The Principal Financial Group 101
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Transcript of The Principal Financial Group 101
Principal Financial Group®
March 2015
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
3
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, 2014 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; conditions in the global capital markets and the economy generally; continued volatility or further declines in the equity, bond or real estate 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 DAC 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.
A Leading Financial Services Company Fortune 500 company; 136 year history; 19.7 million customers
Assets Under Management by Source $519.3 billion
as of Dec. 31, 2014
Retirement & Investor Services
Accumulation 47%
Corporate 1%
U.S. Insurance Solutions
4%
Principal International
23%
Principal Global
Investors 22%
Operating Earnings $1,443.4 million*
Dec. 31, 2014
Retirement & Investor Services
Accumulation 49%
U.S. Insurance Solutions
16% Principal International
19% Principal Global
Investors 8%
*Trailing Twelve Months. After-tax. Results exclude Corporate.
4
COMPANY OVERVIEW
RIS Guaranteed
8%
RIS Guaranteed
3%
Organizational Structure Principal Financial Group
Zimpleman CEO – 44/44 yrs* Lillis CFO – 33/33 yrs
Houston COO – 31/31 yrs
Retirement & Investor Services
Everett - President
24/24 yrs
Principal Global Investors
McCaughan – President
41/13 yrs
Principal International
Valdes – President
27/24 yrs
U.S. Insurance Solutions
Strable – President
26/26 yrs
Corporate
Full Service Accumulation Principal Funds** Individual Annuities Bank & Trust** Full Service Payout Investment Only
Life Specialty Benefits
*Years of experience: Industry/The Principal as of year end 2015. **Structural changes announced Feb 2015 will align Principal Funds & Principal Trust with Principal Global Investors.
5
COMPANY OVERVIEW
PRINCIPAL FINANCIAL GROUP Headquarters Des Moines, Iowa
Mexico Pensions Annuities Mutual Funds Asset Management
Chile Pensions – Mandatory Pensions – Voluntary Annuities Mutual Funds Asset Management
Brazil Pensions Annuities Asset Management Mutual Funds
India Mutual Funds Advisory Service Asset Management
Malaysia Mutual Funds Asset Management Islamic Institutional Asset Management Pensions
Hong Kong Pensions, Mutual Funds Asset Management
China Mutual Funds Asset Management
Principal Financial Group Global Presence
Germany Asset Management
Ireland Mutual Funds
UK Asset Management Japan
Asset Management
Australia Asset Management
Singapore Asset Management
Thailand Mutual Funds Asset Management
Indonesia Mutual Funds, Asset Management
Netherlands Asset Management
UAE Asset Management
6
COMPANY OVERVIEW
Malta Asset Management
136 Years of Experience
1879 Life
Assoc
1911 Mutual Life Co
1936 Mortgage Banking/
Commercial Mortgage
1941 Group
Health & Pension
1968 Mutual Funds
1985 Principal Financial
Group
1998 Principal Bank;
Mutual Holding Co
2001 IPO;
Spectrum
1990 Principal
Intl
1970s Defined
Contribution
1999 Principal Global
Investors; BrasilPrev JV;
Principal Asset Mgmt Co (India)
2002 Benefit
Consultants Inc; Total
Retirement Suite
2006 Washington
Mutual Funds; WM Advisors
2008 CIMB-Principal
Islamic Asset Mgmt
2007 Morley
2011 HSBC Afore; Finisterre;
Origin
1995 Principal
Chile
1996 Principal
Hong Kong
1997 Principal Mexico
2003 Post
Advisory Group
2005 CCB
Principal; Columbus
Circle
JV – Joint Venture IPO – Initial Public Offering
2010 BrasilPrev
JV extension
2012 Claritas; Cuprum
2013 Liongate
7
COMPANY OVERVIEW
2014 AXA Hong
Kong Pension
Name Age* Title (Industry/PFG)*
