, along with any related hedge and tax effects. Revenues and expenses for these entities are translated at the average exchange rates. Revenue, expense and other foreign currency transaction and translation adjustments that affect cash flows are reported in net income, along with related hedge and tax effects.

Goodwill and Other Intangibles

Goodwill and other intangible assets include the cost of acquired subsidiaries in excess of the fair value of the net tangible assets recorded in connection with acquisitions. Goodwill and indefinite lived intangible assets are not amortized. Rather, they are tested for impairment during the third quarter each year, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is tested at the reporting unit level, which is the same level as or one level below the operating segment, if financial information is prepared and regularly reviewed by management at that level. Once goodwill has been assigned to a reporting unit, it is no longer associated with a particular acquisition; therefore, all of the activities within a reporting unit, whether acquired or organically grown, are available to support the goodwill value. Impairment testing for indefinite-lived intangible assets primarily consists of a qualitative assessment to determine if a quantitative assessment is needed for a comparison of the fair value of the intangible asset with its carrying value.

Intangible assets with a finite useful life are amortized as related benefits emerge and are reviewed periodically for indicators of impairment in value. If facts and circumstances suggest possible impairment, the sum of the estimated undiscounted future cash flows expected to result from the use of the asset is compared to the current carrying value of the asset. If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized for the excess of the carrying amount of assets over their fair value.

Earnings Per Common Share

Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period and excludes the dilutive effect of equity awards. Diluted earnings per common share reflects the potential dilution that could occur if dilutive securities, such as options and non-vested stock grants, were exercised or resulted in the issuance of common stock.

Actuarial Balance Re-Cohorting

In 2021, we completed a comprehensive review of our business mix and capital management options (the “Strategic Review”). We made the decision to exit our U.S. retail ULSG business. The ULSG business was previously managed together with our other universal life (“UL”) business within our U.S. Insurance Solutions segment. As such, calculations of actuarial balances included UL and ULSG in the same cohorts, which are the unit of account used for measurement. As a result of the Strategic Review, we made the decision in the second quarter of 2022 to manage the ULSG business separately from our other UL business effective as of January 1, 2022. This led to us re-cohorting the UL business, resulting in separate cohorts for the ULSG business vs. the remaining UL business.

The re-cohorting impacted the measurement of our DAC, cost of reinsurance, unearned revenue liability and additional liability for certain benefit features. The pre-tax impacts to comprehensive income were as follows:


	For the year ended
	December 31, 2022
	(in millions)
Increase to income before taxes
Deferred acquisition costs amortization (1)	$	(106.6)
Cost of reinsurance amortization (2)		4.2
Unearned revenue liability amortization (3)		32.4
Change in additional liability for certain benefit features (2)		139.7
Total increase to income before income taxes		69.7

Increase to pre-tax other comprehensive income
Deferred acquisition cost unrealized losses		(5.6)
Cost of reinsurance unrealized gains		8.7
Unearned revenue liability unrealized gains		8.5
Change in additional liability for certain benefit features unrealized gains		24.3
Total increase to pre-tax other comprehensive income		35.9

Total increase to pre-tax comprehensive income	$	105.6

(1)	Reported in operating expenses.

(2)	Reported in benefits, claims and settlement expenses.

(3)	Reported in fees and other revenues.

Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2022

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

2. Goodwill and Other Intangible Assets

Goodwill

The changes in the carrying amount of goodwill reported in our segments were as follows:


	Retirement		Principal				U.S.
	and Income		Global		Principal		Insurance
	Solutions		Investors		International		Solutions		Corporate		Consolidated

	(in millions)
Balance as of January 1, 2021	$	675.9	$	320.9	$	656.6	$	56.6	$	1.0	$	1,711.0
Goodwill disposed (1)		—		—		(2.3)		—		—		(2.3)
Impairment (2)		—		—		—		—		(1.0)		(1.0)
Foreign currency		—		(2.5)		(77.6)		—		—		(80.1)
Balance as of December 31, 2021		675.9		318.4		576.7		56.6		—		1,627.6
Impairment (3)		—		—		—		(27.1)		—		(27.1)
Foreign currency		—		(7.4)		5.1		—		—		(2.3)
Balance as of December 31, 2022	$	675.9	$	311.0	$	581.8	$	29.5	$	—	$	1,598.2

(1)	Relates to the sale of our India asset management business.

(2)	Relates to the buyout of the minority interest in RobustWealth, Inc. and realignment of the business.

(3)	Resulted from a change in the allocation of equity between our reportable operating segments following the Reinsurance Transaction.

Finite Lived Intangible Assets

Amortized intangible assets primarily relate to customer relationship intangibles associated with our acquisition of the Institutional Retirement & Trust business of Wells Fargo Bank, N.A. (the “Acquired Business”) and previous acquisitions in Chile, Mexico and Hong Kong. The finite lived intangible assets that continue to be subject to amortization over a weighted average remaining expected life of 16 years were as follows:


	December 31,
	2022		2021

	(in millions)
Gross carrying value	$	1,235.1	$	1,262.8
Accumulated amortization		472.6		432.1
Net carrying value	$	762.5	$	830.7

During 2022 and 2021, we fully amortized other finite lived intangible assets of $34.4 million and $15.0 million, respectively.

The amortization expense for intangible assets with finite useful lives was $70.7 million, $75.3 million and $73.5 million for 2022, 2021 and 2020, respectively. As of December 31, 2022, the estimated amortization expense for the next five years is as follows (in millions):


Year ending December 31:
2023	$	67.3
2024		66.3
2025		61.0
2026		56.9
2027		56.7

Indefinite Lived Intangible Assets

The net carrying amount of unamortized indefinite lived intangible assets was $770.8 million and $769.9 million as of December 31, 2022 and 2021, respectively. As of both December 31, 2022 and 2021, $608.0 million relates to investment management contracts associated with our acquisition of WM Advisors, Inc. in 2006. The remaining balance primarily relates to the trade name intangible associated with our acquisition of Administradora de Fondos de Pensiones Cuprum S.A. (“Cuprum”) in 2013.

Variable Interest Entities

12 Months Ended

Dec. 31, 2022

Variable Interest Entities

Variable Interest Entities

3. Variable Interest Entities

We have relationships with various types of entities which may be VIEs. Certain VIEs are consolidated in our financial results. See Note 1, Nature of Operations and Significant Accounting Policies, under the caption “Consolidation” for further details of our consolidation accounting policies. We did not provide financial or other support to investees designated as VIEs for the periods ended December 31, 2022 and December 31, 2021.

Consolidated Variable Interest Entities

Mandatory Retirement Savings Funds

We hold an equity interest in Chilean mandatory privatized social security funds in which we provide asset management services. We determined the mandatory privatized social security funds, which also include contributions for voluntary pension savings, voluntary non-pension savings and compensation savings accounts, are VIEs. This is because the equity holders as a group lack the power, due to voting rights or similar rights, to direct the activities of the entity that most significantly impact the entity’s economic performance and also because equity investors are protected from below-average market investment returns relative to the industry’s return, due to a regulatory guarantee that we provide. Further, we concluded we are the primary beneficiary through our power to make decisions and our significant variable interest in the funds. The purpose of the funds, which reside in legally segregated entities, is to provide long-term retirement savings. The obligation to the customer is directly related to the assets held in the funds and, as such, we present the assets as separate account assets and the obligation as separate account liabilities within our consolidated statements of financial position.

Principal International Hong Kong offers retirement pension schemes in which we provide trustee, administration and asset management services to employers and employees under the Hong Kong Mandatory Provident Fund and Occupational Retirement Schemes Ordinance pension schemes. Each pension scheme has various guaranteed and non-guaranteed constituent funds, or investment options, in which customers can invest their money. The guaranteed funds provide either a guaranteed rate of return to the customer or a minimum guarantee on withdrawals under certain qualifying events. We determined the guaranteed funds are VIEs due to the fact the equity holders, as a group, lack the obligation to absorb expected losses due to the guarantee we provide. We concluded we are the primary beneficiary because we have the power to make decisions and to receive benefits and the obligation to absorb losses that could be potentially significant to the VIE. Therefore, we consolidate the underlying assets and liabilities of the funds and present as separate accounts or within the general account, depending on the terms of the guarantee.

Real Estate

We invest in several real estate limited partnerships and limited liability companies. The entities invest in real estate properties. Certain of these entities are VIEs based on the combination of our significant economic interest and related voting rights. We determined we are the primary beneficiary as a result of our power to control the entities through our significant ownership. Due to the nature of these real estate investments, the investment balance will fluctuate as we purchase and sell interests in the entities and as capital expenditures are made to improve the underlying real estate.

Sponsored Investment Funds

We sponsor and invest in certain investment funds for which we provide asset management services. Although our asset management fee is commensurate with the services provided and consistent with fees for similar services negotiated at arms-length, we have a variable interest for funds where our other interests are more than insignificant. The funds are VIEs as the equity holders lack power through voting rights to direct the activities of the entity that most significantly impact its economic performance. We determined we are the primary beneficiary of the VIEs where our interest in the entity is more than insignificant and we are the asset manager.

Residential Mortgage Loans

We invest in ABS trusts. The trusts issue various collateralized mortgage obligation certificates and purchase residential mortgage loans. The trusts are considered VIEs due to insufficient equity to sustain themselves. We concluded we are the primary beneficiary as we purchase substantially all of the certificates and have the obligation to absorb losses that could potentially be significant to the VIEs. We deconsolidated a trust during the fourth quarter of 2022 as we no longer held substantially all of the certificates.

Assets and Liabilities of Consolidated Variable Interest Entities

The carrying amounts of our consolidated VIE assets, which can only be used to settle obligations of consolidated VIEs, and liabilities of consolidated VIEs for which creditors do not have recourse were as follows:


	December 31, 2022				December 31, 2021
	Total		Total		Total		Total
	assets		liabilities		assets		liabilities

		(in millions)
Mandatory retirement savings funds (1)	$	34,876.9	$	34,528.3	$	34,687.0	$	34,301.8
Real estate (2)		689.6		42.2		709.6		36.1
Sponsored investment funds (3)		471.4		2.6		609.4		2.5
Residential mortgage loans (4)		1,182.6		41.8		1,263.2		20.3
Total	$	37,220.5	$	34,614.9	$	37,269.2	$	34,360.7

(1)	The assets of the mandatory retirement savings funds primarily include separate account assets and equity securities. The liabilities primarily include separate account liabilities and contractholder funds.

(2)	The assets of the real estate VIEs primarily include real estate, other investments and cash. Liabilities primarily include other liabilities.

(3)

The assets of sponsored investment funds are primarily fixed maturities and equity securities, certain of which are reported with other investments, and cash. The consolidated statements of financial position included a $235.3 million and $304.0 million redeemable noncontrolling interest for sponsored investment funds as of December 31, 2022 and December 31, 2021, respectively.

(4)	The assets of the residential mortgage loans VIEs primarily include residential mortgage loans. The liabilities primarily include other liabilities.

Unconsolidated Variable Interest Entities

We hold a variable interest in a number of VIEs where we are not the primary beneficiary. Our investments in these VIEs are reported in fixed maturities, available-for-sale; fixed maturities, trading; equity securities and other investments in the consolidated statements of financial position and are described below.

Unconsolidated VIEs include certain commercial mortgage-backed securities (“CMBS”), residential mortgage-backed pass-through securities (“RMBS”) and other ABS. All of these entities were deemed VIEs because the equity within these entities is insufficient to sustain them. We determined we are not the primary beneficiary in the entities within these categories of investments. This determination was based primarily on the fact we do not own the class of security that controls the unilateral right to replace the special servicer or equivalent function.

We invest in cash collateralized debt obligations, collateralized bond obligations, collateralized loan obligations and other collateralized structures, which are VIEs due to insufficient equity to sustain the entities. We have determined we are not the primary beneficiary of these entities primarily because we do not control the economic performance of the entities and were not involved with the design of the entities or because we do not have a potentially significant variable interest in the entities for which we are the asset manager.

We have invested in various VIE trusts and similar entities as a debt holder. Most of these entities are classified as VIEs due to insufficient equity to sustain them. In addition, we have an entity classified as a VIE based on the combination of our significant economic interest and lack of voting rights. We have determined we are not the primary beneficiary primarily because we do not control the economic performance of the entities and were not involved with the design of the entities.

We have invested in partnerships and other funds, which are classified as VIEs. The entities are VIEs as equity holders lack the power to control the most significant activities of the entities because the equity holders do not have either the ability by a simple majority to exercise substantive kick-out rights or substantive participating rights. We have determined we are not the primary beneficiary because we do not have the power to direct the most significant activities of the entities.

As previously discussed, we sponsor and invest in certain investment funds that are VIEs. We determined we are not the primary beneficiary of the VIEs for which we are the asset manager but do not have a potentially significant variable interest in the funds.

We hold an equity interest in Mexican mandatory privatized social security funds in which we provide asset management services. Our equity interest in the funds is considered a variable interest. We concluded the funds are VIEs because the equity holders as a group lack decision-making ability through their voting rights. We are not the primary beneficiary of the VIEs because although we, as the asset manager, have the power to direct the activities of the VIEs, we do not have a potentially significant variable interest in the funds.

The carrying value and maximum loss exposure for our unconsolidated VIEs were as follows:


			Maximum exposure to
	Asset carrying value		loss (1)

	(in millions)
December 31, 2022
Fixed maturities, available-for-sale:
Corporate	$	111.8	$	127.2
Residential mortgage-backed pass-through securities		2,228.7		2,420.6
Commercial mortgage-backed securities		4,864.6		5,572.2
Collateralized debt obligations (2)		4,566.4		4,820.0
Other debt obligations		6,507.6		7,566.2
Fixed maturities, trading:
Residential mortgage-backed pass-through securities		5.4		5.4
Commercial mortgage-backed securities		83.4		83.4
Collateralized debt obligations (2)		5.7		5.7
Other debt obligations		80.0		80.0
Equity securities		99.8		99.8
Other investments:
Other limited partnership and fund interests (3)		1,473.5		2,434.9

December 31, 2021
Fixed maturities, available-for-sale:
Corporate	$	142.1	$	136.9
Residential mortgage-backed pass-through securities		3,152.9		3,122.3
Commercial mortgage-backed securities		5,562.2		5,436.2
Collateralized debt obligations (2)		3,559.6		3,564.7
Other debt obligations		7,560.4		7,487.8
Fixed maturities, trading:
Residential mortgage-backed pass-through securities		117.4		117.4
Commercial mortgage-backed securities		25.6		25.6
Collateralized debt obligations (2)		7.5		7.5
Other debt obligations		8.2		8.2
Equity securities		115.4		115.4
Other investments:
Other limited partnership and fund interests (3)		1,209.6		2,053.8

(1)

Our risk of loss is limited to our initial investment measured at amortized cost for fixed maturities, available-for-sale. Our risk of loss is limited to our investment measured at fair value for our fixed maturities, trading and equity securities. Our risk of loss is limited to our carrying value plus any unfunded commitments and/or guarantees and similar provisions for our other investments. A carrying value of zero is used if distributions have been received in excess of our investment, resulting in a negative carrying value for the investment. Unfunded commitments are not liabilities on our consolidated statements of financial position because we are only required to fund additional equity when called upon to do so by the general partner or investment manager.

(2)	Primarily consists of collateralized loan obligations backed by secured corporate loans.

(3)

As of December 31, 2022 and December 31, 2021, the maximum exposure to loss for other limited partnership and fund interests includes $144.3 million and $130.5 million, respectively, of debt within certain of our managed international real estate funds that is fully secured by assets whose value exceeds the amount of the debt, but also includes recourse to the investment manager.

Money Market Funds

We are the investment manager for certain money market mutual funds. These types of funds are exempt from assessment under any consolidation model due to a scope exception for money market funds registered under Rule 2a-7 of the Investment Company Act of 1940 or similar funds. As of December 31, 2022 and December 31, 2021, money market mutual funds we manage held $4.2 billion and $4.8 billion in total assets, respectively. We have no contractual obligation to contribute to these funds; however, we provide support through the waiver of fees and through expense reimbursements. The amount of fees waived and expenses reimbursed was insignificant.

Investments

12 Months Ended

Dec. 31, 2022

Investments

Investments

4. Investments

Our investments include assets backing reserves as part of a coinsurance with funds withheld agreement. The funds withheld invested assets are reported within their respective line items, primarily consisting of fixed maturities available-for-sale, mortgage loans and other investments. See Note 9, Reinsurance, for more information on the funds withheld invested assets.

Fixed Maturities and Equity Securities

The amortized cost, gross unrealized gains and losses, allowance for credit loss and fair value of fixed maturities, available-for-sale were as follows:



			Gross		Gross		Allowance
	Amortized		unrealized		unrealized		for credit
	cost (1)		gains		losses		loss		Fair value

	(in millions)
December 31, 2022
Fixed maturities, available-for-sale:
U.S. government and agencies	$	1,990.9	$	0.1	$	251.2	$	—	$	1,739.8
Non-U.S. governments		611.2		20.9		64.8		—		567.3
States and political subdivisions		7,355.4		13.7		1,136.8		—		6,232.3
Corporate		40,370.4		461.0		4,640.5		7.7		36,183.2
Residential mortgage-backed pass-through securities		2,420.6		6.2		198.1		—		2,228.7
Commercial mortgage-backed securities		5,572.2		0.5		708.1		—		4,864.6
Collateralized debt obligations (2)		4,705.6		4.5		143.7		—		4,566.4
Other debt obligations		7,236.8		5.7		734.8		0.1		6,507.6
Total fixed maturities, available-for-sale	$	70,263.1	$	512.6	$	7,878.0	$	7.8	$	62,889.9


			Gross		Gross		Allowance
	Amortized		unrealized		unrealized		for credit
	cost (1)		gains		losses		loss		Fair value

	(in millions)
December 31, 2021
Fixed maturities, available-for-sale:
U.S. government and agencies	$	1,978.0	$	148.0	$	37.4	$	—	$	2,088.6
Non-U.S. governments		851.0		133.1		2.1		—		982.0
States and political subdivisions		8,290.7		1,030.3		16.6		—		9,304.4
Corporate		42,139.2		4,044.8		224.5		15.1		45,944.4
Residential mortgage-backed pass-through securities		3,122.3		59.0		28.4		—		3,152.9
Commercial mortgage-backed securities		5,436.2		157.8		31.5		0.3		5,562.2
Collateralized debt obligations (2)		3,564.7		4.5		9.6		—		3,559.6
Other debt obligations		7,487.8		131.1		58.4		0.1		7,560.4
Total fixed maturities, available-for-sale	$	72,869.9	$	5,708.6	$	408.5	$	15.5	$	78,154.5

(1)	Amortized cost excludes accrued interest receivable of $578.0 million and $542.6 million as of December 31, 2022 and December 31, 2021, respectively.

(2)	Primarily consists of collateralized loan obligations backed by secured corporate loans.

The amortized cost and fair value of fixed maturities, available-for-sale as of December 31, 2022, by expected maturity, were as follows:


	Amortized cost		Fair value

	(in millions)
Due in one year or less	$	1,658.8	$	1,645.6
Due after one year through five years		8,661.8		8,328.4
Due after five years through ten years		11,636.1		10,626.7
Due after ten years		28,371.2		24,121.9
Subtotal		50,327.9		44,722.6
Mortgage-backed and other asset-backed securities		19,935.2		18,167.3
Total	$	70,263.1	$	62,889.9

Actual maturities may differ because borrowers may have the right to call or prepay obligations. Our portfolio is diversified by industry, issuer and asset class. Credit concentrations are managed to established limits.

Net Investment Income

The major components of net investment income are shown below and are net of amounts on funds withheld invested assets that are passed directly to the reinsurer. See Note 9, Reinsurance, for further details.


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Fixed maturities, available-for-sale	$	2,100.3	$	2,766.3	$	2,660.5
Fixed maturities, trading		36.8		19.3		18.7
Equity securities		8.9		57.7		62.8
Mortgage loans		771.7		790.2		724.7
Real estate		277.7		194.4		180.8
Policy loans		36.5		38.8		41.6
Cash and cash equivalents		57.4		4.3		17.4
Derivatives		171.3		28.2		(1.8)
Other		509.6		622.0		296.5
Total		3,970.2		4,521.2		4,001.2
Investment expenses		(139.8)		(115.1)		(110.6)
Net investment income	$	3,830.4	$	4,406.1	$	3,890.6

Net Realized Capital Gains and Losses

The major components of net realized capital gains (losses) on investments are shown below and are net of amounts on funds withheld invested assets that are passed directly to the reinsurer. See Note 9, Reinsurance, for further details. 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,
	2022		2021		2020

	(in millions)
Fixed maturities, available-for-sale:
Gross gains	$	41.5	$	64.4	$	134.2
Gross losses		(191.5)		(29.2)		(48.5)
Net credit losses (1)		(8.9)		(45.0)		(22.9)
Hedging, net		(0.7)		(9.5)		(9.7)
Fixed maturities, trading (2)		(30.1)		(33.3)		3.2
Equity securities (3)		(171.9)		100.0		70.5
Mortgage loans		(74.6)		6.5		(15.5)
Derivatives		177.4		(116.9)		77.3
Other		0.4		65.5		114.0
Net realized capital gains (losses)	$	(258.4)	$	2.5	$	302.6

(1)	Net credit losses include adjustments to the credit loss valuation allowance, write-offs and recoveries on available-for-sale securities.

(2)

Unrealized gains (losses) on fixed maturities, trading still held at the reporting date were $(19.9) million, $(32.2) million and $5.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. This excludes $1.4 million of unrealized losses on fixed maturities, trading still held at the reporting date for the year ended December 31, 2022, that were reported in net realized capital gains (losses) on funds withheld assets.

(3)

Unrealized gains (losses) on equity securities still held at the reporting date were $(117.1) million, $58.6 million and $64.6 million for the years ended December 31, 2022, 2021 and 2020, respectively. This excludes $(0.7) million, $28.7 million and $35.2 million of unrealized gains on equity securities still held at the reporting date for the years ended December 31, 2022, 2021 and 2020, respectively, that were reported in net investment income and $(1.7) million that were reported in net realized capital gains (losses) on funds withheld assets for the year ended December 31, 2022.

Proceeds from sales of investments (excluding call and maturity proceeds) in fixed maturities, available-for-sale were $13,647.0 million, $2,110.9 million and $2,421.9 million in 2022, 2021 and 2020, respectively.

Allowance for Credit Loss

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.

We estimate the amount of the allowance for credit loss as the difference between amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best estimate cash flows vary depending on the type of security. The ABS cash flow estimates are based on security specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The corporate security cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or liquidations using bond specific facts and circumstances including timing, security interests and loss severity. We do not measure a credit loss allowance on accrued interest receivable because we write off the accrued interest receivable balance to net investment income in a timely manner when we have concern regarding collectability.

Amounts on fixed maturities, available-for-sale deemed to be uncollectible are written off and removed from the allowance for credit loss. A write-off may also occur if we intend to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity.

A rollforward of the allowance for credit loss by major security type was as follows.

For the year ended December 31, 2022

Residential

mortgage-

backed

Commercial

Collateralized

U.S.

States and

pass-

mortgage-

debt

Other

government

Non-U.S.

political

through

backed

obligations

debt

and agencies

governments

subdivisions

Corporate

securities

(1)

obligations

Total

(in millions)

Beginning balance

$

—

$

—

$

—

$

15.1

$

—

$

0.3

$

—

$

0.1

$

15.5

Additions for credit losses not previously recorded

—

5.8

—

5.8

Reductions for securities sold during the period

—

(8.7)

—

(8.7)

Additional increases (decreases) for credit losses on securities with an allowance recorded in the previous period

—

(4.2)

—

(4.2)

Write-offs charged against allowance

—

(0.3)

—

(0.3)

Foreign currency translation adjustment

—

(0.3)

—

(0.3)

Ending balance

$

—

$

—

$

—

$

7.7

$

—

$

—

$

—

$

0.1

$

7.8


	For the year ended December 31, 2021
									Residential
									mortgage-
									backed		Commercial		Collateralized
	U.S.				States and				pass-		mortgage-		debt		Other
	government		Non-U.S.		political				through		backed		obligations		debt
	and agencies		governments		subdivisions		Corporate		securities		securities		(1)		obligations		Total

	(in millions)
Beginning balance	$	—	$	—	$	—	$	0.9	$	—	$	4.3	$	2.2	$	—	$	7.4
Additions for credit losses not previously recorded		—		—		—		27.5		—		0.4		—		0.1		28.0
Reductions for securities sold during the period		—		—		—		(12.4)		—		—		—		—		(12.4)
Additional increases (decreases) for credit losses on securities with an allowance recorded in the previous period		—		—		—		—		—		2.4		0.4		—		2.8
Write-offs charged against allowance		—		—		—		—		—		(6.8)		(2.6)		—		(9.4)
Foreign currency translation adjustment		—		—		—		(0.9)		—		—		—		—		(0.9)
Ending balance	$	—	$	—	$	—	$	15.1	$	—	$	0.3	$	—	$	0.1	$	15.5

Accrued interest written off to net investment income	$	—	$	—	$	—	$	0.2	$	—	$	—	$	—	$	—	$	0.2


	For the year ended December 31, 2020
									Residential
									mortgage-
									backed		Commercial		Collateralized
	U.S.				States and				pass-		mortgage-		debt		Other
	government		Non-U.S.		political				through		backed		obligations		debt
	and agencies		governments		subdivisions		Corporate		securities		securities		(1)		obligations		Total

	(in millions)

Beginning balance (2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Additions for credit losses not previously recorded		—		—		—		13.2		—		2.9		0.1		—		16.2
Reductions for securities sold during the period		—		—		—		(7.0)		—		—		—		—		(7.0)
Additional increases (decreases) for credit losses on securities with an allowance recorded in the previous period		—		—		—		(5.9)		—		4.0		2.1		—		0.2
Write-offs charged against allowance		—		—		—		—		—		(2.6)		—		—		(2.6)
Foreign currency translation adjustment		—		—		—		0.6		—		—		—		—		0.6
Ending balance	$	—	$	—	$	—	$	0.9	$	—	$	4.3	$	2.2	$	—	$	7.4

(1)	Primarily consists of collateralized loan obligations backed by secured corporate loans.

(2)	The allowance for credit loss associated with fixed maturities, available-for-sale was applied prospectively upon adoption of authoritative guidance effective January 1, 2020.

During 2022 and 2020, we did not write off any accrued interest to net investment income.

Available-for-Sale Securities in Unrealized Loss Positions Without an Allowance for Credit Loss

For available-for-sale securities with unrealized losses for which an allowance for credit loss has not been recorded, the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:

December 31, 2022

Less than

Greater than or

twelve months

equal to twelve months

Total

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

$

1,528.3

$

209.4

$

181.5

$

41.8

$

1,709.8

$

251.2

Non-U.S. governments

407.5

57.7

19.9

7.1

427.4

64.8

States and political subdivisions

5,303.5

1,008.9

391.9

127.8

5,695.4

1,136.7

Corporate

27,309.5

3,944.6

2,944.1

698.0

30,253.6

4,642.6

Residential mortgage-backed pass-through securities

1,201.7

97.5

574.8

105.7

1,776.5

203.2

Commercial mortgage-backed securities

3,648.5

484.0

1,124.8

222.5

4,773.3

706.5

Collateralized debt obligations (2)

2,832.2

89.0

1,330.1

54.7

4,162.3

143.7

Other debt obligations

3,419.8

292.0

2,283.8

437.6

5,703.6

729.6

Total fixed maturities, available-for-sale

$

45,651.0

$

6,183.1

$

8,850.9

$

1,695.2

$

54,501.9

$

7,878.3

(1)	Fair value and gross unrealized losses are excluded for available-for-sale securities for which an allowance for credit loss has been recorded.

(2)	Primarily consists of collateralized loan obligations backed by secured corporate loans.

Of the total amounts, Principal Life Insurance Company’s (“Principal Life”) consolidated portfolio represented $53,353.1 million in available-for-sale fixed maturities with gross unrealized losses of $7,741.4 million. Of the available-for-sale fixed maturities within Principal Life’s consolidated portfolio in a gross unrealized loss position, 94% were investment grade (rated AAA through BBB-) with an average price of 87 (carrying value/amortized cost) as of December 31, 2022. Gross unrealized losses in our fixed maturities portfolio increased during the year ended December 31, 2022, primarily due to an increase in interest rates and a widening of credit spreads.

For those securities that had been in a continuous unrealized loss position for less than twelve months, Principal Life’s consolidated portfolio held 7,589 securities with a carrying value of $44,857.0 million and unrealized losses of $6,096.3 million reflecting an average price of 88 as of December 31, 2022. Of this portfolio, 95% was investment grade (rated AAA through BBB-) as of December 31, 2022, with associated unrealized losses of $5,920.4 million. The unrealized losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired.

For those securities that had been in a continuous unrealized loss position greater than or equal to twelve months, Principal Life’s consolidated portfolio held 1,654 securities with a carrying value of $8,496.1 million and unrealized losses of $1,645.1 million as of December 31, 2022. The average credit rating of this portfolio was AA- with an average price of 84 as of December 31, 2022. Of the $1,645.1 million in unrealized losses, the corporate sector accounts for $654.9 million in unrealized losses with an average price of 80 and an average credit rating of BBB+. Furthermore, unrealized losses include $320.2 million within the collateralized mortgage obligation security sector with an average price of 81 and an average credit rating of AAA; $220.9 million within the CMBS sector with an average price of 83 and an average credit rating of AA+; and $126.8 million within the states and political subdivision sector with an average price of 75 and an average credit rating of AA-. The unrealized losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired.

Because we expected to recover our amortized cost, we did not record an allowance for credit loss on these securities as of December 31, 2022. Because it was not our intent to sell the fixed maturity available-for-sale securities with unrealized losses and it was not more likely than not that we would be required to sell these securities before recovery of the amortized cost, which may be at maturity, we did not write down these investments to fair value.


	December 31, 2021
	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	$	129.3	$	3.4	$	482.9	$	34.0	$	612.2	$	37.4
Non-U.S. governments		57.8		2.0		—		—		57.8		2.0
States and political subdivisions		690.2		10.5		102.3		6.1		792.5		16.6
Corporate		5,281.6		121.2		1,327.5		101.5		6,609.1		222.7
Residential mortgage-backed pass- through securities		1,562.6		22.2		194.9		6.3		1,757.5		28.5
Commercial mortgage-backed securities		1,297.4		15.6		299.6		15.7		1,597.0		31.3
Collateralized debt obligations (2)		1,592.5		2.8		424.4		6.7		2,016.9		9.5
Other debt obligations		3,949.9		49.4		211.0		9.0		4,160.9		58.4
Total fixed maturities, available-for-sale	$	14,561.3	$	227.1	$	3,042.6	$	179.3	$	17,603.9	$	406.4

(1)	Fair value and gross unrealized losses are excluded for available-for-sale securities for which an allowance for credit loss has been recorded.

(2)	Primarily consists of collateralized loan obligations backed by secured corporate loans.

