Published on February 28, 2014
March 2014 Principal Financial Group®
Use of Non‐GAAP Financial Measures A non‐GAAP financial measure is a numerical measure of performance, financial position, or cash flows that includes adjustments from a comparable financial measure presented in accordance with U.S. GAAP. The company uses a number of non‐GAAP financial measures that management believes are useful to investors because they illustrate the performance of the company’s normal, ongoing operations which is important in understanding and evaluating the company’s financial condition and results of operations. While such measures are also consistent with measures utilized by investors to evaluate performance, they are not, however, a substitute for U.S. GAAP financial measures. Therefore, at the end of the presentation, the company has provided reconciliations of the non‐GAAP financial measures to the most directly comparable U.S. GAAP financial measure. The company adjusts U.S. GAAP financial measures for items not directly related to ongoing operations. However, it is possible these adjusting items have occurred in the past and could recur in future reporting periods. Management also uses non‐GAAP financial measures for goal setting, as a basis for determining employee and senior management awards and compensation, and evaluating performance on a basis comparable to that used by investors and securities analysts. The company also uses a variety of other operational measures that do not have U.S. GAAP counterparts, and therefore do not fit the definition of non‐GAAP financial measures. Assets under management is an example of an operational measure that is not considered a non‐GAAP financial measure. 2
Forward Looking Statements Certain statements made by the company which are not historical facts may be considered forward‐looking statements, including, without limitation, statements as to operating earnings, net income available to common stockholders, net cash flows, realized and unrealized gains and losses, capital and liquidity positions, sales and earnings trends, and management's beliefs, expectations, goals and opinions. The company does not undertake to update these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward‐looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company's annual report on Form 10‐K for the year ended Dec. 31, 2013, and in the company’s quarterly report on Form 10‐Q for the quarter ended Sept 30, 2013, filed by the company with the Securities and Exchange Commission, as updated or supplemented from time to time in subsequent filings. These risks and uncertainties include, without limitation: adverse capital and credit market conditions may significantly affect the company’s ability to meet liquidity needs, access to capital and cost of capital; continued difficult conditions in the global capital markets and the economy generally; continued volatility or declines in the equity markets; changes in interest rates or credit spreads; the company’s investment portfolio is subject to several risks that may diminish the value of its invested assets and the investment returns credited to customers; the company’s valuation of securities may include methodologies, estimations and assumptions that are subject to differing interpretations; the determination of the amount of allowances and impairments taken on the company’s investments requires estimations and assumptions that are subject to differing interpretations; gross unrealized losses may be realized or result in future impairments; competition from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance; a downgrade in the company’s financial strength or credit ratings; inability to attract and retain sales representatives and develop new distribution sources; international business risks; the company’s actual experience could differ significantly from its pricing and reserving assumptions; the company’s ability to pay stockholder dividends and meet its obligations may be constrained by the limitations on dividends or distributions Iowa insurance laws impose on Principal Life; the pattern of amortizing the company’s DPAC and other actuarial balances on its universal life‐type insurance contracts, participating life insurance policies and certain investment contracts may change; the company may need to fund deficiencies in its “Closed Block” assets that support participating ordinary life insurance policies that had a dividend scale in force at the time of Principal Life’s 1998 conversion into a stock life insurance company; the company’s reinsurers could default on their obligations or increase their rates; risks arising from acquisitions of businesses; changes in laws, regulations or accounting standards; a computer system failure or security breach could disrupt the company’s business, and damage its reputation; results of litigation and regulatory investigations; from time to time the company may become subject to tax audits, tax litigation or similar proceedings, and as a result it may owe additional taxes, interest and penalties in amounts that may be material; fluctuations in foreign currency exchange rates; and applicable laws and the company’s certificate of incorporation and by‐laws may discourage takeovers and business combinations that some stockholders might consider in their best interests. 3
COMPANY OVERVIEW A Leading Financial Services Company •Fortune 500 company; 135 year history; 19.4 million customers •Offices in 18 countries; 14,790 employees worldwide •Full range of retirement savings, investment and insurance solutions for small to medium‐sized businesses & their employees, individuals, and institutions Operating Earnings $1,208.8 million* December 31, 2013 Retirement & Investor Services Accumulation 49% U.S. Insurance Solutions Principal 16% International 18% RIS Guaranteed 8% Principal Global Investors 9% 4 *Year to date. After‐tax. Results exclude Corporate. Assets Under Management by Source $483.2 billion as of December 31, 2013 RIS Guaranteed 3% Retirement & Investor Services Accumulation 47% Corporate 1% U.S. Insurance Solutions 4% Principal International 22% Principal Global Investors 23%
COMPANY OVERVIEW Organizational Structure Principal Financial Group Zimpleman CEO – 43/43 yrs* Lillis CFO – 32/32 yrs Retirement & Investor Services Principal Global Investors Principal International U.S. Insurance Solutions Houston ‐ President 30/30 yrs McCaughan – President 40/12 yrs Valdes – President 26/23 yrs Houston – President 30/30 yrs Full Service Accumulation Life Principal Funds Specialty Benefits Individual Annuities Bank & Trust Full Service Payout Investment Only 5 *Years of experience: Industry/The Principal as of year end 2014. **Exited business. Corporate Health**
