Principal Financial Group Inc · NASDAQ:PFG
Principal Financial — Investor Day (December 2007)
130 slides from Principal Financial's investor day presentation, Dec 6, 2007
Slide 1: Investor Day
Investor Day Principal Financial Group, Inc. December 6, 2007 Exhibit 99.1 Page 1 of 130
Slide 2: Tom Graf
Tom Graf Senior Vice President & Investor Relations Officer
Slide 3: Use of Non-GAAP Financial Measures
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
Slide 4: Forward Looking Statements
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 sales targets, sales and earnings trends, and management’s beliefs, expectations, goals and opinions. The com
Slide 5: Agenda
Agenda Noon 11:55 am 11:40 am 11:25 am 11:10 am 10:30 am 10:15 am 10:00 am 9:30 am 8:45 am 8:20 am 8:00 am Time Julia Lawler Investments Norman Sorensen Principal International Mary O’Keefe Lunch Presentation – Building a World Class Brand J. Barry Griswell Closing Remarks PANEL Q&A Mike Gersie Capi
Slide 6: J. Barry Griswell: Strategy Overview
J. Barry Griswell Chairman and Chief Executive Officer Strategy Overview
Slide 7: Why Invest in The Principal?
Why Invest in The Principal? Promises made, promises kept. Additional ROE improvement Further P/E multiple expansion Substantial and increasing free cash flow Continued outstanding EPS growth
Slide 8: Overarching Themes
Overarching Themes Marketplace trends create meaningful growth opportunities Strengths at work to capitalize on trends: Industry leadership; Expertise developing needs-based solutions; and Ability to build long-term customer and advisor relationships Highly effective execution drives exceptional fin
Slide 9: Execution Drives Strong Results
Execution Drives Strong Results 9 months ‘06 ’01 9 months ‘07 ‘06 Note: data in tables throughout presentation have generally been rounded. Calculations based on un-rounded financial supplement data. *Excludes discontinued operations **Diluted ***Operating return on average equity excluding other co
Slide 10: Execution drives results: Asset Management/Accumulation Growth Engine
Execution drives results: Asset Management/Accumulation Growth Engine $569 $296 6 business total $972 $668 Total company ’03 OE ($M) ’06 OE ($M) *Full service accumulation, Principal Funds, Individual Annuities and Bank combined 24% 13% $35 $36 $225 27% $72 Principal International 42% $103 Principal
Slide 11: Execution drives results: Asset Management/Accumulation Growth Engine (AUM)
Execution drives results: Asset Management/Accumulation Growth Engine $257 $144 Total company (AUM)* ’03 AUM or AV ($B) ’06 AUM or AV ($B) Assets under management (AUM) or Account values (AV) *Total includes $28 billion of assets under management acquired with the WM Advisors transaction, which clos
Slide 12: 1879: A Solid, but Simple Beginning
1879: A Solid, but Simple Beginning “…There must be a better, less expensive way for honest employees who want assured protection for their families…” – Edward A. Temple
Slide 13: Growth by Evolution/128 Years of Success
Growth by Evolution/128 Years of Success Life Assoc Mutual Life Company Mortgage Banking/ Commercial Mortgages Group Health/ Pension Mutual Funds Defined Contribution Principal International Principal Bank / Mutual Holding Company Principal Global Investors BCI Acquisition/ TRS* strategy 125th Anniv
Slide 14: Evolving to Meet Market Needs
Broadening of the retirement system Opening of global markets Easing of regulatory restrictions Rise of the consumer Era of Personal Responsibility Expansion of individual savings Employee 1879 1941 1968 1970 1990 1999 2001 2006 Evolving to Meet Market Needs One-stop shopping Save/invest for retirem
Slide 15: Keys to Success Today
Keys to Success Today New product education, needs analysis tools and point of sale expertise Financial advisors Assets appropriate for retirement and other long-term investing strategies, and consistently strong investment performance Institutions Help developing and executing a tailored financial
Slide 16: Changing Landscape Creates Opportunity
Changing Landscape Creates Opportunity Rising benefit costs and global competition; Resource- constrained HR departments Aging population and increased life expectancies Trend Squeezed benefits budgets Shift of cost and decision-making responsibility for financial security to employees U.S. governme
Slide 17: Our Strategy
Our Strategy Deepen Deliver within comprehensive employee benefits package Expand footprint Capitalize on Leverage in select international markets Extend retirement leadership to Maximize SMB market penetration complete retirement solutions multi-channel distribution global asset management expertis
Slide 18: What Will Define The Principal Long-Term?
