Principal Financial
May 2017
®
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, on principal.com/investor, 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, 2016 , and in the company’s quarterly report on Form 10-Q for the quarter ended
Mar. 31, 2017, filed by the company with the U.S. 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; volatility or declines in the equity, bond or real estate markets; changes in interest rates
or credit spreads or a sustained low interest rate environment; 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
investments and the determination of the amount of allowances and impairments taken on such investments may include
methodologies, estimations and assumptions that are subject to differing interpretations; any impairments of or valuation
allowances against the company’s deferred tax assets; the company’s actual experience could differ significantly from its pricing and
reserving assumptions; 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 not be able
to protect its intellectual property and may be subject to infringement claims; 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; changes in laws, regulations or accounting standards; 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; 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; 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; changes in investor preferences; inability to attract and retain
qualified employees and sales representatives and develop new distribution sources; international business risks; fluctuations in
foreign currency exchange rates; 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; and a computer system failure or security breach could disrupt the company’s business and damage its reputation.
3
Company Overview
A Leading Financial Services Company
Fortune 500 company; 138 year history
Pre-tax Operating Earnings1
Assets Under Management2
$2,009.3 million
As of Mar. 31, 2017
$619.7 billion
As of Mar. 31, 2017
RIS - Fee
13%
5%
26%
17%
16%
23%
Principal Global
Investors
1
4
2
25%
RIS - Spread
Spread
Specialty
Benefits
Risk
Individual Life
Trailing Twelve Months. Excludes Corporate.
Assets under management by asset manager.
10%
Fee
Principal
International
Principal Global
Investors
65%
Principal
International &
Other PFG
Entities
Third Party Asset
Managers
Company Overview
Segment Reporting Structure
Principal Financial Group
Dan Houston CEO
Deanna Strable CFO
Retirement &
Income
Solutions (RIS)
Nora Everett
President
RIS – Fee
RIS – Spread
Principal Global
Investors (PGI)
Jim McCaughan
President
Principal
International (PI)
Luis Valdes
President
U.S. Insurance
Solutions (USIS)
Amy Friedrich
President
Specialty Benefits
Life
Management team averages 30 years of industry experience
5
Corporate
Company Overview
Where we compete
More than 70 countries
around the world
Asset management, retirement/long-term savings,
risk protection
Asset management, retirement/long-term savings
6
As of 12/31/2016
Asset management
Company Overview
Experienced Management Team
7
Name
Age* Title
(Industry/PFG)*__
Daniel J. Houston
Nora M. Everett
Amy C. Friedrich
James P. McCaughan
Luis E. Valdes
Timothy M. Dunbar
Gary P. Scholten
Karen E. Shaff
Deanna D. Strable
Elizabeth S. Brady
Gregory B. Elming
Elizabeth L. Raymond
56
58
47
64
60
60
60
63
49
57
57
51
33/33
26/26
21/17
43/15
29/26
36/31
37/37
35/35
28/28
33/4
35/35
26/17
*As of 12/2017
Chairman, President & Chief Executive Officer
President - Retirement & Income Solutions
President - U.S. Insurance Solutions
President - Global Asset Management
President - International Asset Management and Accumulation
Executive VP & Chief Investment Officer
Executive VP & Chief Information Officer
Executive VP, General Counsel & Secretary
Executive VP & Chief Financial Officer
Senior VP & Chief Marketing Officer
Senior VP & Chief Risk Officer
Senior VP & Chief Human Resources Officer
Company Overview
Industry Leadership
Global Asset
Management
Best Place to Work in Money Mgmt1
#1 APV – Chile Funds2
Top 10 manager Real Estate3
12th largest manager High Yield4
ENERGY STAR Partner of the Year5
Global Retirement
and Long-Term Savings
#4 provider of DC plans6
#2 Pension provider in Latin America7
#7 AFORE – Mexico8
Brasilprev #1 market share – Brazil9
#5 MPF provider – Hong Kong10
#1 provider of DB plans11
#1 provider of ESOP plans12
Risk
Protection
#1 Non-qualified deferred
compensation13
#3 Non-medical coverages14
#5 Individual Disability
Insurance15
Sources: 1Pensions & Investments, “The Best Places to Work in Money Management among companies with our size category”, PFG recognition
12/12/2016. 2Asociacion de Administradóras de Fondos Mutuos De Chile, December 2016. 3The 5th largest manager of domestic real estate equity (net of
leverage), out of 66 managers profiled. Managers ranked by U.S. institutional, tax-exempt assets managed internally, as of Jun. 30, 2016. “Real Estate
Managers”, PENSIONS & INVESTMENTS, Oct 3, 2016. 4 12th largest manager of high yield securities, out of 85 managers profiled. Managers ranked by
U.S. institutional, tax-exempt assets managed internally, as of Dec. 31, 2015 “Largest Money Managers”, PENSIONS & INVESTMENTS, May 30, 2016. 5April
2017, U.S. Environmental Protection Agency. 6 PLANSPONSOR Recordkeeping Survey, June 2016. 7AUM among multi-country pension providers.
