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The Principal Financial Group 101
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- 2. Use of Non-GAAPFinancial 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
- 3. Forward Looking Statements 3 Certainstatements 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 quarter ended June 30, 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.
- 4. A Leading FinancialServices Company Fortune 500 company; 135 year history; 19.4 million customers Assets Under Management by Source $517.9 billion as of June 30, 2014 Retirement & Investor Services Accumulation 47% Corporate 1% U.S. Insurance Solutions 4% Principal International 23% Principal Global Investors 22% Operating Earnings $1,338.0 million* June 30, 2014 Retirement & Investor Services Accumulation 49% U.S. Insurance Solutions 15% Principal International 18% Principal Global Investors 8% *Trailing Twelve Months. After-tax. Results exclude Corporate. 4 COMPANY OVERVIEW RIS Guaranteed 8% RIS Guaranteed 3%
- 5. Organizational Structure Principal FinancialGroup Zimpleman CEO – 43/43 yrs* Lillis CFO – 32/32 yrs Retirement & Investor Services Houston - President 30/30 yrs Principal Global Investors McCaughan – President 40/12 yrs Principal International Valdes – President 26/23 yrs U.S. Insurance Solutions Houston – President 30/30 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 2014. 5 COMPANY OVERVIEW
- 6. PRINCIPAL FINANCIAL GROUP Headquarters DesMoines, Iowa Mexico Pensions Life Insurance Annuities Mutual Funds IAM Chile Annuities / Pensions Residential Mortgages Mutual Funds IAM Pensions - Mandatory Brazil Pensions Annuities IAM Mutual Funds India Mutual Funds Asset Management Malaysia Mutual Funds Asset Management Islamic Institutional Asset Management Hong Kong Pensions, Mutual Funds Asset Management China Mutual Funds Pensions 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
- 7. 135 Years ofExperience 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
- 8. Name Age* Title(Industry/PFG)* 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 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 & Secretary 32/32 Rex Auyeung 62 Senior VP & President, Principal Financial Group – Asia 37/20 David Blake 48 Senior Executive Director & Head of PGI Fixed Income 25/14 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 Pat Halter 55 Senior Executive Director – Principal Real Estate Investors 30/30 Julia M. Lawler 54 Senior VP - Investment Services 32/30 Barbara McKenzie 54 Senior Executive Director & COO – Boutique Operations 30/30 Timothy J. Minard 51 Senior VP - Distribution 28/28 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 Ellen Shumway 51 Senior Executive Director – Strategy & Boutique Operations 24/9 Deanna D. Strable 46 Senior VP - U.S. Insurance Solutions 25/25 Roberto Walker 49 Senior VP & President, Principal Financial Group – LatAm 25/18 *As of 08/2014 8 Experienced Management Team COMPANY OVERVIEW
- 9. Retirement and InvestorServices •A leading provider of DC plans1 •#1 provider of DB plans2 •#1 provider of ESOP plans3 •#4 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 4Q2013; 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 12/31/13, “Largest Money Managers”, Pensions & Investments, Online Research Center. 8Commercial Property Executive Published March 2014 “2014 Greenest CRE Companies” list”. 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 NQDC Buyer’s Guide, July 2014; 15LIMRA 2013 survey: Non-medical based on fully insured employer contracts in force. 16 LIMRA 2012 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
- 10. Financial Strength: Current Ratings (asof July 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: Stable Rating as of June 2014 • Standard & Poor's ‘A+’, Strong - fifth highest of 21 rating levels. Outlook: Stable Ratings as of March 2014 • 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.10 COMPANY OVERVIEW
- 11. 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