What Will Define The Principal Long-Term? Delivering on our promises – to shareholders, employees and customers Retirement market leader in the U.S. and select international markets Top tier global asset manager Leading provider of retirement and other employee benefit solutions Best in class “do it
Slide 19: Larry Zimpleman: Trends, Strengths & Execution
Larry Zimpleman President and Chief Operating Officer Trends, Strengths & Execution
Slide 20: Targeting Strong Long-Term Growth
Targeting Strong Long-Term Growth (1) Actual quarterly and annual results may fall outside the average annual range. Longer-term growth expectations should be applied to normalized results. (2) Operating return on average equity excluding accumulated other comprehensive income, calculated over the t
Slide 21: Key Drivers of Long-Term Growth
Key Drivers of Long-Term Growth Trends create opportunity Strengths to capitalize on trends Execution drives results
Slide 22: Trends create opportunity: Baby Boomer Demand
Trends create opportunity: Baby Boomer Demand Source: “Growing Up Digital: The Rise of the Net Generation” Don Tapscott, McGraw-Hill, 1997 Live Births
Slide 23: Trends create opportunity: Era of Personal Responsibility
5 42 19 22 40 14 22 36 0 25 50 75 100 1974 2030E Income from Personal Assets (i.e. IRAs, 401(k) plans) Wages in Retirement Federal Income (i.e. Social Security) Private Pension Plans (i.e. Defined Benefit Plans) Source: EBRI and Cerulli Associates Trends create opportunity: “Era of Personal Responsi
Slide 24: Trends create opportunity: Trusted Advisor in Increasingly Complex World
Trends create opportunity: Trusted Advisor in Increasingly Complex World Pension Protection Act of 2006 Global Pension Reform Technology/Privacy Corporate Owned Life Insurance American Jobs Creation Act Estate tax planning Healthcare Reform
Slide 25: Existing strengths: Capabilities Align with Market Needs
Existing strengths: Capabilities Align with Market Needs Baby Boomer Needs Personal Responsibility Increasing Complexity & Risk Retirement leadership Top tier asset manager Global presence Retail capabilities “Do-it-For-Me” solutions Worksite benefits counseling Advisor-based distribution SMB leader
Slide 26: Existing strengths: Deep SMB Market Penetration
Existing strengths: Deep SMB Market Penetration U.S. Market Penetration for The Principal 125,000 SMB customers worldwide
Slide 27: Existing strengths: Broad, Needs-Based Solutions
Existing strengths: Broad, Needs-Based Solutions Group and individual life Group medical, wellness and disease management Group dental and vision Group and individual disability income insurance Personal Retirement Accounts Defined Benefit plans Traditional, Roth and Rollover IRAs LifeCycle Funds In
Slide 28: Existing strengths: Bundled Approach
Existing strengths: Bundled Approach Employers Value Integrated services on a single platform: Plan design Compliance Investments Employee education Cost savings Efficiency and time savings Improved plan sponsor services Improved participant services Greater accountability
Slide 29: Existing strengths: A Multichannel Approach
Existing strengths: A Multichannel Approach Via employers Alliance-related sales up $1.3 billion,* or 84% *9 months ’07 compared to 9 months ‘06 Principal Connection Worksite Independent Proprietary Career Agency
Slide 30: Emerging strengths: Excellence in Worksite Benefits Counseling
The place to build long-term relationships Financial solutions for the rest of us Retirement and voluntary solution focused Proactive, face-to-face guidance Emerging strengths: Excellence in Worksite Benefits Counseling average deferral rate average participation rate Plans using our Worksite offeri
Slide 31: Emerging strengths: Build-out of Local Consulting Capability
Emerging strengths: Build-out of Local Consulting Capability National Network of Sales, Service and Consulting Resources 800 Strong *Worksite benefits counselors; education specialists; Total Retirement Suite, ESOP and actuarial consultants; and retention and income management specialists. Sales and
Slide 32: Execution: Retirement Leader Delivers Complete Solutions
7.1% DC/ NQ Execution: Retirement Leader Delivers Complete Solutions #1 Bundled 401(k) plans (1) #1 ESOP (2) #1 NQ-401(k) mirror plans (3) #1 Defined Benefit (4) #2 Fully bundled TRO plans (5) #3 Plan termination annuities (6) Sources: (1) Spectrem Group 2006, (2) PlanSponsor 06/07, (3) PlanSponsor
Slide 33: Execution: Insurance & Employee Benefits Know-How
Execution: Insurance & Employee Benefits Know-How *Sources: National Underwriter 08/07 and LIMRA International, 03/06; Life ranking based on statutory assets, Health ranking based on premiums earned and Non-medical ranking based on in-force **Global Asset Management (Principal Global Investors) Oper
Slide 34: Execution: Asset Management Expertise
