Principal Financial Group Inc · NASDAQ:PFG
Principal Financial — Investor Day (September 2012)
140 slides from Principal Financial's investor day presentation, Sep 21, 2012
Slide 1: Principal Financial Group Investor Day
PRINCIPAL FINANCIAL GROUP® Investor Day | September 21, 2012
Slide 2: Introduction
INTRODUCTION JOHN EGAN Vice President - Investor Relations
Slide 3: 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
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 operating earnings, net income available to common stockholders, net cash flows, realized and unrealized gain
Slide 5: Agenda
5 Agenda Time Topic Presenter 8:00 am Introduction John Egan 8:05 am Strategy Overview Larry Zimpleman 8:40 am U.S. Businesses and Distribution Retirement & Investor Services and U.S. Insurance Solutions Q&A with Houston & Minard Dan Houston Tim Minard 9:30 am Principal Global Investors and Distribu
Slide 6: PFG Investment Management Plus video
PFG Investment Management Plus video – compilation of bullet points from other slides within the investor day presentation.
Slide 7: Strategy Overview
STRATEGY OVERVIEW LARRY ZIMPLEMAN Chairman, President & CEO
Slide 8: A Leading Financial Services Company
A Leading Financial Services Company Fortune 500 company; 132 year history; 18.2 million customers Offices in 18 countries; 13,300 employees worldwide Full range of retirement savings, investment and insurance solutions for small to medium-sized businesses & their employees, individuals, and institu
Slide 9: Our Strategy is Well Suited for the Current Environment
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-te
Slide 10: Underpenetrated SMB Benefits Markets in U.S.
Underpenetrated SMB Benefits Markets in U.S. < 0.2% Large Businesses 6.16 million Total U.S. Businesses Investment and Protection Needs million million million Baby Boomers Echo Boomers Total U.S. Workforce *Wealth Transfer: Sizing, Trends & Opportunities, Cerulli Associates, 2008 9 Source: U.S. Cen
Slide 11: Explosive growth of middle class
Each = 1 billion people World Population 1960 2012 2022E 10 Explosive growth of middle class 50 households join the middle class each minute.* *Boston Consulting Group, November 2010
Slide 12: Skyrocketing Demand in Emerging Markets
11 Skyrocketing Demand in Emerging Markets for Innovative Savings, Retirement and Income Solutions Strong foothold before middle class growth began1 1990 2000 2010 2020 The Principal enters key markets Retirement and mutual fund assets under management in emerging markets expected to grow 4-5x faste
Slide 13: Our Growth Continues with the Right Strategy
Protect assets Invest PRINCIPAL INTERNATIONAL Savings and retirement solutions in select emerging markets to save for the long term and invest for growth U.S. INSURANCE SOLUTIONS Protect assets, income and financial security of business owners and individuals RETIREMENT & INVESTOR SERVICES Full rang
Slide 14: Retirement & Investor Services
Specialists in retirement solutions across market segments Long-term savings, investing for growth, and retirement income solutions for growing businesses and individuals – from hire through retire Unmatched local sales, service and alliance partners Innovative technology to enhance customer experie
Slide 15: U.S. Insurance Solutions
Business owner & key executive solutions specialists Protect the income and financial security of business owners and individuals Focus on worksite solutions & voluntary benefits Advisor focused model U.S. Insurance Solutions 14
Slide 16: Principal Global Investors
Top tier investment management expertise Proven multi-boutique model provides diverse solutions: Equities Fixed Income Real Estate Asset Allocation Expertise Global platform for investing and working with clients 15 Principal Global Investors Provides investment management capabilities to Principal
Slide 17: Principal International
Principal International Export expertise to select emerging markets Marquee partners Retirement solutions, mutual funds, annuities, and asset management Offers long-term savings and retirement solutions in select Latin American and Asian emerging markets 16
Slide 18: Multi-Boutique Model | Global Depth & Breadth in Asset Classes
Business Owner Solutions Life Insurance Group Benefits (Dental/ Vision/Disability) Voluntary Programs DB/DC Mutual Funds Income Solutions Annuities GICs/MTNs Mandatory Pensions Voluntary Programs Mutual Funds Income Annuities Multi-Boutique Model | Global Depth & Breadth in Asset Classes 17
Slide 19: Shared knowledge across businesses