Of the total amounts, Principal Life’s consolidated portfolio represented $15,792.6 million in available-for-sale fixed maturities with gross unrealized losses of $288.0 million. Of the available-for-sale fixed maturities within Principal Life’s consolidated portfolio in a gross unrealized loss position, 91% were investment grade (rated AAA through BBB-) with an average price of 98 (carrying value/amortized cost) as of December 31, 2021. Gross unrealized losses in our fixed maturities portfolio increased during the year ended December 31, 2021, primarily due to an increase in interest rates, partially offset by tightening of credit spreads.

For those securities that had been in a continuous unrealized loss position for less than twelve months, Principal Life’s consolidated portfolio held 1,805 securities with a carrying value of $13,052.3 million and unrealized losses of $150.9 million reflecting an average price of 99 as of December 31, 2021. Of this portfolio, 90% was investment grade (rated AAA through BBB-) as of December 31, 2021, with associated unrealized losses of $138.9 million. The unrealized losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired.

For those securities that had been in a continuous unrealized loss position greater than or equal to twelve months, Principal Life’s consolidated portfolio held 459 securities with a carrying value of $2,740.3 million and unrealized losses of $137.1 million as of December 31, 2021. The average credit rating of this portfolio was A+ with an average price of 95 as of December 31, 2021. Of the $137.1 million in unrealized losses, the corporate sector accounts for $67.1 million in unrealized losses with an average price of 95 and an average credit rating of BBB+. Furthermore, unrealized losses include $30.9 million within the U.S. government and agency security sector with an average price of 93 and an average credit rating of AAA, $15.3 million within the commercial mortgage-backed security sector with an average price of 95 and an average credit rating of AAA and $6.7 million within the collateralized debt obligation sector with an average price of 98 and an average credit rating of AA+. The unrealized losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired.

Because we expected to recover our amortized cost, we did not record an allowance for credit loss on these securities as of December 31, 2021. Because it was not our intent to sell the fixed maturity available-for-sale securities with unrealized losses and it was not more likely than not that we would be required to sell these securities before recovery of the amortized cost, which may be at maturity, we did not write down these investments to fair value.

Net Unrealized Gains and Losses on Available-for-Sale Securities and Derivative Instruments

The net unrealized gains and losses on investments in available-for-sale securities and the net unrealized gains and losses on derivative instruments in cash flow hedge relationships are reported as separate components of stockholders’ equity. The cumulative amount of net unrealized gains and losses on available-for-sale securities and derivative instruments in cash flow hedge relationships net of adjustments related to DAC and related actuarial balances, policyholder liabilities, noncontrolling interest and applicable income taxes was as follows:


	December 31, 2022		December 31, 2021

	(in millions)
Net unrealized gains (losses) on fixed maturities, available-for-sale (1)	$	(7,445.7)	$	5,289.9
Net unrealized gains on derivative instruments		50.7		80.1
Adjustments for assumed changes in amortization patterns		649.7		(266.1)
Adjustments for assumed changes in policyholder liabilities		(77.1)		(689.2)
Net unrealized gains on other investments and noncontrolling interest adjustments		7.9		40.5
Provision for deferred income tax benefits (taxes)		1,456.9		(936.0)
Net unrealized gains (losses) on available-for-sale securities and derivative instruments	$	(5,357.6)	$	3,519.2

(1)	Excludes net unrealized gains (losses) on fixed maturities, available-for-sale included in fair value hedging relationships.

Financing Receivables

Mortgage Loans

Mortgage loans consist of commercial and residential mortgage loans. Our commercial mortgage loan portfolio consists primarily of non-recourse, fixed rate mortgages on stabilized properties. Our residential mortgage loan portfolio is composed of first lien and home equity mortgages concentrated in Chile and the United States.

Commercial and residential mortgage loans are generally reported at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method and net of valuation allowances. Amortized cost excludes accrued interest receivable. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Interest income, as well as prepayment of fees and the amortization of the related premium or discount, is reported in net investment income on the consolidated statements of operations. Accrued interest receivable is reported in accrued investment income on the consolidated statements of financial position. Any changes in the loan valuation allowances are reported in net realized capital gains (losses) on the consolidated statements of operations. Further details relating to our valuation allowance are included under the caption “Financing Receivables Valuation Allowance.”

Direct Financing Leases

Our direct financing leases are concentrated in Chile. Our Chilean operations enter into private placement contracts for commercial, industrial and office space properties whereby our Chilean operations purchase the real estate and/or building from the seller-lessee but then lease the property back to the seller-lessee. Ownership of the property is transferred to the lessee by the end of the lease term. Direct financing leases are reported as a component of other investments in the consolidated statements of financial position.

Reinsurance Recoverable and Deposit Receivable

Our reinsurance recoverables include amounts due from reinsurers for paid or unpaid claims, claims incurred but not reported or policy benefits. We cede life, disability, medical and long-term care insurance as well as fixed annuity contracts with significant life insurance risk to other insurance companies through reinsurance. Deposit receivables include amounts due from the reinsurer for fixed annuity contracts without significant life insurance risk recorded using the deposit method of accounting.

Credit Quality Information for Financing Receivables

The amortized cost of our financing receivables by credit risk and vintage was as follows:

December 31, 2022

2022

2021

2020

2019

2018

Prior

Total

(in millions)

Commercial mortgage loans:

A- and above

$

1,036.4

$

2,277.9

$

1,807.3

$

2,210.2

$

2,187.9

$

4,624.9

$

14,144.6

BBB+ thru BBB-

385.6

439.6

156.8

418.7

238.9

691.7

2,331.3

BB+ thru BB-

104.0

16.8

3.0

—

8.9

71.7

204.4

B+ and below

—

8.3

41.7

50.0

Total

$

1,526.0

$

2,734.3

$

1,967.1

$

2,628.9

$

2,444.0

$

5,430.0

$

16,730.3

Direct financing leases:

A- and above

$

110.5

$

13.0

$

39.9

$

1.4

$

42.9

$

167.3

$

375.0

BBB+ thru BBB-

33.9

21.9

62.4

11.9

11.7

70.4

212.2

BB+ thru BB-

2.7

57.3

12.1

2.0

—

2.1

76.2

B+ and below

—

1.6

—

1.6

Total

$

147.1

$

93.8

$

114.4

$

15.3

$

54.6

$

239.8

$

665.0

Residential mortgage loans:

Performing

$

1,144.8

$

1,740.7

$

447.1

$

133.0

$

75.4

$

417.8

$

3,958.8

Non-performing

8.0

4.7

2.2

1.7

0.6

7.0

24.2

Total

$

1,152.8

$

1,745.4

$

449.3

$

134.7

$

76.0

$

424.8

$

3,983.0

Reinsurance recoverable and deposit receivable

$

22,032.3


	December 31, 2021
	2021		2020		2019		2018		2017		Prior		Total

		(in millions)
Commercial mortgage loans:
A- and above	$	2,275.9	$	1,722.7	$	2,412.9	$	2,383.3	$	1,437.2	$	4,334.2	$	14,566.2
BBB+ thru BBB-		278.6		305.6		294.0		131.4		302.1		380.0		1,691.7
BB+ thru BB-		32.8		5.3		—		—		—		55.4		93.5
B+ and below		—		—		—		8.8		—		34.5		43.3
Total	$	2,587.3	$	2,033.6	$	2,706.9	$	2,523.5	$	1,739.3	$	4,804.1	$	16,394.7

Direct financing leases:
A- and above	$	11.7	$	41.8	$	1.4	$	39.4	$	16.6	$	235.6	$	346.5
BBB+ thru BBB-		30.2		57.9		22.0		17.9		15.5		50.2		193.7
BB+ thru BB-		50.8		13.4		1.9		—		—		2.1		68.2
B+ and below		1.5		—		—		—		—		—		1.5
Total	$	94.2	$	113.1	$	25.3	$	57.3	$	32.1	$	287.9	$	609.9

Residential mortgage loans:
Performing	$	2,039.1	$	510.1	$	155.6	$	91.2	$	102.4	$	415.6	$	3,314.0
Non-performing		—		1.8		0.6		—		0.8		2.7		5.9
Total	$	2,039.1	$	511.9	$	156.2	$	91.2	$	103.2	$	418.3	$	3,319.9

Reinsurance recoverable and deposit receivable													$	1,189.2

The amortized cost of commercial mortgage loans, direct financing leases and residential mortgage loans excluded accrued interest receivable of $57.7 million, $0.0 million and $19.6 million, respectively, as of December 31, 2022, and $60.7 million, $1.2 million and $16.7 million, respectively, as of December 31, 2021.

Financing Receivables Credit Monitoring

Commercial Mortgage Loan Credit Risk Profile Based on Internal Rating

We actively monitor and manage our commercial mortgage loan and direct financing lease portfolios. All commercial mortgage loans and direct financing leases are analyzed regularly and substantially all are internally rated, based on a proprietary risk rating cash flow model, in order to monitor the financial quality of these assets. The models stress expected cash flows at various levels and at different points in time depending on the durability of the income stream, which includes our assessment of factors such as location (macro and micro markets), tenant quality and lease expirations. Our internal rating analysis presents expected losses in terms of an S&P Global (“S&P”) bond equivalent rating for domestic commercial mortgage loans and Feller rate equivalent for Chilean commercial mortgage loans and direct financing leases. As the credit risk for commercial mortgage loans and direct financing leases increases, we adjust our internal ratings downward with loans in the category “B+ and below” having the highest risk for credit loss. Internal ratings on commercial mortgage loans and direct financing leases are updated at least annually and potentially more often for certain investments with material changes in collateral value or occupancy and for investments on an internal “watch list”.

Commercial mortgage loans and direct financing leases that require more frequent and detailed attention are identified and placed on an internal “watch list”. Among the criteria that may indicate a potential problem are significant negative changes in ratios of loan to value or contract rents to debt service, major tenant vacancies or bankruptcies, borrower sponsorship problems, late payments, delinquent taxes and loan relief/restructuring requests.

Residential Mortgage Loan Credit Risk Profile Based on Performance Status

Our residential mortgage loan portfolio is monitored based on performance of the loans. Monitoring on a residential mortgage loan increases when the loan is delinquent or earlier if there is an indication of potential impairment. We define non-performing domestic residential mortgage loans as loans 90 days or greater delinquent or on non-accrual status. We define non-performing residential first lien mortgages in the Chilean market as loans that have missed a specified number of coupon payments based on the nature of the loans and collection practices in that market.

Non-Accrual Financing Receivables

Financing receivables are placed on non-accrual status if we have concern regarding the collectability of future payments or if a financing receivable has matured without being paid off or extended. Factors considered may include conversations with the borrower, loss of major tenant, bankruptcy of borrower or major tenant, decreased property cash flow for commercial mortgage loans and direct financing leases or number of days past due and other circumstances for residential mortgage loans. Based on an assessment as to the collectability of the principal, a determination is made to apply any payments received either against the principal, against the valuation allowance or according to the contractual terms. When a financing receivable is placed on non-accrual status, the accrued unpaid interest receivable is reversed against interest income. Accrual of interest resumes after factors resulting in doubts about collectability have improved. Financing receivables in the Chilean market are carried on accrual for a longer period of delinquency than domestic financing receivables, as assessment of collectability is based on the nature of the financing receivables and collection practices in that market.

The amortized cost of financing receivables on non-accrual status was as follows:


	December 31, 2022
					Amortized cost
	Beginning		Ending		of nonaccrual
	amortized cost		amortized cost		assets without
	on nonaccrual		on nonaccrual		a valuation
	status		status		allowance

	(in millions)
Commercial mortgage loans	$	13.2	$	50.0	$	—
Residential mortgage loans		4.0		17.8		0.6
Total	$	17.2	$	67.8	$	0.6


	December 31, 2021
					Amortized cost
	Beginning		Ending		of nonaccrual
	amortized cost		amortized cost		assets without
	on nonaccrual		on nonaccrual		a valuation
	status		status		allowance

	(in millions)
Commercial mortgage loans	$	10.7	$	13.2	$	—
Residential mortgage loans		10.8		4.0		0.7
Total	$	21.5	$	17.2	$	0.7

Interest income recognized on non-accrual financing receivables was as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Commercial mortgage loans	$	0.9	$	0.5	$	—
Total	$	0.9	$	0.5	$	—

The aging of our financing receivables, based on amortized cost, was as follows:

December 31, 2022

Amortized

cost

90 days or

30-59 days

60-89 days

more past

Total

more and

past due

due

past due

Current

Total (1)

accruing

(in millions)

Commercial mortgage loans

$

45.9

$

7.5

$

14.4

$

67.8

$

16,662.5

$

16,730.3

$

—

Direct financing leases

6.6

6.2

1.6

14.4

650.6

665.0

1.6

Residential mortgage loans

73.1

15.4

16.2

104.7

3,878.3

3,983.0

6.4

Total

$

125.6

$

29.1

$

32.2

$

186.9

$

21,191.4

$

21,378.3

$

8.0


	December 31, 2021
													Amortized
													cost
					90 days or								90 days or
	30-59 days		60-89 days		more past		Total						more and
	past due		past due		due		past due		Current		Total (1)		accruing

	(in millions)
Commercial mortgage loans	$	0.7	$	—	$	7.1	$	7.8	$	16,386.9	$	16,394.7	$	2.7
Direct financing leases		—		1.9		0.7		2.6		607.3		609.9		0.7
Residential mortgage loans		59.2		9.6		5.2		74.0		3,245.9		3,319.9		1.9
Total	$	59.9	$	11.5	$	13.0	$	84.4	$	20,240.1	$	20,324.5	$	5.3

(1) As of both December 31, 2022 and December 31, 2021, no reinsurance recoverables or deposit receivables were considered past due.

Financing Receivables Valuation Allowance

We establish a valuation allowance to provide for the risk of credit losses inherent in our financing receivables. The valuation allowance 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. We do not measure a credit loss allowance on accrued interest receivable because we write off the uncollectible accrued interest receivable balance to net investment income in a timely manner, generally within 90 days domestically or, in the Chilean market, based on the nature of the loans and collection practices in that market. During 2022 and 2021, we did not write off any commercial mortgage loan accrued interest or residential mortgage loan accrued interest.

For commercial and residential mortgage loans and direct financing leases, management’s periodic evaluation and assessment of the valuation allowance adequacy is based on known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of the underlying collateral, composition of the portfolio, portfolio delinquency information, underwriting standards, peer group information, current and forecasted economic conditions, loss experience and other relevant factors. For reinsurance recoverables and deposit receivables, management’s periodic evaluation and assessment of the valuation allowance adequacy is based on known and inherent risks, adverse situations that may affect a reinsurer’s ability to repay, current and forecasted economic conditions, industry loss experience and other relevant factors.

Our commercial mortgage loans and direct financing leases are pooled by risk rating level with an estimated loss ratio applied against each risk rating level. The loss ratio is generally based upon historical loss experience for each risk rating level as adjusted for certain current and forecasted environmental factors management believes to be relevant. Environmental factors are forecasted for two years or less with immediate reversion to historical experience. The allowance for direct financing leases is also adjusted for the residual value of the leased assets. A commercial mortgage loan or direct financing lease is evaluated individually if it does not continue to share similar risk characteristics of a pool. We analyze the need for an individual evaluation for any domestic commercial mortgage loan that is delinquent for 60 days or more, in process of foreclosure, restructured, on the internal “watch list” or that currently is evaluated individually. We analyze the need for an individual evaluation for any Chilean commercial mortgage loan or direct financing lease that is considered past due based on collection practices in the Chilean market and the nature of the loan or lease.

We estimate expected credit losses for certain commercial mortgage loan or direct financing lease commitments where we have a contractual obligation to extend credit. The expected credit losses are estimated based on the commercial mortgage loan or direct financing lease valuation allowance process described previously, adjusted for probability of funding. The estimated expected credit losses for commercial mortgage loan and direct financing lease commitments are reported in other liabilities on the consolidated statements of financial position. The change in the credit loss liability for commitments is included in net realized capital gains (losses) on the consolidated statements of operations. Once funded, expected credit losses for commercial mortgage loans or direct financing leases are included within the commercial mortgage loan or direct financing lease valuation allowance described previously.

We evaluate residential mortgage loans based on aggregated risk factors and historical loss experience by pool type. We adjust these quantitative factors for qualitative factors of present and forecasted conditions. Qualitative factors include items such as economic and business conditions, changes in the portfolio, value of underlying collateral and concentrations. A residential mortgage loan is evaluated individually if it does not continue to share similar risk characteristics of a pool. We analyze the need for an individual evaluation for any domestic residential mortgage loan that is delinquent for 60 days or more, in process of foreclosure, restructured, on the internal “watch list” or that currently is evaluated individually. We analyze the need for an individual evaluation for any Chilean residential mortgage loan that is considered past due based on collection practices in the Chilean market and the nature of the loan.

As discussed previously, commercial and residential mortgage loans and direct financing leases are evaluated individually if the asset does not continue to share similar risk characteristics of a pool. When we determine a commercial or residential mortgage loan is probable of foreclosure, a valuation allowance is established equal to the difference between the carrying amount of the mortgage loan and the estimated value of the collateral reduced by the cost to sell. For certain commercial mortgage loans where repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty, we elect to establish a valuation allowance equal to the difference between the carrying amount of the mortgage loan and the estimated value of the real estate collateral, which may be reduced by the cost to sell. Estimated value may also be based on either the present value of the expected future cash flows discounted at the asset’s effective interest rate or the asset’s observable market price. Subsequent changes in the estimated value are reflected in the valuation allowance. Amounts on financing receivables deemed to be uncollectible are charged off and removed from the valuation allowance. The change in the valuation allowance for loans and direct financing leases is included in net realized capital gains (losses) on the consolidated statements of operations.

Our reinsurance recoverables and deposit receivable are pooled by reinsurer risk rating with an estimated loss ratio applied against each risk rating level. The loss ratio is generally based upon industry historical loss experience and expected recovery timing as adjusted for certain current and forecasted environmental factors management believes to be relevant. Environmental factors are forecasted for five years or less with immediate reversion to industry historical experience. A reinsurance recoverable or deposit receivable is evaluated individually if it does not continue to share similar risk characteristics of a pool. We analyze the need for an individual evaluation for any reinsurance recoverable or deposit receivable based on past due payments and changes in reinsurer risk ratings. The change in the valuation allowance for reinsurance recoverables and deposit receivable is included in benefits, claims and settlement expenses on the consolidated statements of operations.

A rollforward of our valuation allowance was as follows:

For the year ended December 31, 2022

Direct

Commercial

financing

Residential

Reinsurance

mortgage loans

leases

mortgage loans

recoverables

Total

(in millions)

Beginning balance

$

43.9

$

0.4

$

2.0

$

2.7

$

49.0

Provision

34.0

0.2

1.5

—

35.7

Charge-offs

—

(0.2)

—

(0.2)

Recoveries

—

2.3

—

2.3

Ending balance

$

77.9

$

0.6

$

5.6

$

2.7

$

86.8


	For the year ended December 31, 2021
			Direct
	Commercial		financing		Residential		Reinsurance
	mortgage loans		leases		mortgage loans		recoverables		Total

		(in millions)
Beginning balance	$	43.2	$	0.1	$	6.9	$	2.7	$	52.9
Provision (1)		1.0		0.4		(8.0)		—		(6.6)
Charge-offs		—		—		(0.5)		—		(0.5)
Recoveries		—		—		3.6		—		3.6
Foreign currency translation adjustment		(0.3)		(0.1)		—		—		(0.4)
Ending balance	$	43.9	$	0.4	$	2.0	$	2.7	$	49.0


	For the year ended December 31, 2020
			Direct
	Commercial		financing		Residential		Reinsurance
	mortgage loans		leases		mortgage loans		recoverables		Total

		(in millions)
Beginning balance	$	27.3	$	—	$	3.3	$	2.5	$	33.1
Provision (2)		15.5		0.1		1.5		0.2		17.3
Charge-offs		—		—		(0.9)		—		(0.9)
Recoveries		—		—		2.8		—		2.8
Foreign currency translation adjustment		0.4		—		0.2		—		0.6
Ending balance	$	43.2	$	0.1	$	6.9	$	2.7	$	52.9

(1)

During the year ended December 31, 2021, certain valuation allowances for residential mortgage loans were released. This release was a result of further adjustments to our current and forecasted environmental factors management believed to be relevant as global economic activity improved from previously adverse impacts due to COVID-19.

(2)

During the year ended December 31, 2020, COVID-19 adversely impacted global economic activity and contributed to significant volatility in financial markets. As a result, certain current and forecasted environmental factors management believed to be relevant were adjusted, resulting in an increase in the valuation allowance for commercial and residential mortgage loans and direct financing leases.

Mortgage Loans

We periodically purchase mortgage loans as well as sell mortgage loans we have originated. Mortgage loans purchased and sold were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Commercial mortgage loans:
Purchased	$	325.4	$	118.2	$	166.8
Sold		15.6		73.8		7.6
Residential mortgage loans:
Purchased (1)		1,846.0		2,370.9		1,151.1
Sold		535.7		88.9		117.4

(1)	Includes mortgage loans purchased by residential mortgage loan VIEs.

Our commercial mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows:


	December 31, 2022				December 31, 2021
	Amortized		Percent		Amortized		Percent
	cost		of total		cost		of total

	($ in millions)
Geographic distribution
New England	$	512.1	3.1	%	$	585.6	3.6	%
Middle Atlantic		4,505.6	26.9			4,536.5	27.7
East North Central		652.5	3.9			623.9	3.8
West North Central		370.9	2.2			338.6	2.1
South Atlantic		2,558.3	15.3			2,464.9	15.0
East South Central		339.8	2.0			378.9	2.3
West South Central		1,204.9	7.2			1,243.7	7.6
Mountain		938.7	5.6			925.6	5.6
Pacific		5,115.3	30.6			4,864.4	29.7
International		532.2	3.2			432.6	2.6
Total	$	16,730.3	100.0	%	$	16,394.7	100.0	%

Property type distribution
Office	$	4,322.0	25.9	%	$	4,789.8	29.3	%
Retail		1,499.4	9.0			1,622.1	9.9
Industrial		3,235.9	19.3			2,966.4	18.1
Apartments		6,827.1	40.8			6,234.3	38.0
Hotel		72.5	0.4			85.7	0.5
Mixed use/other		773.4	4.6			696.4	4.2
Total	$	16,730.3	100.0	%	$	16,394.7	100.0	%

Mortgage Loan Modifications

We assess COVID-19 related loan modifications to determine if they are in scope of the CARES Act TDR relief and the Interagency Statement guidance, which was effective in the second quarter of 2020. See Note 1, Nature of Operations and Significant Accounting Policies, under the caption “Investments” for further details. COVID-19 related loan modifications typically include delayed principal and interest payments. Based on the terms of the delayed principal and interest payments, past due status generally will not advance and loans generally will not be placed on non-accrual status during the delay. We did not have a significant amount of COVID-19 related loan modifications that were in scope of the CARES Act TDR relief or the Interagency Statement guidance for the years ended December 31, 2021 and 2020.

We assess loan modifications outside the scope of the CARES Act TDR relief or Interagency Statement guidance on a case-by-case basis to evaluate whether a TDR has occurred. When we have commercial mortgage loan TDRs, they are modified to delay or reduce principal payments and to reduce or delay interest payments. The commercial mortgage loan modifications result in delayed cash receipts, a decrease in interest income and loan rates that are considered below market. When we have residential mortgage loan TDRs, they include modifications of interest-only payment periods, delays in principal balloon payments and interest rate reductions. Residential mortgage loan modifications result in delayed or decreased cash receipts and a decrease in interest income.

When we have commercial mortgage loan TDRs, they are reserved for in the mortgage loan valuation allowance at the estimated fair value of the underlying collateral reduced by the cost to sell.

When we have residential mortgage loan TDRs, they are specifically reserved for in the mortgage loan valuation allowance if losses result from the modification. Residential mortgage loans that have defaulted or have been discharged through bankruptcy are reduced to the expected collectible amount.

The following table includes information about outstanding loans that were modified and met the criteria of a TDR during the periods indicated.


	For the year ended December 31, 2022
	TDRs			TDRs in payment default
	Number of	Recorded		Number of	Recorded
	contracts	investment		contracts	investment
			(in millions)			(in millions)
Commercial mortgage loans	1	$	35.5	—	$	—
Total	1	$	35.5	—	$	—

We did not have any significant loans that were modified and met the criteria of a TDR for the years ended December 31, 2021 and 2020.

Real Estate

Depreciation expense on invested real estate was $66.1 million, $67.4 million and $65.3 million in 2022, 2021 and 2020, respectively. Accumulated depreciation was $708.5 million and $652.0 million as of December 31, 2022 and 2021, respectively.

Other Investments

Other investments include interests in unconsolidated entities, domestic and international joint ventures and partnerships and properties owned jointly with venture partners and operated by the partners. Such investments are generally accounted for using the equity method. In applying the equity method, we record our share of income or loss reported by the equity investees in net investment income. Summarized financial information for these unconsolidated entities was as follows:


	December 31,
	2022		2021

	(in millions)
Total assets	$	209,547.3	$	177,429.0
Total liabilities		81,346.4		72,001.3
Total equity	$	128,200.9	$	105,427.7
Net investment in unconsolidated entities (1)	$	2,721.8	$	2,162.5


	For the year ended
	December 31,
	2022		2021		2020

	(in millions)
Total revenues	$	44,987.0	$	21,769.6	$	14,989.0
Net income		34,290.5		15,638.5		7,757.0
Our share of net income of unconsolidated entities (1)		294.1		383.0		143.9

(1)	Our most significant equity investee is Brasilprev Seguros e Previdencia, a co-managed joint venture in Brazil.

In addition, other investments include direct financing leases. See the captions “Financing Receivables” and “Financing Receivables Valuation Allowance” for further details related to our valuation of direct financing leases.

Furthermore, other investments include $1,115.6 million and $1,032.1 million of cash surrender value of company owned life insurance as of December 31, 2022 and 2021, respectively.

Derivative assets are carried at fair value and reported as a component of other investments. See Note 5, Derivative Financial Instruments, for further details. Certain sponsored investment funds are also carried at fair value and reported as a component of other investments, with changes in fair value included in net realized capital gains (losses) on our consolidated statements of operations. The fair value of these funds was $617.8 million and $801.4 million as of December 31, 2022 and 2021, respectively.

Securities Posted as Collateral

As of December 31, 2022 and 2021, we posted $6,411.0 million and $5,195.9 million, respectively, in commercial mortgage loans and residential first lien mortgages to satisfy collateral requirements associated with our obligation under funding agreements with Federal Home Loan Bank of Des Moines (“FHLB Des Moines”). In addition, as of December 31, 2022 and 2021, we posted $3,569.7 million and $2,589.3 million, respectively, in fixed maturities, available-for-sale and trading securities to satisfy collateral requirements primarily associated with a reinsurance arrangement, our derivative credit support annex (collateral) agreements, Futures Commission Merchant (“FCM”) agreements, a lending arrangement and our obligation under funding agreements with FHLB Des Moines. Since we did not relinquish ownership rights on these instruments, they are reported as mortgage loans, fixed maturities, available-for-sale and fixed maturities, trading, respectively, on our consolidated statements of financial position. Of the securities posted as collateral, as of December 31, 2022 and 2021, $503.8 million and $186.0 million, respectively, could be sold or repledged by the secured party.

Balance Sheet Offsetting

Financial assets subject to master netting agreements or similar agreements were as follows:


			Gross amounts not offset in the
			consolidated statements
			of financial position
	Gross amount
	of recognized		Financial		Collateral
	assets (1)		instruments (2)		received		Net amount

	(in millions)
December 31, 2022
Derivative assets	$	321.0	$	(135.7)	$	(151.9)	$	33.4
Reverse repurchase agreements		124.4		—		(124.4)		—
Total	$	445.4	$	(135.7)	$	(276.3)	$	33.4
December 31, 2021
Derivative assets	$	337.1	$	(100.1)	$	(229.7)	$	7.3
Reverse repurchase agreements		16.4		—		(16.4)		—
Total	$	353.5	$	(100.1)	$	(246.1)	$	7.3

(1)

The gross amount of recognized derivative and reverse repurchase agreement assets are reported with other investments and cash and cash equivalents, respectively, on the consolidated statements of financial position. The gross amounts of derivative and reverse repurchase agreement assets are not netted against offsetting liabilities for presentation on the consolidated statements of financial position.

(2)	Represents amount of offsetting derivative liabilities that are subject to an enforceable master netting agreement or similar agreement that are not netted against the gross derivative assets for presentation on the consolidated statements of financial position.

Financial liabilities subject to master netting agreements or similar agreements were as follows:

Gross amounts not offset in the

consolidated statements

of financial position

Gross amount

of recognized

Financial

Collateral

liabilities (1)

instruments (2)

pledged

Net amount

(in millions)

December 31, 2022

Derivative liabilities

$

634.2

$

(135.7)

$

(485.1)

$

13.4

December 31, 2021

Derivative liabilities

$

225.3

$

(100.1)

$

(115.2)

$

10.0

(1)

The gross amount of recognized derivative liabilities is reported with other liabilities on the consolidated statements of financial position. The above excludes derivative liabilities, which are primarily embedded derivatives that are not subject to master netting agreements or similar agreements. The gross amounts of derivative liabilities are not netted against offsetting assets for presentation on the consolidated statements of financial position.

(2)	Represents amount of offsetting derivative assets that are subject to an enforceable master netting agreement or similar agreement that are not netted against the gross derivative liabilities for presentation on the consolidated statements of financial position.

The financial instruments that are subject to master netting agreements or similar agreements include right of setoff provisions. Derivative instruments include provisions to setoff positions covered under the agreements with the same counterparties and provisions to setoff positions outside of the agreements with the same counterparties in the event of default by one of the parties. Derivative instruments also include collateral or variation margin provisions, which are generally settled daily with each counterparty. See Note 5, Derivative Financial Instruments, for further details.

Repurchase and reverse repurchase agreements include provisions to setoff other repurchase and reverse repurchase balances with the same counterparty. Repurchase and reverse repurchase agreements also include collateral provisions with the counterparties. For reverse repurchase agreements we require the counterparties to pledge collateral with a value greater than the amount of cash transferred. We have the right but do not sell or repledge collateral received in reverse repurchase agreements. Repurchase agreements are structured as secured borrowings for all counterparties. We pledge fixed maturities available-for-sale, which the counterparties have the right to sell or repledge. Interest incurred on repurchase agreements is reported as part of operating expenses on the consolidated statements of operations. Net proceeds related to repurchase agreements are reported as a component of financing activities on the consolidated statements of cash flows. We did not have any outstanding repurchase agreements as of December 31, 2022 and December 31, 2021.

Derivative Financial Instruments

12 Months Ended

Dec. 31, 2022

Derivative Financial Instruments

Derivative Financial Instruments

5. Derivative Financial Instruments

Derivatives are generally used to hedge or reduce exposure to market risks associated with assets held or expected to be purchased or sold and liabilities incurred or expected to be incurred. Derivatives are used to change the characteristics of our asset/liability mix consistent with our risk management activities. Derivatives are also used in asset replication strategies.