- 12. Customer-Centric Business Model 12 FullService Accumulation RETIREMENT AND INVESTOR SERVICES
- 13. Principal Total RetirementSuiteSM 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
- 14. 1.7 2.0 3.2 2.92.7 0.9 1.7 2.3 1.8 1.4 0.9 1.5 2.7 2.6 3.2 3.3 3.3 3.0 0 2 4 6 8 10 12 14 2010 2011 2012 2013 2014 $Billions 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Balanced Sales Approach 14 *Full-Service Accumulation 6.7 8.5 11.5 10.3 4.1 Full Service Accumulation RETIREMENT AND INVESTOR SERVICES
- 15. 6.0 4.8 5.0 6.06.8 7.4 3.6 4.1 5.0 5.7 5.8 5.9 3.6 3.8 4.3 5.6 6.33.8 5.8 6.0 6.5 6.3 0 5 10 15 20 25 30 2009 2010 2011 2012 2013 2014 $Billions 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter People making a deferral +18%* Avg deferral per member +8%* People receiving a match +27%* 15 17.0 18.5 20.3 24.3 25.2 The Power of Payroll Deduction * 4Q10 compared to 4Q13. 13.3 Full Service Accumulation RETIREMENT AND INVESTOR SERVICES
- 16. FSAAccount Value byManager 16 60.3%58.3% 58.3% 56.6% 55.7% 55.9% 56.3% 12.7% 12.8% 11.1% 10.0% 10.3% 10.0% 9.9% 20.1% 22.3% 23.3% 26.5% 26.9% 26.9% 24.9% 6.9% 6.6% 7.3% 6.9% 7.1% 7.2% 8.9% 0% 20% 40% 60% 80% 100% 2009 2010 2011 2012 2013 2Q14 2Q14Deposits PGI managed Sub-advised Non-proprietary ER Securities *Full-Service Accumulation Full Service Accumulation RETIREMENT AND INVESTOR SERVICES
- 17. Our Disciplined ExecutionDelivers 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
- 18. Revenue sourced fromFSA 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
- 19. 4.6% 1.9% 4.5% 4.2% 6.0% 6.7% 18.1% 12.5% 20102011 2012 2013 Industry net flows Principal Funds net flows 0.8% 1.0% 0.8% 0.2% 0.6% 3.5% 6.3% 1.7% 2010 2011 2012 2013 401k Industry net flows Principal FSA net flows Full Service Accumulation (FSA) Net cash flows as % of beginning of year assets 2010-2013. Sources of industry data: 401(k) industry – Department of Labor & Cerulli 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. Net Cash Flow Consistently Outpaces Industry Principal Funds 19 RETIREMENT AND INVESTOR SERVICES
- 20. TOP SELLING FUNDS TTM 2Q14 GlobalDiversified Income $2.8B MidCap Fund $2.6B High Yield $1.7B Preferred Securities $1.4B Strategic Asset Management $1.4B TOTAL FOR TOP 5 $9.9B ASSET ALLOCATION LEADERSHIP • #5 largest lifecycle fund manager* • Target date & target risk • Multi-manager solutions • Portfolio construction strategies: *Based on $41.6B in assets Strategic Insight 6/30/14 Lifecycle Report Needs-Driven Investment Solutions Broad and unique asset allocation strategies 20 RETIREMENT AND INVESTOR SERVICES Principal Funds
- 21. Account Values –Then & Now 28% 44%100% 28% Affiliated Distribution Third Party Broker/Dealers DCIO/RIA 16% 44% 100% 40% Affiliated Distribution Third Party Broker/Dealers DCIO/RIA Multiple Distribution Channels SALES – Then & Now 2006 $3.8B YTD 2Q14 $9.2B 2006 $14.7B 2Q14 $70.9B 21 DCIO = Defined Contribution Investment Only. RIA = Registered Investment Advisor RETIREMENT AND INVESTOR SERVICES Principal Funds
- 22. A Diversified Familyof Mutual Funds 14% 4% 56% 46% 6% 3% 17% 41% 30% TTM 2Q14 06/30/2014 Equity Fixed Income Index Asset Allocation Other Net Cash Flow Assets Under Management 22 -17% RETIREMENT AND INVESTOR SERVICES Principal Funds
- 23. Driving Industry Recognition andAdvisor Engagement 15th 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, June 2014 #5 for DC Investment Manager RETIREMENT AND INVESTOR SERVICES Principal Funds
- 24. READY TO RETIRE Individual InvestorStrategy • 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
- 25. Individual Investor StrategyCaptures Additional Assets $0.8 $1.0 $1.2 $1.5 $1.7 $0.2 $0.2 $0.3 $0.3 $0.4 2010 2011 2012 2013 2014E AssetsCapturedinBillions Roll-ins into FSA plans Retail sales to participants 25 RETIREMENT AND INVESTOR SERVICES
- 26. Innovative Solutions: Solving IncomeNeeds 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 26 RETIREMENT AND INVESTOR SERVICES