Larry D. Zimpleman 64 Chairman & Chief Executive Officer 44/44 Daniel J. Houston 54 President & Chief Operating Officer 31/31 Nora M. Everett 56 President - Retirement & Investor Services 24/24 James P. McCaughan 62 President - Global Asset Management 41/13 Deanna D. Strable 47 President - U.S. Insurance Solutions 26/26 Luis E. Valdes 58 President - Principal International 27/24 Timothy M. Dunbar 58 Executive VP & Chief Investment Officer 34/29 Terrance J. Lillis 63 Executive VP & Chief Financial Officer 33/33 Gary P. Scholten 58 Executive VP & Chief Information Officer 35/35 Karen E. Shaff 61 Executive VP, General Counsel & Secretary 33/33 Rex Auyeung 63 Senior VP & President, Principal Financial Group – Asia 38/21 David Blake 49 Senior Executive Director & Head of PGI Fixed Income 26/15 Elizabeth Brady 55 Senior VP & Chief Marketing Officer 31/2 Ned A. Burmeister 56 Senior VP & COO – Principal International 36/36 Gregory J. Burrows 53 Senior VP - Retirement & Investor Services 29/29 Gregory B. Elming 55 Senior VP & Chief Risk Officer 33/33 Amy Friedrich 45 Senior VP – Specialty Benefits 18/15 Pat Halter 56 Senior Executive Director – Principal Real Estate Investors 31/31 Julia M. Lawler 55 Senior Executive Director - Multi Asset Allocation 33/31 Greg Linde 59 Senior VP – Individual Life 36/23 Barbara McKenzie 55 Senior Executive Director & COO – Boutique Operations 31/31 Dennis Menken 52 Senior VP & Chief Investment Officer – Principal Life 21/21 Timothy J. Minard 52 Senior Executive Director – U.S. Distribution 29/29 Jerry Patterson 49 Senior VP - Retirement & Investor Services 27/14 Beth Raymond 49 Senior VP & Chief Human Resources Officer 24/15 Angela R. Sanders 52 Senior VP & Controller 26/26 Ellen Shumway 52 Senior Executive Director – Strategy & Boutique Operations 25/10 Roberto Walker 50 Senior VP & President, Principal Financial Group – LatAm 26/19
*As of 12/2015 8
Experienced Management Team COMPANY OVERVIEW
Retirement and Investor Services •A leading provider of DC plans1
•#1 provider of DB plans2
•#1 provider of ESOP plans3
•#6 manager of Target Date Funds4
Industry Leadership
Sources: 1 PLANSPONSOR Recordkeeping Survey, June 2014, 2 PLANSPONSOR, July 2014; 3 PLANSPONSOR Recordkeeping Survey, June 2014; 4 In the United States. Strategic Insight Lifecycle fund data report 12/31/14; 5Pensions & Investments, “The Best Places to Work in Money Management among companies with our size category”, PFG recognition 12/08/2014. 6 Managers ranked by total worldwide real estate assets (net of leverage), as of June 30, 2014. “Largest Real Estate Managers”, PENSIONS & INVESTMENTS, October 27, 2014.; 7Managers ranked by U.S. institutional, tax-exempt assets managed internally, as of 12/31/13, “Largest Money Managers”, Pensions & Investments, Online Research Center. 8Commercial Property Executive Published March 2014 “2014 Greenest CRE Companies” list”. 9Quantum, 11/2014; 10Asociacion de Administradóras de Fondos Mutuos De Chile, 10/2014; 11Lipper. Percentage of market share as of 12/2014; 12Towers Watson. Based on AUM as of 09/2014; 13CONSAR & PROCESAR, October 2014; 14PLANSPONSOR NQDC Buyer’s Guide, July 2014; 15LIMRA 2013 survey: Non-medical based on fully insured employer contracts in force. 16 LIMRA 2014 survey: Individual Disability Insurance (IDI) rank based on in-force policies
Principal Global Investors •Best Place to Work in Money
Management 5 •Top 10 manager Real Estate 6 •13th largest manager High Yield7 •#3 Greenest CRE Company8
Principal International •#1 net deposits – Brazil (Brasilprev)9
•#1 APV – Chile10
•#2 asset management – Malaysia11
•Top ten MPF provider – Hong Kong12
•#5 AFORE – Mexico13
U.S. Insurance Solutions •#2 Non-qualified deferred
compensation14
•#4 Non-medical coverages15
•#5 IDI coverages16
9
COMPANY OVERVIEW
