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- 2. Use of Non-GAAPFinancial Measures 2 A non-GAAP financial measure is a numerical measure of performance, financial position, or cash flows that includes adjustments from a comparable financial measure presented in accordance with U.S. GAAP. The company uses a number of non-GAAP financial measures that management believes are useful to investors because they illustrate the performance of the company’s normal, ongoing operations which is important in understanding and evaluating the company’s financial condition and results of operations. While such measures are also consistent with measures utilized by investors to evaluate performance, they are not, however, a substitute for U.S. GAAP financial measures. Therefore, on our investor relations website, the company has provided reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measure. The company adjusts U.S. GAAP financial measures for items not directly related to ongoing operations. However, it is possible these adjusting items have occurred in the past and could recur in future reporting periods. Management also uses non-GAAP financial measures for goal setting, as a basis for determining employee and senior management awards and compensation, and evaluating performance on a basis comparable to that used by investors and securities analysts. The company also uses a variety of other operational measures that do not have U.S. GAAP counterparts, and therefore do not fit the definition of non-GAAP financial measures. Assets under management is an example of an operational measure that is not considered a non-GAAP financial measure.
- 3. Forward Looking Statements Certainstatements made by the company which are not historical facts may be considered forward-looking statements, including, without limitation, statements as to operating earnings, net income available to common stockholders, net cash flows, realized and unrealized gains and losses, capital and liquidity positions, sales and earnings trends, and management's beliefs, expectations, goals and opinions. The company does not undertake to update these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward-looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company's annual report on Form 10-K for the year ended Dec. 31, 2012, and in the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2013, filed by the company with the Securities and Exchange Commission, as updated or supplemented from time to time in subsequent filings. These risks and uncertainties include, without limitation: adverse capital and credit market conditions may significantly affect the company’s ability to meet liquidity needs, access to capital and cost of capital; continued difficult conditions in the global capital markets and the economy generally; continued volatility or further declines in the equity markets; changes in interest rates or credit spreads; the company’s investment portfolio is subject to several risks that may diminish the value of its invested assets and the investment returns credited to customers; the company’s valuation of securities may include methodologies, estimations and assumptions that are subject to differing interpretations; the determination of the amount of allowances and impairments taken on the company’s investments requires estimations and assumptions that are subject to differing interpretations; gross unrealized losses may be realized or result in future impairments; competition from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance; a downgrade in the company’s financial strength or credit ratings; inability to attract and retain sales representatives and develop new distribution sources; international business risks; the company’s actual experience could differ significantly from its pricing and reserving assumptions; the company’s ability to pay stockholder dividends and meet its obligations may be constrained by the limitations on dividends or distributions Iowa insurance laws impose on Principal Life; the pattern of amortizing the company’s DPAC and other actuarial balances on its universal life-type insurance contracts, participating life insurance policies and certain investment contracts may change; the company may need to fund deficiencies in its “Closed Block” assets that support participating ordinary life insurance policies that had a dividend scale in force at the time of Principal Life’s 1998 conversion into a stock life insurance company; the company’s reinsurers could default on their obligations or increase their rates; risks arising from acquisitions of businesses; changes in laws, regulations or accounting standards; a computer system failure or security breach could disrupt the company’s business, and damage its reputation; results of litigation and regulatory investigations; from time to time the company may become subject to tax audits, tax litigation or similar proceedings, and as a result it may owe additional taxes, interest and penalties in amounts that may be material; fluctuations in foreign currency exchange rates; and applicable laws and the company’s certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider in their best interests. 3