Execution: Asset Management Expertise U.S. institutional World ranking Top Manager Rankings (by assets) 27 23 92 71 2004 2005 *Based on U.S. institutional tax-exempt assets, as of 12/31/06, unless otherwise stated Sources: ** Pensions & Investments Pionline.com; *** Pensions & Investments as of June
Slide 35: Execution: Well-positioned for Global Growth
PRINCIPAL FINANCIAL GROUP Headquarters Des Moines, Iowa Principal AFORE Pensions Principal Fondos de Inversión, S.A. de C.V (PFI) Mutual Funds, IAM Principal Vida Annuities / Pensions Principal Creditos Hipotecarios Residential Mortgages Principal AGF Mutual Funds, IAM BrasilPrev - JV with Banco do
Slide 36: Execution: Disciplined Capital Management
Execution: Disciplined Capital Management WM Advisors CCI Post Spectrum Morley BCI Group (ESOP) Molloy (Wellness) EBS (NQ) CCB Principal Asset Management Dao Heng CIMB Principal Zurich AFORE Tepeyac AFORE ABN AMRO Trust Services Company KeyCorp 1. ORGANIC GROWTH 2.STRATEGIC ACQUISITION 3. RETURN TO
Slide 37: Execution drives results… Comparison to peers
Execution drives results… Comparison to peers Growth: ‘01 to ’06 Measure up 640 bps 21% CAGR 34% higher than Life & Annuities companies , 218% higher than the Asset Managers** ROE 2X the pace of the Asset Managers, nearly 3X the pace of the Insurance Industry* AUM Sources: *Investment Company Instit
Slide 38: Execution drives results: Significant Share Price Appreciation
Execution drives results: … and Significant Share Price Appreciation S&P 500 6-YR* CAGR 5.5% *From 1,089.90 at opening on 10/23/01 to 1,506.33 at close on 10/22/07. **From $20.50 at opening of trading following the company’s IPO on 10/23/01 to $62.50 at close on 10/22/07. PFG Share Price 6-YR** CAGR
Slide 39: Trends Support our Approach
Trends Support our Approach Drives asset management and accumulation opportunities in select international markets Enables relationship building, expansion of retail investor strategy Increases demand for “do-it- for-me” solutions for individuals Benefit Global demographics Greater access to employe
Slide 40: PFG 2017
PFG 2017 14 to 17% Principal International 5 to 8% Life and Health Segment 14 to 17% Principal Global Investors 11 to 14% U.S. accumulation businesses* *Operating earnings compounded annual growth rate **Full Service Accumulation, Principal Funds, Individual Annuities and Bank OE CAGR* ‘06A to ’17E
Slide 41: PFG 2017 Total company
PFG 2017 Total company Assumptions for one scenario: Roughly 2% per quarter market appreciation No major acquisitions or dispositions No significant changes in regulatory environment 13% - 2.5% 10% CAGR (’06-’17E) EPS Avg. Shares Operating Earnings 2017E Asset management and accumulation approx. 85%
Slide 42: Q&A
Q&A
Slide 43: Break
Break
Slide 44: Dan Houston: U.S. Asset Accumulation
Dan Houston Executive Vice President U.S. Asset Accumulation
Slide 45: Execution drives results: Asset Accumulation Growth Engine
Execution drives results: Asset Accumulation Growth Engine 9 mths ’07 ’03 ’06 9 mths ‘06 FSA*, Principal Funds, Individual Annuities & Bank combined *Full Service Accumulation **2006 account values include $22.5 billion acquired with the WM Advisors transaction, which closed effective December 31, 2
Slide 46: Tailwinds Significantly Outweigh Headwinds
Asset accumulation growth engine: Tailwinds Significantly Outweigh Headwinds Traction with alliance sales strategy New accumulation and payout solutions, including “in plan income options” Broader, deeper distribution relationships Job changer phenomenon Broader rollover market, including roll-ins P
Slide 47: Growth by Evolution
Growth by Evolution Market Needs Met Customer Segmentation New Product & Service Solutions New Distribution Channels Expansion through Acquisition
Slide 48: Driving Continued Growth: Customer Segmentation
Driving Continued Growth in U.S. Asset Accumulation SMB segmentation drives service model Specialized needs of business owners, key execs and broad employee base Local enrollment and guidance resources Life stage segmentation Personalized planning and long-term relationship building: with business o
Slide 49: Driving Continued Growth: New Product & Service Solutions
Driving Continued Growth in U.S. Asset Accumulation Principal Advantage Total Retirement Suite LifeCycle Funds Retail rollover solutions GMWB PPA levers – auto enroll, auto escalate Benefits data management Retirement income management, in plan solutions DC Investment Only Yesterday & Today Tomorrow
Slide 50: Driving Continued Growth: New Distribution Channels
Driving Continued Growth in U.S. Asset Accumulation Greater sales and service specialization Principal Connection retention specialists Wirehouse & Regional B/D Alliances Bank Channel Channel developers & emerging market reps Deepen/strengthen existing alliances Collaborative, flexible retention sol
Slide 51: Driving Continued Growth: Expansion through Acquisition