Financial Strength: Current Ratings
(as of February 2015)
• Moody's Investors Service 'A1', Good – fifth highest of 21 rating levels. Outlook: Stable Rating reviewed November 2013
• FitchRatings
'AA-‘, Very Strong - fourth highest of 19 rating levels. Outlook: Stable Rating reviewed June 2014
• Standard & Poor's ‘A+’, Strong - fifth highest of 24 rating levels. Outlook: Stable Rating reviewed March 2014
• A.M. Best
'A+', Superior - second highest of 16 rating levels. Outlook: Stable Rating reviewed January 2015
Ratings related to Principal Life Insurance Company and Principal National Life Insurance Company. 10
COMPANY OVERVIEW
Platform Continuum Across markets | Across life stages
INDIVIDUAL
EMPLOYER
INVESTMENT MANAGEMENT
Full Service Accumulation
Principal Funds Investment
Only
Bank
Annuities
Full Service Payout
11
RETIREMENT AND INVESTOR SERVICES
Customer-Centric Business Model
12
Full Service Accumulation RETIREMENT AND INVESTOR SERVICES
Principal Total Retirement SuiteSM STILL A DIFFERENTIATOR
All rankings sourced from PLANSPONSOR magazine as follows – Defined Benefit: DB Administration Survey 07/14; Defined Contribution and ESOP: Recordkeeping Survey 06/14; Nonqualified Deferred Compensation: PLANSPONSOR NQDC Buyer’s Guide, July 2014
Defined Benefit
#1 DB provider
(by # of clients)
Defined Contribution
#2 DC plan recordkeeper
(by # of plans)
Employee Stock Ownership Plan
#1 ESOP plan recordkeeper
(by # of plans)
Nonqualified Plans
#2 Deferred Comp provider
(by # of plans)
13
Full Service Accumulation RETIREMENT AND INVESTOR SERVICES
1.7 2.0 3.2 2.9 2.7
0.9 1.7
2.3 1.8 1.4 0.9
1.5
2.7 2.6
1.8 3.2
3.3
3.3
3.0
2.8
0
2
4
6
8
10
12
14
2010 2011 2012 2013 2014
$ Bi
llion
s
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Balanced Sales Approach
14
6.7
8.5
11.5
10.3
8.7
Full Service Accumulation RETIREMENT AND INVESTOR SERVICES
6.0 4.8 5.0 6.0 6.8 7.4
3.6 4.1 5.0
5.7 5.8 5.9 3.6 3.8
4.3
5.6 6.3 5.7 3.8 5.8
6.0
6.5 6.3 6.0
0
5
10
15
20
25
30
2009 2010 2011 2012 2013 2014
$ B
illio
ns
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
People making a deferral +27%* Avg deferral per member +6%* People receiving a match +38%*
15
17.0 18.5
20.3
24.3 25.2
The Power of Payroll Deduction
* 4Q10 compared to 4Q14.
25.0
Full Service Accumulation RETIREMENT AND INVESTOR SERVICES
Account Value by Manager
16
60.4% 58.4% 58.3% 56.6% 55.8% 56.6% 58.7%
12.7% 12.8% 11.1% 10.0% 10.3% 9.9% 10.6%
20.1% 22.3% 23.3% 26.5% 26.9% 26.4% 23.4%
6.9% 6.6% 7.3% 6.9% 7.1% 7.1% 7.3%
0%
20%
40%
60%
80%
100%
2009
2010
2011
2012
2013
2014
2014
Dep
osits
PGI managed Sub-advised Non-proprietary ER Securities
Full Service Accumulation RETIREMENT AND INVESTOR SERVICES
Our Disciplined Execution Delivers Positive Results
17
Profit Margin* Industry Avg vs. The Principal
Principal Industry Avg
* Profit 2000 Benchmark Study, Sterling Resources, Inc. (2013)
Full Service Accumulation RETIREMENT AND INVESTOR SERVICES
Revenue sourced from FSA platform
FSA FSA
Other PFG businesses
Other PFG businesses
2013 2018E
Multiple Businesses Leverage FSA Success
Principal Funds, PGI, Bank & Trust, Individual Annuities, Individual Life and Full Service Payout are all beneficiaries
$500 MILLION
$350 MILLION
$0
$2B
18
RETIREMENT AND INVESTOR SERVICES Full Service Accumulation
1.9%
4.5% 4.2% 3.1%
6.7%
18.1%
12.5%
8.5%
2011 2012 2013 2014
Industry net flows Principal Funds net flows
1.0% 0.7%
0.3%
-0.9%
3.5%
6.3%
1.7%
0.4%
2011 2012 2013 2014
401k Industry net flows Principal FSA net flows
Full Service Accumulation (FSA)
Net cash flows as % of beginning of year assets 2011-2014. Sources of industry data: 401(k) industry – Department of Labor & Cerulli Associates 2014 (for 2014, 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.