- 4. A Leading FinancialServices Company •Fortune 500 company; 134 year history; 19.1 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 institutions Assets Under Management by Source $456 billion as of March 31, 2013 Retirement & Investor Services 49% Corporate 1% U.S. Insurance Solutions 4% Principal International 23% Principal Global Investors 23% Operating Earnings $965.1 million* March 31, 2013 Retirement & Investor Services 62% U.S. Insurance Solutions 13% Principal International 16% Principal Global Investors 9% *Trailing twelve month total. After‐tax. Results exclude Corporate. 4 COMPANY OVERVIEW
- 5. Organizational Structure Principal FinancialGroup Zimpleman CEO – 42/42 yrs* Lillis CFO – 31/31 yrs Retirement & Investor Services Houston - President 29/29 yrs Principal Global Investors McCaughan – President 39/11 yrs Principal International Valdes – President 25/22 yrs U.S. Insurance Solutions Houston – President 29/29 yrs Corporate Full Service Accumulation Principal Funds Individual Annuities Bank & Trust Full Service Payout Investment Only Life Specialty Benefits Health** *Years of experience: Industry/The Principal as of year end 2013. **Exited business. COMPANY OVERVIEW 5
- 6. PRINCIPAL FINANCIAL GROUP Headquarters DesMoines, Iowa Mexico Principal AFORE Pensions Principal Seguros Life Insurance Principal Pensiones Annuities Principal Fondos de Inversión, S.A. de C.V (PFI) Mutual Funds, IAM Chile Principal Vida Annuities / Pensions Principal Creditos Hipotecarios Residential Mortgages Principal AGF Mutual Funds, IAM Cuprum Pensions - Mandatory Brazil BrasilPrev - JV with Banco do Brasil Pensions, Annuities, IAM Claritas Mutual Funds India Principal/AMC - JV with PNB/Vijaya Mutual Funds Principal PNB Asset Management Co. Asset Management Malaysia CIMB-Principal AMC - JV with CIMB Group Mutual Funds, Asset Management CIMB Principal Islamic Asset Management (PGI JV with CIMB Group) Islamic Institutional Asset Management Hong Kong Principal Insurance Company Pensions, Mutual Funds, IAM Principal Global Investors (Asia) Ltd. Asset Management China CCB-Principal AMC – JV with CCB Mutual Funds, IAM Representative Offices Pensions, Asset Management Principal Financial Group Global Presence Germany Principal Global Investors (Europe) LTD Asset Management Ireland Principal Global Investors (Ireland) Ltd Mutual Funds UK Principal Global Investors(Europe) LTD Asset Management Japan Principal Global Investors (Japan) LTD Asset Management Australia Principal Global Investors (Australia) LTD Asset Management Singapore CIMB-Principal AMC Principal Global Investors (Singapore) Asset Management Thailand CIMB-Principal AMC Mutual Funds, Asset Management Indonesia CIMB-Principal AMC Mutual Funds, Asset Management Netherlands Principal Global Investors Representative Office Asset Management UAE Principal Global Investors Representative Office Asset Management COMPANY OVERVIEW 6
- 7. 134 Years ofExperience 1879 Life Assoc 1911 Mutual Life Co 1936 Mortgage Banking/ Commercial Mortgage 1941 Group Health & Pension 1968 Mutual Funds 1985 Principal Financial Group 1998 Principal Bank; Mutual Holding Co 2001 IPO; Spectrum 1990 Principal Intl 1970s Defined Contribution 1999 Principal Global Investors; BrasilPrev JV; Principal Asset Mgmt Co (India) 2002 Benefit Consultants Inc; Total Retirement Suite SM 2006 Washington Mutual Funds; WM Advisors 2008 CIMB-Principal Islamic Asset Mgmt 2007 Morley 2011 HSBC Afore; Finisterre; Origin 1995 Principal Chile 1996 Principal Hong Kong 1997 Principal Mexico 2003 Post Advisory Group 2005 CCB Principal; Columbus Circle JV – Joint Venture. IPO – Initial Public Offering. 2010 BrasilPrev JV extension 2012 Claritas; Cuprum COMPANY OVERVIEW 7 2013 Liongate
- 8. Experienced Management Team *Asof year end 2013 COMPANY OVERVIEW 8 Name Age* Title (Industry/PFG)* Larry D. Zimpleman 62 Chairman, President & CEO 42/42 Daniel J. Houston 52 President – Retirement, Insurance and Financial Svcs 29/29 James P. McCaughan 60 President – Global Asset Management 39/11 Luis E. Valdes 56 President – Principal International 25/22 Ralph C. Eucher 61 Executive VP, Human Resources & Corporate Svcs 29/19 Karen E. Shaff 59 Executive VP & General Counsel 31/31 Rex Auyeung 61 Senior VP, President , Principal Financial Group– Asia 36/19 Ned A. Burmeister 54 Senior VP, COO – Principal International 34/34 Gregory J. Burrows 51 Senior VP, Retirement & Investor Svcs 27/27 Timothy M. Dunbar 56 Senior VP & Chief Investment Officer 32/27 Gregory B. Elming 53 Senior VP & Chief Risk Officer 31/31 Nora M. Everett 54 Senior VP, Retirement & Investor Svcs 22/22 Joyce N. Hoffman 61 Senior VP & Corporate Secretary 33/33 Julia M. Lawler 53 Senior VP – Investment Services 31/29 Terrance J. Lillis 61 Senior VP & Chief Financial Officer 31/31 Timothy J. Minard 50 Senior VP, Distribution 27/27 Mary A. O’Keefe 57 Senior VP & Chief Marketing Officer 23/23 Jerry Patterson 47 Senior VP, Retirement & Investor Svcs 25/12 Angela R. Sanders 50 Senior VP & Controller 24/24 Gary P. Scholten 56 Senior VP & Chief Information Officer 33/33 Deanna D. Strable 45 Senior VP, U.S. Insurance Solutions 24/24 Roberto Walker 48 Senior VP, President, Principal Financial Group – LatAm 24/17