Driving Continued Growth in U.S. Asset Accumulation BCI Group Benevation Executive Benefit Services Professional Pensions, Inc. ABN AMRO WM Advisors Additional DC consolidation Moving the mutual fund business from top 50 to top 25 Opportunities to expand offerings within Total Retirement Suite Tomor
Slide 52: Customer segmentation: Meeting New Demands
Customer segmentation: Meeting New Demands from “Era of Personal Responsibility” Personalized benefits/ “do-it-for-me” solutions Targeted educational materials Automatic enrollment and step-up features One-on-one meetings with retirement specialists Balanced funds/LifeCycle funds Age-appropriate inv
Slide 53: Customer segmentation: Drives Strong Customer Satisfaction
Customer segmentation: Drives Strong Customer Satisfaction #1 in DC client retention (Boston Research Group, Aug. 2007) 27 “Best in Class” ratings , including recognition for flexibility, accessibility and responsiveness of client service teams (Chatham Partners, Dec. 2006) Dalbar 2007 Communication
Slide 54: Customer segmentation: Outstanding Retention
2003 2004 Total DC assets retained by all channels in $ Millions % Total Assets retained as a percentage of assets at risk $2,486 $3,005 $3,518 Job changers Retirees Customer segmentation: …and Outstanding Retention $3,630 2005 2006 55% 54% 53% 54% $3,685 $3,190 2002 52% 51% YTD’07* *9 months ended
Slide 55: Distribution: Local Sales and Service to Meet Needs of SMBs
Distribution: Local Sales and Service to Meet Needs of SMBs… March 2007 NOTE: Approximate view. Check www.principal.com for actual locations. Co-Located Office (31) HI WA OR CA MT ID WY NV UT AZ NM CO ND SD NE KS OK TX MN IA MO AR LA MS WI IL MI IN OH KY TN AL GA FL SC NC VA WV PA NY ME NH VT MA CT
Slide 56: Distribution: Advisors who Serve them
Distribution: …and the Advisors who Serve them Source: Brightwork Partners 2005 Advisor Study. Long-Term Player #1 = The Principal #2 = ING #3 = Fidelity #4 = American Funds #5 = MassMutual Shelf Space #1 = American Funds #2 = Hancock #3 = The Principal #4 = Nationwide #5 = ING Best Overall Package
Slide 57: Distribution: Increasing Alliance Strategy Momentum
Distribution: Increasing Alliance Strategy Momentum n/a 39% 40% 28% 12% As % of Total Sales* YTD’07** $2.8 B $2.1 B $0.4 B Assets * Based on assets **9 months ended 9/30/07 CAGR 2001 2006 Alliance sales Wirehouses Insurance Producers Regional Broker Dealers (B/Ds) Planners/ Independent B/Ds Bank, B/
Slide 58: Distribution: Our Unique Approach to the Workplace
Distribution: Our Unique Approach to the Workplace What it IS NOT: Product pushing by commissioned sales people High net worth only What it IS: Financial solutions for the “rest of us” Needs analysis Personalized guidance Simplified enrollment Planning resources Local service Principal RetireSecure
Slide 59: Distribution/Solutions: Personalized solutions
Distribution/Solutions: Personalized solutions
Slide 60: Distribution: Workplace Guidance Improves Plan Economics
Distribution: Workplace Guidance Improves Plan Economics +76% n/a Average annual premium per participant n/a +13% Avg Deferral rate +48% +13% Participation +100% +46% Close Ratio (by contract) *One-on-one benefit counseling services for retirement and protection benefits With WorkSecure* (as of 09/3
Slide 61: Solutions: Leading Total Retirement Solutions Provider
Solutions: Leading Total Retirement Solutions Provider Comprehensive retirement plan consulting and administration for all plan designs, including DB, DC, ESOP, and NQ Benefits to Employers Best-in-class products Principal Connection to assist employees Simplifies participant data management Expande
Slide 62: Solutions: Total Retirement Suite Gets Results
Solutions: Total Retirement Suite SM Gets Results… 343 449 183 77 Plans 58% $3.9 60% 34% 24% % of Total Sales* 9 months ‘07 $4.0 $2.1 $1.3 Assets ($B) *Based on assets 2006 2004 2005 TRS
Slide 63: Solutions: Driving Full Service Accumulation Sales Leadership
*Report as of 12/31/06. A number of significant competitors did not participate, including Diversified, Fidelity, Paychex, T. Rowe Price and Vanguard. Solutions: …Driving Full Service Accumulation Sales Leadership #1 Total 401(k) assets #1 Total 401 (k) participants #3 Total 401 (k) plans PFG Rankin
Slide 64: Solutions: Pension Protection Act Opportunities
Plan analysis & asset review Plan design & redesign Plan freeze & termination DC consulting for transitions from DB to DC Auto options Financial advice DB(k) Solutions: Pension Protection Act Opportunities Defined Benefit Reform Enhanced Defined Contribution Longer-Term
Slide 65: Solutions: Comprehensive Services to Capitalize on PPA
Solutions: Comprehensive Services to Capitalize on PPA Our comprehensive suite : Auto enrollment and increase options since 2000 Expanded education & guidance capabilities DC consulting for transitions from DB to DC DB plan analysis, design, freeze & termination DB(k) and other innovations Use of au
Slide 66: Solutions: Evolution of Income Management