Net Cash Flow Consistently Outpaces Industry
Principal Funds
19
RETIREMENT AND INVESTOR SERVICES
TOP SELLING FUNDS TTM 4Q14
Global Diversified Income $3.6B
MidCap Fund $2.3B
Preferred Securities $1.6B
SAM Combined Funds $1.5B
High Yield Fund $1.3B
TOTAL FOR TOP 5 $10.3B
ASSET ALLOCATION LEADERSHIP • #6 largest lifecycle fund manager* • Target date & target risk • Multi-manager solutions
• Portfolio construction strategies:
*Based on $39.5B in assets Strategic Insight 12/31/14 Lifecycle Report
Needs-Driven Investment Solutions Broad and unique asset allocation strategies
20
RETIREMENT AND INVESTOR SERVICES Principal Funds
Account Values – Then & Now
32%
43% 100%
25% Affiliated Distribution
Third PartyBroker/Dealers
DCIO/RIA
16%
44% 100%
40% Affiliated Distribution
Third PartyBroker/Dealers
DCIO/RIA
Multiple Distribution Channels SALES – Then & Now
2006 $3.8B
2014 $20.0B
2006 $14.7B
2014 $74.1B
21 DCIO = Defined Contribution Investment Only. RIA = Registered Investment Advisor
RETIREMENT AND INVESTOR SERVICES Principal Funds
A Diversified Family of Mutual Funds
12% 4%
73%
47%
2%
3%
-11%
15%
31%
TTM 4Q14 12/31/2014
Equity
Fixed Income
Index
Asset Allocation
Other
Net Cash Flow
Assets Under Management
22
24%
RETIREMENT AND INVESTOR SERVICES Principal Funds
Driving Industry Recognition and Advisor Engagement
16th largest advisor-sold fund family(1)
Best Global Real Estate Fund Over the 5-Year Period
23 (1) Strategic Insights Mutual Fund Management Companies Rankings and Analysis, December 2014
#5 for DC Investment Manager
RETIREMENT AND INVESTOR SERVICES Principal Funds
READY TO RETIRE
Individual Investor Strategy
• Portfolio allocation • Participant education
RETIREMENT INCOME
SOLUTIONS
• Education and guidance • Portfolio construction
strategies • Income annuities
ENROLLMENT OPTIMIZATION
• Simplify process • Improve experience • Maximize participation and
influence behavior
24
RETIREMENT AND INVESTOR SERVICES
Innovative Solutions:
Solving Income Needs
ACCUMULATION
OUR APPROACH: • Education • Planning assistance
(RetireSecure®) • Full array of options • Innovative solutions
MULTI-PRODUCT SOLUTION SET
• “Through Retirement” Lifecycle Funds • Mutual Funds that: ‒Generate income ‒Preserve capital ‒Protect against inflation ‒Address market volatility
• Annuities to provide: ‒Fixed returns ‒Guaranteed income ‒Protection against volatility
• Bank products • Full Service Payout ‒Defined Benefit plan terminations
RETIREMENT INCOME
25
RETIREMENT AND INVESTOR SERVICES
INDIVIDUAL LIFE •Non-Qualified Plans 12.3% #2
•Total Life New Sales Premium 1.6% #19
SPECIALTY BENEFITS •Total Group In-Force Contracts 7.3% #4
- Life 8.9% #4 - Disability 7.0% #6 - Dental 6.0% #7
• Individual Disability In-force Premium 8.5% #5
• Individual Disability New Sales Premium 15.8% #2
Success Reflects Expertise Serving SMB Market 2013
Industry Rank
2013 Market Share
26 Nonqualified Plans ranking from PLANSPONSOR Buyers Guide Survey, July 2014. All other rankings are from LIMRA 2013.
U.S. INSURANCE SOLUTIONS
ER/NQ 28%
BOES 27%
Individual 45%
Individual Life Leadership:
FOCUS ON THE BUSINESS MARKET
Business owners’ financial challenges •Exiting the business •Business transition •Retaining key employees •Retirement planning Solutions for key employees •Retirement income •Survivor income •Business protection
2014 Sales
BOES = Business Owner/Executive Solutions ER/NQ = Employer/Non-qualified
SOLUTIONS FOR BUSINESS, BUSINESS OWNERS AND KEY EXECUTIVES
27
U.S. INSURANCE SOLUTIONS
3.9%
10.4%
2.4% 2.0%
Group Benefits Individual DI
The Principal Industry
Dental/ Vision 47% Group
Life 27%
Balanced Portfolio plus Above Industry Premium Growth
2014 Total Premium & Fees
3 Year In-Force Premium Growth (2010 – 2013 CAGR)
Group Benefits
83% Individual Disability
17%
Group Disability 26%
28
U.S. INSURANCE SOLUTIONS
•Stable loss ratios •Attractive margins •ROE of 14% +
Industry source: LIMRA 2010-2013
U.S. Distribution Overview
PRINCIPAL CONNECTION
• 70 counselors
with focus on education
CAREER
• 1,000 agents • Sell all products • Career places
80-85% of sales within The Principal family products
BANKS INSURANCE-ORIENTED
INVESTMENT-ORIENTED
• Wirehouses • Regional
Broker/Dealers • Planners
• Insurance Producers
• Banks • Broker/
Dealers • Marketers
THIRD PARTY PROPRIETARY
ALLIANCE MANAGEMENT GROUP (AMG) Select 3rd party distributors with dedicated support
STRENGTHENS RELATIONSHIPS AND FUELS SALES GROWTH
All supported by DEDICATED SERVICE TEAMS providing education, training, counseling and retention