Types of Derivative Instruments

Interest Rate Contracts

Interest rate risk is the risk we will incur economic losses due to adverse changes in interest rates. Sources of interest rate risk include the difference between the maturity and interest rate changes of assets with the liabilities they support, timing differences between the pricing of liabilities and the purchase or procurement of assets and changing cash flow profiles from original projections due to prepayment options embedded within asset and liability contracts. We use various derivatives to manage our exposure to fluctuations in interest rates.

Interest rate swaps are contracts in which we agree with other parties to exchange, at specified intervals, the difference between fixed rate and/or floating rate interest amounts based upon designated market rates or rate indices and an agreed upon notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by any party. Cash is paid or received based on the terms of the swap. We use interest rate swaps primarily to more closely match the interest rate characteristics of assets and liabilities and to mitigate the risks arising from timing mismatches between assets and liabilities (including duration mismatches). We also use interest rate swaps to hedge against changes in the value of assets we anticipate acquiring and other anticipated transactions and commitments. Interest rate swaps are used to hedge against changes in the value of the guaranteed minimum withdrawal benefit (“GMWB”) liability. The GMWB rider on our variable annuity products provides for guaranteed minimum withdrawal benefits regardless of the actual performance of various equity and/or fixed income funds available with the product. Additionally, we utilize interest rate swaps to replicate the returns of floating rate assets.

Interest rate options, including interest rate caps and interest rate floors, which can be combined to form interest rate collars, are contracts that entitle the purchaser to pay or receive the amounts, if any, by which a specified market rate exceeds a cap strike interest rate, or falls below a floor strike interest rate, respectively, at specified dates. We use interest rate options to manage prepayment risks in our assets and minimum guaranteed interest rates and lapse risks in our liabilities.

A swaption is an option to enter into an interest rate swap at a future date. We have purchased swaptions to hedge interest rate exposure for certain assets and liabilities. Swaptions not only hedge against the downside risk, but also allow us to take advantage of any upside benefits.

In exchange-traded futures transactions, we agree to purchase or sell a specified number of contracts, the values of which are determined by the values of designated classes of securities, and to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts. We enter into exchange-traded futures with regulated futures commissions merchants who are members of a trading exchange. We use exchange-traded futures to hedge against changes in value of the GMWB liability.

Interest rate forwards, including to be announced (“TBA”) forwards, bond forwards and treasury forwards, are contracts to take delivery of a fixed income security at a specified price at a future date. TBA forwards deliver government guaranteed mortgage-backed securities. Bond forwards and treasury forwards deliver corporate or municipal and U.S. Treasury bonds, respectively. At inception of the TBA and treasury forward contracts we do not intend to take physical delivery. We intend to take delivery of the bond forwards referencing corporate or municipal bonds. We have used TBA forwards to gain exposure to the investment risk and return of agency mortgage-backed security pools in order to reduce asset and liability duration mismatch. Treasury forwards are used to hedge against changes in the value of the GMWB liability. Bond forwards are used to gain leverage through synthetic exposure during the forward period and fix the purchase price of a bond at a specified date in future.

Foreign Exchange Contracts

Foreign currency risk is the risk we will incur economic losses due to adverse fluctuations in foreign currency exchange rates. This risk arises from foreign currency-denominated funding agreements issued to nonqualified institutional investors in the international market, foreign currency-denominated fixed maturity and equity securities, and our international operations, including expected cash flows and potential acquisition and divestiture activity. We use various derivatives to manage our exposure to fluctuations in foreign currency exchange rates.

Currency swaps are contracts in which we agree with other parties to exchange, at specified intervals, a series of principal and interest payments in one currency for that of another currency. Generally, the principal amount of each currency is exchanged at the beginning and termination of the currency swap by each party. The interest payments are primarily fixed-to-fixed rate; however, they may also be fixed-to-floating rate or floating-to-fixed rate. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty for payments made in the same currency at each due date. We use currency swaps to reduce market risks from changes in currency exchange rates with respect to investments or liabilities denominated in foreign currencies that we either hold or intend to acquire or sell.

Currency forwards are contracts in which we agree with other parties to deliver or receive a specified amount of an identified currency at a specified future date. Typically, the price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date. We use currency forwards to reduce market risks from changes in currency exchange rates with respect to investments or liabilities denominated in foreign currencies that we either hold or intend to acquire or sell. We use currency forwards to hedge certain foreign-denominated real estate funds in our domestic operations and net equity investments in foreign operations, including certain sponsored investment funds.

Currency options are contracts that give the holder the right, but not the obligation to buy or sell a specified amount of the identified currency within a limited period of time at a contracted price. The contracts are net settled in cash, based on the differential in the current foreign exchange rate and the strike price. Purchased and sold options can be combined to form a foreign currency collar where we receive a payment if the foreign exchange rate is below the purchased option strike price and make a payment if the foreign exchange rate is above the sold option strike price. We have used currency options to hedge expected cash flows from our foreign operations.

Equity Contracts

Equity risk is the risk that we will incur economic losses due to adverse fluctuations in common stock prices. We use various derivatives to manage our exposure to equity risk, which arises from products in which the return or interest we credit is tied to an external equity index as well as products subject to minimum contractual guarantees.

We purchase equity call spreads (“option collars”) to hedge the equity participation rates promised to contractholders in conjunction with our fixed deferred annuity and universal life products that credit interest based on changes in an external equity index. We use exchange-traded futures and equity put options to hedge against changes in the value of the GMWB liability related to the GMWB rider on our variable annuity product. The premium associated with certain options is paid quarterly over the life of the option contract.

Credit Contracts

Credit risk relates to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest. We use credit default swaps to enhance the return on our investment portfolio by providing comparable exposure to fixed income securities that might not be available in the primary market. They are also used to hedge credit exposures in our investment portfolio. Credit derivatives are used to sell or buy credit protection on an identified name or names on an unfunded or synthetic basis in return for receiving or paying a quarterly premium. The premium generally corresponds to a referenced name’s credit spread at the time the agreement is executed. In cases where we sell protection, we also buy a quality cash bond to match against the credit default swap, thereby entering into a synthetic transaction replicating a cash security. When selling protection, if there is an event of default by the referenced name, as defined by the agreement, we are obligated to pay the counterparty the referenced amount of the contract and receive in return the referenced security in a principal amount equal to the notional value of the credit default swap.

Other Contracts

Embedded Derivatives. We purchase or issue certain financial instruments or products that contain a derivative instrument that is embedded in the financial instrument or product. When it is determined that the embedded derivative possesses economic characteristics that are not clearly or closely related to the economic characteristics of the host contract and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host instrument for measurement purposes. The embedded derivative, which is reported with the host instrument in the consolidated statements of financial position, is carried at fair value.

We offer group annuity contracts that have guaranteed separate accounts as an investment option. We also offer funds with embedded fixed rate guarantees as investment options in our defined contribution plans in Hong Kong.

We have fixed deferred annuities and universal life products that credit interest based on changes in an external equity index. We also have certain variable annuity products with a GMWB rider, which allows the customer to make withdrawals of a specified annual amount, either for a fixed number of years or for the lifetime of the customer, even if the account value is fully exhausted. Declines in the equity markets may increase our exposure to benefits under contracts with the GMWB. We economically hedge the exposure in these contracts, as previously explained.

We have a funds withheld payable associated with our coinsurance with funds withheld agreement with Talcott Life & Annuity Re. The funds withheld payable has an embedded total return swap as the total return of the funds withheld assets are transferred to Talcott Life & Annuity Re, which is not based on our own creditworthiness.

Exposure

Our risk of loss is typically limited to the fair value of our derivative instruments and not to the notional or contractual amounts of these derivatives. We are also exposed to credit losses in the event of nonperformance of the counterparties. Our current credit exposure is limited to the value of derivatives that have become favorable to us. This credit risk is minimized by purchasing such agreements from financial institutions with high credit ratings and by establishing and monitoring exposure limits. We also utilize various credit enhancements, including collateral and credit triggers to reduce the credit exposure to our derivative instruments.

Derivatives may be exchange-traded or they may be privately negotiated contracts, which are usually referred to as over-the-counter (“OTC”) derivatives. Certain of our OTC derivatives are cleared and settled through central clearing counterparties (“OTC cleared”), while others are bilateral contracts between two counterparties (“bilateral OTC”). Our derivative transactions are generally documented under International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements. Management believes that such agreements provide for legally enforceable set-off and close-out netting of exposures to specific counterparties. Under such agreements, in connection with an early termination of a transaction, we are permitted to set off our receivable from a counterparty against our payables to the same counterparty arising out of all included transactions. For reporting purposes, we do not offset fair value amounts of bilateral OTC derivatives for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparties under master netting agreements. OTC cleared derivatives have variation margin that is legally characterized as settlement of the derivative exposure, which reduces their fair value in the consolidated statements of financial position.

We posted $750.9 million and $240.8 million in cash and securities under collateral arrangements as of December 31, 2022 and December 31, 2021, respectively, to satisfy collateral and initial margin requirements associated with our derivative credit support agreements and FCM agreements.

Certain of our derivative instruments contain provisions that require us to maintain an investment grade rating from each of the major credit rating agencies on our debt. If the ratings on our debt were to fall below investment grade, it would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The aggregate fair value, inclusive of accrued interest, of all derivative instruments with credit-risk-related contingent features that were in a liability position without regard to netting under derivative credit support annex agreements as of December 31, 2022 and December 31, 2021, was $632.6 million and $146.3 million, respectively. Cleared derivatives have contingent features that require us to post excess margin as required by the FCM. The terms surrounding excess margin vary by FCM agreement. With respect to derivatives containing collateral provisions, we posted collateral and initial margin of $750.9 million and $240.8 million as of December 31, 2022 and December 31, 2021, respectively, in the normal course of business, which reflects netting under derivative agreements. If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2022, we would be required to post an additional $89.6 million of collateral to our counterparties.

As of December 31, 2022 and December 31, 2021, we had received $148.8 million and $214.9 million, respectively, of cash collateral associated with our derivative credit support annex agreements and FCM agreements, for which we recorded a corresponding liability reflecting our obligation to return the collateral.

Notional amounts are used to express the extent of our involvement in derivative transactions and represent a standard measurement of the volume of our derivative activity. Notional amounts represent those amounts used to calculate contractual flows to be exchanged and are not paid or received, except for contracts such as currency swaps. Credit exposure represents the gross amount owed to us under derivative contracts as of the valuation date. The notional amounts and credit exposure of our derivative financial instruments by type were as follows:


	December 31, 2022		December 31, 2021

	(in millions)
Notional amounts of derivative instruments
Interest rate contracts:
Interest rate swaps	$	52,249.9	$	47,927.4
Interest rate options		4,418.9		2,373.9
Interest rate forwards		2,527.5		2,181.6
Interest rate futures		877.5		1,774.5
Foreign exchange contracts:
Currency swaps		1,634.7		1,242.7
Currency forwards		1,123.1		1,043.6
Equity contracts:
Equity options		2,049.3		2,378.2
Equity futures		574.1		150.4
Credit contracts:
Credit default swaps		400.0		295.0
Other contracts:
Embedded derivatives		31,071.2		10,060.8
Total notional amounts at end of period	$	96,926.2	$	69,428.1

Credit exposure of derivative instruments
Interest rate contracts:
Interest rate swaps	$	64.2	$	205.9
Interest rate options		41.7		24.5
Interest rate forwards		0.1		15.3
Foreign exchange contracts:
Currency swaps		171.1		51.1
Currency forwards		34.0		11.3
Equity contracts:
Equity options		16.5		37.3
Credit contracts:
Credit default swaps		3.6		2.7
Total gross credit exposure		331.2		348.1
Less: collateral received		191.9		244.6
Net credit exposure	$	139.3	$	103.5

The fair value of our derivative instruments classified as assets and liabilities was as follows:


	Derivative assets (1)				Derivative liabilities (2)
	December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021

	(in millions)
Derivatives designated as hedging instruments
Interest rate contracts	$	20.0	$	4.1	$	105.1	$	19.0
Foreign exchange contracts		134.6		48.4		19.7		17.6
Total derivatives designated as hedging instruments	$	154.6	$	52.5	$	124.8	$	36.6

Derivatives not designated as hedging instruments
Interest rate contracts	$	81.1	$	233.4	$	439.9	$	13.0
Foreign exchange contracts		65.9		11.3		21.9		83.3
Equity contracts		16.5		37.3		45.6		90.9
Credit contracts		3.5		2.6		2.0		2.2
Other contracts		—		—		(3,684.6)		356.3
Total derivatives not designated as hedging instruments		167.0		284.6		(3,175.2)		545.7

Total derivative instruments	$	321.6	$	337.1	$	(3,050.4)	$	582.3

(1)	The fair value of derivative assets is reported with other investments on the consolidated statements of financial position.

(2)

The fair value of derivative liabilities is reported with other liabilities on the consolidated statements of financial position, with the exception of certain embedded derivative liabilities. Embedded derivatives with a net liability fair value of $(31.8) million and $356.3 million as of December 31, 2022 and December 31, 2021, respectively, are reported with contractholder funds on the consolidated statements of financial position. Embedded derivatives with a net (asset) liability fair value of $(3,652.8) million as of December 31, 2022, are reported with funds withheld payable on the consolidated statements of financial position.

Credit Derivatives Sold

When we sell credit protection, we are exposed to the underlying credit risk similar to purchasing a fixed maturity security instrument. Our credit derivative contracts sold reference a single name or reference security (referred to as “single name credit default swaps”). These instruments are either referenced in an OTC credit derivative transaction or embedded within an investment structure that has been fully consolidated into our financial statements.

These credit derivative transactions are subject to events of default defined within the terms of the contract, which normally consist of bankruptcy, failure to pay, or modified restructuring of the reference entity and/or issue. If a default event occurs for a reference name or security, we are obligated to pay the counterparty an amount equal to the notional amount of the credit derivative transaction. As a result, our maximum future payment is equal to the notional amount of the credit derivative. In certain cases, we also may have purchased credit protection with identical underlyings to certain of our sold protection transactions. As of December 31, 2022 and December 31, 2021, we did not purchase credit protection relating to our sold protection transactions. In certain circumstances, our potential loss could also be reduced by any amount recovered in the default proceedings of the underlying credit name.

The following tables show our credit default swap protection sold by types of contract, types of referenced/underlying asset class and external agency rating for the underlying reference security. The maximum future payments are undiscounted and have not been reduced by the effect of any offsetting transactions, collateral or recourse features described above.

December 31, 2022

Weighted

Maximum

average

Notional

Fair

future

expected life

amount

value

payments

(in years)

(in millions)

Single name credit default swaps

Corporate debt

A

$

40.0

$

0.4

$

40.0

2.5

BBB

190.0

2.2

190.0

3.1

BB

20.0

(0.2)

20.0

4.5

Sovereign

A

20.0

0.2

20.0

2.5

Total credit default swap protection sold

$

270.0

$

2.6

$

270.0

3.1


	December 31, 2021
							Weighted
					Maximum		average
	Notional		Fair		future		expected life
	amount		value		payments		(in years)

	(in millions)
Single name credit default swaps
Corporate debt
A	$	20.0	$	0.4	$	20.0	3.5
BBB		110.0		1.7		110.0	3.0
Sovereign
A		20.0		0.5		20.0	3.5
Total credit default swap protection sold	$	150.0	$	2.6	$	150.0	3.1

Fair Value and Cash Flow Hedges

Fair Value Hedges

We use fixed-to-floating rate interest rate swaps to more closely align the interest rate characteristics of certain assets and have used them to align the interest rate characteristics of certain liabilities. In general, these swaps are used in asset and liability management to modify duration, which is a measure of sensitivity to interest rate changes.

The net interest effect of interest rate swap transactions for derivatives in fair value hedges is recorded as an adjustment to income or expense of the underlying hedged item in our consolidated statements of operations.

The following amounts were recorded on the consolidated statements of financial position related to cumulative basis adjustments for fair value hedges. The amortized cost includes the amortized cost basis and the fair value hedging basis adjustment.

Cumulative amount of fair

value hedging basis adjustment

Line item in the consolidated statements

increase/(decrease) included in the

of financial position in which the

Amortized cost of hedged item

amortized cost of the hedged item

hedged item is included

December 31, 2022

December 31, 2021

December 31, 2022

December 31, 2021

(in millions)

Fixed maturities, available-for-sale (1):

Active hedging relationships

$

3,498.6

$

1,859.9

$

(153.4)

$

(7.1)

Discontinued hedging relationships

48.8

79.7

1.3

2.8

Total fixed maturities, available-for-sale in active or discontinued hedging relationships

$

3,547.4

$

1,939.6

$

(152.1)

$

(4.3)

(1)

These amounts include the amortized cost basis of closed portfolios used to designate last-of-layer hedging relationships in which the hedged last layer amount is expected to remain at the end of the hedging relationship. As of December 31, 2022 and December 31, 2021, the amortized cost basis of the closed portfolios used in these hedging relationships was $3,256.9 million and $1,390.4 million, respectively, the cumulative basis adjustments associated with these hedging relationships was $(102.4) million and $(3.9) million, respectively, and the amount of the designated hedged items were $1,110.0 million and $510.0 million, respectively.

Cash Flow Hedges

We utilize floating-to-fixed rate interest rate swaps to eliminate the variability in cash flows of recognized financial assets and liabilities.

We enter into currency exchange swap agreements to convert both principal and interest payments of certain foreign denominated assets and liabilities into U.S. dollar denominated fixed rate instruments to eliminate the exposure to future currency volatility on those items.

We use bond forwards and have used floating-to-fixed rate interest rate swaps to hedge forecasted transactions.

The net interest effect of interest rate swap and currency swap transactions for derivatives in cash flow hedges is recorded as an adjustment to income or expense of the underlying hedged item in our consolidated statements of operations.

The maximum length of time we are hedging our exposure to the variability in future cash flows for forecasted transactions, excluding those related to the payments of variable interest on existing financial assets and liabilities, is 4.2 years. As of December 31, 2022, we had $102.1 million of net losses reported in AOCI on the consolidated statements of financial position related to active hedges of forecasted transactions. If a hedged forecasted transaction is no longer probable of occurring, cash flow hedge accounting is discontinued. If it is probable that the hedged forecasted transaction will not occur, the deferred gain or loss is immediately reclassified from AOCI into net income.

The following table shows the effect of derivatives in cash flow hedging relationships on the consolidated statements of financial position.


		Amount of gain (loss) recognized in AOCI on derivatives
Derivatives in cash flow		for the year ended December 31,
hedging relationships	Related hedged item	2022		2021		2020

		(in millions)
Interest rate contracts	Fixed maturities, available-for-sale	$	(102.1)	$	—	$	(3.0)
Interest rate contracts	Investment contracts		15.9		4.1		—
Foreign exchange contracts	Fixed maturities, available-for-sale		84.2		53.4		(37.1)
Total		$	(2.0)	$	57.5	$	(40.1)

We expect to reclassify net gains of $18.7 million from AOCI into net income in the next 12 months, which includes both net deferred gains on discontinued hedges and net gains on periodic settlements of active hedges. Actual amounts may vary from this amount as a result of market conditions.

Effect of Fair Value and Cash Flow Hedges on Consolidated Statements of Operations

The following tables show the effect of derivatives in fair value and cash flow hedging relationships and the related hedged items on the consolidated statements of operations.


	For the year ended December 31, 2022
					Benefits,
	Net investment		Net realized		claims and
	income related		capital gains		settlement
	to hedges		(losses) related to		expenses
	of fixed		hedges of fixed		related to
	maturities,		maturities,		hedges of
	available-		available-		investment
	for-sale		for-sale		contracts

	(in millions)
Total amounts of consolidated statement of operations line items in which the effects of fair value and cash flow hedges are reported	$	3,830.4	$	(258.4)	$	6,370.8

Gains on fair value hedging relationships:
Interest rate contracts:
Loss recognized on hedged item	$	(154.4)	$	—	$	—
Gain recognized on derivatives		151.6		—		—
Amortization of hedged item basis adjustments		(1.3)		—		—
Amounts related to periodic settlements on derivatives		5.2		—		—
Total gain recognized for fair value hedging relationships	$	1.1	$	—	$	—

Gains on cash flow hedging relationships:
Interest rate contracts:
Gain (loss) reclassified from AOCI on derivatives	$	9.0	$	—	$	(0.1)
Gain reclassified from AOCI as a result that a forecasted transaction is no longer probable of occurring		—		18.5		—
Amounts related to periodic settlements on derivatives		—		—		3.7

Foreign exchange contracts:
Gain reclassified from AOCI on derivatives		—		0.6		—
Amounts related to periodic settlements on derivatives		14.5		—		—
Total gain recognized for fair value hedging relationships	$	23.5	$	19.1	$	3.6


	For the year ended December 31, 2021
					Benefits,
	Net investment		Net realized		claims and
	income related		capital gains		settlement
	to hedges		related to		expenses
	of fixed		hedges of fixed		related to
	maturities,		maturities,		hedges of
	available-		available-		investment
	for-sale		for-sale		contracts

	(in millions)
Total amounts of consolidated statement of operations line items in which the effects of fair value and cash flow hedges are reported	$	4,406.1	$	2.5	$	7,097.0

Losses on fair value hedging relationships:
Interest rate contracts:
Loss recognized on hedged item	$	(28.7)	$	—	$	—
Gain recognized on derivatives		28.6		—		—
Amortization of hedged item basis adjustments		(1.8)		—		—
Amounts related to periodic settlements on derivatives		(10.0)		—		—
Total loss recognized for fair value hedging relationships	$	(11.9)	$	—	$	—

Gains (losses) on cash flow hedging relationships:
Interest rate contracts:
Gain (loss) reclassified from AOCI on derivatives	$	15.4	$	—	$	(0.1)
Gain reclassified from AOCI as a result that a forecasted transaction is no longer probable of occurring		—		1.0		—
Amounts related to periodic settlements on derivatives		—		—		(0.4)

Foreign exchange contracts:
Gain reclassified from AOCI on derivatives		—		9.2		—
Amounts related to periodic settlements on derivatives		9.6		—		—
Total gain (loss) recognized for fair value hedging relationships	$	25.0	$	10.2	$	(0.5)


	For the year ended December 31, 2020
					Benefits,
	Net investment		Net realized		claims and
	income related		capital gains		settlement
	to hedges		related to		expenses
	of fixed		hedges of fixed		related to
	maturities,		maturities,		hedges of
	available-		available-		investment
	for-sale		for-sale		contracts

	(in millions)
Total amounts of consolidated statement of operations line items in which the effects of fair value and cash flow hedges are reported	$	3,890.6	$	302.6	$	8,281.5

Losses on fair value hedging relationships:
Interest rate contracts:
Gain recognized on hedged item	$	3.3	$	—	$	—
Loss recognized on derivatives		(3.8)		—		—
Amortization of hedged item basis adjustments		(2.5)		—		—
Amounts related to periodic settlements on derivatives		(6.2)		—		—
Total loss recognized for fair value hedging relationships	$	(9.2)	$	—	$	—

Gains (losses) on cash flow hedging relationships:
Interest rate contracts:
Gain (loss) reclassified from AOCI on derivatives	$	18.1	$	2.7	$	(0.1)
Gain reclassified from AOCI as a result that a forecasted transaction is no longer probable of occurring		—		0.1		—

Foreign exchange contracts:
Gain reclassified from AOCI on derivatives		—		6.3		—
Amounts related to periodic settlements on derivatives		8.2		—		—
Total gain (loss) recognized for fair value hedging relationships	$	26.3	$	9.1	$	(0.1)

Net Investment Hedges

We may take measures to hedge our net equity investments in our foreign operations from currency risk. This is accomplished with the use of currency forwards.

Gains and losses associated with net investment hedges are recorded in AOCI and will be released into net income if our investment in the foreign operation is sold or substantially liquidated.

The following tables show the effect of foreign exchange contracts used to hedge a portion of our net investment in certain sponsored investment funds on the consolidated financial statements.


	Amount of gain recognized
	in AOCI on derivatives
	for the year ended December 31,
Derivatives in net investment hedging relationships	2022		2021		2020

	(in millions)
Foreign exchange contracts	$	1.5	$	2.9	$	7.9
Total	$	1.5	$	2.9	$	7.9


	Amount of gain reclassified from AOCI into
	net realized capital gains (losses)
	for the year ended December 31,
Derivatives in net investment hedging relationships	2022		2021		2020

	(in millions)
Foreign exchange contracts	$	—	$	—	$	(7.1)
Total	$	—	$	—	$	(7.1)

Derivatives Not Designated as Hedging Instruments

Our use of futures, certain swaptions and swaps, option collars, options and forwards are effective from an economic standpoint, but they have not been designated as hedges for financial reporting purposes. As such, periodic changes in the market value of these instruments, which includes mark-to-market gains and losses as well as periodic and final settlements, primarily flow directly into net realized capital gains (losses) on the consolidated statements of operations. However, the change in fair value of the funds withheld embedded derivative is separately reported on the consolidated statements of operations.

The following table shows the effect of derivatives not designated as hedging instruments, including fair value changes of embedded derivatives that have been bifurcated from the host contract, on the consolidated statements of operations.


	Amount of gain (loss) recognized in
	net income on derivatives for the
	year ended December 31,
Derivatives not designated as hedging instruments	2022		2021		2020

	(in millions)
Interest rate contracts	$	(317.7)	$	(46.6)	$	346.5
Foreign exchange contracts		83.7		(121.9)		54.7
Equity contracts		20.7		(81.5)		(96.6)
Credit contracts		0.1		0.1		1.8
Other contracts (1)		4,033.1		103.7		(255.5)
Total	$	3,819.9	$	(146.2)	$	50.9

(1)	Includes the change in fair value of the funds withheld embedded derivative.

Closed Block

12 Months Ended

Dec. 31, 2022

Closed Block

Closed Block

6. Closed Block

In connection with the 1998 MIHC formation, Principal Life formed a Closed Block to provide reasonable assurance to policyholders included therein that, after the formation of the MIHC, assets would be available to maintain dividends in aggregate in accordance with the 1997 policy dividend scales, if the experience underlying such scales continued. Assets of Principal Life were allocated to the Closed Block in an amount that produces cash flows which, together with anticipated revenue from policies and contracts included in the Closed Block, were expected to be sufficient to support the Closed Block policies. This includes, but is not limited to, provisions for payment of claims, certain expenses, charges and taxes, and to provide for continuation of policy and contract dividends in aggregate in accordance with the 1997 dividend scales, if the experience underlying such scales continues, and to allow for appropriate adjustments in such scales, if such experience changes. Due to adjustable life policies being included in the Closed Block, the Closed Block is charged with amounts necessary to properly fund for certain adjustments, such as face amount and premium increases, that are made to these policies after the Closed Block inception date. These amounts are referred to as Funding Adjustment Charges.

Assets allocated to the Closed Block inure solely to the benefit of the holders of policies included in the Closed Block. Closed Block assets and liabilities are carried on the same basis as other similar assets and liabilities. Principal Life will continue to pay guaranteed benefits under all policies, including the policies within the Closed Block, in accordance with their terms. If the assets allocated to the Closed Block, the investment cash flows from those assets and the revenues from the policies included in the Closed Block, including investment income thereon, prove to be insufficient to pay the benefits guaranteed under the policies included in the Closed Block, Principal Life will be required to make such payments from its general funds. No additional policies were added to the Closed Block, nor was the Closed Block affected in any other way, as a result of the demutualization.

A policyholder dividend obligation (“PDO”) is required to be established for higher than expected earnings in the Closed Block that will need to be paid as dividends unless future performance of the Closed Block is less favorable than originally expected. A model of the Closed Block was established to produce the pattern of expected earnings, assets and liabilities in the Closed Block. These projections are utilized to determine ratios that will allow us to compare actual cumulative earnings to expected cumulative earnings and determine the amount of the PDO. As of December 31, 2022 and 2021, the PDO was $0.0 million and $210.7 million, respectively.

Closed Block liabilities and assets designated to the Closed Block were as follows:


	December 31, 2022		December 31, 2021

	(in millions)
Closed Block liabilities
Future policy benefits and claims	$	3,128.1	$	3,286.0
Other policyholder funds		5.1		5.3
Policyholder dividends payable		168.2		176.6
Policyholder dividend obligation		—		210.7
Other liabilities		24.9		8.8
Total Closed Block liabilities		3,326.3		3,687.4

Assets designated to the Closed Block
Fixed maturities, available-for-sale		1,690.2		2,191.6
Fixed maturities, trading		2.0		2.4
Equity securities		0.8		1.0
Mortgage loans		544.9		554.9
Policy loans		407.4		425.2
Other investments		62.2		48.4
Total investments		2,707.5		3,223.5
Cash and cash equivalents		62.0		19.7
Accrued investment income		30.3		32.6
Reinsurance recoverable and deposit receivable		3.9		5.1
Premiums due and other receivables		4.1		3.3
Deferred tax asset		62.0		24.6
Other assets		0.1		—
Total assets designated to the Closed Block		2,869.9		3,308.8
Excess of Closed Block liabilities over assets designated to the Closed Block		456.4		378.6
Amounts included in accumulated other comprehensive income		(111.9)		0.6
Maximum future earnings to be recognized from Closed Block assets and liabilities	$	344.5	$	379.2

Closed Block revenues and expenses were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Revenues
Premiums and other considerations	$	178.0	$	196.1	$	217.6
Net investment income		129.1		137.6		143.6
Net realized capital gains (losses)		(21.2)		(4.6)		16.0
Total revenues		285.9		329.1		377.2
Expenses
Benefits, claims and settlement expenses		184.3		212.0		212.8
Dividends to policyholders		92.5		92.6		117.8
Operating expenses		2.2		2.3		2.7
Total expenses		279.0		306.9		333.3
Closed Block revenues, net of Closed Block expenses, before income taxes		6.9		22.2		43.9
Income taxes		0.7		3.9		8.4
Closed Block revenues, net of Closed Block expenses and income taxes		6.2		18.3		35.5
Funding adjustments and other transfers		28.5		(4.0)		(2.2)
Closed Block revenues, net of Closed Block expenses, income taxes and funding adjustments	$	34.7	$	14.3	$	33.3

The change in maximum future earnings of the Closed Block was as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Beginning of year	$	379.2	$	393.5	$	426.9
Effects of implementation of accounting changes (1)		—		—		0.1
End of year		344.5		379.2		393.5
Change in maximum future earnings	$	(34.7)	$	(14.3)	$	(33.3)

(1)	Includes the effects of implementation of accounting changes related to credit losses in 2020.

Principal Life charges the Closed Block with U.S. federal income taxes, payroll taxes, state and local premium taxes and other state or local taxes, licenses and fees as provided in the plan of reorganization.