COMPANY OVERVIEW Principal Financial Group Global Presence UK Ireland Principal Global Investors(Europe) LTD Asset Management Principal Global Investors (Ireland) Ltd Mutual Funds Netherlands Principal Global Investors Representative Office Asset Management Japan Principal Global Investors (Japan) LTD Asset Management China CCB-Principal AMC – JV with CCB Mutual Funds, IAM PRINCIPAL FINANCIAL GROUP Headquarters Des Moines, Iowa Mexico Principal AFORE Pensions Representative Offices Pensions, Asset Management Germany Principal Global Investors (Europe) LTD Asset Management Principal Seguros Life Insurance Principal Pensiones Annuities UAE Principal Fondos de Inversión, S.A. de C.V (PFI) Mutual Funds, IAM Principal Global Investors Representative Office Asset Management Brazil Principal Creditos Hipotecarios Residential Mortgages BrasilPrev - JV with Banco do Brasil Pensions, Annuities, IAM Principal AGF Mutual Funds, IAM Claritas Mutual Funds Cuprum Pensions - Mandatory Principal Insurance Company Pensions, Mutual Funds, IAM Principal Global Investors (Asia) Ltd. Asset Management India Thailand Principal/AMC JV with PNB/Vijaya Mutual Funds Principal PNB Asset Management Co. Asset Management Malaysia Chile Principal Vida Annuities / Pensions Hong Kong CIMB-Principal AMC - JV with CIMB Group Mutual Funds, Asset Management CIMB Principal Islamic Asset Management (PGI JV with CIMB Group) Islamic Institutional Asset Management CIMB-Principal AMC Mutual Funds, Asset Management Singapore CIMB-Principal AMC Principal Global Investors (Singapore) Asset Management Australia Principal Global Investors (Australia) LTD Asset Management Indonesia 6 CIMB-Principal AMC Mutual Funds, Asset Management
COMPANY OVERVIEW 135 Years of Experience 1941 Group Health & Pension 1911 Mutual Life Co 1879 Life Assoc 1970s Defined Contribution 1968 Mutual Funds 1936 Mortgage Banking/ Commercial Mortgage 7 1998 Principal Bank; Mutual Holding Co 1990 Principal Intl 1985 Principal Financial Group JV – Joint Venture. IPO – Initial Public Offering. 1996 Principal Hong Kong 1995 Principal Chile 1997 Principal Mexico 2003 Post Advisory Group 2001 IPO; Spectrum 2008 CIMB‐Principal Islamic Asset Mgmt 2006 Washington Mutual Funds; WM Advisors 2002 Benefit Consultants Inc; Total Retirement Suite SM 1999 Principal Global Investors; BrasilPrev JV; Principal Asset Mgmt Co (India) 2005 CCB Principal; Columbus Circle 2007 Morley 2013 Liongate 2011 HSBC Afore; Finisterre; Origin 2012 Claritas; Cuprum 2010 BrasilPrev JV extension
COMPANY OVERVIEW Experienced Management Team Name Age* Title Larry D. Zimpleman 63 Chairman, President & CEO 43/43 Daniel J. Houston 53 President – Retirement, Insurance and Financial Svcs 30/30 James P. McCaughan 61 President – Global Asset Management 40/12 Luis E. Valdes 57 President – Principal International 26/23 Timothy M. Dunbar 57 Executive VP, Chief Investment Officer 33/28 Ralph C. Eucher 62 Executive VP, Human Resources & Corporate Svcs 30/20 Terrance J. Lillis 62 Executive VP & Chief Financial Officer 32/32 Gary P. Scholten 57 Executive VP & Chief Information Officer 34/34 Karen E. Shaff 60 Executive VP, General Counsel & Corporate Secretary 32/32 Rex Auyeung 62 Senior VP, President , Principal Financial Group– Asia 37/20 Ned A. Burmeister 55 Senior VP, COO – Principal International 35/35 Gregory J. Burrows 52 Senior VP, Retirement & Investor Svcs 28/28 Gregory B. Elming 54 Senior VP & Chief Risk Officer 32/32 Nora M. Everett 55 Senior VP, Retirement & Investor Svcs 23/23 Julia M. Lawler 54 Senior VP – Investment Services 32/30 Timothy J. Minard 51 Senior VP, Distribution 28/28 Mary A. O’Keefe 58 Senior VP & Chief Marketing Officer 24/24 Jerry Patterson 48 Senior VP, Retirement & Investor Svcs 26/13 Beth Raymond 48 Senior VP & Chief Human Resources Officer 23/14 Angela R. Sanders 51 Senior VP & Controller 25/25 Deanna D. Strable 46 Senior VP, U.S. Insurance Solutions 25/25 Roberto Walker 49 Senior VP, President, Principal Financial Group – LatAm 25/18 8 *As of year end 2014 (Industry/PFG)*
COMPANY OVERVIEW Industry Leadership Retirement and Investor Services •A leading provider of DC plans1 •#1 provider of DB plans2 •#1 provider of ESOP plans3 •#5 Manager of Lifecycle Funds4 Principal International •#1 net deposits – Brazil (Brasilprev)9 •#1 APV – Chile10 •#2 asset management – Malaysia11 •Top ten MPF provider – Hong Kong12 •#5 AFORE – Mexico13 9 Principal Global Investors •Best Place to Work in Money U.S. Insurance Solutions •#2 Non‐qualified deferred compensation14 •#5 Non‐medical coverages15 •#5 IDI coverages15 Management 5 •Top 10 manager Real Estate 6 •Top 10 manager High Yield7 •Manager Recommended to Other Pension Funds by 100% of Clients8 Sources: 1 PLANSPONSOR Recordkeeeping Survey 6/13, 2 PLANSPONSOR, April 2013; 3 PLANSPONSOR 6/13; 4 Strategic Insight 9/30/13 Lifecycle Report; 5Pensions & Investments, “The Best Places to Work in Money Management among companies with our size category”, PFG recognition 12/09/2013. 6Managers ranked by total worldwide real estate assets (net of leverage), data as of 6/30/13, “Largest Real Estate Managers”, Pensions & Investments, October 28, 2013; 7Managers ranked by U.S. institutional, tax‐exempt assets managed internally, as of 12/31/12, “Largest Money Managers”, Pensions & Investments, Online Research Center. 8Principal Global Investors Europe was awarded two 2013 Pension Fund Perception Programme awards by Investment & Pensions Europe (IPE) magazine. Results for Principal Global Investors Europe are based on input from participating pension funds with over €1trn in assets under management, and reporting on over 300 managers, who were asked to rank the criteria they considered most important in selecting asset managers they appoint to manage their portfolios. The Manager Recommended to Other Pension Funds by 100% of Clients category was awarded to 25 managers selected from a field of 180 managers. 9Quantum, 12/2012; 10SP (Superintendencia de Pensiones), 1/2013; 11Lipper. Percentage of market share as of 07/2013; 12Lipper. Based on AUM as of 03/2013; 13CONSAR & PROCESAR, May 2013; 14PLANSPONSOR Dec 12 (based on number of plans record‐kept); 15LIMRA 2012 surveys: Non‐medical based on fully insured employer contracts in force & Individual Disability Insurance (IDI) rank based on in‐force policies.