- 9. Retirement and InvestorServices •A leading provider of DC plans1 •#1 provider of DB plans2 •#1 provider of ESOP plans3 •#5 Manager of Lifecycle Funds4 Industry Leadership Sources: 1 PLANSPONSOR Recordkeeeping Survey 6/12, 2 PLANSPONSOR, April 2012; 3PLANSPONSOR 6/12; 4Lifecycle Funds Study, Financial Research Group 9/12; 5Pensions & Investments, “The Best Places to Work in Money Management for firms with 1,000 or more employees”, 12/10/2012. 6Principal Real Estate Investors named a top 10 manager of real estate. Managers ranked by total worldwide real estate assets. Real estate assets reported net of leverage and 93 managers profiled. “The Largest Real Estate Investment Managers”, Pensions & Investments, October 15, 2012, data as of 6/30/2012 7IPE, Pensions Fund Perception Programme, April 2013; 25 managers won this award (out of a field of 180). 8Assets under management, Fenaprevi (10/12); 9SVS (Dec 2012); 10Lipper (Dec 2012); 11Lipper 2011; 12Consar (Nov 2012); 13PLANSPONSOR 12/12 (based on number of plans record-kept); 14LIMRA 2011 surveys: Non-medical based on fully insured employer contracts in force & Individual Disability Insurance (IDI) rank based on in-force policies. Principal Global Investors •Best Place to Work in Money Management 5 •Top 10 manager Real Estate 6 •Managers Recommended to Other Funds by 100% of Clients7 Principal International •#3 pensions – Brazil8 •#6 payout annuities – Chile9 •#2 mutual funds – Malaysia10 •#8 pensions – Hong Kong11 •#6 pensions – Mexico12 U.S. Insurance Solutions •#2 Non-qualified deferred compensation13 •#4 Non-medical coverages14 •#6 IDI coverages14 COMPANY OVERVIEW 9
- 10. Financial Strength: Current Ratings (asof 4/19/2013) • Moody's Investors Service 'Aa3', Excellent - fourth highest of 21 rating levels. Outlook: Negative Rating as of October 2012 • FitchRatings 'AA-‘, Very Strong - fourth highest of 21 rating levels. Outlook: Negative Rating as of February 2013 • Standard & Poor's 'A+', Strong - fifth highest of 21 rating levels. Outlook: Negative Rating as of October 2012 • A.M. Best 'A+', Superior - second highest of 16 rating levels. Outlook: Stable Rating as of December 2012 Ratings related to Principal Life Insurance Company and Principal National Life Insurance Company. COMPANY OVERVIEW 10
- 11. Meet retirementand employee benefit needs of growing businesses and their employees. Capitalize on unprecedented demand for financial services among Baby and Echo Boomers. Grow proven, global, multi-boutique asset management model for institutional markets and clients. Extend retirement and long-term asset accumulation expertise in key emerging markets with fast growing middle classes and retirement assets. Globally Competitive Employers Aging Populations Fiscally Constrained Governments Our Strategy is Well Suited for the Current Environment 11 COMPANY OVERVIEW
- 12. ● Retirement marketleader in the U.S. and select emerging markets ● Recognized global asset management leader ● Synergy adds value to diverse portfolio ● Increasing financial flexibility Full range of retirement solutions to save for the long term Insurance solutions to protect assets for business owners, employees and individuals Global asset management expertise for The Principal and institutional investors Long‐term savings and retirement solutions in select emerging markets ● Enduring core values ● Experienced management team ● Strong distribution ● Operate, execute, adapt and advance Well Positioned for Long-Term Growth INVESTMENT MANAGEMENT + 12 COMPANY OVERVIEW
- 13. #2 Non‐qualified Deferred Compensation plans4 #4 Group Benefit coverages5 #3 IDI new sales premium6 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 and services to save for the long termand invest for growth Protect assets Invest Save for long term #3 Defined Contribution1 #1 Defined Benefits2 #1 ESOP1 #5 Manager of Lifecycle Funds3 1PLANSPONSOR Recordkeeping Survey 6/12 (recordkeeper by plans); 2PLANSPONSOR DB Admin Survey 4/12 (by clients); 3Lifecycle Funds Study, FRC 12/12; 4Deferred Compensation Buyer’s Guide 12/12 (by clients); 5LIMRA 2011 surveys 62011 LIMRA data of non‐cancelable annualized new sale premium. 13 U.S. BUSINESSES
- 14. $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 3% Contribution 9% Contribution MonthlyIncome Social Security Pension OtherSavings Retirement Savings 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 clients) Source: PLAN SPONSOR magazine ‐‐ 1 DB Administration Survey 04/12; 2Recordkeeping Survey 06/12; 3Deferred Compensation Buyer’s Guide 12/12 Retirement Readiness Better Retirement Programs Lead to Better Outcomes $3,018 $4,030 Your income goal is $4,019 per month You are here You could be here ―Your Goal 14 U.S. BUSINESSES
- 15. 0% 2% 4% 6% 8% 10% 12% 14% 16% 20‐49 employees 50‐99 employees 100‐249 employees 250‐499 employees 500‐999 employees 1000+ employees Principal penetration of market by employer size SOURCE: Principal customerdata as of 12/31/12; Economy.com (Moody’s) Annual Firm Estimates 2012. SMB Leadership: U.S. Businesses SMB Market Penetration 15 U.S. BUSINESSES
- 16. SMB 401(k) Market Source:Cerulli Associates, 2009 SMB – Small to Medium Sized Businesses 2002 2009 2014E $1.6 $2.7 $3.8 LARGE CASE >1000 Employees SMB <1000 Employees CAGR ’09-’14 +7.1%401(k) AUM (trillions) 382,046 474,018 526,621 6,156 12,327 13,695 2002 2009 2014E Number of Plans <1000 participants 1000+ participants 401(k) Plan Growth +7.1% 16 U.S. BUSINESSES
- 17. 0 5 10 15 20 25 30 2005 2006 20072008 2009 2010 2011 2012 $Billions Recurring Deposits Transfer Deposits 15.4 17.8 20.6 20.4 17.0 18.5 20.3 24.3 Rising Deposits & the Power of Payroll Deduction 17 U.S. BUSINESSES
