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Joel Pitz

Thanks, Deanna. Good morning to everyone on the call. I'll walk through our financial performance for the fourth quarter and full year, provide updates on our investment portfolio and capital position and share details of our outlook for 2025.
As shown on slides 3 and 4, excluding significant variances, full year non-GAAP operating earnings were $1.8 billion or $7.65 per diluted share. This represents an 11% increase in EPS over 2023, comfortably within our 9% to 12% EPS guidance. Results for the quarter were equally strong, with non-GAAP operating earnings excluding significant variances of $485 million or $2.10 per diluted share, a 16% increase over the year ago quarter. You can find the significant variance items on slide 17 through 19.
Full year reported net income excluding exited business was $1.5 billion, with modest credit losses and drift, both slightly better than our expectations at the beginning of the year. Non-GAAP operating ROE for 2024 excluding our actuarial assumption review was 13.7%, an improvement of 90 basis points compared to the year ago period. We remain on track to deliver our 14% to 16% targeted ROE by 2025.
2024 equity markets created favorable tailwinds with strong total returns across major indices. The S&P 500 gained 25% for the year, with more modest growth in small cap, mid-cap, real estate and international equities. Our diversified equity asset mix, along with our allocation to fixed income asset classes, results in market performance that varies from the S&P 500. This underscores the importance of recognizing the asset mix within our AUM, which can be found in the Appendix on slide 16.
Foreign exchange rates negatively impacted AUM by $28 billion for the full year and $17 billion for the quarter. Despite this impact, equity market performance more than offset the FX impacts for the full year. The following commentary excludes significant variances.
Our full year results demonstrate the strength of our integrated businesses, which enabled us to deliver on our 2024 enterprise guidance of 9% to 12% EPS growth. We delivered top line growth of 5% across the company in 2024. This, coupled with expense discipline while investing in our business, resulted in non-GAAP margin expansion of 60 basis points during the year. Starting with RIS, full year pretax operating earnings increased 9% over 2023, driven by strong business growth, favorable market conditions and higher net investment income. Net revenue growth of 7% for the full year exceeded our long-term target and our guidance for 2024. The 40% margin was at the high end of our guided range. These results highlight our disciplined focus on profitable revenue growth, supported by favorable macroeconomic tailwinds.
Principal Asset Management delivered strong results for the year. Specifically, investment management's pretax operating earnings increased 6% over 2023, driven by higher management fees resulting from strong market performance. Full year operating margin of 35% expanded 100 basis points from a year ago, a noteworthy accomplishment in a year with limited contributions from performance fees.
International pensions pretax operating earnings were relatively flat compared to 2023 due to $26 million of FX impacts in the year. On a constant currency basis, earnings increased 9%, driven by 4% growth in net revenue. Operating margin improved by 100 basis points, reflecting growth and strong execution in our targeted markets. Although we revised the presentation, it is worth noting that PGI delivered on full year guidance, as did Principal International on a constant currency basis.
Specialty Benefits continues to deliver attractive premium and fees growth, up 7% compared to full year 2023. Quarter-over-quarter comparisons are impacted by a large single premium sale in the fourth quarter of 2023, which makes direct comparisons less meaningful. Notably, Specialty Benefits produced record earnings in the fourth quarter as well as full year 2024. Loss ratio for the year of 60.4% was favorable and at the low end of our guided range. An operating margin of 15% was above the midpoint of our guided range. These results underscore the effectiveness of management actions to drive profitable growth.
In our Life business, growth in our business market continues to outpace the roll-off of the legacy block. Full year life premium and fees increased 1% overall, with business market premium and fees up 16% year-over-year. We executed another YRT reinsurance transaction as we continue to derisk the legacy Life portfolio. This had an immaterial impact on earnings and a slight decrease to premium and fees. Excluding the 2024 reinsurance transactions, premium and fees growth was 3% in 2024.
Turning to our investment portfolio. We maintain a well-diversified and high-quality portfolio that aligns with our liability profile, is well positioned to perform across a variety of economic conditions. While commercial mortgage loans may still be on some investors' minds, our portfolio is of high quality. With an average loan-to-value ratio of 50% and debt service coverage ratio of 2.3 times, we continue to re-underwrite our office loans each quarter.
After successfully resolving our 2024 office loan maturities, we entered 2025 with continued optimism. Maturities in the coming year are lower than in 2024 at $310 million. We are off to a good start, with $75 million already having been paid off. [Revital] and capital market activity will help the office market continue its recovery path. For more detailed information, we have provided supplemental investment slides available on our website.