COMPANY OVERVIEW Financial Strength: Current Ratings (as of January 2014) • Moody's Investors Service • 'A1', Good – fifth highest of 21 rating levels. Outlook: Stable Rating as of November 2013 • FitchRatings 'AA‐‘, Very Strong ‐ fourth highest of 21 rating levels. Outlook: Negative Rating as of October 2013 10 Standard & Poor's ‘A+’, Strong ‐ fifth highest of 21 rating levels. Outlook: Stable Ratings as of July 2013 • A.M. Best 'A+', Superior ‐ second highest of 16 rating levels. Outlook: Stable Rating as of December 2013 Ratings related to Principal Life Insurance Company and Principal National Life Insurance Company.
COMPANY OVERVIEW Our Strategy is Well Suited for the Current Environment Meet retirement and employee benefit needs of growing businesses and their employees. Globally Competitive Employers Fiscally Constrained Governments Capitalize on unprecedented demand for financial services among Baby and Echo Boomers. Grow proven, global, multi‐boutique asset management model for institutional markets and clients. Aging Populations 11 Extend retirement and long‐term asset accumulation expertise in key emerging markets with fast growing middle classes and retirement assets.
at a glance Principal Global Investors Assets Under Management $292B By Asset Class Equity $103 Fixed Income $126 Real Estate $49 Alternatives $14 12 As of 12/31/13. PRINCIPAL GLOBAL INVESTORS • Serve clients in over 60 countries, including several major central banks and sovereign wealth funds • Network of specialized investment boutiques manage assets for a broad range of investors around the world • Manages: – 58% of Full Service Accumulation assets – 77% of Principal Funds assets – 100% of Principal Life general account assets • Office locations in major financial markets worldwide • Long‐standing commitment to corporate stewardship
OUR CURRENT BOUTIQUES Fixed Income Real Estate Asset Allocation/ Alternatives Principal Global Equities $74.4B Principal Global Fixed Income $73.4B Private Real Estate $32.3B Edge Asset Management $17.5B Columbus Circle Investors $17.3B Morley Financial Services $18.0B CMBS $6.1B Multi‐Asset Advisors $145M1 Origin Asset Management $2.7B Post Advisory Group $11.3B Principal Enterprise Capital $4.7B Macro Currency Group $9.5B Spectrum Asset Management $15.8B PRINCIPAL GLOBAL INVESTORS Equities REITs $5.8B Liongate Capital Management $1.0B (AUM as of 12/31/13) Finisterre Capital $1.8B 1 13 Responsible for allocation decision‐making and implementation across a range of products and client portfolios, and for providing macro economic perspectives to guide allocations. 2 $1B is sub‐advised by Principal Global Investors Equities and included within the $74.4B Equities AUM shown above. CIMB – Principal Islamic Asset Mgmt. $1.5B 2
PRINCIPAL GLOBAL INVESTORS ASSET MANAGEMENT EXPERTISE WINS MANDATES • Winner of the Non‐U.S. Equity Value (1) Award • Principal Global Real Estate Securities Fund ‐ Class I received a 2013 Lipper Fund Award for best performing global real estate fund over the 5‐ year period (2) (3) • Top 10 Manager of Real Estate (4) • Top 10 Manager of High Yield • PFG ranked No.1 company among the Best Places to Work in Money Management(5) 14 Principal Global Investors Unaffiliated AUM (in billions) $109.4 $98.2 $78.7 $82.4 2010 2011 2012 2013 Sources: (1) Principal Global Investors announced as winner in the non‐US Equity Value excluding emerging markets category by Institutional Investor in their U.S. Investment Management Awards, March 2013. (2) The Principal Real Estate Investors portfolio management team sub‐advises the Principal Global Real Estate Securities Fund‐Class I, which recently received a 2013 Lipper Fund Award for being the best performing global real estate fund over the 5‐year period. (3) Managers ranked by total worldwide real estate assets (net of leverage), as of June 30, 2013, “Largest Real Estate Managers”, Pensions & Investments, October 28, 2013. (4) Managers ranked by U.S. institutional, tax‐exempt assets managed internally, as of 12/31/12. “Largest Money Managers”, Pensions & Investments, Online Research Center. (5) Principal Financial Group recognized for firms with our size category. Pensions & Investments, December 09, 2013. (6) Managers ranked by total assets under management. America’s Top 300 Money Manager, Institutional Investor, July 2013, data as of 12/31/2012.
