Principal Financial Group

Transcription

1 Credit Suisse Financial Services Forum February 2015 Principal Financial Group Terry Lillis Executive Vice President & Chief Financial Officer 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 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, at the end of the presentation, 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. 2

2 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 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, 2013 and in the company s quarterly report on Form 10 Q for quarter ended Sept. 30, 2014 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; conditions in the global capital markets and the economy generally; continued volatility or further declines in the equity, bond or real estate 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 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 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 A Leading Financial Services Company Great Momentum moving into 2015 Operating Earnings $1,443.4 million* Dec. 31, 2014 Assets Under Management by Source $519.3 billion as of Dec. 31, 2014 Retirement & Investor Services Accumulation 49% Retirement & Investor Services Accumulation 47% RIS Guaranteed 3% U.S. Insurance Solutions 16% Principal International 19% RIS Guaranteed 8% Principal Global Investors 8% Corporate 1% U.S. Insurance Solutions 4% Principal International 23% Principal Global Investors 22% 4 *Trailing Twelve Months. After tax. Results exclude Corporate.

3 Principal Financial Group Global Presence Mexico Pensions Annuities Ireland PRINCIPAL FINANCIAL GROUP Headquarters Des Moines, Iowa Germany Malta UK UAE Netherlands India Advisory Service Japan China Hong Kong Pensions, Thailand 5 Chile Pensions Mandatory Pensions Voluntary Annuities Brazil Pensions Annuities Malaysia Islamic Institutional Pensions Indonesia, Asset Management Singapore Australia Industry Leadership Retirement and Investor Services A leading provider of DC plans 1 #1 provider of DB plans 2 #1 provider of ESOP plans 3 #6 manager of Target Date Funds 4 Barron s Top 5 Fund Family of Principal Global Investors Best Place to Work in Money Management 6 Top 10 manager Real Estate 7 13 th largest manager High Yield 8 #3 Greenest CRE Company 9 Principal International #1 net deposits Brazil (Brasilprev) 10 #1 APV Chile 11 #2 asset management Malaysia 12 Top ten MPF provider Hong Kong 13 #5 AFORE Mexico 14 U.S. Insurance Solutions #2 Non qualified deferred compensation 15 #4 Non medical coverages 16 #5 IDI coverages 17 6 Sources: 1 PLANSPONSOR Recordkeeping Survey, June 2014, 2 PLANSPONSOR, July 2014; 3 PLANSPONSOR Recordkeeping Survey, June 2014; 4 In the United States. Strategic Insight Lifecycle fund data report 12/31/14; 5 Barron s February 9, 2015; 6 Pensions & Investments, The Best Places to Work in Money Management among companies with our size category, PFG recognition 12/08/ Managers ranked by total worldwide real estate assets (net of leverage), as of June 30, Largest Real Estate Managers, PENSIONS & INVESTMENTS, October 27, 2014.; 8 Managers ranked by U.S. institutional, tax exempt assets managed internally, as of 12/31/13, Largest Money Managers, Pensions & Investments, Online Research Center. 9 Commercial Property Executive Published March Greenest CRE Companies list. 10 Quantum, 11/2014; 11 Asociacion de Administradóras de Fondos Mutuos De Chile, 10/2014; 12 Lipper. Percentage of market share as of 12/2014; 13 Towers Watson. Based on AUM as of 09/2014; 14 CONSAR & PROCESAR, October 2014; 15 PLANSPONSOR NQDC Buyer s Guide, July 2014; 16 LIMRA 2013 survey: Non medical based on fully insured employer contracts in force. 17 LIMRA 2014 survey: Individual Disability Insurance (IDI) rank based on in force policies

4 Strong Investment Performance Morningstar Rankings Percentage of Principal Funds in the top two quartiles 66% 85% 88% 85% 78% 85% 88% 86% 72% 1 Year 3 Year 5 Year Dec. 31, 2013 Sept. 30, 2014 Dec. 31, 2014 Represents $164 billion AUM of which 75% managed by PGI boutiques 7 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. Our Strategy is Well Suited for the Current Environment Globally Competitive Employers Aging Populations Fiscally Constrained Governments 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 term asset accumulation expertise in key emerging markets with fast growing middle classes and retirement assets. 8

5 Business Synergies Enhance Our Growth Opportunities RETIREMENT & INVESTOR SERVICES Full range of retirement solutions and services to save for the long term and invest for growth PRINCIPAL INTERNATIONAL Savings and retirement solutions in select emerging markets to save for the long term and invest for growth Save for long term Invest Insure assets PRINCIPAL GLOBAL INVESTORS Investment management capabilities to Principal businesses and institutional investors through a network of specialized boutique asset managers U.S. INSURANCE SOLUTIONS Insure assets, income and financial security of business owners and individuals 9 Power of our Fee Based Model Continual shift in mix of business leading to a higher ROE and more free cash flow 2001 OPERATING EARNINGS Current 2018E 30% 30% 19% 16% 65% 15% 15% 70% 40% Fee Spread Risk 10 Fee includes Full Service Accumulation,, Principal Global Investors, Principal International. Spread includes Individual Annuities, Bank and Trust Services, Investment Only, Full Service Payout. Risk includes U.S. Insurance Solutions.