TRS: Non-Qual ESOP SMB Market Export retirement expertise Export asset allocation expertise Shared knowledge Asset & Liability Mgmt General Acct Mgmt Investments for retirement. savings and income Global investment capabilities; Asset mgmt best practices 18
Slide 20: Shared knowledge across businesses
TRS: Non-Qual ESOP SMB Market Export retirement expertise Export asset allocation expertise Shared knowledge Asset & Liability Mgmt General Acct Mgmt Investments for retirement. savings and income Global investment capabilities; Asset mgmt best practices 19 ALLIANCE MANAGEMENT GROUP | MARQUEE PARTNE
Slide 21: Strategic Linkages Drive Synergies
STRATEGIC LINKAGES DRIVE SYNERGIES GREATER EFFICIENCY MORE FEE-BASED EARNINGS BETTER PERSISTENCY TRS: Non-Qual ESOP SMB Market Export retirement expertise Export asset allocation expertise Shared knowledge Asset/liability mgmt; General acct mgmt Investments for retirement, savings and income Global
Slide 22: Investment Management Plus: 2001-2011 Results
INVESTMENT MANAGEMENT + (1) Excludes discontinued operations. (2) Diluted. (3) Operating return on average equity excluding other comprehensive income, based on trailing 12 month period. 2001 2011 CAGR (’01-’11) 1H11 1H12 % Change Operating Earnings(1) ($M) $433 $844 7% $449 $429 -4% Earnings Per Sh
Slide 23: Continuing Evolution of Our Business Model
OPERATING EARNINGS 2001 2012E 2017E Continuing Evolution of Our Business Model 22 Fee Spread Risk
Slide 24: Deploying More Capital Than Net Income
Deploying More Capital Than Net Income Our business mix is generating more deployable capital $ millions On target to deploy an additional $245-$345 million 23 Dividend Acquistion Share Repurchase Net Income
Slide 25: Acquisition Opportunities
Acquisition Opportunities Recent activity focused on increasing global footprint Origin, Finisterre, HSBC AFORE, Claritas Continued focus on global and fee-based opportunities Robust acquisition pipeline of attractive and accretive properties Global economic slowdown providing opportunities Excess c
Slide 26: Well Positioned for Long-Term Growth
Retirement market leader in the U.S. and select emerging markets Recognized global asset management leader Synergy adds value to diverse portfolio Increasing financial flexibility RETIREMENT + INVESTOR SERVICES U.S INSURANCE SOLUTIONS PRINICIPAL GLOBAL INVESTORS PRINCIPAL INTERNATIONAL Full range of
Slide 27: U.S. Businesses
U.S. BUSINESSES DAN HOUSTON President Retirement, Insurance and Financial Services Retirement & Investor Services | U.S. Insurance Solutions
Slide 28: Agenda
Agenda Overview of U.S. businesses Key differentiators Underpenetrated Small to Medium-sized Businesses (SMB) Innovative solutions Unique distribution model Impact of macro-economic environment Key drivers
Slide 29: U.S. Businesses Overview
#2 Non-qualified Deferred Compensation plans4 #4 Group Benefit coverages5 #3 IDI new sale premium6 28 U.S. Businesses Overview U.S. INSURANCE SOLUTIONS Protect assets, income and financial security of business owners and individuals RETIREMENT & INVESTOR SERVICES Full range of retirement solutions a
Slide 30: Retirement & Investor Services: Solid Results in Challenging Environment
Solid Results in Challenging Environment 2008 2009 2010 2011 1H12 Net Revenue* $2,088M $1,823M $1,997M $2,078M $1,073M Operating Earnings $519M $480M $543M $563M $285M Expense Ratio** 74% 69% 64% 64% 67% Retirement & Investor Services *Operating revenue less benefits, claims & settlement expenses le
Slide 31: U.S. Insurance Solutions: Solid Results in Challenging Environment
Solid Results in Challenging Environment 2008 2009 2010 2011 1H12 Premium & Fees $2,249M $2,185M $2,143M $2,250M $1,105M Operating Earnings $188M $188M $198M $204M $100M Specialty Benefits Loss Ratio 67.0% 67.9% 68.8% 68.5% 68.5% U.S. Insurance Solutions 30
Slide 32: Vision For U.S. Businesses
Vision For U.S. Businesses: Be a Recognized Leader in 3 Key Areas HELPING GROWING BUSINESSES ATTRACT & RETAIN EMPLOYEES Integrated retirement solutions Employer-paid group benefits Voluntary benefits SOLUTIONS FOR THOSE NEARING AND IN RETIREMENT Retirement readiness Retirement income Needs-driven in
Slide 33: Meeting the Growing Demand for Financial Services
Meeting the Growing Demand for Financial Services 1946 - 1964 1978 - 2000 “Boomers” “Echo Boomers” Source: U.S. Census Bureau MILLION MILLION
Slide 34: Keys to Growth & Differentiation
Keys to Growth & Differentiation INDUSTRY LEADERSHIP
Slide 35: SMB Focus: Underpenetrated Markets Present Growth Opportunity
