the principal financial group 101
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The Principal Financial Group®
May 2014
Table of Contents 1. The Principal Financial Group Investor Presentation 2. Recent Investor Disclosures
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.
3
Forward Looking Statements
4
Certain statements made by the company which are not historical facts may be considered forward-looking statements, including, without limitation, statements as to operating earnings, net income available to common stockholders, net cash flows, realized and unrealized gains and losses, capital and liquidity positions, sales and earnings trends, and management's beliefs, expectations, goals and opinions. The company does not undertake to update these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward-looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company's annual report on Form 10-K for the year ended Dec. 31, 2013, filed by the company with the Securities and Exchange Commission, as updated or supplemented from time to time in subsequent filings. These risks and uncertainties include, without limitation: adverse capital and credit market conditions may significantly affect the company’s ability to meet liquidity needs, access to capital and cost of capital; conditions in the global capital markets and the economy generally; continued volatility or further declines in the equity, bond or real estate markets; changes in interest rates or credit spreads; the company’s investment portfolio is subject to several risks that may diminish the value of its invested assets and the investment returns credited to customers; the company’s valuation of securities may include methodologies, estimations and assumptions that are subject to differing interpretations; the determination of the amount of allowances and impairments taken on the company’s investments requires estimations and assumptions that are subject to differing interpretations; gross unrealized losses may be realized or result in future impairments; competition from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance; a downgrade in the company’s financial strength or credit ratings; inability to attract and retain sales representatives and develop new distribution sources; international business risks; the company’s actual experience could differ significantly from its pricing and reserving assumptions; the company’s ability to pay stockholder dividends and meet its obligations may be constrained by the limitations on dividends or distributions Iowa insurance laws impose on Principal Life; the pattern of amortizing the company’s DAC and other actuarial balances on its universal life-type insurance contracts, participating life insurance policies and certain investment contracts may change; the company may need to fund deficiencies in its “Closed Block” assets that support participating ordinary life insurance policies that had a dividend scale in force at the time of Principal Life’s 1998 conversion into a stock life insurance company; the company’s reinsurers could default on their obligations or increase their rates; risks arising from acquisitions of businesses; changes in laws, regulations or accounting standards; a computer system failure or security breach could disrupt the company’s business, and damage its reputation; results of litigation and regulatory investigations; from time to time the company may become subject to tax audits, tax litigation or similar proceedings, and as a result it may owe additional taxes, interest and penalties in amounts that may be material; fluctuations in foreign currency exchange rates; and applicable laws and the company’s certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider in their best interests.
A Leading Financial Services Company •Fortune 500 company; 135 year history; 19.2 million customers •Offices in 18 countries; nearly 14,600 employees worldwide •Full range of retirement savings, investment and insurance solutions for small to
medium-sized businesses & their employees, individuals, and institutions
Assets Under Management by Source $495.5 billion
as of March 31, 2014
Retirement & Investor Services
Accumulation 47%
Corporate 1%
U.S. Insurance Solutions
4%
Principal International
22%
Principal Global
Investors 23%
Operating Earnings $1,288.3 million* March 31, 2014
Retirement & Investor Services
Accumulation 49%
U.S. Insurance Solutions
16% Principal
International 18% Principal
Global Investors 9%
*Trailing Twelve Months. After-tax. Results exclude Corporate.