8Superintendencia de Pensions in terms of RIM, December 2016. 9Ranking in terms of AUM for PGBL and VGBL products, Fenaprevi. December 2016.
10Gadbury Group MPF Market Share Report, December 2016. 11PLANSPONSOR Defined Benefit Administration Survey, May 2015. 12PLANSPONSOR
Recordkeeping Survey, June 2016. 13PLANSPONSOR Record-Keepers Survey Buyers Guide, July 2016. 14LIMRA 2016 survey: Non-medical based on fully
insured employer contracts in force. 15 LIMRA 2015 survey: Individual Disability Insurance (IDI) rank based on in-force premium.
8
Company Overview
Current Ratings
(As of January 2017)
Moody’s Investors
Service
‘A1’, Good – fifth
highest of 21
rating levels.
Outlook: Stable
Fitch Ratings
‘AA-’, Very Strong –
fourth highest of
19 rating levels.
Outlook: Stable
Standard & Poor’s
‘A+’, Strong – fifth
highest of 20
rating levels.
Outlook: Stable
Ratings related to Principal Life Insurance Company and Principal National Life Insurance Company.
9
A.M. Best
‘A+’, Superior –
second highest of
13 rating levels.
Outlook: Stable
Retirement & Income Solutions
Strong business fundamentals
Net cash flow as a
percent of beginning
of year account value
(2011-2015 average)
+2.4%
- 0.1%
Industry1
10
1Department
4Q
2012
1Q
2017
CAGR
RIS total account value
$172B
$242B
8%
RIS-Fee return on net
revenue2
30.6%
33.8%
RIS-Spread return on net
revenue2
56.8%
64.0%
Participants3
3.9M
5.1M
Principal
of Labor & Cerulli Associates, 2015. 2For trailing 12 months. 3Defined contribution and defined benefit.