Solutions: Evolution of Income Management The Principal is well-positioned to turn savings into income: Planning assistance Full array of investments Innovative solutions Accumulation: IRAs 401(k) Mutual Funds Annuities Life Insurance Income: Income annuities Periodic withdrawals Our Approach: Auto
Slide 67: Distribution and Solutions: WM Advisors Acquisition
Distribution and Solutions: WM Advisors Acquisition Substantial added scale Intermediary distribution The SAM Portfolios – Lifestyle segment leadership Improved combined product suite Investment professionals largest manager of LifeCycle funds* *Source: Financial Research Corporation March 2007 5 th
Slide 68: Defined Contribution Investment Only (DCIO) Strategy
Distribution and Solutions: Defined Contribution Investment Only (DCIO) Strategy Principal Funds on third party accumulation platforms, available through TPAs, RIAs, record-keepers and others Principal LifeTime Funds and Strategic Asset Management portfolios serve as foundation, complemented by full
Slide 69: One Scenario: Continued Strong Account Value Growth
One Scenario: Continued Strong Account Value Growth 12/31/06 2017E Cumulative market performance 12% CAGR $350B $200B $175B $100B $175B $125B Cumulative asset accumulation sales Growth in FSA recurring deposits FSA member level withdrawals Retention of at risk FSA member level assets Normal withdraw
Slide 70: One Scenario
One Scenario ’17E ’06A FSA, Principal Funds, Individual Annuities and Bank combined 10% $19 $6.8 Net cash flows ($B) 12% $475 $137 Account values ($B) 12% $1,370 $394 Operating earnings ($M) CAGR (’06-’17)
Slide 71: Jim McCaughan: Global Asset Management
Jim McCaughan Chief Executive Officer, Principal Global Investors Global Asset Management
Slide 72: Asset Management Growth Engine
Asset Management Growth Engine 9 mths ’07 ’03 ’06 9 mths ‘06 Principal Global Investors *Includes $22.6 billion of assets under management acquired with the WM Advisors transaction, which closed effective December 31, 2006. **Includes AUM acquired with WM Advisors transaction, and $13.7 billion of A
Slide 73: Fee Strength Eclipses Adverse 3Q07 Credit Conditions
Fee Strength Eclipses Adverse 3Q07 Credit Conditions 9 months ’07 9 months ‘06 Principal Global Investors YTD06 3Q06 1H06 $29 $9 $20 $15 $(1) $16 YTD07 3Q07 1H07 Spread earnings reflect transition to CMBS JV, coupled with adverse credit conditions in 3Q07 *Rounding In $Millions 57% $66 $42 Fee busin
Slide 74: quewieBeuew sepun syesse
quewieBeuew sepun syesse 4eeh Jo BujuuiBeq Jo qeosed Se JON SUOIIIIGS Ul SMOY USED IN) Pz lm Net cash flows —*=As % of BOY AUM
Slide 75: Reflect Strong Institutional Traction
…Reflect Strong Institutional Traction New 3 rd Party Mandates 11 4 - Relationship Management/ Client Service 11 6 - Sales/Consultant Relations International 27 18 - Relationship Management/ Client Service 5 1 - Consultant Relations 24 18 - Sales Domestic 3Q2007 1Q2006 Sales Force Build-up TOTAL
Slide 76: Principal Global Investors at a Glance
Principal Global Investors at a Glance Diversified global asset management organization $233 billion in assets under management* 1,300 employees including approx. 500 investment professionals Serving institutional clients in 26 countries, including 14 of the 30 largest U.S. pension plans *As of Sept
Slide 77: A Manager of Assets Appropriate for Retirement
Principal Global Investors A Manager of Assets Appropriate for Retirement… …and Other Long-Term Investment Strategies Fundamental approach, appropriate risk levels Comprehensive range of income assets Building capabilities organically and through M&A
Slide 78: Global Reach
Global Reach Asset Management Locations Principal Global Investors & Principal International Affiliates
Slide 79: Diverse and High Value Added Capabilities
Diverse and High Value Added Capabilities
Slide 80: Strengthened Through Strategic Acquisitions
Strengthened Through Strategic Acquisitions Large enough to have scale… …small enough to have flexibility
Slide 81: Keys to Continued Growth in Global Asset Management
Keys to Continued Growth in Global Asset Management Top-tier investment performance/assets suitable for retirement and other long-term strategies Talent retention Multi-boutique strategy/managing & maximizing acquisitions Expanding U.S. and International distribution channels Refining products to me
Slide 82: Competitive Investment Performance
Search Competitive Investment Performance… 51% 1yr 85% 3yr 84% 5yr Fund manager of the year awards include recognition for: Sources of awards: South China Morning Post, based on 3-year performance, March 2007; AsianInvestor magazine, based on 5- year risk-adjusted performance, April 2007; and IMCA/M
Slide 83: Track Record of Maximizing Acquisitions
…and a Track Record of Maximizing Acquisitions $41.2B $8.8B n/a Total $16.5B $3.9B 2005 Columbus Circle $11.1B $3.9B 2003 Post Advisory $13.6B $1.0B 2001 Spectrum 368% 323% 185% 1260% % increase AUM at 09/30/07 AUM acquired Year of transaction M&A