5
COMPANY OVERVIEW
RIS Guaranteed
8%
RIS Guaranteed
3%
Organizational Structure
The Principal Financial Group 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. 6
COMPANY OVERVIEW
PRINCIPAL FINANCIAL GROUP Headquarters Des Moines, Iowa
Mexico Principal AFORE Pensions
Principal Seguros Life Insurance
Principal Pensiones Annuities
Principal Fondos de Inversión, S.A. de C.V (PFI) Mutual Funds, IAM
Chile Principal Vida Annuities / Pensions
Principal Creditos Hipotecarios Residential Mortgages
Principal AGF Mutual Funds, IAM
Cuprum Pensions - Mandatory
Brazil BrasilPrev - JV with Banco do Brasil Pensions, Annuities, IAM
Claritas Mutual Funds
India Principal/AMC - JV with PNB/Vijaya Mutual Funds
Principal PNB Asset Management Co. Asset Management
Malaysia CIMB-Principal AMC - JV with CIMB Group Mutual Funds, Asset Management
CIMB Principal Islamic Asset Management (PGI JV with CIMB Group) Islamic Institutional Asset Management
Hong Kong Principal Insurance Company Pensions, Mutual Funds, IAM Principal Global Investors (Asia) Ltd. Asset Management
China CCB-Principal AMC – JV with CCB Mutual Funds, IAM
Representative Offices Pensions, Asset Management
The Principal Financial Group Global Presence
Germany Principal Global Investors (Europe) LTD Asset Management
Ireland Principal Global Investors (Ireland) Ltd Mutual Funds
UK Principal Global Investors(Europe) LTD Asset Management Japan
Principal Global Investors (Japan) LTD Asset Management
Australia Principal Global Investors (Australia) LTD Asset Management
Singapore CIMB-Principal AMC Principal Global Investors (Singapore) Asset Management
Thailand CIMB-Principal AMC Mutual Funds, Asset Management
Indonesia CIMB-Principal AMC Mutual Funds, Asset Management
Netherlands Principal Global Investors Representative Office Asset Management
UAE Principal Global Investors Representative Office Asset Management
7
COMPANY OVERVIEW
135 Years of Experience
1879 Life
Assoc
1911 Mutual Life Co
1936 Mortgage Banking/
Commercial Mortgage
1941 Group
Health & Pension
1968 Mutual Funds
1985 Principal Financial
Group
1998 Principal Bank;
Mutual Holding Co
2001 IPO;
Spectrum
1990 Principal
Intl
1970s Defined
Contribution
1999 Principal Global
Investors; BrasilPrev JV;
Principal Asset Mgmt Co (India)
2002 Benefit
Consultants Inc; Total
Retirement Suite SM
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
8
COMPANY OVERVIEW
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 Mary A. O’Keefe 58 Senior VP & Chief Marketing Officer 24/24 Jerry Patterson 48 Senior VP - Retirement & Investor Svcs 26/13 Beth Raymond 48 Senior VP & Chief Human Resources Officer 23/14 Angela R. Sanders 51 Senior VP & Controller 25/25 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 year end 2014 9
COMPANY OVERVIEW
Experienced Management Team
Retirement and Investor Services •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 Recordkeeeping Survey 6/13, 2 PLANSPONSOR, April 2013; 3 PLANSPONSOR 6/13; 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 12/31/12, “Largest Money Managers”, Pensions & Investments, Online Research Center. 8Principal Global Investors Europe was awarded two 2013 Pension Fund Perception Programme awards by Investment & Pensions Europe (IPE) magazine. Results for Principal Global Investors Europe are based on input from participating pension funds with over €1trn in assets under management, and reporting on over 300 managers, who were asked to rank the criteria they considered most important in selecting asset managers they appoint to manage their portfolios. The Manager Recommended to Other Pension Funds by 100% of Clients category was awarded to 25 managers selected from a field of 180 managers. 9Quantum, 12/2012; 10SP (Superintendencia de Pensiones), 1/2013; 11Lipper. Percentage of market share as of 07/2013; 12Lipper. Based on AUM as of 03/2013; 13CONSAR & PROCESAR, May 2013; 14PLANSPONSOR Dec 12 (based on number of plans record-kept); 15LIMRA 2012 surveys: Non-medical based on fully insured employer contracts in force & Individual Disability Insurance (IDI) rank based on in-force policies.
Principal Global Investors •Best Place to Work in Money
Management 5 •Top 10 manager Real Estate 6 •Top 10 manager High Yield7 •Manager Recommended to Other
Pension Funds by 100% of Clients8
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
•#5 Non-medical coverages15
•#5 IDI coverages15
10
COMPANY OVERVIEW
Financial Strength: Current Ratings
(as of April 2014)
• Moody's Investors Service 'A1', Good – fifth highest of 21 rating levels. Outlook: Stable Rating as of November 2013
• FitchRatings
'AA-‘, Very Strong - fourth highest of 21 rating levels. Outlook: Negative Rating as of October 2013
• 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. 11
COMPANY OVERVIEW
Meet retirement and employee benefit needs of growing businesses and their employees.
