Principal Financial Group Inc · NASDAQ:PFG
Principal Financial — IPO Roadshow (June 2006)
91 slides from Principal Financial's IPO roadshow presentation, Jun 29, 2006
Slide 1: Annual MTN/GIC Analyst Conference June 29, 2006
Annual MTN/GIC Analyst Conference June 29, 2006
Slide 2: Table of Contents
Principal Financial Group Table of Contents Tab Agenda Welcome Principal Financial Group Overview Financial Overview Risk Management Investment Portfolio Principal Global Investors Appendix
Slide 3: Forward Looking Statements
Forward Looking Statements Certain statements made by Principal Financial Group, Inc. and its subsidiaries ("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 manage
Slide 4: Use of Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures A non-GAAP financial measure is a numerical measure of our performance, financial position, or cash flows that includes adjustments from a comparable financial measure presented in accordance with U.S. GAAP. We use a number of non-GAAP financial measures that manag
Slide 5: Agenda
Agenda 9:30AM Welcome Jim McCaughan, President, Global Asset Management 9:35AM Principal Financial Group Overview Dan Houston, Executive Vice President 10:20AM Financial Overview and Risk Management Ellen Lamale, Senior VP and Chief Actuary 10:50AM Investment Portfolio Julia Lawler, Senior VP and CI
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Slide 7: Welcome
Welcome Thank you for our leading position in GIC and MTN markets We are excited about the development of our business; hope to Communicate some of that excitement Demonstrate our reliability and good credit Will briefly touch on our asset management capabilities
Slide 8: Principal Financial Group Simplified Organizational Structure
Principal Financial Group Simplified Organizational Structure
Slide 9: Principal Financial Group Financial Reporting Structure
Principal Financial Group Financial Reporting Structure
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Slide 11: Company Overview: Leading Fortune Financial Services Company
Company Overview: Leading Fortune 500 Financial Services Company
Slide 12: Proven Growth Strategy
Leading Fortune 500 Financial Services Company Proven Growth Strategy Small to medium business (SMB) market leadership & expertise Retirement-centric focus within complete employee benefit solutions package Multi-channel distribution
Slide 13: SMB-focused
Leading Fortune 500 Financial Services Company SMB-focused LARGE & EXPANSIVE MARKET STRONG EARNINGS DIVERSIFICATION OUTSTANDING GROWTH POTENTIAL SMB
Slide 14: SMB-focused
Leading Fortune 500 Financial Services Company SMB-focused 1Q06 5-9 ees 1.94 10-19 ees 4 20-49 ees 6.71 50-99 ees 9.93 100-249 ees 12.25 250-499 ees 14.46 500-999 ees 15.25 1000+ 13.61 Relationships with over 100,000 employers *February 2006 forecasts from Economy.com are used for the number of firm
Slide 15: Retirement-centric
Leading Fortune 500 Financial Services Company Retirement-centric USAMA IAMA Life & Health Corp 2005 164.3 15.4 12.3 3.2 $205.3 billion Assets Under Management (AUM) as of 3/31/06
Slide 16: A multichannel approach
At The Workplace Work Secure Retire Secure Over the Phone Principal Connection Contact centers Via the Internet Principal.com Through Print Marketing communication/education materials Direct marketing Plan Ahead. Get Ahead Magazine Through Producers Career Independent Alliances Leading Fortune 500 F
Slide 17: Full Service Accumulation Alliance Results
2004 2005 Change Sales $1.807 B $2.329 B +28.8% Leading Fortune 500 Financial Services Company Full Service Accumulation Alliance Results
Slide 18: Advisors recognize The Principal as a market leader
