Deanna Strable
Chief Financial Officer at Principal Financial Group
Thanks, Dan. Good morning to everyone on the call. This morning, I'll share the key contributors to our financial performance for the quarter and full-year, our current financial and capital position, as well as an update on LDTI. Full-year reported net income attributable to Principal was $4.8 billion. Excluding income from exited businesses, net income was $1.5 billion for the full-year with manageable credit losses of $48 million. Fourth quarter non-GAAP net income excluding exited businesses was $504 million, with $12 million of credit losses.
As a reminder, the income from exited business is non-economic and is driven by the change in the fair-value of the funds withheld embedded derivative. Importantly, it doesn't impact our capital or free-cash flow and can be extremely volatile quarter-to-quarter. We also had positive credit drift during the year, further demonstrating the quality of our balance sheet. We reported full-year non-GAAP operating earnings of $1.7 billion or $6.66 per diluted share including $422 million or $1.70 per diluted share in the fourth-quarter. Excluding significant variances, full-year non-GAAP operating earnings was $1.7 billion or $6.77 per diluted share.
This included $420 million in the fourth-quarter or $1.69 per diluted share. Compared to full-year 2021, we increased earnings per share 2%, as the benefit from share repurchases and strong customer growth was partially offset by macroeconomic pressures on earnings. As detailed on slide 15, we had several significant variances that virtually offset and had a slight net positive impact on non-GAAP operating earnings during the fourth-quarter. On a pretax basis, benefits from lower DAC amortization, higher-than expected Latin-American and [Indecipherable] performance and favorable Brazilian inflation more than offset lower than expected variable investment income. These had a net positive impact to reported non-GAAP operating earnings of approximately $5 million pre-tax, $2 million after tax and $0.1 per diluted share.
While variable investment income was positive for the quarter, we experienced lower than expected alternative investment returns, prepayment fees, and real-estate sales. Macroeconomic volatility continued in the fourth-quarter and pressured earnings in our fee-based businesses. The S&P 500 daily average decreased 3% from the third-quarter of 2022, 16% from the fourth-quarter of 2021 and 4% on a full-year basis. Relative to our 2022 outlook, the full-year 2022 S&P 500 daily average was 17% lower than we expected heading into the year and fixed-income returns were approximately 18% lower.
This unfavorable market performance negatively impacted AUM, account values, fee revenue, margins and earnings and RIS fee and PGI throughout the year. Headwinds from foreign-exchange rates pressured reported pre-tax operating earnings by a negative $5 million compared to the fourth-quarter of 2021 and a negative $21 million for the full-year. It was immaterial compared to the third-quarter of 2022. Throughout 2022, we took actions across the enterprise to manage expenses as fee revenue was pressured as we have done in previous periods of unfavorable macroeconomics.
Our efforts have paid-off. On a full-year basis, compensation and other expenses excluding significant variances were 3% lower than 2021 and fourth-quarter expenses were 8% lower than the fourth-quarter of 2021, despite approximately $15 million of elevated severance and restructuring expenses across the fee-based businesses in the quarter. Some expenses naturally adjusted throughout the year like incentive compensation and other variable cost and we took actions to reduce other expenses, while continuing to balance investments for growth. As a result, we didn't see the typical 7% to 10% increase in compensation and other expenses this fourth-quarter relative to the average of the first three quarters.
Turning to the business units, the following comments on fourth-quarter and full-year results exclude significant variances. RIS fees margin improved in the fourth-quarter, but ended the year below guidance, as the benefit from IRT expense synergies was more than offset by unfavorable market performance, which pressured fees and net revenue throughout the year. Through the end of 2022, we have realized more than $80 million of run-rate expense synergies and are well on track to realize the full $90 million in 2023. RIS spread net revenue growth in pretax margin exceeded our post-transaction guidance for the full-year. Favorable investment income, a benefit from rising short-term interest rates, and growth in the business, helped to offset the impacts of the reinsurance transaction.