Capitalize on unprecedented demand for financial services among Baby and Echo Boomers.
Grow proven, global, multi-boutique asset management model for institutional markets and clients.
Extend retirement and long-term asset accumulation expertise in key emerging markets with fast growing middle classes and retirement assets.
Globally Competitive Employers
Aging Populations
Fiscally Constrained
Governments
Our Strategy is Well Suited for the Current Environment
12
COMPANY OVERVIEW
at a glance PRINCIPAL GLOBAL INVESTORS
• Serve clients in over 60 countries, including several major central banks and sovereign wealth funds
• Network of specialized investment boutiques manage assets for a broad range of investors around the world
• Manages: – 58% of Full Service Accumulation assets – 76% of Principal Funds assets – 100% of Principal Life general account assets
• Office locations in major financial markets worldwide
• Long-standing commitment to corporate stewardship
As of 3/31/14.
Principal Global Investors Assets Under Management
$298B By Asset Class
13
Fixed Income $121B
Equity $114B
Real Estate $50B
Alternatives $13B
OUR CURRENT
BOUTIQUES (AUM as of 3/31/14)
PRINCIPAL GLOBAL INVESTORS Principal Global
Equities $76.0B
Principal Global Fixed Income
$74.7B
Private Real Estate $32.6B
CMBS $6.3B
Origin Asset Management
$2.6B
Edge Asset Management1
$18.2B
Fixed Income Equities
REITs $6.7B
Principal Enterprise Capital
$4.9B
CIMB – Principal Islamic Asset
Mgmt. $573M3
Morley Financial Services $17.7B
Spectrum Asset Management
$15.9B
Macro Currency Group $9.1B
Post Advisory Group $12.0B
Multi-Asset Advisors $588M2
Real Estate Asset Allocation/ Alternatives
Finisterre Capital $1.8B
Columbus Circle Investors
$17.6B
Liongate Capital Management
$693M
14
1 Edge Asset Management advises on an additional $8.1B across multiple boutiques in the Strategic Asset Management (SAM) product. 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 $28B managed by multiple PGI boutiques. 3 Total CIMB AUM is $1.5B with $911M sub-advised to Principal Global Equities
ASSET MANAGEMENT
EXPERTISE WINS MANDATES
$78.7 $82.4
$98.2 $109.4 $111.8
2010 2011 2012 2013 1Q14
Principal Global Investors Unaffiliated AUM
(in billions)
• Best Global Real Estate Fund over the 5-year period (1)
• Principal Global Real Estate Securities Fund - Class I received a 2013 Lipper Fund Award for best performing global real estate fund over the 5-year period (2)
• Top 10 Manager of Real Estate(3) • Top 10 Manager of High Yield(4) • PFG ranked No.1 company among
the Best Places to Work in Money Management(5)
PRINCIPAL GLOBAL INVESTORS
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) The Principal Real Estate Investors portfolio management team sub-advises the Principal Global Real Estate Securities Fund-Class I, which recently received a 2013 Lipper Fund Award for being the best performing global real estate fund over the 5-year period. (3) Managers ranked by total worldwide real estate assets (net of leverage), as of June 30, 2013, “Largest Real Estate Managers”, Pensions & Investments, October 28, 2013. (4) Managers ranked by U.S. institutional, tax-exempt assets managed internally, as of 12/31/12. “Largest Money Managers”, Pensions & Investments, Online Research Center. (5) Principal Financial Group recognized for firms with our size category. Pensions & Investments, December 09, 2013. (6) Managers ranked by total assets under management. America’s Top 300 Money Manager, Institutional Investor, July 2013, data as of 12/31/2012.