Deferred Acquisition Costs

12 Months Ended

Dec. 31, 2022

Deferred Acquisition Costs

Deferred Acquisition Costs

7. Deferred Acquisition Costs

Acquisition costs deferred and amortized were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Balance at beginning of year	$	3,757.5	$	3,409.7	$	3,521.3
Costs deferred during the year		379.0		461.4		457.0
Amortized to expense during the year (1)		(384.4)		(285.4)		(388.1)
Adjustment related to unrealized (gains) losses on available-for-sale securities and derivative instruments (2)		934.8		171.8		(180.5)
Balance at end of year	$	4,686.9	$	3,757.5	$	3,409.7

(1)	Includes adjustments for revisions to estimated gross profits. Amortization for the year ended December 31, 2022, includes the impact from re-cohorting. Refer to Note 1, Nature of Operations and Significant Accounting Policies, under the caption “Actuarial Balance Re-Cohorting” for further details.

(2)	The adjustment for the year ended December 31, 2022, includes the impact from re-cohorting. Refer to Note 1, Nature of Operations and Significant Accounting Policies, under the caption “Actuarial Balance Re-Cohorting” for further details.

Insurance Liabilities

12 Months Ended

Dec. 31, 2022

Insurance Liabilities

Insurance Liabilities

8. Insurance Liabilities

Contractholder Funds

Major components of contractholder funds in the consolidated statements of financial position were as follows:


	December 31,
	2022		2021

	(in millions)
Liabilities for investment contracts:
Liabilities for individual annuities	$	7,739.3	$	10,652.3
GICs		13,787.7		12,206.0
Funding agreements		12,318.7		11,685.5
Other investment contracts		1,493.4		1,593.5
Total liabilities for investment contracts		35,339.1		36,137.3
Universal life and other reserves		7,438.2		7,460.7
Total contractholder funds	$	42,777.3	$	43,598.0

Our GICs and funding agreements contain provisions limiting or prohibiting early surrenders, which typically include penalties for early surrenders, minimum notice requirements or, in the case of funding agreements with survivor options, minimum pre-death holding periods and specific maximum amounts.

Funding agreements include those issued directly to nonqualified institutional investors and those issued to the FHLB Des Moines under their membership funding programs. As of December 31, 2022 and 2021, $4,275.5 million and $4,252.4 million, respectively, of liabilities were outstanding with respect to issuances under the program with FHLB Des Moines. In addition, we have five separate programs where the funding agreements have been issued directly or indirectly to unconsolidated special purpose entities. Claims for principal and interest under funding agreements are afforded equal priority to claims of life insurance and annuity policyholders under insolvency provisions of Iowa Insurance Laws.

Principal Life was authorized to issue up to $4.0 billion of funding agreements under a program established in 1998 to support the prospective issuance of medium term notes by an unaffiliated entity in non-U.S. markets. As of December 31, 2022 and 2021, $75.6 million and $75.0 million, respectively, of liabilities were outstanding with respect to the issuance outstanding under this program.

In addition, Principal Life was authorized to issue up to $7.0 billion of funding agreements under a program established in 2001 to support the prospective issuance of medium term notes by an unaffiliated entity in both domestic and international markets. The unaffiliated entity is an unconsolidated special purpose entity. As of December 31, 2022 and 2021, $201.9 million and $201.8 million, respectively, of liabilities were being held with respect to issuances outstanding under this program. Principal Life does not anticipate any new issuance activity under this program, given our December 2005 termination of the dealership agreement for this program and the availability of the program established in 2011 described below.

Additionally, Principal Life was authorized to issue up to $5.0 billion of funding agreements under a program that was originally established in 2011 to support the prospective issuance of medium term notes by an unaffiliated entity in both domestic and international markets. The unaffiliated entity is an unconsolidated special purpose entity. In June 2015, this program was amended to authorize issuance of up to an additional $4.0 billion. In November 2017, this program was amended to authorize issuance of up to an additional $4.0 billion. In February 2021, this program was amended to authorize issuance of up to an additional $4.0 billion. As of December 31, 2022 and 2021, $7,765.7 million and $7,156.3 million, respectively, of liabilities were being held with respect to issuances outstanding under this program. Principal Life’s payment obligations on each funding agreement issued under this program are guaranteed by PFG. The program established in 2011 is not registered with the United States Securities and Exchange Commission (“SEC”).

Liability for Unpaid Claims

The liability for unpaid claims is reported in future policy benefits and claims within our consolidated statements of financial position. Activity associated with unpaid claims was as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Balance at beginning of year	$	2,659.4	$	2,534.9	$	2,365.5
Less: reinsurance recoverable		442.1		436.9		403.8
Net balance at beginning of year		2,217.3		2,098.0		1,961.7
Incurred:
Current year		1,664.2		1,572.5		1,376.8
Prior years		32.1		7.2		26.6
Total incurred		1,696.3		1,579.7		1,403.4
Payments:
Current year		1,093.2		1,025.0		863.8
Prior years		465.4		435.4		403.3
Total payments		1,558.6		1,460.4		1,267.1
Net balance at end of year		2,355.0		2,217.3		2,098.0
Plus: reinsurance recoverable		478.1		442.1		436.9
Balance at end of year	$	2,833.1	$	2,659.4	$	2,534.9

Amounts not included in the rollforward above:
Claim adjustment expense liabilities	$	59.7	$	59.5	$	57.8

Incurred liability adjustments relating to prior years, which affected current operations during 2022, 2021 and 2020, resulted in part from developed claims for prior years being different than were anticipated when the liabilities for unpaid claims were originally estimated. These trends have been considered in establishing the current year liability for unpaid claims.

Short-Duration Contracts

Claims Development

The following tables present undiscounted information about claims development by incurral year, including separate information about incurred claims and paid claims net of reinsurance for the periods indicated. The tables also include information on incurred but not reported claims and the cumulative number of reported claims.

The tables present information for the number of years for which claims incurred typically remain outstanding, but do not exceed ten years. The data is disaggregated into groupings of claims with similar characteristics, such as duration of the claim payment period and average claim amount, and with consideration to the overall size of the groupings. Outstanding liabilities equal total net incurred claims less total net paid claims plus outstanding liabilities for net unpaid claims of prior years.

LTD and Group Life Waiver Claims


																					Incurred			Cumulative
																					but not			number of
																					reported			reported
	Net incurred claims (1)																				claims			claims

	December 31,
	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022		2022		2022

	($ in millions)
Incurral
year
2013	$	219.3	$	203.3	$	188.4	$	190.7	$	182.3	$	179.5	$	177.1	$	173.4	$	174.5	$	174.5	$	0.1		7,051
2014				242.2		231.4		214.4		218.1		206.2		201.9		202.0		199.3		199.8		0.1		7,604
2015						231.0		227.2		217.2		215.3		208.2		210.0		211.8		210.5		0.1		7,181
2016								229.8		228.4		219.4		219.5		214.4		218.7		221.9		0.1		6,167
2017										238.4		239.7		243.1		245.8		245.2		246.5		0.1		6,082
2018												239.4		245.1		239.2		239.8		235.3		0.1		5,774
2019														255.2		248.4		240.4		240.2		5.7		5,945
2020																252.1		231.0		221.1		8.4		5,913
2021																		259.7		244.5		4.0		5,484
2022																				274.3		109.8		3,422
Total net incurred claims																			$	2,268.6


	Net cumulative paid claims (1)
	December 31,
	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022

	(in millions)
Incurral
year
2013	$	12.5	$	55.0	$	81.4	$	97.0	$	106.4	$	116.4	$	123.2	$	129.0	$	134.9	$	139.6
2014				16.1		66.0		96.3		111.8		122.3		132.4		140.8		147.2		153.3
2015						16.9		67.0		98.0		114.6		126.8		137.1		146.5		154.0
2016								16.2		70.6		105.6		124.9		136.8		147.2		157.1
2017										17.8		76.5		115.0		135.9		151.7		165.4
2018												20.1		79.9		115.7		135.7		150.3
2019														19.2		79.7		117.5		136.4
2020																20.6		78.8		113.1
2021																		19.8		79.0
2022																				19.6
Total net paid claims																				1,267.8
All outstanding liabilities for unpaid claims prior to 2013 net of reinsurance																				239.5
Total outstanding liabilities for unpaid claims net of reinsurance																			$	1,240.3

(1)	2013-2021 unaudited.

Dental, Vision, STD, Critical Illness, Accident and PFML Claims

Incurred

Cumulative

but not

number of

reported

Net incurred claims (1)

claims

December 31,

2021

2022

($ in millions)

Incurral year

2021

$

826.0

$

814.1

$

—

3,749,753

2022

924.4

56.5

4,114,456

Total net incurred claims

$

1,738.5

Net cumulative

paid claims (1)

December 31,

2021

2022

(in millions)

Incurral year

2021

$

753.4

$

813.3

2022

845.5

Total net paid claims

1,658.8

All outstanding liabilities for unpaid claims prior to 2021 net of reinsurance

—

Total outstanding liabilities for unpaid claims net of reinsurance

$

79.7

(1)	2021 unaudited.

Group Life Claims

Incurred

Cumulative

but not

number of

reported

Net incurred claims (1)

claims

December 31,

2021

2022

($ in millions)

Incurral year

2021

$

317.6

$

321.5

$

0.8

7,079

2022

279.3

24.7

5,368

Total net incurred claims

$

600.8

Net cumulative

paid claims (1)

December 31,

2021

2022

(in millions)

Incurral year

2021

$

243.9

$

314.3

2022

218.3

Total net paid claims

532.6

All outstanding liabilities for unpaid claims prior to 2021 net of reinsurance

5.0

Total outstanding liabilities for unpaid claims net of reinsurance

$

73.2

(1)	2021 unaudited.

Reconciliation of Unpaid Claims to Liability for Unpaid Claims

Our reconciliation of net outstanding liabilities for unpaid claims of short-duration contracts to the liability for unpaid claims follows:

December 31, 2022

Dental, Vision, STD,

LTD and Group Life

Critical Illness,

Waiver

Accident and PFML

Group Life

Consolidated

(in millions)

Net outstanding liabilities for unpaid claims

$

1,240.3

$

79.7

$

73.2

$

1,393.2

Reconciling items:

Reinsurance recoverable on unpaid claims

45.3

—

0.4

45.7

Impact of discounting

(209.4)

—

(209.4)

Liability for unpaid claims - short-duration contracts

$

1,076.2

$

79.7

$

73.6

1,229.5

Insurance contracts other than short-duration

1,603.6

Liability for unpaid claims

$

2,833.1

Claim Duration and Payout

Our historical average percentage of claims paid in each year from incurral was as follows:


	December 31, 2022 (1)
			Dental, Vision, STD,
	LTD and Group Life		Critical Illness,
Year	Waiver		Accident and PFML		Group Life
1	7.9	%	91.8	%	79.6	%
2	24.7		8.0		18.5
3	15.4
4	8.3
5	5.8
6	5.2
7	4.3
8	3.4
9	3.2
10	2.6

(1)	Unaudited.

Discounting

The following table provides the carrying amount of liabilities reported at present value for short-duration contract unpaid claims. We use a range of discount rates to derive the present value of the unpaid claims. The ranges of discount rates as well as the aggregate amount of discount deducted to derive the liabilities for unpaid claims and interest accretion recognized are also disclosed. Interest accretion is included in benefits, claims and settlement expenses within our consolidated statements of operations.


						Dental, Vision, STD,
	LTD and Group Life					Critical Illness,
	Waiver					Accident and PFML					Group Life

	($ in millions)
Carrying amount of liabilities for unpaid claims
December 31, 2022	$			1,076.2		$			79.7		$			73.6
December 31, 2021				1,057.5					73.1					80.2
Range of discount rates
December 31, 2022		2.8	-	7.0	%		—	-	—	%		—	-	—	%
December 31, 2021		2.8	-	7.0			—	-	—			—	-	—
Aggregate amount of discount
December 31, 2022	$			209.4		$			—		$			—
December 31, 2021				208.0					—					—
Interest accretion
For the year ended:
December 31, 2022	$			33.0		$			—		$			—
December 31, 2021				33.8					—					—
December 31, 2020				33.9					—					—

Reinsurance

12 Months Ended

Dec. 31, 2022

Reinsurance

Reinsurance

9. Reinsurance

We reinsure a portion of the insurance risks associated with our individual disability, traditional life, universal life, medical and long-term care insurance as well as retail fixed annuity contracts with significant life insurance risk through reinsurance agreements with unaffiliated reinsurance companies, primarily on a quota share, excess loss, yearly renewable term or coinsurance basis. During the second quarter of 2022, we closed a coinsurance with funds withheld reinsurance transaction with Talcott Life & Annuity Re in which we ceded our in-force U.S. retail fixed annuity and ULSG blocks of business. The economics of the transaction were effective as of January 1, 2022. We use both the reinsurance and deposit methods of accounting for this transaction. For further information about this transaction, refer to Note 1, Nature of Operations and Significant Accounting Policies.

We are contingently liable with respect to reinsurance ceded to other companies in the event the reinsurer is unable to meet the obligations it has assumed. As of December 31, 2022, and December 31, 2021, we had $14,128.7 million and $1,186.5 million of net ceded reinsurance recoverables, respectively, which does not reflect potentially offsetting impacts of collateral. As of December 31, 2022, and December 31, 2021, $13,660.1 million, or 99.7%, and $578.0 million, or 95.5%, were with our five largest ceded reinsurers, respectively.

The effects of reinsurance on premiums and other considerations and policy and contract benefits were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Premiums and other considerations:
Direct	$	5,796.1	$	5,492.1	$	6,647.1
Ceded		(456.4)		(650.6)		(609.7)
Net premiums and other considerations	$	5,339.7	$	4,841.5	$	6,037.4

Benefits, claims and settlement expenses:
Direct	$	7,947.0	$	7,766.2	$	8,810.1
Ceded		(1,576.2)		(669.2)		(528.6)
Net benefits, claims and settlement expenses	$	6,370.8	$	7,097.0	$	8,281.5

As of December 31, 2022, we had a $7,900.9 million reinsurance deposit receivable.

Refer to Note 4, Investments, for information on our financing receivables valuation allowance related to the reinsurance recoverable and deposit receivable.

Cost of Reinsurance

A reinsurance asset or liability is established to spread the expected net reinsurance costs or profits over the expected term of the contracts. The cost of reinsurance asset and liability are reported in premiums due and other receivables and liability for future policy benefits and claims, respectively, on the consolidated statements of financial position. The cost of reinsurance asset and liability included on the consolidated statements of financial position were as follows:


	December 31, 2022		December 31, 2021

	(in millions)
Cost of reinsurance asset	$	3,689.2	$	46.5

Cost of reinsurance liability	$	84.2	$	22.1

Cost of reinsurance amortization of $84.5 million, $(18.0) million and $67.4 million for the years ended December 31, 2022, 2021 and 2020, respectively, was reported in benefits, claims and settlement expenses on the consolidated statements of operations.

Funds Withheld

The following assets were held in support of our reserves associated with our coinsurance with funds withheld agreement and are reported in the line items shown on the consolidated statements of financial position.


	December 31, 2022
	(in millions)
Fixed maturities, available-for-sale	$	15,693.5
Fixed maturities, trading		100.8
Equity securities		11.0
Mortgage loans		2,810.8
Other investments		179.8
Cash and cash equivalents		1,762.9
Accrued interest income		178.7
Net other liabilities		(33.6)
Net assets	$	20,703.9

Certain assets are reported at amortized cost while the fair value of those assets is reflected in the funds withheld payable. We had a $20,436.1 million funds withheld payable as of December 31, 2022, which was net of a $3,652.8 million embedded derivative asset. The change in fair value of the embedded derivative was a gain of $3,652.8 million, $0.0 million and $0.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

While the economic benefits of the funds withheld assets flow to Talcott Life & Annuity Re, we retain legal ownership of the assets within the funds withheld account. Guidelines are in place to ensure the investment risk is appropriately managed. Net investment income and net realized capital gains (losses) related to the assets on the consolidated statements of operations is reported net of the amounts that flow to Talcott Life & Annuity Re. The realized gains and losses that do not flow to Talcott Life & Annuity Re are reported in net realized capital gains (losses) on funds withheld assets on the consolidated statements of operations.

Following are the components of net investment income on the funds withheld assets that were passed to Talcott Life & Annuity Re.


	For the year ended
	December 31, 2022
	(in millions)
Fixed maturities, available-for-sale	$	745.9
Fixed maturities, trading		2.0
Equity securities		0.6
Mortgage loans		98.4
Cash and cash equivalents		18.2
Other		4.8
Total		869.9
Investment expenses		(20.5)
Net investment income	$	849.4

Following are the components of net realized capital gains (losses) on the funds withheld assets that were passed to Talcott Life & Annuity Re.


	For the year ended
	December 31, 2022
	(in millions)
Fixed maturities, available-for-sale	$	(235.5)
Fixed maturities, trading		(6.4)
Equity securities		(2.4)
Mortgage loans		(24.8)
Derivatives		2.7
Other		3.3
Net realized capital losses	$	(263.1)

Debt

12 Months Ended

Dec. 31, 2022

Debt

Debt

10. Debt

Short-Term Debt

The components of short-term debt were as follows:


			December 31, 2022
	Financing				Short-term debt
Obligor/Applicant	structure	Maturity	Capacity		outstanding

			(in millions)
Principal Life	Credit facility	October 2027	$	800.0	$	—
	Unsecured
Principal International Chile (1)	lines of credit			136.9		80.7
Total			$	936.9	$	80.7


			December 31, 2021
	Financing				Short-term debt
Obligor/Applicant	structure	Maturity	Capacity		outstanding

			(in millions)
PFG, PFS and Principal Life as co-borrowers	Credit facility	November 2023	$	600.0	$	—
PFG, PFS, Principal Life and Principal Financial
Services V (UK) Ltd as co-borrowers	Credit facility	November 2023		200.0		—
	Unsecured
Principal International Chile (1)	lines of credit			145.6		79.8
Total			$	945.6	$	79.8

(1)	The unsecured lines of credit can be used for repurchase agreements or other borrowings. Each line has a maturity of less than one year.

Our revolving credit facilities are committed and available for general corporate purposes. These credit facilities also provide 100% back-stop support for our commercial paper program, of which we had no outstanding balances as of December 31, 2022 and 2021. The weighted-average interest rate on short-term borrowings as of December 31, 2022 and 2021, was 6.0% and 3.2%, respectively.

Long-Term Debt

The components of long-term debt were as follows:


	December 31, 2022
	Principal		Net unamortized discount, premium and debt issuance costs		Carrying amount

	(in millions)
3.125% notes payable, due 2023	$	300.0	$	(0.1)	$	299.9
3.4% notes payable, due 2025		400.0		(1.2)		398.8
3.1% notes payable, due 2026		350.0		(1.4)		348.6
3.7% notes payable, due 2029		500.0		(4.3)		495.7
2.125% notes payable, due 2030		600.0		(3.6)		596.4
6.05% notes payable, due 2036		505.6		(2.3)		503.3
4.625% notes payable, due 2042		300.0		(2.9)		297.1
4.35% notes payable, due 2043		300.0		(3.0)		297.0
4.3% notes payable, due 2046		300.0		(3.1)		296.9
Floating rate notes payable, due 2055		400.0		(4.5)		395.5
Non-recourse mortgages and notes payable		67.1		0.7		67.8
Total long-term debt	$	4,022.7	$	(25.7)	$	3,997.0


	December 31, 2021
	Principal		Net unamortized discount, premium and debt issuance costs		Carrying amount

	(in millions)
3.3% notes payable, due 2022	$	300.0	$	(0.3)	$	299.7
3.125% notes payable, due 2023		300.0		(0.4)		299.6
3.4% notes payable, due 2025		400.0		(1.7)		398.3
3.1% notes payable, due 2026		350.0		(1.9)		348.1
3.7% notes payable, due 2029		500.0		(5.0)		495.0
2.125% notes payable, due 2030		600.0		(4.1)		595.9
6.05% notes payable, due 2036		505.6		(2.3)		503.3
4.625% notes payable, due 2042		300.0		(3.0)		297.0
4.35% notes payable, due 2043		300.0		(3.0)		297.0
4.3% notes payable, due 2046		300.0		(3.1)		296.9
Floating rate notes payable, due 2055		400.0		(4.6)		395.4
Non-recourse mortgages and notes payable		53.7		0.3		54.0
Total long-term debt	$	4,309.3	$	(29.1)	$	4,280.2

Net discount, premium and issuance costs associated with issuing these notes are amortized to expense over the respective terms using the interest method.

On June 12, 2020, we issued $500.0 million of senior notes at a discount. On August 3, 2020, we issued an additional $100.0 million of senior notes at a premium. These notes bear interest at 2.125% and will mature in 2030. Interest on the notes is payable semi-annually on June 15 and December 15 each year, beginning on December 15, 2020. The proceeds from these notes were used for general corporate purposes.

On May 7, 2019, we issued $500.0 million of senior notes. The notes bear interest at 3.7% and will mature in 2029. Interest on the notes is payable semi-annually on May 15 and November 15 each year, beginning on November 15, 2019. The proceeds from these notes, along with available cash, were used to fund the acquisition of the Acquired Business.

On November 10, 2016, we issued $650.0 million of senior notes. We issued a $350.0 million series of notes that bear interest at 3.1% and will mature in 2026 and a $300.0 million series of notes that bear interest at 4.3% and will mature in 2046. Interest on the notes is payable semi-annually on May 15 and November 15 each year, beginning on May 15, 2017. The proceeds from these notes were used to redeem our notes payable due in 2017 and 2019. We incurred a one-time cost to extinguish this debt before the scheduled maturity date.

On May 7, 2015, we issued $400.0 million of senior notes. The notes bear interest at 3.4% and will mature in 2025. Interest on the notes is payable semi-annually on May 15 and November 15 each year, beginning on November 15, 2015. In addition, on May 7, 2015, we issued $400.0 million of junior subordinated notes, which are subordinated to all our senior debt. The notes became callable in 2020 and have a maturity date in 2055. The notes initially bore a fixed rate of interest at 4.7% and converted to a floating rate at the date the notes became callable. Interest on the notes was payable semi-annually on May 15 and November 15 each year. After the call date the notes bear interest at 3-month LIBOR plus 3.044%, reset quarterly and payable in arrears in February, May, August and November each year. We have the right to defer interest payments on the junior subordinated notes for up to 5 years without resulting in a default, during which time interest will be compounded. The proceeds from these notes were used to redeem preferred stock, with the remainder available for general corporate purposes.

On November 16, 2012, we issued $900.0 million of senior notes. We issued a $300.0 million series of notes that bore interest at 1.85% and were to mature in 2017. These notes were repaid following our November 2016 debt issuance. We issued a $300.0 million series of notes that bear interest at 3.125% and will mature in 2023 and a $300.0 million series of notes that bear interest at 4.35% and will mature in 2043. Interest on the notes is payable semi-annually on May 15 and November 15 each year, beginning on May 15, 2013. The proceeds were used to fund our acquisition of Cuprum.

On September 5, 2012, we issued $600.0 million of senior notes. We issued a $300.0 million series of notes that bear interest at 3.3% and matured in 2022 and a $300.0 million series of notes that bear interest at 4.625% and will mature in 2042. Interest on the notes is payable semi-annually on March 15 and September 15 each year, beginning on March 15, 2013. The proceeds were used for the repayment of the $400.0 million aggregate principal amount of notes due in 2014 and to partially fund our acquisition of Cuprum.

On October 16 and December 5, 2006, we issued $500.0 million and $100.0 million, respectively, of senior notes. The notes bear interest at a rate of 6.05% per year. Interest on the notes is payable semi-annually on April 15 and October 15 each year and began on April 15, 2007. The notes will mature on October 15, 2036. A portion of the proceeds were used to fund the 2006 acquisition of WM Advisors, Inc., with the remaining proceeds being used for general corporate purposes. A tender offer in the fourth quarter of 2016 resulted in redemption of $94.4 million of the senior notes. We incurred a one-time cost to extinguish this debt before the scheduled maturity date.

The non-recourse mortgages and notes payable are primarily financings for real estate developments. Outstanding principal balances as of December 31, 2022, ranged from $3.0 million to $15.9 million per development with interest rates ranging from 3.5% to 4.8%. Outstanding principal balances as of December 31, 2021, ranged from $3.1 million to $14.4 million per development with interest rates ranging from 3.5% to 4.8%. Outstanding debt is secured by the underlying real estate properties, which were reported as real estate on our consolidated statements of financial position with a carrying value of $317.6 million and $198.3 million as of December 31, 2022 and 2021, respectively.

As of December 31, 2022, future annual maturities of long-term debt were as follows (in millions):


Year ending December 31:
2023	$	325.2
2024		32.8
2025		399.2
2026		355.1
2027		0.1
Thereafter		2,884.6
Total future maturities of long-term debt	$	3,997.0

Contingent Funding Agreements for Senior Debt Issuance

On March 8, 2018, we entered into two contingent funding agreements: (1) a 10-year contingent funding agreement with a Delaware trust (“2028 Trust”) formed by us in connection with the sale by the trust of $400.0 million pre-capitalized trust securities redeemable February 15, 2028 (“2028 P-Caps”) in a Rule 144A private placement and (2) a 30-year contingent funding agreement with a Delaware trust (“2048 Trust”) formed by us in connection with the sale by the trust of $350.0 million pre-capitalized trust securities redeemable February 15, 2048 (“2048 P-Caps”) in a Rule 144A private placement. The trusts invested the proceeds from the sale of the 2028 P-Caps and 2048 P-Caps in a portfolio of principal and interest strips of U.S. Treasury securities. The contingent funding agreements provide us a put option that gives us the right to sell at any time: (1) to the 2028 Trust up to $400.0 million of its 4.111% Senior Notes due 2028 (“4.111% Senior Notes”) and (2) to the 2048 Trust up to $350.0 million of its 4.682% Senior Notes due 2048 (“4.682% Senior Notes”) and receive in exchange a corresponding amount of the principal and interest strips of U.S. Treasury securities held by the trusts. The 4.111% Senior Notes and 4.682% Senior Notes will not be issued unless and until a put option is exercised. We agreed to pay a semi-annual put premium of 1.275% and 1.580% per annum on the unexercised portion of the put option to the 2028 Trust and 2048 Trust, respectively, and to reimburse the trusts for expenses. The put option premiums are recorded in operating expenses in the consolidated statements of operations. The 4.111% Senior Notes and 4.682% Senior Notes will be fully, irrevocably and unconditionally guaranteed by PFS. In addition, our obligations under the put option agreement and the expense reimbursement agreement with the trusts are also guaranteed by PFS. The contingent funding agreements with the trusts provide us with a source of liquid assets, which could be used to meet future financial obligations or to provide additional capital.

The put options described above will be exercised automatically in full if we fail to make certain payments to the trusts, including any failure to pay the put option premium or expense reimbursements when due, if such failure is not cured within 30 days, and upon certain bankruptcy events involving us or PFS. We are also required to exercise the put option in full: (i) if we reasonably believe that our consolidated shareholders’ equity, calculated in accordance with U.S. GAAP but excluding AOCI and noncontrolling interest, has fallen below $4.0 billion, subject to adjustment in certain cases; (ii) upon the occurrence of an event of default under the 4.111% Senior Notes and 4.682% Senior Notes; and (iii) if certain events occur relating to each trust’s status as an “investment company” under the Investment Company Act of 1940. In addition, we are required to purchase from the trusts any principal and interest strips of U.S. Treasury securities that are due and not paid.

We have an unlimited right to unwind a prior voluntary exercise of the put options by repurchasing all of the 4.111% Senior Notes and 4.682% Senior Notes held by the trusts in exchange for a corresponding amount of principal and interest strips of U.S. Treasury securities. If the put options have been fully exercised, the 4.111% Senior Notes and 4.682% Senior Notes issued may be redeemed by us prior to their maturity at par or, if greater, at a make-whole redemption price, in each case plus accrued and unpaid interest to the date of redemption. The 2028 P-Caps are to be redeemed by the 2028 Trust on February 15, 2028, or upon any early redemption of the 4.111% Senior Notes. The 2048 P-Caps are to be redeemed by the 2048 Trust on February 15, 2048, or upon any early redemption of the 4.682% Senior Notes.

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-URI https://asc.fasb.org/topic&trid=2208564

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (h)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (c)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-Subparagraph (d)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(c))
-URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (g)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1E
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495348-112611

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
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-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
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-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

11. Income Taxes

Income Taxes (Benefits)

Our income taxes (benefits) were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Current income taxes (benefits):
U.S. federal	$	(56.3)	$	110.3	$	15.8
State		20.7		19.4		5.0
Foreign		53.6		38.3		55.4
Tax benefit of operating loss carryforward		(9.5)		(1.2)		(3.3)
Total current income taxes		8.5		166.8		72.9
Deferred income taxes (benefits):
U.S. federal		1,201.3		154.6		143.6
State		8.0		16.6		11.5
Foreign		(9.9)		(11.8)		37.0
Total deferred income taxes		1,199.4		159.4		192.1
Income taxes	$	1,207.9	$	326.2	$	265.0

Our income before income taxes was as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Domestic	$	5,821.5	$	1,889.1	$	1,323.2
Foreign		238.6		194.5		370.3
Total income before income taxes	$	6,060.1	$	2,083.6	$	1,693.5

Effective Income Tax Rate

Our provision for income taxes may not have the customary relationship of taxes to income. A reconciliation between the U.S. corporate income tax rate and the effective income tax rate was as follows:


	For the year ended December 31,
	2022		2021		2020
U.S. corporate income tax rate	21	%	21	%	21	%
Dividends received deduction	(1)		(4)		(4)
Tax credits	(1)		(2)		(3)
Impact of equity method presentation	—		(1)		(1)
Global Intangible Low-Taxed Income	1		—		—
State income taxes	—		1		1
Other	—		1		2
Effective income tax rate	20	%	16	%	16	%

Unrecognized Tax Benefits

Our changes in unrecognized tax benefits were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Balance at beginning of period	$	45.5	$	46.9	$	61.6
Additions based on tax positions related to the current year		—		1.8		1.3
Additions for tax positions of prior years		—		—		17.4
Reductions for tax positions related to the current year		(3.3)		(3.2)		(3.2)
Settlements		—		—		(14.5)
Expired statute of limitations		—		—		(15.7)
Balance at end of period (1)	$	42.2	$	45.5	$	46.9

(1)	If recognized, $1.6 million of the above amount of unrecognized tax benefits would reduce our 2022 effective income tax rate. We recognize interest and penalties related to uncertain tax positions in operating expenses within the consolidated statements of operations.

As of December 31, 2022, 2021 and 2020, we had recognized $1.4 million, $1.2 million and $1.1 million of accumulated pre-tax interest and penalties related to unrecognized tax benefits, respectively. We do not believe there is a reasonable possibility the total amount of the unrecognized tax benefits will significantly increase or decrease in the next twelve months considering recent settlements and the status of current and pending Internal Revenue Service (“IRS”) examinations.