SMB Focus: Underpenetrated Markets Present Growth Opportunity Sources: 401(k) and NQ – Retirement Research, Inc., 2009; Dental – Kaiser Family Foundation Employer Health Benefits, 2010; Long-Term Disability, MarketTrends LIMRA’s Factbook, 2011
Slide 36: SMB Leadership: U.S. Businesses
SOURCE: Principal customer data as of 6/30/12; Economy.com (Moody’s) Annual Firm Estimates. SMB Leadership: U.S. Businesses SMB Market Penetration
Slide 37: Innovative Solutions: Better Retirement Programs
Principal Total Retirement Suite SM (TRS) Defined Benefit #1 DB provider1 (by # of DB clients) Defined Contribution #3 DC plan recordkeeper2 (by # of plans) Employee Stock Ownership Plan #1 ESOP plan recordkeeper2 (by # of plans & assets) Nonqualified Plans #2 Deferred Comp provider3 (by # of client
Slide 38: Innovative Solutions: Needs-Driven Investment Solutions
TOP SELLING FUNDS 2011 Global Diversified Income $1.7B High Yield $1.6B Preferred $1.4B Strategic Asset Management $1.0B Mid-cap Blend $0.8B TOTAL FOR TOP 5 $6.5B ASSET ALLOCATION LEADERSHIP #5 largest lifecycle fund manager* Target date & target risk Multi-manager solutions Portfolio construction s
Slide 39: Strong Investment Performance Continues
Strong Investment Performance Continues Morningstar rankings of long-term Principal mutual funds, separate accounts and CITs Percentage of funds in the top two quartiles Represents $100 billion assets under management of which 75% is managed by PGI boutiques Principal “I” shares , if no “I” share cl
Slide 40: Principal Funds Net Cash Flow Outpacing the Industry
Full Service Accumulation Net cash flows as % of beginning of year assets 2006-2011. Sources of industry data: 401(k) industry – Department of Labor & Cerulli Associates, 2011 (for 2011, industry 401k is an estimate); Funds – ICI (reflects all long-term mutual fund net flows, including variable cont
Slide 41: Innovative Solutions: Solving Income Needs
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
Slide 42: Innovative Solutions: Solving Protection Needs
Innovative Solutions: Solving Protection Needs GROUP BENEFITS DISABILITY INSURANCE LIFE INSURANCE Business market: 60% of sales Dental Life Disability Vision Voluntary Wellness SPECIALTY BENEFITS Business Owner & Executives Employer Individual Business Owner & Executives Non-qualified Individual Bus
Slide 43: Multi-channel, Multi-product Distribution
Broader Deeper More productive More solutions 3.25 products per platform (Top 20) Alliance penetration access to 75,000 new advisors since 2003 21 alliances produced $100M+ in sales in 2011 more than doubling since 2007 Multi-channel, Multi-product Distribution 42 Sales staff 560 Service & sales sup
Slide 44: How Our Businesses Fit Together
INVEST PROTECT ASSETS SAVE FOR LONG TERM Employee Stock Ownership Plans Non-Qualified Defined Contribution Disability Insurance Wellness How Our Businesses Fit Together Mutual Funds Personal Retirement Accounts Annuities Bank Products Individual Life Group Benefits Defined Benefit
Slide 45: Case Study: Midwest Consulting Firm
CASE STUDY MIDWEST CONSULTING FIRM, 70 EMPLOYEES $13 MILLION IN ANNUAL REVENUES NEEDED TO ADDRESS KEY ISSUES NOT COVERED IN BUY-SELL AGREEMENT WHY PRINCIPAL WON: Breadth of protection and retirement solutions Deep consulting expertise Unique offerings Strong relationships Solutions, Consulting Exper
Slide 46: Case Study: Leading Healthcare System
CASE STUDY LEADING HEALTHCARE SYSTEM OVER 10,000 EMPLOYEES ATTRACT & RETAIN: MISSION CRITICAL WHY PRINCIPAL WON: Leadership across pillars of retirement Breadth of voluntary and employer-paid protection solutions Deep consulting expertise Strong advisor relationships Worksite education model Ability
Slide 47: Macro-economic Factors Pressuring Revenue
Macro-economic Factors Pressuring Revenue SOME PRESSURES PERSIST: Stagnant job growth Slow wage inflation Low interest rates Subdued small business optimism WHILE SOME ARE BEGINNING TO ABATE Stabilizing employment Fewer plan terminations More new plan formations Recurring deposits growing again 46
Slide 48: Signs of Recovering Economy
Specialty Benefits Premium & Fees % Change year over year Signs of Recovering Economy But Still Lagging Pre-crisis Levels 47 Full Service Accumulation Recurring Deposits % Change year over year
Slide 49: FSA Revenue Drivers
FSA Revenue Drivers Business mix Less general account, more ESOP, greater use of non-proprietary & passive options Less separate account reduces dividends received deduction Market environment Lower growth in recurring deposits (unemployment, reduced matches, lower wage inflation) Plan terminations,