15
STRONG INVESTMENT
PERFORMANCE Represents $147 billion AUM of
which 75% managed by PGI boutiques
Morningstar Rankings Percentage of Principal Funds in the top two quartiles
82% 87%
71% 66%
78% 72% 70%
84% 83%
1-Year 3-Year 5-Year
Mar. 31, 2013 Dec. 31, 2013 Mar. 31, 2014
Principal Funds Class I 16
PRINCIPAL GLOBAL INVESTORS
STRATEGIC PLATFORM
FOR GROWTH
RETIREMENT & INVESTOR SERVICES
INDIVIDUAL
EMPLOYER
INVESTMENT MANAGEMENT
PLATFORM CONTINUUM Across markets | Across life stages
Full Service Accumulation
Principal Funds Investment
Only
Bank
Annuities Full
Service Payout
17
CUSTOMER CENTRIC
BUSINESS MODEL
RETIREMENT & INVESTOR SERVICES
Full Service Accumulation
18
PRINCIPAL TOTAL
RETIREMENT SUITESM
STILL A DIFFERENTIATOR
All rankings sourced from PLANSPONSOR magazine as follows – Defined Benefit: DB Administration Survey 04/13; Defined Contribution and ESOP: Recordkeeping Survey 06/13; Nonqualified: Deferred Compensation Buyer’s Guide 12/13.
RETIREMENT & INVESTOR SERVICES
Full Service Accumulation
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 clients)
19
Execution of Strategy:
FSA* SALES
RETIREMENT & INVESTOR SERVICES
Full Service Accumulation
20 *Full-Service Accumulation
2.2 3.5 2.8 1.7 2.0
3.2 2.9 2.7
1.4 1.4
0.7 0.9
1.7
2.3 1.8
3.4 1.3
0.5 0.9
1.5
2.7 2.6
2.4 2.1
1.0 3.2
3.3
3.3 3.0
0
2
4
6
8
10
12
14
2007 2008 2009 2010 2011 2012 2013 2014
$ Bi
llion
s
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
9.4 8.3
5.0
6.7
8.5
11.5 10.3
2.7
RETIREMENT & INVESTOR SERVICES
Full Service Accumulation
21
5.1 7.0 6.0 6.0 5.0 6.5 6.8 7.4
4.2 4.5
3.6 4.1 5.0 5.7 5.8
5.8 4.4
3.6 3.8 4.3
5.6 6.3 5.5 4.5
3.8 5.8 6.0
6.5 6.3
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 2014
$ B
illio
ns
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
20.6 20.4
17.0 18.5
20.3
24.3 25.2
RISING DEPOSITS &
THE POWER OF PAYROLL
DEDUCTION
People making a deferral +18%* Avg deferral per member +8%* People receiving a match +27%*
Employment rates have not fully recovered –
UPSIDE EXISTS
* 4Q10 compared to 4Q13.
7.4
FSA* ACCOUNT VALUE BY
MANAGER
RETIREMENT & INVESTOR SERVICES
Full Service Accumulation
22
60.4% 58.4% 58.3% 56.6% 55.8% 55.7% 53.0%
12.7% 12.8% 11.1% 10.0% 10.3% 10.1% 9.6%
20.1% 22.3% 23.3% 26.5% 26.9% 27.3% 27.8%
6.9% 6.6% 7.3% 6.9% 7.1% 7.2% 9.7%
0%
20%
40%
60%
80%
100%
2009
2010
2011
2012
2013
1Q14
1Q14
Dep
osits
PGI managed Sub-advised Non-proprietary ER Securities
*Full-Service Accumulation
OUR DISCIPLINED EXECUTION
DELIVERS POSITIVE RESULTS
RETIREMENT & INVESTOR SERVICES
Full Service Accumulation
23
Profit Margin* Industry Avg vs. The Principal
Principal Industry Avg
* Profit 2000 Benchmark Study, Sterling Resources, Inc. (2013)
Revenue sourced from FSA platform
FSA FSA
Other PFG businesses
Other PFG businesses
2013 2018E
MULTIPLE BUSINESSES
LEVERAGE FSA SUCCESS
Principal Funds, PGI, Bank & Trust, Individual Annuities, Individual Life and Full Service Payout are all beneficiaries
