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Principal Announces Outlook for 2018

December 12, 2017

DES MOINES, Iowa--(BUSINESS WIRE)-- Principal Financial Group, Inc. (NYSE:PFG) today announced certain business unit outlook metrics and an update on capital deployment plans for 2018. These metrics provide greater clarity around the key drivers of earnings growth for each of the business units. Company senior leaders will provide additional detail and answer questions during a 30-minute conference call at 10:00 a.m. EST today, Dec. 12, 2017. Slides related to the 2018 outlook are now available at principal.com/investor.

Below are the 2018 outlook metrics for each business:

 
Principal Financial Group 2018 Outlook Metrics
Retirement & Income Solutions – Fee  
 

Net revenue1 growth

2-5%
   

Pre-tax return on net revenue2

  30-34%
Retirement & Income Solutions – Spread
Net revenue growth 5-10%
    Pre-tax return on net revenue   60-65%
Principal Global Investors

Operating revenues less pass-through commissions3 growth

4-8%
   

Pre-tax return on operating revenues less pass-through commissions4

  34-38%
Principal International (at PFG share, in reported USD)

Combined5 net revenue growth

11-14%
   

Combined pre-tax return on net revenue6

  38-42%
Specialty Benefits

Premium and fees7 growth

7-9%

Pre-tax return on premium and fees(8)

10-13%
    Loss ratio   62-68%
Individual Life
Premium and fees growth 3-6%
    Pre-tax return on premium and fees   14-18%
Corporate
    Pre-tax operating losses   $190-$210 million
 

The outlook for 2018 incorporates certain assumptions including:

  • Average S&P 500 index in 2018 between 2,730 and 2,750, assuming a 2 percent quarterly total return on levels as of the end of November 2017;
  • 10-year treasury rate approximately 2.50-3.00 percent at year-end 2018;
  • Future foreign exchange rates follow external9 consensus as of November 2017;
  • U.S. GAAP total company net income effective tax rate of 16-18 percent; total company operating earnings effective tax rate10 of 21-23 percent. These tax rates are based on the current tax regulations.
    • Fee effective tax rate10 of 18-20 percent
    • Spread effective tax rate10 of 28-32 percent
    • Risk effective tax rate10 of 31-35 percent
    • Corporate effective tax rate at 40 percent;
  • $900 million to $1.3 billion of total capital deployed for common stock dividends, strategic acquisitions, share repurchases, and to provide financial flexibility; and
  • Diluted weighted average number of common shares outstanding ranging from 290 – 292 million.

Conference call information
The outlook call can be accessed the following ways:

  • Via live Internet webcast. Please go to principal.com/investor at least 10-15 minutes prior to the start of the call to register, and to download and install any necessary audio software.
  • Via telephone by dialing 866-427-0175 (U.S. and Canadian callers) or 706-643-7701 (International callers) approximately 10 minutes prior to the start of the call. The access code is 4295809.
  • A replay of the outlook call via telephone is available by dialing 855-859-2056 (U.S. and Canadian callers) or 404-537-3406 (International callers). The access code is 4295809.
  • A replay of the outlook call via webcast as well as a transcript of the call will be available after the call at principal.com/investor.

Forward looking and cautionary 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, 2016, and in the company’s quarterly report on Form 10-Q for the quarter ended Sept. 30, 2017, 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.

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. In this press release, the company provides outlook on certain metrics that impact operating earnings (losses) and earnings growth. Operating earnings is a non-GAAP financial measure that management believes is useful to investors because it illustrates the performance of normal, ongoing operations. Operating earnings are determined by adjusting GAAP net income available to common stockholders for net realized capital gains and losses, as adjusted, and other after-tax adjustments the company believes are not indicative of overall operating trends. However, it is possible these adjusting items have occurred in the past and could recur in future reporting periods. Management uses non-GAAP measures for goal setting, as a basis for determining employee compensation, and evaluating performance on a basis comparable to that used by investors and securities analysts.

About Principal®11
Principal helps people and companies around the world build, protect and advance their financial well-being through retirement, insurance and asset management solutions that fit their lives. Our employees are passionate about helping clients of all income and portfolio sizes achieve their goals – offering innovative ideas, investment expertise and real-life solutions to make financial progress possible. To find out more, visit us at principal.com.

1 Net revenue = operating revenues less benefits, claims and settlement expenses less dividends to policyholders.
2 Pre-tax return on net revenue = pre-tax operating earnings divided by net revenue.
3 Operating revenues less pass-through commissions is a non-GAAP measure. The company has determined this measure is more representative of underlying operating revenues growth for Principal Global Investors. In addition, using this metric provides a more meaningful representation of our profit margins.
4 Pre-tax return on operating revenues less pass-through commissions = pre-tax operating earnings, adjusted for noncontrolling interest divided by operating revenues less pass-through commissions.
5 PI Combined net revenue is a non-GAAP financial measure. Combined basis = all Principal International companies at 100 percent. The company has determined combined net revenue (at PFG share) is more representative of underlying net revenue growth for Principal International as it reflects our proportionate share of consolidated and equity method subsidiaries. In addition, using this net revenue metric provides a more meaningful representation of our profit margins. The difference between combined net revenue (at PFG share) and pre-tax operating earnings is combined operating expenses (at PFG share).
6 Combined pre-tax return on net revenue = pre-tax operating earnings divided by combined net revenue (at PFG share).
7 Premium and fees = premiums and other considerations plus fees and other revenues.
8 Pre-tax return on premium and fees = pre-tax operating earnings divided by premium and fees.
9 Latin America utilizes Central Bank estimates, while Asia uses Bloomberg.
10 The operating earnings effective tax rate is a non-GAAP measure and differs from the U.S. GAAP net income effective tax rate primarily due to net realized capital gains and losses (NRCG).
11 Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.

Source: Principal

Principal Financial Group, Inc.

Media Contact:

Erica Jensen, 515-362-0049

jensen.erica@principal.com

or

Investor Contact:

John Egan, 515-235-9500

egan.john@principal.com

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