Slide 84: Drives Significant Growth in 3rd Party AUM
…Drives Significant Growth in 3rd Party AUM Principal Global Investors Third Party AUM 54% 6-Year CAGR *Including affiliates, as of November 2007. Principal Global Investors* has 15 relationships of $1 billion or more including: California State Teachers Retirement System Iowa Public Employees' Reti
Slide 85: Expanding U.S. and International Footprint
Expanding U.S. and International Footprint Continue targeting: Institutional clients (entities with investable assets > $250 million) Third party insurance (both life and P&C, general account assets between $1-$20 billion) Third party Separately Managed Accounts (SMA/UMA) for major wirehouses – Merr
Slide 86: Product Development Leverages Expertise
Product Development Leverages Expertise International and Global Property Securities Capabilities to invest in Green Real Estate International and Global 130/30 New credit derivatives product company Volatility capabilities Global Credit opportunity Socially Responsible Equity High yield commercial
Slide 87: One Scenario: Principal Global Investors
One Scenario ’06A ’17E Principal Global Investors *Totals include $5 billion of assets under management acquired with the WM Advisors transaction, which closed effective December 31, 2006. 14% $1,800 $435 Fee revenues ($M) $12.8 $59* $103 $ 45 $ 400 $475 12% 19% 15% CAGR (’06-’17) Net cash flows ($B
Slide 88: Norman Sorensen: International Asset Management & Accumulation
Norman Sorensen Senior Vice President, CEO, Principal International International Asset Management & Accumulation
Slide 89: Int'l Asset Management & Accumulation Growth Engine
Int’l Asset Management & Accumulation Growth Engine 9 mths ’07 ’03 ’06 9 mths ‘06 Principal International *YTD operating earnings growth of 38% on normalized basis **AUM as of 9/30/07 up 38% from a year ago on an organic basis ***Segment ROE of 7.7% on normalized basis for the trailing twelve months
Slide 90: Capitalizing on Emerging Global Growth
Retirement-centric – top defined contribution pension and retirement countries over the next generation Long-term mutual funds Institutional asset management – as employers begin to replace government retirement programs Large emerging markets – global shifts in population and wealth Principal Inter
Slide 91: Driving Continued Growth for Principal International
Driving Continued Growth for Principal International Significant growth in demand for employer and personal retirement savings Ability to leverage strong local partner distribution Increasing scale and brand awareness in key markets Continued transition to fee-based businesses
Slide 92: Increasing Demand for Privately Provided Retirement Savings
Increasing Demand for Privately Provided Retirement Savings 1960 Population aged 65+ Percent 1990 2020E 2050E Source: The Future of Retirement, HSBC Developing world Developed world 2000 By 2050, the world is expected to have 2 billion people > the age of 65
Slide 93: Leveraging Strong Local Partner Distribution
Leveraging Strong Local Partner Distribution 4,500 branches, 300,000 business accounts, 35 million individual customers 2 nd largest public sector commercial bank in India Punjab National Bank India 380 branches, 250,000 business customers, 4.5 million individual customers 2 nd largest financial ser
Slide 94: Increasing Scale and Brand Awareness
*As of 9/30/07 **IAM – Institutional asset management ***China AUM not included in reported totals due to level of ownership in joint venture INDIA MALAYSIA HONG KONG MEXICO Increasing Scale and Brand Awareness 4.7 Pension Mexico 4.8 Mutual Funds/IAM Malaysia 3.8 Mutual Funds/IAM India 2.1 Pension/I
Slide 95: Brazil and China
Brazil and China *For the trailing twelve months ended 3Q07, based on the current defined contribution offerings approved for distribution in Brazil. CCB Principal Asset Management Co. Own 25% of a joint venture with China Construction Bank AUM up $5 billion over the trailing twelve months to $5.6 b
Slide 96: Transitioning to Fee-Based Businesses
Strengths at work: Transitioning to Fee-Based Businesses Fee Revenues ($ millions) Reported +15% Incl. equity method subs +66% Fee revenues were 52% of combined premiums and fees through 9 mths ‘07 as compared to 38% for 9 mths ‘06 9mths 9mths 9mths 9mths
Slide 97: One Scenario: Principal International
One Scenario ’06A ’17E Principal International 16% $100 $19 AUM ($B) 7.8% $2 $72 15% $7 $325 +720 bps 12% 15% CAGR (’06-’17) ROE Net cash flows ($B) Operating earnings ($M)
Slide 98: Q&A
Q&A
Slide 99: Break
Break
Slide 100: Mike Gersie: Capital Management & Enterprise Risk Management
Mike Gersie Executive Vice President & Chief Financial Officer Capital Management & Enterprise Risk Management
Slide 101: Financial Strategy Overview
Strengths at work: Financial Strategy Overview Grow earnings Manage capital Control risk Increase shareholder value Influence drivers that influence results.
