Principal Financial Group grew operating earnings 12% to $547.0M ($2.50/share) in Q2 2026 on higher retirement fees and better group-benefits claims, but GAAP net income slipped 0.7% to $403.4M on a $131.6M after-tax loss from exited annuity and life business.
Revenue
$3.9B
+6.4% YoY
Net income
$403M
-0.7% YoY
Diluted EPS
$1.84
+2.8% YoY
Overview
Principal Financial Group runs three main businesses: workplace retirement plans (401(k) record-keeping and pension annuities), a global asset manager, and group benefits and life insurance for small and mid-sized employers. In the second quarter of 2026 (April–June), the underlying business earned noticeably more than a year earlier, but the bottom line barely moved because of a large accounting loss tied to old business the company has already sold off.
GAAP net income (profit under the official accounting rules) attributable to PFG was $403.4 million, down 0.7% from $406.2 million. Diluted EPS still rose 2.8% to $1.84 (from $1.79) because there were fewer shares: weighted diluted shares fell to 218.7 million from 226.5 million after buybacks.
Non-GAAP operating earnings (management's measure of the ongoing business, which strips out investment gains and losses and the exited businesses) rose 12% to $547.0 million, or $2.50 per share, up 16% from $2.16.
Total revenues grew 6.4% to $3,905.8 million.
The earnings release was filed on July 27, 2026 and the full 10-Q on July 29, 2026; this analysis is based on the 10-Q.
Key metrics
Metric
Q2 2026
Q2 2025
YoY Change
Total revenues
$3,905.8M
$3,671.3M
+6.4%
Income before income taxes
$496.3M
$503.1M
-1.4%
Pre-tax margin (pre-tax income ÷ revenues)
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Book value per common share was $56.58 at June 30, 2026, up from $54.66 at December 31, 2025 (the company compares to year-end, not the prior-year quarter). Excluding unrealized investment gains and losses and the funds-withheld derivative explained below, it was $58.40 versus $57.25.
Why GAAP profit was flat while the business grew
The gap between the 12% rise in operating earnings and the flat GAAP result comes almost entirely from one line: income (loss) from exited business.
Principal has stopped selling U.S. retail fixed annuities and a type of universal life insurance with lifetime guarantees (ULSG), and passed those policies to a reinsurer. Under that "funds withheld" arrangement Principal keeps holding the investments backing the policies, and the reinsurer's claim on those assets is valued each quarter as a derivative. When interest rates and credit spreads move, that value swings, producing gains or losses that say nothing about how the ongoing business is doing.
This quarter the change in fair value of that funds-withheld derivative was a $104.4 million loss, versus a $20.3 million gain a year ago. After tax, the loss from exited business was $131.6 million, up from $26.1 million. The 10-Q says net income "decreased slightly due to a $105.5 million increase in after-tax losses from exited business, primarily related to the change in fair value of the funds withheld embedded derivative, that was offset by a $57.7 million increase in segment earnings and a $45.0 million increase related to after-tax net realized capital gains."
The first half as a whole shows how noisy this line is: six-month GAAP net income more than doubled to $828.0 million from $454.3 million ($3.77 vs $2.00 per diluted share), largely because the same derivative produced a $73.0 million gain in the first half of 2026 against a $189.4 million loss in 2025, and because 2025 included write-downs from exiting the Hong Kong pension (MPF) sponsor and trustee roles.
Segment performance
Principal reports segment results as pre-tax operating earnings (profit before tax, excluding investment gains/losses and exited business).
Segment
Q2 2026
Q2 2025
YoY
Operating margin Q2 2026 (Q2 2025)
Retirement and Income Solutions
$323.3M
$292.1M
+11%
41.5% (40.9%)
Investment Management
$159.4M
$157.9M
+1%
37.5% (37.5%)
International Pension
$97.0M
$78.5M
+24%
52.5% (49.3%)
Specialty Benefits
$158.9M
$127.6M
+25%
18.2% (15.2%)
Life Insurance
$25.2M
$20.0M
+26%
11.2% (8.4%)
Corporate
$(95.0)M
$(81.2)M
-17%
n/a
Total
$668.8M
$594.9M
+12%
Operating margin here means pre-tax operating earnings as a share of the segment's revenue measure (net revenue for the retirement and pension businesses; premium and fees for the insurance businesses).