PRINCIPAL GLOBAL INVESTORS STRONG INVESTMENT PERFORMANCE Morningstar Rankings Percentage of Principal Funds in the top two quartiles 91% 84% 80% 78% 72% 67% 66% 60% 58% Represents $143 billion AUM of which 75% managed by PGI boutiques 1‐Year Dec. 31, 2012 15 Principal Funds Class I 3‐Year Sept. 30, 2013 5‐Year Dec. 31, 2013
RETIREMENT & INVESTOR SERVICES STRATEGIC PLATFORM FOR GROWTH PLATFORM CONTINUUM Across markets | Across life stages Full Service Accumulation Principal Funds Investment Only Annuities Bank INVESTMENT MANAGEMENT INDIVIDUAL EMPLOYER 16 Full Service Payout
RETIREMENT & INVESTOR SERVICES Full Service Accumulation CUSTOMER CENTRIC BUSINESS MODEL 17
RETIREMENT & INVESTOR SERVICES Full Service Accumulation PRINCIPAL TOTAL RETIREMENT SUITESM Defined Benefit #1 DB provider (by # of clients) Defined Contribution #2 DC plan recordkeeper (by # of plans) 18 Nonqualified Plans #1 ESOP plan recordkeeper #2 Deferred Comp provider (by # of plans) STILL A DIFFERENTIATOR Employee Stock Ownership Plan (by # of clients) All rankings sourced from PLAN SPONSOR magazine as follows – Defined Benefit: DB Administration Survey 04/13; Defined Contribution and ESOP: Recordkeeping Survey 06/13; Nonqualified: Deferred Compensation Buyer’s Guide 12/12.
RETIREMENT & INVESTOR SERVICES Full Service Accumulation 14 FSA* SALES 11.5 12 10 $ Billions Execution of Strategy: 8 6 10.3 9.4 2.4 6.7 2.1 3.4 4 2 8.5 8.3 1.3 1.4 1.4 2.2 5.0 1.0 0.5 0.7 3.5 2.8 2008 2009 0 2007 1st Quarter 19 *Full‐Service Accumulation 2nd Quarter 3.2 3.3 3.0 3.3 2.7 1.5 2.3 0.9 0.9 1.7 2011 1.8 1.7 2010 2.6 2.0 3rd Quarter 3.2 2.9 2012 2013 4th Quarter
RETIREMENT & INVESTOR SERVICES Full Service Accumulation 30 24.3 25 20.6 4.4 5.8 10 4.5 3.8 5.8 3.8 20.3 6.5 6.0 6.3 5.6 6.3 5.7 5.8 4.3 3.6 4.1 5.0 7.0 6.0 6.0 5.0 6.5 6.8 2008 2009 2010 2011 2012 2013 4.2 5 5.1 0 Avg deferral per member +8%* People receiving a match +27%* * 4Q10 compared to 4Q13. 17.0 18.5 3.6 15 People making a deferral +18%* 20 4.5 5.5 $ Billions RISING DEPOSITS & THE POWER OF PAYROLL DEDUCTION 20.4 20 25.2 2007 1st Quarter 2nd Quarter 3rd Quarter Employment rates have not fully recovered – UPSIDE EXISTS 4th Quarter
RETIREMENT & INVESTOR SERVICES Full Service Accumulation 7.7% 6.9% 6.6% 7.3% 6.9% 7.1% 7.1% 80% 17.7% 20.1% 22.3% 23.3% 26.5% 26.9% 25.7% 60% 10.9% 12.7% 12.8% 11.1% 10.0% 10.3% 10.6% 63.7% 60.4% 58.4% 58.3% 56.6% 55.8% 57.2% 100% FSA* ACCOUNT VALUE BY MANAGER 40% 20% PGI managed 21 *Full‐Service Accumulation Sub-advised Non-proprietary 4Q13 Deposits 2013 2012 2011 2010 2009 2008 0% ER Securities
RETIREMENT & INVESTOR SERVICES Full Service Accumulation Profit Margin* Industry Avg vs. The Principal OUR DISCIPLINED EXECUTION DELIVERS POSITIVE RESULTS 22 * Profit 2000 Benchmark Study, Sterling Resources, Inc. (2013) Principal Industry Avg
RETIREMENT & INVESTOR SERVICES Full Service Accumulation Revenue sourced from FSA platform $2B Other PFG businesses MULTIPLE BUSINESSES LEVERAGE FSA SUCCESS Other PFG businesses $350 MILLION FSA FSA $0 2013E 23 Principal Funds, PGI, Bank & Trust, Individual Annuities, Individual Life and Full Service Payout are all beneficiaries 2018E $500 MILLION
Full Service Accumulation (FSA) RETIREMENT & INVESTOR SERVICES 6.3% 3.5% 1.7% NET CASH FLOW CONSISTENTLY OUTPACES INDUSTRY 0.8% 0.6% 1.0% 0.8% 0.2% 2010 2011 2012 401k Industry net flows 2013 Principal FSA net flows Principal Funds 18.1% 12.5% 6.7% 6.0% 4.6% 4.5% 4.2% 1.9% 2010 2011 Industry net flows 2012 2013 Principal Funds net flows Net cash flows as % of beginning of year assets 2010‐2013. Sources of industry data: 401(k) industry – Department of Labor & Cerulli 24 Associates 2013 (for 2013, industry 401(k) is an estimate); Funds – Strategic Insight Mutual Fund Industry Review (long‐term funds). Principal Funds net flows represent long‐term funds only.