- 18. Specialty Benefits Premium & Fees % Change year over year Signs of RecoveringEconomy But Still Lagging Pre-crisis Levels Full Service Accumulation Recurring Deposits % Change year over year ‐10% ‐5% 0% 5% 10% 15% 20% Eligible Participants TTM Recurring Deposits U.S. BUSINESSES 18 ‐15% ‐10% ‐5% 0% 5% 10% 15% 20% Membership TTM Premium & Fees
- 19. Our Disciplined ExecutionDelivers Positive Results * Profit 2000 Benchmark Study, Sterling Resources, Inc. (2012); ** Department of Labor & Cerulli Associates 2012 (for 2012, industry 401k is an estimate) Net Flows as % of beginning of year assets 2006-2012** Profit Margin* Industry Avg vs. The Principal Principal Industry Avg 0.9% 0.4% 1.8% 2.2% 1.1% 0.5% 0.7% 5.5% 5.1% 5.4% 2.5% 0.6% 3.5% 6.3% 2006 2007 2008 2009 2010 2011 2012 401k Industry net flows Principal FSA net flows 19 U.S. BUSINESSES
- 20. Execution of Strategy: CustomerCentric Business Model Bundled Unbundled Small Case Large Case TARGET MARKET BUSINESSMODEL Nationwide John Hancock MetLife Vanguard Fidelity Mass Mutual ING/VOYA Prudential T.Rowe Price 20 U.S. BUSINESSES Wells Fargo Great West Transamerica
- 21. Execution of Strategy: FSA*Sales 2.2 3.5 2.8 1.7 2.0 3.2 2.9 1.4 1.4 0.7 0.9 1.7 2.3 3.4 1.3 0.5 0.9 1.5 2.7 2.4 2.1 1.0 3.2 3.3 3.3 0 2 4 6 8 10 12 14 2007 2008 2009 2010 2011 2012 2013 $Billions 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter *Full-Service Accumulation 9.4 8.3 5.0 6.7 8.5 11.5 21 U.S. BUSINESSES 2.9
- 22. Execution of Strategy: FSA*Deposits 5.1 7.0 6.0 6.0 5.0 6.5 6.8 4.2 4.5 3.6 4.1 5.0 5.7 5.8 4.4 3.6 3.8 4.3 5.6 5.5 4.5 3.8 5.8 6.0 6.5 0 5 10 15 20 25 30 2007 2008 2009 2010 2011 2012 2013 $Billions 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter *Full-Service Accumulation 20.6 20.4 17.0 18.5 20.3 24.3 22 U.S. BUSINESSES 6.8
- 23. Execution of Strategy: FSA*Account Value by Manager *Full-Service Accumulation 63.7% 60.4% 58.4% 58.3% 56.6% 56.2% 56.6% 10.9% 12.7% 12.8% 11.1% 10.0% 10.3% 10.7% 17.7% 20.1% 22.3% 23.3% 26.5% 26.5% 27.7% 7.7% 6.9% 6.6% 7.3% 6.9% 7.0% 5.0% 0% 20% 40% 60% 80% 100% 2008 2009 2010 2011 2012 2013 1Q13 Deposits PGI managed Sub-advised Non-proprietary ER Securities 23 U.S. BUSINESSES
- 24. Innovative Solutions: Solving IncomeNeeds ACCUMULATION OUR APPROACH: • Education • Planning assistance (RetireSecure®) • Full array of options • Innovative solutions MULTI-PRODUCT SOLUTION SET • “Through Retirement” Lifecycle Funds • Mutual Funds that: ‒ Generate income ‒ Preserve capital ‒ Protect against inflation ‒ Address market volatility • Annuities to provide: ‒ Fixed returns ‒ Guaranteed income ‒ Protection against volatility • Bank products • Full Service Payout ‒ Defined Benefit plan terminations RETIREMENT INCOME U.S. BUSINESSES
- 25. TOP SELLING FUNDS 1Q 2013 Global Diversified Income $1.4B Mid‐capBlend $800M Preferred $600M Strategic Asset Management $400M High Yield $300M TOTAL FOR TOP 5 $3.5B ASSET ALLOCATION LEADERSHIP • #5 largest lifecycle fund manager* • Target date & target risk • Multi‐manager solutions • Portfolio construction strategies: *Based on $31.7B in assets FRC 12/31/12 Lifecycle Report Needs-Driven Investment Solutions Broad and unique asset allocation strategies 25 U.S. BUSINESSES
- 26. Full Service Accumulation Netcash 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 contract mutual funds) Principal Funds Net Cash Flow Outpacing the Industry 4.0% 3.0% -2.0% 6.0% 3.0% 1.0% 2.0% 11.0% 0.0% -2.0% 2.0% 6.0% 7.0% 18.0% 2006 2007 2008 2009 2010 2011 2012 Industry net flows Principal Funds net flows 26 U.S. BUSINESSES 0.9% 0.4% 1.8% 2.2% 1.1% 0.5% 0.7% 5.5% 5.1% 5.4% 2.5% 0.6% 3.5% 6.3% 2006 2007 2008 2009 2010 2011 2012 401k Industry net flows Principal FSA net flows
- 27. ER/NQ 19% BOES 36% Individual 45% Individual Life Leadership: Focuson the Business Market Business owners’ financial challenges • Exiting the business • Business transition • Retaining key employees • Retirement planning Solutions for key employees • Retirement income • Survivor income • Business protection 2012 Sales BOES = Business Owner/Executive Solutions ER/NQ = Employer/Non-qualified SOLUTIONS FOR BUSINESS, BUSINESS OWNERS AND KEY EXECUTIVES 27 U.S. BUSINESSES
- 28. Specialty Benefits Leadership: StrongMarket Position SMB-focused solutions • Group Benefits • Top tier, owned dental networks • eBenefits Edge • Individual Disability • Wellness $1.46B Premium & Fees Trailing Twelve Months 1Q 2013 *Non-med rank based on in-force coverages. Individual Disability Insurance (IDI) rank based on in-force premium. Source: LIMRA 2011 Group Dental and Vision 40% Group Life 23% Group DI 20% IDI 16% 28 U.S. BUSINESSES Wellness 1% Business / Product Mkt. Share Industry Rank Total Group Inforce Contracts 7.1% 4 Life 8.3% 6 Disability 6.4% 5 Dental 6.4% 7 IDI Inforce Premium 7.2% 6 IDI New Sales Premium 15.6% 3
- 29. 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 BANKSINSURANCE- ORIENTED INVESTMENT- ORIENTED • Wirehouses • Regional Broker/Dealers • Planners • Insurance Producers • Banks • Broker/ Dealers • Marketers THIRD PARTYPROPRIETARY ALLIANCE MANAGEMENT GROUP (AMG) Select 3rd party distributors with dedicated support STRENGTHENS RELATIONSHIPS AND FUELS SALES GROWTH All supported by DEDICATED SERVICE TEAMS providing education, training, counseling and retention 11 WHOLESALE CHANNELS Group Benefits Retirement Investment Solutions Annuities NQDC Disability Insurance Retail Life AMG WorksiteESOP Wellness 29 U.S. BUSINESSES