Slide 50: Retirement & Investor Services Key Drivers
Retirement & Investor Services KEY DRIVERS Grow leadership position in retirement, savings, and income management. 2010 2011 6/30/12 5 Year Outlook Net revenue* growth rate 12% 5% 0% 6-8% Pre-tax return on net revenue 31% 31% 30% 28-32% ACCUMULATION GUARANTEED Net revenue growth rate (12)% (9)% (10)
Slide 51: U.S. Insurance Solutions Key Drivers
U.S. Insurance Solutions KEY DRIVERS Grow leadership position in helping businesses and individuals protect against the risks that can derail financial security. 2010 2011 6/30/12 5 Year Outlook Individual Life Premium and fees growth rate 1% 3% (3)% 4.8% Pre-tax operating margin 18% 18% 20% 16-21%
Slide 52: Key U.S. Business Takeaways
Key U.S. Business Takeaways Fundamentals remain strong Attracting and retaining business Capitalizing on SMB leadership Differentiating through innovative solutions Enhancing distribution – broader, deeper and more productive Delivering top-tier investment performance Continuing to invest in busines
Slide 53: U.S. Distribution
U.S. DISTRIBUTION TIM MINARD Senior Vice President – U.S. Distribution
Slide 54: Advisor-centric Distribution Model
Advisor-centric Distribution Model Disciplined execution around proprietary and 3rd party distribution Broader Deeper More productive Focus on growing net revenue & premium Differentiation with advisors and clients Grow advisor market share 53
Slide 55: Broad and Deep Approach Provides More Ways To Win
Broad and Deep Approach Provides More Ways To Win MARKETS NEEDS SOLUTIONS Large employers Small to Medium-sized businesses Business owners Individuals Accumulation Retirement Income Protection Principal Total Retirement SuiteSM Business owner & executive solutions Portfolio construction strategies R
Slide 56: U.S. Distribution Overview
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
Slide 57: Retirement & Investor Services Sales Remain Strong
Retirement & Investor Services Sales Remain Strong 56 2007 2009 2011 1H12 Full Service Accumulation $9.5B $5.0B $8.4B $5.5B Alliances, Total Retirement Suite and TPA drive strong post-crisis rebound Principal Funds $8.8B $7.7B $11.2B $7.0B Advisor channel, DCIO and outcome-oriented solutions drive c
Slide 58: U.S. Insurance Solutions Sales Remain Strong
U.S. Insurance Solutions Sales Remain Strong 57 2007 2009 2011 1H12 Individual Life $196M $136M $186M $94M 2007 record sales for non-qualified and retail Group Benefits $233M $208M $238M $112M Voluntary sales remain strong Disability Insurance $35M $34M $47M $24M The Principal is the only non-cancel
Slide 59: Distribution Focus
Distribution Focus Sales goals aligned with business objectives Small to medium-sized businesses Principal Total Retirement SuiteSM Third party administrators Proprietary investment options Sales and service efforts align with net revenue and premium Highly efficient/productive advisors Expect 2013
Slide 60: Distribution Evolution: Leveraging Franchise Strength
Product Solutions Franchise strength Distribution Evolution: Leveraging Franchise Strength Non-profit Employer Stock Ownership Plan (ESOP) Non-qualified (NQ) Mutual Funds Life insurance Disability insurance Group Benefits Worksite Business Owner & Executive Solutions (BOES) Principal Total Retiremen
Slide 61: Key Differentiators Drive Growth
Key Differentiators Drive Growth Local Presence Disciplined Execution Advisor Growth Leverage Franchise 60
Slide 62: National Presence with Local Employees
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 Co-Located (RIS/USIS) (40) USIS (Life/SBD/Wellness) (56) RIS/Funds (14) PGI (
Slide 63: Advisor-controlled Market is a Significant Growth Opportunity
RIS USIS Total Market: $25 Trillion** $158 Billion*** % of Marketplace controlled by advisors: 64% 95%** # of Advisors The Principal sold business with in 2011: 39,000 10,000 # of Advisors The Principal expects to sell business with in 2017: 64,000 15,000 Advisor-controlled Market is a Significant G
Slide 64: Leverage Strategic Partnerships to Grow Advisors
Agreed upon business plans and goals Marketing initiatives Cross product collaboration Dedicated resources (Directors of Business Development) Leverage Strategic Partnerships to Grow Advisors Alliance Management Group (AMG) Competitive Advantages Alliance Partners employ 30% of advisors Advisor Coun
Slide 65: Disciplined Execution Leads to Multi-product Relationships