Net Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our significant components of net deferred income taxes were as follows:


	December 31,
	2022		2021

	(in millions)
Deferred income tax assets:
Net operating loss carryforwards	$	86.1	$	68.2
Tax credit carryforwards		65.8		—
Net unrealized losses on available-for-sale securities		1,572.3		—
Employee benefits		305.3		377.9
Gross deferred income tax assets		2,029.5		446.1
Valuation allowance		(42.9)		(28.0)
Total deferred income tax assets		1,986.6		418.1
Deferred income tax liabilities:
Deferred acquisition costs		(794.7)		(582.3)
Investments, including derivatives		(224.7)		(304.2)
Funds withheld embedded derivative		(767.1)		—
Net unrealized gains on available-for-sale securities		—		(1,118.1)
Real estate		(141.0)		(141.6)
Intangible assets		(386.9)		(408.0)
Insurance liabilities		(735.9)		(44.2)
Other deferred income tax liabilities		(27.6)		(54.9)
Total deferred income tax liabilities		(3,077.9)		(2,653.3)
Total net deferred income tax liabilities	$	(1,091.3)	$	(2,235.2)

Our net deferred income taxes by jurisdiction were as follows:


	December 31,
	2022		2021

	(in millions)
Deferred income tax assets:
State	$	83.1	$	61.2
Foreign		32.4		23.8
Net deferred income tax assets		115.5		85.0
Deferred income tax liabilities:
U.S. federal		(920.5)		(2,023.6)
Foreign		(286.3)		(296.6)
Net deferred income tax liabilities		(1,206.8)		(2,320.2)
Total net deferred income tax liabilities	$	(1,091.3)	$	(2,235.2)

In management’s judgment, total deferred income tax assets are more likely than not to be realized. Included in the deferred income tax asset are federal net operating loss and tax credit carryforwards available to offset future taxable income or income taxes. As of December 31, 2022 and 2021, we had net operating loss and tax credit carryforwards for U.S. federal income tax purposes of $131.9 million and $0.0 million, respectively, primarily attributable to a reinsurance transaction that occurred during 2022. U.S. federal net operating losses carryover indefinitely; however, the tax credit carryforwards will expire if unused in 2042. As of December 31, 2022, these carryforwards are anticipated to be utilized before expiration; therefore, no valuation allowance has been provided for the related deferred income tax asset.

As of December 31, 2022 and 2021, state net operating loss carryforwards were $250.0 million and $267.3 million, respectively, and will expire between 2032 and 2040. As of December 31, 2022 and 2021, foreign net operating loss carryforwards were $229.5 million and $164.1 million, respectively, with some expiring in 2022 while others never expire. We maintain valuation allowances by jurisdiction against the deferred income tax assets related to some of these carryforwards and other items, as utilization of these income tax benefits fail the more likely than not criteria in certain jurisdictions. As of December 31, 2022 and 2021, valuation allowances of $42.9 million and $28.0 million, respectively, had been recorded against the income tax benefits associated primarily with foreign net operating loss carryforwards and net unrealized capital losses on benefit plan trusts. Adjustments to the valuation allowance will be made if there is a change in management’s assessment of the amount of the deferred income tax assets that are more likely than not to be realized.

Deferred tax liabilities are recognized for taxes payable on the unremitted earnings from foreign operations of our subsidiaries, except where it is our intention to indefinitely reinvest a portion or all of these undistributed earnings. As of December 31, 2022 and 2021, any applicable taxes that would be due upon repatriation were not provided on approximately $1,157.2 million and $912.8 million, respectively, of such accumulated but undistributed earnings from operations of foreign subsidiaries. We currently do not intend to repatriate these unremitted earnings because we have several liquidity options to fund our domestic operations and obligations. These options include investing and financing activities, such as issuing debt, as well as cash flow and dividends from domestic operations. As of December 31, 2022 and 2021, it was not practicable to determine the amount of the unrecognized deferred tax liability that would arise if foreign earnings were remitted, due to the complexity of our international holding company structure, and other significant tax attributes and varying state tax laws. Taxes on remittances would be limited to foreign currency gains or losses, foreign withholding taxes and state income taxes, which we would anticipate to be immaterial. As of December 31, 2022, deferred taxes were also not provided on the approximately $106.2 million of excess book carrying value over tax basis with respect to the original investment in our foreign subsidiaries. A tax liability will be recognized when we no longer plan to indefinitely reinvest a portion or all of these earnings or when we plan to sell a portion or all of our ownership interest.

Effects of Tax Legislation

The Inflation Reduction Act of 2022 (“IRA 2022”) was enacted by the U.S. government on August 16, 2022. The IRA 2022 implements a new corporate alternative minimum tax (the Book Minimum Tax or “BMT”) effective January 1, 2023. We are expected to be an “Applicable Corporation,” which requires computation of our U.S. federal income tax liability under two systems, the U.S. regular corporate tax (“RCT”) and the BMT. Although the BMT may apply in any given year when tentative minimum tax (“TMT”) then exceeds the RCT liability, as a “prepayment” the BMT generates a corresponding alternative minimum tax credit (“AMTC”). The AMTC is accounted for as a deferred tax asset (“DTA”) with an indefinite carryover life recoverable in years when the RCT liability then exceeds TMT.

The tax accounting consequences of a change in tax law is required to be recognized in the period legislation is enacted. Generally, a company is also required to consider the impact of new tax law on realizability of its DTAs, including determination of whether a change to their valuation allowance amounts is necessary. We made an accounting policy election to disregard our BMT status when evaluating DTAs under the RCT system associated with the IRA 2022.

The State of Iowa coupled with the Internal Revenue Code effective January 1, 2019, and subsequently issued interpretative guidance in the fourth quarter of 2019 on application of the U.S. Global Intangible Low-Taxed Income rules. The State of Iowa’s interpretation resulted in an $11.1 million increase in total income tax expense for adjustments to deferred tax assets and liabilities in our 2019 financial statements. Iowa legislation was enacted on June 29, 2020 to de-couple from the federal application of the U.S. Global Intangible Low-Taxed Income rules effective retroactively to January 1, 2019; therefore, the above-mentioned increase in total income tax expense reported in 2019 was reversed in 2020.

Other Tax Information

Income tax returns are filed in U.S. federal jurisdiction as well as various states and foreign jurisdictions where we and one or more of our subsidiaries conduct business. Although determined by jurisdiction, with few exceptions our tax uncertainties relate primarily to U.S. federal income tax matters. The IRS has completed examination of our consolidated U.S. federal income tax returns for years prior to 2013 and did not exam 2013 and 2014. IRS claims for refund for tax years 2004 through 2008, following settlement of a partnership matter with the Department of Justice in March 2019, were finalized in 2020 and have been received in full as of December 31, 2021. IRS claims for refund filed for tax years 2006 through 2008 were received in September 2020. In 2019, an IRS 30-day letter on examination of tax years 2009 through 2012 was received, the proposed adjustments found acceptable, and associated tax settlements subsequently occurred in 2020 prior to expiration of the extended statute of limitations. As of December 31, 2022 and 2021, we had $(5.6) million and $12.7 million, respectively, of current income tax receivables (payables) associated with outstanding audit issues.

The U.S. federal statute of limitations has expired for years prior to 2015. The IRS is currently auditing our U.S. federal income tax returns for tax years 2015-2018, which remain open through statute extensions. The normal statute of limitations remains open for tax years thereafter. The IRS will begin audit of tax years 2019-2021 in 2023. We do not expect the results of these audits, subsequent related adjustments or developments in other tax areas for all open tax years to significantly change the possible increase in the amount of unrecognized tax benefits, but the outcome of tax reviews is uncertain and unforeseen results can occur.

We believe we have adequate defenses against, or sufficient provisions for, contested issues, but final resolution could take several years depending on whether legal remedies are pursued. Consequently, we do not believe issues that might arise in tax years subsequent to 2014 will have a material impact on our net income.

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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Employee and Agent Benefits

Employee and Agent Benefits

12 Months Ended

Dec. 31, 2022

Employee and Agent Benefits

12. Employee and Agent Benefits

We provide a U.S. qualified defined benefit pension plan, covering U.S. employees that meet certain eligibility requirements and certain agents contracted on or before December 31, 2018. A final average pay benefit formula has been in place for plan participants employed prior to January 1, 2002. For agents, this formula ended on December 31, 2018, and for employees the formula ended on December 31, 2022. The final average pay benefit is based on the years of service and generally the employee’s or agent’s average annual compensation during the last five years prior to the earliest of termination, retirement or the formula end date. A cash balance benefit was added on January 1, 2002. A participant’s cash balance account is credited with an amount based on the participant’s salary, age and service. These credits accrue with interest. For plan participants hired on and after January 1, 2002, only the cash balance benefit applies. For pre-2002 participants, the pension benefit earned prior to the final average pay formula end date is the greater of the final average pay benefit or the cash balance benefit earned before the end date. They will also earn a new cash balance benefit for service after the formula end date.

In addition, we sponsor non-qualified defined benefit plans subject to Section 409A of the Internal Revenue Code. This plan is for certain highly compensated employees and agents to replace the benefit that cannot be provided by the qualified defined benefit pension plan due to IRS limits. These nonqualified plans generally parallel the qualified plan but offer different payment options. No agent will become a new participant in the nonqualified plan after December 31, 2018.

We provide certain health care, life insurance and long-term care benefits for retired employees, their beneficiaries and covered dependents (“other postretirement benefits”). While virtually all U.S. employees continue to have access to the postretirement health care and life insurance benefits, only those U.S. employees that were hired prior to January 1, 2002, and retired prior to January 1, 2011, (post-65 medical) or January 1, 2020, (life insurance and pre-65 medical) were eligible to receive subsidized benefits. All others pay the full cost of coverage. The long-term care plan was subsidized only for those who retired prior to January 1, 2000, and is no longer accessible. The subsidy level for all benefits varies by plan, age, service and retirement date.

The funding policy for all employee benefit plans is to fund the cost of providing pension benefits in the years that the employees and agents are providing service, taking into account the funding status of the trust. For the qualified defined benefit plan, this policy will be subject to an amount no lower than the minimum annual contribution required under the Employee Retirement Income Security Act (“ERISA”), and, generally, not greater than the maximum amount that can be deducted for U.S. federal income tax purposes. While we designate assets to cover the computed liability of the nonqualified pension plan, the assets are not included as part of the asset balances presented in this footnote as they do not qualify as plan assets in accordance with U.S. GAAP.

Obligations and Funded Status

The plans’ combined funded status, reconciled to amounts recognized in the consolidated statements of financial position, was as follows:


					Other postretirement
	Pension benefits				benefits
	December 31,				December 31,
	2022		2021		2022		2021

	(in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	(4,183.7)	$	(4,210.2)	$	(95.3)	$	(108.0)
Service cost		(78.4)		(83.2)		—		—
Interest cost		(112.8)		(103.3)		(2.3)		(2.2)
Actuarial gain		1,023.5		75.8		19.5		7.6
Participant contributions		—		—		(6.4)		(6.1)
Benefits paid		142.0		137.2		13.5		13.5
Other		—		—		—		(0.1)
Benefit obligation at end of year	$	(3,209.4)	$	(4,183.7)	$	(71.0)	$	(95.3)

Change in plan assets
Fair value of plan assets at beginning of year	$	3,550.1	$	3,373.5	$	119.8	$	780.6
Actual return on plan assets		(754.3)		208.7		(20.0)		1.6
Employer contribution		72.5		105.1		1.7		1.5
Participant contributions		—		—		6.4		6.1
Benefits paid		(142.0)		(137.2)		(13.5)		(13.5)
Assets re-designated for non-retiree benefits		—		—		—		(656.5)
Fair value of plan assets at end of year	$	2,726.3	$	3,550.1	$	94.4	$	119.8

Amount recognized in statement of financial position
Other assets	$	—	$	—	$	23.4	$	24.5
Other liabilities		(483.1)		(633.6)		—		—
Total	$	(483.1)	$	(633.6)	$	23.4	$	24.5

Amount recognized in accumulated other comprehensive (income) loss
Total net actuarial (gain) loss	$	442.0	$	588.0	$	(20.2)	$	(26.7)
Prior service benefit		(87.4)		(104.2)		(5.1)		(6.2)
Pre-tax accumulated other comprehensive (income) loss	$	354.6	$	483.8	$	(25.3)	$	(32.9)

The accumulated benefit obligation for all defined benefit pension plans was $3,209.4 million and $4,149.3 million as of December 31, 2022 and 2021, respectively.

Employer contributions to the pension plans include contributions made directly to the qualified pension plan assets and contributions from corporate assets to pay nonqualified pension benefits. Benefits paid from the pension plans include both qualified and nonqualified plan benefits. Nonqualified pension plan assets are not included as part of the asset balances presented in this footnote. 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 $336.7 million and $386.3 million as of December 31, 2022 and 2021, respectively.

Pension Plan Changes and Plan Gains/Losses

For the year ended December 31, 2022, the pension plans had an actuarial gain primarily due to an increase in discount rate. For the year ended December 31, 2021, the pension plans had an actuarial gain primarily due to an increase in discount rate offset by changes in actuarial assumptions.

Other Postretirement Plan Changes and Plan Gains/Losses

For the year ended December 31, 2022, the other postretirement benefit plans had an actuarial gain primarily due to an increase in the discount rates and actual medical claims costs being lower than previously expected. For the year ended December 31, 2021, the other postretirement benefit plans had an actuarial gain primarily due to an increase in the discount rate and actual, along with projected, medical claim costs being lower than previously expected.

Effective January 1, 2021, $656.5 million of assets in excess of the expected liability to cover the postretirement medical benefits for retirees were re-designated for non-retiree benefits. The elections were made pursuant to plan provisions, which provide for assets in excess of 125% of expected liabilities to fund other benefits covered under the plans. The re-designated assets, net of associated tax receivable impacts related to a tax adjustment to accumulated other comprehensive income, are not included as part of the asset balances presented in the footnote as they no longer qualify as plan assets in accordance with U.S. GAAP. The re-designated assets are included in equity securities and other investments on our consolidated statements of financial position beginning January 1, 2021.

Information for Pension Plans With an Accumulated Benefit Obligation in Excess of Plan Assets

For 2022 and 2021, both the qualified and nonqualified plans had accumulated benefit obligations in excess of plan assets. As noted previously, the nonqualified plans have assets that are deposited in trusts that fail to meet the U.S. GAAP requirements to be included in plan assets; however, these assets are included in our consolidated statements of financial position.


	December 31,
	2022		2021

	(in millions)
Projected benefit obligation	$	3,209.4	$	4,183.7
Accumulated benefit obligation		3,209.4		4,149.3
Fair value of plan assets		2,726.3		3,550.1

We did not have any other postretirement benefit plans with an accumulated postretirement benefit obligation in excess of plan assets.

Components of Net Periodic Benefit Cost


	Pension benefits						Other postretirement benefits

	For the year ended December 31,
	2022		2021		2020		2022		2021		2020

	(in millions)
Service cost	$	78.4	$	83.2	$	72.7	$	—	$	—	$	—
Interest cost		112.8		103.3		117.3		2.3		2.2		2.8
Expected return on plan assets		(178.9)		(182.7)		(156.8)		(4.9)		(4.8)		(36.0)
Amortization of prior service benefit		(16.8)		(16.8)		(16.8)		(1.1)		(1.1)		(1.0)
Recognized net actuarial (gain) loss		55.7		70.2		75.4		(1.1)		(0.5)		—
Net periodic benefit cost (income)	$	51.2	$	57.2	$	91.8	$	(4.8)	$	(4.2)	$	(34.2)

The components of net periodic benefit cost including the service cost component are included in operating expenses on the consolidated statements of operations.

The pension plans’ actuarial gains and losses are amortized using a straight-line amortization method over the average remaining service period of plan participants. The other postretirement plans use a straight-line amortization over the average future lifetime of its remaining covered group of retirees. For the qualified pension plan, gains and losses are amortized without use of the 10% allowable corridor. For the nonqualified pension plans and other postretirement benefit plans, the corridors allowed are used.


	Pension benefits				Other postretirement benefits

	For the year ended December 31,
	2022		2021		2022		2021

	(in millions)
Other changes recognized in accumulated other comprehensive (income) loss
Net actuarial (gain) loss	$	(90.3)	$	(101.8)	$	5.4	$	(4.4)
Amortization of gain (loss)		(55.7)		(70.2)		1.1		0.5
Amortization of prior service benefit		16.8		16.8		1.1		1.1
Total recognized in pre-tax accumulated other comprehensive (income) loss	$	(129.2)	$	(155.2)	$	7.6	$	(2.8)
Total recognized in net periodic benefit cost and pre-tax accumulated other comprehensive (income) loss	$	(78.0)	$	(98.0)	$	2.8	$	(7.0)

Net actuarial (gain) loss and net prior service cost benefit have been recognized in AOCI.

Assumptions

Weighted-average assumptions used to determine benefit obligations as disclosed under the Obligations and Funded Status section


	Pension benefits
	December 31,
	2022		2021
Discount rate	5.10	%	2.75	%
Interest crediting rate - cash balance benefit	5.00	%	5.00	%
Rate of compensation increase	4.53	%	4.59	%

	Other postretirement benefits
	December 31,
	2022		2021
Discount rate	5.00	%	2.50	%
Rate of compensation increase	N/A		N/A

Weighted average assumptions used to determine net periodic benefit cost


	Pension benefits
	For the year ended December 31,
	2022		2021		2020
Discount rate	2.75	%	2.50	%	3.25	%
Expected long-term return on plan assets	5.20	%	5.55	%	5.60	%
Interest crediting rate - cash balance benefit	5.00	%	5.00	%	5.00	%
Rate of compensation increase:
Cash balance benefit	4.59	%	4.92	%	4.95	%
Traditional benefit	N/A	%	2.96	%	2.98	%

	Other postretirement benefits
	For the year ended December 31,
	2022		2021		2020
Discount rate (1)	2.50	%	2.10	%	2.95	%
Expected long-term return on plan assets	4.25	%	4.25	%	4.94	%
Rate of compensation increase	N/A		N/A		N/A

(1)	During the second quarter 2020, subsidy increases provided under the long-term care plan were capped at 5% per calendar year. This change was remeasured as of March 31, 2020. A discount rate of 2.95% was used until the remeasurement date at which time a discount rate of 2.90% was used.

The assumed salary growth rates used to project benefits for the projected benefit obligation are age-based for home office employees. The rate labeled cash balance benefit (relative to employees accruing a cash balance) is the lifecount-weighted average rate of salary growth in the coming year only, as the impact of salary assumption for cash balance benefits are limited to the upcoming year service cost. The rate labeled traditional benefit (relative to employees still accruing a final average pay benefit) is the lifecount-weighted average (at each age) of the single annual growth rate at the age that is equivalent to applying the scale from that age to assumed termination or retirement ages. For the December 31, 2021, pension benefit obligation and going forward, one average rate of compensation increase is disclosed for all participants as the traditional benefit is frozen as of December 31, 2022.

For the pension benefits, the 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. The plans’ expected benefit payments are discounted to determine a present value using the yield curve and the discount rate is the level rate that produces the same present value. The expected return on plan assets is the long-term rate we expect to be earned based on the long-term investment policy of the plans and the various classes of invested funds. A weighted average rate was developed based on those overall rates and the target asset allocation of the plans.

For other postretirement benefits, the discount rate is determined by projecting future benefit payments inherent in the accumulated postretirement benefit obligation and discounting those cash flows using a spot yield curve for high quality corporate bonds. The plans’ expected benefit payments are discounted to determine a present value using the yield curve and the discount rate is the level rate that produces the same present value. The 4.25% expected long-term return on plan assets for 2022 was based on the weighted average expected long-term asset returns for the plans. The expected long-term rates for the home office medical/life, agent medical/life and post-65 medical plans were 4.25%, 4.25% and 4.25%, respectively.

Assumed Health Care Cost Trend Rates Used to Determine Net Periodic Benefit Cost


	December 31,
	2022		2021
Health care cost trend rate assumed for next year under age 65	7.00	%	7.00	%
Health care cost trend rate assumed for next year age 65 and over	6.00	%	6.50	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.50	%	4.50	%
Year that the rate reaches the ultimate trend rate (under age 65)	2031		2030
Year that the rate reaches the ultimate trend rate (65 and older)	2028		2029

Pension Plan and Other Postretirement Benefit Plan Assets

Fair value is defined as the price that would be received to sell an asset 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.

●	Level 1 – Fair values are based on unadjusted quoted prices in active markets for identical assets.

●	Level 2 – Fair values are based on inputs other than quoted prices within Level 1 that are observable for the asset, either directly or indirectly.

●	Level 3 – Fair values are based on significant unobservable inputs for the asset.

Our pension plan assets consist of investments in pooled separate accounts and single client separate accounts. Net asset value (“NAV”) of the pooled separate accounts is calculated in a manner consistent with U.S. GAAP for investment companies and is determinative of their fair value. Several of the pooled separate accounts invest in publicly quoted mutual funds or actively managed stocks. The fair value of the underlying mutual funds or stocks is used to determine the NAV of the separate account, which is not publicly quoted. Some of the pooled separate accounts also invest in fixed income securities. The fair value of the underlying securities is based on quoted prices of similar assets and used to determine the NAV of the separate account. Some of the pooled separate accounts invest in real estate properties. The fair value is based on discounted cash flow valuation models that utilize public real estate market data inputs such as transaction prices, market rent growth, vacancy levels, leasing absorption, market capitalization rates and discount rates.

The single client separate accounts invest in fixed income securities, hedge funds, a pooled separate account investment and other assets. The fixed income securities include U.S. Treasury bonds for which the fair value is based on quoted prices of identical assets in active markets. The fair value of the other fixed income securities is determined either from prices obtained from third party pricing vendors who use observable market information to determine prices or from internal models using substantially all observable inputs or a matrix pricing valuation approach. The hedge funds are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy. The NAV of the pooled separate account investment is calculated in a manner consistent with U.S. GAAP for investment companies and is determinative of its fair value. The carrying amounts of other assets, which are highly liquid in nature, are used to approximate fair value.

Our other postretirement benefit plan assets consist of cash, investments in fixed income security portfolios and investments in equity security portfolios. Because of the nature of cash, its carrying amount approximates fair value. The fair value of fixed income investment funds, U.S. equity portfolios and international equity portfolios is based on quoted prices in active markets for identical assets.

Pension Plan Assets

The fair value of the qualified pension plan’s assets by asset category as of the most recent measurement date was as follows:

December 31, 2022

Assets

Amount

Fair value hierarchy level

measured at

fair value

net asset value

Level 1

Level 2

Level 3

(in millions)

Asset category

Pooled separate account investments:

U.S. large cap equity portfolios (1)

$

282.5

$

—

$

—

$

282.5

$

—

U.S. small/mid cap equity portfolios (2)

47.3

—

47.3

—

Balanced asset portfolios (3)

101.4

—

101.4

—

International equity portfolios (4)

143.9

—

143.9

—

Real estate investment portfolios (5)

238.4

—

238.4

—

Single client separate account investments:

Fixed income securities:

U.S. government and agencies

447.0

—

447.0

—

States and political subdivisions

25.0

—

25.0

—

Corporate

1,336.9

—

1,336.9

—

Commercial mortgage-backed securities

16.1

—

16.1

—

Other debt obligations

4.1

—

4.1

—

Hedge funds (6)

27.9

—

Pooled separate account investment (7)

43.7

—

43.7

—

Other (8)

12.1

—

12.1

—

Total

$

2,726.3

$

27.9

$

447.0

$

2,251.4

$

—


	December 31, 2021
	Assets		Amount		Fair value hierarchy level
	measured at		measured at
	fair value		net asset value		Level 1		Level 2		Level 3

	(in millions)
Asset category
Pooled separate account investments:
U.S. large cap equity portfolios (1)	$	422.5	$	—	$	—	$	422.5	$	—
U.S. small/mid cap equity portfolios (2)		65.9		—		—		65.9		—
Balanced asset portfolios (3)		119.0		—		—		119.0		—
International equity portfolios (4)		252.5		—		—		252.5		—
Real estate investment portfolios (5)		239.6		—		—		239.6		—
Single client separate account investments:
Fixed income securities:
U.S. government and agencies		451.2		—		451.2		—		—
States and political subdivisions		31.2		—		—		31.2		—
Corporate		1,678.1		—		—		1,678.1		—
Commercial mortgage-backed securities		18.2		—		—		18.2		—
Other debt obligations		9.2		—		—		9.2		—
Hedge funds (6)		175.7		175.7		—		—		—
Pooled separate account investment (7)		79.3		—		—		79.3		—
Other (8)		7.7		—		—		7.7		—
Total	$	3,550.1	$	175.7	$	451.2	$	2,923.2	$	—

(1)	The portfolios invest primarily in publicly traded equity securities of large U.S. companies.

(2)	The portfolios invest primarily in publicly traded equity securities of mid-sized and small U.S. companies.

(3)

The portfolios are a combination of underlying fixed income and equity investment options. These investment options may include balanced, asset allocation, target-date and target-risk investment options. Although typically lower risk than investment options that invest solely in equities, all investment options in this category have the potential to lose value.

(4)	The portfolios invest primarily in publicly traded equity securities of non-U.S. companies.

(5)	The portfolio invests primarily in U.S. commercial real estate properties through a separate account.

(6)	The hedge funds have varying investment strategies that also have a variety of redemption terms and conditions. We do not have unfunded commitments associated with these hedge funds.

(7)	The single client separate accounts invest in a money market pooled separate account.

(8)	Includes cash and net (payables)/receivables for the single client separate accounts.

We have established an investment policy that provides the investment objectives and guidelines for the pension plan. Our investment strategy is to achieve the following:

●

Obtain a reasonable long-term return consistent with the level of risk assumed and at a cost of operation within prudent levels. Performance benchmarks are monitored.

●

Ensure sufficient liquidity to meet the emerging benefit liabilities for the plan.

●

Provide for diversification of assets in an effort to avoid the risk of large losses and maximize the investment return to the pension plan consistent with market and economic risk.

In administering the qualified pension plan’s asset allocation strategy, we consider the projected liability stream of benefit payments, the relationship between current and projected assets of the plan and the projected actuarial liabilities streams, the historical performance of capital markets adjusted for the perception of future short- and long-term capital market performance and the perception of future economic conditions.

According to our investment policy, the target asset allocation for the qualified plan is:


Asset category	Target allocation
Fixed income security portfolios	25	%	-	80	%
Equity portfolios	5	%	-	60	%
Private investments	10	%	-	20	%

Other Postretirement Benefit Plan Assets

The fair value of the other postretirement benefit plans’ assets by asset category as of the most recent measurement date was as follows:

December 31, 2022

Assets

Fair value hierarchy level

measured at

fair value

Level 1

Level 2

Level 3

(in millions)

Asset category

Cash and cash equivalents

$

0.6

$

0.6

$

—

$

—

Fixed income security portfolios (1)

47.6

—

U.S. equity portfolios (2)

33.6

—

International equity portfolios (3)

12.6

—

Total

$

94.4

$

94.4

$

—

$

—


	December 31, 2021
	Assets		Fair value hierarchy level
	measured at
	fair value		Level 1		Level 2		Level 3

	(in millions)
Asset category
Cash and cash equivalents	$	0.6	$	0.6	$	—	$	—
Fixed income security portfolios (1)		57.7		57.7		—		—
U.S. equity portfolios (2)		42.8		42.8		—		—
International equity portfolios (3)		18.7		18.7		—		—
Total	$	119.8	$	119.8	$	—	$	—

(1)

The portfolios invest in various fixed income securities, primarily of U.S. origin. These include, but are not limited to, corporate bonds, residential mortgage-backed securities, commercial mortgage-backed securities, U.S. Treasury securities, agency securities, asset-backed securities and collateralized mortgage obligations.

(2)	The portfolios invest primarily in publicly traded equity securities of large U.S. companies.

(3)	The portfolios invest primarily in publicly traded equity securities of non-U.S. companies.

The investment strategies for the other postretirement benefit plans are similar to those employed by the qualified pension plan. According to our investment policy, the target asset allocation for the other postretirement benefit plans is:


Asset category	Target allocation
Fixed income security portfolios	50	%
U.S. equity portfolios	35	%
International equity portfolios	15	%

Contributions

Our funding policy for our qualified pension plan is to fund the plan annually in an amount at least equal to the minimum annual contribution 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 to satisfy the minimum funding requirements of ERISA for our qualified plan. We are unable to estimate the amount that may be contributed, but it is possible that we may fund the plans in 2023 up to $70.0 million. This includes funding for both our qualified and nonqualified pension plans. While we designate assets to cover the computed liability of the nonqualified plan, the assets are not included as part of the asset balances presented in this footnote as they do not qualify as plan assets in accordance with U.S. GAAP. We may contribute to our other postretirement benefit plans in 2023 pending future analysis.

Estimated Future Benefit Payments

The estimated future benefit payments, which reflect expected future service, are:


			Other postretirement
			benefits (gross benefit
			payments, including
	Pension benefits		prescription drug benefits)

	(in millions)
Year ending December 31:
2023	$	190.7	$	13.5
2024		184.0		12.5
2025		187.0		11.3
2026		200.3		10.1
2027		209.2		9.0
2028-2032		1,159.6		34.6

The above table reflects the total estimated future benefits to be paid from the plan, including both our share of the benefit cost and the participants’ share of the cost, which is funded by their contributions to the plan.

The assumptions used in calculating the estimated future benefit payments are the same as those used to measure the benefit obligation for the year ended December 31, 2022.

Defined Benefit Pension Plans Supplemental Information

Certain key summary data is shown below separately for qualified and nonqualified plans.


	For the year ended December 31,
	2022						2021
	Qualified		Nonqualified				Qualified		Nonqualified
	Plan		Plan		Total		Plan		Plan		Total

	(in millions)
Amount recognized in statement of financial position
Other assets	$	—	$	—	$	—	$	—	$	—	$	—
Other liabilities		(70.7)		(412.4)		(483.1)		(108.4)		(525.2)		(633.6)
Total	$	(70.7)	$	(412.4)	$	(483.1)	$	(108.4)	$	(525.2)	$	(633.6)

Amount recognized in accumulated other comprehensive loss
Total net actuarial loss	$	390.7	$	51.3	$	442.0	$	415.5	$	172.5	$	588.0
Prior service benefit		(72.6)		(14.8)		(87.4)		(85.2)		(19.0)		(104.2)
Pre-tax accumulated other comprehensive loss	$	318.1	$	36.5	$	354.6	$	330.3	$	153.5	$	483.8

Components of net periodic benefit cost
Service cost	$	72.5	$	5.9	$	78.4	$	76.2	$	7.0	$	83.2
Interest cost		98.7		14.1		112.8		90.1		13.2		103.3
Expected return on plan assets		(178.9)		—		(178.9)		(182.7)		—		(182.7)
Amortization of prior service benefit		(12.6)		(4.2)		(16.8)		(12.6)		(4.2)		(16.8)
Recognized net actuarial loss		39.7		16.0		55.7		52.8		17.4		70.2
Net periodic benefit cost	$	19.4	$	31.8	$	51.2	$	23.8	$	33.4	$	57.2

Other changes recognized in accumulated other comprehensive (income) loss
Net actuarial (gain) loss	$	15.0	$	(105.3)	$	(90.3)	$	(95.3)	$	(6.5)	$	(101.8)
Amortization of net loss		(39.7)		(16.0)		(55.7)		(52.8)		(17.4)		(70.2)
Amortization of prior service benefit		12.6		4.2		16.8		12.6		4.2		16.8
Total recognized in pre-tax accumulated other comprehensive income	$	(12.1)	$	(117.1)	$	(129.2)	$	(135.5)	$	(19.7)	$	(155.2)
Total recognized in net periodic benefit cost and pre-tax accumulated other comprehensive (income) loss	$	7.3	$	(85.3)	$	(78.0)	$	(111.7)	$	13.7	$	(98.0)

Defined Contribution and Deferred Compensation Plans

In addition, we have defined contribution plans that are generally available to all U.S. employees and agents. Eligible participants could not contribute more than $20,500 of their compensation to the plans in 2022. Effective January 1, 2006, we made several changes to the retirement programs. In general, the pension and supplemental executive retirement plan benefit formulas were reduced and the 401(k) matching contribution was increased. Employees who were ages 47 or older with at least ten years of service on December 31, 2005, could elect to retain the prior benefit provisions and forgo receipt of the additional matching contributions. The employees who elected to retain the prior benefit provisions are referred to as “Grandfathered Choice Participants.” We match the Grandfathered Choice Participant’s contribution at a 50% contribution rate up to a maximum matching contribution of 3% of the participant’s compensation. For all other participants, we match the participant’s contributions at a 75% contribution rate up to a maximum matching contribution of 6% of the participant’s compensation. The defined contribution plans allow employees to choose among various investment options, including our common stock, which is available through our Employee Stock Ownership Plan (“ESOP”). We contributed $70.3 million, $60.5 million and $56.7 million in 2022, 2021 and 2020, respectively, to our qualified defined contribution plans.