Advisors recognize The Principal(r) as a market leader* *Source: Brightwork Partners 2005 Advisor Study. Universe of approximately 60 providers. Long-Term Player #1 = The Principal #2 = ING #3 = Fidelity #4 = American Funds #5 = MassMutual Shelf Space #1 = American Funds #2 = Hancock #3 = The Princi
Slide 19: Recent Financial Results
Recent Financial Results
Slide 20: Strong performance in 2005
EPS(2) $2.97 +22% ROE(3) 13.8% +150bps Operating Earnings $862m +13% AUM $195b +17% Net Income $901m +9% Satisfied customers drove strong Principal Financial Group, Inc. performance(1) in 2005... Five key measures each reach all time high! (1)Comparisons as of year end 2005 to 2004, or twelve months
Slide 21: Strong performance for key businesses and operating segments
....strong performance* for key businesses and operating segments ... Record earnings for all three operating segments Record assets under management for USAMA and IAMA Record account values for USAMA Record sales of key retirement & investment products Record institutional investment mandates $100
Slide 22: Promises Made, Promises Kept
Promises Made, Promises Kept Principal Financial Group, Inc.(1) '01 '02 '03 '04 '05 CAGR (2) Operating Earnings ($M) (3) $577 $579 $668 $765 $862 11% Net Income ($M) (3) $359 $142 $746 $826 $901 26% Avg. # Shares (M) (3) 362 351 327 315 290 -5% EPS (3) (5) $1.59 $1.65 $2.04 $2.43 $2.97 17% AUM ($B)
Slide 23: Promises Made, Promises Kept: Retirement Services
Promises Made, Promises Kept: Retirement Services(1) '01 '02 '03 '04 '05 CAGR (2) Account Values ($B) (3) $42.9 $42.9 $55.9 $68.9 $77.3 16% Deposits ($B) (4) 8.5 11.2 12.6 13.3 15.4 16% Organic Sales ($B) (4) 3.3 4.6 5.6 5.2 6.1 17% Net Cash Flow (4) 1.9 2.9 4.9 3.8 3.3 15% Member Asset Retention (4
Slide 24: Future Growth Opportunities
Future Growth Opportunities Retirement services leadership Total retirement solutions Worksite marketing (Baby Boomers) Global opportunities
Slide 25: Retirement services leadership
Future Growth Opportunities: Retirement services leadership (1)Spectrem 10/04; (2)Treasury & Risk Management Buyer's Guide 2005, (3)CFO Buyer's Guide 06/05; (4)Investment Advisor, "Retirement Plan Providers Directory", November 2005 (number above is subset of total reported in survey by Principal Fi
Slide 26: Future Growth Opportunities
Future Growth Opportunities Retirement services leadership Portfolio depth & breadth Deliver best in class service Provide award-winning education Unique technology platform Exceptional distribution reach Investment management excellence excellence excellence excellence excellence excellence excelle
Slide 27: Investment excellence
Future Growth Opportunities Investment excellence Retirement Assets in Top Two Morningstar Quartiles* Retirement Assets in Top Two Morningstar Quartiles* 1yr 92% 3yr 89% 5yr 82% Best Overall Fund Group (Lipper, March 2005)• Best Mixed Equity Fund Group (Lipper, March 2005) *As of December 31, 2005
Slide 28: Total Retirement Solutions (TRS) Provider
Total Retirement Solutions (TRS) Provider
Slide 29: Total retirement solutions provider
Total retirement solutions provider Reduce administrative burdens Cost savings Efficiency and time savings Expanded resources to meet plan sponsor fiduciary obligations Speeds service to employer and employee Easier for employers and employees to plan employees to plan employees to plan employees to
Slide 30: Total Retirement Suite sales results
Total Retirement SuiteSM sales results TRS 2004 2005 Change Sales $1.270 B $2.090 B +64.5% Plans 77 183 +137.6% Total Retirement Suite contributed to 34% of total Full Service Accumulation sales results in 2005 (up from 24% in 2004).