$500 MILLION
$350 MILLION
$0
$2B
RETIREMENT & INVESTOR SERVICES
Full Service Accumulation
24
4.6%
1.9%
4.5% 4.2%
6.0% 6.7%
18.1%
12.5%
2010 2011 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
RETIREMENT & INVESTOR SERVICES
Principal Funds
25
TOP SELLING FUNDS TTM 1Q14
MidCap $3.2B
Global Diversified Income $3.0B
High Yield $1.7B
Preferred Securities $1.7B
Strategic Asset Management $1.3B
TOTAL FOR TOP 5 $10.8B
ASSET ALLOCATION LEADERSHIP • #5 largest lifecycle fund manager* • Target date & target risk • Multi-manager solutions • Portfolio construction strategies:
*Based on $38.2B in assets Strategic Insight 12/31/13 Lifecycle Report
NEEDS-DRIVEN INVESTMENT SOLUTIONS Broad and unique asset allocation strategies
26
PRINCIPAL FUNDS
A DIVERSIFIED FAMILY OF
MUTUAL FUNDS
8% 4%
55% 45%
6% 3%
18% 54%
30%
TTM 1Q14 03/31/2014
Equity
Fixed Income
Index
AssetAllocation
Other
Net Cash Flow
Assets Under Management
27
RETIREMENT & INVESTOR SERVICES
Principal Funds
-23%
DRIVING INDUSTRY
RECOGNITION AND ADVISOR ENGAGEMENT
#5 for DC Investment Manager
Best Global Real Estate Fund Over the 5-Year Period
28
RETIREMENT & INVESTOR SERVICES
Principal Funds
READY TO RETIRE
INDIVIDUAL INVESTOR STRATEGY
• Portfolio allocation • Participant education
RETIREMENT INCOME
SOLUTIONS
• Education and guidance • Portfolio construction
strategies • Income annuities
ENROLLMENT OPTIMIZATION
• Simplify process • Improve experience • Maximize participation and
influence behavior
RETIREMENT & INVESTOR SERVICES
29
INDIVIDUAL INVESTOR STRATEGY CAPTURES
ADDITIONAL ASSETS
RETIREMENT & INVESTOR SERVICES
$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
Asse
ts C
aptu
red
in B
illio
ns
Roll-ins into FSA plans Retail sales to participants
30
Innovative Solutions:
Solving Income Needs
ACCUMULATION
OUR APPROACH: • Education • Planning assistance
(RetireSecure®) • Full array of options • Innovative solutions
MULTI-PRODUCT SOLUTION SET
• “Through Retirement” Lifecycle Funds • Mutual Funds that: ‒ Generate income ‒ Preserve capital ‒ Protect against inflation ‒ Address market volatility
• Annuities to provide: ‒ Fixed returns ‒ Guaranteed income ‒ Protection against volatility
• Bank products • Full Service Payout ‒ Defined Benefit plan terminations
RETIREMENT INCOME
31
RETIREMENT & INVESTOR SERVICES
INDIVIDUAL LIFE • Non-Qualified Plans 12.4% #2
• Total Life New Sales Premium 1.4% #18
SPECIALTY BENEFITS
• Total Group In-Force Contracts 7.1% #5
- Life 8.6% #4
- Disability 6.4% #5
- Dental 6.3% #7
• Individual Disability In-force Premium 7.9% #5
• Individual Disability New Sales Premium 15.8% #4
U.S. INSURANCE SOLUTIONS
SUCCESS REFLECTS
EXPERTISE SERVING SMB
MARKET
2012 Industry
Rank
2012 Market Share
32 Nonqualified Plans ranking from PlanSponsor Deferred Compensation Buyer’s Guide Dec 13. All other rankings are from LIMRA 2013.
