Principal Financial Group Inc · NASDAQ:PFG
Principal Financial — Investor Day (November 2016)
112 slides from Principal Financial's investor day presentation, Nov 16, 2016
Slide 1: Investor Day
© Principat Investor Day Novem ber 16, 201 6
Slide 2: About Principal
About Principal° isa oda sai people eg : fewest Se ee ES see deer eal
Slide 3: Welcome
© Principat Welcome John Egan Vice President, Investor Relations
Slide 4: Forward looking statements
Forward looking statements Certain statements mace by the company which are nothistorical facts may be considered forward-looking statements, including, without limitation, statementsas to operating earnings, net incomeavailable ta common stackhalders, net cash flows, realized and unrealized gains a
Slide 5: GAAP metrics
GAAP metrics Principal Financial Group, Inc. U.S. GAAP Financial Measures (in millions, except as indicated) Trailing 12 months Trailing 12 months 12/31/2010 9/30/2016 9/30/2016 NeTRCOTE Fe aT income To DAIS conienanare si g4z0 come (ond) fisted Net income (loss) available to common stockholaers $61
Slide 6: Use of non-GAAP financial measures
Use of non-GAAP financial measures Anon-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 7: Agenda
Agenda Time Topic Presenter 8:00 am Welcome John Egan 8:05 am Challenges and opportunities for Principal® Dan Houston adoan _ Positionedfor successina changingasset TimiMeZauahan management industry Future of U.S. retirement and Nora Everett & Deanna 9:20am ¢ A insurance businesses Strable 10:10 am
Slide 8: Challenges and opportunities for Principal
© Principat opportunities for Pri ncipal Dan Houston Chairman, President & CEO
Slide 9: Our strong growth will continue in the future
Our strong growth will continue in the future Operating earnings (OE) Operating earnings per Assets under in millions diluted share (EPS) management (AUM) in billions $1,262 $4.30 $596 +8% CAGR +10% CAGR +11% CAGR 793 $ $2.45 $319 2010 3Q2016TTM 2010 3Q2016TTM 2010 3Q2016TTM © Principal”
Slide 10: More than 80 countries: where we compete around the world
10 More than 70 countries Where we compete around the world @ Asset management, retirement/long-term savings, risk protection @ Asset management, retirement/long-term savings * * - Principal @ Asset management As of 9/30/2016
Slide 11: Where we compete: from positions of strength
W Where we compete From positions of strength Strateaic Insight. Administration Survey, Non-medical based on fully insured emplayer ®Z-Ben as of Dec. 31, 2015. © 39" largest global asset manager! @ 15th largest advisor sold fund family (U.S.)? iv} Top 4 across pillars of retirement (U.S.) ? © Top 5
Slide 12: Company vision
12 Company vision +} Diversified & integrated business model, focused on: + Asset management th * Asset accumulation * Income solutions Protection Recognized global leader: * Managing assets appropriate for long-term strategies * Creating retirement and income solutions + Advocating for retirement r
Slide 13: Challenges and opportunities
Challenges and opportunities —
Slide 14: Pressures & challenges
“ Pressures & challenges Active asset managers knocked by shift to passive Qrrncea
Slide 15: Pressures & challenges
Pressures & challenges Emerging markets to weigh heavily on global growth ~The World Bank, Jan. 2016 Qrrncea
Slide 16: Pressures & challenges
Pressures & challenges. Why US interest rates will stay low - Marketwatch, June 2016 Qrerceat
Slide 17: Pressures & challenges
7 Pressures & challenges DOL’ fiduciary rule will... disrupt many business models - Morningstar, June 2016 Qrerceat
Slide 18: Pressures & challenges
18 Pressures & challenges ...trends driving consolidation? Shrinking profit margins and a reach for scale - Retirement Income Journal, Jan. 2015 Qrrncea
Slide 19: Pressures & challenges
19 Pressures & challenges Failure to keep up with technology change will create opportunities for groups like Google - Forbes, Oct. 2014 Qrrncea
Slide 20: With all due respect...
With all due respect...