11 WHOLESALE CHANNELS Group
Benefits Retirement Investment
Solutions Annuities NQDC Disability
Insurance Retail
Life AMG Worksite ESOP Wellness
29
DISTRIBUTION
National Presence with Local Employees
OUR VALUE TO ADVISORS:
● Solutions-based selling
● Point of sale support
● Ongoing service and education support
● Pipeline development
● Practice management
● Advisor education
121 Total Offices
NOTE: Approximate view as of March 2012. Check www.principal.com for actual locations. 30
DISTRIBUTION
Expanding Distribution Partnerships Have Generated Strong Sales Growth
3.1 3.8 3.7 7.6 6.6 7
2.8 5.7 6.5
10.5 14.5 14.4
1.2
1.5 1.4
2.5
3.3 2.4
0.9
1.5 1.4
1.7
2.0 2.0
2009 2010 2011 2012 2013 2014
Individual Annuities
Separately Managed Accounts
Mutual Funds
Full Service Accum
$8.0B Total: +26% CAGR:
$12.5B $13.0B $22.3B
31
$26.4B
DISTRIBUTION
$25.8B
Broad and Deep Distribution Proprietary provides foundation; 3rd party provides accelerated growth
Rankings and percentages as of 12/31/2014
Product Line New Sales 1st 2nd 3rd Top 3
represent
NQ Life 33%
Retail Life 59%
Individual Disability Plus Group 39%
Group Benefits Gallagher 14%
Fixed Annuities 52%
Variable Annuities KeyCorp Ins. Agency 94%
Mutual Funds 23%
FSA – New Sales Assets 35%
FSA – New Sales Case Counts
Edward D. Jones 33%
32
DISTRIBUTION
Principal Advisor Network
Principal Advisor Network
Principal Advisor Network
Principal Advisor Network
Principal Advisor Network
Principal Advisor Network
Principal Advisor Network
Principal Advisor Network
• Serve clients in 75 countries, including several major central banks and sovereign wealth funds
• Network of specialized investment boutiques managing assets for a broad range of investors around the world
• Manages: – 60% of Full Service Accumulation assets
– 76% of Principal Funds assets
– 100% of Principal Life general account assets • Office locations in major financial markets
worldwide • Long-standing commitment to corporate
stewardship
As of 12/31/14
Principal Global Investors Assets Under Management
$314B By Asset Class
33
Fixed Income $132B
Equity $111B
Real Estate $57B
Alternatives $14B
PRINCIPAL GLOBAL INVESTORS
At a Glance
Our Current Boutiques (AUM as of 12/31/14)
Principal Global Equities $80.6B
Principal Global Fixed Income
$78.6B
Private Real Estate $34.9B
CMBS $7.2B
Origin Asset Management
$2.8B
Edge Asset Management1
$20.3B
Fixed Income Equities
REITs $9.6B
Principal Enterprise Capital $5.6B
CIMB – Principal Islamic Asset Mgmt.
$0.656B2
Morley Financial Services $17.1B
Spectrum Asset Management
$17.7B
Macro Currency Group $9.0B
Post Advisory Group $9.5B
Multi-Asset Advisors $0.625B3
Real Estate Asset Allocation/
Alternatives
Finisterre Capital $2.8B
Columbus Circle Investors
$16.6B
Liongate Capital Management
$0.433B
34
1 Edge Asset Management advises on an additional $8.2B across asset classes for Retirement and Investor Services. 2 Total CIMB AUM is $1.1B with $0.5B sub-advised to Principal Global Equities 3 Responsible for allocation decision-making and implementation across a range of products and client portfolios, and for providing macro economic perspectives to guide allocations. Multi-Asset Advisors advise on an additional $29B managed by multiple PGI boutiques.
PRINCIPAL GLOBAL INVESTORS
Asset Management Expertise Wins Mandates
$82.4
$98.2 $109.4 $114.0
2011 2012 2013 2014
Principal Global Investors Unaffiliated AUM
(in billions) • Best Global Real Estate
Fund over the 5-year period (1)
• Top 10 Manager of Real Estate(2)
• 13th Largest manager of High Yield(3)
• PFG ranked No.1 company among the Best Places to Work in Money Management(4)
Sources: (1) The Principal Real Estate Investors portfolio management team subadvises the Principal Global Real Estate Securities Fund-Class l, which received the award from Lipper, Inc. for the second year in a row, March 2014. (2) Managers ranked by total worldwide real estate assets (net of leverage), as of June 30, 2014, “Largest Real Estate Managers”, PENSIONS & INVESTMENTS, October 27, 2014. (3) Managers ranked by U.S. institutional, tax-exempt assets managed internally, as of 12/31/13 “Largest Money Managers”, Pensions & Investments, Online Research Center. (4) Pensions & Investments, “The Best Places to Work in Money Management among companies with our size category”, PFG recognition 12/08/2014.(5) Managers ranked by total assets under management. America’s Top 300 Money Manager, Institutional Investor, July 2014, data as of 12/31/2013.