7%
Retirement & Income Solutions (RIS – Fee)
Customer-Centric Business Model
Bundled
Fidelity
MetLife
Wells Fargo
T.Rowe Price
Prudential
BUSINESS MODEL
Vanguard
Mass Mutual
Great West
Transamerica
ING/VOYA
Nationwide
Unbundled
John Hancock
Small Case
11
TARGET MARKET
Large Case
Retirement & Income Solutions (RIS – Fee)
The Top Retirement Market in the World
25
Retirement market
opportunities
$ Trillions
RETIREMENT READINESS:
• New plan formation
• Non-participants
• Under-saved
INCOME SOLUTIONS:
• Yield/Income
• Outcomes:
−Longevity
−Market volatility
−Inflation
20
15
10
5
0
Source: Retirement Markets 2015, Retirement Research Inc., April 2015
12
Defined
Benefit
Defined
Contribution
+
IRA
UNITED STATES
2nd THROUGH 10th
LARGEST
MARKETS COMBINED
Retirement & Income Solutions (RIS – Fee)
Principal Total Retirement Suite SM
Still a differentiator
Defined Benefit
Defined Contribution
#1 DB provider
#4 DC plan recordkeeper
Employee Stock
Ownership Plan
Nonqualified Plans
#1 ESOP plan
recordkeeper
(by # of plans)
(by # of clients)
(by # of plans)
(by # of plans)
#1 Deferred Comp
provider
All rankings sourced from PLANSPONSOR magazine as follows – Defined Benefit: DB Administration Survey
05/15; Defined Contribution and ESOP: Recordkeeping Survey 06/16; Nonqualified Deferred Compensation:
PLANSPONSOR NQDC Buyer’s Guide, July 2015
13
Retirement & Income Solutions (RIS – Fee)
Balanced Sales Approach
13.0
12.4
11.3
11.0
3.3
$ Billions1
9.0
2.7
9.3
2.2
7.0
2.6
5.0
3.1
9.9
2.5
1.9
1.9
1.8
1.9
3.3
4th Quarter
2.6
3rd Quarter
2.3
3.9
2.5
1.8
3.0
3.4
3.6
4.2
1.0
2.9
3.9
-1.0
2012
2013
2014
2015
2016
2017
3.0
14
10.6
1 Transfer
deposits
2nd Quarter
1st Quarter
Retirement & Income Solutions (RIS – Fee)
The Power of Payroll Deduction
19.0
20
18
16
14
12
$ Billions2
• People making a
deferral +37%1
• Avg deferral per
member +13%1
• People receiving a
match +40%1
10
8
6
4
2
0
15.7
13.9
15
2
1Q17 compared to 1Q12
Recurring deposits
4.1
3.4
3.6
4.1
4.2
4.3
3.7
4.1
2012
2013
3.3
3.5
1st Quarter
1
3.8
16.8
17.9
4.2
4.3
4.5
4.6
4.6
4.9
4.3
4.8
5.0
5.4
2014
2015
2016
2017
2nd Quarter
3rd Quarter
5.4
4th Quarter
Retirement & Income Solutions (RIS – Fee)
Account Value Detail
100%
90%
80%
70%
5%
5%
5%
5%
5%
7%
7%
7%
7%
7%
26%
25%
25%
26%
27%
60%
50%
32%
31%
30%
28%
28%
40%
30%
20%
16
Employer Securities
Non-Proprietary
Funds
Proprietary Funds
Separate Account
24%
26%
27%
29%
29%
General Account
10%
0%
Individual Variable
Annuities
6%
6%
6%
6%
5%
2013
2014
2015
2016
1Q17
Retirement & Income Solutions (RIS – Fee)
Multiple Businesses Leverage Success
Revenue sourced from 401(k) platform
3.5
3.0
0.6
$ Billions
2.5
2.0
0.4
Other PFG businesses
Defined contribution
1.5
1.0
0.5
0.0
2016
2021E
Variable Annuities, RIS – Spread, PGI, and Individual Life are all beneficiaries
17
Retirement & Income Solutions
Innovative Solutions: Solving Income Needs
ACCUMULATION
MULTI-PRODUCT
SOLUTION SET
18
RETIREMENT
INCOME
• “Through Retirement” Lifecycle Funds
• Mutual Funds that:
‒Generate income
‒Preserve capital
OUR APPROACH:
‒Protect against inflation
• Education
‒Address market volatility
• Planning assistance
• Annuities to provide:
(RetireSecure®)
‒Fixed returns
• Full array of options
‒Guaranteed income
• Innovative solutions
‒Protection against volatility
• Bank products
• Full Service Payout
‒Defined Benefit plan terminations
Principal Global Investors
Diversified Global Asset
Management Organization
• Broad range of investors in over 70 countries
• Offices in major money centers worldwide
$62 B
$403B
of AUM1
$153 B
$188 B
• Long commitment to corporate stewardship;
signatory to United Nations’ Principles for
Responsible Investment (PRI)
• Principal ranked among top companies with
1,000+ employees in Pensions & Investments’
Best Places to Work in Money Management,
for the last four years2
Fixed Income
Equity
Alternatives
19
19
1AUM
as of 03/31/2017. 2Pensions & Investments, “The Best Places to Work in Money Management among
companies with our size category”, PFG recognition 12/12/2016.