- 30. National Presence withLocal Employees OUR VALUE TO ADVISORS: ● Solutions‐based selling ● Point of sale support ● Ongoing service and education support ● Pipeline development ● Practice management ● Advisor education 121 Total Offices NOTE: Approximate view as of March 2012. Check www.principal.com for actual locations.30 U.S. BUSINESSES
- 31. Expanding Distribution PartnershipsHave Generated Strong Sales Growth 2.0 3.8 4.2 3.1 3.8 3.7 7.6 2.1 2.5 2.8 5.7 6.5 10.5 0.2 0.6 1.2 1.2 1.5 1.4 2.5 1.3 2.3 3.0 0.9 1.5 1.4 1.7 2006 2007 2008 2009 2010 2011 2012 Individual Annuities Separately Managed Accounts Mutual Funds Full Service Accum $3.5B $8.0BTotal: +36%$8.8B $10.9B CAGR: $12.5B $13.0B 31 U.S. BUSINESSES $22.3B
- 32. Broad and DeepDistribution Proprietary provides foundation; 3rd party provides accelerated growth Rankings and percentages as of 12/31/2012 32 U.S. BUSINESSES Product Line New Sales 1st 2nd 3rd Top 3 represent NQ Life Career 41% Retail Life Career 51% Individual Disability Career Plus Group 36% Group Benefits 13% Fixed Annuities TD Wealth Management 39% Variable Annuities Career Principal Connection 100% Mutual Funds 40% FSA – New Sales Assets Career 31% FSA – New Sales Case Counts Career 26%
- 33. Fixed Income $139 Equity $87 Real Estate $47 Principal Global Investors Assets Under Management $273B By Asset Class As of 3/31/13. 1This list is derived from the Pensions & Investments “P & I 1,000” dated 02/04/13 compared to our internal records as of 03/31/13. 2 This list is derived from the “P&I/Towers Watson World 300: TheLargest Retirement Funds” report on the largest pension plans dated 09/03/12 compared to our internal records as of 03/31/13. ● Serve clients in nearly 60 countries, including several major central banks and sovereign wealth funds ● Manages assets for 12 of the 25 largest U.S. retirement plans1 and 10 of the 25 largest world retirement funds2 ● Manages: ‒ 66% of Full Service Accumulation assets, ‒ 79% of Principal Funds assets, and ‒ 100% of Principal Life general account assets ● Office locations in major financial markets worldwide ● Long-standing commitment to corporate stewardship Principal Global Investors 33 PRINCIPAL GLOBAL INVESTORS
- 34. Strong Investment Performance Continues Morningstar rankings ofPrincipal mutual funds, separate accounts and CITs Percentage of funds in the top two quartiles 82% 77% 62% 84% 91% 60% 82% 87% 71% 1‐Year 3‐Year 5‐Year Mar. 31, 2012 Dec. 31, 2012 Mar. 31, 2013 Represents $123 billion assets under management of which 75% is managed by PGI boutiques Principal “I” shares , if no “I” share class then “A” share class, separate accounts use “R6” rate level; Includes Principal mutual funds, separate accounts and collective investment trusts (CITs); Excludes money market, stable value and U.S. Property GOAL: ABOVE 60% 34 PRINCIPAL GLOBAL INVESTORS
- 35. Our Current Boutiques (AUMas of 3/31/2013) Principal Global Equities $60.6B PGI Fixed Income $71.6B Private Real Estate $31.2B CMBS $6.0B Origin Asset Management $2.5B Edge Asset Management $16.0B Fixed IncomeEquities REITs $5.0B Principal Enterprise Capital $4.3B CIMB –Principal Islamic Asset Mgmt $768M ** * Responsible for allocation decision-making and implementation across a range of products and client portfolios, and for providing macro economic perspectives to guide allocations. ** $315M is sub-advised by Principal Global Investors Equities and included within the $60.6B Equities AUM shown above. Liongate to close during second quarter 2013. Morley Financial Services $18.0B Spectrum Asset Management $18.2B Macro Currency Group $9.5B Post Advisory Group $11.8B Multi‐Asset Advisors $143M* Real Estate Alternatives/Asset Allocation Finisterre Capital $1.6B Columbus Circle Investors $15.9B 35 PRINCIPAL GLOBAL INVESTORS LiongateCapital Mgmt $2.1B
- 36. Awards & AUMRankings Winner of the Non-US Equity Value Award(1) Top 10 Manager of Real Estate(2) Top 10 Manager of High Yield(3) Best Emerging Global Macro & Managed Futures Fund(4) Last 3 years Asset Management Expertise To Win Mandates 7.3 73.8 78.7 82.4 98.2 102.7 2001 2009 2010 2011 2012 2013 Principal Global Investors Unaffiliated AUM (in billions) Rankings based on marketing assets under management. Sources: (1) Principal Global Investors announced as winner in the non-US Equity Value excluding emerging markets category by Institutional Investor in their US Investment Management Awards, March 2013. (2) Principal Real Estate Investors named a top 10 manager of real estate. Managers ranked by total worldwide real estate assets. Real estate assets reported net of leverage and 93 managers profiled. “The Largest Real Estate Investment Managers”, Pensions & Investments, October 15, 2012, data as of 6/30/2012. (3) Managers ranked by US institutional, tax-exempt assets managed internally, as of December 31, 2011. “Largest Money Managers” Pensions & Investments, May 28, 2012.; (4) Investors Choice European Hedge Fund Awards, London; March 2012. (6) America’s Top Money Manager, Institutional Investor, July 2012, data as of 12/31/2011.36 PRINCIPAL GLOBAL INVESTORS