ER/NQ 21%
BOES 36%
Individual 43%
Individual Life Leadership:
FOCUS ON THE BUSINESS MARKET
Business owners’ financial challenges •Exiting the business •Business transition •Retaining key employees •Retirement planning Solutions for key employees •Retirement income •Survivor income •Business protection
2013 Sales
BOES = Business Owner/Executive Solutions ER/NQ = Employer/Non-qualified
SOLUTIONS FOR BUSINESS, BUSINESS OWNERS AND KEY EXECUTIVES
33
3.4% 3.2%
5.6%
2.0% 2.7% 2.8%
Group Dental Group Life Group Disability
The Principal Industry
Dental/ Vision 48% Group
Life 27%
BALANCED PORTFOLIO plus ABOVE INDUSTRY PREMIUM GROWTH
2013 Total Premium & Fees
2012 Premium Growth
Group Benefits
83% Individual Disability
17%
Group Disability 25%
U.S. INSURANCE SOLUTIONS
Specialty Benefits
34
U.S. DISTRIBUTION OVERVIEW
PRINCIPAL CONNECTION
• 70 counselors
with focus on education
CAREER
• 1,000 agents • Sell all products • Career places
80-85% of sales within The Principal family products
BANKS INSURANCE-ORIENTED
INVESTMENT-ORIENTED
• Wirehouses • Regional
Broker/Dealers • Planners
• Insurance Producers
• Banks • Broker/
Dealers • Marketers
THIRD PARTY PROPRIETARY
ALLIANCE MANAGEMENT GROUP (AMG) Select 3rd party distributors with dedicated support
STRENGTHENS RELATIONSHIPS AND FUELS SALES GROWTH
All supported by DEDICATED SERVICE TEAMS providing education, training, counseling and retention
11 WHOLESALE CHANNELS Group
Benefits Retirement Investment
Solutions Annuities NQDC Disability
Insurance Retail
Life AMG Worksite ESOP Wellness
35
NATIONAL PRESENCE WITH LOCAL EMPLOYEES
OUR VALUE TO ADVISORS:
● Solutions-based selling
● Point of sale support
● Ongoing service and education support
● Pipeline development
● Practice management
● Advisor education
121 Total Offices
NOTE: Approximate view as of March 2012. Check www.principal.com for actual locations. 36
Account Values – Then & Now
31%
44% 100%
25% AffiliatedDistribution
Third PartyBroker/Dealers
DCIO/RIA
15%
44% 100%
41% AffiliatedDistribution
Third PartyBroker/Dealers
DCIO/RIA
MULTIPLE DISTRIBUTION
CHANNELS
PRINCIPAL FUNDS
SALES – Then & Now
2006 $3.8B
TTM 1Q14 $19.1B
2006 $14.7B
1Q14 $66.6B
37 DCIO = Defined Contribution Investment Only. RIA = Registered Investment Advisor
EXPANDING DISTRIBUTION PARTNERSHIPS HAVE GENERATED STRONG SALES GROWTH
2.0 3.8 4.2 3.1 3.8 3.7 7.6 6.6
2.1 2.5 2.8 5.7 6.5
10.5 14.5
0.2
0.6 1.2 1.2
1.5 1.4
2.5
3.3
1.3
2.3 3.0
0.9
1.5 1.4
1.7
2.0
2006 2007 2008 2009 2010 2011 2012 2013
Individual Annuities
Separately Managed Accounts
Mutual Funds
Full Service Accum
$3.5B $8.0B Total: +34% $8.8B $10.9B CAGR:
$12.5B $13.0B $22.3B
38
$26.4B
BROAD AND DEEP DISTRIBUTION 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%
39
PRINCIPAL FINANCIAL
GROUP Mexico (1993) • Annuities, Mutual
Funds, Pensions, Asset Management
• AUM of $12.2B • Wholly owned
Chile (1995) • Annuities, Mutual Funds, Asset
Management, Mandatory Pensions, Voluntary Pensions
• AUM of $39.0B • Wholly owned • Cuprum – a 94.75% owned joint
venture AUM of $33.1B 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 $39.9B • Claritas – 62.73%
indirectly owned mutual fund company
AUM of $1.5B
India (2000) • Asset Management,
Mutual Funds • AUM of $0.6B • 65% owned joint venture
with Punjab National and Vijaya Banks
Malaysia (2003) • Conventional & Islamic Asset
Management, Mutual Funds, Pensions
• AUM of $11.4B • CIMB-Principal – 40% owned
joint venture with CIMB Group
China (2005) • Asset Management, Mutual
Funds • AUM of $14.1B • CCB-Principal – a 25%
owned joint venture with China Construction Bank
Hong Kong (1996) • Asset Management, Mutual
Funds, Pensions • AUM of $3.3B • Wholly owned
Thailand (2010) • Asset Management, Mutual Funds • AUM of $0.9B • 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 $0.6M • Wholly owned subsidiary
of Malaysian JV
40
AUM as of 3/31/2014
PRINCIPAL INTERNATIONAL
WE’RE IN THE RIGHT COUNTRIES
SOURCE: IMF, Standard Chartered Research.