35
PRINCIPAL GLOBAL INVESTORS
Strong Investment Performance
Represents $164 billion AUM of which 75% managed by PGI boutiques
Morningstar Rankings Percentage of Principal Funds in the top two quartiles
66%
78% 72%
85% 85% 88% 88% 85% 86%
1-Year 3-Year 5-Year
Dec. 31, 2013 Sept. 30, 2014 Dec. 31, 2014
36 Principal “I” shares; if no “I” share class then “A” share class; separate accounts use “R6” rate level; Includes Principal mutual funds, separate accounts and collective investment trusts (CITs); Excludes money market, stable value and U.S. Property separate account.
PRINCIPAL GLOBAL INVESTORS
PRINCIPAL FINANCIAL
GROUP Mexico (1993) • Annuities, Mutual
Funds, Pensions, Asset Management
• AUM of $11.9B • Wholly owned
Chile (1995) • Annuities, Mutual Funds, Asset
Management, Mandatory Pensions, Voluntary Pensions
• AUM of $40.7B • Wholly owned • Cuprum – a 97.96% owned joint
venture AUM of $35.0B Transaction closed 2/4/2013
Brazil (1999) • Annuities, Pensions,
Mutual Funds, Asset Management
• Brasilprev – a 25% owned joint venture with Banco do Brasil
AUM of $43.3B • Claritas – 62.73%
indirectly owned mutual fund company
AUM of $1.3B
India (2000) • Asset Management,
Mutual Funds • AUM of $0.8B • 70% owned joint venture
with Punjab National
Malaysia (2003) • Conventional & Islamic Asset
Management, Mutual Funds, Pensions
• AUM of $11.3B • CIMB-Principal – 40% owned
joint venture with CIMB Group
China (2005) • Asset Management, Mutual
Funds • AUM of $19.1B • CCB-Principal – a 25%
owned joint venture with China Construction Bank
Hong Kong (1996) • Asset Management, Mutual
Funds, Pensions • AUM of $3.8B • Wholly owned
Thailand (2010) • Asset Management, Mutual Funds • AUM of $1.2B • Wholly owned subsidiary of Malaysian JV
Indonesia (2007) • Asset Management,
Mutual Funds • AUM of $0.3B • Wholly owned
subsidiary of Malaysian JV
Singapore (2006) • Asset Management • AUM of $2.7M • Wholly owned subsidiary
of Malaysian JV
AUM as of 12/31/2014
PRINCIPAL INTERNATIONAL
37
We’re in the Right Countries
SOURCE: IMF, Standard Chartered Research.
TEN LARGEST ECONOMIES BY DECADE Current Principal International locations: Asia Latin America
38
1990 US$ trn
1 U.S. 5.9
2 Japan 3.1
3 Germany 1.7
4 France 1.2
5 Italy 1.1
6 UK 1.0
7 Canada 0.6
8 Spain 0.5
9 Brazil 0.5
10 China 0.4
2000 US$ trn
U.S. 10.3
Japan 4.7
Germany 1.9
UK 1.5
France 1.3
China 1.2
Italy 1.1
Canada 0.7
Brazil 0.6
Mexico 0.6
2010 US$ trn
U.S. 15.0 China 5.9
Japan 5.5
Germany 3.3
France 2.5
UK 2.3
Italy 2.0
Brazil 2.1
Canada 1.6
Russia 1.5
2020E US$ trn
U.S. 23.5 China 21.9
Japan 6.1
Germany 5.1
India 4.5
Brazil 3.9
France 3.9
UK 3.7
Italy 2.7
Russia 2.6
2030E US$ trn
China 53.8
U.S. 38.5
India 15.0
Japan 9.3
Germany 7.4
Brazil 6.3
UK 5.8
France 5.7
Indonesia 4.7
Russia 4.6
PRINCIPAL INTERNATIONAL
Joint Venture Partner Partner’s Industry Ranking Partner’s Distribution Reach
Banco do Brasil Largest bank in Latin America1
5,450 branches2
61.4 million customers2
3rd largest listed bank in world1
14,650 branches3
532 million retail customers3
5th largest universal banking group in ASEAN4
1,057 branches5
13 million retail customers4
3rd largest Nationalized bank in India6
6,081 branches7
89 million retail customers7
SOURCE: 1Relbanks.com March 2014 in terms of AUM; 2Banco do Brasil Annual Report 2013, 3CCB 2013 annual report – customers based on retail debit cards; 4CIMB Group 2013 Annual report – ranking in term of AUM, 5CIMB Group 2013 4Q Analyst Presentation 6Indian Banks’ Association 2014 in terms of assets 7Pnbindia.in 2014
Leveraging Strong Marquee Partners with Outstanding Distribution
39
PRINCIPAL INTERNATIONAL
Pensions Mutual Funds
Asset Mgmt Annuities
Brazil
Chile
Mexico
China
Hong Kong
India
Malaysia/SE Asia
Our Markets and Product Offering
= Where we have a product offering today
Targeted Markets
= Targeted expansion
= 10% of market share or Top 25% of providers
40
PRINCIPAL INTERNATIONAL
41
Emerging Markets: The PI Story We are in the right markets
8% +
4%
Infla
tion
GDP
3%
“Low Inflation/Strong Growth”
“Low Inflation/Slow Growth”
“High Inflation/Slow Growth ” “High Inflation/Strong Growth” 0
0
6% +
+ Mexico
2.2% GDP Growth
Mature Economies
India
Indonesia
Hong Kong
Brazil
Chile
Malaysia
China
Thailand
(8.9% inflation)
(7.5% GDP)
Source: IMF. 2014 Estimates.