Slide 21: For every pressure & challenge, there's an opportunity
21 For every pressure & challenge, there’s an opportunity Asset management remains among world’s most profitable — bcg.perspectives, July 2015
Slide 22: For every pressure & challenge, there's an opportunity
22 For every pressure & challenge, there’s an opportunity China to overtake US in 2029; Brazil into exclusive G-8 — Center for Economics and Business Research World Economic League Table, Dec. 26,2015
Slide 23: For every pressure & challenge, there's an opportunity
23 For every pressure & challenge, there’s an opportunity Where investors can look for yield -—U.S. News & World Report, August 2016
Slide 24: For every pressure & challenge, there's an opportunity
24 For every pressure & challenge, there’s an opportunity DOL could usher in new era of innovation — Institutional Investor, Apr. 2016
Slide 25: For every pressure & challenge, there's an opportunity
25 For every pressure & challenge, there’s an opportunity Auto enroll raises participation; auto escalate boosts contributions — Center for Retirement Research at Boston College, July 2015 © Principal’
Slide 26: For every pressure & challenge, there's an opportunity
26 For every pressure & challenge, there’s an opportunity U.S. dominates [nearly 7X assets of 2" largest retirement market] — Retirement Research Inc., April 2016
Slide 27: For every pressure & challenge, there's an opportunity
27 For every pressure & challenge, there’s an opportunity Digital will transform — Digital Transformation: The Central Challenge for Asset Management Firms, Accenture, 2014
Slide 28: Putting the customer first
Putting the customer first
Slide 29: Customer-focused strategy...
29 Customer-focused strategy... Investment management Distribution Principal Advisor Network Technology . Advisors/Consultants/ catauiak oY Brokers alculators . Customer Principal Connection Self service tools Individuals i rien Online purchasing Online education Institutions Online purchasing SMBs!
Slide 30: ...to drive long-term growth
30 .to drive long-term growth Financial drivers Strategic Operational capital efficiency deployment Customer drivers Capitalize Get more on growing from existing markets block
Slide 31: ...to drive long-term growth
31 .to drive long-term growth Financial drivers Strategic Operational capital efficiency deployment Customer drivers Capitalize Get more on growing from existing markets block
Slide 32: Take market share
32 Take market share Technology, distribution and solutions Technology Enrollment Accelerated underwriting Distribution Joint customer Principal Total strategies Retirement Suite™ (TRS) Product Business owner & placements executive solutions (BOES) Provider of choice Outcomes-based © Principal”
Slide 33: Take market share
33 Take market share The future Go deeper Self-service options Big data Smart Beta Further explore Accou Blockchain Machine learning © Principal”
Slide 34: Take market share
Take market share The right active strategies Estimated cumulative global [RRELAM........ Alternatives. We have options within net cash flow 90+% 2015-2018 a... Specialties of Boston Consulting Group's “right active strategies” Passive and ETF! Active ARERR REA ONRRBUIREITESR A MmErEEnE eCORMENAONET
Slide 35: Take market share
35 Take market share Active strategies will continue to generate AUM and revenue growth @ Active @ Passive Assets under 2 management? Revenue’ it style, 2012 to 2020, Asset Man tion based an 2015 es jo data In ICI 201 Jew World, PC, 2014 © Principal’ iny Fact Book,
Slide 36: Take market share
Take market share Investment performance @ 9/30/2015 © 6/30/2016 @ 9/30/2016 1-Year 3-Year 5-Year tar rankings of Principal mutual funds, CITs Percentage of fu Principal *I” shares, fate accounts use “RS Principal mutual funds, table value and US. Prop 36 ma
Slide 37: Capitalize on growing markets
Capitalize on growing markets Demographic shifts Dependency ratios toincrease Global middle Age 65+ world class increases population up 200+9 in Brazil, Chile, China & Mexico 1722 1537 >3 billion more people Nearly 1 billion more Creating additional with capacity to save, people needing demand for f
Slide 38: Capitalize on growing markets
38 Capitalize on growing markets Asia, Latin America and U.S. #3-#30 India, Brazil, __ largest sana, indonesia, Mexico #1 China ¢ 2 $34.37 33% $14.67, 34% Projected GDP in 2030 Projected GDP growth 30 largest economies 2015 -2030 pn rasmayoasonn a ouewnvinntar © Principat League-Table-20 16-26-Decem
Slide 39: Capitalize on growing markets
39 $25 Capitalize on growing markets U.S. market potential remains immense U.S. retirement system dominant, despite under-savings (in trillions) 80% 70% 60% 50% 40% 30% 20% 10% 0% U.S. is under-insured and under-served Top non-U.s. systems @ Defined Benefit (DB) @ Private Defined Contribution (DC) a
Slide 40: Capitalize on growing markets
Capitalize on growing markets Individuals and institutions Projected AUM growth, 2012 to 2020, by client type Mass affluent Pension funds Insurance companies High Sovereign ‘net worth: wealth © Principat’ 40 ‘Assot Management 2020: A Brave Now World, PwC, 2014
Slide 41: Capitalize on growing markets
41 Capitalize on growing markets Major growth in four regions Projected AUM increases for asset management industry, by region, 2012-2020 @ North America @ Latin America @ Europe @ Asia Pacific Asset Management 2020: A Brave New World, PivC, 2014.
