November 2015 Principal Financial Group
Use of Non GAAP Financial Measures A non GAAP financial measure is a numerical measure of performance, financial position, or cash flows that includes adjustments from a comparable financial measure presented in accordance with U.S. GAAP. The company uses a number of non GAAP financial measures that management believes are useful to investors because they illustrate the performance of the company s normal, ongoing operations which is important in understanding and evaluating the company s financial condition and results of operations. While such measures are also consistent with measures utilized by investors to evaluate performance, they are not, however, a substitute for U.S. GAAP financial measures. Therefore, at the end of the presentation, the company has provided reconciliations of the non GAAP financial measures to the most directly comparable U.S. GAAP financial measure. The company adjusts U.S. GAAP financial measures for items not directly related to ongoing operations. However, it is possible these adjusting items have occurred in the past and could recur in future reporting periods. Management also uses non GAAP financial measures for goal setting, as a basis for determining employee and senior management awards and compensation, and evaluating performance on a basis comparable to that used by investors and securities analysts. The company also uses a variety of other operational measures that do not have U.S. GAAP counterparts, and therefore do not fit the definition of non GAAP financial measures. Assets under management is an example of an operational measure that is not considered a non GAAP financial measure. 2
Forward Looking Statements Certain statements made by the company which are not historical facts may be considered forward looking statements, including, without limitation, statements as to operating earnings, net income available to common stockholders, net cash flows, realized and unrealized gains and losses, capital and liquidity positions, sales and earnings trends, and management's beliefs, expectations, goals and opinions. The company does not undertake to update these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company's annual report on Form 10 K for the year ended Dec. 31, 2014 and in the company s quarterly report on Form 10 Q for quarter ended Sep. 30, 2015 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. 3
COMPANY OVERVIEW A Leading Financial Services Company Fortune 500 company; 136 year history; 20.6 million customers Operating Earnings $1,427.0 million* Sep. 30, 2015 Assets Under Management by Source $516.2 billion as of Sep. 30, 2015 U.S. Insurance Solutions 20% Retirement & Investor Services Accumulation 48% RIS Guaranteed 7% Principal International 16% Principal Global Investors 9% Corporate 1% U.S. Insurance Solutions 4% Retirement & Investor Services Accumulation 48% Principal International 21% Principal Global Investors 23% RIS Guaranteed 3% 4 *Trailing Twelve Months. After tax. Results exclude Corporate.
COMPANY OVERVIEW Organizational Structure Principal Financial Group Houston CEO 31/31 yrs* Lillis CFO 33/33 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 Life Principal Funds** Specialty Benefits Individual Annuities Bank & Trust** Full Service Payout Investment Only 5 *Years of experience: Industry/The Principal as of year end 2015. **Structural changes announced Feb 2015 will align Principal Funds & Principal Trust with Principal Global Investors.
COMPANY OVERVIEW Principal Financial Group Global Presence Mexico Pensions Annuities Mutual Funds Asset Management Ireland Mutual Funds PRINCIPAL FINANCIAL GROUP Headquarters Des Moines, Iowa Germany Asset Management Malta Asset Management UAE Asset Management UK Asset Management Netherlands Asset Management India Mutual Funds Advisory Service Asset Management Japan Asset Management China Mutual Funds Asset Management Hong Kong Pensions, Mutual Funds Asset Management Thailand Mutual Funds Asset Management 6 Chile Pensions Mandatory Pensions Voluntary Annuities Mutual Funds Asset Management Brazil Pensions Annuities Asset Management Mutual Funds Malaysia Mutual Funds Asset Management Islamic Institutional Asset Management Pensions Indonesia Mutual Funds Asset Management Singapore Asset Management Australia Asset Management
COMPANY OVERVIEW 136 Years of Experience 1911 Mutual Life Co 1941 Group Health & Pension 1970s Defined Contribution 1990 Principal Intl 1998 Principal Bank; Mutual Holding Co 1996 Principal Hong Kong 2001 IPO; Spectrum 2003 Post Advisory Group 2006 Washington Mutual Funds; WM Advisors 2008 CIMB Principal Islamic Asset Mgmt 2011 HSBC Afore; Finisterre; Origin 2013 Liongate 1879 Life Assoc 7 1936 Mortgage Banking/ Commercial Mortgage 1968 Mutual Funds JV Joint Venture IPO Initial Public Offering 1985 Principal Financial Group 1995 Principal Chile 1997 Principal Mexico 1999 Principal Global Investors; BrasilPrev JV; Principal Asset Mgmt Co (India) 2002 Benefit Consultants Inc; Total Retirement Suite 2005 CCB Principal; Columbus Circle 2007 Morley 2010 BrasilPrev JV extension 2012 Claritas; Cuprum 2014 AXA Hong Kong Pension
