“What matters most is that we helped people through some of the most challenging times in their lives.”

From the chairman, president and chief executive officer

To our shareholders

2017 was our 138th year in business. It was a year of strong growth for Principal, but more importantly, a year of meaningful progress. Progress meeting customer needs and solving their problems. Progress delivering education and tools that remove barriers to customer action. Progress promoting the importance of investment diversification, savings discipline, and risk protection. Progress advocating for pension systems that enable people around the world to maintain their lifestyle in retirement. Progress on the things that matter most.

While a company’s longevity can speak volumes, the four largest companies in the world by market cap – Apple, Alphabet, Microsoft, and Amazon – are just 125 years old combined.¹These relative newcomers have created exceptional shareholder value by creating exceptional customer value. They’ve demonstrated to the world the importance of vision and creativity; of going forward, unconstrained by past formulas for success, and dedicated to innovating in ways that truly benefit customers.

Today, more than ever, Principal is re-imagining its future, with technology investment at the forefront. Undoubtedly, we’re continuing to invest in areas that improve efficiency, making us more cost competitive. But more importantly, we’re accelerating our investment in technology that: enables us to create new solutions; makes us more accessible to customers; and improves the customer experience overall, while protecting customer data and privacy. Ultimately, by enabling us to put more people around the world on the path to financial security, these investments will also enable us to create long-term value for our shareholders.

Becoming the company

Competitors – traditional and emerging – are working hard, every day, to create something better for customers. Industries are being disrupted, and clearly, longevity alone is not enough. Customer-driven innovation is the key to ongoing success. Which means every day, Principal must continue to evolve.

We must continue becoming the company that is at the forefront of building something better – better guidance, better solutions, better experiences. Better at helping people achieve their financial goals. Here are some of the things that we accomplished in 2017 to do just that, and to differentiate ourselves in this rapidly changing world.

New solutions

Customer needs can vary dramatically based on countless factors, including life stage, risk tolerance, and financial literacy. Our evolution, from product manufacturer to solutions provider, reflects our recognition that we must meet a broader range of needs and anticipate where demand is going. We have to do more and be more for our customers. With the needs of individuals, retirement, and institutional investors all top of mind, we continued to expand and enhance our investment platforms in three key areas in 2017:

• Outcomes-based funds, with a particular focus on income solutions
• Alternative investments, to enhance diversification and help manage downside risk
• Exchange-traded funds (ETFs) and collective investment trusts (CITs), to provide cost-effective alternatives to pure passive management

We launched more than 50 new funds in total in Southeast Asia, China, and Latin America during the year to address growing local demand for multi-asset and income generating solutions. On our U.S. platform, we launched more than a dozen new investment options, including seven ETFs. This brings us to a dozen ETF strategies in the market as of year-end. Our ETF franchise surpassed both the $1 billion and $2 billion milestones in 2017, moving us into the top 30 as of year-end.

Importantly, we continued to deliver strong investment performance. Throughout the year, we received dozens of best fund awards – in Chile, China, Hong Kong, India, Europe, Malaysia, Mexico, and the U.S. – from organizations including Bloomberg, Morningstar, and Thomson Reuters Lipper. Just after year-end, Principal Millennials ETF made Investment News’ list of best performing International ETFs, topping the World Large Stock category with a 41 percent gain for the year.

More. Easier. Better.

Too many people around the world are under-saved, under-insured, and unadvised. To be part of the solution, we have to provide education, guidance, and advice. We have to address how future generations will buy financial services. We have to make it easier for people to save and protect their assets. We must continue to help advisors serve their clients. But at the same time, we must also help individuals and business owners who are trying to figure it out on their own. During the year, we advanced these efforts in a number of important ways.

Accelerated underwriting (AU): We made an important enhancement to the AU program in our life insurance business. Beyond eliminating intrusive, time-consuming steps like lab testing and medical exams for eligible applicants, further automation of our rules allows for immediate review of applications. Some applications can now be approved within minutes, compared to traditional underwriting, which can take weeks, making this a true breakthrough for customers and advisors alike.

Digital sales and advice: We launched a fully digital pension product platform in Brazil (which after regulatory approval, will be owned through a joint venture with BB Seguridade). This is just a prelude to a much broader effort by Principal to introduce digital platforms that:

• support advisors as they seek asset allocation models to use in portfolio construction, and
• support individuals through understandable, affordable, direct-to-consumer solutions for protection, retirement, and other long-term savings needs.

Driving retirement readiness: In 2017, we launched a new account aggregation tool. This provides plan participants a more holistic view of their finances and a more accurate estimation of the income they will have in retirement. We also launched a first-of-its-kind retirement modeling planner. Using real-time data, plan sponsors and advisors can assess plan health, see how plan design features impact participant retirement readiness, and estimate costs associated with changes to plan design.

Going mobile: With a projected 6 billion smartphones in circulation by 2020,2 mobile features are clearly critical to delivering a better customer experience. In 2017, we rolled out a number of new features including text alerts so retirement plan participants can receive automatic updates on the status of a loan or distribution request. Mobile rollouts planned for 2018 include investment transfers, contribution changes, withdrawals, and onboarding for newly eligible participants.

Multi-channel, multi-product distribution: In 2017, we continued to make our investment offerings more accessible to investors through placements on third party platforms, model portfolios, and recommended lists. In total, we earned 72 placements, adding more than 40 different options to more than two dozen different distribution platforms with success across asset classes. At year-end, our top 10 firms averaged more than 5.5 products per platform.
And we added several key distribution relationships during the year, most notably, Alibaba.

What matters most

For all our accomplishments, what matters most is that we helped people through some of the most challenging times in their lives. And we helped people achieve financial progress they might have had difficulty attaining on their own. In 2017, we provided monthly income to nearly 50,000 disabled workers (more than $400 million in total), and to more than 200,000 retirees in the U.S., Latin America, and Asia (more than $1.2 billion in total). We paid more than $1 billion in death benefits on nearly 13,000 claims. We helped more than 15 million people around the world save/invest for retirement and other long-term needs, through employer sponsored retirement plans and retail mutual funds. Over the course of the year, those individuals saw their assets appreciate by some $60 billion.

Competitive and environmental challenges remain, but we go forward from a position of strength, with excellent fundamentals and the benefit of broad diversification. And we go forward increasingly well-positioned to:

• compete in asset management globally, in retirement and long-term savings in the U.S., Latin America, and Asia, and insurance in the U.S.,
• capitalize on growing demand associated with a thriving U.S. small- to medium-sized business market, emerging middle-class populations, aging populations, and longer life expectancies, and
• continue to build momentum in 2018, and for that momentum to translate into long-term shareholder value.

On behalf of Principal, my sincere thanks for your continued support. We’ll continue to strive to become an even stronger organization for you and each of our stakeholders.

Dan Houston

Chairman, president and chief executive officer

¹As of Dec. 31, 2017

²Smartphone market worth $355 billion, with 6 billion devices in circulation by 2020: Report, CNBC.com, Jan. 17, 2017