- 37. Keys to OurGrowth ● 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 working with clients 37 PRINCIPAL GLOBAL INVESTORS
- 38. $3.9 $6.8 $8.4 $9.6 $11.7 $10.8 $9.3 $10.1 $9.3 $10.5 $11.8 2003 2004 20052006 2007 2008 2009 2010 2011 2012 2013 $0.1$0.7$0.9$1.3 $2.8 $4.3 $3.3$3.6$4.4$4.5 $9.2$9.5 $3.9 $8.0 $16.9 $10.5 $16.8 $16.7 $15.3 $15.3 $15.9 2005 2006 2007 2008 2009 2010 2011 2012 2013 Reflects AUM growth since date of purchase. Strong Track Record (AUM in billions as of 3/31/2013) Columbus Circle Investors $1.0 $6.0 $11.0 $12.4 $13.2 $13.3 $12.5 $3.9 $9.2 $11.3 $13.3 $16.9 $18.2 38 PRINCIPAL GLOBAL INVESTORS
- 39. Strong Track Record (AUMin billions as of 3/31/2013) $2.6 $2.3 $2.5 2011 2012 2013 $1.7 $1.6 $1.6 2011 2012 2013 $13.7 $15.8 $15.5 $13.8 $14.4 $18.3 $18.0 2007 2008 2009 2010 2011 2012 2013 $18.1 $17.2 $11.2 $7.9 $11.1 $12.5 $15.0 $16.0 2006 2007 2008 2009 2010 2011 2012 2013 Reflects AUM growth since date of purchase.39 PRINCIPAL GLOBAL INVESTORS
- 40. Growing Acquisitions Global distribution grows AUM, revenues and earnings Spectrum AssetManagement 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 $15.3 21% Revenue ($M) $21.5 $94.0 28% Pre‐tax OE ($M) $(1.9)* $17.9 63%** AUM sourced by Principal 31% 26% Columbus Circle Investors acquired in 2005 with $3.9B AUM * Reflects impact of transaction expenses in 2005. ** Calculated from 2006 when OE was positive. PRINCIPAL GLOBAL INVESTORS 40
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- 42. We are inthe Right Markets: Growing Middle Class • China, India, Brazil, Mexico to be among 11 largest Middle Class populations in 2025 • Need for more public and private pension savings across our markets SOURCE: 1 Miller McCune; 2 Global Update 2010. (Pop. in millions) 392 319 174 102 74 64 61 54 50 45 43Mexico Italy France UK Russia Germany Brazil Japan India USA China Largest middle class populations in 2025 1 Distribution of World population 2 Origin of global middle class 2 0% 20% 40% 60% 80% 100% 2000 2030 Rich Middle Poor 0% 20% 40% 60% 80% 100% 2000 2030 Rich countries Other developing E. Asia Pac developing 42 PRINCIPAL INTERNATIONAL
- 43. PRINCIPAL FINANCIAL GROUP Cuprum • Mandatory Pensions, Voluntary Pensions •AUM of $34.3B • Transaction closed 2/4/2013 Mexico (1993) • Annuities, Mutual Funds, Pensions, Asset Management • AUM of $12.6B • Wholly owned Chile (1995) • Annuities, Mutual Funds, Asset Management, Pensions • AUM of $5.7B • Wholly owned Brazil (1999) • Annuities, Pensions, Mutual Funds, Asset Management • Brasilprev – a 25% owned joint venture with Banco do Brasil AUM of $37.8B • Claritas – 60% indirectly owned mutual fund company AUM of $1.9B India (2000) • Asset Management, Mutual Funds • AUM of $0.7B • 65% owned joint venture with Punjab National and Vijaya Banks Malaysia (2003) • Conventional & Islamic Asset Management, Mutual Funds, Pensions • AUM of $10.4B • CIMB‐Principal – 40% owned joint venture with CIMB Group China (2005) • Asset Management, Mutual Funds • AUM of $12.1B • CCB‐Principal – a 25% owned joint venture with China Construction Bank Hong Kong (1996) • Asset Management, Mutual Funds, Pensions • AUM of $2.9B • Wholly owned Thailand (2010) • Asset Management, Mutual Funds • AUM of $0.9B • Wholly owned subsidiary of Malaysian JV Indonesia (2007) • Asset Management, Mutual Funds • AUM of $0.2B • Wholly owned subsidiary of Malaysian JV Singapore (2006) •Asset Management •AUM of $0.4M • Wholly owned subsidiary of Malaysian JV AUM as of 3/31/2013 43 Principal International PRINCIPAL INTERNATIONAL
- 44. Why Emerging Markets?GROWTH! Annual GDP Growth ( in 2011) Brazil 2.7% Chile 6.0% Mexico 3.9% China 9.2% Hong Kong 5.0% India 7.8% Malaysia 5.2% U.S. 1.7% Mutual Fund AUM 2011‐2016E CAGR Brazil 12.8% Chile 16.4% Mexico 14.2% China 12.5% Hong Kong 9.2% India 10.7% Malaysia 14.5% U.S. 6.1% Sources: Cerulli Associates, World Bank, CIA World Fact Book Population Brazil 205.7M Chile 17.0M Mexico 114.9M China 1,300M Hong Kong 7.1M India 1,200M Malaysia 29.1M U.S. 313.8M PI LatAm market population: 337.7M PI Asia market population: 3,500M 44 PRINCIPAL INTERNATIONAL
- 45. We’re in theRight Countries 1990 US$ 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. 14.6 China 5.9 Japan 5.6 Germany 3.3 France 2.6 UK 2.3 Italy 2.0 Brazil 2.0 Canada 1.6 Russia 1.5 2020E US$ trn China 24.6 U.S. 23.3 India 9.6 Japan 6.0 Brazil 5.1 Germany 5.0 France 3.9 Russia 3.5 UK 3.4 Indonesia 3.2 2030E US$ trn China 73.5 U.S. 38.2 India 30.3 Brazil 12.2 Indonesia 9.3 Japan 8.4 Germany 8.2 Mexico 6.6 France 6.4 UK 5.6 SOURCE: IMF, Standard Chartered Research. TEN LARGEST ECONOMIES BY DECADE Current Principal International locations: Asia Latin America 45 PRINCIPAL INTERNATIONAL
- 46. 68% 65% 32% 17% 8% 6% 4% 2%1% *Most recent data from Organisation for Economic Co-operation and Development ; CIA Fact Book and 2009 EPF Annual Report; Melbourne Mercer Global Pension Index 2010 Growing Retirement Assets United States Chile Hong Kong Brazil Mexico Thailand Indonesia If U.S. is under-saving, what does this mean for these emerging markets? Percent of retirement assets relative to GDP* China India 46 PRINCIPAL INTERNATIONAL