COMPANY OVERVIEW Experienced Management Team Name Age* Title (Industry/PFG)* Daniel J. Houston 54 President & Chief Executive 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 International Asset Management and Accumulation 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 Chairman Principal Financial Group Asia 38/21 David M. Blake 49 Senior Executive Director & Head Global Fixed Income 26/15 Elizabeth S. 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 C. Friedrich 45 Senior VP Specialty Benefits Division 18/15 Patrick G. Halter 56 Senior Executive Director Principal Real Estate Investors 31/31 Julia M. Lawler 55 Senior Executive Director Multi Asset Allocation 33/31 Gregory A. Linde 59 Senior VP Individual Life 36/23 Barbara A. McKenzie 55 Senior Executive Director & COO Boutique Operations 31/31 Dennis J. Menken 52 Senior VP & Chief Investment Officer Principal Life 21/21 Gerald W. Patterson 49 Senior VP Retirement & Investor Services 27/14 Elizabeth L. Raymond 49 Senior VP & Chief Human Resources Officer 24/15 Angela R. Sanders 52 Senior VP & Controller 26/26 Ellen W. Shumway 52 Senior Executive Director Strategy & Boutique Operations 25/10 Roberto A. Walker 50 Senior VP & President, Principal Financial Group LatAm 26/19 8 *As of 12/2015
COMPANY OVERVIEW Industry Leadership Retirement and Investor Services #3 provider of DC plans 1 #1 provider of DB plans 2 #1 provider of ESOP plans 3 #6 manager of Target Date Funds 4 Principal Global Investors Best Place to Work in Money Management 5 Top 10 manager Real Estate 6 15 th largest manager High Yield 7 #4 Greenest CRE Company 8 Principal International #1 market share Brazil (Brasilprev) 9 #1 APV Chile 10 #2 asset management Malaysia 11 Top ten MPF provider Hong Kong 12 #5 AFORE Mexico 13 U.S. Insurance Solutions #1 Non qualified deferred compensation 14 #4 Non medical coverages 15 #5 IDI coverages 16 9 Sources: 1 PLANSPONSOR Recordkeeping Survey, June 2015, 2 PLANSPONSOR Defined Benefit Administration Survey, May 2015; 3 PLANSPONSOR Recordkeeping Survey, June 2015; 4 In the United States. Strategic Insight Lifecycle FlowWatch report July 2015; 5 Pensions & 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, 2015. Largest Real Estate Managers, PENSIONS & INVESTMENTS, October 19, 2015.; 7 Managers ranked by U.S. institutional, tax exempt assets managed internally, as of 12/31/14, Largest Money Managers, Pensions & Investments, May 2015. 8 Commercial Property Executive Published April 2015 2015 Greenest CRE Companies list. 9 Fenaprevi, March 2015; 10 Asociacion de Administradóras de Fondos Mutuos De Chile, 10/2014; 11 Lipper. Percentage of market share as of 12/2014; 12 Towers Watson. Based on AUM as of 09/2014; 13 CONSAR & PROCESAR, October 2014; 14 PLANSPONSOR NQDC Buyer s Guide, July 2015; 15 LIMRA 2015 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
COMPANY OVERVIEW Financial Strength: Current Ratings (as of October 2015) Moody's Investors Service 'A1', Good fifth highest of 21 rating levels. Outlook: Stable FitchRatings 'AA, Very Strong fourth highest of 19 rating levels. Outlook: Stable Standard & Poor's A+, Strong fifth highest of 24 rating levels. Outlook: Stable A.M. Best 'A+', Superior second highest of 16 rating levels. Outlook: Stable 10 Ratings related to Principal Life Insurance Company and Principal National Life Insurance Company.
RETIREMENT AND INVESTOR SERVICES Platform Continuum Across markets Across life stages Full Service Accumulation Investment Only Principal Funds Annuities Bank Full Service Payout INVESTMENT MANAGEMENT INDIVIDUAL EMPLOYER 11
RETIREMENT AND INVESTOR SERVICES Full Service Accumulation Customer Centric Business Model 12
RETIREMENT AND INVESTOR SERVICES Full Service Accumulation Principal Total Retirement Suite SM STILL A DIFFERENTIATOR Defined Benefit #1 DB provider (by # of clients) Defined Contribution #3 DC plan recordkeeper (by # of plans) Employee Stock Ownership Plan #1 ESOP plan recordkeeper (by # of plans) Nonqualified Plans #1 Deferred Comp provider (by # of plans) 13 All rankings sourced from PLANSPONSOR magazine as follows Defined Benefit: DB Administration Survey 05/15; Defined Contribution and ESOP: Recordkeeping Survey 06/15; Nonqualified Deferred Compensation: PLANSPONSOR NQDC Buyer s Guide, July 2015
14 RETIREMENT AND INVESTOR SERVICES Full Service Accumulation Balanced Sales Approach $ Billions 12 10 8 6 4 2 0 11.5 10.3 3.3 8.5 8.7 3.0 6.7 2.8 3.3 2.7 5.9 2.6 3.2 1.8 1.5 1.5 2.3 1.8 1.4 1.6 0.9 1.7 0.9 3.2 2.9 2.7 2.8 1.7 2.0 2010 2011 2012 2013 2014 2015 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 14
RETIREMENT AND INVESTOR SERVICES Full Service Accumulation The Power of Payroll Deduction 30 People making a deferral +39%* Avg deferral per member +10%* People receiving a match +53%* 25 24.3 25.2 25.0 20 18.5 20.3 6.5 6.3 6.0 20.4 $ Billions 15 10 5 6.0 5.8 4.3 3.8 4.1 5.0 4.8 5.0 5.9 6.3 5.7 5.6 6.4 5.7 5.8 5.9 6.5 6.8 7.4 8.1 0 2010 2011 2012 2013 2014 2015 15 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter * 3Q10 compared to 3Q15.