6 Returning Capital to Shareholders 50% 25% 25% 34% 33% 33% 30% 30% 40% 2007 Current 2018E Organic Growth Dividends Available Capital (Acquisitions & share buybacks) Less capital needed to support organic growth Moving to higher dividend payout ratio Diligently pursuing active acquisition pipeline Opportunistically buying back shares 11 Crisis Creates Opportunities Emerged from financial crisis in a position of strength and flexibility Executing on our strategy to increase our global footprint and feebased earnings Opportunity AXA Hong Kong Pension Year Announced AFORE 2011 BrasilPrev 2010 Rationale 15 year exclusive distribution with 4,440 agents Gateway into China Expand alternative asset class capabilities Complete offering in Chile with marquee pension and savings franchise Entry into Brazil mutual fund and asset management market Enhance global equity investment capabilities Establish leadership in emerging markets fixed income investing Solidify position as a leader in Mexican Afore market 23 year extension of successful JV with Banco do Brasil 12

7 Driving ROE Growth bps average annual ROE improvement ROE = + 4 5% for market performance + 4 5% for growth from sales/ncf + 1 2% operational efficiency EARNINGS Operating earnings Average equity (x OCI) Return on equity (x OCI) As Reported 2007 $1.1B $6.5B 2014 $1.3B $9.3B 16.4% 14.2% EQUITY Fee based growth Dividend growth Opportunistic share repurchases 13 OCI = Other Comprehensive Income. Capital Deployment Over $1.1 billion in total Allocated $2.1 billion Common Stock Dividends: $215M Share Repurchases: $550M Strategic Acquisitions: $350M Common Stock Dividends: $230M Share Repurchases: $300M Strategic Acquisitions: $1,595M 2013 Allocated $480 million Common Stock Dividends: $288M Share Repurchases: $150M Strategic Acquisition: $44M 2014 Allocated $855 million Common Stock Dividends: $375M Share Repurchases: $200M Strategic Acquisition: $180M Surplus Note Redemption: $100M 14 Long term: expect to deploy percent of net income with fluctuations in any given year

8 Capital Deployment Looking Forward Expect to deploy $800 million - $1.0 billion in 2015 Balanced deployment approach includes: Quarterly common stock dividends Announced $0.36 dividend payable in 1Q15 Strategic acquisitions Plan acquisition of AXA s Hong Kong pension business for $335M Anti-dilutive/opportunistic share repurchase Expect to deploy 65-70% of Net Income 15 Great Momentum Moving Forward In Millions $1,400 $1,300 $1,200 $1,100 $1,000 $900 $1,060 $1, Record Operating Earnings $800 $700 $600 $667 $793 $829 $809 $ Operating Earnings 16

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11 Exhibit 1 Principal Financial Group, Inc. Non-GAAP Financial Measure Reconciliations (in millions, except as indicated) Three Months Ended, Twelve Months Ended, 31-Dec Sep Jun Mar Dec Dec Dec Dec-12 Stockholders' Equity x-oci Available to Common Stockholders: Retirement and Investor Services $ 3,124.0 $ 3,194.4 $ 3,247.1 $ 3,291.4 $ 3,358.7 $ 3,124.0 $ 3,358.7 $ 3,372.0 Principal Global Investors Principal International 3, , , , , , , ,827.5 U.S. Insurance Solutions 2, , , , , , , ,096.3 Corporate (211.8) (42.3) (274.7) (340.5) (340.5) Total stockholders' equity x-oci available to common stockholders: 9, , , , , , , ,501.1 Net unrealized capital gains (losses) 1, , , , ,235.7 Foreign currency translation (686.8) (563.1) (373.9) (405.1) (361.5) (686.8) (361.5) (106.9) Net unrecognized postretirement benefit obligations (411.1) (145.2) (148.8) (152.4) (155.9) (411.1) (155.9) (488.5) Preferred stock, at par Paid in capital - preferred stock Noncontrolling interest Total stockholders' equity $ 10,232.0 $ 10,369.0 $ 10,459.3 $ 10,057.9 $ 9,777.0 $ 10,232.0 $ 9,777.0 $ 9,703.4 Book Value Per Common Share x-oci: Book value x-oci $ $ $ $ Net unrealized capital gains (losses) Foreign currency translation (2.34) (1.92) (1.27) (1.37) (1.22) (2.34) (1.22) (0.36) Net unrecognized postretirement benefit obligations (1.40) (0.49) (0.51) (0.52) (0.53) (1.40) (0.53) (1.66) Book Value Per Common Share including OCI $ $ $ $ $ $ $ $ Operating Earnings (Losses): Retirement and Investor Services $ $ $ $ $ $ $ $ Principal Global Investors Principal International U.S. Insurance Solutions Corporate (26.1) (33.0) (33.4) (33.0) (44.7) (125.5) (148.9) (139.8) Total operating earnings (losses) , , Net realized capital gains (losses) (53.2) (55.2) 30.8 (22.9) (52.3) (100.5) (179.1) 39.0 Other after-tax adjustments (0.4) (57.8) (47.6) (0.5) (0.3) (106.3) (1.1) (74.2) Net Income (Loss) Available to Common Stockholders $ $ $ $ $ $ 1,111.1 $ $ Operating Revenues: Retirement and Investor Services $ 1,672.3 $ 1,324.7 $ 1,265.1 $ 1,261.2 $ 1,460.0 $ 5,523.3 $ 4,847.6 $ 4,834.9 Principal Global Investors Principal International , , U.S. Insurance Solutions , , ,994.7 Corporate (69.1) (61.1) (64.4) (37.8) (66.7) (232.4) (215.8) (188.1) Total operating revenues 2, , , , , , , ,175.4 Net realized capital gains (losses), net of related revenue adjustments (52.4) (68.2) 64.3 (21.1) (66.6) (77.4) (320.0) 14.7 Exited group medical insurance buisness 0.2 (0.2) (0.2) 0.4 (2.4) Total GAAP Revenues $ 2,908.0 $ 2,484.3 $ 2,606.7 $ 2,478.6 $ 2,672.6 $ 10,477.6 $ 9,289.5 $ 9,215.1

