4q 2015 earnings conference call presentation

Principal Financial Group®

Fourth Quarter 2015 Earnings Call

February 2, 2016

Use of Non-GAAP Financial Measures

2 Posted on PFG website: 02/02/2016

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, in our quarterly earnings release, 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.

Results follow format referenced in the Current Report on Form 8-K filed November 19, 2015.

Forward Looking Statements

3

This document contains 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, 2014, and in the company’s quarterly report on Form 10-Q for the quarter ended Sept. 30, 2015, filed by the company with the U.S. 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; conditions in the global capital markets and the economy generally; volatility or declines in the equity, bond or real estate markets; changes in interest rates or credit spreads or a sustained low interest rate environment; 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 investments and the determination of the amount of allowances and impairments taken on such investments may include methodologies, estimations and assumptions that are subject to differing interpretations; any impairments of or valuation allowances against the company’s deferred tax assets; the company’s actual experience could differ significantly from its pricing and reserving assumptions; the pattern of amortizing the company’s DAC and other actuarial balances on its universal life-type insurance contracts, participating life insurance policies and certain investment contracts may change; the company may not be able to protect its intellectual property and may be subject to infringement claims; 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; changes in laws, regulations or accounting standards; 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; 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; 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; changes in investor preferences; inability to attract and retain qualified employees and sales representatives and develop new distribution sources; international business risks; fluctuations in foreign currency exchange rates; 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; and a computer system failure or security breach could disrupt the company’s business and damage its reputation.

Posted on PFG website: 02/02/2016

4Q15 Earnings Call Key Themes Underlying fundamentals remain strong despite macroeconomic headwinds

• Net revenue and earnings stability driven by our diverse business mix.

• 88% of our investment options are in the top two Morningstar quartiles on a

1-year basis, 89% on a 3-year basis, and 93% on a 5-year basis.

• Total company net cash flows of $1.3B for the quarter, $23.1B for the year.

• 14.2% ROE excluding AOCI other than foreign currency translation adjustment.

• Strategic capital deployment which reflects our confidence in the stability and

strength of our business model:

− Deployed $1.1B of capital in 2015

− Announced 1Q16 dividend of $0.38

• Strong capital position with an estimated year-end RBC ratio of 432%.


Investment performance represents the percentage of Principal mutual funds, separate accounts, and collective investment

trusts in the top two Morningstar quartiles.

Outstanding Investment Performance Continues Morningstar rankings of Principal mutual funds, separate accounts and CITs

Percentage of funds in the top two quartiles

88%

85% 86% 86%

91% 91%

88% 89%

93%

1-Year 3-Year 5-Year

Dec. 31, 2014

Sep. 30, 2015

Dec. 31, 2015

Represents $169 billion of assets under management of which 75% is managed by Principal Global Investors. 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 separate account.


DOL Regulation Update

• Continue to work with other industry leaders to influence outcomes that will

benefit plan sponsors and individuals

• Recognize that final regulation may impact industry-wide contract and

compensation structures

• Positioned to succeed if and when regulations become final:

− Diversified distribution channels

− Proven ability to work with multiple advisor business models

− Scale and history of successfully implementing complex regulation

− Product breadth and strong investment performance

− In-plan solutions and excellent service


Operating Earnings Normalizing Items


Per diluted share 4Q15 4Q14

Operating Earnings $1.02 $1.09 -6%

Higher expenses and tax adjustments in Corporate (0.02)

Total of normalizing items $0.00 ($0.02)

Normalized Operating Earnings $1.02 $1.07 -5%

On a constant currency basis, normalized earnings per share increased 1%

Retirement and Income Solutions

Fee (RIS – Fee)

397 390

0

50

100

150

200

250

300

350

400

450

4Q14 4Q15

Net Revenue ($m)

• Lower earnings primarily due to flat average account

values and a decline in variable investment income

from the fourth quarter 2014

• Quarterly sales of $3.1B and full year sales

of nearly $10B; continue to balance growth

& profitability

• Full year recurring deposits increased 7%

from 2014

• Continue to grow plan count across plan sizes, adding

nearly 1,300 net new plans in 2015

On a trailing twelve month basis:

• Net revenue increased 1%

• Pretax return on net revenue of 34%*


Operating Earnings

Pre-tax ($m)

4Q15 $124.7

4Q14 $138.7

Change -$14.0 (-10%)

*Normalized for third quarter 2015 actuarial assumption review.