100% RETIREMENT AND INVESTOR SERVICES Full Service Accumulation Account Value by Manager 6.9% 6.6% 7.3% 6.9% 7.1% 7.1% 7.3% 4.0% 80% 20.1% 22.3% 23.3% 26.5% 26.9% 26.4% 26.4% 22.6% 60% 12.7% 12.8% 11.1% 10.0% 10.3% 9.9% 9.2% 10.6% 40% 60.4% 58.4% 58.3% 56.6% 55.8% 56.6% 57.1% 62.8% 20% 0% 2009 2010 2011 2012 2013 2014 3Q15 3Q15 YTD Deposits PGI managed Sub-advised Non-proprietary ER Securities 16
RETIREMENT AND INVESTOR SERVICES Full Service Accumulation Our Disciplined Execution Delivers Positive Results Profit Margin* Industry Avg vs. The Principal Principal Industry Avg 17 * Profit 2000 Benchmark Study, Sterling Resources, Inc. (2014)
RETIREMENT AND INVESTOR SERVICES Full Service Accumulation Multiple Businesses Leverage FSA Success Revenue sourced from FSA platform $2B Other PFG businesses $500 MILLION Other PFG businesses $350 MILLION FSA FSA 18 $0 2013 2018E Principal Funds, PGI, Bank & Trust, Individual Annuities, Individual Life and Full Service Payout are all beneficiaries
RETIREMENT AND INVESTOR SERVICES Net Cash Flow Consistently Outpaces Industry Full Service Accumulation (FSA) Principal Funds 6.3% 18.1% 12.5% 3.5% 6.7% 8.5% 1.0% 0.7% 0.3% 1.7% 0.4% 1.9% 4.5% 4.2% 3.1% 2011 2012 2013 2014 2011 2012 2013 2014-0.9% 401k Industry net flows Principal FSA net flows Industry net flows Principal Funds net flows 19 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.
RETIREMENT AND INVESTOR SERVICES Principal Funds Needs Driven Investment Solutions Broad and unique asset allocation strategies ASSET ALLOCATION LEADERSHIP #6 largest lifecycle fund manager* Target date & target risk Multi manager solutions Portfolio construction strategies: TOP SELLING FUNDS MidCap Fund Global Diversified Income Preferred Securities High Yield Fund Sam Portfolio Combined TOTAL FOR TOP 5 TTM 3Q15 $3.1B $2.9B $2.1B $1.8B $1.5B $11.3B 20 *Based on $41.4B in assets Strategic Insight 6/30/15 Lifecycle Report
SALES Then & Now RETIREMENT AND INVESTOR SERVICES Principal Funds Multiple Distribution Channels 22% Affiliated Distribution 100% 2006 $3.8B Account Values Then & Now 45% 33% TTM 3Q15 $22.6B Third Party Broker/Dealers DCIO/RIA 39% Affiliated Distribution 100% 2006 $14.7B 44% 17% 3Q15 $76.0B 21 DCIO = Defined Contribution Investment Only. RIA = Registered Investment Advisor Third Party Broker/Dealers DCIO/RIA
RETIREMENT AND INVESTOR SERVICES Principal Funds A Diversified Family of Mutual Funds Net Cash Flow Assets Under Management Equity 32% 31% Fixed Income Index Asset Allocation 2% 7% 15% Other 3% 42% 46% 17% 5% 22 TTM 3Q15 09/30/2015
RETIREMENT AND INVESTOR SERVICES Principal Funds Driving Industry Recognition and Advisor Engagement Best Global Real Estate Fund Over the 5-Year Period 2014 Best Mutual Fund Families: #5 Ranking #3 for Small Plan Investment Options with Strong Performance 16 th largest advisor-sold fund family (1) 23 (1) Strategic Insights Mutual Fund Management Companies Rankings and Analysis, September 2015
RETIREMENT AND INVESTOR SERVICES Individual Investor Strategy ENROLLMENT OPTIMIZATION Simplify process Improve experience Maximize participation and influence behavior READY TO RETIRE Portfolio allocation Participant education RETIREMENT INCOME SOLUTIONS Education and guidance Portfolio construction strategies Income annuities 24
RETIREMENT AND INVESTOR SERVICES Innovative Solutions: Solving Income Needs ACCUMULATION MULTI PRODUCT SOLUTION SET RETIREMENT INCOME 25 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 OUR APPROACH: Education Planning assistance (RetireSecure ) Full array of options Innovative solutions
U.S. INSURANCE SOLUTIONS Success Reflects Expertise Serving SMB Market 2014 Market Share 2014 Industry Rank INDIVIDUAL LIFE Non Qualified Plans* 13.9% #1 Total Life New Sales Premium 1.7% #19 26 SPECIALTY BENEFITS Total Group In Force Contracts 7.1% #4 Life 9.5% #3 Disability 7.1% #5 Dental 5.0% #8 Individual Disability In force Premium Individual Disability New Sales Premium 8.4% #5 15.8% #3 Nonqualified Plans ranking from PLANSPONSOR Buyers Guide Survey, July 2015. All other rankings are from LIMRA 2013/2014. *Excludes governmental 457 plans.
