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'll review the successful milestones we achieved in 2021, share key performance highlights for the fourth quarter and full year 2021 and discuss our go-forward strategy, highlighting the growth drivers of our business. Deanna will follow with additional details on our fourth quarter and full year 2021 financial performance as well as an update on our current financial and capital position.
Reflecting on the year, 2021 was truly transformational for Principal, filled with many milestone achievements. First in June, we successfully completed the integration of the IRT Retirement business, one of the largest acquisitions in our history. The remaining integration will be completed later this month when we migrate the Trust and Custody business to our platform. This acquisition solidified Principal as a top three retirement provider in the U.S. with a balanced footprint across small, medium and large-sized plans and expanded platform capabilities to better serve our customers.
In October, we celebrated our 20th anniversary as a public Company, our turning point that launched two decades of exponential customer and AUM growth. As we look out over the next 20 years, I have no doubt that Principal is well positioned to lead and continue meeting and anticipating the needs of our 51 million customers. And perhaps our most significant milestone, we completed an intent strategic review of our business mix and capital management approach.
We aligned on a clear go-forward strategy, focused on our growth drivers of retirement in the U.S. and emerging markets, global asset management and U.S. benefits and protection. These are higher growth markets where we have established leadership positions and differentiated solutions to compete and win. We committed to a strengthened capital management approach, improving capital efficiency and returning excess capital to shareholders. With this focus, we announced we would exit the U.S. retail fixed annuity and retail individual life markets, pursuing strategic alternatives for our retail fixed annuity and ULSG blocks.
Over the last seven months, we did this and more. We see sales of retail fixed annuities and focus our individual life Insurance segment on serving the business market in the third quarter of 2021. We entered into an agreement to reinsure our retail fixed annuity and ULSG blocks last week. We increased our return of capital to shareholders. And we met or exceeded all of our financial targets from 2021 outlook for the enterprise and for each of our businesses.
Turning to our financial highlights on Slide 4 and 5. In the fourth quarter, we delivered strong results, including non-GAAP earnings of $498 million or $1.85 per diluted share, a 25% increase over the fourth quarter of 2020. Reported full year non-GAAP operating earnings were over $1.8 billion or $6.77 per diluted share. Full year 2021 earnings per share increased 37%, significantly higher than our 18% to 20% guided range. Overall, our strong operating performance allowed us to return approximately $1.6 billion to shareholders in 2021 and more than $520 million in the fourth quarter alone, capping a robust year of capital deployment.
Now turning to our growth drivers and our go-forward strategy. In global asset management, we continue to achieve excellent performance across our breadth of in-demand strategies. At the end of 2021, 63% of Principal mutual funds, ETFs, separate accounts and collective investment trusts were above median for the one year time period. Performance across our strategies improved significantly compared to the third quarter. Importantly, our long-term performance for the three, five and 10-year periods are all above 80%, and 79% of fund-level AUM is rated four or five stars from Morningstar. This strong performance positions us well to attract and retain assets going forward.
For the full year, strong performance and differentiated solutions drove positive source PGI net cash flow of $2.9 billion. Positive institutional flows were partially offset by retail outflows. Investors continue to look to us for differentiated solutions within real estate, high yield, private assets and emerging markets. PGI-managed net cash flow was a negative $500 million for the full year as we had outflows from our PGI-managed retirement assets. Despite this, strong investment performance drove record PGI-managed AUM of $547 billion and PGI-sourced AUM of $276 billion.
We continue to add new capabilities to provide forward thinking solutions to our customers. As an example, Principal Alternative Credit closed 2021 with a more than eight-fold increase in committed capital, advancing on plans to expand our private debt capabilities. As John noted on the start of the call, we changed our AUM definition in the fourth quarter and reported $714 billion of AUM managed by Principal, a 7% increase from 2020. Under our prior definition, fourth quarter AUM would have been over $1 trillion compared to $981 billion at the end of the third quarter.