Retirement and Income Solutions

Spread (RIS – Spread)

112 108

0

20

40

60

80

100

120

140

4Q14 4Q15

Net Revenue ($m)


• Net revenue decreased 7%

• Pretax return on net revenue of 56%

9

• Pension closeout business sales of

$340M in 4Q15 and record full year sales

of $1.8B

• Continue to approach pension closeout

and investment only businesses as

opportunistic


Operating Earnings

Pre-tax ($m)

4Q15 $62.1

4Q14 $59.7

Change +$2.4 (+4%)

Principal Global Investors


• Adjusted Revenue increased 7%

• Pretax Return on Adjusted Revenue of 34%

10

• TTM pre-tax operating earnings

increased 11%

• AUM of $361B (including institutional

AUM of $122B), increased 5% over year

ago quarter

• 4Q15 net cash flows of $0.7B; TTM net

cash flows of nearly $16B

• Margin improvement as we continue to

build scale

0%

Operating Earnings

Pre-tax ($m)

4Q15 $102.0

4Q14 $100.1

Change +$1.9 (+2%)


303 302

0

50

100

150

200

250

300

350

4Q14 4Q15

Adjusted Revenue ($m)

206 195

0

50

100

150

200

250

4Q14 4Q15

Combined* Net Revenue (at PFG share) ($m)

• Reported 4Q15 net cash flow of $1.8B; TTM

net cash flows of $9.3B

• Reported AUM of $110B decreased from

4Q14 due to $27B currency headwind;

increased 20% on a constant currency basis

• Reported AUM excludes China AUM of $42B,

which more than doubled from 2014

On a trailing twelve month combined* basis

(at PFG share):

• Net revenue increased 16% on a

constant currency basis**

• Pretax return on net revenue of 38%^

11

Principal International


+15%

constant

currency

basis

* Combined basis includes all Principal International companies at 100%.

** Normalized for actual encaje returns compared to expected returns.

^ Normalized for 3Q2015 impairment of intangible assets in Claritas, our mutual fund company in Brazil.

Operating

Earnings

Pre-tax ($m)

Constant

Currency

Operating

Earnings

Pre-tax ($m)

4Q15 $67.3 $90.2

4Q14 $77.5 $77.5

Change -$10.2 (-13%) +$12.7 (+16%)

406 439

0

50

100

150

200

250

300

350

400

450

500

4Q14 4Q15

Premium and Fees ($m)

Specialty Benefits

• Pretax operating earnings growth

primarily due to favorable claims

experience and growth in the business

• Strong sales and retention with growth

across all products

• Quarterly loss ratio of 62%, a strong

result and better than the targeted range


Operating Earnings

Pre-tax ($m)

4Q15 $56.8

4Q14 $44.1

Change +$12.7 (+29%)

On a trailing twelve month basis*:

• Premium and fees increased 9%

• Pretax return on premium and fees of 12%

• Loss ratio of 63%

*Normalized for third quarter 2015 actuarial assumption review.

234 239

0

50

100

150

200

250

300

4Q14 4Q15

Premium and Fees ($m)

Individual Life

• Decline in quarterly earnings partially due to

lower variable revenue; claims experience

was in line with expectations

• Business market results remain strong at

nearly 60% of 4Q15 sales

• Strong growth in TTM margins and pre-tax

operating earnings compared to prior period

On a trailing twelve month basis*:

• Premium and fees increased 4%

• Pretax return on premium and fees of 15%


Operating Earnings

Pre-tax ($m)

4Q15 $29.8

4Q14 $39.0

Change -$9.2 (-24%)

*Normalized for third quarter actuarial assumption reviews.

Capital Deployment

• Deployed $1.1B of capital in 2015, or nearly 90% of net income

− $441M in common stock dividends

Paid quarterly dividends totaling $1.50 per share in 2015, a

17% increase over 2014

− $275M deployed on shares repurchased

− $335M for AXA’s Hong Kong pension business

− $20M for increased ownership in PGI boutiques

• Expect to deploy $800M to $1.0B of capital in 2016

− Announced 1Q16 dividend of $0.38


4q 2015 earnings conference call presentation

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