U.S. INSURANCE SOLUTIONS Individual Life Leadership: FOCUS ON THE BUSINESS MARKET SOLUTIONS FOR BUSINESS, BUSINESS OWNERS AND KEY EXECUTIVES Business owners financial challenges Exiting the business Business transition Retaining key employees Retirement planning Solutions for key employees Retirement income Survivor income Business protection BOES 27% ER/NQ 28% 2014 Sales Individual 45% 27 BOES = Business Owner/Executive Solutions ER/NQ = Employer/Non qualified
U.S. INSURANCE SOLUTIONS Balanced Portfolio plus Above Industry Premium Growth 2014 Total Premium & Fees Individual Disability 17% Group Benefits 83% Dental/ Vision 47% Group Disability 26% Group Life 27% 5.0% 3 Year In Force Premium Growth (2011 2014 CAGR) 9.4% 3.1% 1.9% Stable loss ratios Attractive margins ROE of 14% + 28 Group Benefits Industry source: LIMRA 2011 2014 The Principal Individual DI Industry
DISTRIBUTION U.S. Distribution Overview PROPRIETARY THIRD PARTY CAREER 1,000 agents Sell all products Career places 80 85% of sales within The Principal family products PRINCIPAL CONNECTION 70 counselors with focus on education INVESTMENT- ORIENTED Wirehouses Regional Broker/Dealers Planners INSURANCE- ORIENTED Insurance Producers BANKS Banks Broker/ Dealers Marketers ALLIANCE MANAGEMENT GROUP (AMG) Select 3 rd party distributors with dedicated support STRENGTHENS RELATIONSHIPS AND FUELS SALES GROWTH Retirement Investment Solutions 11 WHOLESALE CHANNELS Annuities ESOP NQDC Retail Wellness Disability Life Insurance Group Benefits AMG Worksite All supported by DEDICATED SERVICE TEAMS providing education, training, counseling and retention 29
National Presence with Local Employees 121 Total Offices DISTRIBUTION OUR VALUE TO ADVISORS: Solutions based selling Point of sale support Ongoing service and education support Pipeline development Practice management Advisor education 30 NOTE: Approximate view as of March 2012. Check www.principal.com for actual locations.
DISTRIBUTION Expanding Distribution Partnerships Have Generated Strong Sales Growth Individual Annuities Separately Managed Accounts Mutual Funds 1.7 2.5 2.0 2.0 3.3 2.4 Full Service Accum 1.5 1.5 1.4 1.4 10.5 14.5 14.4 0.9 1.2 5.7 6.5 2.8 3.1 3.8 3.7 7.6 6.6 7 2009 2010 2011 2012 2013 2014 Total: $25.8B +26% $8.0B $12.5B $13.0B $22.3B $26.4B CAGR: 31
DISTRIBUTION Broad and Deep Distribution Proprietary provides foundation; 3 rd party provides accelerated growth Product Line New Sales 1 st 2 nd 3 rd Top 3 represent NQ Life Advisor 33% Principal Retail Life Advisor 59% Network Principal Network Principal Individual Disability Plus Group Advisor 39% Network Group Benefits Gallagher 14% Principal Fixed Annuities Advisor 52% Network Variable Annuities Principal Advisor Network KeyCorp Ins. Agency 94% Principal Mutual Funds Advisor 23% Network Principal FSA New Sales Assets Advisor 35% Network FSA New Sales Case Counts Principal Advisor Network Edward D. Jones 33% 32 Rankings and percentages as of 12/31/2014
PRINCIPAL GLOBAL INVESTORS At a Glance Principal Global Investors Assets Under Management $324.3B By Asset Class Equity $108B Real Estate $61B Fixed Income $141B Alternatives $14B Serve clients in over 70 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: 61% of Full Service Accumulation assets 75% of Principal Funds assets 100% of Principal Life general account assets Office locations in major financial markets worldwide Long standing commitment to corporate stewardship 33 As of 09/30/2015
Equities Principal Global Equities $63.3B PRINCIPAL GLOBAL INVESTORS Our Current Boutiques (AUM as of 09/30/15) Fixed Income Principal Global Fixed Income $86.5B Real Estate Private Real Estate $37.6B Asset Allocation/ Alternatives Edge Asset Management 1 $20.6B Columbus Circle Investors $14.4B Morley Financial Services $16.9B REITs $10.1B Macro Currency Group $7.8B Origin Asset Management $3.3B Spectrum Asset Management $19.4B CMBS $7.4B Multi Asset Advisors $0.9B 2 Aligned Investors $15.8B Post Advisory Group $10.7B Principal Enterprise Capital $6.2B Finisterre Capital $3.2B 34 Principal Portfolio Strategies advised on $86.5B of AUM as of 09/30/2015. Most of that AUM is listed in the boutique values above. CIMB AUM moved to Principal International as of 06/30/2015. Liongate Capital Management AUM not included. 1 Edge Asset Management advises on an additional $8.2B 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 $27.5B managed by multiple PGI boutiques.
PRINCIPAL GLOBAL INVESTORS Asset Management Expertise Wins Mandates Best Global Real Estate Fund over the 5 year period (1) Top 10 Manager of Real Estate (2) 15 th Largest manager of High Yield (3) PFG ranked No.1 company among the Best Places to Work in Money Management (4) $82.4 $98.2 Principal Global Investors Unaffiliated AUM (in billions) $109.4 $114.0 $120.2 2011 2012 2013 2014 3Q15 35 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 third year in a row, March 2015. (2) Managers ranked by total worldwide real estate assets (net of leverage), as of June 30, 2015, Largest Real Estate Managers, PENSIONS & INVESTMENTS, October 19, 2015. (3) Managers ranked by U.S. institutional, tax exempt assets managed internally, as of 12/31/14 Largest Money Managers, Pensions & Investments, May 2015. (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 2015, data as of 12/31/2014.