Turning to capital and liquidity. We ended the year in a very strong position, with $1.6 billion of excess and available capital. This includes $830 million at the holding company, above our $800 million targeted level, $300 million in our subsidiaries, and $430 million in excess of our targeted 375% risk-based capital ratio, which is 404% at year-end. On a full year basis, we delivered 80% free capital flow conversion, comfortably within our 75% to 85% targeted range.
As shown on slide 3, we returned $1.7 billion to shareholders in 2024, including $1 billion via share repurchases and $660 million in common stock dividends. As Deanna noted previously, this was above the midpoint of our 2024 guidance. This included just under $470 million of capital returned to shareholders in the fourth quarter, $300 million in share repurchases and $170 million in dividends.
Last night, we announced a $0.75 common stock dividend, payable in the first quarter. This represents a $0.02 increase over the prior quarter's dividend, a 10% dividend growth rate on a trailing 12-month basis and aligns with our targeted 40% dividend payout ratio, underscoring our confidence in continued growth and strong performance. Our results reinforce our balanced approach to capital deployment, creating long-term value for shareholders while maintaining financial flexibility to support growth opportunities.
Turning to our outlook, starting on slide 11. We are well positioned to deliver on our enterprise long-term financial targets again in 2025. These were reaffirmed at Investor Day, with 9% to 12% growth in earnings per share, 75% to 85% free capital flow conversion and 14% to 16% return on equity. As a reminder, these targets are excluding significant variances. We expect to see even stronger EPS growth on a reported basis.
We remain committed to returning excess capital to shareholders and are targeting $1.4 billion to $1.7 billion of capital deployments in 2025. This includes $700 million to $1 billion of share repurchases and a 40% dividend payout ratio. Our guidance assumes run rate variable investment income, or VII. We will continue to quantify the impact to reported results from higher lower-than-expected VII and a significant variance in our earnings cost throughout the year. For 2025, we expect VII to improve compared to 2024.
Turning to our business units. Slide 12 outlines our 2025 enterprise outlook, medium-term business unit expectations for 2025 through 2027 and modeling considerations for 2025. Business unit guidance assumes normal market conditions. Taken together, this guidance reinforces our confidence in the sustained delivery of our financial targets at the enterprise level.
In RIS, building on the strong results in 2024, we are revising our margin guidance upward, and net revenue guidance of 2% to 5% remains intact. In investment management, medium-term guidance reflects the underlying strength of our global asset management business. We expect revenue growth and margin to be within these ranges in 2025.
In international pension, our guidance looks different from what we showed in the past for Principal International due to the re-segmentation and the change in the net revenue metric to better align with the rest of the enterprise. We expect net revenue to be at the midpoint of the range on a constant currency basis, but below the range on a reported basis due to the strengthening of the US dollar relative to last year. Margin is expected to improve from 2024 levels, be at the low end of the range in 2025 and improving thereafter.
In Specialty Benefits, the dental market was dynamic during 2024. We maintained our underwriting discipline, resulting in lower sales in the second half of the year. As a result, we are revising our medium-term premium fees guidance to 6% to 9%, which remains above industry growth. In 2025, we expect growth to be near the low end of this range, with growth improving throughout the year.
The ongoing discipline in underwriting is contributing to continued strength in our block, leading us to improve our loss ratio and margin targets, reflecting confidence in the overall business fundamentals and health of this business. In Life, premium fees growth is expected to be at or above the high end of the range for the year, with high-teens growth in our business market block, partially offset by the runoff of our legacy block. Our revised margin guidance reflects improvement over 2024.
Before opening for questions, I want to remind you of a few seasonality impacts. In Investment Management, the first quarter is typically our lowest quarter for earnings due to the seasonality of deferred compensation and elevated payroll taxes. Specifically, we expect approximately $40 million of seasonally higher expenses in the first quarter with no impact to full year outlook.
In Specialty Benefits, dental claims are typically higher in the first half of the year. Similar to the pattern in 2024, these factors will contribute to earnings being meaningfully higher in the second half than the first half of 2025. Additionally, they drive the seasonal pattern of free capital flow, which is typically lightest in the first half of the year and increases in the second half.
We have good momentum as we start 2025 with a strong capital position, and we are well positioned to deliver on our long-term financial targets. We are grounded in our growth drivers of the retirement ecosystem, small and midsized businesses and global asset management while continuing to drive long-term shareholder value.
This concludes our prepared remarks. Operator, please open the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Ryan Krueger, KBW.