Outside the U.S. momentum continues across our asset management and retirement businesses. With record full year pre-tax operating earnings in Asia as well as strong growth in retail equity net cash flow in China and Southeast Asia, our equity AUM in China nearly doubled in 2021 and our digital AUM grew more than 200% over year end 2020. In Chile, we've produced strong net cash flow for a second consecutive year, including positive net cash flow in Cuprum and record net cash flow in our mutual fund business.
We recognized the recent election of President-Elect Boric, brings a level of uncertainty for the future of Chile's longstanding pension system. We're actively engaged with the new government regarding any potential legislation to reform the pension system, and we will leverage our retirement expertise to advocate for pension sustainability and policies that strengthened financial security for our customers.
Turning to U.S. retirement. Despite higher dollars of withdrawal in the fourth quarter, primarily due to favorable equity market performance and seasonally higher contract withdrawals, full year net cash flow was positive for RIS-Fee. On an account value basis, net cash flow benefited from strong transfer deposits and the best contract retention rate in over a decade. Reoccurring deposits increased nearly 40% compared to 2020, including a 15% increase on our legacy block in addition to deposits from the IRT retirement participants. The number of participants making deferrals increased approximately 60% compared to a year ago, including a 10% increase on our legacy block.
With the integration of the IRT Retirement business now complete, we have turned our full attention to capitalizing on synergistic opportunities both on the expense and revenue side, which are emerging in tangible ways. The transaction was done to grow scale and maximize the value of these assets, and we have clear signs this is happening. Net expense synergies through the end of 2021 benefited earnings by $25 million. On a run rate basis, we've realized about $50 million, more than half of our $90 million target. These savings will increase after the Trust and Custody business migrates to our platform later this month. We're also realizing increasing revenues from automatic IRAs, IRA rollovers and expanding relationships with existing customers across the enterprise.
In U.S. benefits and protection, we delivered tremendous growth aided by increased demand for benefits, robust hiring and favorable wage trends in our target market. Notably, group benefits full year in-group growth was a record 4% for the total block and over 5% in business with under 200 employees. Full year sales for specialty benefits were up 10% and premium and fee growth was over 7%. In-group benefits, we are seeing increases in the number of products per customer, both for new and existing customers. Higher sales and excellent customer retention coupled with a strong macro environment and competitive labor market give us a great deal of confidence in 2022 for continued market-leading growth rates.
Overall, Principal enters 2022 with significant momentum. The execution of our strategic review has made us a better Company, prepared to compete and win in an evolving market. Our transform portfolio was already driving terrific results both financially and for our customers. As we look ahead, we will continue focusing on the right markets and the right customers, leveraging our competitive advantages. Executing on this strategy, we have great line of sight and confidence in achieving our long-term financial targets.
Before I turn it over to Deanna, I want to thank our employees without whom we would not have had such an exceptional year. Their dedication to Principal and their commitment to our mission is at the core of our success. We will continue to invest in our people and ensure that we are prepared as our industry evolves. I'd be remiss if I didn't also take a moment to recognize Renee Schaaf, our President of Retirement Income Solutions, who announced her retirement last week after 42 years with Principal. Renee has held several leadership positions across the company with global and domestic responsibilities and most recently led the Retirement business through a period of significant growth and transformation with the acquisition and integration of the IRT business. Thank you, Renee, for your leadership, your passion and your commitment to Principal.
We also announced Chris Littlefield, our current General Counsel, will assume leadership for our U.S. Retirement and Income Solutions business. Chris has been with Principal since 2020 and joined us with significant C-suite operational and leadership experience having served as CEO and President at Aviva USA and Fidelity Guaranty Life Insurance Holdings. I have all the confidence in Chris' ability to grow the business, create value across our lines of business and champion digital transformation. Mark Lagomarcino who previously served as Senior Vice President and Deputy General Counsel will step into the General Counsel role as Chris moves into his new role. He will also service Corporate Secretary to the Board. Deanna?