NEEDS‐DRIVEN INVESTMENT SOLUTIONS Broad and unique asset allocation strategies ASSET ALLOCATION LEADERSHIP 25 Multi‐manager solutions Portfolio construction strategies: *Based on $38.2B in assets Strategic Insight 12/31/13 Lifecycle Report $3.7B MidCap $3.3B Preferred $1.9B $1.7B $1.3B TOTAL FOR TOP 5 Target date & target risk Global Diversified Income Strategic Asset Management #5 largest lifecycle fund manager* YTD 2013 High Yield • • • • TOP SELLING FUNDS $12.0B
Net Cash Flow RETIREMENT & INVESTOR SERVICES Assets Under Management Principal Funds 30% A DIVERSIFIED FAMILY OF MUTUAL FUNDS Equity 18% Fixed Income 44% 4% 3% Index 58% 45% Asset Allocation 5% ‐11% 26 4% 2013 2013 Other
RETIREMENT & INVESTOR SERVICES Principal Funds DRIVING INDUSTRY RECOGNITION Best Mixed-Asset Large Fund Group 2013 AND ADVISOR ENGAGEMENT #5 for DC Investment Manager 27
RETIREMENT & INVESTOR SERVICES INDIVIDUAL INVESTOR STRATEGY ENROLLMENT OPTIMIZATION READY TO RETIRE RETIREMENT INCOME SOLUTIONS 28 • Simplify process • Improve experience • Maximize participation and influence behavior • Portfolio allocation • Participant education • Education and guidance • Portfolio construction strategies • Income annuities
INDIVIDUAL INVESTOR STRATEGY CAPTURES ADDITIONAL ASSETS Assets Captured in Billions RETIREMENT & INVESTOR SERVICES $0.4 $0.3 $0.3 $0.2 $0.2 $1.5 $0.8 2010 $1.0 2011 Roll‐ins into FSA plans 29 $1.7 $1.2 2012 2013 Retail sales to participants 2014E
Innovative Solutions: Solving Income Needs ACCUMULATION MULTI-PRODUCT SOLUTION SET • “Through Retirement” Lifecycle Funds • Mutual Funds that: ‒ Generate income OUR APPROACH: ‒ Preserve capital • Education ‒ Protect against inflation • Planning assistance ‒ Address market volatility (RetireSecure®) • Annuities to provide: ‒ Fixed returns • Full array of options ‒ Guaranteed income • Innovative solutions ‒ Protection against volatility • Bank products • Full Service Payout ‒ Defined Benefit plan terminations 30 RETIREMENT INCOME
U.S. INSURANCE SOLUTIONS INDIVIDUAL LIFE • Non‐Qualified Plans 12.4% #2 • Total Life New Sales Premium 1.4% #18 7.1% #5 ‐ Life 8.6% #4 ‐ Disability 6.4% #5 6.3% #7 • Individual Disability In‐force Premium 7.8% #5 • Individual Disability New Sales Premium 31 2012 Industry Rank ‐ Dental SUCCESS REFLECTS EXPERTISE SERVING SMB MARKET 2012 Market Share 15.8% #3 SPECIALTY BENEFITS • Total Group In‐Force Contracts Nonqualified Plans ranking from Plan Sponsor Deferred Compensation Buyer’s Guide Dec 12. All other rankings are from LIMRA 2012.
Individual Life Leadership: FOCUS ON THE BUSINESS MARKET SOLUTIONS FOR BUSINESS, BUSINESS OWNERS AND KEY EXECUTIVES Business owners’ financial challenges • Exiting the business • Business transition • Retaining key employees • Retirement planning BOES 36% Individual 43% Solutions for key employees • Retirement income • Survivor income • Business protection ER/NQ 21% 2013 Sales 32 BOES = Business Owner/Executive Solutions ER/NQ = Employer/Non‐qualified
U.S. INSURANCE SOLUTIONS 2013 Total Premium & Fees Specialty Benefits BALANCED PORTFOLIO plus ABOVE INDUSTRY PREMIUM GROWTH Group Benefits 83% Individual Disability 17% Dental/ Vision 48% Group Life 27% 5.6% 2012 Premium Growth 3.4% 3.2% 2.8% 2.7% 2.0% Group Dental Group Life The Principal 33 Group Disability 25% Group Disability Industry
U.S. DISTRIBUTION OVERVIEW PROPRIETARY CAREER • 1,000 agents • Sell all products • Career places 80‐85% of sales within The Principal family products THIRD PARTY PRINCIPAL CONNECTION • 70 counselors with focus on education INVESTMENTORIENTED INSURANCEORIENTED • Wirehouses • Regional Broker/Dealers • Planners • Insurance Producers BANKS • Banks • Broker/ Dealers • Marketers ALLIANCE MANAGEMENT GROUP (AMG) Select 3rd party distributors with dedicated support STRENGTHENS RELATIONSHIPS AND FUELS SALES GROWTH 11 WHOLESALE CHANNELS Retirement Investment Annuities Solutions ESOP NQDC Retail Life Wellness Disability Group AMG Insurance Benefits Worksite All supported by DEDICATED SERVICE TEAMS providing education, training, counseling and retention 34
NATIONAL PRESENCE WITH LOCAL EMPLOYEES 121 Total Offices OUR VALUE TO ADVISORS: ● Solutions‐based selling ● Point of sale support ● Ongoing service and education support ● Pipeline development ● Practice management ● Advisor education 35 NOTE: Approximate view as of March 2012. Check www.principal.com for actual locations.