Ryan Krueger

My first question was, can you provide some initial thoughts on the pension reform that was passed in Chile and how to think about how that may impact Principal going forward?

Deanna Strable

Yes. Thanks, Ryan, for the question. I'll give a brief comment and then pass it over to Kamal. As you know, we've been in Chile for a long time, and we remain committed to supporting our customers there. We are optimistic that this reform will provide additional clarity on how we navigate the future, but will take time to play out. With that, I'll ask Kamal to give a further update on what we're seeing there.

Kamal Bhatia

Sure. Thanks, Deanna. Just to add to Deanna's comments. So first, the reform will bring some positive changes. Particularly, they are reaffirming the defined contribution system, which is important to us and reducing [Incaje], which will improve -- which will help improve the system's efficiency.
We also anticipate a smoother transition to target data investment vehicles, which we believe is a key step forward for the marketplace. At this stage, we are confident in our ability to navigate these changes over time as we have done in the past and are optimistic about the long-term outlook for our business in Chile.

Deanna Strable

Yes, Ryan. And obviously, we'll continue to update as more of this gets firmed up as we move forward. But do you have an additional question?

Ryan Krueger

Yes. This is a bit of a higher-level question. There has been more talk of, I guess, particularly by alternative asset managers about getting more private assets within 401(k) plans. Would be interested in your thoughts on that and how that could evolve over time for the industry.

Deanna Strable

Yes. As you know, we've obviously have a focus on private and have been in real estate for decades, but I'll see if Chris has some comments specifically around privates within the 401(k) lineup.

Christopher Littlefield

Yes. Thanks for the question, Ryan. Yes, I think we see, and I think the industry sees some significant opportunity for increased use of privates in retirement plans. There's obviously some regulatory hurdles that need to be overcome and some other issues in terms of liquidity buffers and the like that would need to be paired along for retirement customers.
So we do think that there is significant potential for privates in retirement, but I think there is a little bit of work to do still on the regulatory environment and getting a product in a vehicle that works for sort of retirement customers. And I think that will take a little bit of time before we see momentum. I think you'll see it initially packaged in target dates or managed account offerings. So I think you'll see some innovation in that space over the course of the next year or two.

Deanna Strable

Thanks, Ryan, for the questions.

Operator

Joel Hurwitz, Dowling & Partners.

Joel Hurwitz

I wanted to unpack some of the comments you guys made on RIS flows. Could you provide some more color on just the level of stabilization you saw with participant withdrawals? And then just how much contract lapses improve year-over-year? And then, I guess, just any color on the pipeline as we enter 2025 and how the outlook at least maybe for the first quarter looks on flows?

Deanna Strable

Yes, Joel, thanks for the question. RIS had a great year when you look at the revenue growth and how that translated into margin and earnings. And as we've talked about in the past, that really is our primary focus. But I'll have Chris talk about all the specifics that you mentioned there, both for the year and the quarter as well as we think about first quarter of '25.

Christopher Littlefield

Yes. Thanks, Joel. And thanks for that, Deanna. I think as we've stated in previous quarters, before I dive deeply into flows, I mean, we do prioritize revenue and margin overflows. Flows are important, but our focus is on generating profitable revenue growth, which we did in '24, exceeding our net revenue guidance and being at the top end of our margin. So we feel really good about that.
I think as you all know on the call as well, rising equity markets are positive for our fee-based businesses, but they do create pressures for us in other metrics, including net flows and fee revenue rates. In the fourth quarter, our fee-based flows were improved sequentially and over the year ago because we saw a healthy recurring deposit growth of over 6%. We saw strong transfer deposits. And we had record retention in WSRS, which resulted largely from a slightly lower participant withdrawal rate as well as lower contract lapses, particularly in the large market. So again, what we saw in the fourth quarter is lower withdrawal rate. And so all of the flows are really attributable to those higher-performing equity markets.
I think another thing that I want to note with respect to flows is if you look at the sort of full year, we are seeing pressure from VA lapses, VAs with GMWB of about $1 billion over the course of 2024. And many of those are being exchanged into our RILA, which are registered index-linked annuity product with income, and we're capturing a very significant percentage in RILA, but that is converting from a fee-based flow to a spread-based flow. So we are seeing that dynamic as well.
The other thing I'd say about flows is we do see -- continue to see very good health and SMB flows. Our recurring deposit growth is higher than the averages, and we're seeing positive net cash flow in SMB. So again, we feel really good about the position in SMB.
As we turn to the outlook for 2025, we currently forecast the participant withdrawal rate will stabilize and that we'll continue to see health and recurring and transfer deposits, but we do expect the flows to be impacted by higher market performance and the lingering impact of the strong equity markets from 2024. We expect to see continued net outflows from the VA traditional block, which is an overall industry trend, but capturing those -- some of those are a good portion of those in RILA.
In the first quarter, we do know that we have one large market outflow of about $2.3 billion with minimal fee revenue impact. A client, again, as we look at profitable business that we chose to terminate that relationship, but that will be one outflow in the first quarter. And then we expect to see a more normalized, maybe slightly lower contract retention rate compared to the record retention we saw in 2024.
All that being said, again, net cash flow is a measure, and it's -- and we do look at it but flows all have a different profile on revenue and profit, and our focus is really remaining disciplined on pricing, generating profitable revenue growth and delivering on our net revenue and margin guidance in 2025.