Singapore
Brasilprev – an outlier: Grew NCCF market share
in a volatile market
+
PRINCIPAL INTERNATIONAL
BRAZIL MEXICO CHILE
Brasilprev: #1 in net deposits
5th largest AFORE
(by AUM)
#1 APV: PI Chile and
Cuprum
PRINCIPAL IS 2ND LARGEST PENSION PROVIDER IN LATIN AMERICA
Proven Strength & Success
42 Brazil source: Quantum. 11/14. Mexico source: CONSAR & PROCESAR. 11/14. Chile source: Asociacion de Administradóras de Fondos Mutuos De Chile. 10/14. Principal is 2nd largest pension provider in Latin America by AUM among multi-country pension providers.
Latin America PRINCIPAL INTERNATIONAL
CUPRUM: A “One-Stop Shop”
43 ERM = Enterprise Risk Management
Chile PRINCIPAL INTERNATIONAL
HONG KONG
Among Top Ten MPF* Providers
Building a Strong Foundation
MALAYSIA
#2 in PRS
CHINA
Top Ten for Mutual Funds
INDIA
1st mover in advisory services business
44 *Mandatory Provident Fund. Malaysia source: Lipper. Percentage of market share as of 12/14. Hong Kong source: Towers Watson. Based on AUM as of 9/14. China source: East Fortune. Based on AUM as of 12/14. India source: Company data/media tracking at launch 11/12
PRINCIPAL INTERNATIONAL Asia
Corporate Public Bonds
28%
Corporate Private Bonds
17%
Commercial Mortgages
15% CMBS 6%
Cash 3%
MBS 6%
ABS 6%
Government, Agency, State & Political
9%
Other* 10%
Diversified Portfolio
$70.3 Billion
* Other includes Equity Securities, Residential Mortgages, Real Estate, Policy Loans, Investment in Equity Method subs, Direct Finance Leases and Other Investments
45
Invested Assets & Cash As of 12/31/14 GAAP carrying value
INVESTMENTS
• 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
Investment Philosophy & Strategy
REMAINS THE SAME
Assets & Liabilities Performed as Expected
-$600
-$400
-$200
$0
$200
$400
$600
$800Ja
n-12
Feb-
12M
ar-1
2Ap
r-12
May
-12
Jun-
12Ju
l-12
Aug-
12Se
p-12
Oct
-12
Nov
-12
Dec-
12Ja
n-13
Feb-
13M
ar-1
3Ap
r-13
May
-13
Jun-
13Ju
l-13
Aug-
13Se
p-13
Oct
-13
Nov
-13
Dec-
13Ja
n-14
Feb-
14M
ar-1
4Ap
r-14
May
-14
Jun-
14Ju
l-14
Aug-
14Se
p-14
In m
illio
ns
Actual net assets & liabilities Modeled net assets & liabilities
46
INVESTMENTS
Power of our Fee-Based Model
OPERATING EARNINGS
Continual shift in mix of business leading to a higher ROE and more free cash flow
65% 19%
16%
Current
70%
15%
15%
2018E
Fee Spread Risk
47 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.
30%
40%
30%
2001
FINANCIALS
40%
30%
30%
33%
33%
34%
Returning Capital to Shareholders
2007 Current 2018E
• Less capital needed to support organic growth • Moving to higher dividend payout ratio • Diligently pursuing active acquisition pipeline • Opportunistically buying back shares
48
(Acquisitions & share buybacks) Organic Growth Dividends Available Capital
25%
25% 50%
FINANCIALS
Driving ROE Growth
OCI = Other Comprehensive Income.
