Principal Financial Q3 2026: GAAP EPS tripled to $2.91 on a derivative gain; core earnings +1.7%

Principal Financial Group sells workplace retirement plans, runs a global asset manager, and insures employees through group benefits and life policies. In the third quarter of 2026 (July–September), its reported profit nearly tripled, but almost none of that came from the businesses it still runs. The jump came from an accounting gain on old annuity and life policies it has already handed to a reinsurer. The measure management uses for the ongoing business rose just 2%, and per-share growth came mostly from buybacks.

GAAP net income (profit under the official accounting rules) attributable to PFG was $631.9 million, up from $213.8 million, or $2.91 per diluted share against $0.95. Non-GAAP operating earnings rose 2% to $481.8 million, or $2.22 per share (up 6% from $2.10). Operating earnings is management's measure of the ongoing business: it leaves out investment gains and losses, results from exited businesses and, starting this quarter, the effects of the yearly actuarial assumption review.

This analysis is based on the earnings release (Exhibit 99 to the 8-K filed October 26, 2026). The full 10-Q isn't filed yet, so this release has no consolidated income statement. Total revenue, the segment-level management discussion and a breakdown of asset outflows by client or strategy aren't available yet.

Key metrics

Book value per common share was $55.53 at September 30, 2026, versus $54.66 at December 31, 2025 (the release compares with year-end) and $56.58 at the end of June. Excluding unrealized investment gains and losses and the funds-withheld derivative, it was $57.63, versus $57.25 at year-end.

What the headline numbers hide

The GAAP tripling is an accounting gain on business Principal has exited. Principal no longer sells U.S. retail fixed annuities or a type of universal life insurance with lifetime guarantees, and it has passed those policies to a reinsurer. Under that "funds withheld" deal, Principal keeps the investments backing the policies, and the reinsurer's claim on them is valued every quarter as a derivative. When interest rates and credit spreads move, that value swings. This quarter the change in its fair value was an $818.2 million pre-tax gain, against a $265.9 million loss a year ago. It was partly offset by a $276.7 million pre-tax loss on selling the Chilean annuities business, which the release also books under exited business. After tax, exited business added $277.1 million to net income, compared with a $251.8 million drag in Q3 2025. That swing of more than half a billion dollars more than accounts for the $418 million rise in GAAP net income.

Strip out the exited business and profit fell. Non-GAAP net income excluding exited business was $354.8 million, down 24%, or $1.64 per share against $2.06. The difference is mainly investment losses. Net realized capital losses, as adjusted, were $122.0 million after tax this quarter, compared with $8.1 million a year ago. These are excluded from operating earnings. GAAP net realized capital losses were $387.6 million pre-tax, but $276.7 million of that is the Chile sale, which is moved into exited business.

The tax line moved with the gain, not the business. GAAP income tax was $241.7 million, up from $14.5 million, mostly the $194.8 million of tax on the exited-business gain. On the operating measure, the tax rate was about 18.0% versus 18.3% a year ago ($105.7 million on $587.5 million of pre-tax operating earnings), so tax didn't drive operating EPS.

Buybacks explain most of the operating EPS growth. Operating earnings rose 1.7%, but operating EPS rose 6% because diluted shares fell 3.7%, from 225.2 million to 216.9 million. Principal repurchased $250 million of stock in the quarter and paid $179 million of dividends. Remove the lower share count, and operating EPS would have grown about 2%.

Both years carry "significant variances", in opposite places. Principal labels results that differ from its own long-run expectations as significant variances. This quarter they cut operating earnings by $58.8 million after tax ($0.27 a share): variable investment income came in below expectations across all segments, returns on Latin American pension reserves (encaje) were weak, and there were integration costs from the Beam Benefits acquisition, which closed September 1. Last year's variances cut $49.6 million ($0.22). Most of that was the 2025 actuarial assumption review, which took $99.3 million pre-tax out of Life Insurance. Excluding variances in both years, operating EPS rose 7% to $2.49, and operating earnings rose 3% to $540.6 million. That is about as good as the underlying picture gets, and it still depends on the lower share count.

A definition change to note. From this quarter, the actuarial assumption review is excluded from operating earnings. This year it was only $5.0 million after tax, but Q3 2025 operating earnings still included last year's larger review. That is part of why Life Insurance swings from a $69.0 million loss to a $32.4 million profit.

Guidance: the release gives no numbers. The CEO says Principal is "confident in delivering on our 2026 outlook" but doesn't restate that outlook.

On balance the quarter is flattered. GAAP EPS of $2.91 is three times last year's because of an $818.2 million non-cash derivative gain on exited business, while operating earnings grew 1.7% and buybacks supplied most of the 6% operating EPS gain.

Segment performance

Principal reports segment profit as pre-tax operating earnings (before tax, excluding investment gains/losses and exited business).