Principal Global Investors
Global leadership in funds
PGI/Funds integration makes Principal a global destination for funds
• $183B in AUM across U.S. and International platforms, as well as
various private funds1
• Strong performance across boutiques and strategies
• Well positioned in Active and Smart Beta ETFs
Key functions aligned globally
• Distribution, governance and operations
Capabilities compelling to big intermediaries
• Focus on global consultants, global distributors, U.S. wirehouses,
U.S. independent broker-dealers and RIAs2, private banks
Work closely with PI in their local markets
20
20
1As of 03/31/2017. Includes Principal Funds, PGI Trust CITs, PGI Dublin Funds, PGI Australia Funds, and
various boutique-level funds. 2RIA: Registered Investment Advisor.
Principal Global Investors
Top Tier Investment Performance
Morningstar rankings
Percentage of funds in the top two quartiles
94%
91%
76%
73%
51%
80%
86%
89%
58%
of rated funds have
4 or 5 star rating
46%
4 OR 5 STARS = 34 FUNDS
1-Year
03/31/2016
21
3-Year
12/31/2016
5-Year
03/31/2017
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.
3 STARS
21 FUNDS
2 STARS
3 FUNDS
1 STAR
1 FUND
Principal Global Investors
Distribution – Principal Funds
Top 5 distributors
Wells Fargo
Morgan Stanley
Merrill Lynch
UBS Financial Services, Inc.
US Trust
Top 5 U.S. strategies
AUM (1)
5-Yr AUM
CAGR
Target Date
$26.2B
5.7%
Strategic Asset Management
$14.3B
8.2%
Dynamic Outcome Strategies
$13.7B
30.2%
Midcap
$12.0B
41.4%
Preferred Securities
$5.4B
11.0%
Success through engaging distributors and advisors across channels
1
22
AUM figures include both Retail and Retirement AUM and remove double counting for fund-of-fund assets. As of 3/31/2017.
Principal Global Investors
Global Distribution Institutional
Principal Global Investors
Institutional AUM
• Strong teams, representing
all boutiques
• Close partnership with
product specialists in the
boutiques
($ billions)
$130.6
$133.4
$122.0
$110.2
$114.7
• Broad range of specialist
investment capabilities
enables us to attract top
sales talent
• #30 on Institutional
Investor Top 3001
2013
2015
Managers ranked by total assets under management. II 300 America’s Top 300 Money Manager, Institutional
Investor, July 2016, data as of 12/31/2015.
1
23
2014
2016
1Q17
Principal Global Investors
In-demand, specialist capabilities
Principal
Real Estate
- Private
$51.7
Macro
Currency
Group
$3.5
Aligned
Investors
$20.1
Principal
Global
Equities
$81.6
Unique hybrid multi-boutique approach
Principal
Edge Asset
Portfolio Management
Strategies1
$26.4
Principal
Global Fixed
Income
$95.9
Distinct investment processes
Post Advisory
Group
$15.2
Principal
Global
Investors
$403 B
Morley
Financial
Services
$17.5
Finisterre
Capital LLP
$3.0
Principal
Principal
Real Estate
Real Estate - CMBS $8.6
REITS
$13.3 Columbus
Spectrum
Circle
Asset
Investors Origin Asset Management
$7.4
$21.5
Management
$4.0
24
Leverage distribution
– Global institutional
– Global funds
Integrated business processes
– Drive scale
– Share best practices
Asset Allocation/Multi-Strategy
Fixed Income
Equity
Alternatives
AUM in billions, as of 03/31/2017. 1Principal Portfolio Strategies allocates investment dollars across PGI
boutiques and third-party managers.