The number of shares of our common stock allocated to participants in the ESOP was 1.8 million and 2.0 million as of December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the fair value of the ESOP, which includes earned and unearned common stock, was $148.4 million and $146.1 million, respectively. The ESOP’s total assets include our common stock and cash. The ESOP purchases our common stock on the open market. The number of shares of our common stock held within the ESOP is treated as outstanding in both our basic and diluted earnings per share calculations.

We also have nonqualified deferred compensation plans available to select employees and agents that allow them to defer compensation amounts in excess of limits imposed by U.S. federal tax law with respect to the qualified plans. For certain nonqualified deferred compensation plans that include an employer matching contribution, in 2022 we matched the Grandfathered Choice Participant’s deferral at a 50% match deferral rate up to a maximum matching deferral of 3% of the participant’s compensation. For all other participants in nonqualified deferred compensation plans that include an employer matching contribution, we matched the participant’s deferral at a 75% match deferral rate up to a maximum matching deferral of 6% of the participant’s compensation. We contributed $3.9 million, $3.4 million and $3.1 million in 2022, 2021 and 2020, respectively, to our nonqualified deferred compensation plans.

The entire disclosure for retirement benefits.

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Contingencies, Guarantees, Indemnifications and Leases

Contingencies, Guarantees, Indemnifications and Leases

12 Months Ended

Dec. 31, 2022

Contingencies, Guarantees, Indemnifications and Leases

13. Contingencies, Guarantees, Indemnifications and Leases

Litigation and Regulatory Contingencies

We are regularly involved in litigation, both as a defendant and as a plaintiff, but primarily as a defendant. Litigation naming us as a defendant ordinarily arises out of our business operations as a provider of asset management and accumulation products and services, individual life insurance, specialty benefits insurance and our investment activities. Some of the lawsuits may be class actions, or purport to be, and some may include claims for unspecified or substantial punitive and treble damages.

We may discuss such litigation in one of three ways. We accrue a charge to income and disclose legal matters for which the chance of loss is probable and for which the amount of loss can be reasonably estimated. We may disclose contingencies for which the chance of loss is reasonably possible and provide an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. Finally, we may voluntarily disclose loss contingencies for which the chance of loss is remote in order to provide information concerning matters that potentially expose us to possible losses.

In addition, regulatory bodies such as state insurance departments, the SEC, the Financial Industry Regulatory Authority (“FINRA”), the Department of Labor (“DOL”) and other regulatory agencies in the U.S. and in international locations in which we do business, regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, ERISA and laws governing the activities of broker-dealers. We receive requests from regulators and other governmental authorities relating to industry issues and may receive additional requests, including subpoenas and interrogatories, in the future.

On November 12, 2014, Frederick Rozo filed a class action lawsuit in the United States District Court for the Southern District of Iowa against Principal Life and us. We were later dismissed as a defendant. The Plaintiff alleged that defendants breached fiduciary duties and engaged in prohibited transactions under ERISA in connection with a general account guaranteed product known as the Principal Fixed Income Option (“PFIO”). On May 12, 2017, the district court certified a nationwide class of participants and beneficiaries who had funds invested in one of the PFIO contracts. On September 25, 2018, the district court granted Principal Life’s motion for summary judgment. On February 3, 2020, the Eighth Circuit Court of Appeals reversed that ruling and remanded the case back to the district court. A bench trial was held before the district court in November 2020. The court issued its ruling on April 8, 2021, finding in favor of Principal Life on all claims. The Plaintiff appealed this ruling to the Eighth Circuit Court of Appeals, which upheld the decision in Principal Life’s favor on September 2, 2022. The Plaintiff did not appeal the Eighth Circuit Court of Appeals’ decision; as such, the district court’s ruling in Principal Life’s favor stands.

While the outcome of any pending or future litigation or regulatory matter cannot be predicted, management does not believe any such matter will have a material adverse effect on our business or financial position. As of December 31, 2022, we had no estimated loss accrued related to the legal matter discussed above because we believe the chance of loss from this matter is not probable and the amount of loss cannot be reasonably estimated.

To the extent such matters present a reasonably possible chance of loss, we are generally not able to estimate the possible loss or range of loss associated therewith. The outcome of such matters is always uncertain and unforeseen results can occur. It is possible that such outcomes could require us to pay damages or make other expenditures or establish accruals in amounts that we could not estimate at December 31, 2022.

Guarantees and Indemnifications

In the normal course of business, we have provided guarantees to third parties primarily related to former subsidiaries and joint ventures. The terms of these agreements range in duration and often are not explicitly defined. The maximum exposure under these agreements as of December 31, 2022, was approximately $80.0 million. At inception, the fair value of such guarantees was insignificant. In addition, we believe the likelihood is remote that material payments will be required. Therefore, any liability accrued within our consolidated statements of financial position is insignificant. Should we be required to perform under these guarantees, we generally could recover a portion of the loss from third parties through recourse provisions included in agreements with such parties, the sale of assets held as collateral that can be liquidated in the event performance is required under the guarantees or other recourse generally available to us; therefore, such guarantees would not result in a material adverse effect on our business or financial position. While the likelihood is remote, such outcomes could materially affect net income in a particular quarter or annual period. Furthermore, in connection with our contingent funding agreements, we are required to purchase any principal and interest strips of U.S. Treasury securities that are due and not paid from the associated unconsolidated trusts. The maximum exposure under these agreements as of December 31, 2022, was $750.0 million. See Note 10, Debt, for further details.

We manage mandatory privatized social security funds in Chile. By regulation, we have a required minimum guarantee on the funds’ relative return. Because the guarantee has no limitation with respect to duration or amount, the maximum exposure of the guarantee in the future is indeterminable.

We are also subject to various other indemnification obligations issued in conjunction with divestitures, acquisitions, financing and reinsurance transactions whose terms range in duration and often are not explicitly defined. Certain portions of these indemnifications may be capped, while other portions are not subject to such limitations; therefore, the overall maximum amount of the obligation under the indemnifications cannot be reasonably estimated. At inception, the fair value of such indemnifications was insignificant. In addition, we believe the likelihood is remote that material payments will be required. Therefore, any liability accrued within our consolidated statements of financial position is insignificant. While we are unable to estimate with certainty the ultimate legal and financial liability with respect to these indemnifications, we believe that performance under these indemnifications would not result in a material adverse effect on our business or financial position. While the likelihood is remote, performance under these indemnifications could materially affect net income in a particular quarter or annual period.

Guaranty Funds

Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, for certain obligations of insolvent insurance companies to policyholders and claimants. A state’s fund assesses its members based on their pro rata market share of written premiums in the state for the classes of insurance for which the insolvent insurer was engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. We accrue liabilities for guaranty fund assessments when an assessment is probable, can be reasonably estimated and when the event obligating us to pay has occurred. While we cannot predict the amount and timing of any future assessments, we have established reserves we believe are adequate for assessments relating to insurance companies that are currently subject to insolvency proceedings. As of December 31, 2022 and 2021, the liability balance for guaranty fund assessments, which is not discounted, was $20.6 million and $21.0 million, respectively, and was reported within other liabilities in the consolidated statements of financial position. As of both December 31, 2022 and 2021, $9.7 million related to premium tax offsets were included in premiums due and other receivables in the consolidated statements of financial position.

Leases

As a lessee, we lease office space, data processing equipment, office furniture and office equipment under various operating leases. We also lease buildings and hardware storage equipment under finance leases. Lease assets and liabilities are recognized at the commencement of a lease based on the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments. Lease term may include options to extend or terminate the lease when it is reasonably certain we will exercise the option. Leases with an initial term of twelve months or less are not recorded on the consolidated statements of financial position. We recognize lease expense for leases on a straight-line basis over the lease term. Some of our lease agreements include payments for property taxes, insurance, utilities or common area maintenance, which are not based on an index or rate. These payments are recognized in net income in the period in which the obligation has occurred.

We sublease certain office space to third parties, which are primarily operating leases. We record sublease income on a straight-line basis over the lease term.

The lease assets and liabilities were as follows:


	December 31,
	2022		2021

	(in millions)
Assets
Operating lease assets (1)	$	194.7	$	210.5
Finance lease assets (1)		82.4		94.2
Total lease assets	$	277.1	$	304.7

Liabilities
Operating lease liabilities (2)	$	196.5	$	209.9
Finance lease liabilities (2)		83.0		94.8
Total lease liabilities	$	279.5	$	304.7

(1)	Operating and finance lease assets are primarily reported within property and equipment on the consolidated statements of financial position.

(2)	Operating and finance lease liabilities are reported within other liabilities on the consolidated statements of financial position.

The lease cost was as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Finance lease cost (1):
Amortization of right-of-use assets	$	34.0	$	30.5	$	20.5
Interest on lease liabilities		1.2		1.0		1.0
Operating lease cost (1)		61.6		66.6		58.7
Other lease cost (1) (2)		12.4		10.8		8.6
Sublease income (3)		(1.5)		(1.7)		(1.6)
Total lease cost	$	107.7	$	107.2	$	87.2

(1)	Finance, operating and other lease costs are primarily included in operating expenses on the consolidated statements of operations.

(2)	Other lease cost primarily reflects variable and short-term lease costs.

(3)	Sublease income is included in fees and other revenues on the consolidated statements of operations.

Payments for operating leases for the years ended December 31, 2022, 2021 and 2020, were $58.3 million, $63.0 million and $71.6 million, respectively. Payments for finance leases for the years ended December 31, 2022, 2021 and 2020, were $35.1 million, $31.4 million and $21.2 million, respectively. The following represents future payments due by period for lease obligations:


	Operating leases		Finance leases		Total

	(in millions)
For the twelve months ending December 31:
2023	$	51.2	$	35.0	$	86.2
2024		41.1		30.2		71.3
2025		35.6		14.6		50.2
2026		30.9		5.0		35.9
2027		24.9		0.4		25.3
2028 and thereafter		37.0		—		37.0
Total lease payments		220.7		85.2		305.9
Less: interest		24.2		2.2		26.4
Present value of lease liabilities	$	196.5	$	83.0	$	279.5

The weighted-average remaining lease term and weighted-average discount rates were as follows:


	For the year ended December 31,
	2022		2021		2020
Weighted-average remaining lease term (in years):
Operating leases	6.4		6.5		6.7
Finance leases	2.8		3.2		3.0

Weighted-average discount rate:
Operating leases	3.6	%	3.4	%	3.2	%
Finance leases	1.7	%	1.0	%	1.8	%

Stockholders' Equity

12 Months Ended

Dec. 31, 2022

Stockholders' Equity

Stockholders' Equity

14. Stockholders’ Equity

Common Stock Dividends


	For the year ended December 31,
	2022		2021		2020
Dividends declared per common share	$	2.56	$	2.44	$	2.24

Reconciliation of Outstanding Common Shares


	For the year ended December 31,
	2022	2021	2020

	(in millions)
Beginning balance	261.7	273.3	276.6
Shares issued	4.9	3.0	2.6
Treasury stock acquired	(23.1)	(14.6)	(5.9)
Ending balance	243.5	261.7	273.3

In November 2018, our Board of Directors (“Board”) authorized a share repurchase program of up to $500.0 million of our outstanding common stock, which was completed in February 2020. In February 2020, our Board authorized a share repurchase program of up to $900.0 million of our outstanding common stock, which was completed in November 2021. In June 2021, our Board authorized a share repurchase program of up to $1.2 billion of our outstanding common stock, which was completed in August 2022. In January 2022, our Board authorized a $1.6 billion increase to the June 2021 share repurchase program authorization, which has no expiration date. Shares repurchased under these programs are accounted for as treasury stock, carried at cost and reflected as a reduction to stockholders’ equity.

In March 2022, we entered into an accelerated share repurchase program with a third party financial institution to repurchase $700.0 million of common stock. We received approximately 8.5 million shares at an initial cost of $560.0 million from our counterparty as of March 31, 2022, which was recorded in treasury stock. The associated $140.0 million forward contract was recorded in additional paid-in capital. This program closed in June 2022, at which time an additional 1.4 million shares were delivered based on the $70.53 daily volume-weighted average price of our common stock, less a discount, during the term of the program.

In August 2022, we entered into an accelerated share repurchase program with a third party financial institution to repurchase $400.0 million of common stock. We received approximately 4.1 million shares at an initial cost of $320.0 million from our counterparty as of August 16, 2022, which was recorded in treasury stock. This program closed in September 2022, at which time an additional 1.2 million shares were delivered based on the $76.48 daily volume-weighted average price of our common stock, less a discount, during the term of the program.

Other Comprehensive Income (Loss)


	For the year ended December 31, 2022
	Pre-Tax		Tax		After-Tax

	(in millions)
Net unrealized losses on available-for-sale securities during the period	$	(13,167.3)	$	2,791.3	$	(10,376.0)
Reclassification adjustment for losses included in net income (1)		398.9		(87.6)		311.3
Adjustments for assumed changes in amortization patterns		926.6		(194.6)		732.0
Adjustments for assumed changes in policyholder liabilities		430.0		(86.2)		343.8
Net unrealized losses on available-for-sale securities		(11,411.8)		2,422.9		(8,988.9)

Net unrealized losses on derivative instruments during the period		(1.4)		0.3		(1.1)
Reclassification adjustment for gains included in net income (2)		(28.0)		5.8		(22.2)
Adjustments for assumed changes in amortization patterns		7.3		(1.6)		5.7
Adjustments for assumed changes in policyholder liabilities		(2.9)		0.6		(2.3)
Net unrealized losses on derivative instruments		(25.0)		5.1		(19.9)

Foreign currency translation adjustment		(27.7)		4.8		(22.9)

Unrecognized postretirement benefit obligation during the period		85.8		(22.3)		63.5
Amortization of amounts included in net periodic benefit cost (4)		36.7		(9.6)		27.1
Net unrecognized postretirement benefit obligation		122.5		(31.9)		90.6

Other comprehensive loss	$	(11,342.0)	$	2,400.9	$	(8,941.1)


	For the year ended December 31, 2021
	Pre-Tax		Tax		After-Tax

	(in millions)
Net unrealized losses on available-for-sale securities during the period	$	(2,960.0)	$	665.4	$	(2,294.6)
Reclassification adjustment for losses included in net income (1)		19.4		(5.1)		14.3
Adjustments for assumed changes in amortization patterns		171.4		(36.0)		135.4
Adjustments for assumed changes in policyholder liabilities		1,913.1		(439.1)		1,474.0
Net unrealized losses on available-for-sale securities		(856.1)		185.2		(670.9)

Net unrealized gains on derivative instruments during the period		66.7		(14.0)		52.7
Reclassification adjustment for gains included in net income (2)		(25.5)		5.4		(20.1)
Adjustments for assumed changes in amortization patterns		(0.2)		—		(0.2)
Adjustments for assumed changes in policyholder liabilities		1.6		(0.4)		1.2
Net unrealized gains on derivative instruments		42.6		(9.0)		33.6

Foreign currency translation adjustment during the period		(267.9)		(5.6)		(273.5)
Reclassification adjustment for losses included in net income (3)		19.3		—		19.3
Foreign currency translation adjustment		(248.6)		(5.6)		(254.2)

Unrecognized postretirement benefit obligation during the period		106.5		(28.5)		78.0
Amortization of amounts included in net periodic benefit cost (4)		51.8		(14.0)		37.8
Net unrecognized postretirement benefit obligation		158.3		(42.5)		115.8

Other comprehensive loss	$	(903.8)	$	128.1	$	(775.7)


	For the year ended December 31, 2020
	Pre-Tax		Tax		After-Tax

	(in millions)
Net unrealized gains on available-for-sale securities during the period	$	3,441.4	$	(728.7)	$	2,712.7
Reclassification adjustment for gains included in net income (1)		(52.9)		12.6		(40.3)
Adjustments for assumed changes in amortization patterns		(179.0)		37.6		(141.4)
Adjustments for assumed changes in policyholder liabilities		(1,478.2)		323.7		(1,154.5)
Net unrealized gains on available-for-sale securities		1,731.3		(354.8)		1,376.5

Net unrealized losses on derivative instruments during the period		(28.1)		6.5		(21.6)
Reclassification adjustment for gains included in net income (2)		(27.1)		5.1		(22.0)
Adjustments for assumed changes in amortization patterns		2.7		(0.5)		2.2
Adjustments for assumed changes in policyholder liabilities		7.8		(1.6)		6.2
Net unrealized losses on derivative instruments		(44.7)		9.5		(35.2)

Foreign currency translation adjustment during the period		(11.7)		(2.6)		(14.3)
Reclassification adjustment for losses included in net income (3)		43.0		1.9		44.9
Foreign currency translation adjustment		31.3		(0.7)		30.6

Unrecognized postretirement benefit obligation during the period		(91.9)		24.9		(67.0)
Amortization of amounts included in net periodic benefit cost (4)		57.6		(15.5)		42.1
Net unrecognized postretirement benefit obligation		(34.3)		9.4		(24.9)

Other comprehensive income	$	1,683.6	$	(336.6)	$	1,347.0

(1)	Pre-tax reclassification adjustments relating to available-for-sale securities are reported in net realized capital gains (losses) on the consolidated statements of operations.

(2)	See Note 5, Derivative Financial Instruments, under the caption “Effect of Fair Value and Cash Flow Hedges on Consolidated Statements of Operations” for further details.

(3)

The 2021 pre-tax reclassification adjustment related to the release of cumulative translation adjustment from the dissolution of foreign subsidiaries. The 2020 pre-tax reclassification adjustment primarily related to the release of the cumulative translation adjustment from the dissolution of a foreign subsidiary and the net impact of deconsolidated sponsored investment funds and associated net investment hedges. The adjustments were reported in net realized capital gains (losses) on the consolidated statements of operations. For the year ended December 31, 2020, $8.7 million of this reclassification relates to noncontrolling interest and is reported in net income attributable to noncontrolling interest on the consolidated statements of operations.

(4)

Amount is comprised of amortization of prior service cost (benefit) and recognized net actuarial (gain) loss, which is reported in operating expenses on the consolidated statements of operations. See Note 12, Employee and Agent Benefits, under the caption “Components of Net Periodic Benefit Cost” for further details.

Accumulated Other Comprehensive Income (Loss)


			Noncredit
	Net unrealized		component of		Net unrealized		Foreign		Unrecognized		Accumulated
	gains (losses) on		impairment losses		gains		currency		postretirement		other
	available-for-sale		on fixed maturities		on derivative		translation		benefit		comprehensive
	securities (1)		available-for-sale		instruments		adjustment		obligation		income (loss)

	(in millions)
Balances as of January 1, 2020	$	2,806.0	$	(44.1)	$	53.4	$	(1,341.8)	$	(435.6)	$	1,037.9
Other comprehensive income during the period, net of adjustments		1,416.7		—		(13.2)		(7.3)		(67.0)		1,329.2
Amounts reclassified from AOCI		(40.3)		—		(22.0)		36.2		42.1		16.0
Other comprehensive income		1,376.4		—		(35.2)		28.9		(24.9)		1,345.2
Effects of implementation of accounting change related to the reclassification of certain tax effects, net		(44.1)		44.1		—		—		—		—
Balances as of December 31, 2020		4,138.3		—		18.2		(1,312.9)		(460.5)		2,383.1
Other comprehensive loss during the period, net of adjustments		(685.2)		—		53.7		(270.0)		78.0		(823.5)
Amounts reclassified from AOCI		14.3		—		(20.1)		19.3		37.8		51.3
Other comprehensive loss		(670.9)		—		33.6		(250.7)		115.8		(772.2)
Balances as of December 31, 2021		3,467.4		—		51.8		(1,563.6)		(344.7)		1,610.9
Other comprehensive loss during the period, net of adjustments		(9,300.0)		—		2.3		(23.7)		63.5		(9,257.9)
Amounts reclassified from AOCI		311.3		—		(22.2)		—		27.1		316.2
Other comprehensive loss		(8,988.7)		—		(19.9)		(23.7)		90.6		(8,941.7)
Adjustment for reinsurance (2)		124.4		—		7.4		—		—		131.8
Balances as of December 31, 2022	$	(5,396.9)	$	—	$	39.3	$	(1,587.3)	$	(254.1)	$	(7,199.0)

(1)	Net unrealized gains (losses) on available-for-sale securities for which an allowance for credit loss has been recorded were $0.3 million, $(2.1) million and $(2.9) million as of December 31, 2022, 2021 and 2020, respectively.

(2)	Reflects the January 1, 2022, balance associated with our ULSG business that was ceded to Talcott Life & Annuity Re.

Noncontrolling Interest

Interests held by unaffiliated parties in consolidated entities are reflected in noncontrolling interest, which represents the noncontrolling partners’ share of the underlying net assets of our consolidated subsidiaries. Noncontrolling interest that is not redeemable is reported in the equity section of the consolidated statements of financial position.

The noncontrolling interest holders in certain of our consolidated entities maintain an equity interest that is redeemable at the option of the holder, which may be exercised on varying dates. Since redemption of the noncontrolling interest is outside of our control, this interest is excluded from stockholders’ equity and reported separately as redeemable noncontrolling interest on the consolidated statements of financial position. Our redeemable noncontrolling interest primarily relates to consolidated sponsored investment funds for which interests are redeemed at fair value from the net assets of the funds.

For our redeemable noncontrolling interest related to other consolidated subsidiaries, redemptions are required to be purchased at fair value or a value based on a formula that management intended to reasonably approximate fair value based on a fixed multiple of earnings over a measurement period. The carrying value of the redeemable noncontrolling interest is compared to the redemption value at each reporting period. Any adjustments to the carrying amount of the redeemable noncontrolling interest for changes in redemption value prior to exercise of the redemption option are determined after the attribution of net income or loss of the subsidiary and are recognized in the redemption value as they occur. Adjustments to the carrying value of redeemable noncontrolling interest result in adjustments to additional paid-in capital and/or retained earnings. Adjustments are recorded in retained earnings to the extent the redemption value of the redeemable noncontrolling interest exceeds its fair value and will impact the numerator in our earnings per share calculations. All other adjustments to the redeemable noncontrolling interest are recorded in additional paid-in capital.

Following is a reconciliation of the changes in the redeemable noncontrolling interest (in millions):


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Beginning balance	$	332.5	$	255.6	$	264.9
Net income (loss) attributable to redeemable noncontrolling interest		(25.8)		17.5		7.5
Redeemable noncontrolling interest of deconsolidated entities (1)		(2.8)		(37.4)		(91.9)
Contributions from redeemable noncontrolling interest		67.3		166.8		136.2
Distributions to redeemable noncontrolling interest		(108.9)		(66.8)		(62.0)
Purchase of subsidiary shares from redeemable noncontrolling interest (2)		(1.1)		(6.1)		—
Change in redemption value of redeemable noncontrolling interest		(0.2)		3.1		0.2
Stock-based compensation attributable to redeemable noncontrolling interest		0.1		—		0.1
Other comprehensive income (loss) attributable to redeemable noncontrolling interest		0.9		(0.2)		0.6
Ending balance	$	262.0	$	332.5	$	255.6

(1)	We deconsolidated certain sponsored investment funds as they no longer met the requirements for consolidation.

(2)	In 2022, we acquired an additional interest in Origin Asset Management. In 2021, we acquired the remaining interest in Principal Innovations, Inc. and its wholly owned subsidiary, RobustWealth, Inc.

Dividend Limitations

The declaration and payment of our common stock dividends is subject to the discretion of our Board of Directors 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 us, except those generally applicable to corporations incorporated in Delaware.

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 Principal Life’s statutory policyholder surplus as of the previous year-end or (ii) the statutory net gain from operations from the previous calendar year, not to exceed earned surplus. Based on this limitation and 2022 statutory results, Principal Life could pay approximately $430.1 million in ordinary stockholder dividends in 2023 without prior regulatory approval. However, because the dividend test is based on dividends previously paid over rolling 12-month periods, if paid before a specified date during 2023, some or all of such dividends may be extraordinary and require regulatory approval.

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

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Fair Value Measurements

12 Months Ended

Dec. 31, 2022

Fair Value Measurements

Fair Value Measurements

15. Fair Value Measurements

We use fair value measurements to record fair value of certain assets and liabilities and to estimate fair value of financial instruments not recorded at fair value but required to be disclosed at fair value. Certain financial instruments, particularly policyholder liabilities other than investment contracts, are excluded from these fair value disclosure requirements.

Valuation Hierarchy

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 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.

●	Level 1 – Fair values are based on unadjusted quoted prices in active markets for identical assets or liabilities.

●	Level 2 – Fair values are based on inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.

●	Level 3 – Fair values are based on at least one significant unobservable input for the asset or liability.

Determination of Fair Value

The following discussion describes the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis. The techniques utilized in estimating the fair value of financial instruments are reliant on the assumptions used. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.

Fair value estimates are made based on available market information and judgments about the financial instrument at a specific point in time. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. We validate prices through an investment analyst review process, which includes validation through direct interaction with external sources, review of recent trade activity or use of internal models. In circumstances where broker quotes are used to value an instrument, we generally receive one non-binding quote. Broker quotes are validated through an investment analyst review process, which includes validation through direct interaction with external sources and use of internal models or other relevant information. We did not make any significant changes to our valuation processes during 2022.

Fixed Maturities

Fixed maturities include bonds, ABS, redeemable preferred stock and certain non-redeemable preferred securities. When available, the fair value of fixed maturities is based on quoted prices of identical assets in active markets. These are reflected in Level 1 and primarily include U.S. Treasury bonds and actively traded redeemable corporate preferred securities.

When quoted prices of identical assets in active markets are not available, our first priority is to obtain prices from third party pricing vendors. We have regular interaction with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information. Their methodologies vary by asset class and include inputs such as estimated cash flows, benchmark yields, reported trades, broker quotes, credit quality, industry events and economic events. Fixed maturities with validated prices from pricing services, which includes the majority of our public fixed maturities in all asset classes, are generally reflected in Level 2. Also included in Level 2 are corporate bonds when quoted market prices are not available, for which an internal model using substantially all observable inputs or a matrix pricing valuation approach is used. 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 studies of observable public market data from the investment professionals assigned to specific security classes. 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 also be impacted by company specific factors.

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. These are reflected in Level 3 in the fair value hierarchy and can include fixed maturities across all asset classes. As of December 31, 2022, less than 4% of our total fixed maturities were Level 3 securities valued using internal pricing models.

The primary inputs, by asset class, for valuations of the majority of our Level 2 investments from third party pricing vendors or our internal pricing valuation approach are described below.

U.S. Government and Agencies/Non-U.S. Governments. Inputs include recently executed market transactions, interest rate yield curves, maturity dates, market price quotations and credit spreads relating to similar instruments.

States and Political Subdivisions. Inputs include Municipal Securities Rulemaking Board reported trades, U.S. Treasury and other benchmark curves, material event notices, new issue data and obligor credit ratings.

Corporate. Inputs include recently executed transactions, market price quotations, benchmark yields, issuer spreads and observations of equity and credit default swap curves related to the issuer. For private placement corporate securities valued through the matrix valuation approach inputs include the current Treasury curve and risk spreads based on sector, rating and average life of the issuance.

RMBS, CMBS, Collateralized Debt Obligations and Other Debt Obligations. Inputs include cash flows, priority of the tranche in the capital structure, expected time to maturity for the specific tranche, reinvestment period remaining and performance of the underlying collateral including prepayments, defaults, deferrals, loss severity of defaulted collateral and, for RMBS, prepayment speed assumptions. Other inputs include market indices and recently executed market transactions.

Equity Securities

Equity securities include mutual funds, common stock, non-redeemable preferred stock and required regulatory investments. Fair values of equity securities are determined using quoted prices in active markets for identical assets when available, which are reflected in Level 1. When quoted prices are not available, we may utilize internal valuation methodologies appropriate for the specific asset that use observable inputs such as underlying share prices or the NAV, which are reflected in Level 2. Fair values might also be determined using broker quotes or through the use of internal models or analysis that incorporate significant assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such securities, which are reflected in Level 3.

Derivatives

The fair values of exchange-traded derivatives are determined through quoted market prices, which are reflected in Level 1. 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 OTC cleared derivatives are determined through market prices published by the clearinghouses, which are reflected in Level 2. The clearinghouses utilize the secured overnight financing rate (“SOFR”) curve in their valuation. 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 bilateral OTC derivative instruments are determined using either pricing valuation models that utilize market observable inputs or broker quotes. The majority of our bilateral OTC derivatives are valued with models that use market observable inputs, which are reflected in Level 2. Significant inputs include contractual terms, interest rates, currency exchange rates, credit spread curves, equity prices and volatilities. These valuation models consider projected discounted cash flows, relevant swap curves and appropriate implied volatilities. Certain bilateral OTC derivatives utilize unobservable market data, primarily independent broker quotes that are nonbinding quotes based on models that do not reflect the result of market transactions, which are reflected in Level 3.

Our non-cleared derivative contracts are generally documented under ISDA Master Agreements, which provide for legally enforceable set-off and close-out netting of exposures to specific counterparties. Collateral arrangements are bilateral and based on current ratings of each entity. We utilize the SOFR curve to value our positions. Counterparty credit risk is routinely monitored to ensure our adjustment for nonperformance risk is appropriate. Our centrally cleared derivative contracts are conducted with regulated centralized clearinghouses, which provide for daily exchange of cash collateral or variation margin equal to the difference in the daily market values of those contracts that eliminates the nonperformance risk on these trades.