Retirement and Income Solutions, the largest segment: net revenue rose 9% to $779.0 million, which the 10-Q attributes mainly to "a $36.7 million increase in fee revenue primarily due to an increase in average monthly account values, which largely resulted from more favorable financial markets" and a $27.6 million rise in variable investment income (lumpy returns such as loan prepayment fees and real-estate sales). The 11% profit gain came despite a tougher comparison: Q2 2025 expenses in this segment were flattered by a $19.4 million one-time accrual release. Transfer deposits (new money moving onto Principal's platform) were $9 billion, up 30%.
Investment Management was essentially flat. Revenue after pass-through costs rose only 1% to $431.6 million; higher management fees from larger AUM were "partially offset by lower performance fees." Segment AUM was $601.9 billion, up 4%.
International Pension was the fastest-growing unit, and the one where the growth is least clean. Net revenue rose 16% to $184.8 million "primarily due to more favorable encaje returns and foreign currency tailwinds." Encaje is the reserve that pension managers in Chile and other Latin American markets must invest alongside their clients' money, so its returns track markets rather than the business's own growth. Currency movements added $7.9 million to Principal Asset Management's pre-tax operating earnings in the quarter, and the company classifies $18.7 million of International Pension's result as "significant variances" (items it considers above or below normal expectations), versus $7.8 million a year ago. Stripping both out, the segment's growth is well below the headline 24%. AUM reached a record $168.5 billion, up 18%.
Specialty Benefits (group dental, vision, disability and life coverage sold through employers) showed the biggest improvement. The incurred loss ratio, the share of premiums paid out in claims, fell to 57.4% from 60.2%, which the company says was "below targeted range with improved results across all products." Premium and fees grew 4% to $873.3 million and sales rose 11%.
Life Insurance profit rose to $25.2 million on "improved mortality experience" (fewer or smaller death claims than expected). Premium and fees fell 6% to $224.1 million, but that is a reporting change: a subsidiary supporting the company's in-house sales force moved to the Corporate segment in 2026.
Corporate: the loss widened by $13.8 million to $95.0 million "due to timing of expenses."
Outflows are the weak spot
The one clearly negative trend is money leaving: AUM net cash flow was an outflow of $11.1 billion, compared with $2.6 billion a year earlier. Within Principal Asset Management, net outflows were $12.2 billion in the quarter, but a $43.6 billion boost from market performance more than covered them, taking segment AUM to $770.4 billion. The 10-Q does not break down which clients or strategies drove the outflows. Because asset-management fees are charged as a percentage of assets managed, persistent outflows would slow fee growth once markets stop rising, and Investment Management's flat revenue already hints at that.
Capital and shareholder returns
Returned $427 million to shareholders: $250 million of share repurchases and $177 million of dividends.
Raised the third-quarter dividend by 2 cents to $0.84 per share, 8% above the year-earlier dividend (payable September 25, 2026).
Reported $1.6 billion of excess and available capital (capital above what regulators and rating agencies require, available for buybacks, dividends or acquisitions).
Total stockholders' equity was $12,177.8 million at June 30, 2026, up from $11,917.0 million at year-end 2025.
Takeaway: Principal's core businesses earned 12% more this quarter, driven by a sharp improvement in group-benefits claims and higher retirement-plan fees, but a paper loss on legacy annuity and life policies it no longer sells cancelled out that gain at the GAAP level. The real item to watch is not that accounting noise but the $11.1 billion of net outflows, which rising markets are currently masking.
Outlook
The earnings release does not include numerical earnings guidance for the rest of 2026; management's commentary points to "growth across the enterprise" and continued capital return. Our read on the trajectory:
Supportive: Retirement fee revenue and asset-management fees are tied to account values, so they should keep growing as long as equity markets hold up. The diluted share count is down about 3.4% year over year, which lifts per-share earnings on its own.
Likely to normalize: A 57.4% Specialty Benefits loss ratio is below the company's own target range, so some of this quarter's improvement may reverse. International Pension's growth leaned on encaje returns and currency, both of which can swing the other way.
Structural: The Hong Kong MPF exit closed in the third quarter of 2026, per the 10-Q; its write-downs were taken in 2025. The funds-withheld derivative will keep adding volatility to GAAP results each quarter as interest rates and credit spreads move.
The next data point is third-quarter 2026 results, which Principal has typically released in late October.