Deanna Strable

We hope that helps. You have an additional question?

Joel Hurwitz

Yes. Then just shifting to sort of real estate transactional activity. What are you expecting for '25? And just any more color on variable investment income expectations and performance fees in Investment Management for the year?

Deanna Strable

Yes. Thank you for that question. Obviously, real estate is a core competency, both as we drive flows to unaffiliated clients, but also within our general account. I'm going to ask Kamal to give some general comments regarding kind of the state of the real estate market. And then I'll ask Joel to add in specific color regarding our general account and the implications on VII.

Kamal Bhatia

So let me pick up where Deanna left off on the state of the real estate market. So from where we sit, we do see commercial real estate sort of entering these early stages of a gradual but probably a more volatile recovery period than we have seen in the past.
One of the things that has started to happen is we are actually seeing real transactional activity happen in the marketplace. And in parallel, there has been robust growth in CRE credit that is available to real estate transactions. Those are very important signals for this market to continue to expand. In fact, when you look at 4Q, there has been a substantial increase in equity transaction activity, 32% year-over-year. So clearly, transactions are starting to happen now, which is important because it leads to price discovery, and that allowed the marketplace to find a floor.
The CMBS market has been unusually strong. We had over $100 billion of new issuance just in 2024. So that's certainly helping on the credit side. Just to look at our own book in 4Q, we almost put $1.9 billion of private capital to work. That was up from $1 billion earlier in the year. So almost 2x increase. So I feel confident on the transactional side. I'll turn it over to Joel on the second part.

Joel Pitz

Yes. So Joel, thanks for the question. We do expect improved returns in 2025 relative to 2024 for all of our VII portfolio. And importantly, with key asset classes at or approaching long-term expectations in '25. And as you know, within our alts portfolio, real estate is a very prominent part of that, making up 50% of our portfolio, and we have much less concentration in PE and hedge funds.
Real estate returns have improved from 2023 to 2024, and we expect that trend to continue in 2025. Given our strong capabilities that Kamal referenced, we invest directly in real estate. Therefore, these assets are not fair valued every quarter, as will be the case if we're investing under a fund structure.
So as you can see in the investment supplement that we provided on slide 5, these real estate properties are sitting in a meaningful unrealized gain position. So this appreciation and those unrealized gains will be recognized at the time of sale, resulting in some quarterly volatility within our VII metric. When this emerges, we'll be sure to highlight that activity over time, on which we expect to be weighted towards the middle and latter half of the year in 2025. So in summary, with some volatility along the way due to timing of sales, we do expect relevant improvement in VII for the upcoming year.

Operator

Wilma Burdis, Raymond James.

Wilma Burdis

There's been some litigation in the larger end of the PRT market. I understand that the set of a different for PSG. Given some of that's been more -- a little bit more focused on the offshore model. But could you see this moving into the smaller end of the market? Or have you, I guess, observed any activity yet?

Deanna Strable

Yes. Thanks, Wilma, for the question. We've obviously been in the PRT business for decades, have a great expertise there, and I'll see if Chris can directly answer your question regarding the recent litigation.

Christopher Littlefield

Yes. Thanks, Wilma. I mean I think as Deanna pointed out, we've been in this business for over 80 years and haven't ever missed a payment to a customer. I think we haven't seen the litigation migrate down. I think certainly, it's focused more on fee-backed providers of PRT transactions with one notable exception in a more traditional carrier. I suspect that they'll wait and see how those lawsuits turn out in terms of the validity of those lawsuits are not, again, I note, I don't believe any of those customers have not received their payments under those transactions. So I think from our perspective, it hasn't impacted our business. We haven't seen a lot of activity in the small to midsized business, and we remain a very trusted, reliable provider of risk transfer solutions for people that have pensions.