- 27. INDIVIDUAL LIFE •Non-Qualified Plans12.4% #2 •Total Life New Sales Premium 1.4% #18 SPECIALTY BENEFITS •Total Group In-Force Contracts 7.1% #4 - Life 8.9% #4 - Disability 7.0% #6 - Dental 6.0% #7 •Individual Disability In-force Premium* 7.9% #5 •Individual Disability New Sales Premium 15.8% #2 Success Reflects Expertise Serving SMB Market 2013 Industry Rank 2013 Market Share 27 Nonqualified Plans ranking from PLANSPONSOR Recordkeeping Survey, June 2014. All other rankings are from LIMRA 2013. *LIMRA 2012, Individual Disability in-force data not yet available for 2013 U.S. INSURANCE SOLUTIONS
- 28. ER/NQ 21% BOES 36% Individual 43% Individual Life Leadership: FOCUSON 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 2013 Sales BOES = Business Owner/Executive Solutions ER/NQ = Employer/Non-qualified SOLUTIONSFORBUSINESS,BUSINESSOWNERSANDKEYEXECUTIVES 28 U.S. INSURANCE SOLUTIONS
- 29. 3.4% 3.2% 5.6% 2.0% 2.7% 2.8% GroupDental Group Life Group Disability The Principal Industry Dental/ Vision 48% Group Life 27% Balanced Portfolio plus Above Industry PremiumGrowth 2013 Total Premium & Fees 2012 Premium Growth Group Benefits 83%Individual Disability 17% Group Disability 25% 29 U.S. INSURANCE SOLUTIONS 2013 Industry Data not yet available
- 30. 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 BANKSINSURANCE- ORIENTED INVESTMENT- ORIENTED • Wirehouses • Regional Broker/Dealers • Planners • Insurance Producers • Banks • Broker/ Dealers • Marketers THIRD PARTYPROPRIETARY 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 WorksiteESOP Wellness 30 DISTRIBUTION
- 31. National Presence with LocalEmployees 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. 31 DISTRIBUTION
- 32. Expanding Distribution Partnerships HaveGenerated Strong Sales Growth 3.1 3.8 3.7 7.6 6.6 2.8 5.7 6.5 10.5 14.5 1.2 1.5 1.4 2.5 3.3 0.9 1.5 1.4 1.7 2.0 2009 2010 2011 2012 2013 Individual Annuities Separately Managed Accounts Mutual Funds Full Service Accum $8.0BTotal: +35% CAGR: $12.5B $13.0B $22.3B 32 $26.4B DISTRIBUTION
- 33. Broad and DeepDistribution Proprietary provides foundation; 3rd party provides accelerated growth Rankings and percentages as of 12/31/2013 Product Line New Sales 1st 2nd 3rd Top 3 represent NQ Life 39% Retail Life Career LifeMark 55% Individual Disability Career Plus Group 38% Group Benefits Gallagher 13% Fixed Annuities Santander Securities 41% Variable Annuities Career Principal Connection KeyCorp Ins. Agency 96% Mutual Funds Career 24% FSA – New Sales Assets 30% FSA – New Sales Case Counts Career Edward D. Jones 33% 33 DISTRIBUTION
- 34. • Serve clientsin over 60 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, including some of the world’s largest and most respected retirement funds • Manages: – 58% of Full Service Accumulation assets – 76% of Principal Funds assets – 100% of Principal Life general account assets As of 6/30/14. Principal Global Investors Assets Under Management $307B By Asset Class 34 Fixed Income $129B Equity $111B Real Estate $53B Alternatives $14B PRINCIPAL GLOBAL INVESTORS At a Glance
- 35. Our Current Boutiques (AUMas of 6/30/14) Principal Global Equities $79.8B Principal Global Fixed Income $77.3B Private Real Estate $33.2B CMBS $6.6B Origin Asset Management $3.3B Edge Asset Management1 $19.0B Fixed IncomeEquities REITs $7.7B Principal Enterprise Capital $5.1B CIMB – Principal Islamic Asset Mgmt. $0.63B3 MorleyFinancial Services $17.6B Spectrum Asset Management $16.8B Macro Currency Group $9.2B Post Advisory Group $9.9B Multi-Asset Advisors $0.608B2 Real Estate AssetAllocation/ Alternatives Finisterre Capital $2.3B Columbus Circle Investors $17.5B Liongate Capital Management $0.58B 35 1 Edge Asset Management advises on an additional $8.1B across asset classes for Retirement and Investor Services. 2 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. 3 Total CIMB AUM is $1.6B with $1B sub-advised to Principal Global Equities PRINCIPAL GLOBAL INVESTORS
