Daniel J. Houston
Chairman, President, and Chief Executive Officer at Principal Financial Group
Thanks, John, and welcome to everyone on the call. This morning, I will discuss takeaways from our 2021 Investor Day, key performance highlights for the second quarter and how our growth drivers continue to deliver results and fuel momentum across our integrated and focused portfolio. Deanna will follow with additional details on our second quarter results, our progress against financial targets and our current financial position. Starting on Slide 5. Our recent Investor Day, we announced the results of our strategic review, including the areas of our business that we will continue to invest in and expand on as well as select markets and products we will exit. And we shared how these priorities enable us to reach our financial targets and deliver against our strengthened capital management approach.
Our resulting go-forward strategy is focused on our growth drivers of retirement in the U.S. and emerging markets, global asset management and U.S. benefits and protection. These businesses offer the greatest opportunity for growth, leverage our differentiators and integrated business model and meet our financial objectives of being more capital-efficient with higher returns. We're exiting U.S. retail fixed annuities as well as the retail segment of U.S. Individual Life. And we are seeking transactions for the related in-force blocks, allowing us to free up capital and derisk our portfolio.
We are focused on executing on the transactions and expect they are actionable in the near term. These moves will better enable us to achieve our financial targets, which include: delivering 9% to 12% annual growth in earnings per diluted share from 2020 to 2023; achieving a 15% return on equity by 2023; and generating free capital conversion of 70% to 80%. And lastly, we outlined a plan to return more capital to shareholders, totaling $3 billion between 2021 and 2022. This does not include any excess capital that may be generated from potential transactions.
Bottom line, the changes to our business portfolio and capital management strategy will drive future growth, reduce capital intensity, improve risk profile, sharpen our strategic focus and reinforce our commitment to returning more capital to shareholders, all aimed at driving long-term shareholder value. We are in a strong position to continue to create long-term shareholder value and to grow meaningful ways for our customers and shareholders as evidenced by our second quarter results. As shown on Slide 6, we reported $467 million of non-GAAP operating earnings in the second quarter.
Excluding significant variances, earnings increased 21% over the second quarter of 2020, driven by continued execution of our long-term strategy and improvement in macroeconomic conditions in many of our markets. We closed the second quarter with total company AUM of $990 billion, including record PGI-managed AUM and more than $130 billion of institutional retirement and trust retirement assets that migrated over the last nine months. Total company net cash flow was a positive $2.1 billion in the second quarter, including $1.6 billion of PGI-managed net cash flow.
Our growth drivers continue to deliver performance for the enterprise, generating strong earnings growth and creating long-term value for shareholders. In our U.S. retirement business, the underlying fundamentals remain strong and are fueling growth in the business. Reoccurring deposits increased 33% over the second quarter of 2020 with more than half of the growth coming from our legacy block and the remainder from the IRT migration. Participant withdrawals were 2.4% of average account values in the second quarter, in line with our historical average and lower than the 2.8% we experienced a year ago during the pandemic.
However, as a result of strong equity markets, participant withdrawals increased $3 billion over the second quarter 2020. This is consistent with prior periods of strong equity performance and the opposite is true when equity markets decline. These withdrawals led to negative net cash flow in RIS-Fee of $400 million in the second quarter as the strong growth in sales and reoccurring deposits as well as the low contract lapses were offset by higher dollars of participant withdrawals. We completed the migration of the IRT retirement business during the second quarter.
As we discussed at the Investor Day, the migration of the trust and custody business will be completed in the first quarter of 2022. Over the last nine months, through the IRT migration, we've added 2.4 million retirement participants and $140 billion of account value to our platform, increasing scale, driving growth and positioning Principal as a top three retirement provider. The strategic benefits of the acquisition continue to emerge, including revenue and expense synergies. We're beginning to see lower TSA expenses, increased proprietary investment management opportunities and greater IRA rollovers and expanding retirement plan and Total Retirement Solution opportunities.