Slide 42: Getting more from existing block
42 Getting more from existing block Better outcomes, better retention >130,000 >16M smallto individuals medium-sized businesses * Greater collaboration across business units * Greater use of best practice plan design * Greater retention of at-risk assets © Principal” As of 9/30/2016
Slide 43: The result: attracting and retaining customers
43 The result: attracting and retaining customers Total company AUM net cash flow ($ in billions) $35 $30 $25 $20 $15, $10. 5 | $0 2010 = 2011, 2012, 2013, 20142015 YTD! 2016 $114 billion in positive AUM net cash flow (2010 to 9/30/2016) © Principal”
Slide 44: Closing thoughts
44 Closing thoughts A company that: * Lives its core values Who + Embraces change * Helps customers achieve financial success + Asset management globally, including income solutions Where we * Retirement/long-term savings in U.S., compete Latin America and Asia *Insurance/group benefits in the U.S.
Slide 45: Positioned for success in a changing asset management industry
© Principal Positioned for success ina changing asset management industry Jim McCaughan President, Global Asset Management
Slide 46: Overview
Overview Principal Global Investors A diversified investment manager + Broad range of investors in over 70 countries * Offices in major money centers worldwide + Long commitment to corporate stewardship; signatory to United Nations’ Principles for Responsible Investment (PRI) + Principal ranked top
Slide 47: Overview
47 Overview Globally integrated business model Our global platform for investing and working with clients ie & Principal Global Investors portfolio management, research and trading © Principal Global Investors sales and service representatives © Principal International offices © Principal”
Slide 48: Overview
48 Overview Growing presence across regions With opportunities across client segments + Pensions : + Institutions yA + Offical sector + Insurance companies + Endowments & foundations + High net worth © Principal Josh ALN hc onc countey of ene of 9/0)
Slide 49: Our growth drivers
49 Our growth drivers In-demand, specialist capabilities Prineipal Global Fixed Principal Global Investors eet sein Global Capital LLP Equities $744 Principal Real Estate - RealEstate REITS $138 /Columbus Cirele Investors [origin Asset\ Management $10.6 $229 AUM in billions, as of 9/30/2016. "Princi
Slide 50: Our growth drivers
Our growth drivers Industry leading performance Percentage of funds inthe top two quartiles, 3Q 2016 1-Year 3-Year 5-Year Principal (Morningstar)! 59% 90% 86% 69% of Morningstar- T Rowe (Lipper) 81% 84% 82% rated funds on our Invesco (Lipper)? 62% 68% 79% USS. retail platform Janus (Morningstar) 47%
Slide 51: Our growth drivers
51 Our growth drivers Proven multi-asset, multi-manager # of AUM 3-Year Investment strategies strategies 9/30/2016 AUMCAGR Target date 6 $53.6B 17% Target risk 7 $18.7B 6% Dynamicasset allocation 3 $0.2B 58% Dynamic outcome 5 $14.6B 17% Other strategic asset allocation 10 $24.9B 1% © Principal’
Slide 52: Our growth drivers
52 Our growth drivers Global leadership in funds > PGI/Funds integration makes Principal a global destination for funds + $177Bin AUM across U.S. and International platforms, as wellas various private funds? + Strong performance across boutiques and strategies + Well positionedin Active and Smart Be
Slide 53: Our growth drivers
Our growth drivers Disciplined, market-driven product development Some proven successes: * Principal Lifetime Series * Global Diversified Income * Global REITS! * Diversified Real Asset Some recent launches: + Millennials Index ETF * Blue Chip CIT? + Real Estate Debt Income Fund * Global Sukuk UCITS
Slide 54: Success story
Success story Capturing synergies from PGl-Funds integration SMA’ business $25 billionin Better sharing More efficient of advisor information up over 50 AUMin growing fromayearago DCIO2 market product development Engaged the broader Coordinated approach Leveraging one customer Centralized team for F