- 36. Asset Management ExpertiseWins Mandates $82.4 $98.2 $109.4 $114.3 2011 2012 2013 2Q14 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, 2013, “Largest Real Estate Managers”, Pensions & Investments, October 28, 2013. (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 12/09/2013.(5) Managers ranked by total assets under management. America’s Top 300 Money Manager, Institutional Investor, July 2014, data as of 12/31/2013. 36 PRINCIPAL GLOBAL INVESTORS
- 37. Strong Investment Performance Represents$156 billion AUM of which 75% managed by PGI boutiques Morningstar Rankings Percentage of Principal Funds in the top two quartiles 63% 87% 67%66% 78% 72% 79% 88% 89% 1-Year 3-Year 5-Year June 30, 2013 Dec. 31, 2013 June 30, 2014 37 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
- 38. PRINCIPAL FINANCIAL GROUP Mexico (1993) •Annuities, Mutual Funds, Pensions, Asset Management • AUM of $13.1B • Wholly owned Chile (1995) • Annuities, Mutual Funds, Asset Management, Mandatory Pensions, Voluntary Pensions • AUM of $41.3B • Wholly owned • Cuprum – a 97.29% 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 $45.3B • Claritas – 62.73% indirectly owned mutual fund company AUM of $1.5B India (2000) • Asset Management, Mutual Funds • AUM of $0.7B • 70% owned joint venture with Punjab National Malaysia (2003) • Conventional & Islamic Asset Management, Mutual Funds, Pensions • AUM of $12.1B • CIMB-Principal – 40% owned joint venture with CIMB Group China (2005) • Asset Management, Mutual Funds • AUM of $13.7B • CCB-Principal – a 25% owned joint venture with China Construction Bank Hong Kong (1996) • Asset Management, Mutual Funds, Pensions • AUM of $3.5B • Wholly owned Thailand (2010) • Asset Management, Mutual Funds • AUM of $1.1B • Wholly owned subsidiary of Malaysian JV Indonesia (2007) • Asset Management, Mutual Funds • AUM of $0.2B • Wholly owned subsidiary of Malaysian JV Singapore (2006) • Asset Management • AUM of $1.9M • Wholly owned subsidiary of Malaysian JV 38 AUM as of 6/30/2014 PRINCIPAL INTERNATIONAL
- 39. We’re in theRight Countries SOURCE: IMF, Standard Chartered Research. TEN LARGEST ECONOMIES BY DECADE Current Principal International locations: Asia Latin America 39 1990 US$ 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
- 40. Joint Venture Partner Partner’sIndustry Ranking Partner’s Distribution Reach Banco do Brasil Largest bank in Latin America1 5,362 branches3 58.6 million customers3 2nd largest listed bank in world2 14,121 branches4 440 million retail customers4 5th largest universal banking group in ASEAN5 1,080 branches5 13.5 million retail customers5 2nd largest Nationalized bank in India6 6,075 branches7 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 Leveraging Strong Marquee Partners with Outstanding Distribution 40 PRINCIPAL INTERNATIONAL
- 41. 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 41 PRINCIPAL INTERNATIONAL
- 42. 42 Emerging Markets: ThePI Story We are in the right markets8%+4% Inflation 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
- 43. BRAZIL MEXICO CHILE Brasilprev: #1in 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 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. Latin America PRINCIPAL INTERNATIONAL
- 44. CUPRUM: A “One-StopShop” 44 ERM = Enterprise Risk Management Chile PRINCIPAL INTERNATIONAL
- 45. HONG KONG Among TopTen MPF* Providers Building a Strong Foundation MALAYSIA #2 in PRS CHINA Top Ten for Mutual Funds INDIA 1st mover in advisory services business 45 *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
- 46. Corporate Public Bonds 29% Corporate Private Bonds 18% Commercial Mortgages 15% CMBS 6% Cash 2% MBS 6% ABS 5% Government,Agency, State & Political 9% Other* 10% Diversified Portfolio $70.4 Billion * Other includes Equity Securities, Residential Mortgages, Real Estate, Policy Loans, Investment in Equity Method subs, Direct Finance Leases and Other Investments 46 Invested Assets & Cash As of 06/30/14 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
- 47. Assets & Liabilities Performedas Expected -$600 -$400 -$200 $0 $200 $400 $600 $800 Inmillions Actual net assets & liabilities Modeled net assets & liabilities 47 INVESTMENTS