Deanna Strable

Thanks, Wilma, for that. We had a great PRT year, and we are confident that that's going to continue as we move into 2025. Do you have an additional question?

Wilma Burdis

Yes, 80 years, a pretty good track record. Yes. Can you just talk a little bit about what's going on in Specialty Benefits that you're exercising a little underwriting discipline in 2025?

Deanna Strable

Yes. Thanks, Wilma, for the question. Specialty Benefits had an incredible quarter and a really great year when you look at it from an earnings perspective, which again is -- our focus has been for decades on making sure we're driving profitable growth. And with that, I'll move it over to Amy to talk specifically about what we're seeing and how that translates to our discipline and our approach to underwriting and pricing.

Amy Friedrich

Sure. Thanks, Wilma. Thanks, Deanna. I do think when we look at SPD looking across all of the metrics that we've given guidance on for outlook, it's probably helpful to understand how the underwriting discipline comes back in. So just as a -- just as a reminder, we've tightened both the loss ratio and the margin ranges for our outlook. So we're moving the margin to the lower end up to 13% and then the loss ratio down to 64%. So we've also adjusted that overall premium growth to reflect those competitive factors that are really at the heart of your question.
So when I look at the competition, what we're seeing is, especially in the second half of 2024, we saw the market get a little bit more aggressive. We think that will continue in 2025. And the product that we've probably seen the most competitive pressures on is dental. We, along with the whole industry, have experienced pretty high utilization of dental, and that's meant that we're doing some repricing in 2024. So this has impacted some of the new sales in the back half of 2024, and it will impact, we think, at least that front half of 2025.
Do keep in mind that we sell as a bundle of products. And so dental does tend to be a meaningful product in that bundle. And when dental is impacted, you can see some impact on some of the other products. What we know, though, is that over the long term, disciplined underwriting for all of our products is really critical to building and maintaining a profitable growth and a profitable block. It's critical to maintaining stable predictable renewals, too. So it's not just that front end new sale. It's creating those stable predictable renewals that are -- both our brokers and our employer customers need from us.
When we think about our expertise in that small market, we've got to have something that's a bit more predictable in that small market. Cash flow concerns are very significant for small and midsized customers. So keeping that stable, predictable flow is really important. And sometimes the trade-off is we'll take a little bit less -- looking a little bit less growthy to make sure that we've got the margin and make sure we've got the type of loss ratio that we need for that business.
So I'm really confident that that underwriting discipline is just part of the package over the course of time. And our ability to grow above the industry is going to be focused on that knowledge of the SMB market, that broad and deep broker relationships we have, our use of technology and then the service that we provide. So it's all a package, and I feel really comfortable with how 2025 looks.

Deanna Strable

Thanks, Wilma for all the questions.

Wilma Burdis

Thank you.

Operator

Alex Scott, Barclays.

Alex Scott

First one, I have views on the free cash flow. It looked like the outlook for capital return is pretty strong. And I think in the last few years, it's sort of -- time has been in excess of what you guide to in terms of free cash flow conversion of earnings. So I was just interested in commentary there. I mean, is it further drawdown of excess capital? Or is the free cash flow conversion getting better? How do I think through all that?

Deanna Strable

Yes, Alex, thanks for the question. When we think about it, we look at both kind of the ongoing free cash flow that is generated for our business and then how that translates into our capital deployment. And you're right, over the last few years, partially just because of how we've started each of the years and drawing that down, there's been a little bit higher of deployment from that perspective. But again, we like our business model and all I'll just ask Joel to add some additional flavor there.

Joel Pitz

Yes, Alex, thanks for the question. As you said, we're starting to position of strength, $1.6 billion of excess available capital coming into 2025. And if you look at our long-term guidance, which is 40% dividend payout ratio and share repurchase of 35% to 45%, our share buyback plan for 2025 is outsized. A lot of that is because we do have a strong excess capital position coming into the year. And so again, really proud of the results that we're delivering there on that front. And we feel really good about our $700 million to $1 billion target that we have for the year.
We did hear some comments looking at the reports about it seems less. And the big reason it's less is because we drew down more coming into '25, and we did come in at '24. If you look at our RBC ratio coming into the year, it was 427% coming into 2024. And as we sit here today, it's 404%. So again, we're still at excess, but just not the excess we had one year ago. So again, outsized share buybacks, $700 million to $1 billion translates to about 40% to 60% payout ratio, above our guidance, and that's a product of our strong capital flow generation.

Deanna Strable

Thanks, Alex. Do you have a follow-up question?

