3Q 2013 Earnings Conference Call Presentation

Principal Financial Group®

Third Quarter 2013 Earnings CallOctober 25, 2013

Use of Non-GAAP Financial Measures

2 Posted on PFG website: 10/25/2013

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. GAAPfinancial 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.

Forward Looking Statements

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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, 2012, and in the company’s quarterly report on Form 10-Q for quarter ended June 30, 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 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.

Posted on PFG website: 10/25/2013

3Q13 Earnings Call Key Themes

• Another strong quarter leading to year-to-date earnings of $2.60 per share

• Globally diversified business model working; positions us for long-term growth

• Net revenue growth and expense discipline leads to margin expansion and

earnings growth

• Onboarding of Cuprum is complete

• ROE improvement to 12% as we grow earnings and manage equity base

• Strategic capital deployment:

• Paid 3Q13 dividend of 26-cents, 13% increase over 2Q13

• Announced 4Q13 dividend of 26-cents, bringing the total amount paid in

2013 to 98-cents, our highest annual dividend on record.


Strong Investment Performance ContinuesMorningstar rankings of Principal mutual funds, separate accounts and CITs

Percentage of funds in the top two quartiles

86% 90%

62%63%

87%

67%58%

80%

67%

1-Year 3-Year 5-Year

Sept. 30, 2012Jun. 30, 2013Sept. 30, 2013

Represents $133 billion assets under management of which 76% 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 separate account.

GOAL:ABOVE

60%


Per diluted share 3Q12 3Q13Operating Earnings $0.48 $0.90

Normalizing items:Actuarial Assumption Review +0.26 --Lower than expected returns on encaje investment -- +0.03

Total of normalizing items $0.26 $0.03

Normalized Operating Earnings $0.74 $0.93

Operating Earnings Normalizing ItemsAfter normalizing, 3Q13 EPS is up 26% compared to a year ago

Up 26%*

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*Adjusting for Cuprum, normalized operating earnings per diluted share were up 20%.


EncajeWhat is encaje: Our investment in the underlying funds of our mandatory pension operations in Chile and Mexico as required by local regulations.

Financial obligation:

• Chile: Investment of 1.0% of each fund.

• Mexico: Investment of 0.8% of each fund.

• Change in value of these investments reported through net investment income

How to track it: A proxy for the quarterly returns can be found by tracking the following:

• Chile: Cuprum Investment C found on the Pension Superintendent’s local website:http://www.spensiones.cl/safpstats/stats/apps/vcuofon/vcfAFP.php?tf=C

• Mexico: AFORE Investment APRINB3 found on http://www.bloomberg.com

3Q13 Encaje Calculations*

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Amounts US$Munless otherwise stated

Chile** Chile** Mexico MexicoProxy Expected Proxy Expected

AUM ($B) $32.4 $32.4 $11.5 $11.5Investment requirement 1.0% 1.0% 0.8% 0.8%Encaje investment ($M) 324.0 324.0 92.0 92.0

Quarterly return % -2.09% 2.125% 2.39% 1.875%***Encaje return -6.8 6.9 2.2 1.7

Ownership % 93.7% 93.7% 100% 100%PFG impact (pre-tax) -6.3 6.5 2.2 1.7Tax rate 20% 20% 30% 30%PFG impact (post-tax) -5.1 5.2 1.5 1.2Operating earnings differential -10.3 0.3

*These calculations are a proxy which closely tracks the actual financial impact for the quarter.

**Cuprum is on a one month reporting lag.***The expected quarterly rate changed to reflect net returns.


Retirement and Investor Services Accumulation

512581

0

100

200

300

400

500

600

700

3Q12 3Q13

Net Revenue ($m)

• Growth in the underlying business, equity market performance and diligent expense management

• Solid net cash flow & equity markets led to growth in average account values

• Sales of $4.7B in Principal Funds spread across multiple asset types

On a trailing twelve month basis:• Net revenue up 15%• Pretax return on net revenue of 31%

Operating EarningsAfter-tax ($m)

3Q13 $150.7

3Q12 $116.6

Adjusted 3Q12* $131.0

Change $19.7 (+15%)


*Excludes impact of 3Q12 assumption review; Change calculated with respect to adjusted numbers.

Retirement and Investor Services Guaranteed

3740

05

1015202530354045

3Q12 3Q13

Net Revenue ($m)

On a trailing twelve month basis:• Net revenue up 11%• Pretax return on net revenue of 80%


3Q13 $22.2

3Q12 $20.9

Change $1.3 (+6%)

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• Investment Only net revenue increased on a lower asset base due to improved spread

• Full Service Payout earnings were negatively impacted by mortality fluctuation

• Issued $350M five-year medium term note


144 161

020406080

100120140160180

3Q12 3Q13

Revenue ($m)

Principal Global Investors

On a trailing twelve month basis:• Revenue is up 13%• Pretax margin of 26%


3Q13 $23.1

3Q12 $20.6

Change $2.5 (+12%)

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• Margin improvement as we build scale

• Record unaffiliated assets under management of $106 billion

• Positive NCF reflects strong deposits across multiple asset classes


273

284

43

0

50

100

150

200

250

300

350

3Q12 3Q13

Combined* Net Revenue ($m)

Cuprum

• OE (xCuprum) up 2% on constant FX

• Solid results despite macroeconomic headwinds

• Continue to invest for growth

• AUM of $103 billion reflects flat markets with negative FX offsetting positive NCF

On a trailing twelve month combined basis:• Adjusted*** net revenue is up 8%• Pretax return on net revenue of 55%

Reported OEAfter-tax ($m)

3Q13 $50.7

Adjusted** 3Q13 $60.8

3Q12 $37.0

Change $23.8 (+64%)

*Combined basis includes all Principal International companies at 100%. **Lower than expected returns on encaje investment. Change calculated with respect to adjusted number. ***Excluding impact of Cuprum and the impact of Brasilprev 13th month.

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Principal International

327


233

219216

205

210

215

220

225

230

235

3Q12 3Q12Adjusted*

3Q13

Premium and Fees ($m)

Individual Life

• Adverse mortality in the quarter due to higher severity

• Low interest rates continue to be headwind to earnings growth

• Business market represents 55% of sales for the year

On a trailing twelve month basis:• Adjusted* premium and fees up 5%• Pretax operating margin of 13%


3Q13 $22.3

3Q12 $(37.9)

Adjusted*3Q12 $25.0

Change $(2.7) (-11%)



361 372

200220240260280300320340360380400

3Q12 3Q13

Premium and Fees ($m)

Specialty Benefits

• Favorable claims experience across all products and growth in the business

• Unfavorable claim experience in the year ago quarter

• Overall quarterly loss ratio of 65.3% is at low end of targeted range 65-71%

On a trailing twelve month basis:• Premium and fees up 4%• Pretax operating margin of 11%• Loss Ratio of 65.9%


3Q13 $31.7

3Q12 $16.3

Adjusted*3Q12 $18.2

Change $13.5 (+74%)



Capital Deployment

• Still expect to deploy $400M-600M in 2013

• More than $480M already allocated for the year

$288M (23 cents in 1Q & 2Q, 26 cents in 3Q & 4Q) in common stock

dividends

$150M share repurchases ($55M remaining on current authorization*)

$44M Liongate acquisition


*as of 9/30/13.

3Q 2013 Earnings Conference Call Presentation

Economy & Finance

Transcript of 3Q 2013 Earnings Conference Call Presentation