Principal Global Investors
Well-Positioned for Industry Trends
• Industry leader in delivering
solutions, including multiasset solutions
• Strong and growing suite of
alternatives
Generate
Income
• Early entrant in the Active
ETF space
• Hybrid, Passive and Indexed
offerings on retirement
platform of the Principal
Financial Group
• With boutiques across asset
classes, sector rotation
presents opportunities
25
Client
Needs
Manage
Volatility
Protect
Purchasing
Power
Principal International
Our locations
We operate in emerging markets with a fast growing middle class
China (2005)
Asset Management, Mutual
Funds
AUM of $96.1B
CCB-Principal – a 25% owned
joint venture with China
Construction Bank
•
•
•
Principal Financial
Hong Kong (1996)
Group
•
•
•
Mexico (1993)
•
•
•
Thailand (2010)
Annuities, Mutual Funds,
Pensions, Asset
Management
AUM of $9.7B
Wholly owned
Chile (1995)
•
•
•
•
Annuities, Mutual Funds, Asset
Management, Mandatory
Pensions, Voluntary Pensions
AUM of $44.2B
Wholly owned
Cuprum – a 98% majority owned
company
AUM of $37.7B
26
PI Sourced AUM as of 03/31/2017
•
•
•
India (2000)
•
Brazil (1999)
•
•
•
(Year) = Principal entered country
Asset Management,
Mutual Funds, Pensions
AUM of $8.2B
Wholly owned
Annuities, Pensions,
Mutual Funds, Asset
Management
Brasilprev – a 25%
owned joint venture with
Banco do Brasil
AUM of $67.0B
Claritas – 100% owned
mutual fund company
AUM of $1.4B
•
•
Asset Management,
Mutual Funds, Advisory
Services
AUM of $0.7B
79% majority owned
company with Punjab
National Bank
Indonesia (2007)
•
•
•
Malaysia (2003)
•
•
•
Conventional & Islamic
Asset Management,
Mutual Funds, Pensions
AUM of $12.7B
CIMB-Principal – 40%
owned joint venture with
CIMB Group; 50% owned
Islamic company with
CIMB
Asset Management, Mutual Funds
AUM of $2.9B
Wholly owned subsidiary of Malaysian JV
Asset Management,
Mutual Funds
AUM of $0.5B
Wholly owned
subsidiary of Malaysian
JV
Singapore (2006)
•
•
•
Asset Management
AUM of $4.7M
Wholly owned subsidiary of Malaysian JV
Principal International
Strong growth
Increasing diversification
Pre-tax operating earnings growth1
(USD millions)
$350
$300
18%
$250
2016
Pre-tax OE
$200
$150
$100
82%
$50
$0
2013
Latin America
1 Prior
27
2014
Asia
period results translated using foreign exchange rates from 2016. Excludes impact of the
difference in actual vs. expected encaje returns, 3Q16 actuarial assumption review items, and 3Q15
impairment of intangible assets in our Brazil mutual funds business.
2015
2016
Principal International
High Growth High Potential Markets
Global Asset Management Industry
Projected AUM
In Trillions
4.7% CAGR
$400
6.0% CAGR
Country
2014 rank
2019E
rank
2024E
rank
2030E
rank
U.S.
#1
#1
#1
#2
China
#2
#2
#2
#1
Brazil
#7
#7
#6
#5
India
#9
#5
#4
#3
Mexico
#15
#14
#13
#13
Indonesia
#16
#15
#15
#12
Total GDP for Six Listed Countries
$64
2012
28
$102
2020
2014
2030
16 year CAGR
$34 Trillion
$100 Trillion
7%
2050
Sources: Asset Management 2020: A Brave New World, PwC, 2014; The age of asset management? Speech by Andrew G
Haldane, Executive Director, Financial Stability, Bank of England, at the London Business School, London, 4 April 2014.) ;
http://www.cebr.com/reports/world-economic-league-table-2015/
Principal International
Current joint venture partners
Brasilprev
CCBPAM
CIMB-Principal
Partner
Banco do Brasil
China Construction Bank
CIMB Group
Market(s)
Brazil
China
Malaysia, Thailand,
Indonesia, Singapore
Products
Pension
Mutual funds, asset
management
Pension, mutual funds,
asset management
Partner’s
distribution
reach
65M retail customers1
5,400 branches1
340M retail customers 2
14,985 branches 2
12M retail customers 3
900 branches3
2.1M customers
0.5M customers
JV customers 4 2.0M customers
29
1 Banco do Brasil 3Q16 Historical Data per:
http://www.bb.com.br/docs/pub/siteEsp/ri/eng/dce/dwn/3Q16TableTM.xls. 2 CCB 2016 Annual Report.