Alex Scott

Yes. So for a follow-up, I wanted to ask about sort of what to expect on the fees on RIS. And I guess, just as I look at your margins, record levels or near record levels and [Empower], same thing. I think [Empower] had the best margins they've ever had in the history of the company and guided to more expansion next year. So just thinking through how strong the profit margins are for your business and some of your biggest peers, what are you seeing in the competitive environment? I would think this is a pretty competitive business. Are you seeing signs that the strong margins are going to lead to more pricing competition?

Deanna Strable

Yes. Thanks, Alex. I'll ask Chris to address that.

Christopher Littlefield

Yes. I mean without commenting on our competitors' margins, I mean, I think our margin performance has been strong, and we expect it to improve from levels that we delivered in 2024. This has always been a very competitive market, and fee compression is something that we've consistently had to manage through and work through. We're not seeing anything that's particularly unusual. From what we've generally seen, it's just competition.
I think there's also recognition that this is -- there's a lot of cost and complexity in managing a retirement business. And so I think it's also a recognition that when you look at the services that we provide, there needs to be a reasonable return on the services that we provide. So I don't think that there's sort of this irrational competition out there. I just think it's tough. The industry is consolidating. We're at scale. We've been part of that consolidation. I think that will continue. And as I've mentioned in the past, a lot of the consolidation is happening organically, not inorganically now. Obviously, you saw some smaller inorganic transactions.
So I would say it's tough. It's a tough market environment. We are winning in it, and we have confidence that we will be able to continue to win as a scale player in the space.

Deanna Strable

And Chris, I think you've guided to that 2- to 3-basis-point range, which is where we landed this year at the high end, just given the equity market improvement, and I think we're guiding to that same as we think about 2025 as well.

Operator

Jimmy Bhullar, J.P. Morgan.

Jimmy Bhullar

So first, I had a question for Chris on flows in the RISP business. And I realize there's some seasonality inflows as well, but the flows have been negative for the past three years because of some of the things you discussed on the call earlier. Is it reasonable to assume that there's not going to be a major change in your flows at least in the next one to two years? Or do you think there's a chance that they turn positive? And if yes, what would change?

Christopher Littlefield

Yes. Thank you, Jimmy. And I think I've seen your prior notes and analysis as well. I think you've identified, there's some large macro pressures from people that have been saving for many decades in 401(k) systems that are now reaching retirement. And so we are certainly seeing some of that pressure in withdrawal rates. So I don't see an inflection where it's going to immediately turn greatly positive here over the next couple of years, but I think you've also identified the demographic trend that we get through the next couple of years.
What we are seeing is the generations that are earlier in their working careers, are saving earlier in their careers and saving more than those that are in -- have been in the sort of the Generation X generation. So we think the long-term dynamics are very positive for retirement, but we do see some short-term flow pressures, as I think you've rightly pointed out.

Deanna Strable

Yes. Even with those negative flows, Jimmy, our account values are increasing sizably over the last few years, which obviously then does translate into revenue and earnings. So do you have a follow-up question?

Jimmy Bhullar

Yes. Just for Amy on employee benefits, you've been in the process of repricing your dental book, I think, a couple of years now. But should we assume that that's done completely? Or is that an ongoing process? And margins, if we look stand-alone on dental, won't normalize until beyond 2025?

Deanna Strable

Amy, you can address that?

Amy Friedrich

Yes. Yes. So I would say the bulk of those actions are moving through our block right now. So what that really means is some of them are already going to be coming through the results that we see, and some of them will continue to flow through the first half of the year. I think the really important point to your question is are we going to see margins look better for dental if we looked at that as a stand-alone entity in 2025? And the answer is yes. I do expect the loss ratio to look a bit more like historical patterns. And I expect the production that comes from that line to look positive in 2025.
What I would make sure to put back into is we rarely sell any of these products alone. So again, these are always going to be a function of a bundle. I think we mentioned it in some of our opening comments. We're up -- our average bundle, whether you're talking about new sale or in-force, is up over three coverages for products. So it's rare that any of our relationships really just rely on any one product in terms of how we price and work with them.

Deanna Strable

Yes. And Jimmy, a couple of things there. One of the advantages of focusing on the SMB business is almost all of our business only has a one-year rate guarantee.
And then the other thing that I think is really important, really builds on Amy's last point, which is because there's bundles, you also have seen that we've had very positive underwriting results in life and disability. And so from a bundle perspective, we can take all of that into account, and they may see a little bit of increase in their dental rates.
But as we look at the overall package, we can mute that increase across all of the products. And so again, feel good about how we're approaching that profitable growth and expect to see continued great results out of Specialty Benefits. So thank you, Jimmy.