Slide 102: Effective Capital Management
Strengths at work: Effective Capital Management Capital management metrics Maintaining AA Rating Lowering weighted average cost of capital (WACC) Meeting capital needs going forward Managing capital to build shareholder value
Slide 103: Capital Management Metrics
Capital Management Focus: Capital Management Metrics 21% 23% 20% Debt/Capital (Moody’s) <25% 381% 11.6X 108% 2007 Estimate 375% 10.4X 111% 2006 Actual 360% Liquidity (S&P) >260% 9.9X GAAP Earnings Interest Coverage (Moody’s 5 yr avg) 10X 126% Capital Ratio (S&P) AA level 2005 Actual 8.48% 8.69% 9.04
Slide 104: Capital Usage Today and Longer-Term
Capital Management Focus: Capital Usage Today and Longer-Term 0%-25% 0%-25% Approx. 15% Approx. 60% Option, as % of OE, 2002 $0-$1.2 billion 0%-45% 0%-35% Repurchase $0-$1.2 billion 0%-45% 0%-35% Acquisitions Approx. $500 million Approx. 20% Approx. 20% Shareholder dividend Approx. $1 billion Approx
Slide 105: Capital Management Summary
Capital Management Summary Strong earnings growth generating substantial and increasing “free capital” Flexibility & capacity supports EPS growth and ROE expansion Effective capital management creates exceptional value
Slide 106: Enterprise Risk Management (ERM)
Enterprise Risk Management (ERM) Diligent and disciplined ERM program tied to company strategy Built on strong, well-established, traditional risk management fundamentals and controls Established risk appetite and tolerances Tools & processes to assess, monitor, and manage risk Scenario planning/wha
Slide 107: Enterprise Risk Management
Enterprise Risk Management Robust risk models/metrics Earnings at Risk (EaR) Embedded Value at Risk (EVaR) Economic Total Asset Requirement (Economic Reserves plus Economic Capital) Economic Value Added ALM Models 5-Quarter Rolling and 10-Year Forecasts Liquidity Analysis
Slide 108: ERM Economic Risk Metrics
ERM Economic Risk Metrics Total assets required to ensure we can meet all obligations with 99.5% confidence Potential shortfall in embedded value relative to baseline under relatively adverse business & economic conditions Potential shortfall in operating earnings relative to baseline under relative
Slide 109: Julia Lawler: Investments
Julia Lawler Senior Vice President & Chief Investment Officer Investments
Slide 110: Investment Philosophy and Strategy
Strengths at work Investment Philosophy and Strategy Maintain Quality, Well Diversified Portfolio Active Asset/Liability Management and Strategy Optimize Risk Adjusted Yields and Returns Maximize after-tax returns consistent with acceptable risk parameters 1. 2. 3.