- 48. -$200 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2009 2010 20112012 2013 6/30/2014 Inmillions Net Unrealized Losses and Potential Losses All numbers shown are pre-tax Cumulative CMBS Credit Losses Recorded* Cumulative CMBS Losses Realized** Potential Future Credit Losses*** Total Net Unrealized CMBS Losses (CMBS/CMBS CDO Portfolio $4.0B as of 06/30/2014) Majority of unrealized losses were never realized because we were not forced sellers CMBS Continues to be Well Suited for Our Liabilities * 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. 48 INVESTMENTS
- 49. Power of ourFee-Based Model OPERATING EARNINGS Continual shift in mix of business leading to a higher ROE and more free cash flow 65% 20% 15% Current 70% 15% 15% 2018E Fee Spread Risk 49 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
- 50. 40% 30% 30% 33% 33% 34% Returning Capital toShareholders 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 50 (Acquisitions & share buybacks) Organic Growth Dividends Available Capital 25% 25% 50% FINANCIALS
- 51. Driving ROE Growth OCI =Other Comprehensive Income. As Reported 2007 2013 Operating earnings $1.1B $1.1B Average equity (x-OCI) $6.5B $8.7B Return on equity (x-OCI) 16.4% 12.1% 51 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
- 52. 52 Opportunity Year Announced Rationale 2013 Expandalternative 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 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 FINANCIALS
- 53. Merger & AcquisitionCriteria • 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 53 IRR = Internal Rate of Return. FINANCIALS
- 54. Strategic Acquisitions: $350M Opportunistic Share Repurchases: $550M 20112012 Over $1.1 billion in total Allocated $2.1 billion Quarterly Common Stock Dividends $230M (70 to 78 cents, 11% increase) Opportunistic Share Repurchases: $300M Strategic Acquisitions: $1,595M 2013 Allocated $480 million Anti-dilution & Opportunistic Share Repurchases: $150M (~$55M remaining) Strategic Acquisition: $44M YTD Quarterly Common Stock Dividends ~$288M (23 cents for 1Q13 & 2Q13, 26 cents for 3Q13 & 4Q13) Annual Common Stock Dividends $215M (27% increase over 2010) 54 FINANCIALS Capital Deployment
- 55. • Expect deploymentfor 2014 to be at or above the top end of the $500M-700M range • More than $575M announced for 2014 so far ̶ $275M in common stock dividends o Paid 2Q14 dividend of 32-cents per share o Announced 3Q14 dividend increase to 34-cents per share ̶ $200M authorized share repurchase program o $61M in share repurchases in 2Q14 ̶ Redeemed $100M surplus note in 1Q14 • Active M&A pipeline • Long term we expect to deploy 65-70 percent of our net income with volatility in any given year Capital Deployment 55 FINANCIALS
- 56. 5-Year 2014E Accumulation Net revenue growth 6-8%5-7% Pre-tax RONR 28-32% 30-32% 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 2014E Individual Life Premium & fee growth 4-8% 3-5% Pre-tax operating margin 16-21% 14-16% Specialty Benefits Premium & fee growth 8-10% 3-5% Pre-tax operating margin 8-12% 10-12% Loss ratio 65-71% 65-71% 56 Key Business Drivers Outlook 5-Year 2014E Revenue growth 14-17% 7-10% Pre-tax margin 30+% 26-28% Principal Global Investors Principal International 5-Year 2014E Combined* net revenue growth 15-20% 16-18% Combined pre-tax RONR 55-60% 50-52% Principal’s share of combined pre-tax earnings N/A 36% Estimated After-tax operating losses for Corporate of $130-$150 million in 2014
- 57. (1) Excludes discontinuedoperations. (2) Diluted. (3) Operating return on average equity excluding other comprehensive income, based on trailing 12 month period. 2001 2013 CAGR (’01-’13) YTD 2Q13 YTD 2Q14 Change Operating Earnings(1) ($M) $433 $1,060 8% $505 $640 27% Earnings Per Share(2) $1.20 $3.55 9.5% $1.70 $2.14 26% Assets Under Management ($B) $98 $483 14% $451 $518 15% ROE (TTM)(3) 6.9% 12.1% +520 bps 10.4% 13.3% +290 bps Book Value Per Share (x-OCI) $17.81 $30.35 5% $29.81 $31.52 6% S&P 500 1,148 1,848 4% 1,606 1,960 22% Results Demonstrate Relative Strength of Our Business Model 57