Operator

Jack Matten, BMO Capital Markets.

Jack Matten

The first question I had is on the international pension growth guidance. And I know you resegmented and changed the definition of net revenue there. I guess if you adjust for those two things, was there any change at all to the growth outlook? I know you mentioned changes in Hong Kong. That changed throughout it at all, and were there any offsets in your other markets?

Deanna Strable

Yes, Yes. First of all, thanks for initiating coverage. And we look forward to interacting with you more as we go forward. I'll ask Joel to address that. Obviously, FX continues to be pressure as we think of international pension and we did have some in [Incaje] impacts as well. But maybe as we think about the guidance, you can give some specific aspects there?

Joel Pitz

Yes. So Jack, thanks for the question. On the international pension front, it's very similar to what we had in 2024. So on a constant currency basis, what we had in 2024 was 4% growth in revenues and 9% growth in earnings. As you fast forward to what we expect for 2025, it's going to be more of the same. It's going to be -- if you look at the midpoint of the range, it's all due to FX is why we're being drawn down to relatively flat year-over-year.
But importantly, there's going to be continued margin expansion within that business in 2024, there was a 100-basis-point margin expansion within that business, and we're expecting continued expansion in 2025 and beyond. So really well positioned in those targeted markets and feel really good about the growth prospects within that business.

Deanna Strable

Jack, do you have a follow-up question?

Jack Matten

Yes. And a follow-up on the investment management net cash flows. It seems like deposits are pretty healthy, but withdrawals continue to be somewhat elevated. I guess if you could just touch on trends impacting your net flows there and how you see things developing going into 2025.

Deanna Strable

Yes. I'll ask Kamal to give some color on that. If you do look at our overall net cash flow on an AUM level for the enterprise, even though it's still negative, we have saw a significant improvement, both for the quarter and the full year. But I'll ask Kamal to give some specifics on the drivers there and also how we're thinking about that as we go into 2025.

Kamal Bhatia

So I'll start with maybe the international pension piece first, when and give you more color on the (inaudible). One thing I would highlight for you in addition to what Joel said is we actually also had positive net cash flow in our international pension business. When you look at '24, we actually had positive $600 million of net cash flow growth. So not only managing the business well, but we're actually attracting new dollars in a very mature business.
But just turning back to Investment Management, I would say very, very strong results. Chris did talk about some of the affiliated flows. But when I look at nonaffiliated flows, we had a very strong quarter, almost $500 million of positive net cash flow. And the diversity of our cash flow is increasing. These flows came from multiple distribution channels for our clients, and they also came from a lot of international geographies, which is quite valuable for us.
Just to highlight, net flows and international institutional were particularly strong. We had over a $2 billion large mandate win in credit. And then Deanna earlier talked about almost $1 billion win in US retirement solutions. So really strong wins in that space.
If I look at full year from our local regional clients, we had almost $2.7 billion positive net cash flow for all of 2024, a significant milestone for us. And sequentially, year-over-year, nonaffiliated cash flow is up by $6.5 billion. And I'll just remind you, this is what we laid out at Investor Day, the power of global asset management as we diversify our client base and channels, you could see that in those numbers.
To the second part that Deanna raised, which is what do I see moving forward. I think we mentioned earlier that we are exceeding target on our largest real estate fundraise till date. It's going to be not only a milestone for us with respect to growing our business. We've actually added over 50 new sizable relationships across the world beyond just the clients we have historically had in public pensions. We have new relationships with foreign insurance companies now. We've added premier US endowment and foundations and now we also have regional asset managers in Asia who are investing with us.
So I would highlight that the momentum will continue to grow on the private market side. And the last thing I would highlight for you, as I look forward, we were also recently just highlighted as the top-performing investment grade US bond fund this year in 2024, and that's a category that actually continues to get active management flows. So hopefully, that helped you.

Deanna Strable

Thanks, Jack, for the question.

Operator

John Barnidge, Piper Sandler.

John Barnidge

So the Hong Kong change and then the YRT in the quarter kind of show a perpetual focus on improvement here. How much further derisking do you see either in international markets or within the life insurance business?