Slide 31: Worksite Marketing
Worksite Marketing
Slide 32: Baby Boomers are driving unprecedented opportunity
Baby Boomers are driving unprecedented opportunity Boomer market generated over $66 billion in profits in 2002, and profits are expected to grow to nearly $158 billion by 2012 2002 2012 *Retirement industry Profits in $ Billions *Source: 2005, McKinsey & Company, Inc. $66B $158B
Slide 33: The worksite is the place to build relationships
The worksite is the place to build relationships Less than one-third of eligible employees use all voluntary benefits available to them Only three-quarters of eligible employees enroll in 401(k) plans On average, people begin thinking about what to do with savings 8 years prior to retirement - for B
Slide 34: The Principal Edge: Help for the rest of us
The Principal Edge: Help for "the rest of us" Customer-focused solution Ability to transform employee benefits Income management: Income IRA, Income Manager; Income Provider Total retirement solutions (employer) Align Individual Life operations to needs of business Bundled retirement solutions Consu
Slide 35: Innovative Worksite Approach
Innovative Worksite Approach Expansive Worksite Connection Retire Secure Offices Work Secure Offices Both Retire Secure & Work Secure Offices Seattle Portland San Francisco Phoenix Denver Minneapolis Des Moines Kansas City Dallas Austin Atlanta South Florida Tampa Memphis Nashville St. Louis Milwauk
Slide 36: Worksite is getting results
Worksite is getting results* With Retire Secure With Work Secure Increase in close ratio of contract sales to employers +100% +150% Increase in employee participation +14% +63% Increase in employee average deferral rate +23% n/a Increase in average annual premium per participant n/a +68% *comparison
Slide 37: Global Opportunities
Global Opportunities
Slide 38: Global Asset Management Expertise
Global Opportunities Global Asset Management Expertise Ranked 5th out of 489 managers in New Assets Gained in 2005 (1) Record 111 new mandates in 2005 representing $6.9 billion in assets 38% increase in non-affiliated assets from 12/31/04 through 12/31/05 Manage money for 9 of Top 25 U.S. pension fu
Slide 39: Effective Use of Capital
Effective Use of Capital ORGANIC GROWTH STRATEGIC ACQUISITION RETURN TO SHAREHOLDERS Share repurchases for three months ended 3/31/06 were $162.26 million. On May 16, 2006 Principal Financial Group announced a share repurchase of up to $500 million, and on May 22, 2006 announced it had executed an a
Slide 40: The Principal: Giving Investors An Edge
The Principal(r): Giving Investors An Edge Truly unique financial services organization Special expertise in serving SMB Leadership position in U.S. retirement services Advantaged by global privatization of retirement systems Worksite opportunities for Baby Boomers and beyond Strong capital position
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Slide 42: Financial Highlights
Financial Highlights
Slide 43: Financial Objectives
Financial Objectives Grow Earnings Manage Capital Control Risk Increase Shareholder Value
Slide 44: Product Scope Enhances Earnings Diversity
Product Scope Enhances Earnings Diversity, Increases Growth Potential Retirement Services Life and Health Investment Mgmt
Slide 45: Operating Earnings by Segment and Net Income
Principal Financial Group Operating Earnings (by Segment and Net Income) Strong Growth in Earnings For twelve months ended (dollars in millions) 12/31/03 12/31/04 12/31/05 U.S. Asset Management & Accumulation $422.6 $499.0 $538.4 Int'l Asset Management & Accumulation 34.5 40.3 71.0 Life & Health Ins
Slide 46: Operating Earnings by Segment and Net Income
Principal Financial Group Operating Earnings (by Segment and Net Income) Strong Growth in Earnings For three months ended (dollars in millions) 3/31/05 3/31/06 Change U.S. Asset Management & Accumulation $138.6 $157.8 13.9% Int'l Asset Management & Accumulation 9.5 17.6 85.3% Life & Health Insurance
Slide 47: Operating Earnings by Segment: Diversity Produces Growth & Stability