12 Exhibit 2 Principal Financial Group, Inc. Non-GAAP Financial Measure Reconciliations (in millions, except as indicated) Three Months Ended, Twelve Months Ended, 31-Dec Sep Jun Mar Dec Dec Dec Dec-12 Operating Earnings ROE (x-oci): Retirement and Investor Services 25.5% 24.3% 23.6% 22.4% 20.6% 25.5% 20.6% 17.2% Principal Global Investors 21.2% 19.2% 18.9% 19.0% 17.6% 21.2% 17.6% 11.8% Principal International 7.8% 7.9% 7.2% 7.1% 8.3% 7.8% 8.3% 8.8% U.S. Insurance Solutions 10.6% 10.5% 9.7% 9.4% 9.4% 10.6% 9.4% 6.8% Corporate N/M N/M N/M N/M N/M N/M N/M N/M Total operating earnings ROE (x-oci) 14.2% 14.1% 13.3% 13.0% 12.1% 14.2% 12.1% 9.7% Net realized capital gains (losses) -1.1% -1.1% -0.8% -1.7% -2.0% -1.1% -2.0% 0.5% Other after-tax adjustments -1.1% -1.2% -0.5% 0.0% 0.0% -1.1% 0.0% -0.9% Net income ROE available to common stockholders (x-oci) 12.0% 11.8% 12.0% 11.3% 10.1% 12.0% 10.1% 9.3% Net unrealized capital gains (losses) -1.1% -1.1% -1.1% -1.1% -1.0% -1.1% -1.0% -1.0% Foreign currency translation 0.6% 0.5% 0.3% 0.2% 0.2% 0.6% 0.2% 0.1% Net unrecognized postretirement benefit obligation 0.3% 0.4% 0.4% 0.3% 0.3% 0.3% 0.3% 0.4% Net Income ROE Available to Common Stockholders (including OCI) 11.8% 11.6% 11.6% 10.7% 9.6% 11.8% 9.6% 8.8% Net Realized Capital Gains (Losses): Total net realized capital gains (losses) $ (53.2) $ (55.2) $ 30.8 $ (22.9) $ (52.3) $ (100.5) $ (179.1) $ 39.0 Certain derivative and hedging-related adjustments Amortization of deferred acquisition costs and other actuarial balances (2.3) 49.3 (47.1) (36.6) Certain market value adjustments of embedded derivatives 1.2 (5.7) 0.1 (0.4) - (4.8) (18.4) 0.6 Capital gains distributed Noncontrolling interest capital gains (losses) Tax impacts (26.8) (19.8) 13.6 (10.6) (26.7) (43.6) (101.4) (8.6) Recognition of front-end fee revenues (0.3) (0.1) (0.2) (0.1) 0.1 (0.7) Net realized capital gains (losses) associated with exited group medical insurance business (0.2) Certain market value adjustments to fee revenues GAAP Net Realized Capital Gains (Losses) $ (26.3) $ (46.4) $ 86.8 $ 0.6 $ (43.3) $ 14.7 $ (225.2) $ Other After-Tax Adjustments: Exited group medical insurance business $ (0.4) $ 0.3 $ (0.1) $ (0.5) $ (0.3) $ (0.7) $ (1.1) $ (9.6) Impact of a court ruling on some uncertain tax positions - - (47.5) - - (47.5) - - Impact of enactment of tax legislation in Chile - (58.1) (58.1) - - Contribution to Principal Financial Group Foundation, Inc (39.8) Early extinguishment of debt (24.8) Total Other After-Tax Adjustments $ (0.4) $ (57.8) $ (47.6) $ (0.5) $ (0.3) $ (106.3) $ (1.1) $ (74.2)