SALES – Then & Now 24% PRINCIPAL FUNDS MULTIPLE DISTRIBUTION CHANNELS 100% Affiliated Distribution 47% Third Party Broker/Dealers 29% 2006 $3.8B DCIO/RIA 2013 $19.8B Account Values – Then & Now 41% 100% 44% Affiliated Distribution Third Party Broker/Dealers DCIO/RIA 15% 2006 $14.7B 36 DCIO = Defined Contribution Investment Only. RIA = Registered Investment Advisor 2013 $64.2B
EXPANDING DISTRIBUTION PARTNERSHIPS HAVE GENERATED STRONG SALES GROWTH 2.0 Individual Annuities Separately Managed Accounts 1.7 2.5 Mutual Funds 3.3 Full Service Accum 1.5 1.5 1.4 1.4 0.9 1.2 2.8 5.7 2.1 3.8 4.2 3.1 3.8 3.7 2006 2007 2008 2009 2010 $3.5B $8.8B $10.9B $8.0B $12.5B 0.6 1.3 0.2 2.0 37 14.5 6.5 3.0 1.2 2.5 2.3 Total: 10.5 7.6 6.6 2011 2012 2013 CAGR: $13.0B $22.3B $26.4B +34%
BROAD AND DEEP DISTRIBUTION Proprietary provides foundation; 3rd party provides accelerated growth Product Line New Sales 1st 2nd 3rd NQ Life 39% Retail Life Career Individual Disability Career LifeMark Plus Group Santander Securities Fixed Annuities Career Principal Connection KeyCorp Ins. Agency 38 Rankings and percentages as of 12/31/2013 96% 24% FSA – New Sales Assets FSA – New Sales Case Counts 13% 41% Career Mutual Funds 55% 38% Gallagher Group Benefits Variable Annuities Top 3 represent 30% Career Edward D. Jones 33%
PRINCIPAL INTERNATIONAL AUM as of 12/31/2013 China (2005) Asset Management, Mutual Funds AUM of $14.9B CCB‐Principal – a 25% owned joint venture with China Construction Bank Hong Kong (1996) Mexico (1993) Annuities, Mutual Funds, Pensions, Asset Management AUM of $11.8B Wholly owned Asset Management, Mutual Funds, Pensions AUM of $3.3B Wholly owned PRINCIPAL FINANCIAL GROUP Thailand (2010) India (2000) Chile (1995) Annuities, Mutual Funds, Asset Management, Pensions AUM of $5.5B Wholly owned Cuprum – a 94% owned mutual fund company AUM of $33.2B 39 Brazil (1999) Annuities, Pensions, Mutual Funds, Asset Management Brasilprev – a 25% owned joint venture with Banco do Brasil AUM of $36.5B Claritas – 60% indirectly owned mutual fund company AUM of $1.5B Asset Management, Mutual Funds AUM of $0.6B 65% owned joint venture with Punjab National and Vijaya Banks Malaysia (2003) Asset Management, Mutual Funds AUM of $0.8B Wholly owned subsidiary of Malaysian JV Indonesia (2007) Asset Management, Mutual Funds AUM of $0.2B Wholly owned subsidiary of Malaysian JV Conventional & Islamic Asset Management, Mutual Singapore (2006) Funds, Pensions Asset Management AUM of $0.7M AUM of $11.1B CIMB‐Principal – 40% owned Wholly owned subsidiary of Malaysian JV joint venture with CIMB Group
PRINCIPAL INTERNATIONAL WE’RE IN THE RIGHT COUNTRIES TEN LARGEST ECONOMIES BY DECADE Current Principal International locations: Asia Latin America 2020E US$ trn 2030E US$ trn 15.0 U.S. 23.5 China 53.8 China 5.9 China 21.9 U.S. 38.5 1.9 Japan 5.5 Japan 6.1 India 15.0 UK 1.5 Germany 3.3 Germany 5.1 Japan 9.3 1.1 France 1.3 France 2.5 India 4.5 Germany 7.4 UK 1.0 China 1.2 UK 2.3 Brazil 3.9 Brazil 6.3 7 Canada 0.6 Italy 1.1 Italy 2.0 France 3.9 UK 5.8 8 Spain 0.5 Canada 0.7 Brazil 2.1 UK 3.7 France 5.7 9 Brazil 0.5 Brazil 0.6 Canada 1.6 Italy 2.7 Indonesia 4.7 10 China 0.4 Mexico 0.6 Russia 1.5 Russia 2.6 Russia 4.6 1990 US$ trn 1 U.S. 2 2000 US$ trn 5.9 U.S. Japan 3.1 3 Germany 4 2010 US$ trn 10.3 U.S. Japan 4.7 1.7 Germany France 1.2 5 Italy 6 40 SOURCE: IMF, Standard Chartered Research.
PRINCIPAL INTERNATIONAL LEVERAGING STRONG MARQUEE PARTNERS WITH OUTSTANDING DISTRIBUTION Joint Venture Partner Partner’s Industry Ranking Partner’s Distribution Reach 14,121 branches4 5th largest universal banking group in ASEAN5 1,080 branches5 2nd largest Nationalized bank in India6 41 5,362 branches3 2nd largest listed bank in world2 Banco do Brasil Largest bank in Latin America1 6,075 branches7 58.6 million customers3 440 million retail customers4 13.5 million retail customers5 82 million retail customers7 SOURCE: 1Global Finance 2013 in terms of AUM; 2Relbanks.com 2013 based on market capitalization 3Banco do Brasil Annual Report 2012, 4CCB 2012 annual report – customers based on retail debit cards; 5CIMB Group 2012 Annual report – ranking in term of AUM,, 6Indian Banks’ Association 2013 in terms of assets 7Pnbindia.in 2013
PRINCIPAL INTERNATIONAL OUR MARKETS AND PRODUCT OFFERING Targeted Markets Pensions Mutual Funds Asset Mgmt Annuities Brazil Chile Mexico China + Hong Kong India + Malaysia/ SE Asia 42 = Where we have a product offering today = Targeted expansion = 10% of market share or Top 25% of providers
PRINCIPAL INTERNATIONAL Latin America PROVEN STRENGTH & SUCCESS BRAZIL MEXICO CHILE Brasilprev: #1 in net deposits 5th largest AFORE (by AUM) #1 APV: PI Chile and Cuprum 37% market share #3 in net AUM transfers 25% market share PRINCIPAL IS 2ND LARGEST PENSION PROVIDER IN LATIN AMERICA 43 Brazil source: Quantum. 12/12. Mexico source: CONSAR & PROCESAR. 5/13. Chile source: SP (Superintendencia de Pensiones) 12/12. Principal is 2nd largest pension provider in Latin America by AUM among multi‐country pension providers.
PRINCIPAL INTERNATIONAL Chile CREATING A “ONE‐STOP SHOP” 44 ERM = Enterprise Risk Management
PRINCIPAL INTERNATIONAL COMPREHENSIVE RETIREMENT PLATFORM Together Principal Financial Chile and Cuprum completes the full spectrum of products for a comprehensive “hire through retire” approach to the market TOGETHER PRODUCTS: Chile Mandatory Pension Voluntary Pensions: AFP Fund Based Mutual Fund Based Mutual Funds Payout Products: Annuities Based Structured Payout Life (Accumulation) DISTRIBUTION: Brokers & Independent Agents Retail Alliances Proprietary Sales Force 45 Source: Company information.