Our sales pipeline has nearly doubled over the last year with the strongest growth in the large plan market, which we expect to largely benefit sales in 2022. In the RIS-Spread business, we had approximately $750 million of MTN issuance in the second quarter and $500 million of pension risk transfer sales. The PRT business continues to be a core offering of our Total Retirement Solutions. And we remain disciplined in pricing to ensure opportunities meet our return thresholds. Looking forward, our U.S. retirement business has four key growth engines, which we referenced at Investor Day: momentum from the IRT acquisition; differentiation from an unmatched set of Total Retirement Solutions; and engaging participant experience evolving with more digital enhancements; and PGI's world-class investment management solution.
These four powerful engines will drive future growth for our retirement business as well as the rest of the enterprise. Outside the U.S., our emerging market retirement and long-term savings business is facing near-term challenges from macroeconomic conditions and the pandemic. In Chile, second quarter AUM was negatively impacted by $1.6 billion of COVID-related AFP hardship withdrawals as the country approved a third wave of withdrawals during the quarter. As a reminder, this does not impact our revenue in Chile as fees are collected on salary, not AUM. Principal International reported a flat net cash flow and $167 billion of AUM in the second quarter, a 7% increase on a constant currency basis compared to a year ago.
China AUM, which is not included in reported AUM, was $143 billion in the second quarter and was pressured by negative net cash flow from institutional money market funds. Despite these challenges, we have the competitive advantage needed to drive growth over the long term within our chosen markets. We have strong local and global investment management capabilities, the right joint venture partners with meaningful reach, distribution and brand recognition locally and a digital strategy that allows us to access and service customers where they are. We continue to diversify our offerings in Principal International.
For example, in Brazil, our multimercado funds, balanced funds and investments in equities or fixed income have become more attractive due to the decline in interest rates. At the end of the second quarter, these funds accounted for over 20% of AUM in Brazil pref. With BRL28 billion of net cash flow year-to-date, we've captured 54% of the market share and 55% of second quarter sales were in these funds. Emerging markets are long-term investments. We're well positioned to navigate the inherent volatility that comes with doing business in emerging markets.
We will continue to capitalize on our competitive advantages by offering higher value-added products and differentiated solutions to our customers as well as leveraging our global asset management capabilities to drive future growth in Principal International. Our global asset management business is driving growth and demonstrating the strength of our integrated operating model. In the second quarter, PGI delivered $1.8 billion of sourced net cash flows, a 45% margin, strong pretax operating earnings as well as record PGI-managed AUM of $532 billion and PGI-sourced AUM of $263 billion.
And we continue to deliver strong long-term investment performance as 70% of Principal mutual funds, ETFs, separate accounts and collective investment trust were above median performance for the 3-year period, 74% for the 5-year and 88% for the 10-year. This performance positions us well to attract and retain assets going forward and is contributing to positive net cash flow. We're continuing to see strong interest in our flagship real estate products and continued demand for our yield-oriented products, including preferred securities, high yield and our scaling emerging market debt strategy.
Together, our strength in high-growth investment capabilities, our ability to leverage Principal's global multichannel distribution to develop and deepen customer relationships, our highly efficient globally integrated operating model and our ability to attract and retain top talent will continue to drive growth in our global asset management business. In U.S. benefits and protection, our small- to medium-sized business customers continue to show signs of resiliency and are returning to normal sales levels, expected retention levels and positive in-group growth.
In group benefits, trailing 12 months' in-group growth turned positive for the first time since the pandemic, increasing nearly 0.5% for the total block with the strongest growth in businesses with under 200 employees, our focused customer segment. In Individual Life, premium and fee growth increased, reflecting very strong nonqualified corporate-owned life insurance sales, which are critical to our business market strategy and our Total Retirement Solutions offering. Our latest well-being index reiterates the strength of this market. 57% of small- to medium-sized businesses that responded to our survey said they are optimistic about the overall economic outlook for the next 12 months.
This is a higher level than before the pandemic began. ESG continues to be a priority for Principal as highlighted on Slide 7. Our ESG approach is aligned to the United Nations' Sustainable Development Goals. It is woven into our investment philosophies, our approach to diversity and inclusion and is embedded in our philanthropic strategies. We've recently published specific ESG commitments and will provide continuous updates to our sustainability website on principal.com and our annual corporate social responsibility report. We're very optimistic about the opportunities that lie ahead as momentum has returned in many of our businesses, and we've evolved our portfolio to bring greater focus to our growth drivers.
Deanna?