TEN LARGEST ECONOMIES BY DECADE Current Principal International locations: Asia Latin America
PRINCIPAL INTERNATIONAL
41
1990 US$ 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
Joint Venture Partner Partner’s Industry 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
PRINCIPAL INTERNATIONAL
42
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
PRINCIPAL INTERNATIONAL
43
44
EMERGING MARKETS: THE PI STORY We are in the right markets
8% +
4%
Infla
tion
GDP
3%
“Low Inflation/Strong Growth”
“Low Inflation/Slow Growth”
“High Inflation/Slow Growth ” “High Inflation/Strong Growth” 0
0
6% +
+ Mexico
2.2% GDP Growth
Mature Economies
India
Indonesia
Hong Kong
Brazil
Chile
Malaysia
China
Thailand
(8.9% inflation)
(7.5% GDP)
Source: IMF. 2014 Estimates.
Singapore
Brasilprev – an outlier: Grew NCCF market share
in a volatile market
+
BRAZIL MEXICO CHILE
Brasilprev: #1 in net deposits
5th largest AFORE
(by AUM)
#1 APV: PI Chile and
Cuprum
PRINCIPAL IS 2ND LARGEST PENSION PROVIDER IN LATIN AMERICA
PROVEN STRENGTH &
SUCCESS
PRINCIPAL INTERNATIONAL
Latin America
45 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.
CREATING A “ONE-STOP
SHOP”
PRINCIPAL INTERNATIONAL
Chile
46 ERM = Enterprise Risk Management
COMPREHENSIVE RETIREMENT PLATFORM Together Principal Financial Chile and Cuprum completes the full spectrum of products for a comprehensive “hire
through retire” approach to the market
TOGETHER
PRODUCTS: Mandatory Pension Voluntary Pensions:
AFP Fund Based Mutual Fund Based Mutual Funds Payout Products:
Annuities Based Structured Payout Life (Accumulation)
DISTRIBUTION: Brokers & Independent Agents Retail Alliances Proprietary Sales Force
Source: Company information.
Chile
PRINCIPAL INTERNATIONAL
47
HONG KONG
Among Top Ten MPF* Providers BUILDING A
STRONG FOUNDATION
MALAYSIA
#2 in Asset Management
CHINA
Top Ten for Mutual Funds
INDIA
1st mover in advisory services business
PRINCIPAL INTERNATIONAL
Asia
48 *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
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
INVESTMENT PHILOSOPHY
AND STRATEGY
INVESTMENTS
49
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
Principal Financial Group
$69.5 Billion
* Other includes Equity Securities, Residential Mortgages, Real Estate, Policy Loans, Investment in Equity Method subs, Direct Finance Leases and Other Investments
INVESTMENTS
50
Invested Assets & Cash
As of 03/31/14 GAAP carrying value
ASSETS & LIABILITIES
PERFORMED AS EXPECTED
INVESTMENTS
-$600
-$400
-$200
$0
$200
$400
$600
$800
Jan-
12Fe
b-12
Mar
-12
Apr-
12M
ay-1
2Ju
n-12
Jul-1
2Au
g-12
Sep-
12O
ct-1
2N
ov-1
2De
c-12
Jan-
13Fe
b-13
Mar
-13
Apr-
13M
ay-1
3Ju
n-13
Jul-1
3Au
g-13
Sep-
13O
ct-1
3N
ov-1
3De
c-13
In m
illio
ns
Actual net assets & liabilities Modeled net assets & liabilities
51
Majority of unrealized losses were never
realized because we were not forced sellers
CMBS CONTINUES TO
BE WELL SUITED FOR
OUR LIABILITIES
INVESTMENTS
-$200
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2009 2010 2011 2012 2013 3/31/2014
In m
illio
ns
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 CDOPortfolio $4.1B as of 03/31/2014)
* 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. .