Interest Rate Contracts. For non-cleared contracts, which include interest rate swaps and have included swaptions, we use discounted cash flow valuation techniques to determine the fair value using observable swap curves as the inputs. These are reflected in Level 2. We have forward contracts for which we obtain prices from third party pricing vendors. These are reflected in Level 2. For centrally cleared contracts we use published prices from clearinghouses. These are reflected in Level 2. In addition, we had interest rate options that were valued using broker quotes. These were reflected in Level 3.

Foreign Exchange Contracts. We use discounted cash flow valuation techniques that utilize observable swap curves and exchange rates as the inputs to determine the fair value of foreign currency swaps. These are reflected in Level 2. Currency forwards are and currency options were valued using observable market inputs, including forward currency exchange rates. These are reflected in Level 2. In addition, we had a limited number of non-standard currency swaps that were valued using broker quotes. These were reflected within Level 3.

Equity Contracts. We use an option pricing model using observable implied volatilities, dividend yields, index prices and swap curves as the inputs to determine the fair value of equity options. These are reflected in Level 2.

Credit Contracts. We use either the ISDA Credit Default Swap Standard discounted cash flow model that utilizes observable default probabilities and recovery rates as inputs to determine the fair value of credit default swaps. These are reflected in Level 2. In addition, we have a limited number of credit default swaps that are valued using broker quotes. These are reflected within Level 3.

Other Investments

Other investments reported at fair value include invested assets of consolidated sponsored investment funds, unconsolidated sponsored investment funds, other investment funds reported at fair value, equity method real estate investments for which the fair value option was elected and certain redeemable and nonredeemable preferred stock.

Invested assets of consolidated sponsored investment funds include equity securities, fixed maturities and derivative assets, for which fair values are determined as previously described, and are reflected in Level 1 and Level 2.

The fair value of unconsolidated sponsored investment funds and other investment funds is determined using the NAV of the fund. The NAV of the fund represents the price at which we would be able to initiate a transaction. Investments for which the NAV represents a quoted price in an active market for identical assets are reflected in Level 1. Investments that do not have a quoted price in an active market are reflected in Level 2.

Equity method real estate investments for which the fair value option was elected were reflected in Level 3. The equity method real estate investments consisted of underlying real estate and debt. The real estate fair value was estimated using a discounted cash flow valuation model that utilized public real estate market data inputs such as transaction prices, market rents, vacancy levels, leasing absorption, market cap rates and discount rates. The debt fair value was estimated using a discounted cash flow analysis based on our incremental borrowing rate for similar borrowing arrangements. The last equity method real estate investment for which the fair value option was elected was sold in the third quarter of 2021.

Cash Equivalents

Certain cash equivalents are reported at fair value on a recurring basis and include money market instruments and other short-term investments with maturities of three months or less. Fair values of these cash equivalents may be determined using public quotations, when available, which are reflected in Level 1. When public quotations are not available, because of the highly liquid nature of these assets, carrying amounts may be used to approximate fair values, which are reflected in Level 2.

Separate Account Assets

Separate account assets include equity securities, debt securities, cash equivalents and derivative instruments, for which fair values are determined as previously described, and are reflected in Level 1, Level 2 and Level 3. Separate account assets also include commercial mortgage loans, for which the fair value is estimated by discounting the expected total cash flows using market rates that are applicable to the yield, credit quality and maturity of the loans. The market clearing spreads vary based on mortgage type, weighted average life, rating and liquidity. These are reflected in Level 3. Finally, separate account assets include real estate, for which the fair value is estimated using discounted cash flow valuation models that utilize various public real estate market data inputs. In addition, each property is appraised annually by an independent appraiser. The real estate included in separate account assets is recorded net of related mortgage encumbrances for which the fair value is estimated using discounted cash flow analysis based on our incremental borrowing rate for similar borrowing arrangements. The real estate within the separate accounts is reflected in Level 3.

Investment and Universal Life Contracts

Certain universal life, annuity and other investment contracts include embedded derivatives that have been bifurcated from the host contract and are measured at fair value on a recurring basis, which are reflected in Level 3. The key assumptions for calculating the fair value of the embedded derivative liabilities are market assumptions (such as equity market returns, interest rate levels, market volatility and correlations) and policyholder behavior assumptions (such as lapse, mortality, utilization and withdrawal patterns). Risk margins are included in the policyholder behavior assumptions. The assumptions are based on a combination of historical data and actuarial judgment. The embedded derivative liabilities are valued using models that incorporate a spread reflecting our own creditworthiness.

The assumption for our own nonperformance risk for investment contracts and any embedded derivatives bifurcated from certain universal life, annuity and investment contracts is based on the current market credit spreads for debt-like instruments we have issued and are available in the market.

Funds Withheld Payable

The funds withheld payable includes an embedded derivative that has been bifurcated from the host contract and is measured at fair value on a recurring basis, which is reflected in Level 3. The fair value is determined based on the change in the estimated fair value of the underlying funds withheld investments. The fair value of these assets is determined as previously described.

Other Liabilities

Derivative liabilities of consolidated sponsored investment funds are reported at fair value within other liabilities. Fair values of these derivatives are determined as previously described and are reflected in Level 2.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis were as follows:

December 31, 2022

Assets/

Amount

(liabilities)

measured at

Fair value hierarchy level

measured at

net asset

fair value

value (4)

Level 1

Level 2

Level 3

(in millions)

Assets

Fixed maturities, available-for-sale:

U.S. government and agencies

$

1,739.8

$

—

$

1,359.1

$

380.7

$

—

Non-U.S. governments

567.3

—

1.4

565.9

—

States and political subdivisions

6,232.3

—

6,161.4

70.9

Corporate

36,183.2

—

26.6

34,588.3

1,568.3

Residential mortgage-backed pass-through securities

2,228.7

—

2,228.7

—

Commercial mortgage-backed securities

4,864.6

—

4,861.2

3.4

Collateralized debt obligations (1)

4,566.4

—

4,510.2

56.2

Other debt obligations

6,507.6

—

6,039.8

467.8

Total fixed maturities, available-for-sale

62,889.9

—

1,387.1

59,336.2

2,166.6

Fixed maturities, trading

760.7

—

78.6

548.1

134.0

Equity securities

1,708.6

—

492.4

1,216.2

—

Derivative assets (2)

321.6

—

320.9

0.7

Other investments

701.1

81.4

311.7

306.1

1.9

Cash equivalents

3,604.1

—

973.5

2,630.6

—

Sub-total excluding separate account assets

69,986.0

81.4

3,243.3

64,358.1

2,303.2

Separate account assets

155,375.1

9,120.9

92,010.7

53,208.6

1,034.9

Total assets

$

225,361.1

$

9,202.3

$

95,254.0

$

117,566.7

$

3,338.1

Liabilities

Investment and universal life contracts (3)

$

31.8

$

—

$

—

$

—

$

31.8

Funds withheld payable embedded derivative (3)

3,652.8

—

3,652.8

Derivative liabilities (2)

(634.2)

—

(630.1)

(4.1)

Other liabilities

(0.4)

—

(0.4)

—

Total liabilities

$

3,050.0

$

—

$

—

$

(630.5)

$

3,680.5

Net assets

$

228,411.1

$

9,202.3

$

95,254.0

$

116,936.2

$

7,018.6


	December 31, 2021
	Assets/		Amount
	(liabilities)		measured at		Fair value hierarchy level
	measured at		net asset
	fair value		value (4)		Level 1		Level 2		Level 3

	(in millions)
Assets
Fixed maturities, available-for-sale:
U.S. government and agencies	$	2,088.6	$	—	$	1,716.5	$	372.1	$	—
Non-U.S. governments		982.0		—		0.6		981.4		—
States and political subdivisions		9,304.4		—		—		9,209.6		94.8
Corporate		45,944.4		—		41.5		45,068.6		834.3
Residential mortgage-backed pass-through securities		3,152.9		—		—		3,152.9		—
Commercial mortgage-backed securities		5,562.2		—		—		5,543.0		19.2
Collateralized debt obligations (1)		3,559.6		—		—		3,473.8		85.8
Other debt obligations		7,560.4		—		—		7,518.3		42.1
Total fixed maturities, available-for-sale		78,154.5		—		1,758.6		75,319.7		1,076.2
Fixed maturities, trading		422.2		—		0.5		416.8		4.9
Equity securities		2,347.2		—		1,027.5		1,319.7		—
Derivative assets (2)		337.1		—		—		336.5		0.6
Other investments		896.2		92.7		395.3		406.1		2.1
Cash equivalents		1,117.8		—		14.2		1,103.6		—
Sub-total excluding separate account assets		83,275.0		92.7		3,196.1		78,902.4		1,083.8
Separate account assets		182,345.4		8,942.9		115,261.7		57,195.5		945.3
Total assets	$	265,620.4	$	9,035.6	$	118,457.8	$	136,097.9	$	2,029.1

Liabilities
Investment and universal life contracts (3)	$	(356.3)	$	—	$	—	$	—	$	(356.3)
Derivative liabilities (2)		(226.0)		—		—		(225.4)		(0.6)
Other liabilities		(0.7)		—		—		(0.7)		—
Total liabilities	$	(583.0)	$	—	$	—	$	(226.1)	$	(356.9)

Net assets	$	265,037.4	$	9,035.6	$	118,457.8	$	135,871.8	$	1,672.2

(1)	Primarily consists of collateralized loan obligations backed by secured corporate loans.

(2)

Within the consolidated statements of financial position, derivative assets are reported with other investments and derivative liabilities are reported with other liabilities. The amounts are presented gross in the tables above to reflect the presentation on the consolidated statements of financial position; however, are presented net for purposes of the rollforward in the Changes in Level 3 Fair Value Measurements tables. Refer to Note 5, Derivative Financial Instruments, for further information on fair value by class of derivative instruments.

(3)

Includes bifurcated embedded derivatives that are reported at net asset (liability) fair value within the same line item in the consolidated statements of financial position in which the host contract is reported. The funds withheld payable embedded derivative could be in either an asset or (liability) position.

(4)

Certain investments are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy. Other investments using the NAV practical expedient consist of certain fund interests that are restricted until maturity with unfunded commitments totaling $7.8 million and $10.2 million as of December 31, 2022 and December 31, 2021, respectively. Separate account assets using the NAV practical expedient consist of hedge funds and a real estate fund with varying investment strategies that also have a variety of redemption terms and conditions. We do not have unfunded commitments associated with these funds.

Changes in Level 3 Fair Value Measurements

The reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) was as follows:

For the year ended December 31, 2022

Beginning

Net

Ending

asset/

Total realized/unrealized

purchases,

asset/

(liability)

gains (losses)

sales,

(liability)

balance

Included

Included in

issuances

balance

as of

in net

other

and

Transfers

as of

January 1,

income

comprehensive

settlements

into

out of

December 31,

2022

(2)

income (3)

(4)

Level 3

2022

(in millions)

Assets

Fixed maturities, available-for-sale:

States and political subdivisions

$

94.8

$

—

$

(24.1)

$

(1.6)

$

12.0

$

(10.2)

$

70.9

Corporate

834.3

(4.8)

(28.6)

626.3

176.3

(35.2)

1,568.3

Commercial mortgage-backed securities

19.2

—

(1.0)

(4.6)

—

(10.2)

3.4

Collateralized debt obligations

85.8

—

(1.0)

151.8

—

(180.4)

56.2

Other debt obligations

42.1

(0.3)

(20.4)

474.2

—

(27.8)

467.8

Total fixed maturities, available-for-sale

1,076.2

(5.1)

(75.1)

1,246.1

188.3

(263.8)

2,166.6

Fixed maturities, trading

4.9

(0.6)

—

100.7

29.0

—

134.0

Other investments

2.1

—

(0.6)

0.4

—

1.9

Separate account assets (1)

945.3

113.5

—

(23.9)

—

1,034.9

Liabilities

Investment and universal life contracts

(356.3)

369.0

0.1

19.0

—

31.8

Funds withheld payable embedded derivative

—

3,652.8

—

3,652.8

Derivatives

Net derivative assets (liabilities)

—

(5.4)

(0.3)

2.6

—

(0.3)

(3.4)


	For the year ended December 31, 2021
	Beginning						Net						Ending
	asset/		Total realized/unrealized				purchases,						asset/
	(liability)		gains (losses)				sales,						(liability)
	balance		Included		Included in		issuances						balance
	as of		in net		other		and		Transfers		Transfers		as of
	January 1,		income		comprehensive		settlements		into		out of		December 31,
	2021		(2)		income (3)		(4)		Level 3		Level 3		2021

	(in millions)
Assets
Fixed maturities, available-for-sale:
States and political subdivisions	$	—	$	—	$	12.8	$	(0.4)	$	82.4	$	—	$	94.8
Corporate		290.8		(21.9)		7.8		381.8		175.8		—		834.3
Commercial mortgage-backed securities		13.2		(1.0)		(0.4)		7.4		—		—		19.2
Collateralized debt obligations		27.2		(2.0)		1.6		420.7		74.1		(435.8)		85.8
Other debt obligations		29.2		—		0.4		16.9		20.6		(25.0)		42.1
Total fixed maturities, available-for-sale		360.4		(24.9)		22.2		826.4		352.9		(460.8)		1,076.2
Fixed maturities, trading		—		—		—		4.9		—		—		4.9
Other investments		31.9		12.5		(1.3)		(41.0)		—		—		2.1
Separate account assets (1)		8,893.2		313.1		—		(8,261.0)		—		—		945.3

Liabilities
Investment and universal life contracts		(467.8)		81.7		0.2		29.6		—		—		(356.3)

Derivatives
Net derivative assets (liabilities)		(5.1)		(6.9)		—		12.0		—		—		—


	For the year ended December 31, 2020
	Beginning						Net						Ending
	asset/		Total realized/unrealized				purchases,						asset/
	(liability)		gains (losses)				sales,						(liability)
	balance		Included		Included in		issuances						balance
	as of		in net		other		and		Transfers		Transfers		as of
	January 1,		income		comprehensive		settlements		into		out of		December 31,
	2020		(2)		income (3)		(4)		Level 3		Level 3		2020

	(in millions)
Assets
Fixed maturities, available-for-sale:
Corporate	$	81.7	$	(0.9)	$	5.2	$	118.0	$	342.0	$	(255.2)	$	290.8
Commercial mortgage-backed securities		12.9		(1.3)		1.4		(0.1)		0.3		—		13.2
Collateralized debt obligations		199.0		(2.3)		(21.9)		183.0		—		(330.6)		27.2
Other debt obligations		91.3		—		(1.4)		(37.9)		46.1		(68.9)		29.2
Total fixed maturities, available-for-sale		384.9		(4.5)		(16.7)		263.0		388.4		(654.7)		360.4
Fixed maturities, trading		0.3		—		—		—		—		(0.3)		—
Other investments		39.0		6.3		(2.9)		(10.5)		—		—		31.9
Separate account assets (1)		8,968.0		463.7		—		(538.5)		—		—		8,893.2

Liabilities
Investment and universal life contracts		(214.2)		(254.9)		(0.3)		1.6		—		—		(467.8)

Derivatives
Net derivative assets (liabilities)		13.0		11.8		—		(3.4)		—		(26.5)		(5.1)

(1)

Gains and losses for separate account assets do not impact net income as the change in value of separate account assets is offset by a change in value of separate account liabilities. Foreign currency translation adjustments related to the Principal International segment separate account assets are recorded in AOCI and are offset by foreign currency translation adjustments of the corresponding separate account liabilities.

(2)

Both realized gains (losses) and mark-to-market unrealized gains (losses) are generally reported in net realized capital gains (losses), net realized capital gains (losses) on funds withheld assets or change in fair value of funds withheld embedded derivative within the consolidated statements of operations. Realized and unrealized gains (losses) on certain securities with an investment objective to realize economic value through mark-to-market changes are reported in net investment income within the consolidated statements of operations. Changes in unrealized gains (losses) included in net income relating to positions still held were:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Assets
Fixed maturities, available-for-sale:
Corporate	$	(1.3)	$	(4.6)	$	—
Commercial mortgage-backed securities		—		(1.0)		(1.2)
Collateralized debt obligations		—		(2.0)		(2.2)
Total fixed maturities, available-for-sale		(1.3)		(7.6)		(3.4)
Fixed maturities, trading		(0.6)		—		—
Other investments		—		12.5		5.3
Separate account assets		89.8		90.5		385.5

Liabilities
Investment and universal life contracts		354.7		80.3		(262.1)
Funds withheld payable embedded derivative		3,652.8		—		—

Derivatives
Net derivative assets (liabilities)		(3.4)		(0.6)		9.9

(3)	Changes in unrealized gains (losses) included in OCI, including foreign currency translation adjustments related to our Principal International segment, relating to positions still held were:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Assets
Fixed maturities, available-for-sale:
States and political subdivisions	$	(22.3)	$	12.8	$	—
Corporate		(19.8)		(0.7)		11.9
Commercial mortgage-backed securities		(0.5)		(0.4)		1.5
Collateralized debt obligations		—		1.9		(0.3)
Other debt obligations		(18.5)		—		—
Total fixed maturities, available-for-sale		(61.1)		13.6		13.1
Other investments		—		(1.3)		(2.9)

Liabilities
Investment and universal life contracts		0.1		0.2		(0.3)

Derivatives
Net derivative assets (liabilities)		(0.2)		—		—

(4)	Gross purchases, sales, issuances and settlements were:

For the year ended December 31, 2022

Net purchases,

sales, issuances

Purchases

Sales

Issuances

Settlements

and settlements

(in millions)

Assets

Fixed maturities, available-for-sale:

States and political subdivisions

$

—

$

—

$

—

$

(1.6)

$

(1.6)

Corporate

817.3

(50.4)

—

(140.6)

626.3

Commercial mortgage-backed securities

—

(4.1)

—

(0.5)

(4.6)

Collateralized debt obligations

151.9

—

(0.1)

151.8

Other debt obligations

487.4

(8.2)

—

(5.0)

474.2

Total fixed maturities, available-for-sale

1,456.6

(62.7)

—

(147.8)

1,246.1

Fixed maturities, trading

134.7

(32.6)

—

(1.4)

100.7

Other investments

0.4

—

0.4

Separate account assets (5)

11.8

(4.5)

(50.0)

18.8

(23.9)

Liabilities

Investment and universal life contracts

—

(7.4)

26.4

19.0

Derivatives

Net derivative assets (liabilities)

—

2.6

—

2.6


	For the year ended December 31, 2021
									Net purchases,
									sales, issuances
	Purchases		Sales		Issuances		Settlements		and settlements

	(in millions)
Assets
Fixed maturities, available-for-sale:
States and political subdivisions	$	—	$	—	$	—	$	(0.4)	$	(0.4)
Corporate		626.6		(84.3)		—		(160.5)		381.8
Commercial mortgage-backed securities		7.7		—		—		(0.3)		7.4
Collateralized debt obligations		446.0		—		—		(25.3)		420.7
Other debt obligations		45.1		—		—		(28.2)		16.9
Total fixed maturities, available-for-sale		1,125.4		(84.3)		—		(214.7)		826.4
Fixed maturities, trading		4.9		—		—		—		4.9
Other investments		—		(41.0)		—		—		(41.0)
Separate account assets (5)		38.5		(8,206.2)		(191.5)		98.2		(8,261.0)

Liabilities
Investment and universal life contracts		—		—		(16.4)		46.0		29.6

Derivatives
Net derivative assets (liabilities)		—		12.0		—		—		12.0


	For the year ended December 31, 2020
									Net purchases,
									sales, issuances
	Purchases		Sales		Issuances		Settlements		and settlements

	(in millions)
Assets
Fixed maturities, available-for-sale:
Corporate	$	169.2	$	(5.5)	$	—	$	(45.7)	$	118.0
Commercial mortgage-backed securities		—		—		—		(0.1)		(0.1)
Collateralized debt obligations		182.5		—		—		0.5		183.0
Other debt obligations		14.3		—		—		(52.2)		(37.9)
Total fixed maturities, available-for-sale		366.0		(5.5)		—		(97.5)		263.0
Other investments		0.5		(11.0)		—		—		(10.5)
Separate account assets (5)		309.2		(658.2)		(396.1)		206.6		(538.5)

Liabilities
Investment and universal life contracts		—		—		(23.0)		24.6		1.6

Derivatives
Net derivative assets (liabilities)		—		(3.4)		—		—		(3.4)

(5)	Issuances and settlements include amounts related to mortgage encumbrances associated with real estate in our separate accounts.

Transfers

Transfers of assets and liabilities measured at fair value on a recurring basis between fair value hierarchy levels were as follows:

For the year ended December 31, 2022

Transfers out

of Level 1 into

of Level 2 into

of Level 3 into

Level 3

Level 1

Level 2

(in millions)

Assets

Fixed maturities, available-for-sale:

States and political subdivisions

$

—

$

12.0

$

—

$

10.2

Corporate

—

176.3

—

35.2

Commercial mortgage-backed securities

—

10.2

Collateralized debt obligations

—

180.4

Other debt obligations

—

27.8

Total fixed maturities, available-for-sale

—

188.3

—

263.8

Fixed maturities, trading

—

29.0

—

Derivatives

Net derivative assets (liabilities)

—

0.3


	For the year ended December 31, 2021
	Transfers out		Transfers out		Transfers out		Transfers out
	of Level 1 into		of Level 2 into		of Level 3 into		of Level 3 into
	Level 3		Level 3		Level 1		Level 2

	(in millions)
Assets
Fixed maturities, available-for-sale:
States and political subdivisions	$	—	$	82.4	$	—	$	—
Corporate		—		175.8		—		—
Collateralized debt obligations		—		74.1		—		435.8
Other debt obligations		—		20.6		—		25.0
Total fixed maturities, available-for-sale		—		352.9		—		460.8


	For the year ended December 31, 2020
	Transfers out		Transfers out		Transfers out		Transfers out
	of Level 1 into		of Level 2 into		of Level 3 into		of Level 3 into
	Level 3		Level 3		Level 1		Level 2

	(in millions)
Assets
Fixed maturities, available-for- sale:
Corporate	$	—	$	342.0	$	—	$	255.2
Commercial mortgage-backed securities		—		0.3		—		—
Collateralized debt obligations		—		—		—		330.6
Other debt obligations		—		46.1		—		68.9
Total fixed maturities, available-for-sale		—		388.4		—		654.7
Fixed maturities, trading		—		—		—		0.3
Derivatives
Net derivative assets (liabilities)		—		—		—		26.5

Assets transferred into Level 3 during 2022, 2021 and 2020, primarily included those assets for which we are now unable to obtain pricing from a recognized third party pricing vendor as well as assets that were previously priced using a matrix valuation approach that may no longer be relevant when applied to asset-specific situations.

Assets transferred out of Level 3 during 2022, 2021 and 2020, included those for which we are now able to obtain pricing from a recognized third party pricing vendor or from internal models using substantially all market observable information.

Quantitative Information about Level 3 Fair Value Measurements

The following table provides quantitative information about the significant unobservable inputs used for recurring fair value measurements categorized within Level 3, excluding assets and liabilities for which significant quantitative unobservable inputs are not developed internally, which primarily consists of those valued using broker quotes. The funds withheld payable embedded derivative is excluded from the table as the determination of its fair value incorporates the fair value of the invested assets supporting the reinsurance agreement. Refer to “Assets and liabilities measured at fair value on a recurring basis” for a complete valuation hierarchy summary.


	December 31, 2022
	Assets /
	(liabilities)
	measured at		Valuation	Unobservable	Input/range of				Weighted
	fair value		technique(s)	input description	inputs				average
	(in millions)
Assets
Fixed maturities, available-for-sale:
Corporate	$	1,479.9	Discounted cash flow	Discount rate (1)	2.7	%-	33.1	%	11.0	%
				Illiquidity premium	0	basis points (“bps”)-	467	bps	50	bps
				Comparability adjustment	(16)	bps-	0	bps	(11)	bps
Collateralized debt obligations		39.5	Discounted cash flow	Discount rate (1)			4.4	%	4.4	%
				Comparability adjustment			55	bps	55	bps
Other debt obligations		467.8	Discounted cash flow	Discount rate (1)	5.6	%-	8.2	%	7.6	%
				Illiquidity premium	0	bps-	260	bps	220	bps
				Comparability adjustment	1	bps-	139	bps	77	bps
Fixed maturities, trading		119.7	Discounted cash flow	Discount rate (1)	9.6	%-	15.2	%	11.0	%
Separate account assets		1,034.1	Discounted cash flow - real estate	Discount rate (1)	5.5	%-	10.0	%	7.0	%
				Terminal capitalization rate	4.5	%-	9.5	%	5.8	%
				Average market rent growth rate	2.0	%-	3.8	%	3.0	%
			Discounted cash flow - real estate debt	Loan to value	43.6	%-	62.2	%	50.6	%
				Market interest rate	5.3	%-	8.6	%	6.6	%
Liabilities
Investment and universal life contracts (6)		31.8	Discounted cash flow	Long duration interest rate	2.4	%-	4.1	% (3)	3.7	%
				Long-term equity market volatility	17.8	%-	36.9	%	21.8	%
				Nonperformance risk	0.9	%-	2.0	%	1.6	%
				Utilization rate	See note (4)
				Lapse rate	0.0	%-	19.4	%	6.1	%
				Mortality rate	See note (5)


	December 31, 2021
	Assets /
	(liabilities)
	measured at		Valuation	Unobservable	Input/range of				Weighted
	fair value		technique(s)	input description	inputs				average
	(in millions)
Assets
Fixed maturities, available-for-sale:
Corporate	$	829.9	Discounted cash flow	Discount rate (1)	0.9	%-	15.5	%	6.8	%
				Illiquidity premium	0	bps-	70	bps	6	bps
			Market comparables	Potential loss severity			39.4	%	39.4	%
				Probability of default			100.0	%	100.0	%
Commercial mortgage-backed securities		3.5	Discounted cash flow	Discount rate (1)			3.7	%	3.7	%
Collateralized debt obligations		45.9	Discounted cash flow	Discount rate (1)	3.0	%-	5.3	%	4.0	%
				Illiquidity premium	0	bps-	385	bps	255	bps
Other debt obligations		22.1	Discounted cash flow	Discount rate (1)	3.0	%-	10.0	%	3.3	%
				Illiquidity premium	225	bps-	500	bps	237	bps
Fixed maturities, trading		4.9	Discounted cash flow	Discount rate (1)			7.5	%	7.5	%
Other investments		0.6	Market comparables - other investments	Revenue multiples (2)	6.8	x-	9.1	x	8.0	x
Separate account assets		946.0	Discounted cash flow - mortgage loans	Discount rate (1)			1.4	%	1.4	%
				Credit spread rate			120	bps	120	bps
			Discounted cash flow - real estate	Discount rate (1)	5.3	%-	10.0	%	6.6	%
				Terminal capitalization rate	4.3	%-	9.3	%	5.6	%
				Average market rent growth rate	1.6	%-	3.6	%	2.7	%
			Discounted cash flow - real estate debt	Loan to value	40.1	%-	58.5	%	46.0	%
				Market interest rate	2.5	%-	3.1	%	2.7	%
Liabilities
Investment and universal life contracts (6)		(356.3)	Discounted cash flow	Long duration interest rate	1.8	%-	1.9	% (3)	1.9	%
				Long-term equity market volatility	18.0	%-	32.5	%	22.1	%
				Nonperformance risk	0.3	%-	1.1	%	0.9	%
				Utilization rate	See note (4)
				Lapse rate	0.0	%-	17.0	%	5.1	%
				Mortality rate	See note (5)

(1)	Represents market comparable interest rate or an index adjusted rate used as the base rate in the discounted cash flow analysis prior to any illiquidity or other adjustments, where applicable.

(2)	Revenue multiples are amounts used when we have determined market participants would use such multiples to value the investments.

(3)	Represents the range of rate curves used in the valuation analysis that we have determined market participants would use when pricing the instrument. Derived from interpolation between various observable swap rates.

(4)	This input factor is the number of contractholders taking withdrawals as well as the amount and timing of the withdrawals and a range does not provide a meaningful presentation.

(5)	This input is based on an appropriate industry mortality table and a range does not provide a meaningful presentation.

(6)	Includes bifurcated embedded derivatives that are reported at net asset (liability) fair value within the same line item in the consolidated statements of financial position in which the host contract is reported.

Market comparable discount rates are used as the base rate in the discounted cash flows used to determine the fair value of certain assets. The use of a higher or lower discount rate would have caused the fair value of the assets to significantly decrease or increase, respectively. Additionally, we may adjust the base discount rate or the modeled price by applying an illiquidity premium given the highly structured nature of certain assets. The use of a higher or lower illiquidity premium would have caused significant decreases or increases, respectively, in the fair value of the asset.

Embedded derivatives within our investment and universal life contracts liability can be in either an asset or liability position, depending on certain inputs at the reporting date. Increases to an asset or decreases to a liability are described as increases to fair value. The use of a higher or lower market volatility would have caused significant decreases or increases, respectively, in the fair value of embedded derivatives in investment and universal life contracts. Long duration interest rates are used as the mean return when projecting the growth in the value of associated account value and impact the discount rate used in the discounted future cash flows valuation. The amount of claims will increase if account value is not sufficient to cover guaranteed withdrawals. The use of higher or lower risk-free rates would have caused the fair value of the embedded derivative to significantly increase or decrease, respectively. The use of a higher or lower rate for our own credit risks, which impact the rates used to discount future cash flows, would have significantly increased or decreased, respectively, the fair value of the embedded derivative.

The use of a lower or higher mortality rate assumption would have caused the fair value of the embedded derivative to decrease or increase, respectively. The use of a lower or higher overall lapse rate assumption would have caused the fair value of the embedded derivative to decrease or increase, respectively. The lapse rate assumption may vary dynamically based on the relationship of the guarantee and associated account value. A stronger or weaker dynamic lapse rate assumption would have caused the fair value of the embedded derivative to decrease or increase, respectively. The utilization rate assumption includes how many contractholders will take withdrawals, when they will take them and how much of their benefit they will take. The use of a higher or lower assumption of the number of contractholders taking withdrawals would have caused the fair value of the embedded derivative to decrease or increase, respectively. Assuming contractholders take withdrawals earlier or later would have caused the fair value of the embedded derivative to decrease or increase, respectively. Assuming contractholders take more or less of their benefit would have caused the fair value of the embedded derivative to decrease or increase, respectively.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

No significant assets and liabilities were measured at fair value on a nonrecurring basis for the years ended December 31, 2022, 2021 and 2020.

Fair Value Option

We elected fair value accounting for:

●

Certain real estate ventures that were subject to the equity method of accounting because the nature of the investments was to add value to the properties and generate income from the operations of the properties. Other equity method real estate investments were not fair valued because the investments mainly generated income from the operations of the underlying properties. The last equity method real estate investment for which the fair value option was elected was sold in the third quarter of 2021.

The following table presents information regarding the consolidated statements of operations impact of assets for which the fair value option was elected.


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Real estate ventures
Change in fair value pre-tax gain (1)	$	—	$	12.5	$	5.3

(1)Reported in net investment income on the consolidated statements of operations.

