Principal Slumps as 2016 Forecast Disappoints Wall Street

  • Unit faces challenges from 401(k) competition, DOL proposal
  • CEO Houston says strong employment market could help growth

Principal Financial Group Inc. declined the most in the 87-company Standard and Poor’s 500 Financials Index after the insurer’s forecast for growth at a retirement operation disappointed some analysts.

The insurer slumped more than 5 percent to $48.20 at 4:15 p.m. in New York, the biggest drop since August. Revenue growth at fee-based retirement and income-solutions operations will be 2 percent to 4 percent next year, the company said Thursday.

Sean Dargan, an analyst at Macquarie Group Ltd., told the company on a conference call that the outlook was lower than what he’d expected. Rivals including Vanguard Group Inc. have been seeking to win business with employers, and Des Moines, Iowa-based Principal also cited new regulations from the U.S. Department of Labor.

The 2016 forecast accounts for “pressure we’re going to have on 401(k) competition,” Chief Executive Officer Daniel Houston said on the call. “We’ve got a little bit of overhang on DOL relative to contingency plans, putting those in place to make sure we’re able to absorb any sort of regulatory change in ’16 and ’17.”

The department is drafting rules designed to make sure savers’ interests are put first, and that investors aren’t unnecessarily pushed into high-fee products by brokers who make commissions from banks or insurers. The industry has fired back, with Dirk Kempthorne, CEO of the American Council of Life Insurers, saying the plan is “government at its worst.’’

Asset Management

Houston is gearing up for his first full year at the helm of the insurer after taking over from Larry Zimpleman in August. He’s said he’s seeking to diversify risks through possible investments in timber and infrastructure while “actively looking” for more asset-management operations, which help generate fee income.

While citing the challenges for 2016, he said a strong U.S. employment market could help growth, along with the long-term trend of an expanding population of retirees.

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