3 CIMB Group 2016 Annual Report. 4Customer count as of 12/31/2016.
Principal International
2016 notable achievements
China
Signed Strategic
Cooperation
Agreement with
CCB for potential
pension partnership
in China
1 Ranking
Cuprum was
recognized as the #1
AFP service provider1
and as a top 100
most reputable
company 2
Brasilprev
Brasilprev captured
51% of industry net
cash flows 3 and is #1
in total market share 4
from Praxis consulting firm released in November 2016 – received for 5th consecutive recognition
100 Most Reputable Companies ranking by Merco – 2016 ranking
3 Percent of P/VGBL industry net cash flows for full year 2016
4 Ranking is of market leadership in reserves of P/VGBL; Source: Fenaprevi, December 2016
5 Recognition by Asian Investor at their 2016 Asset Management Awards
2 Chile
30
Chile
SE Asia
Received multiple
recognitions for
performance of
funds including best
fund house in
Malaysia 5
U.S. Insurance Solutions
Focus on the SMB market
Solutions for business owners, employers, and individuals
Business
Owners
• Business Owner Executive
Solutions (life & disability)
31
Employers
• Group Insurance
(dental, vision, disability, life)
• Multi-life Disability
• Nonqualified Deferred
Compensation
Individuals
• Group Voluntary Insurance
(dental, vision, disability, life,
critical illness)
• Individual Disability Insurance
• Individual Life Insurance
• Individual Dental
U.S. Insurance Solutions
Success Reflects Expertise Serving SMB Market
2016
Market
Share
2016
Industry
Rank
8.0%
#3
• Life
11.0%
#2
• Disability
8.5%
#4
• Dental
5.4%
#7
• Individual Disability In-Force Premium2
9.5%
#5
• Individual Disability New Sales Premium
16.6%
#3
• Non-Qualified Plans1
19.0%
#1
• Total Life New Sales Premium
1.5%
#20
Specialty Benefits
• Total Group In-Force Contracts
Individual Life
Sources: LIMRA, 2016 (1) PlanSponsor Record-Keeper’s Survey Buyer’s Guide, July 2016, excluding governmental 457 plans
(2)Based on LIMRA 2015 data
32
U.S. Insurance Solutions: Individual Life
Focus on the Business Market
Solutions for businesses,
business owners and key
executives
Individual 47%
Business owners’ financial
challenges
•
•
•
•
Exiting the business
Business transition
Retaining key employees
Retirement planning
BOES 28%
Solutions for key employees
• Retirement income
• Survivor income
• Business protection
ER/NQ 25%
2016 Sales
BOES = Business Owner/Executive Solutions
ER/NQ = Employer/Non-qualified
33
U.S. Insurance Solutions: Specialty Benefits Insurance
Balanced Portfolio and Above Industry Premium Growth
2016 Total Premium & Fees
Group Life
26%
Group
Group
Benefits
Benefits
83%
81%
Individual
Disability
17%
Group
Disability
27%
Dental/
Vision
47%
3 Year In-Force Premium Growth
(2012 – 2015 CAGR)
10.9%
5.6%
3.1%
Group Benefits
The Principal
34
Source: LIMRA 2012-2015
1.6%
Individual DI
Industry
• Stable loss ratios
• Attractive margins
Distribution
U.S. Distribution Overview
PROPRIETARY
THIRD PARTY
PRINCIPAL
ADVISOR
NETWORK
PRINCIPAL
CONNECTION
• 1,200 advisors
• Sell all products
• Financial
Planning
Focused
• 70 counselors
with focus on
education
INVESTMENTORIENTED
INSURANCEORIENTED
• Wirehouses
• Regional
Broker/Dealers
• Planners
•
•
Brokerage
General Agents
Insurance
Producers
BANKS
• Banks
• Broker/
Dealers
• Marketers
Global Firm Relations
3rd
Select
party distributors with dedicated support
STRENGTHENS RELATIONSHIPS AND FUELS SALES GROWTH
WHOLESALE CHANNELS
Retirement
Investment
Solutions
Annuities
ESOP
NQDC
Retail
Life
Disability
Insurance
Group
Benefits
All supported by DEDICATED SERVICE TEAMS providing education, training, counseling and retention
35
Distribution
Broad and Deep Distribution
Proprietary provides foundation; 3rd party provides accelerated growth
Product Line New
Sales
1st
NQ Life
3rd
Principal
Advisor
Network
Plus Group
58%
38%
Principal
Advisor
Network
Group Benefits
10%
Fixed Annuities
Variable Annuities
Principal
Advisor
Network
36
KeyCorp Ins.