Principal Financial Group Operating Earnings (by Segment) Diversity Produces Growth & Stability 4Q02 1Q'03 2Q'03 3Q'03 4Q'03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 USAMA 83.7 94.9 105.7 107.9 114.1 119.5 121.7 123.5 134.3 138.6 130.5 133.3 136 157.8 Total Operating Earnings 177.9 151.7 165.8 1
Slide 48: Assets Under Management
Principal Financial Group Assets Under Management AUM is a Driver of Earnings Growth 6/22/1905 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005 3/31/2006 USAMA 78.1 82.2 92.3 120.8 142.1 164.3 173.9 IAMA 28.4 25.3 4.4 7.5 10.2 15.4 16.1 Life & Health 9.3 9.6 10.3 10.9 11.7 12.3 12.1 Mortgage B
Slide 49: Capital Structure
Principal Financial Group Capital Structure Managing Capital Efficiently 6/22/1905 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005 Common Equity X OCI* 78.1 82.2 92.3 6228.3 6231 6270.4 Preferred Equity 28.4 25.3 4.4 0 0 542 Long Term Debt 9.3 9.6 10.3 1374.3 843.5 898.8 Short Term Debt 0.2 0
Slide 50: Actual Return on Average Equity
Principal Financial Group Actual Return on Average Equity(1) x-OCI Trailing Twelve Months 3/31/06 Operating Segment Operating Earnings Average Equity Return on Average Equity USAMA $557.6 $2,895.8 19.3% IAMA $79.1 $881.3 9.0% Life & Health $275.3 $2,162.8 12.7% Corporate & Other $(18.6) $417.2 N/M T
Slide 51: Principal Life Insurance Company Summary Financial Information
Principal Life Insurance Company Summary Financial Information (1) Defined as total GAAP revenues including operating revenues from discontinued real estate and excluding net realized capital gains and related fee adjustments. (2)Presented on a GAAP basis. (3) Defined as net income before net realiz
Slide 52: Principal Life Financial Strength Ratings
Principal Life Insurance Company Financial Strength Ratings Principal Life Insurance Company Financial Strength Ratings S&P "AA", Very Strong (3rd highest of 21 levels) Moody's "Aa2", Excellent (3rd highest of 21 levels) A.M. Best "A+", Superior (2nd highest of 16 levels) Fitch "AA", Very Strong (3r
Slide 53: Principal Financial Group Stated Targets
Principal Financial Group Stated Targets (1)Diluted earnings per share available to common stockholders (2)Equity excludes accumulated OCI. Target 2005 Actual EPS Growth(1) 11-13% 22% Return on Average Equity(2) 50bp growth/yr 13.8% Debt to Equity 20-25% 20%
Slide 54: Measures Important to Principal Life
Principal Life Insurance Company Measures Important to Principal Life Rating Agency and Internal measures: GIC/FA Exposure (Investment Only) Capital Adequacy Liquidity
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Slide 56: Risk Management at The Principal
Risk Management at The Principal(r)
Slide 57: Risk Management at Principal Financial Group
Risk Management at Principal Financial Group Solid Tone at Top/Board and Senior Management have knowledge of and accountability for risks Coordinated effort to understand and manage the risk profile of the entire organization Entire organization is included All sources of risk considered Strong link
Slide 58: How We Think About Risks
How We Think About Risks: True economic/financial Appropriate accounting treatment and controls Headline/reputational Litigation/regulatory Pure risk (owned property and equipment)/business disruption
Slide 59: Broad Categories of Risks
Broad Categories of Risks at the Principal Financial Group Insurance/Actuarial Asset/Liability Matching (ALM) Legal/Regulatory Mortality Mismatch Risk Lawsuits Morbidity Reinvestment Risk Compliance Other Assumptions Pricing Errors Operational Investment Technology Credit Financial/Strategic Plannin
Slide 60: Management of Risks
Management of Risks at the Principal Financial Group Insurance/Actuarial Legal/Regulatory Reputation Experience Studies Corporate Ethics Investors Relations Product development processes Corporate Governance Government Relations Peer Review Lobbying Efforts Corporate Relations Financial Analysis Con
Slide 61: Non-Par Pension Business Liabilities
Full Service Payout GICs - Full Service GICs - Investment Only Funding Agreements East 6240.5 6787.4 5663.7 11580.6 West 30.6 38.6 34.6 31.6 North 45.9 46.9 45 43.9 Full-service Payout GICs - Investment Only GICs - Full Service Funding Agreements East 6450.3 5821 7282 12115.7 West 30.6 38.6 34.6 31.