Slide 55: Success story
Success story Leveraging multi-channel distribution Spectrum Asset Management Principal Real Estate Investors - REITS @ LciTs? fund @ sw @ Us. mutual funds @ ‘nstitutional portfolios/ separate & commingled (cross hatching inelicates boutique sourced AUM) $22.9B $0.2B $13.8 B @ Generalaccount $0.9B $
Slide 56: Looking ahead
56 Looking ahead Well positioned despite industry headwinds Industry outlook 4Q2012 3Q2016 CAGR + Slowing global GDP growth AUM $283.78 $397.38 5%, limiting industry growth + Growing demand for lower 1 mn costistrategias Adjusted revenues $827.8M $1,187.2M 10 + Increased cost of regulation and techn
Slide 57: Insurance Solutions
Insurance Solutions = nui
Slide 58: Comply, compete, grow
58 Comply, compete, grow DOL fiduciary regulations
Slide 59: Comply, compete, grow
59 Comply, compete, grow DOL fiduciary regulations Product and : Winning service solutions relationships Challenge equals opportunity © Principal”
Slide 60: U.S. retirement and insurance businesses
60 U.S. retirement and insurance businesses Market and growth opportunity
Slide 61: Why we do what we do
U.S. retirement and insurance businesses Why we do what we do Save enough Have enough for retirement in retirement Protect enough 61
Slide 62: From a position of strength
U.S. retirement and insurance businesses From a position of strength 2 130,000 >) ii i Industry leaders: employers million people #1 ranking in the following: Defined benefit ESOP Full service payout? Total company pre-tax operating earnings (excluding Corporate) $1.9B! as of 9/30/2016 Nonqualified
Slide 63: Market opportunity
63 U.S. retirement and insurance businesses Market opportunity 50% etter retirement plan? 25% etter group insurance? 6 million SMB employers! "Department of Labor, Eurcau of Statistics. Retirement Resources, Inc. LIMRA © 68 million employees! (57% of working population) Proven results © Principal’
Slide 64: Retirement and Income Solutions
64 Retirement and Income Solutions Market and growth opportunity
Slide 65: Growth strategy
Retirement and Income Solutions Growth strategy Helping people Save Have enough for retirement enough in retirement 65 As of 9/30/2016 Over 40k employers Over 5.5M individuals §$229B in account value
Slide 66: Savings and income leader
Retirement and Income Solutions Savings and income leader Save enough Have enough =] Strong competitive positioning: Strong competitive positioning: Employers — One-stop shopping for Industry-leadingincome retirement plans'andleading — solutions —including target date choices guarantees © Better ret
Slide 67: Strong business fundamentals
Retirement and Income Solutions Strong business fundamentals Net cash flow as a percent of beginning 4Q 3Q of year account value 2012 2016 CAGR (2011-2015 average) RIS total account value $172B $2298 8% 42.4% RIS-Fee recurring $148 $198 Ri deposits? -0.19 O% Participants? 3.9M 5.0M 7% Industry’ Prin
Slide 68: Investing in future growth
68 Retirement and Income Solutions Investing in future growth Strong and Targeting Competitive evolving underserved products -engaging distribution SMB market digital experiences From a position of strength © Principal”
Slide 69: U.S. Insurance Solutions
69 U.S. Insurance Solutions Market and growth opportunity
Slide 70: Growth strategy
70 U.S. Insurance Solutions Growth strategy Helping people As of 9/30/2016 90k employers 4M individuals $3.6B premium in-force
Slide 71: Protection and savings solutions
71 U.S. Insurance Solutions Protection and savings solutions Protect enough ° Strong competitive positioning: Extensive SMB solutions, robust Employers electroniccapabilities, deep expertise, andlocal support © Better customer experiences: Engaging, easy, andactionable Individuals experience and too
Slide 72: Delivering strong performance