52
POWER OF OUR FEE-BASED
MODEL
OPERATING EARNINGS
Continual shift in mix of business leading to a higher
ROE and more free cash flow
65% 20%
15%
Current
70%
15%
15%
2018E
Fee Spread Risk
53 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
16.4%
12.1% 15%
2007 2013 2018E
50-80 bps average annual ROE
improvement 15% ROE IS AGAIN
WITHIN REACH
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%
54
Replaced approximately $150M of risk/spread operating earnings with fee-based operating earnings
FINANCIALS
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%
55
FINANCIALS
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
RETURNING CAPITAL TO
SHAREHOLDERS 2007 Current 2018E
• Less capital needed to support organic growth • Moving to higher dividend payout ratio • Diligently pursuing active acquisition pipeline • Opportunistically buying back shares
56
(Acquisitions & share buybacks) Organic Growth Dividends Available Capital
25%
25% 50%
33%
33%
34% 40%
30%
30%
FINANCIALS
57
Opportunity Year
Announced Rationale
2013 Expand alternative asset class capabilities
2012 Complete offering in Chile with
marquee pension and savings franchise
2012 Entry into Brazil mutual fund and asset management market
2011 Enhance global equity investment capabilities
2011 Establish leadership in emerging markets fixed income investing
AFORE 2011 Solidify position as a leader in Mexican Afore market
BrasilPrev 2010 23 year extension of successful JV with Banco do Brasil
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
MERGER & ACQUISITION
CRITERIA
• Mid-teens IRR • More accretive than
buyback over time
1 2 3
STRATEGIC
ABILITY TO ONBOARD
DISCIPLINED PRICING
• Aligns with our core competencies
• Blend local talent with Principal expertise
• Synergies with multiple lines of business preferred
• Adds scale or a new niche
Have a diligent M&A process
that optimizes long-term results
58 IRR = Internal Rate of Return.
FINANCIALS
Capital Deployment
Strategic Acquisitions: $350M
Opportunistic Share Repurchases:
$550M
2011 2012 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)
FINANCIALS
59
• Expect deployment for 2014 to be at the top end of the $500M-700M range
• More than $475M announced for 2014 so far
$177M in common stock dividends
o Paid 1Q14 dividend of 28-cents per share
o Announced 2Q14 dividend of 32-cents per share
$200M authorized share repurchase program
o $100M in share repurchases as of 4/25/14, including $55M from prior
year authorization
o $155M remaining on current authorization
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 FINANCIALS
60
WHAT IF…
IMPACT OF A SLOW-RISING
INTEREST RATE ENVIRONMENT
PROS
CONS • Fixed income AUM declines
• Unrealized gain/loss
BOTTOM LINE: Less downside impact means less upside impact, but still upside
• More Net Investment Income
• Lower security benefit costs
• Individual Life & fixed deferred
annuities benefit
• Potential for more Full Service
Payout pipeline
61
FINANCIALS
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%
62
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-$150 million in 2014
(1) Excludes discontinued operations. (2) Diluted. (3) Operating return on average equity excluding other comprehensive income, based on trailing 12 month period.
2001 2013 CAGR (’01-’13)
YTD 1Q14
YTD 1Q13 Change
Operating Earnings(1)
($M) $433 $1,060 8% $317 $233 36%
Earnings Per Share(2) $1.20 $3.55 9.5% $1.06 $0.79 34%
Assets Under Management ($B)
$98 $483 14% $496 $456 9%
ROE (TTM)(3) 6.9% 12.1% +520 bps 13.0% 9.8% +320 bps
Book Value Per Share (x-OCI) $17.81 $30.35 5% $30.81 $29.19 6%
S&P 500 1,148 1,848 4% 1,872 1,569 19%
Results Demonstrate Relative Strength of Our Business Model
63
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