PRINCIPAL GLOBAL INVESTORS Strong Investment Performance Morningstar Rankings Percentage of Principal Funds in the top two quartiles 91% 91% 91% 87% 87% 86% 85% 85% 88% 1 Year 3 Year 5 Year Sep. 30, 2014 Jun. 30, 2015 Sep. 30, 2015 36 Represents $164 billion of assets under management of which 75% is managed by Principal Global Investors. 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 INTERNATIONAL AUM as of 09/30/2015 China (2005) Asset Management, Mutual Funds AUM of $41.5B CCB Principal a 25% owned joint venture with China Construction Bank Hong Kong (1996) Asset Management, Mutual Funds, Pensions Mexico (1993) Annuities, Mutual Funds, Pensions, Asset Management AUM of $10.5B Wholly owned PRINCIPAL FINANCIAL GROUP India (2000) AUM of $7.1B AXA Transaction closed on 9/1/2015 adding AUM of $3.1B Wholly owned Thailand (2010) Asset Management, Mutual Funds AUM of $2.2B Wholly owned subsidiary of Malaysian JV Chile (1995) Annuities, Mutual Funds, Asset Management, Mandatory Pensions, Voluntary Pensions AUM of $37.8B Wholly owned Cuprum a 98% owned joint venture AUM of $32.6B Brazil (1999) Annuities, Pensions, Mutual Funds, Asset Management Brasilprev a 25% owned joint venture with Banco do Brasil AUM of $35.3B Claritas 71% indirectly owned mutual fund company AUM of $0.9B Asset Management, Mutual Funds AUM of $0.7B 79% owned joint venture with Punjab National Malaysia (2003) Conventional & Islamic Asset Management, Mutual Funds, Pensions AUM of $11.4B CIMB Principal 40% owned joint venture with CIMB Group; 50% owned Islamic company with CIMB Singapore (2006) Asset Management AUM of $1.8M Wholly owned subsidiary of Malaysian JV Indonesia (2007) Asset Management, Mutual Funds AUM of $0.3B Wholly owned subsidiary of Malaysian JV 37
PRINCIPAL INTERNATIONAL We re in the Right Countries TEN LARGEST ECONOMIES BY DECADE Current Principal International locations: Asia Latin America 1990 US$ trn 2000 US$ trn 2010 US$ trn 2020E US$ trn 2030E US$ trn 1 U.S. 5.9 U.S. 10.3 U.S. 15.0 U.S. 23.5 China 53.8 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 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 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 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 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 38 SOURCE: IMF, Standard Chartered Research.
PRINCIPAL INTERNATIONAL Leveraging Strong Marquee Partners with Outstanding Distribution Joint Venture Partner Partner s Industry Ranking Partner s Distribution Reach Banco do Brasil Largest bank in Latin 5,524 branches 2 America 1 61 million customers 2 2nd largest listed bank in 14,650 branches 4 world 3 632 million retail customers 4 5 th largest banking group 1,057 branches 6 in ASEAN 5 13 million retail customers 5 3 rd largest Nationalized bank in India 7 6,081 branches 8 89 million retail customers 8 39 SOURCE: 1 Relbanks.com December 2014 in terms of AUM; 2 Banco do Brasil Annual Report 2014; 3 Relbanks.com December 2014 in terms of AUM; 4 CCB 2014 annual report customers based on retail debit cards; 5 CIMB Group 2014 Annual report ranking in terms of AUM; 6 CIMB Group 2013 4Q Analyst Presentation; 7 Indian Banks Association 2014 in terms of assets; 8 PNBIndia.com in 2014
PRINCIPAL INTERNATIONAL Our Markets and Product Offering Targeted Markets Pensions Mutual Funds Asset Mgmt Annuities Brazil Chile Mexico China Hong Kong India = Where we have a product offering today = Targeted expansion = 10% of market share or Top 25% of providers Malaysia/ SE Asia 40
PRINCIPAL INTERNATIONAL Emerging Markets: The PI Story We are in the right markets 0 Low Inflation/Slow Growth Low Inflation/Strong Growth Singapore Chile Malaysia Thailand + Inflation 8% + 4% Brasilprev an outlier: Grew NCCF market share in a volatile market High Inflation/Slow Growth 0 Brazil Mexico Hong Kong Indonesia High Inflation/Strong Growth 3% China (7.5% GDP) India + 6% + (8.9% inflation) 41 Source: IMF. 2014 Estimates. 2.2% GDP Growth Mature Economies GDP
PRINCIPAL INTERNATIONAL Latin America Proven Strength & Success BRAZIL MEXICO CHILE Brasilprev: #1 in net deposits and total market share 5th largest AFORE (by AUM) #1 APV: PI Chile and Cuprum PRINCIPAL IS 2ND LARGEST PENSION PROVIDER IN LATIN AMERICA 42 Brazil source: Fenaprevi. 3/15. 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.