- 47. Joint Venture Partner Partner’s Industry Ranking Partner’s Distribution Reach Banco do Brasil Largest bank in Latin America1 5,340 branches7 56 million customers3 2nd largest commercial bank in world2 13,581 branches4 364 million retail customers4 5thlargest financial services provider in Southeast Asia5 1,100 branches5 14 million retail customers5 Largest Nationalized bank in India6 5,937 branches6 72 million retail customers6 SOURCE: 1Global Finance 2012; 2Relbanks.com 2012 3Banco do Brasil Annual Report 2011, 4CCB 2011 annual report – customers based on retail debit cards; 5CIMB Group Annual report, 12/31/11, 6Pnbindia.in – ranking based on Branch Network, Total Business, Advances, Operating Profit ; 7as of 9/30/2012 Leveraging Strong Marquee Partners With Outstanding Distribution PRINCIPAL INTERNATIONAL 47
- 48. Our Markets andProduct 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% of providers = New market entry since 2010 Investor Day 48 PRINCIPAL INTERNATIONAL Cuprum • $34B AUM
- 49. • Entered Chilein 1995 • Historically not a participant in mandatory pension market • Leader in mutual fund, pension and savings products • Leader in payout annuities Transaction Creates Enhanced Product Offering in the Chilean Market Combined Companies Are More Than Sum Of The Parts • Leader in mandatory and voluntary pension market • Highest quality affluent customer base in Latin America • Offering of complete full-service pension platform • Proven and substantial proprietary distribution platform in Chile • Leadership position in all channels—mandatory, voluntary and payout • Part of Principal’s plan to build a “Pensions Inc.” platform and to increase footprint in Latin America + Chile 49 PRINCIPAL INTERNATIONAL
- 50. Comprehensive Retirement Platform •Together Principal Financial Chile and Cuprum completes the full spectrum of products for a comprehensive “hire through retire” approach to the market TOGETHER PRODUCTS: Mandatory Pension Voluntary Pensions: AFP Fund Based Mutual Fund Based Mutual Funds Payout Products: Annuities Based Structured Payout Life (Accumulation) DISTRIBUTION: Brokers & Independent Agents Retail Alliances Proprietary Sales Force Source: Company information. Chile 50 PRINCIPAL INTERNATIONAL
- 51. CHILE MEXICO BRAZIL COREPRODUCTS Mandatory pensions Voluntary, qualified individual retirement Voluntary, qualified group retirement Payout annuities Mutual funds Mandatory individual pre- retirement pension Retail mutual funds Defined Contribution accumulation products for individuals & employer groups Corporate DC plans Mutual funds AUM(a) $5.2bn + $32.1bn from Cuprum $9.9bn $32.3bn CUSTOMERS (a) 150k + 621k from Cuprum 4.0m 1.4m(b) RANKING / MARKET SHARE(a) #4 in mandatory pensions #1 in mandatory pensions for high income segment #1 in voluntary products Top 5 in annuities business #6 in Afore market by AUM (6.6%) (a) #5 in Afore market by customers (8.3%) (a) #3 by AUM (19.4%)(b) Principal in Latin America Source: Company information, CONSAR (National Commission for the Retirement Savings System), FENAPREVI (National Federation of Retirement and Life Insurance). Note: TTM = trailing twelve months as of 6/30/12. (a) As at 6/30/12. (b) Figures reflect BrasilPrev only. • Latin America is a strategically important market for Principal • With $80bn in pro forma AUM across Latin America, Principal is one of the largest pension specialists and asset managers in the region = Impact of Cuprum Acquisition 51 PRINCIPAL INTERNATIONAL
- 52. ● 62% ofPrincipal 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 3-5 years fit well with these liabilities Principal Financial Group invested assets and cash $71.1B as of 3/31/2013 * Other includes U.S. government and agencies, State and political subdivisions, Non-US governments, Residential pass-thru securities, Residential mortgage loans, Equity securities, Equity real estate, Policy loans, and Other investments. Liability Mix Drives Asset Need 52 INVESTMENTS Corporate Public Bonds 30% Commercial Mortgages 14% CMBS/CMBS CDO 6% Other ABS 4% CMO 2% Cash 2% Other* 24% Corporate Private Bonds 18%
- 53. CMBS Loss Trendsare in Line With Expectations $0 $500 $1,000 $1,500 $2,000 $2,500 Expected CMBS Losses Cumulative CMBS Losses Total Net Unrealized CMBS Losses Unrealized Losses and Expected Losses (in millions) All numbers shown are pre-tax 53 INVESTMENTS
- 54. Investment Loss Projection Asof 09/30/2012 Key Messages: • 2012 losses are now expected to be lower than the $119 million projected as of 12/31/11. The losses for corporate bonds have been lower than expected while losses for other asset classes were close to expectations. • Losses over the next three years are expected to be below pricing assumptions. This assumes no material downturn of the U.S. or Global economy. 247 182 35 25 21 38 46 36 4 57 36 11 9 7 5 4 20 60 114 91 62 39 33 26 $0 $50 $100 $150 $200 $250 $300 $350 2008 2009 2010 2011 2012E 2013E 2014E 2015E $inmillionsafter-tax CMBS/CMBS CDO = $4.2B Commercial Mortgages = $9.9B Bonds excluding CMBS/CMBS CDO = $41.6B Size of Portfolio (Amortized Cost) as of 09/30/2012 $127 $92 $84$185$299$271 $66Total Losses (in $ millions) $84 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 2008-2011 reflect actual losses for Principal Financial Group, excluding Principal Global Investors segment. Actual 2012 losses through 3Q include $49.0 on CMBS/CMBS CDOs, $12.8 on Bonds excluding CMBS/CMBS CDOs, and $7.2 on Commercial Mortgages. A projection of 4Q losses is included in the 2012 estimate. Losses are after-tax. 54
