Activist fund Elliott Investment Management L.P. — the parent of Prosperity Life Group — is pushing Principal Financial Group Inc. to do something with its life and annuity operations, according to reports filed with the U.S. Securities and Exchange Commission. Elliot owns stock in Principal.
Principal is a Des Moines, Iowa-based financial services company that has been selling life insurance since 1879. It was the 23rd largest U.S. life insurance issuer in 2019 and the 15th biggest annuity issuer, according to the most recent market share data available from the National Association of Insurance Commissioners.
The company reported $473 million in net income for the fourth quarter of 2020 on $3.8 billion in revenue, in spite of the effects of low interest rates, the COVID-19 pandemic and the pandemic-related economic disruption.
But many competitors, including Voya, MetLife, AXA, American International Group Inc. and Prudential PLC of London, have either sold their retail life and annuity operations or talked about doing so, because of concerns about low interest rates and tough new accounting rules.
Elliott appears to be making the case that Principal could increase its share price if it followed a similar path.
The Elliott Factor
Elliott, a New York-based investment firm, has acquired more than 2% of Principal's common stock, according to the cooperation agreement that Principal filed with the SEC. The agreement calls for Principal to add two independent directors to its board and conduct a strategic review of its business mix and capital deployment options.
Mark Cicirelli, U.S. head of insurance for Elliott, said in a statement, that his firm believes the appointment of the independent directors at Principal, and the strategic review, will "further enhance the positioning of the company's high-return businesses and drive meaningful shareholder value creation."
"We are pleased to reach this agreement with Principal, which reflects constructive and positive discussions we have had with the company's board and management team, and will result in a rigorous and independent exploration of its strategic options," Cicirelli said.
Dan Houston, Principal's CEO, said his firm's success is a product of its commitment to adapting its product offerings and aligning company goals with shareholder goals
The strategic review described in the cooperation agreement "builds on work Principal has consistently undertaken to enhance shareholder returns and will help ensure we remain well-positioned for continued growth, future success and value creation," Houston said.
"The current competitive landscape and recent transaction activity in the life and annuity market suggest a supportive environment for a review," Principal said in the agreement announcement.
Principal demonstrated discipline and focus recently when it stopped selling lifetime guaranteed universal life products, the company said.
Elliott and Insurance
Elliott was founded in 1977 by Paul Singer, who continues to be the company's co-CEO.