PRINCIPAL INTERNATIONAL Chile PLATFORM CONTINUUM Across markets | Across life stages OFFERING A FULL SET OF SOLUTIONS APV Mandatory Accumulation APVC/G Retail Mutual Funds Life Accumulation Programmed Withdrawals Mandatory Payout Annuities Voluntary Payout Annuities INVESTMENT MANAGEMENT 46 APV = Ahorro Previsional Voluntario; APVC/G = Ahorro Previsional Voluntario Colectiveo Retail Mutual Funds
PRINCIPAL INTERNATIONAL MALAYSIA HONG KONG #2 in Asset Management Among Top Ten MPF* Providers CHINA INDIA Top Ten for Mutual Funds 1st mover in advisory services business Asia BUILDING A STRONG FOUNDATION 47 *Mandatory Provident Fund. Malaysia source: Lipper. Percentage of market share as of 7/13. Hong Kong source: Lipper. Based on AUM as of 3/13. China source: Z‐Ben Advisors. Based on AUM as of 1/13. India source: Company data/media tracking at launch 11/12
PRINCIPAL INTERNATIONAL Asia CURRENT STATE OF PENSION SYSTEM IN OUR ASIAN MARKETS Hong Kong Malaysia Private Pension Recently opened door for tax‐incentive individual savings & private pension providers. Enterprise Annuity framework in place. Mainland Regulatory reform could help with individual & China private pension incentives. India 48 Privatized pension plan in place today (Mandatory Provident Fund‐MPF). Currently, no incentives for private sector involvement.
INVESTMENTS INVESTMENT PHILOSOPHY AND STRATEGY REMAINS THE SAME 49 • Liability‐driven investment approach • Active asset/liability management • Optimized risk adjusted yields and returns • High quality, well‐diversified portfolio • Global collaboration and best practices • Portfolio responsibility remains at local country
INVESTMENTS DIVERSIFIED PORTFOLIO Invested Assets & Cash As of 12/31/13 GAAP carrying value Principal Financial Group Commercial Mortgages 15% Cash 4% Corporate Private Bonds 18% MBS 6% Corporate Public Bonds 28% ABS 5% Other* 10% $69.1 Billion 50 CMBS 6% * Other includes Equity Securities, Residential Mortgages, Real Estate, Policy Loans, Investment in Equity Method subs, Direct Finance Leases and Other Investments Government, Agency, State & Political 8%
‐$600 51 Jan‐12 Feb‐12 Mar‐12 Apr‐12 May‐12 Jun‐12 Jul‐12 Aug‐12 Sep‐12 Oct‐12 Nov‐12 Dec‐12 Jan‐13 Feb‐13 Mar‐13 Apr‐13 May‐13 Jun‐13 Jul‐13 Aug‐13 Sep‐13 Oct‐13 Nov‐13 Dec‐13 ASSETS & LIABILITIES PERFORMED AS EXPECTED In millions INVESTMENTS $800 $600 $400 $200 $0 ‐$200 ‐$400 Actual net assets & liabilities Modeled net assets & liabilities
INVESTMENTS Majority of unrealized losses were never realized because we were not forced sellers All numbers shown are pre‐tax $1,600 $1,400 Cumulative CMBS Credit Losses Recorded* $1,200 Cumulative CMBS Losses Realized** Potential Future Credit Losses*** $1,000 In millions CMBS CONTINUES TO BE WELL SUITED FOR OUR LIABILITIES Net Unrealized Losses and Potential Losses Total Net Unrealized CMBS Losses $800 $600 $400 $200 $0 2009 52 2010 2011 2012 * Cumulative CMBS Credit Losses Recorded represent 2009 to present losses due to credit impairments, sales, or trust write‐ downs. ** Cumulative realized losses since 2009 from sales or trust write‐downs. The difference between losses recorded and losses realized are due to impairments. Impairments are the present value of estimated losses anticipated but not yet passed through the trust waterfall or realized from selling a distressed security to the market. Ultimate losses realized on impaired securities may differ from the impairment estimate. *** Potential Future Credit Losses based on our base case stress scenario for securities currently held as of the reporting period presented. This is an estimate. It represents the average of 1000 modeled scenarios. This estimate is subject to change. Potential future losses together with cumulative losses recorded represents an estimate of base case potential cumulative CMBS losses for securities held during the period from 2009 to the present. . 2013
INVESTMENTS Losses over the next three years are expected to be below pricing assumptions. This assumes no material downturn of the U.S. or Global economy. Size of Portfolio (Amortized Cost) as of 12/31/12 CMBS/CMBS CDO = $4.2B $300 $250 $ in millions after‐tax INVESTMENT LOSS PROJECTION $350 20 60 Commercial Mortgages = $10.2B 4 Bonds excluding CMBS/CMBS CDO = $40.7B 57 $200 $150 114 247 $100 182 91 36 $50 35 11 25 17 2010 2011 2012 $0 2008 2009 *Loss projections are based on the bond and commercial mortgage portfolio only. 5 7 8 26 4 38 46 36 2013E 2014E 2015E This is one possible loss scenario shown for Principal Life Insurance Company and consolidated subsidiaries. Portfolio sizes reflect Principal Financial Group U.S. invested assets, excluding the Principal Global Investors segment. Years 2008‐2012 reflect actual losses for Principal Financial Group, excluding Principal Global Investors segment. Losses are after‐tax. 53 33 39 60
FINANCIALS OPERATING EARNINGS POWER OF OUR FEE‐BASED MODEL 2001 30% Current 2018E 15% 20% 30% 15% 20% 60% 70% 40% Continual shift in mix of business leading to a higher ROE and more free cash flow Fee 54 Spread Fee includes Full Service Accumulation, Mutual Funds, Principal Global Investors, Principal International. Spread includes Individual Annuities, Bank and Trust Services, Investment Only, Full Service Payout. Risk includes U.S. Insurance Solutions. Risk