Financial Instruments Not Reported at Fair Value

The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis but required to be disclosed at fair value were as follows:

December 31, 2022

Fair value hierarchy level

Carrying amount

Fair value

Level 1

Level 2

Level 3

(in millions)

Assets (liabilities)

Mortgage loans

$

20,629.8

$

18,754.5

$

—

$

—

$

18,754.5

Policy loans

784.7

804.0

—

804.0

Other investments

250.6

238.0

—

133.5

104.5

Cash and cash equivalents

1,243.9

1,232.5

11.4

—

Reinsurance deposit receivable

7,900.9

6,859.9

—

6,859.9

Cash collateral receivable

281.0

—

Investment contracts

(35,380.1)

(32,367.4)

—

(7,279.0)

(25,088.4)

Short-term debt

(80.7)

—

(80.7)

—

Long-term debt

(3,997.0)

(3,680.6)

—

(3,620.1)

(60.5)

Separate account liabilities

(141,459.3)

(140,533.9)

—

(140,533.9)

Bank deposits (1)

(352.4)

(336.3)

—

(336.3)

—

Cash collateral payable

(291.3)

—


	December 31, 2021
					Fair value hierarchy level
	Carrying amount		Fair value		Level 1		Level 2		Level 3

	(in millions)
Assets (liabilities)
Mortgage loans	$	19,668.7	$	20,602.7	$	—	$	—	$	20,602.7
Policy loans		759.6		952.9		—		—		952.9
Other investments		304.0		294.8		—		198.6		96.2
Cash and cash equivalents		1,214.2		1,214.2		1,197.8		16.4		—
Cash collateral receivable		2.2		2.2		2.2		—		—
Investment contracts		(35,810.4)		(36,088.6)		—		(7,454.3)		(28,634.3)
Short-term debt		(79.8)		(79.8)		—		(79.8)		—
Long-term debt		(4,280.2)		(4,793.1)		—		(4,755.1)		(38.0)
Separate account liabilities		(165,098.7)		(164,028.9)		—		—		(164,028.9)
Bank deposits (1)		(373.3)		(372.8)		—		(372.8)		—
Cash collateral payable		(214.9)		(214.9)		(214.9)		—		—

(1) Excludes deposit liabilities without defined or contractual maturities.

Statutory Insurance Financial Information

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Statutory Insurance Financial Information

12 Months Ended

Dec. 31, 2022

Statutory Insurance Financial Information

16. Statutory Insurance Financial Information

Principal Life, the largest indirect subsidiary of PFG, prepares statutory financial statements in accordance with the accounting practices prescribed or permitted by the Insurance Division of the Department of Commerce of the State of Iowa (the “Iowa Insurance Division”). The Iowa Insurance Division recognizes only statutory accounting practices prescribed or permitted by the State of Iowa for determining and reporting the financial condition and results of operations of an insurance company to determine its solvency under the Iowa Insurance Law. The National Association of Insurance Commissioners’ (“NAIC”) Accounting Practices and Procedures Manual has been adopted as a component of prescribed practices by the State of Iowa. The Commissioner has the right to permit other specific practices that deviate from prescribed practices. Statutory accounting practices differ from U.S. GAAP primarily due to charging policy acquisition costs to expense as incurred, establishing reserves using different actuarial assumptions, valuing investments on a different basis and not admitting certain assets, including certain net deferred income tax assets.

Principal Life cedes certain term, universal life and Closed Block life insurance statutory reserves to our affiliated reinsurance subsidiaries on a funds withheld coinsurance basis. The reserves are secured by cash, invested assets and financing provided by highly rated third parties. As of December 31, 2022 and 2021, our affiliated reinsurance subsidiaries assumed statutory reserves of $17,815.1 million and $10,085.7 million from Principal Life, respectively. In the states of Vermont and Delaware, the affiliated reinsurers had permitted and prescribed practices allowing for the admissibility of certain assets backing these reserves. As of December 31, 2022 and 2021, assets admitted under these practices totaled $3,748.4 million and $4,146.0 million, respectively. Additionally, one of our affiliated reinsurance subsidiaries in Vermont ceded $9,956.9 million of the ULSG reserves it assumed from Principal Life to Talcott Life & Annuity Re as of December 31, 2022.

Life and health insurance companies are subject to certain risk-based capital (“RBC”) requirements as specified by the NAIC. Under those requirements, the amount of capital and surplus maintained by a life and health insurance company is to be determined based on the various risk factors related to it. As of December 31, 2022, Principal Life met the minimum RBC requirements.

Statutory net income (loss) and statutory capital and surplus of Principal Life were as follows:


	As of or for the year ended December 31,
	2022		2021		2020

	(in millions)
Statutory net income (loss)	$	(1,563.1)	$	864.0	$	915.9
Statutory capital and surplus		4,304.4		5,375.2		5,682.4

Segment Information

12 Months Ended

Dec. 31, 2022

Segment Information

Segment Information

17. Segment Information

We provide financial products and services through the following segments: Retirement and Income Solutions, Principal Global Investors, Principal International and U.S. Insurance Solutions. In addition, we have a Corporate segment. The segments are managed and reported separately because they provide different products and services, have different strategies or have different markets and distribution channels.

The Retirement and Income Solutions segment provides retirement and related financial products and services primarily to businesses, their employees and other individuals. The segment is organized into Retirement and Income Solutions – Fee, which includes workplace savings and retirement solutions (formerly known as “full service accumulation”), trust and custody services, individual variable annuities and the acquisition, integration and migration expenses associated with the purchase of the Acquired Business; and Retirement and Income Solutions – Spread, which includes investment only, pension risk transfer, banking services and our exited retail fixed annuities business.

The Principal Global Investors segment provides asset management services to our asset accumulation business, our insurance operations, the Corporate segment and third party institutional clients. This segment also includes our mutual fund business.

The Principal International segment has operations in Latin America (Brazil, Chile and Mexico) and Asia (China, Hong Kong Special Administrative Region and Southeast Asia). We focus on locations with large middle classes, favorable demographics and growing long-term savings, ideally with voluntary or mandatory pension markets. We entered these locations through acquisitions, start-up operations and joint ventures.

The U.S. Insurance Solutions segment focuses on solutions for small-to-mid sized businesses and their employees. The segment is organized into Specialty Benefits insurance, which provides group dental and vision insurance, individual and group disability insurance, group life insurance, critical illness, accident, paid family and medical leave and non-medical fee-for-service claims administration; and Individual Life insurance, which includes universal life, variable universal life, indexed universal life, traditional life insurance and our exited ULSG business.

Our Corporate segment manages the assets representing capital that has not been allocated to any other segment. Financial results of the Corporate segment primarily reflect our financing activities (including financing costs), income on capital not allocated to other segments, inter-segment eliminations, income tax risks and certain income, expenses and other adjustments not allocated to the segments based on the nature of such items. Results of Principal Securities, Inc. (“PSI”), our retail broker-dealer and registered investment advisor (“RIA”); and our exited group medical and long-term care insurance businesses are reported in this segment.

Management uses segment pre-tax operating earnings in evaluating performance, which is consistent with the financial results provided to and discussed with securities analysts. We determine segment pre-tax operating earnings by adjusting U.S. GAAP income before income taxes for pre-tax net realized capital gains (losses), as adjusted, pre-tax income (loss) from exited business, pre-tax other adjustments that management believes are not indicative of overall operating trends and certain adjustments related to equity method investments and noncontrolling interest. While these items may be significant components in understanding and assessing the consolidated financial performance, management believes the presentation of pre-tax operating earnings enhances the understanding of our results of operations by highlighting pre-tax earnings attributable to the normal, ongoing operations of the business.

The pre-tax net realized capital gains (losses), as adjusted, excluded from pre-tax operating earnings reflects consolidated U.S. GAAP pre-tax net realized capital gains (losses) excluding the following items that are included in pre-tax operating earnings:

●

Periodic settlements and accruals on derivative instruments not designated as hedging instruments,

●

Certain market value adjustments of derivatives and embedded derivatives and

●

Certain market value adjustments of derivative instruments used to economically hedge embedded derivatives.

Pre-tax income (loss) from exited business includes amounts associated with our exited U.S. retail fixed annuity and ULSG businesses, including strategic review costs and impacts, amortization of reinsurance gain (loss), impacts to actuarial balances of reinsured businesses, net realized capital gains (losses) on funds withheld assets and the change in fair value of the funds withheld embedded derivative. The strategic review costs and impacts primarily include actuarial balance re-cohorting impacts resulting from the Strategic Review and costs to close the Reinsurance Transaction. Impacts to actuarial balances of reinsured business primarily include DAC amortization.

Pre-tax net realized capital gains (losses), as adjusted, are further adjusted for:

●

Amortization of hedge accounting book value adjustments for certain discontinued hedges,

●

Certain hedge accounting market value revenue adjustments,

●

Certain market value adjustments to fee revenues,

●

Pre-tax net realized capital gains (losses) adjustments related to equity method investments,

●

Pre-tax net realized capital gains (losses) adjustments related to sponsored investment funds,

●

Recognition of deferred front-end fee revenues for sales charges on retirement and life insurance products and services,

●

Related changes in the amortization pattern of DAC and related actuarial balances,

●

Certain hedge accounting market value expense adjustments and

●

Net realized capital gains (losses) distributed.

Segment operating revenues reflect consolidated U.S. GAAP total revenues excluding:

●

Net realized capital gains (losses), except periodic settlements and accruals on derivatives not designated as hedging instruments and certain market value adjustments of derivative instruments used to economically hedge embedded derivatives, and their impact on:

●

Amortization of hedge accounting book value adjustments for certain discontinued hedges,

●

Certain hedge accounting market value revenue adjustments,

●

Certain market value adjustments to fee revenues,

●

Pre-tax net realized capital gains (losses) adjustments related to equity method investments,

●

Pre-tax net realized capital gains (losses) adjustments related to sponsored investment funds and

●

Recognition of deferred front-end fee revenues for sales charges on retirement and life insurance products and services.

●

Pre-tax revenues from exited business,

●

Pre-tax other adjustments and income taxes of equity method investments and

●

Pre-tax other adjustments management believes are not indicative of overall operating trends.

The accounting policies of the segments are consistent with the accounting policies for the consolidated financial statements, with the exception of: (1) pension and OPEB cost allocations, (2) certain expenses deemed to benefit the entire organization and (3) income tax allocations. For purposes of determining pre-tax operating earnings, the segments are allocated the service component of pension and other postretirement benefit costs. The Corporate segment reflects the non-service components of pension and other postretirement benefit costs as assumptions are established and funding decisions are managed from a company-wide perspective. Additionally, the Corporate segment reflects expenses that benefit the entire organization for which the segments are not able to influence the spend. This includes expenses such as public company costs, executive management costs, acquisition and disposition costs, among others. The Corporate segment functions to absorb the risk inherent in interpreting and applying tax law. For purposes of determining non-GAAP operating earnings, the segments are allocated tax adjustments consistent with the positions we took on tax returns. The Corporate segment results reflect any differences between the tax returns and the estimated resolution of any disputes.

The following tables summarize select financial information by segment, including operating revenues for our products and services, and reconcile segment totals to those reported in the consolidated financial statements:


	December 31, 2022		December 31, 2021

	(in millions)
Assets:
Retirement and Income Solutions	$	203,646.8	$	221,993.8
Principal Global Investors		2,348.2		2,445.1
Principal International		43,373.6		42,812.4
U.S. Insurance Solutions		40,653.8		33,222.6
Corporate		2,217.2		4,183.3
Total consolidated assets	$	292,239.6	$	304,657.2


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Operating revenues by segment:
Retirement and Income Solutions:
Retirement and Income Solutions – Fee	$	2,253.9	$	2,322.7	$	2,149.8
Retirement and Income Solutions – Spread		3,721.3		4,187.3		5,353.7
Total Retirement and Income Solutions (1)		5,975.2		6,510.0		7,503.5
Principal Global Investors (2)		1,715.5		1,828.0		1,539.1
Principal International		1,475.9		1,351.8		1,096.8
U.S. Insurance Solutions:
Specialty Benefits insurance		2,984.6		2,709.6		2,525.4
Individual Life insurance		1,330.9		2,057.2		1,955.0
Eliminations		(0.6)		(0.2)		(0.2)
Total U.S. Insurance Solutions		4,314.9		4,766.6		4,480.2
Corporate		(6.5)		1.8		(39.7)
Total segment operating revenues		13,475.0		14,458.2		14,579.9
Net realized capital gains (losses), net of related revenue adjustments		(381.5)		(164.0)		195.3
Revenues from exited business (3)		4,447.2		—		—
Adjustments related to equity method investments		(49.1)		(31.5)		(33.5)
Total revenues per consolidated statements of operations	$	17,491.6	$	14,262.7	$	14,741.7

Pre-tax operating earnings (losses) by segment:
Retirement and Income Solutions	$	1,090.4	$	1,141.2	$	966.9
Principal Global Investors		604.0		708.4		512.9
Principal International		308.6		309.0		243.6
U.S. Insurance Solutions		531.7		470.8		239.9
Corporate		(469.4)		(368.0)		(326.4)
Total segment pre-tax operating earnings		2,065.3		2,261.4		1,636.9
Pre-tax net realized capital gains (losses), as adjusted (4)		(286.7)		(179.8)		63.6
Pre-tax income from exited business (5)		4,260.5		—		—
Adjustments related to equity method investments and noncontrolling interest		21.0		2.0		(7.0)
Income before income taxes per consolidated statements of operations	$	6,060.1	$	2,083.6	$	1,693.5

(1)	Reflects inter-segment revenues of $364.4 million, $413.1 million and $342.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

(2)	Reflects inter-segment revenues of $323.4 million, $308.9 million and $273.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

(3)	Revenues from exited business is derived as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Revenues from exited business:
Change in fair value of funds withheld embedded derivative	$	3,652.8	$	—	$	—
Net realized capital gains on funds withheld assets		749.4		—		—
Strategic review costs and impacts		32.4		—		—
Amortization of reinsurance gain		12.6		—		—
Total revenues from exited business	$	4,447.2	$	—	$	—

(4)	Pre-tax net realized capital gains (losses), as adjusted, is derived as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Net realized capital gains (losses)	$	(258.4)	$	2.5	$	302.6
Derivative and hedging-related revenue adjustments		(126.3)		(160.3)		(132.9)
Market value adjustments to fee revenues		0.7		(0.6)		(1.6)
Adjustments related to equity method investments		(15.0)		(24.0)		(1.5)
Adjustments related to sponsored investment funds		22.2		21.3		17.3
Recognition of front-end fee revenue		(4.7)		(2.9)		11.4
Net realized capital gains (losses), net of related revenue adjustments		(381.5)		(164.0)		195.3
Amortization of deferred acquisition costs and other actuarial balances		2.5		11.1		(26.8)
Capital (gains) losses distributed		136.4		(106.7)		(49.9)
Market value adjustments of embedded derivatives		(44.1)		79.8		(55.0)
Pre-tax net realized capital gains (losses), as adjusted (a)	$	(286.7)	$	(179.8)	$	63.6

(a)

As adjusted before noncontrolling interest capital gains (losses).

(5)	Pre-tax income (loss) from exited business included:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Pre-tax income from exited business
Change in fair value of funds withheld embedded derivative	$	3,652.8	$	—	$	—
Net realized capital gains on funds withheld assets		749.4		—		—
Strategic review costs and impacts		(91.0)		—		—
Amortization of reinsurance loss		(82.5)		—		—
Impacts to actuarial balances of reinsured business		31.8		—		—
Total pre-tax income from exited business	$	4,260.5	$	—	$	—

The following is a summary of income tax expense (benefit) allocated to our segments for purposes of determining non-GAAP operating earnings. Segment income taxes are reconciled to income taxes reported on our consolidated statements of operations.


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Income tax expense (benefit) by segment:
Retirement and Income Solutions	$	118.2	$	130.1	$	106.6
Principal Global Investors		161.8		192.3		141.9
Principal International		52.4		69.8		62.0
U.S. Insurance Solutions		101.1		92.3		47.9
Corporate		(69.1)		(70.7)		(87.9)
Total segment income taxes from operating earnings		364.4		413.8		270.5
Tax expense (benefit) related to net realized capital losses, as adjusted		(64.2)		(56.2)		28.2
Tax expense related to exited business (1)		956.5		—		—
Certain adjustments related to equity method investments and noncontrolling interest		(48.8)		(31.4)		(33.7)
Total income taxes per consolidated statements of operations	$	1,207.9	$	326.2	$	265.0

(1)	Income tax expense related to exited business is derived as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Income tax expense related to exited business:
Change in fair value of funds withheld embedded derivative	$	767.1	$	—	$	—
Net realized capital gains on funds withheld assets		157.4		—		—
Strategic review costs and impacts (a)		42.8		—		—
Amortization of reinsurance gain		(17.4)		—		—
Impacts to actuarial balances of reinsured business		6.6		—		—
Total income tax expense related to exited business	$	956.5	$	—	$	—

(a)Includes Global Intangible Low-Taxed Income allocated to exited business.

The following is a summary of depreciation and amortization expense allocated to our segments for purposes of determining pre-tax operating earnings. Segment depreciation and amortization is reconciled to depreciation and amortization included in operating expenses in our consolidated statements of operations.


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Depreciation and amortization expense by segment:
Retirement and Income Solutions	$	86.2	$	81.7	$	69.1
Principal Global Investors		20.7		21.1		21.6
Principal International		53.9		57.3		56.0
U.S. Insurance Solutions		23.7		24.2		25.1
Corporate		18.4		23.7		14.8
Total segment depreciation and amortization expense included in pre-tax operating earnings		202.9		208.0		186.6
Depreciation and amortization expense related to exited business		27.1		—		—
Total depreciation and amortization expense included in our consolidated statements of operations	$	230.0	$	208.0	$	186.6

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

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Revenues from Contracts with Customers

Revenues from Contracts with Customers

12 Months Ended

Dec. 31, 2022

Revenues from Contracts with Customers

18. Revenues from Contracts with Customers

The following tables summarize disaggregation of revenues from contracts with customers, including select financial information by segment, and reconcile totals to those reported in the consolidated financial statements. Revenues from contracts with customers are included in fees and other revenues on the consolidated statements of operations.


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Revenue from contracts with customers by segment:
Retirement and Income Solutions:
Retirement and Income Solutions – Fee	$	540.0	$	580.2	$	591.2
Retirement and Income Solutions – Spread		11.4		9.9		8.6
Total Retirement and Income Solutions		551.4		590.1		599.8
Principal Global Investors		1,675.0		1,787.9		1,511.2
Principal International		426.3		492.7		439.2
U.S. Insurance Solutions:
Specialty Benefits insurance		15.1		14.9		14.8
Individual Life insurance		65.1		60.6		48.6
Eliminations		(0.1)		(0.2)		(0.2)
Total U.S. Insurance Solutions		80.1		75.3		63.2
Corporate		148.1		204.1		154.9
Total segment revenue from contracts with customers		2,880.9		3,150.1		2,768.3
Adjustments for fees and other revenues not within the scope of revenue recognition guidance (1)		1,255.8		1,866.0		1,733.0
Pre-tax other adjustments (2)		41.0		(3.5)		9.8
Total fees and other revenues per consolidated statements of operations	$	4,177.7	$	5,012.6	$	4,511.1

(1)	Fees and other revenues not within the scope of the revenue recognition guidance primarily represent revenue on contracts accounted for under the financial instruments or insurance contracts standards.

(2)	Pre-tax other adjustments relate to revenues from exited business and the recognition of deferred front-end fee revenues for sales charges on retirement and life insurance products and certain market value adjustments to fee revenues.

Retirement and Income Solutions - Fee

Retirement and Income Solutions - Fee offers service and trust agreements for defined contribution retirement plans, including 401(k) plans, 403(b) plans, and employee stock ownership plans. The investment components of these service agreements are in the form of mutual fund offerings. In addition, plan sponsor retirement plan trust and custody services are also available through our trust company. Furthermore, services and trust agreements are offered to non-retirement customers including insurance companies, endowments and other financial institutions.

Fees and other revenues are earned for administrative activities performed for the defined contribution retirement plans including recordkeeping and reporting as well as trust and custody, asset management and investment services. Fees and other revenues are earned for administrative activities performed for non-retirement plan customers including trust and custody services, defined benefit administration and investment management activities. The majority of these activities are performed daily over time. Fee-for-service transactions are also provided upon client request. These services are considered distinct or grouped into a bundle until a distinct performance obligation is identified. Some performance obligations are considered a series of distinct services, which are substantially the same and have the same pattern of transfer to the customer.

Fees and other revenues can be based on a fixed contractual rate for these services or can be variable based upon contractual rates applied to the market value of the client’s investment portfolio each day. If the consideration for this series of performance obligations is based on daily market value, it is considered variable each day as the services are performed over time. The consideration becomes unconstrained and thus recognized as revenue for each day’s series of distinct services once the market value of the clients’ investment portfolios is determined at market close or carried over at the end of the day for days when the market is closed. Additionally, fixed fees and other revenues are recognized point-in-time as fee-for-service transactions upon completion.

The types of revenues from contracts with customers were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Administrative service fee revenue	$	537.0	$	576.7	$	589.2
Other fee revenue		3.0		3.5		2.0
Total revenues from contracts with customers		540.0		580.2		591.2
Fees and other revenues not within the scope of revenue recognition guidance		1,187.1		1,299.6		1,130.4
Total fees and other revenues		1,727.1		1,879.8		1,721.6
Premiums and other considerations		—		0.5		5.0
Net investment income		526.8		442.4		423.2
Total operating revenues	$	2,253.9	$	2,322.7	$	2,149.8

Retirement and Income Solutions - Spread

Retirement and Income Solutions – Spread offers individual retirement accounts (“IRAs”) through Principal Bank, which are primarily funded by retirement savings rolled over from qualified retirement plans. The IRAs are held in savings accounts, money market accounts and certificates of deposit. Revenues are earned through fees as the performance of establishing and maintaining IRA accounts is completed. Fee-for-service transactions are also provided upon client request. The establishment fees and annual maintenance fees are accrued into earnings over a period of time using the average account life. Upfront and recurring bank fees are related to performance obligations that have the same pattern of transfer to the customer and are recognized in income over time with control transferred to the customers utilizing the output method. These fees are based on a fixed contractual rate. Fixed fees and other revenues are also recognized point-in-time as fee-for-service transactions upon completion. Additionally, commission income is earned on advisory services provided to customers. The revenues are earned over time as the service is performed based upon contractual rates applied to the market value of the clients’ portfolios.

The types of revenues from contracts with customers were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Deposit account fee revenue	$	10.2	$	9.2	$	8.4
Commission income		1.2		0.7		0.2
Total revenues from contracts with customers		11.4		9.9		8.6
Fees and other revenues not within the scope of revenue recognition guidance		2.9		7.9		9.5
Total fees and other revenues		14.3		17.8		18.1
Premiums and other considerations		1,959.7		1,883.1		3,216.0
Net investment income		1,747.3		2,286.4		2,119.6
Total operating revenues	$	3,721.3	$	4,187.3	$	5,353.7

Principal Global Investors

Fees and other revenues earned for asset management, investment advisory and distribution services provided to institutional and retail clients are based largely upon contractual rates applied to the specified amounts of the clients’ portfolios. Each service is a distinct performance obligation, or a series of distinct services that are a single performance obligation in that the services are substantially the same and have the same pattern of transfer to the customer. Fees and other revenues received for performance obligations such as asset management and other services are typically recognized over time utilizing the output method as the service is performed. Performance fees and transaction fees on certain accounts are recognized in income when the probability of significant reversal will not occur upon resolution of the uncertainty, which could be based on a variety of factors such as market performance or other internal metrics. Asset management fees are accrued each month based on the fee terms within the applicable agreement and are generally billed quarterly when values used for the calculation are available. Management fees and performance fees are variable consideration as they are subject to fluctuation based on assets under management (“AUM”) and other constraints. These fees are not recognized until unconstrained at the end of each reporting period.

The types of revenues from contracts with customers were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Management fee revenue	$	1,434.6	$	1,514.1	$	1,298.4
Other fee revenue		240.4		273.8		212.8
Total revenues from contracts with customers		1,675.0		1,787.9		1,511.2
Fees and other revenues not within the scope of revenue recognition guidance		27.4		36.2		22.3
Total fees and other revenues		1,702.4		1,824.1		1,533.5
Net investment income		13.1		3.9		5.6
Total operating revenues	$	1,715.5	$	1,828.0	$	1,539.1

Principal International

Fees and other revenues are earned for asset management and distribution services provided to retail and institutional clients in addition to trustee and/or administrative services performed for retirement savings plans. Each service is considered a distinct performance obligation; however, if the services are not distinct on their own, we combine them into a distinct bundle or we have a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. Fees and other revenues are typically based upon contractual rates applied to the market value of the clients’ investment portfolios and are considered variable consideration. The transaction price generally includes the amount determined at the end of the reporting period, whereby fees are deducted from the clients’ investment portfolios and are recognized as revenue when no longer constrained and satisfied as the services are performed over time utilizing the output method. In addition, payments to customers can take the form of an incentive given by us to entice the customer to purchase its goods or services. Incentives offered to customers are recognized as part of the transaction price as a reduction of revenue either over the period the customer remains in order to receive the incentive or monthly throughout the life of the contract.

Incentive-based fees are recognized in income when the probability of significant reversal will not occur upon the resolution of the uncertainty, which is based on market performance.

Fees for managing customers’ mandatory retirement savings accounts in Chile are collected with each monthly deposit made by our customers. If a customer stops contributing before retirement age, we collect no fees but services are still provided. We recognize revenue from these contracts as services are performed over the life of the contract and review annually.

The types of revenues from contracts with customers were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Management fee revenue	$	417.1	$	484.4	$	435.3
Other fee revenue		9.2		8.3		3.9
Total revenues from contracts with customers		426.3		492.7		439.2
Fees and other revenues not within the scope of revenue recognition guidance		4.5		4.1		5.6
Total fees and other revenues		430.8		496.8		444.8
Premiums and other considerations		77.7		127.5		156.6
Net investment income		967.4		727.5		495.4
Total operating revenues	$	1,475.9	$	1,351.8	$	1,096.8

Revenues from contracts with customers by region:
Latin America	$	314.4	$	362.6	$	323.5
Asia		111.9		128.8		115.9
Principal International corporate / regional offices		2.0		2.6		0.9
Eliminations		(2.0)		(1.3)		(1.1)
Total revenues from contracts with customers	$	426.3	$	492.7	$	439.2

U.S. Insurance Solutions

Fees and other revenues are earned for administrative services performed including recordkeeping and reporting services for fee-for-service products, nonqualified benefit plans, separate accounts and dental networks. Services within contracts are not distinct on their own; however, we combine the services into a distinct bundle and account for the bundle as a single performance obligation, which is satisfied over time utilizing the output method as services are rendered. The transaction price corresponds with the performance completed to date, for which the value is recognized as revenue during the period. Variability of consideration is resolved at the end of each period and payments are due when billed.

Commission income is earned through sponsored brokerage services. Performance obligations are satisfied at a point in time, upon delivery of a placed case, and the transaction price calculated per the compensation schedule is recognized as revenue.

The types of revenues from contracts with customers were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Specialty Benefits insurance:
Administrative service fees	$	15.1	$	14.9	$	14.8
Total revenues from contracts with customers		15.1		14.9		14.8
Fees and other revenues not within the scope of revenue recognition guidance		18.6		19.0		19.3
Total fees and other revenues		33.7		33.9		34.1
Premiums and other considerations		2,771.1		2,496.4		2,330.7
Net investment income		179.8		179.3		160.6
Total operating revenues	$	2,984.6	$	2,709.6	$	2,525.4

Individual Life insurance:
Administrative service fees	$	27.6	$	26.7	$	21.8
Commission income		37.5		33.9		26.8
Total revenues from contracts with customers		65.1		60.6		48.6
Fees and other revenues not within the scope of revenue recognition guidance		333.6		859.2		849.8
Total fees and other revenues		398.7		919.8		898.4
Premiums and other considerations		535.9		334.0		329.1
Net investment income		396.3		803.4		727.5
Total operating revenues	$	1,330.9	$	2,057.2	$	1,955.0

Corporate

Fees and other revenues are earned on the performance of selling and servicing of securities and related products offered through PSI, an introducing broker-dealer registered with the FINRA.

PSI enters into selling and distribution agreements with the obligation to sell or distribute the securities products, such as mutual funds, annuities and products sold through RIAs, to individual clients in return for front-end sales charges, 12b-1 service fees, annuity fees and asset-based fees. Front-end sales charges, 12b-1 fees and annuity fees are related to a single sale and are earned at the time of sale. PSI also enters into agreements with individual customers to provide securities trade execution and custody through a brokerage services platform in return for ticket charge and other service fee revenue. These services are bundled as one single distinct service referred to as brokerage services. This revenue is related to distinct transactions and is earned at a point in time.

PSI also enters into agreements with individual customers to provide trade execution, clearing services, custody services and investment research services through our proprietary offered fee-based products. These services are bundled as one single distinct service referred to as advisory services. In addition, for outside RIA business PSI performs sales and distribution services only. The revenues are earned over time as the service is performed utilizing the output method.

A majority of our revenue is based upon contractual rates applied to the market value of the clients’ portfolios and considered variable consideration.

The Corporate segment also includes inter-segment eliminations of fees and other revenues. The types of revenues from contracts with customers were as follows:


	For the year ended December 31,
	2022		2021		2020

	(in millions)
Commission income	$	366.2	$	388.9	$	316.6
Other fee revenue		79.7		68.8		59.1
Eliminations		(297.8)		(253.6)		(220.8)
Total revenues from contracts with customers		148.1		204.1		154.9
Fees and other revenues not within the scope of revenue recognition guidance		(318.3)		(360.0)		(303.9)
Total fees and other revenues		(170.2)		(155.9)		(149.0)
Premiums and other considerations		(4.2)		—		—
Net investment income		167.9		157.7		109.3
Total operating revenues	$	(6.5)	$	1.8	$	(39.7)

Contract Costs

Sales compensation and other incremental costs of obtaining a contract are capitalized and amortized over the period of contract benefit if the costs are expected to be recovered. The contract cost asset, which is included in other assets on the consolidated statements of financial position, was $204.9 million and $193.1 million as of December 31, 2022 and December 31, 2021, respectively.

We apply the practical expedient for certain costs where we recognize the incremental costs of obtaining these contracts as an expense when incurred if the amortization period of the assets is one year or less. These costs, along with costs that are not deferrable, are included in operating expenses on the consolidated statements of operations.

Deferred contract costs consist primarily of commissions and variable compensation. We amortize capitalized contract costs on a straight-line basis over the expected contract life, reflecting lapses as they are incurred. Deferred contract costs are subject to impairment testing on an annual basis, or when a triggering event occurs that could warrant an impairment. To the extent future revenues less future maintenance expenses are not adequate to cover the asset balance, an impairment is recognized. For the years ended December 31, 2022, 2021 and 2020, $35.6 million, $32.4 million and $24.8 million, respectively, of amortization expense was recorded in operating expenses on the consolidated statements of operations and no impairment loss was recognized in relation to the costs capitalized.

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 15
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130558-203045

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (c)
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045