Slide 111: Cash and Invested Assets
$62.0 Billion $65.5 Billion Principal Financial Group Investments Cash and Invested Assets 09-30-2007 12-31-2006
Slide 112: Corporate Fixed Maturities Portfolio by Industry
U.S. Invested Assets Corporate Fixed Maturities Portfolio by Salomon Industry 09-30-2007 12-31-2006 $30.4 Billion $30.8 Billion
Slide 113: U.S. Fixed Maturities Composition by Asset Type
12-31-2006 $42.4 billion $43.8 billion U.S. Fixed Maturities Composition by Asset Type 09-30-2007
Slide 114: Fixed Income Securities Portfolio
U.S. Invested Assets Fixed Income Securities Portfolio 100.0% 100.0% 100.0% 100.0% 57.5% 38.2 3.7 0.5 0.1 0.0 57.1% 38.2 3.9 0.7 0.1 0.0 55.7% 38.9 4.5 0.7 0.0 0.2 53.5% 40.8 4.3 0.9 0.1 0.4 1 2 3 4 5 6 % of Fixed Income Securities Portfolio 4.3% 4.7% 5.4% 5.7% BIG as % of Total Fixed Income Securit
Slide 115: Managing the Portfolio/Areas of Focus
Principal Financial Group Investments Managing the Portfolio/Areas of Focus Commercial Mortgages: an important asset for Asset/Liability Management (ALM) strategy Sub-prime: exposure small, investments high quality Managing exposure to troubled markets Financials Homebuilders CMBS CDOs
Slide 116: Commercial Mortgage Loan Portfolio
Principal Financial Group Investments Commercial Mortgage Loan Portfolio Important asset for ALM strategy Solid, high quality portfolio Low loan to value, 60% High debt service coverage, 1.9X Well diversified by borrower, property type and geographic region Historically, losses over all economic cyc
Slide 117: Subprime Exposure Small, Investments High Quality
Principal Financial Group Investments Subprime Exposure Small, Investments High Quality $699 million of subprime residential mortgages at September 30, 2007, or 1.1% of invested assets. Almost all exposure in highly rated tranches of asset backed securities, 79% of total issued 2005 or earlier. $591
Slide 118: Managing Exposure to Troubled Markets
Principal Financial Group Investments Managing Exposure to Troubled Markets Exposure to Financials Banks $4.16 Billion Broker Dealers $1.36 Billion Mono-line Insurance $947.9 Million Exposure to U.S. Homebuilders $242.8 Million All exposures are GAAP carry value as of 9/30/2007.
Slide 119: Managing Exposure to Troubled Markets: CMBS and CDOs
Principal Financial Group Investments Managing Exposure to Troubled Markets Exposure to CMBS $4.7 Billion Exposure to CDOs CMBS $273.3 Million Credit $753.7 Million All exposures are GAAP carry value as of 9/30/2007.
Slide 120: Investment Risk Management
Strengths at work: Investment Risk Management Interest rate risk Foreign currency risk Equity risk Credit risk Counterparty risk Liquidity Risk Within established risk tolerance ranges Mismatch allowances: 0.25 year duration 0.10 year key rate duration Rebalancing existing asset or liability portfol
Slide 121: Net Realized/Unrealized Gains/(Losses)
Net Realized/Unrealized Gains/(Losses) in $millions, after-tax (0.7) (1.6) 0.6 (2.0) Total fixed maturities, trading 3.1 (37.0) (12.0) 36.5 Mark-to-market of hedged item (65.8) 11.2 (3.9) (59.2) Derivatives gains/losses (62.7) (25.8) (15.9) (22.7) Total hedge activities (18.2) 30.9 (24.4) 10.0 (18.0
Slide 122: Q&A
Q&A
Slide 123: J. Barry Griswell: Closing Remarks
J. Barry Griswell Chairman and Chief Executive Officer Closing Remarks
Slide 124: Why Invest in The Principal?
The Principal® Edge for Shareholders: Why Invest in The Principal? Trends in marketplace creating meaningful growth opportunities Strengths at work to capitalize on trends Highly effective execution drives exceptional financial performance Outstanding share price appreciation
Slide 125: Living our Core Values
Strengths at work: Living our Core Values… Customer focus Financial strength Operational excellence Employee development INTEGRITY
Slide 126: Deeply Committed to our Most Important Asset
Strengths at work: …Deeply Committed to our Most Important Asset FORTUNE 100 Best Companies to Work For LATINA Style – 50 Best National Assoc of Female Execs – Top 30 Working Mother – 100 Best (Top 10 in 2006) Computerworld – 100 Best Essence magazine – Top 30 AARP – Best Employers for Workers Over
Slide 127: Give People An Edge Everyday
Strengths at work: …with a Constant Underlying Motivation Give People An Edge Everyday
Slide 128: Thank you!
Slide 129: Non-GAAP Financial Measures
Non-GAAP Financial Measures 5.5% 2.1% 10.6% 11.0% 12.2% 14.1% 13.8% 14.9% Net income ROE available to common stockholders (including OCI) 0.2% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% 0.0% Foreign currency translation -0.2% -0.2% -1.8% -2.4% -2.3% -2.2% -2.3% -1.3% Net unrealized capital gains (losses) 5.5% 2.
Slide 130: Non-GAAP Financial Measures
Non-GAAP Financial Measures $ (104.8) $ (11.2) $ 44.7 $ 3.7 GAAP net realized/unrealized capital gains (losses) (8.0) (12.1) (1.3) (3.5) Certain market value adjustments to fee revenues (2.1) 1.1 0.8 8.7 Unearned front-end fee income Less: (51.1) (10.6) 12.1 (7.1) Tax impacts 0.3 2.5 7.7 6.7 Minorit
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