U.S. Insurance Solutions Delivering strong performance 4Q 3Q Growth in 2012. 2016 =CAGR? in-force premium 3 year CAGR (2012-2015) UsIS tax re rem fees? 3% 6.0% Pre-tax return on premium & fe 133 15 bps Pre-tax operating earnings? $299M $374M 6% 3.0% Employer relationships 76K = 92K 5% Non-qualified
Slide 73: Investing in future growth
73 U.S. Insurance Solutions Investing in future growth Strong and Targeting Competitive evolving underserved solutions - engaging distribution SMBs and digital experiences owners From a position of strength © Principal”
Slide 74: The future of distribution for retirement and insurance
74 U.S. retirement and insurance businesses The future of distribution for retirement and insurance * Leveraging our strong foundation Dedicated, local service teams + Individuals want advice Advice centric * Advisors play an important role Expanded * Engaging consumers with technology opportunities
Slide 75: Positioned for continued success
75 U.S. retirement and insurance businesses Positioned for continued success > Strong collaboration across franchises > Investing for growth > Uniquely positioned for the SMB market © Principal’
Slide 76: Opportunities in emerging markets
© Principat Opportunities in emerging markets Luis Valdés President , Principal International
Slide 77: Principal International: our mission
Principal International Our mission Help millions of middle class citizens in our chosen emerging markets plan and invest for their financial security through our retirement and long- term savings franchise. Thailand * Indonesia « Singapore QO Principat ie
Slide 78: Our footprint
Principal International Our footprint Kong raillion people GDP growth! billionin AUM? % GDP growth 1 billion in AUM2 ] Latin America 347 million people -1.1% GDP growth" $112 billionin AUM? Welghted 2016 GDP growthusing country population, Latin America growth suppressed by Brazil which has higher H
Slide 79: Competitive advantages
Principal International Competitive advantages Retirement & long-term savings expert * Primary focus + We're in the right a markets + Ability to leverage asset management and * Strongfootholdin retirement expertise key markets across Principal & EnergingraarRee + Strongreputation with wealth project
Slide 80: Strong growth
Principal International Strong growth Increasing diversification Pre-tax operating earnings growth! (USD millions) $350 $300 Reported $250 pre-tax OE $200 T™M 9/30/2016 $150 $100 $50 $0 mLatin America mAsia 2012 2013 2014 2015 T™ 9/30/2016 ‘prior period results translated using forelgn exchange rate
Slide 81: Opportunities for growth
Slide 82: Pension evolution and expansion
Slide 83: Pension opportunities in Asia
Slide 84: Increase voluntary savings
Slide 85: Inadequate replacement rates
Slide 86: Optimize joint venture relationships
Slide 87: Current joint venture partners
Slide 88: Positioned for success
Slide 89: Investment strategy and long-term financial outlook
Slide 90: Investment strategy
Slide 91: Investment philosophy & strategy
Slide 92: Commercial real estate exposure
Slide 93: Commercial Mortgage Loans
Slide 94: Commercial Mortgage Backed Securities (CMBS)
Slide 95: Variable investment income – exposure to alternatives
Slide 96: Long-term financial outlook
Slide 97: Future growth of our key drivers
Slide 98: Underlying assumptions
Slide 99: What if things don't go as expected?
Slide 100: Lower for longer interest rates...
Slide 101: ...won't significantly impact OE
Slide 102: Long-term growth rate sensitivities
Slide 103: Long-term growth rate sensitivities
Slide 104: Balanced capital deployment strategy
Slide 105: Proven M&A strategy
Slide 106: Key business drivers – long-term outlook
Slide 107: Key business drivers – long-term outlook
Slide 108: Diversified and integrated business model is proven
Slide 109: Principal is well-positioned for the future
Slide 110: Appendix
Slide 111: Non-GAAP financial measure reconciliations
Slide 112: Non-GAAP financial measure reconciliations
Principal Financial Group — Investor Day (November 2016) on 6ix