We completed $1.9 billion of pension risk transfer sales in 2022, including more than $750 million in the fourth-quarter. The PRT pipeline remains very strong as we head into the first-quarter. PGI's pretax margin was 39% for the full-year and at the low-end of our guidance range, despite significant macro headwinds throughout the year. The overall management fee rate of approximately 29 basis points remains stable. And Principal International, pretax operating earnings were pressured throughout 2022 as underlying growth in the business was masked by the regulatory fee reduction in Mexico and foreign-exchange headwinds.
On a constant-currency basis, full-year pre-tax operating earnings increased 5% over 2021, with strong growth in Brazil and Chile. In Specialty Benefits pre-tax operating earnings and premium fees both increased a strong 11% over full-year 2021. This was fueled by record sales, as well as strong retention and employment growth, while maintaining disciplined expense management and a stable loss ratio.
Turning to capital and liquidity, despite the volatile environment, we remain in a strong financial position heading into 2023. We ended 2022 with $1.5 billion of excess in available capital. This is above our targeted levels as we felt it was prudent to be disciplined due to the uncertain and volatile macro-environment. This included approximately $1 billion at the holding company, $200 million above our $800 million target, $425 million in our subsidiaries and $80 million in excess of our targeted 400% risk-based capital ratio estimated to be 460% at the end of the year.
Our leverage ratio is low at 22% and within our 20% to 25% targeted range. We have the financial flexibility, discipline, and experience necessary to manage through this time of macrovolatility and uncertainty. As shown on slide four, we returned $2.3 billion to shareholders in 2022, including nearly $1.7 billion of share repurchases and more than $640 million of common stock dividends. We also deployed $300 million to debt reduction and approximately $200 million towards M&A, bringing our full-year capital deployments to $2.8 billion. In the fourth-quarter, we returned more than $400 million to shareholders with $250 million of share repurchases and a $156 million of common stock dividends.
Last night, we announced a $0.64 common stock dividend payable in the first-quarter, in line with our targeted 40% dividend payout ratio. We remain focused on maintaining our capital and liquidity targets at both the Life company and the holding company and will continue with a balanced and disciplined approach to capital deployment as we head into 2023.
Our investment portfolio is high-quality and a good fit for our liability profile. The commercial mortgage loan portfolio is very-high quality, with an average loan-to-value of 46% and an average debt service coverage ratio of 2.5 times. We have a diverse and manageable exposure to other alternatives and high-risk sectors. And importantly, our liabilities are long-term and we have disciplined asset-liability management. Additional details of our investment portfolio are available in the appendix of the slides.
As a reminder LDTI goes into effect in the first-quarter. Importantly, this doesn't change our underlying economics, free-cash flow generation or our capital position. But it will have an impact on our reported financial results. We plan to release a recast fourth-quarter supplement on March 1st, the night before our 2023 outlook call. The most notable impact to total company non-GAAP operating earnings is a change to the geography with some variable annuity fees moving the hedging-related fees below the line. This will reduce our operating earnings by approximately $60 million on an annual basis with no corresponding impact to net income, free-cash flow generation, or our capital position.
In addition, there will be impacts to segment earnings that will largely offset at a consolidated level. More details will be shared during our upcoming outlook call. Moving to equity, the transition impact from the adoption of LDTI will decrease total stockholders' equity by approximately $5.3 billion as of January first 2021, with nearly all of the impact in AOCI. Sitting here today, we expect the impact to stockholders equity from LDTI to be slightly positive as of the fourth-quarter of 2022 as interest rates have risen significantly from where they were at the beginning of 2021. 2022 was a transformative year for Principal as we completed the reinsurance transactions midyear, executed on our go-forward strategy and strengthened our capital management and deployment approach.
We're focused on maximizing our growth drivers of Retirement, Global Asset Management, and Benefits and Protection, which will drive long-term growth for the enterprise and long-term shareholder value. This concludes our prepared remarks.
Operator, please open the call for questions.