Agency
97%
Principal
Advisor
Network
FSA – New Sales
Assets
Rankings and percentages as of 12/31/2016
74%
Principal
Advisor
Network
Mutual Funds
FSA – New Sales
Case Counts
Top 3
Represent
38%
Highland Capital
Brokerage
Retail Life
Individual
Disability
2nd
19%
30%
Principal
Advisor
Network
34%
Investments
Investment philosophy & strategy
Diversified investment portfolio
Total invested assets & cash
Our strategy hasn’t changed:
CMBS
5%
Commercial
Mortgages
High quality, well-diversified portfolio
15%
MBS
6%
Corporate
Private Bonds
ABS
16%
$79.3B
Total invested
assets & cash
Corporate
Public Bonds
29%
Liability-driven investment approach
5%
Government,
Agency, State
& Political
11%
Other1
Active asset/liability management
Optimized risk adjusted yields and returns
Global collaboration and best practices
11%
Cash
2%
Portfolio responsibility remains at local country
Total PFG as of 03/31/2017
GAAP carrying value
37
1Other includes Equity Securities, Residential Mortgages, Real Estate, Policy Loans, Investment in Equity
Method subs, Direct Finance Leases and Other Investments
Financials
Power of our Fee-Based Model
Continual shift in mix of business leading to a higher ROE and more
free cash flow
Operating Earnings
After tax
TTM 1Q17
2001
16%
30%
30%
15%
69%
40%
Fee
38
Spread
Risk
Fee includes Retirement & Income Solutions – Fee, Principal Global Investors, and Principal International.
Spread includes Retirement & Income Solutions - Spread.
Risk includes U.S. Insurance Solutions.
Financials
Returning Capital to Shareholders
30%
40%
25%
50%
25%
30%
2007
Organic Growth
Target
Dividends
Available Capital
(Acquisitions & share buybacks)
•
•
•
•
39
Less capital needed to support organic growth
Moving to higher dividend payout ratio
Diligently pursuing active acquisition opportunities
Opportunistically buying back shares
Financials
Long-term financial outlook
Balanced capital deployment
strategy
Grow capital
Return capital
• Organic growth
• Mergers and
acquisitions (M&A)
• Common
stock dividends
• Share repurchases
Optimize
capital structure
• Financial flexibility
Expect to deploy 65–70% of our net income over the
long-term, with fluctuations in any given year
40
Financials
Driving ROE
Growth
30-60 bps average
annual ROE
improvement
Earnings
+ 4-5% for market
performance
+ 4-5% for growth from
sales/NCF
+ 1-2% operational efficiency
ROE =
Equity
• Organic growth
• Dividend growth
• Opportunistic
share repurchases
41
Financials
We’ve Played Offense Since the Recession
Opportunity
Emerged from
financial crisis
in a position of
strength and
flexibility
AXA Hong Kong
Pension
2014
2012
Executing on our
strategy to
increase our
global footprint
and fee-based
earnings
AFORE
BrasilPrev
42
Year
Announced
Rationale
 15 year exclusive
distribution with 4,440
agents
 Gateway into China
 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
2011
 Solidify position as a leader
in Mexican Afore market
2010
 23 year extension of
successful JV with Banco do
Brasil
Financials
Capital Deployment
$ in millions
$94
$100
$50
$40
$355
$150
$441
$375
$180
$287
$200
2013
Deployed $480 million
$275
2014
2015
2016
Deployed $855 million
Deployed $1.1 billion
Deployed $856 million
Common Stock Dividends
Share Repurchases
Strategic Acquisition
Debt reduction
Long term: expect to deploy 65–70 percent of our net income with fluctuations
in any given year
43
$465
$257
Financials
Capital Deployment
•
Deployed $248M of capital in 1Q17
− $130M in common stock dividends
 Paid quarterly dividend of $0.45 per share in 1Q17 bringing the
TTM dividends per share to $1.68, an 11% increase compared to
1Q16 TTM
− $118M deployed on shares repurchased
•
Expect to deploy $800M to $1.1B of capital in 2017
− Continue making progress toward a 40% dividend payout ratio
 Announced 2Q17 common stock dividend of $0.46 per share
bringing TTM dividends per share to $1.75, a 14% increase
compared to 2Q16 TTM
44
Financials
Long-term financial outlook
What if things don’t go as expected?