Disciplined Execution Leads to Multi-product Relationships Alliance Partners THEN Alliance Partners NOW 6/30/12 AUM Regional Broker-Dealer (2001) Full Service Accumulation (FSA) FSA, Retail Funds, Annuities, Life – NQDC $2.4B Insurance Producer (2002) Group Benefits Individual Disability Insurance F
Slide 66: Broad and Deep Distribution
Broad and Deep Distribution Proprietary provides foundation; 3rd party provides accelerated growth Product Line New Sales 1st 2nd 3rd Top 3 represent NQ Life Career 33% Retail Life Career 55% Individual Disability Career 13% Group Benefits 9% Fixed Annuities Fidelity Career 43% Variable Annuities Ca
Slide 67: Our Distribution Model Drives Growth
NEW MARKETS + NEW RELATIONSHIPS + DISCIPLINED EXECUTION = ACCELERATED GROWTH Our Distribution Model Drives Growth 66
Slide 68: 3rd Party Sales of Principal Funds
3rd Party Sales of Principal Funds (DC Investment Only & Retail) Putting Principal Funds on other investment platforms Initiated strategy after Washington Mutual Advisors acquisition More avenues to sell our strong investment performance NEW MARKETS + NEW RELATIONSHIPS + DISCIPLINED EXECUTION = ACCE
Slide 69: Third Party Administrators (TPA)
Third Party Administrators (TPA) TPA provides us: Entry into unbundled market More focus on smaller plan market Access to more advisors Benefits to TPA Provide support/education Easy to do business with Great solutions including Principal Total Retirement SuiteSM NEW MARKETS + NEW RELATIONSHIPS + DI
Slide 70: Adding Alliance Partnerships: Edward Jones
Adding Alliance Partnerships: Edward Jones Edward Jones gives us: Access to 12,000 advisors Ability to grow multiple products Benefits to Edward Jones: New Disability, Retirement and Mutual Fund solutions Strong investment performance Dedicated alliance partner support Relationship effective April 2
Slide 71: Adding Alliance Partnerships: BRAMCO
2Q11 2Q12 BRAMCO gives us: Access to 2,500 producing advisors Leading life brokerage distribution Adding Alliance Partnerships: BRAMCO Benefits to BRAMCO: New Disability and Life products Business owner & executive solutions (BOES) Dedicated alliance partner support Year over year sales double Relat
Slide 72: Advisor-centric Distribution Model
Advisor-centric Distribution Model Disciplined execution around proprietary and 3rd party distribution Broader Deeper More productive Focus on growing net revenue & premium Grow advisor market share Positioned to capitalize on our solutions-based approach Further leverage the franchise power 71
Slide 73: Q&A with Dan Houston & Tim Minard
Q&A with DAN HOUSTON & TIM MINARD
Slide 74: Principal Global Investors
PRINCIPAL GLOBAL INVESTORS JIM McCAUGHAN President Principal Global Investors
Slide 75: Keys to Our Growth
Keys to Our Growth Top-tier manager for retirement and other long-term strategies Serve all business of The Principal with suitable investment capabilities Proven multi-boutique operating approach Broad range of capabilities aligned to changing investor needs Global reach to facilitate investing and
Slide 76: Principal Global Investors Assets Under Management
Principal Global Investors Assets Under Management $244B By Asset Class As of June 30, 2012 1This list is derived from the Pensions & Investments “P & I 1,000” dated 02/06/12 compared to our internal records as of 12/31/11.2 This list is derived from the “P&I/Towers Watson World 300: The Largest Ret
Slide 77: Proven Track Record
Proven Track Record 76 2008 2009 2010 2011 1H12 Total $190.0B $205.3B $220.1B $227.8B $243.9B Unaffiliated $70.3B $73.8B $78.8B $82.5B $92.4B Total $3.3B $(7.7)B $(7.0)B $(1.8)B $6.6B AUM NET CASH FLOW Unaffiliated $1.2B $(2.9)B $(3.0)B $(2.5)B $5.4B Operating Earnings $94M $38M $59M $74M $34M
Slide 78: Our Current Boutiques
Our Current Boutiques (AUM as of 06/30/2012) Principal Global Equities $48.3B PGI Fixed Income $70.8B Private Real Estate $28.6B CMBS $5.2B Origin Asset Management $2.9B Edge Asset Management $13.9B Fixed Income Equities REITs $4.0B Principal Enterprise Capital $3.8B CIMB – Principal Islamic Asset M
Slide 79: Strong Investment Performance Continues
Strong Investment Performance Continues Morningstar rankings of long-term Principal mutual funds, separate accounts and CITs Percentage of funds in the top two quartiles Represents $100 billion of AUM of which 75% is managed by PGI boutiques Principal “I” shares , if no “I” share class then “A” shar
Slide 80: Changing Investor Needs
Changing Investor Needs Boutiques win satellite mandates Demand for cheap Beta Moving to passive 79
Slide 81: Globally Integrated Investment Capabilities