As Reported 2007 2014
Operating earnings $1.1B $1.3B
Average equity (x-OCI) $6.5B $9.3B
Return on equity (x-OCI) 16.4% 14.2%
EARNINGS
+ 4-5% for market performance
+ 4-5% for growth from sales/NCF
+ 1-2% operational efficiency
EQUITY Fee-based growth Dividend growth Opportunistic
share repurchases
ROE = 50-80 bps average annual
ROE improvement
FINANCIALS
49
We’ve Played Offense Since
Recession
Emerged from financial crisis in a position of
strength and flexibility
Executing on our strategy to increase our
global footprint and fee-based earnings
50
Opportunity Year
Announced Rationale
AXA Hong Kong Pension 2014
15 year exclusive distribution with 4,440 agents
Gateway into China
2013 Expand alternative asset class capabilities
2012 Complete offering in Chile with
marquee pension and savings franchise
2012 Entry into Brazil mutual fund and asset management market
2011 Enhance global equity investment capabilities
2011 Establish leadership in
emerging markets fixed income investing
AFORE 2011 Solidify position as a leader in Mexican Afore market
BrasilPrev 2010 23 year extension of successful JV with Banco do Brasil
FINANCIALS
Merger & Acquisition Criteria
• Mid-teens IRR • More accretive than buyback over
time
1 2 3
STRATEGIC
ABILITY TO ONBOARD
DISCIPLINED PRICING
• Aligns with our core competencies • Blend local talent with Principal
expertise
• Synergies with multiple lines of business preferred
• Adds scale or a new niche
Have a diligent M&A process that optimizes long-term results
51 IRR = Internal Rate of Return.
FINANCIALS
Capital Deployment
Strategic Acquisitions:
$350M
Share Repurchases:
$550M
2011 2012 Over $1.1 billion
in total Allocated $2.1 billion
Common Stock Dividends: $230M
Share Repurchases: $300M
Strategic Acquisitions:
$1,595M
2013 Allocated $480 million
Share Repurchases:
$150M
Strategic Acquisition: $44M
Common Stock
Dividends: $288M
Common Stock Dividends: $215M
52
2014 Allocated $855 million
Share Repurchases:
$200M
Strategic Acquisition:
$180M
Surplus Note Redemption: $100M
Common Stock
Dividends: $375M
Long term: expect to deploy 65–70 percent of our net income
with fluctuations in any given year
FINANCIALS
Capital Deployment • Deployed $855M in 2014, more than 75% of net income
$375M in common stock dividends
$180M for increased stake in Columbus Circle Investors
$200M in share repurchases ($50M remaining on current authorization*)
$100M surplus note redemption in 1Q14
• We expect to deploy $800M - $1.0B in 2015
$105M in common stock dividends to date 36-cent common stock dividend payable in 1Q15, a 6% increase from prior
dividend
Strategic acquisitions $335M for AXA’s Hong Kong pension business
Anti-dilutive/opportunistic share repurchase
• Long term: expect to deploy 65–70 percent of our net income with fluctuations
in any given year
*as of 12/31/2014
FINANCIALS
53
5-Year 2015E
Accumulation
Net revenue growth 6-8% 4-6%
Pre-tax RONR 28-32% 30-33%
Guaranteed
Net revenue growth 6-8% (2)-2%
Pre-tax RONR 75-80% 78-80%
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%.
Retirement & Investor Services
U.S. Insurance Solutions 5-Year 2015E
Individual Life
Premium & fee growth 4-8% 3-5%
Pre-tax operating margin 16-21% 13-16%
Specialty Benefits
Premium & fee growth 8-10% 6-8%
Pre-tax operating margin 8-12% 10-12%
Loss ratio 65-71% 64-70%
54
Key Business Drivers Outlook 5-Year 2015E
Revenue growth 14-17% 7-10%
Pre-tax margin 30+% 26-28%
Principal Global Investors
Principal International
5-Year 2015E
Combined* net revenue growth (normalized local basis)
15-20% 14-16%
Combined net revenue growth (in reported USD)
15-20% 8-10%
Combined pre-tax RONR 55-60% 50-52%
Principal’s share of combined pre-tax earnings N/A 35%
Estimated After-tax operating losses for Corporate of $130-$150 million in 2015
FINANCIALS
(1) Excludes discontinued operations. (2) Diluted. (3) Operating return on average equity excluding other comprehensive income, based on trailing 12 month period.
2001 2014 CAGR (’01-’14)
Operating Earnings(1) ($M) $433 $1,318 9%
Earnings Per Share(2) $1.20 $4.41 10.5%
Assets Under Management ($B) $98 $519 14%
ROE (TTM)(3) 6.9% 14.2% +730 bps
Book Value Per Share (x-OCI) $17.81 $32.64 5%
S&P 500 1,148 2,059 5%
Results Demonstrate Relative Strength of Our Business Model
55
FINANCIALS
56
57