PRINCIPAL INTERNATIONAL Asia Building a Strong Foundation MALAYSIA HONG KONG #2 in PRS Among Top Ten MPF* Providers CHINA INDIA Top Ten for Mutual Funds 1 st mover in advisory services business 43 *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
Investment Philosophy & Strategy REMAINS THE SAME Liability driven investment approach Active asset/liability management Optimized risk adjusted yields and returns High quality, well diversified portfolio Global collaboration and best practices Portfolio responsibility remains at local country INVESTMENTS Diversified Portfolio Invested Assets & Cash As of 09/30/15 GAAP carrying value Corporate Private Bonds 17% Corporate Public Bonds 27% Commercial Mortgages 16% Other* 11% $72.1 Billion CMBS 5% MBS 6% ABS 5% Cash 3% Government, Agency, State & Political 10% 44 * Other includes Equity Securities, Residential Mortgages, Real Estate, Policy Loans, Investment in Equity Method subs, Direct Finance Leases and Other Investments
$800 $600 $400 $200 $0 $200 $400 $600 Assets & Liabilities Performed as Expected In millions 41275 41306 41334 41365 41395 41426 41456 41487 41518 41548 41579 41609 41640 41671 41699 41730 41760 41791 41821 41852 41883 41913 41944 41974 42005 42036 42064 42095 42125 42156 45 INVESTMENTS Actual net assets & liabilities Modeled net assets & liabilities
FINANCIALS Power of our Fee Based Model Continual shift in mix of business leading to a higher ROE and more free cash flow 2001 OPERATING EARNINGS Current 2018E 15% 30% 30% 32% 53% 15% 70% 40% 15% Fee Spread Risk 46 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.
FINANCIALS Returning Capital to Shareholders 50% 25% 25% 34% 33% 33% 30% 30% 40% 2007 Current 2018E Organic Growth Dividends Available Capital (Acquisitions & share buybacks) Less capital needed to support organic growth Moving to higher dividend payout ratio Diligently pursuing active acquisition pipeline Opportunistically buying back shares 47
FINANCIALS Driving ROE Growth 50 80 bps average annual ROE improvement ROE = + 4 5% for market performance + 4 5% for growth from sales/ncf + 1 2% operational efficiency EARNINGS Operating earnings Average equity (x OCI) Return on equity (x OCI) As Reported 2007 $1.1B $6.5B 2014 $1.3B $9.3B 16.4% 14.2% EQUITY Fee based growth Dividend growth Opportunistic share repurchases 48 OCI = Other Comprehensive Income.
FINANCIALS We ve Played Offense Since Recession Opportunity AXA Hong Kong Pension Year Announced 2014 2013 2012 Rationale 15 year exclusive distribution with 4,440 agents Gateway into China Expand alternative asset class capabilities Complete offering in Chile with marquee pension and savings franchise Emerged from financial crisis in a position of strength and flexibility 2012 2011 Entry into Brazil mutual fund and asset management market Enhance global equity investment capabilities Executing on our strategy to increase our global footprint and feebased earnings 2011 AFORE 2011 Establish leadership in emerging markets fixed income investing Solidify position as a leader in Mexican Afore market BrasilPrev 2010 23 year extension of successful JV with Banco do Brasil 49
FINANCIALS Merger & Acquisition Criteria Have a diligent M&A process that optimizes long term results 1 2 STRATEGIC ABILITY TO ONBOARD Synergies with multiple lines of business preferred Adds scale or a new niche Aligns with our core competencies Blend local talent with Principal expertise 3 DISCIPLINED PRICING Mid teens IRR More accretive than buyback over time 50 IRR = Internal Rate of Return.
FINANCIALS Capital Deployment 2011 2012 Over $1.1 billion in total Common Stock Dividends: $215M Share Repurchases: $550M Strategic Acquisitions: $350M Allocated $2.1 billion Common Stock Dividends: $230M Share Repurchases: $300M Strategic Acquisitions: $1,595M 2013 Allocated $480 million Common Stock Dividends: $288M Share Repurchases: $150M Strategic Acquisition: $44M 2014 Allocated $855 million Common Stock Dividends: $375M Share Repurchases: $200M Strategic Acquisition: $180M Surplus Note Redemption: $100M Long term: expect to deploy 65 70 percent of our net income 51 with fluctuations in any given year
FINANCIALS Capital Deployment As of today, we have deployed $885M of capital, outlined below: $330M in common stock dividends Paid 1Q15, 2Q15, and 3Q15 dividends of 36, 38, and 38 cents per share respectively $200M shares repurchased $335M for AXA s Hong Kong pension business $20M for increased ownership in PGI boutiques With the announced 4Q15 dividend of 38-cents, a 12% increase over 4Q14, we have committed to deploy nearly $1B in 2015 In addition, we accelerated our 2016 capital deployment plans by announcing a new $150M share repurchase program Long term: expect to deploy 65 70 percent of our net income with fluctuations in any given year 52
FINANCIALS Key Business Drivers Outlook Retirement & Investor Services Principal Global Investors 5 Year 2015E 5 Year 2015E Accumulation Net revenue growth 6 8% 4 6% Pre tax RONR 28 32% 30 33% Revenue growth 14 17% 7 10% Pre tax margin 30+% 26 28% Guaranteed Net revenue growth 6 8% (2) 2% Pre tax RONR 75 80% 78 80% Principal International Combined* net revenue growth (normalized local basis) Combined net revenue growth (in reported USD) 5 Year 2015E 15 20% 14 16% 15 20% 8 10% Combined pre tax RONR 55 60% 50 52% Principal s share of combined pre tax earnings N/A 35% Individual Life Specialty Benefits U.S. Insurance Solutions Premium & fee growth Pre tax operating margin Premium &fee growth Pre tax operating margin 5 Year 2015E 4 8% 3 5% 16 21% 13 16% 8 10% 6 8% 8 12% 10 12% Loss ratio 65 71% 64 70% 53 Estimated After-tax operating losses for Corporate of $130-$150 million in 2015 Net revenue = operating revenues less benefits, claims & settlement expenses less dividends to policyholders. RONR = Return on Net Revenue. Pre-tax operating margin = pre-tax operating earnings / premium and fees. *Combined basis includes all Principal International companies at 100%.