Deanna Strable

Yes. The first thing I would say there is, as you know, I was very involved in our recent strategic review that led to some really sizable changes to our business portfolio, but more importantly, put us in a great position to deliver on our strategic and financial objectives. We have what the portfolio we need to deliver on what we laid out. But we will obviously continuously assess our portfolio, make changes as needed, derisk where it makes sense or in places where we just don't see the path to driving growth, we'll make the decisions to make pivots there.
And you did mention the one that we highlighted in this call, which was somewhat driven by the regulatory changes that are happening in that market. And so again, bottom line, we feel good about where we're at, both from a product portfolio perspective, then specifically in life and how we think about our risk exposure. But obviously, we'll continue to stay disciplined as we look at those facts going forward.

John Barnidge

And my follow-up question, completely understand the primary focus of principal serving the small, medium-sized customer. But within your retirement and benefits business, can you talk about how much exposure or non-exposure? You have to government nonprofit or government contracting in your businesses?

Deanna Strable

Yes. I'll maybe just ask Amy and Chris to quickly address that. And if we don't have the answers here today, we'll make sure we get back to you. But Chris, anything from a retirement perspective?

Christopher Littlefield

I would say that we are not a large player in the governmental marketplace, John. So I don't have the exact composition of our business. We have some, but we're not known as a very large player in the governmental end of the business. But we could follow up with more details on the composition.

Amy Friedrich

Yes. This is Amy. I'll chime in. I would agree with Chris's comment. I might even take it one step further for the Specialty Benefits business and say we are just not a player in the government marketplace. That's not been where we've seen some of our historical growth. And they tend to operate with a different set of variables that just don't align us clearly with how we build our machine and process and pricing and technology. And so we're just simply not a player in that market.

Operator

Suneet Kamath, Jefferies.

Suneet Kamath

Deanna, I wanted to ask about M&A now that you're in the seat. Your 0% to 10% capital allocation suggests kind of small deals. But if something big were to come along, similar to kind of IRT, is that the kind of thing you look at and say, we know how to do these deals, if it pencils out, we'd be interested? Or is it sort of the other way, where we've already done a big deal, and we'd rather just focus on what we have and maybe take advantage of some lapses? Just want to get your sense as you're now the CEO.

Deanna Strable

Yes, Suneet, I'll start with -- obviously, I was involved in our strategy around M&A, pretty integral as forward. So I don't think you would expect any significant changes there. What I would say is we are inquisitive about M&A opportunities across all of our businesses. And if we did them, they would be focused around the growth areas that we really talked about at Investor Day.
Yes, the allocation within our total capital allocation, that 0 to 10 is small. The other thing you have to marry that with is we have a very low leverage ratio. And so if something did come across that met all of our three thresholds, which is cultural fit, financial fit and strategic fit, we have the capabilities to lean into that if it made sense.
But I'd also say the bar is high as we think about M&A and how they fit into our overall growth platform going forward. I will kind of come back to where I started, is if you look at our financial targets, we don't need M&A activity to reach those. We feel our organic growth engines can deliver on those results. And ultimately, we'll continue to be disciplined, but obviously inquisitive about additions that would make sense.

Suneet Kamath

Got it. And then just real quick for Chris. Any thoughts around these in-plan annuity products for target date funds that a lot of asset managers are rolling out?

Christopher Littlefield

Yes. Thanks, Suneet. So we think they're promising. I think as I've mentioned probably on prior quarters, I think the opportunity to package them in some sort of target date fund or a managed account solution, probably the best solution to increase penetration. So we're sitting on the shelf. So more and more planned sponsors are open to having it as an option in the plan lineup, we're still just not seeing a tremendous amount of participant deposits and utilization yet. But I do think that will change as people start understanding it and as those designs improve and change and enhance over the next little bit.
So a lot of activity. I think you'll see a lot of activity from us and others over the course of the next year or two in this space. And I do think if you think about sort of that last frontier to address, it's really how do you convert the savings that Americans have accumulated in their 401(k) plan into that guaranteed retirement income for them that they won't outlive. And so I do think that there's some real promise here, but it's still early days in terms of utilization.

Deanna Strable

Thanks, Suneet, for your questions.

Operator

We have reached the end of our Q&A. Ms. Strable, your closing comments, please.

Deanna Strable

Yes. Thank you. As we close today's call, I want to reiterate that 2024 was a strong year, capped off by a very strong quarter. We delivered on all of our enterprise objectives, and we're well positioned to continue this success in 2025. Our ability to access and grow in the most attractive parts of the market, combined with our disciplined approach to everything we do, positions us well for the future. We remain focused on executing the strategy that we laid out at Investor Day, and those priorities guide our decisions every day as we navigate this evolving landscape.
Thank you for your time today, for your questions and your continued support of Principal. We look forward to connecting with many of you in the near future. Have a great day.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time, and we thank you for your participation.