Slide 62: Non-Par Pension Business Risk Management: Interest Rate Risk
Non-Par Pension Business Risk Management Interest Rate Risk Tools used Duration matching Key rate duration matching Daily hedging Scenario analysis Disciplined to stay within mismatch allowances ..25 year duration ..10 year key rate Employ various methods to correct duration mismatches if they occur
Slide 63: Non-Par Pension Business Risk Management: Liquidity Risk
Non-Par Pension Business Risk Management Liquidity Risk Processes in place at both business unit and overall corporate level Analysis performed quarterly We carefully watch external measures S&P liquidity model, internal target 260% Moody's liquidity model, internal target 1.5 to 2.0 Internal measur
Slide 64: Investment Portfolio Overview
Investment Portfolio Overview *All data in this section of the presentation excludes assets that are not part of Principal Life Insurance Company consolidated assets.
Slide 65: Investment Philosophy and Strategy
Investment Philosophy and Strategy Active Asset/Liability Management and Strategy Optimize Risk Adjusted Yields and Returns Maintain Quality Well Diversified Portfolio
Slide 66: Cash and Invested Assets
Principal Life Insurance Company Cash and Invested Assets 3/31/2005 Real Estate 1.8 Policy Loans 1.5 Other Investments 2.1 Equity Securities 1.3 Residential Mortgages 2.1 Commercial Mortgages 18.9 Cash 0.8 Private Bonds 23 Public Bonds 48.5 3/31/2006 Real Estate 1.8 Policy Loans 1.5 Other Investment
Slide 67: Corporate Fixed Maturities Portfolio by Industry
Principal Life Insurance Company U.S. Invested Assets Corporate Fixed Maturities Portfolio by Salomon Industry 3/31/2005 Bank 12.2 Insurance 9.4 Finance-Other 12.3 Consumer 3.5 Energy 9.5 Manufacturing 18.2 Industrial-Other 0.4 Service 14.9 Transport 2.9 Electric 10.3 Utility-Other 0.2 Telecom 6.2 3
Slide 68: U.S. Fixed Maturities Composition by Asset Type
Principal Life Insurance Company U.S. Fixed Maturities Composition by Asset Type 3/31/2005 Agency, Treasury, Other 4 RMBS 6 CMBS 9 ABS 5 Corporate Public 50 Corporate Private 26 3/31/2006 Agency, Treasury, Other 6 RMBS 6 CMBS 11 ABS 5 Corporate Public 48 Corporate Private 24 March 31, 2006 March 31,
Slide 69: Fixed Maturities Portfolio Composition by Foreign Area
Principal Life Insurance Company U.S. Invested Assets Fixed Maturities Portfolio Composition by Foreign Area 3/31/2005 United Kingdom 27 European Union 25 Australia 8 Japan 0 All Others 16 Mexico 5 Asia 11 South America 8 3/31/2006 United Kingdom 27 European Union 25 Australia 9 Japan 1 All Others 1
Slide 70: Fixed Income Securities Portfolio Statutory Basis
Principal Life Insurance Company U.S. Invested Assets Fixed Income Securities Portfolio Statutory Basis % of Fixed Income Securities Portfolio % of Fixed Income Securities Portfolio % of Fixed Income Securities Portfolio % of Fixed Income Securities Portfolio % of Fixed Income Securities Portfolio N
Slide 71: Problems, Potential Problems, and Restructured
Principal Life Insurance Company Fixed Income Securities Portfolio Problems, Potential Problems, and Restructured 2002 2003 2004 2005 3/31/2006 Problems 262 152.5 68.5 42 7.9 Potential Problems 508.4 230.1 119.6 101.6 37.4 Restructured 103.9 39.9 10.4 0 9.4 152.5 230.1 119.6 10.4 39.9 GAAP Basis 68.