Globally Integrated Investment Capabilities Illustrates locations for Principal Global Investors, including all advisory affiliates and subsidiaries, and Principal International affiliates. CURRENT BOUTIQUE FOOTPRINT SUPPORTS GLOBAL GROWTH 80 Principal Global Investors Boutique Investment locations
Slide 82: Strong Multi-channel Distribution Drives Boutique Success
Strong Multi-channel Distribution Drives Boutique Success PGI Institutional Distribution (Sales, relationship management, consultant relations) U.S. – Corporate, Public, Foundations & Endowments International – Corporate, Sovereign funds, Central banks Strategic Alliances Banco do Brasil CCB (China)
Slide 83: Generalist/Specialist Sales Team Approach
Generalist/Specialist Sales Team Approach Partnerships with clients Know their objectives Investment expertise Value-added solutions GENERALIST SALES PROFESSIONAL BOUTIQUE PRODUCT SPECIALIST PRINCIPAL AS TRUSTED ADVISOR TO CLIENTS First call is Principal 82
Slide 84: Dublin Funds AUM Growth
180% AUM growth in 2 years* GLOBAL DISTRIBUTION RIGHT FUNDS STRONG PERFORMANCE * Covers the period from June 2010 through June 2012. 83 Important “shop window” for PGI-managed capabilities Flexible product development platform Expands our reach into key segments globally Principal Global Investors D
Slide 85: Growing Acquisitions
Growing Acquisitions Global distribution grows AUM, revenues and earnings Spectrum Asset Management acquired in 2001 with $1.0B AUM 2002 2011 CAGR AUM ($B) $6.1 $13.3 9% Revenue ($M) $9.3 $35.4 14% Pre-tax OE ($M) $2.9 $8.0 11% AUM sourced by Principal 9% 68% 2005 2011 CAGR AUM ($B) $5.9 $15.3 21% R
Slide 86: Advancing Our Acquisition Strategy
Global/Emerging Markets FIXED INCOME EQUITIES Global/Emerging Markets/U.S. REAL ESTATE International ALTERNATIVES Hedge Fund of Funds, Infrastructure, Real Assets Advancing Our Acquisition Strategy SUPPORT PRINCIPAL STRATEGY INVESTMENT PROCESS DIVERSIFICATION | CAPACITY EXPANSION | GLOBALIZE FOOTPRI
Slide 87: Principal Global Investors Key Drivers
Principal Global Investors World-class investment management services KEY DRIVERS 2010 2011 6/30/12 TTM 5 Year Outlook Investment Boutiques 12 14 14 20+ AUM $220B $228B $244B $400B (25-35% Non-U.S.) Revenue growth rate 10% 13% 10% 14-17% Pretax margin 20% 21% 20% 30%+ Strong growth but slower than 2
Slide 88: Q&A with Jim McCaughan
Q&A with JIM McCAUGHAN
Slide 89: Break
BREAK
Slide 90: Principal International
LUIS VALDÉS President Principal International
Slide 91: Principal International Strategy
Principal International Strategy 90 Capitalize on large and growing middle class in key emerging Latin America and Asia markets by delivering pension, mutual fund and asset management expertise and solutions.
Slide 92: Principal International by Country
Mexico (1993) Annuities, Mutual Funds, Pensions AUM of $9.9B Wholly owned Chile (1995) Annuities, Mutual Funds, Pensions AUM of $5.2B Wholly owned Brazil (1999) Annuities, Pensions, Mutual Funds, Asset Management Brasilprev – a 25% owned joint venture with Banco do Brasil AUM of $30.6B Claritas – 60
Slide 93: Principal International at a Glance
Principal International More than 8 million customers $60.3 billion assets under management $78.7 million operating earnings $4.6 billion net cash flow $180.7 million net revenue YTD as of 6/30/2012 (reported) 92
Slide 94: Our Markets and Product Offering
Our Markets and Product Offering Pensions Mutual Funds Asset Mgmt Annuities Brazil Chile Mexico China Hong Kong India Malaysia/SE Asia = Where we have a product offering today Targeted Markets + + + = Targeted expansion = 10% of market share or Top 25% s = New market entry since 2010 Investor Day 93
Slide 95: Why Emerging Markets? Growth
Why Emerging Markets? GROWTH! Annual GDP Growth ( in 2011) Brazil 2.7% Chile 6.0% Mexico 3.9% China 9.2% Hong Kong 5.0% India 7.8% Malaysia 5.2% U.S. 1.7% Mutual Fund AUM 2011-2016E CAGR Brazil 12.8% Chile 16.4% Mexico 14.2% China 12.5% Hong Kong 9.2% India 10.7% Malaysia 14.5% U.S. 6.1% Sources: Ce
Slide 96: We're in the Right Countries
We’re in the Right Countries 1990 US$ trn 1 U.S. 5.8 2 Japan 3.0 3 Germany 1.5 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. 10.0 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. 14
Slide 97: Proven Track Record
Proven Track Record 96 2008 2009 2010 2011 1H12 AUM* $23.1B $34.6B $45.8B $52.8B $60.3B Net Cash Flow $1.0B $3.2B $4.7B $5.5B $4.6B Operating Earnings $120M $115M $133M $150M $79M *CCB Principal Asset Management Company, LTD is not included in AUM.