Changes in key macroeconomic conditions have an impact on
Principal’s annual pre-tax operating earnings
If macroeconomics
change by…
Then Principal’s
annual pre-tax
operating earnings
will change by…
And the primary
businesses
impacted are…
Interest rates
+/- 100 bps
FX: US dollar
changes +/- 2%
+/- 4-6%1
+/- < 1%2
-/+ < 1%3
RIS – Fee
RIS – Spread
PI
PGI
Individual Life
SBD
Assumes an immediate 10% change in the S&P 500 followed by 2% growth per quarter thereafter. 2 Excludes
the impact of actuarial unlockings. 3 Principal is primarily impacted by changes in Latin American and Asian
currencies. Inverse relationship between movement of the US dollar and impact to Operating Earnings.
1
45
Equity market
return +/- 10%
Financials
Key Business Drivers Outlook
2017
outlook
Long-term
outlook
Net revenue growth
CAGR
2-5%
3-7%
Pre-tax return on net
revenue
29-33%
28-32%
Net revenue growth
CAGR
5-10%
5-10%
Pre-tax return on net
revenue
55-60%
55-60%
Retirement and Income Solutions
RIS-Fee
RIS-Spread
2017
outlook
Long-term
outlook
4-8%
5-8%
34-37%
33-36%
2017
outlook
Long-term
outlook
7-9%
7-9%
Pre-tax return on
premium & fees
10-13%
10-13%
Loss ratio
62-68%
62-68%
3-6%
3-6%
14-18%
15-20%
Principal Global Investors
Operating revenues less passthrough commissions growth
CAGR
Pre-tax return on operating
revenues less pass-through
commissions
U.S. Insurance Solutions
Principal International
Combined net revenue growth CAGR
(at PFG share, in reported USD)
Combined pre-tax return on net
revenue (at PFG share, reported USD)
2017
outlook
Long-term
outlook
11-14%
11-14%
38-42%
40-45%
Premium & fees
growth CAGR
Specialty
Benefits
Individual
Life
Premium & fees
growth CAGR
Pre-tax return on
premium & fees
Estimated pre-tax operating losses for Corporate of $200-$225 million in 2017
US GAAP total company operating earnings effective tax rate of 21-23% in 2017
Net revenue = operating revenues less benefits, claims & settlement expenses less dividends to policyholders.
RONR = Return on Net Revenue.
46
Financials
Non-GAAP Financial Measure Reconciliations
Pre-tax Operating Earnings (Losses)
Pre-tax operating earnings, excluding Corporate
Corporate
Pre-tax operating earnings (losses)
Pre-tax net realized capital gains (losses)
Pre-tax other adjustments
Certain adjustments related to equity method investments and
noncontrolling interest
Income (loss) before income taxes
47
Trailing
Twelve
Months,
31-Mar-17
$ 2,009.3
(224.1)
$ 1,785.2
(89.3)
(86.4)
(43.6)
$ 1,565.9