Slide 72: Fixed Income Securities Impairment Review Process
Fixed Income Securities Impairment Review Process Monthly review of all exposures on watch list Rigorous analysis on all exposures trading materially below par Determination made if the credit is temporary or permanent impairment based on fundamental credit analysis
Slide 73: Commercial Mortgage Loan Portfolio
Composition by U.S. Region Composition by Type Principal Life Insurance Company Commercial Mortgage Loan Portfolio March 31, 2006 (Statutory Basis) Mortgage Loans = U.S.$8.5 Billion Number of Loans Outstanding = 1,094 Average Loan Size = U.S.$7.7 Million Industry (ACLI) - 03/31/2006 Principal Life -
Slide 74: Commercial Mortgage Restructured & Delinquent/Foreclosed Loan Ratio
NOTES: 1. Delinquency and foreclosure ratio is defined as mortgages 60 or more days delinquent, in the process of foreclosure, and foreclosed/deeded during the year, as a percentage of the commercial mortgage portfolio balance. 2. A restructured loan is a loan in good standing for which basic terms,
Slide 75: Investment Portfolio Summary
Investment Portfolio Summary Active asset/liability management Broadly diversified portfolio across asset class, credit, industry and geographic location Predominantly high quality portfolio
Slide 76: Investment Portfolio 2006 Focus
Investment Portfolio 2006 Focus Enhancing diversification Active management of the portfolio Maintaining quality of the portfolio
Slide 77: Principal Global Investors
Principal Global Investors
Slide 78: Principal Global Investors
Principal Global Investors* A diversified global asset management organization $166.7 billion in assets under management 1,066 employees including 418 investment professionals Broad range of capabilities, tailored to client objectives Global reach and clarity of purpose *Principal Global Investors r
Slide 79: Global Reach
Global Reach Asset Management Locations Principal Global Investors & Principal International Affiliates *excludes U.S. sales/service offices
Slide 80: Fixed Income Asset Management
Fixed Income Asset Management $95.6 billion in combined fixed income assets under management Global Fixed Income - $74.3 billion Post Advisory - $8.4 billion Spectrum - $12.9 billion 129 fixed income investment professionals in offices worldwide Emphasis on diversified "Multi- Sector" strategies: To
Slide 81: Equity Asset Management
Equity Asset Management Manage $36.9 billion in equity assets and direct $3.6 billion in asset allocation programs 91 Equity professionals based in Des Monies, New York, Stamford, London and Singapore Breadth of market coverage and depth of independent research in over 50 equity markets worldwide Cl
Slide 82: Principal Real Estate Investors
Principal Real Estate Investors $34.2 billion in real estate assets under management Fourth largest manager of real estate, out of 98 managers profiled (1) 404 real estate employees including 195 investment professionals Draw from six decades of real estate investment experience In-depth coverage of
Slide 83: Setting An Impressive Pace
Setting An Impressive Pace The 42nd largest institutional asset manager in the world, out of 778 managers profiled. Managers ranked by total worldwide institutional assets under management as of Dec. 31, 2005(1) The 20th largest manager of U.S. institutional tax exempt assets, out of 778 managers pr
Slide 84: Principal Global Investors Asset Management Affiliates
Principal Global Investors is the asset management arm of the Principal Financial Group(r) (The Principal(r)). As of March 31, 2006, assets under management totaled $166.7 billion. This includes the asset management operations of the following members of The Principal: Asset Management Affiliates As
Slide 85: Thank you
Thank you
Slide 86: Appendix
Appendix
Slide 87: Non-GAAP Financial Measures for Principal Financial Group, Inc.
Non-GAAP Financial Measures for Principal Financial Group, Inc.
Slide 88: Non-GAAP Financial Measures for Principal Financial Group, Inc.
Non-GAAP Financial Measures for Principal Financial Group, Inc.
Slide 89: Non-GAAP Financial Measures for Principal Financial Group, Inc.
Non-GAAP Financial Measures for Principal Financial Group, Inc.
Slide 90: Non-GAAP Financial Measures for Principal Financial Group, Inc.
Non-GAAP Financial Measures for Principal Financial Group, Inc.
Slide 91: Non-GAAP Financial Measures for Principal Life Insurance Company
Non-GAAP Financial Measures for Principal Life Insurance Company