Slide 98: Principal International Key Drivers
Gain scale and add capabilities in pensions, mutual funds and asset management in Latin American and Asian emerging markets Principal International *Combined basis includes all Principal International companies at 100% **Net cash flow as a percent of beginning of year assets under management 2010 20
Slide 99: Ned Burmeister
NED BURMEISTER Senior Vice President & Chief Operating Officer Principal International
Slide 100: Three P's of Distribution: Partnership
Three “P’s” of Principal International Distribution 99 PARTNERSHIP Principal has co-ownership of business
Slide 101: Three P's of Distribution: Proprietary
100 PROPRIETARY Distribution owned and managed by The Principal Three “P’s” of Principal International Distribution
Slide 102: Three P's of Distribution: Platform
101 PLATFORM Our products sold on platforms of other financial institutions Three “P’s” of Principal International Distribution
Slide 103: Principal International Distribution at a Glance
Principal International Distribution at a Glance 102 PARTNERSHIPS 46% PROPRIETARY 26% PLATFORMS 28%
Slide 104: Example: Brasilprev
Example: Brasilprev 23-year agreement in place (began in 2009) Exclusively selling Principal products 94% penetration in Banco do Brasil’s retail branches Total 2012 retail sales of approximately USD$3.5 Billion Principal has co-ownership of business Partnerships 103 Brazil Chile Mexico China Hong K
Slide 105: Strategic Partnerships
Strategic Partnerships Joint Venture Partner Partner’s Industry Ranking Partner’s Distribution Reach JV Customer Count8 (% relative to partner’s customer base) Banco do Brasil Largest bank in Latin America1 5,140 branches9; 55.5 million customers2 2.6 million (4.7%) 2nd largest commercial bank in wo
Slide 106: Why Partner with The Principal?
Why Partner with The Principal? 105 Retirement expertise Product design Operational efficiency Differentiating customer service Committed for the long term and financially strong Proven partnership skills and not in competition Emphasis on integrity and ethical behavior
Slide 107: Example: CWA in Malaysia
Example: CWA in Malaysia Our 5,200 person agency force Second largest mutual fund sales force in Malaysia CWA generates half of our total retail mutual fund sales – and nearly 70% of our equity and long-term fund sales Distribution channel for newly introduced individual pension plans Distribution o
Slide 108: Example: HSBC in Mexico
Example: HSBC in Mexico Exclusively markets our mandatory pension product (AFORE) Distribution agreement through 2016 Currently selling in 400 branches – with a commitment from HSBC to activate 700 additional branches by year end 2012 Increased efficiency – state-of-the-art electronic transfers proc
Slide 109: U.S. Alliance Management Group Platform Partners
U.S. Alliance Management Group (AMG) 108 Platform Partners Opportunity to leverage U.S. AMG base Adapt to country and apply local expertise Strengthen & export expertise from U.S.
Slide 110: U.S. Alliance Management Group Platform Partners
U.S. Alliance Management Group (AMG) 109 Platform Partners Opportunity to leverage U.S. AMG base Adapt to country and apply local expertise Strengthen & export expertise from U.S. = Current Global Alliance Partners - PI
Slide 111: U.S. Alliance Management Group Platform Partners
U.S. Alliance Management Group (AMG) 110 Platform Partners Opportunity to leverage U.S. AMG base Adapt to country and apply local expertise Strengthen & export expertise from U.S. = Current Global Alliance Partners - PI = Other PI platform partners
Slide 112: Depth of Relationships Increases Growth Potential
111 Depth of Relationships Increases Growth Potential Cross-selling opportunities Voluntary pension complementing mandatory system Mutual funds to complement pension Transition from accumulation to payout
Slide 113: Q&A with Luis Valdés & Ned Burmeister
Q&A with LUIS VALDÉS & NED BURMEISTER 112
Slide 114: Julia Lawler, Chief Investment Officer
JULIA LAWLER Chief Investment Officer
Slide 115: Investment Philosophy and Strategy Remain the Same
Investment Philosophy and Strategy Remain the Same Liability-driven investment approach Active asset/liability management and strategy Optimized risk adjusted yields and returns High quality, well-diversified portfolio 114
Slide 116: Liability Mix Drives Asset Need
63% of Principal Life Insurance Company liabilities are GICs and Fixed Deferred Annuities with a weighted average duration of 3-5 years Principal Life Insurance Company commercial mortgages with a weighted average duration of 3-4 years fit well with these liabilities Principal Financial Group invest
Slide 117: Commercial Real Estate
Commercial Real Estate Positive trends continue: Liquidity improving Property space market fundamentals improving Property values increasing Expertise | Fits our liabilities Commercial Real Estate will continue to be a strong allocation. 116
Slide 118: CMBS Loss Trends are in Line With Expectations
CMBS Loss Trends are in Line With Expectations Unrealized Losses and Expected Losses (in millions) All numbers shown are pre-tax 117
Slide 119: Continued Improvement in Commercial Mortgage Loan Portfolio