FINANCIALS Results Demonstrate Relative Strength of Our Business Model 2001 2014 CAGR ( 01-14) YTD 3Q14 YTD 3Q15 Change Operating Earnings (1) ($M) $433 $1,318 9% $993.9 $967.3 3% Earnings Per Share (2) $1.20 $4.41 10.5% $3.33 $3.24 3% Assets Under Management ($B) $98 $519 14% $514 $516 0% ROE (TTM) (3) 6.9% 14.2% +730 bps 14.1% 13.2% 90 bps Book Value Per Share (x OCI) $17.81 $32.64 5% $32.00 $34.56 8% S&P 500 1,148 2,059 5% 1,972 1,920 3% 54 (1) Excludes discontinued operations. (2) Diluted. (3) Operating return on average equity excluding other comprehensive income, based on trailing 12 month period.
Exhibit 1 Principal Financial Group, Inc. Non-GAAP Financial Measure Reconciliations (in millions, except as indicated) Three Months Ended, Nine Months Ended, 30-Sep-15 30-Jun-15 31-Mar-15 31-Dec-14 30-Sep-14 30-Sep-15 30-Sep-14 Stockholders' Equity x-oci Available to Common Stockholders: Retirement and Investor Services $ 3,174.5 $ 3,192.1 $ 3,145.1 $ 3,124.0 $ 3,194.4 $ 3,174.5 $ 3,194.4 Principal Global Investors 621.0 619.7 609.8 602.8 638.1 621.0 638.1 Principal International 3,973.7 3,625.2 3,584.4 3,463.4 3,430.9 3,973.7 3,430.9 U.S. Insurance Solutions 2,470.0 2,398.9 2,333.4 2,288.0 2,342.7 2,470.0 2,342.7 Corporate (94.5) 184.1 179.9 113.4 (211.8) (94.5) (211.8) Total stockholders' equity x-oci available to common stockholders: 10,144.7 10,020.0 9,852.6 9,591.6 9,394.3 10,144.7 9,394.3 Net unrealized capital gains (losses) 967.2 927.6 1,246.7 1,148.3 1,088.4 967.2 1,088.4 Foreign currency translation (1,116.4) (867.1) (819.6) (686.8) (563.1) (1,116.4) (563.1) Net unrecognized postretirement benefit obligations (375.2) (387.1) (399.1) (411.1) (145.2) (375.2) (145.2) Preferred stock, at par - - 0.1 0.1 0.1-0.1 Paid in capital - preferred stock - - 541.9 541.9 541.9-541.9 Noncontrolling interest 65.5 69.2 69.5 48.0 52.6 65.5 52.6 Total stockholders' equity $ 9,685.8 $ 9,762.6 $ 10,492.1 $ 10,232.0 $ 10,369.0 $ 9,685.8 $ 10,369.0 Book Value Per Common Share x-oci: Book value x-oci $ 34.56 $ 34.00 $ 33.47 $ 32.64 32.00 34.56 32.00 Net unrealized capital gains (losses) 3.30 3.14 4.23 3.91 3.70 3.30 3.70 Foreign currency translation (3.80) (2.94) (2.78) (2.34) (1.92) (3.80) (1.92) Net unrecognized postretirement benefit obligations (1.28) (1.31) (1.36) (1.40) (0.49) (1.28) (0.49) Book Value Per Common Share including OCI $ 32.78 $ 32.89 $ 33.56 $ 32.81 $ 33.29 $ 32.78 $ 33.29 Operating Earnings (Losses): Retirement and Investor Services $ 163.3 $ 216.7 $ 210.9 $ 195.2 $ 204.3 $ 590.9 $ 632.9 Principal Global Investors 30.4 31.5 30.7 36.4 25.3 92.6 79.6 Principal International 45.8 59.3 59.9 62.9 73.8 165.0 205.1 U.S. Insurance Solutions 114.5 58.8 55.1 55.6 83.3 228.4 175.7 Corporate (37.0) (42.4) (30.2) (26.1) (33.0) (109.6) (99.4) Total operating earnings (losses) 317.0 323.9 326.4 324.0 353.7 967.3 993.9 Net realized capital gains (losses) (16.5) (82.8) 13.1 (53.2) (55.2) (86.2) (47.3) Other after-tax adjustments (0.1) - 74.7 (0.4) (57.8) 74.6 (105.9) Net Income (Loss) Available to Common Stockholders $ 300.4 $ 241.1 $ 414.2 $ 270.4 $ 240.7 $ 955.7 $ 840.7 Operating Revenues: Retirement and Investor Services $ 1,957.5 $ 2,108.6 $ 1,319.4 $ 1,672.3 $ 1,324.7 $ 5,385.5 $ 3,851.0 Principal Global Investors 182.8 188.4 186.6 208.0 173.6 557.8 517.9 Principal International 311.2 315.0 236.2 323.2 294.5 862.4 952.2 U.S. Insurance