Operating margin here is the share of a segment's revenue measure left as pre-tax operating profit: net revenue for the retirement and pension units, revenue after pass-through costs for Investment Management, and premium and fees for the insurance units.

Only one segment, Life Insurance, grew profit, and only because it lapped last year's actuarial charge.

• Retirement and Income Solutions (401(k) record-keeping and pension annuities): pre-tax operating earnings fell $12.5 million "primarily due to lower variable investment income and the impacts of the 3Q25 actuarial assumption review." Variable investment income is lumpy income such as loan-prepayment fees and real-estate sales. Net revenue still rose 1% to $757.3 million on "favorable market performance and growth in the business." Recurring deposits grew 8% to $13 billion, and pension risk transfer sales were $0.9 billion. In pension risk transfer, a company hands its pension obligations to an insurer.
• Investment Management: revenue after pass-through costs fell 2% to $436.1 million "primarily due to lower management fees," and segment AUM fell 3% to $581.7 billion. Private-markets AUM grew 6% and active ETFs took $0.5 billion of net inflows, but that wasn't enough to offset outflows elsewhere.
• International Pension: the weakest segment. Net revenue fell 23% to $144.1 million "primarily due to unfavorable encaje returns." Encaje is the reserve that pension managers in Chile and other Latin American countries must invest alongside clients' money, so its returns follow markets rather than client growth. AUM still rose 10% to $166.2 billion.
• Specialty Benefits (group dental, vision, disability and life cover sold through employers): premium and fees rose 6% to $895.4 million, partly from Beam Benefits, and sales rose 10%. The loss ratio (the share of premiums paid out in claims) rose to 59.0% from 56.4%. That is still below the company's 60–64% target range. Profit fell 12%, which the release attributes "primarily" to the 3Q25 actuarial review lapping a favorable item.
• Corporate: the loss widened $18.9 million "primarily due to lower variable investment income."

Outflows are now visible in the asset base

AUM net cash flow was a $10.7 billion outflow, compared with a $0.4 billion inflow a year earlier. Over the trailing twelve months, net outflows were $25.5 billion versus $7.8 billion. Last quarter, rising markets masked outflows. This quarter they didn't: total AUM fell $23 billion from June to $785.0 billion, and Investment Management AUM fell from $601.9 billion to $581.7 billion. Asset-management fees are charged as a percentage of assets, and lower management fees are the reason the release gives for Investment Management's revenue decline. The 10-Q, when filed, should show which clients and strategies drove the outflows. The release doesn't say.

Capital

• Returned $429 million: $250 million of share repurchases and $179 million of common dividends.
• Raised the fourth-quarter dividend by 1 cent to $0.85 per share, 8% above a year ago, payable December 18, 2026.
• $1.5 billion of excess and available capital, down from $1.6 billion at the end of June. This is capital above what regulators and rating agencies require, available for buybacks, dividends or deals.

Takeaway: Principal's GAAP profit tripled on a non-cash gain from policies it no longer sells, but the ongoing business earned only 1.7% more than a year ago. Per-share growth came mostly from a 3.7% smaller share count, while $10.7 billion of net outflows began to shrink the asset base that earns fees.

Did last time's read hold up?

Our Q2 2026 report named net outflows as "the real item to watch," because rising markets were masking them. That held up, and the outflows are now visible: another $10.7 billion left, AUM fell from $808.0 billion to $785.0 billion, and Investment Management's management fees declined. We also flagged that International Pension's growth "leaned on encaje returns and currency, both of which can swing the other way," and that the 57.4% Specialty Benefits loss ratio might normalize. Encaje reversed hard, cutting segment profit 38%. The loss ratio rose to 59.0%, though it stays below target. We also expected the funds-withheld derivative to keep GAAP results volatile. It swung from a $104.4 million loss in Q2 to an $818.2 million gain.

Outlook

Management gives no figures, only confidence in its unstated 2026 outlook. Our read:

• Pressure: with persistent outflows, fee revenue in Investment Management and retirement plans depends on markets rising faster than money leaves. This quarter it didn't. The 10-Q is the next place to look for which mandates left.
• Likely to recover: variable investment income and encaje returns ($0.27 a share of shortfall this quarter) swing quarter to quarter and could revert, which is why the company's own "excluding significant variances" EPS of $2.49 is higher than reported operating EPS.
• Steady support: buybacks of $250 million a quarter keep cutting the share count by roughly 3–4% a year, which lifts per-share figures even when total earnings barely grow.
• Noise: the funds-withheld derivative will keep moving GAAP net income by hundreds of millions in either direction. For the ongoing business, use operating earnings, and ignore the $2.91 headline when judging it.

The full 10-Q for the quarter is expected within days and will add the income statement, revenue and segment discussion.