- 55. 2001 TTM 1Q13 TTM= Trailing Twelve Months. *After-tax. Results exclude Mortgage Banking, BT Australia, Health and Corporate. **After-tax. Results exclude Corporate. U.S. Insurance Solutions 27% U.S. Insurance Solutions 13% RIS Guaranteed 33% RIS Guaranteed 9% RIS Accumulation 34% RIS Accumulation 53% PGI 5% PGI 9% PI 1% PI 16% 40% of OE 78% of OE 2001 Operating Earnings $448.3M* TTM Operating Earnings $965.1M** Evolution of Fee Based Business Model FINANCIALS 55
- 56. Continuing Evolution Of Our Business Model 30% 40% 30% 2001 70% 15% 15% 2017E 60%20% 20% 2012 OPERATING EARNINGS Fee SpreadRisk INVESTMENT MANAGEMENT + FINANCIALS 56
- 57. 1/4 1/4 1/2 2007 Returning Capital toShareholders ● Less capital needed to support organic growth ● Diligently pursue active acquisition pipeline ● Larger portion can support shareholder-friendly activities 1/2 1/4 1/4 2017E 1/3 1/3 1/3 2012 Organic Growth Acquisitions Return to Shareholders FINANCIALS 57
- 58. Moving to Higher DividendPayout Ratio 2010 2012 2017E Measured as percent of GAAP net income Steady Increases Over Time 28% 30% % FINANCIALS 58
- 59. Operating Earnings Growth Long-term operating earnings growth: Near-term operating earnings growthrate Primary Factors Impacting Results: • Pressure on fees • Low interest rates 10-12% 6-8% FINANCIALS 59
- 60. $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 2011 2012E 2013E2014E 2015E 2016E Acquisitions 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 EPSAccretion Acquisitions More Accretive Long Term than Share Repurchase FINANCIALS 60
- 61. Accelerating Our Strategy OpportunityYear Announced Achievement Liongate Capital Management 2013 Expand alternative asset class capabilities 2012 Complete offering in Chile with marquee pension and savings franchise Claritas 2012 Entry into Brazil mutual fund and asset management market Origin Asset Management 2011 Enhance global equity investment capabilities Finisterre Capital 2011 Establish leadership in emerging markets fixed income investing HSBC AFORE 2011 Solidify position as a leader in Mexican Afore market BrasilPrev 2010 23 year extension of successful JV with Banco do Brasil • Emerged from financial crisis in a position of strength and flexibility • Executing on our strategy to increase our global footprint and fee-based earnings FINANCIALS 61
- 62. Annual Common Stock Dividend$215M (27% increase over 2010) Capital Deployment Strategy Strategic Acquisitions: $350M Opportunistic Share Repurchases: $550M 2011 2012 Over $1.1 billion in total Allocated $2.1 billion Quarterly Common Stock Dividends $230M (70 to 78 cents, 11% increase) Opportunistic Share Repurchases: $300M Strategic Acquisitions: $1,595M 2013E YTD Quarterly Common Stock Dividends ~$135M (23 cents for 1Q13 & 2Q13) $400-$600 million • Quarterly common stock dividends • Strategic acquisition • Opportunistic share repurchase 62 Anti-dilution & Opportunistic Share Repurchases: $150M (~$115M remaining) Strategic Acquisition: $44M
- 63. 5-Year 2013E Reason Accumulation Netrevenue growth 6-8% 2-4% Pressure on fees Pre-tax RONR 28-32% 27-29% Low interest rates Guaranteed Net revenue growth 6-8% Same Opportunistic approach Pre-tax RONR 75-80% 77-80% Operating at scale Net revenue = operating revenues less benefits, claims & settlement expenses less dividends to policyholders RONR = Return on Net Revenue Pre-tax operating margin = pre-tax operating earnings / premium and fees Retirement & Investor Services U.S. Insurance Solutions 5-Year 2013E Reason Individual Life Premium & fee growth 4-8% 3-5% Lower single premium sales Pre-tax operating margin 16-21% 15-17% Low interest rates Specialty Benefits Premium & fee growth 8-10% 6-8% Slow employment growth Pre-tax operating margin 8-12% 8-10% Low interest rates Loss ratio 65-71% Same Stable loss ratios 63 FINANCIALS Key Business Drivers Outlook
- 64. 5-Year 2013E Reason Revenuegrowth 14-17% 6-8% Lower performance fees Pre-tax margin 30+% 23-25% Continue building scale Key Business Drivers Outlook Principal Global Investors Principal International (does not include Cuprum) 5-Year 2013E Reason Combined* net revenue growth 15-20% 16-19% Strong execution Combined pre-tax RONR 55-60% 57-59% Scale offsetting fee pressure Principal’s share of combined pre-tax earnings N/A 28% *Combined basis includes all Principal International companies at 100% RONR = Return on Net Revenue N/A = not applicable Estimated After-tax operating losses for Corporate of $145-$165 million in 2013 64 FINANCIALS
- 65. (1) Excludes discontinuedoperations. (2) Diluted. (3) Operating return on average equity excluding other comprehensive income, based on trailing 12 month period. 2001 2012 CAGR (’01-’12) 1Q 2012 1Q 2013 Change Operating Earnings (1) ($M) $433 $808 6% $215 $233 8% Earnings Per Share (2) $1.20 $2.69 8% $0.71 $0.79 11% Assets Under Management ($B) $98 $403 14% $364 $456 25% ROE (TTM) (3) 6.9% 9.7% +280 bps 9.9% 9.8% -10 bps Book Value Per Share (x-OCI) $17.81 $28.93 5% $27.45 $29.19 6% S&P 500 1,148 1,426 2% 1,408 1,569 11% Results Demonstrate Relative Strength of Our Business Model FINANCIALS 65
- 66. The Principal is well positioned forlong-term growth: • Dramatically growing retirement markets • Strong distribution • Innovative products • Leadership in asset management • Deep understanding of growing need for financial security • Purposeful diversification • Disciplined execution 66