Continued Improvement in Commercial Mortgage Loan Portfolio December 31, 2010 December 31, 2011 June 30, 2012 Portfolio size* $9.0 billion $8.8 billion $9.2 billion Current loan-to-value (LTV) 66% 60% 57% Current debt service coverage (DSC) 1.8X 2.0X 2.1X Current occupancy 89% 90% 91% Loans with LTV
Slide 120: Minimal Exposure to Select European Countries
Minimal Exposure to Select European Countries Italy ($114.9M) Greece ($0.0M) Spain ($27.6M) Ireland ($34.5M) Portugal ($21.6M) * Domestic is defined as the majority of company revenue coming from within the country. NO SOVEREIGN EXPOSURE Total Domestic* Exposure of $198.6M by Country and Industry (c
Slide 121: Effective Asset and Liability Management
Effective Asset and Liability Management Assets and liabilities performed as expected during stressed environment Investment Only reduction demonstrates strong asset liability management Majority of unrealized losses were never realized because we were not forced sellers of assets Continuously maint
Slide 122: Investment Loss Projection
This is one possible loss scenario shown for Principal Life Insurance Company and consolidated subsidiaries. Portfolio sizes reflect Principal Financial Group US invested assets, excluding the Principal Global Investors segment. Years 2007-2011 reflect actual losses for Principal Financial Group, ex
Slide 123: Summary
Summary Continue to invest in assets that support our liabilities High quality portfolio diversified across asset classes, credit, industry and geographic location Commercial real estate continues to improve and is an area of expertise 122
Slide 124: Q&A with Julia Lawler
Q&A with JULIA LAWLER 123
Slide 125: Terry Lillis, Chief Financial Officer
TERRY LILLIS Chief Financial Officer
Slide 126: Agenda
Agenda benefits financials Modest impact from sustained low interest rates Multi-year plan to deploy excess capital Higher dividend payout ratio Acquisition vs. share repurchase Recap of key business drivers and earnings growth ROE expansion 125
Slide 127: Build Long-term Value for Shareholders
Faster growth of fee-based businesses Distribution and retention drive net cash flow Generate increasing amounts of deployable capital Build long-term value for shareholders 126 LEADS TO A HIGHER MULTIPLE
Slide 128: Continuing Evolution of Our Business Model
CONTINUING EVOLUTION OF OUR BUSINESS MODEL OPERATING EARNINGS Fee Spread Risk 127
Slide 129: As Low Interest Rates Persist, Earnings Grow at a Slower Rate
As Low Interest Rates Persist, Earnings Grow but at a Slower Rate 128 2012 has 2-3% impact Grows to 4-9% impact in outer years Illustrative example: Assumes 1.65% 10-year U.S. Treasury for two years, grading to long-term assumption by end of 10 years Additional impacts from long-term interest rate a
Slide 130: Returning Capital to Shareholders
Returning Capital to Shareholders 129 Less capital needed to support organic growth Diligently pursue active acquisition pipeline Larger portion can support shareholder-friendly activities Organic Growth Acquisitions Return to Shareholders
Slide 131: Moving to Higher Dividend Payout Ratio
Moving to Higher Dividend Payout Ratio 130 2010 2012E 2017E Measured as percent of GAAP net income Steady Increases Over Time
Slide 132: Financial Impact of Acquisitions vs. Share Repurchase
Financial Impact of Acquisitions vs. Share Repurchase Assumptions: $350M of acquisitions in 2011 (Origin $60M, Finisterre $85M, HSBC AFORE $206M) versus $350M of share repurchase at average price of $28.32/share 131 Acquisitions More Accretive Long Term than Share Repurchase
Slide 133: Capital Deployment Strategy
Annual Common Stock Dividend $215M (27% increase over 2010) Capital Deployment Strategy 132 Strategic Acquisitions: $350M Opportunistic Share Repurchases: $550M 2011 2012 Over $1.1 billion in total Expect $800-900 million On target to deploy remaining $245 - $345M in 2012 Quarterly Common Stock Divi
Slide 134: Key Business Drivers 5 Year Outlook
ACCUMULATION Net revenue growth 6-8% Pre-tax RONR 28-32% GUARANTEED Net revenue growth 6-8% Pre-tax RONR 75-80% LIFE Premium & fee growth 4-8% Pre-tax operating margin 16-21% SBD Premium & fee growth 8-10% Pre-tax operating margin 8-12% Key Business Drivers 5 Year Outlook Revenue growth 14-17% Pre-t
Slide 135: Operating Earnings Growth
Operating Earnings Growth 134 Long-term operating earnings growth: Near-term operating earnings growth rate Factors Impacting Results: Interest rates Foreign exchange Equity market Pressure on fees Operational efficiency
Slide 136: ROE Growth
ROE Growth 135 2011 ROE 10.2% Business Growth Deploy more capital than net income 2017E ROE 13-15% Buybacks Acquisitions Low interest rates
Slide 137: Key Takeaways
Key Takeaways Evolution of Disciplined capital management Long-term financial targets still relevant: 11-13% EPS growth 50-80 bps average annual ROE improvement 136
Slide 138: Panel Q&A
INVESTMENT MANAGEMENT + PANEL Q&A MVESTOR DAY 2012 Pall al
Slide 139: Why Invest with The Principal
The Principal is well positioned for long-term growth 138 Distribution matters Advisor-centric model Solutions to solve client needs Operating with financial strength and flexibility Why Invest with The Principal
Slide 140: Thank You!
Thank You! P INVESTMENT MANAGEMENT + MVESTOR DAY 2012 Pall oop
Principal Financial Group — Investor Day (September 2012) on 6ix