Solutions 853.2 857.8 861.7 825.8 821.0 2,572.7 2,436.8 Corporate (69.0) (63.0) (59.3) (69.1) (61.1) (191.3) (163.3) Total operating revenues 3,235.7 3,406.8 2,544.6 2,960.2 2,552.7 9,187.1 7,594.6 Net realized capital gains (losses), net of related revenue adjustments 4.8 (141.3) 45.6 (52.4) (68.2) (90.9) (25.0) Other income on an indemnified uncertain tax position - (6.7) 66.9 - - 60.2 - Exited group medical insurance buisness 0.4 0.4 0.2 0.2 (0.2) 1.0 - Total GAAP Revenues $ 3,240.9 $ 3,259.2 $ 2,657.3 $ 2,908.0 $ 2,484.3 $ 9,157.4 $ 7,569.6
Exhibit 2 Principal Financial Group, Inc. Non-GAAP Financial Measure Reconciliations (in millions, except as indicated) Three Months Ended, Nine Months Ended, 30-Sep-15 30-Jun-15 31-Mar-15 31-Dec-14 30-Sep-14 30-Sep-15 30-Sep-14 Operating Earnings ROE (x-oci): Retirement and Investor Services 24.7% 25.7% 25.6% 25.5% 24.3% 24.7% 24.3% Principal Global Investors 20.5% 23.0% 22.3% 21.2% 19.2% 20.5% 19.2% Principal International 6.2% 7.2% 7.6% 7.8% 7.9% 6.2% 7.9% U.S. Insurance Solutions 11.8% 11.2% 10.7% 10.6% 10.5% 11.8% 10.5% Corporate N/M N/M N/M N/M N/M N/M N/M Total operating earnings ROE (x-oci) 13.2% 13.8% 14.0% 14.2% 14.1% 13.2% 14.1% Net realized capital gains (losses) -1.5% -1.9% -0.7% -1.1% -1.1% -1.5% -1.1% Other after-tax adjustments 0.8% 0.2% -0.3% -1.1% -1.2% 0.8% -1.2% Net income ROE available to common stockholders (x-oci) 12.5% 12.1% 13.0% 12.0% 11.8% 12.5% 11.8% Net unrealized capital gains (losses) -1.2% -1.2% -1.3% -1.1% -1.1% -1.2% -1.1% Foreign currency translation 1.0% 0.7% 0.7% 0.6% 0.5% 1.0% 0.5% Net unrecognized postretirement benefit obligation 0.3% 0.3% 0.3% 0.3% 0.4% 0.3% 0.4% Net Income ROE Available to Common Stockholders (including OCI) 12.6% 11.9% 12.7% 11.8% 11.6% 12.6% 11.6% Net Realized Capital Gains (Losses): Total net realized capital gains (losses) $ (16.5) $ (82.8) $ 13.1 $ (53.2) $ (55.2) $ (86.2) $ (47.3) Certain derivative and hedging-related adjustments 34.2 26.4 19.7 26.4 21.9 80.3 66.4 Amortization of deferred acquisition costs and other actuarial balances 28.6 (16.2) 16.0 22.5 3.6 28.4 26.8 Certain market value adjustments of embedded derivatives 1.1-0.9 1.2 (5.7) 2.0 (6.0) Capital gains distributed (12.9) 2.9 (4.8) 3.1 8.8 (14.8) 18.1 Noncontrolling interest capital gains (losses) 3.7 (0.8) 2.8 0.8 0.1 5.7 0.2 Tax impacts 0.9 (44.4) 17.6 (26.8) (19.8) (25.9) (16.8) Recognition of front-end fee revenues (0.1) 0.3 (0.2) (0.3) (0.1) - (0.4) Net realized capital gains (losses) associated with exited group medical insurance business (0.1) - - - - (0.1) - Certain market value adjustments to fee revenues - - 1.1 - - 1.1 - Certain adjustments related to seed money (0.5) - - - - (0.5) - GAAP Net Realized Capital Gains (Losses) $ 38.4 $ (114.6) $ 66.2 $ (26.3) $ (46.4) $ (10.0) $ 41.0 Other After-Tax Adjustments: Exited group medical insurance business $ (0.1) $ - $ (0.2) $ (0.4) $ 0.3 $ (0.3) $ (0.3) Impact of a court ruling on some uncertain tax positions - - (30.3) - - (30.3) (47.5) Impact of enactment of tax legislation in Chile - - - - (58.1) - (58.1) Change in deferred tax balances related to merged Chilean entities - - 105.2 - - 105.2 - Contribution to Principal Financial Group Foundation, Inc. - - - - - - - Early extinguishment of debt - - - - - - - Total Other After-Tax Adjustments $ (0.1) $ - $ 74.7 $ (0.4) $ (57.8) $ 74.6 $ (105.9)