FINANCIALS 15% ROE IS AGAIN WITHIN REACH As Reported 2007 $1.1B $6.5B 16.4% 12.1% 12.1% $8.7B Return on equity (x‐OCI) 15% $1.1B Average equity (x‐OCI) 16.4% 2013 Operating earnings 50‐80 bps average annual ROE improvement 55 2007 OCI = Other Comprehensive Income. 2013 2018E Replaced approximately $150M of risk/spread operating earnings with fee-based operating earnings
FINANCIALS ACHIEVING 10‐12% ANNUAL OPERATING EARNINGS GROWTH ROE expansion driven by focusing on the numerator… 56 + 4‐5% for market performance + 4‐5% for growth from sales/NCF + 1‐2% operational efficiency EARNINGS EQUITY
FINANCIALS EARNINGS EQUITY GROWS AT A SLOWER RATE …and by managing the denominator 57 EQUITY Fee‐based growth Dividend growth Opportunistic share repurchases AVERAGE EQUITY (x‐OCI) GROWTH RATES
FINANCIALS 30% 25% RETURNING CAPITAL TO SHAREHOLDERS 33% 34% 40% 50% 25% 2007 Organic Growth 33% Current 30% 2018E Dividends Available Capital (Acquisitions & share buybacks) • • • • 58 Less capital needed to support organic growth Moving to higher dividend payout ratio Diligently pursuing active acquisition pipeline Opportunistically buying back shares
FINANCIALS Opportunity Year Announced Rationale 2013 2012 Executing on our strategy to increase our global footprint and fee‐ based earnings 7 DIVIDEND INCREASES SINCE 2008 59 BrasilPrev Enhance global equity investment capabilities 2011 AFORE Entry into Brazil mutual fund and asset management market 2011 Emerged from financial crisis in a position of strength and flexibility Complete offering in Chile with marquee pension and savings franchise 2012 WE’VE PLAYED OFFENSE SINCE RECESSION Expand alternative asset class capabilities Establish leadership in emerging markets fixed income investing 2011 Solidify position as a leader in Mexican Afore market 2010 23 year extension of successful JV with Banco do Brasil
FINANCIALS MERGER & ACQUISITION CRITERIA Have a diligent M&A process that optimizes long‐term results 60 IRR = Internal Rate of Return. 1 ABILITY TO 2 ONBOARD STRATEGIC 3 • Synergies with multiple lines of business preferred • Adds scale or a new niche • Aligns with our core competencies • Blend local talent with Principal expertise DISCIPLINED • Mid‐teens IRR • More accretive than PRICING buyback over time
FINANCIALS CAPITAL DEPLOYMENT 2011 Over $1.1 billion in total Annual Common Stock Dividends $215M (27% increase over 2010) 2012 Allocated $2.1 billion Quarterly Common Stock Dividends $230M (70 to 78 cents, 11% increase) Opportunistic Share Repurchases: $300M Opportunistic Share Repurchases: $550M Strategic Acquisitions: $1,595M Strategic Acquisitions: $350M 2013 Allocated $480 million YTD Quarterly Common Stock Dividends ~$288M (23 cents for 1Q13 & 2Q13, 26 cents for 3Q13 & 4Q13) Anti-dilution & Opportunistic Share Repurchases: $150M (~$55M remaining) Strategic Acquisition: $44M 61
Capital Deployment • We expect to deploy $500M-700M in 2014 ̶ 28-cent common stock dividend payable in 1Q14 ̶ Will redeem $100M of surplus notes in 1Q14 ̶ Long term we expect to deploy 65 – 70 percent of our net income with variability in any given year 62 Posted on PFG website: 02/04/2014
FINANCIALS PROS • More Net Investment Income • Lower security benefit costs • Individual Life & fixed deferred WHAT IF… annuities benefit • Potential for more Full Service IMPACT OF A SLOW‐RISING INTEREST RATE ENVIRONMENT Payout pipeline CONS • Fixed income AUM declines • Unrealized gain/loss BOTTOM LINE: Less downside impact means less upside impact, but still upside 63
Key Business Drivers Outlook Retirement & Investor Services 5‐Year 28‐32% 30‐32% Net revenue growth 6‐8% (2)‐2% Pre‐tax RONR Guaranteed 5‐7% Pre‐tax RONR Accumulation 6‐8% 75‐80% 5‐Year 2014E Net revenue growth Principal Global Investors 14‐17% 7‐10% 30+% 26‐28% 78‐80% Principal International Revenue growth Pre‐tax margin U.S. Insurance Solutions 5‐Year 2014E Combined* net revenue growth 15‐20% 16‐18% Combined pre‐tax RONR 55‐60% 50‐52% N/A 36% Principal’s share of combined pre‐tax earnings Specialty Benefits 2014E 4‐8% 3‐5% Pre‐tax operating margin 16‐21% 14‐16% Premium & fee growth Individual Life 5‐Year 8‐10% 3‐5% Pre‐tax operating margin 8‐12% 10‐12% Loss ratio 65‐71% 65‐71% Premium & fee growth Estimated After-tax operating losses for Corporate of $130-$150 million in 2014 64 2014E Net revenue = operating revenues less benefits, claims & settlement expenses less dividends to policyholders. RONR = Return on Net Revenue. Pre-tax operating margin = pre-tax operating earnings / premium and fees. *Combined basis includes all Principal International companies at 100%.
Results Demonstrate Relative Strength of Our Business Model 2001 CAGR (’01-’13) Operating Earnings(1) ($M) $433 $1,060 8% Earnings Per Share(2) $1.20 $3.55 9.5% Assets Under Management ($B) $98 $483 14% ROE (TTM)(3) 6.9% 12.1% +520 bps Book Value Per Share (x‐OCI) $17.81 $30.35 5% S&P 500 65 2013 1,148 1,848 4% (1) Excludes discontinued operations. (2) Diluted. (3) Operating return on average equity excluding other comprehensive income, based on trailing 12 month period.
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