Principal Financial Group, Inc. (PFG)

Investor Day 2018

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Nov 15, 2018

So first, we'd like to say welcome and, thank you everybody for attending. It's great to see you full house and, truly appreciate you taking time out of your schedule to be here with us today. When you checked in, hopefully, two things. A, you got that one pager that has the agenda. On that agenda, it actually has a couple of things. It has not only the the day, kind of the way the afternoon will shape out, but also has a Wi Fi password and also has a a link to the presentation. So in the spirit of being green, hopefully, you have your laptop, your computer, and you could kinda listen or or follow along the presentation via your computer. For those of you maybe like me, old school need a hard copy of the presentation, we do have those in the back too. So if you're missing any of that, kind of give us a wave and someone from my team will get you those documents. So it is webcast. So we will have a lot of q and a. Because it's webcast, we wanna make sure all your questions are heard. Raise your hand, identify who you are, wait for someone with a mic to come by and and then kind of use that mic so that we get it recorded. For those of you listening via the webcast, a, obviously appreciate you taking time out of your day. I could tell you, you're missing a beautiful fall November day here in New York City, so you're a miss. But with that said, one other reminder. So December 3, we are going to do our outlook call and we're going to do it, similar to what we've done in the past, where we will give metrics, revenue metrics, margin metrics for each of our businesses. We'll give you a couple some information on capital deployment, share count and some of the other assumptions. So that's December 3, I believe it's 09:00 Central Time. The details are on our website. The reason I bring that up and remind you is because that will obviously be about 2019. What we're going to talk about today is with regard to 2019, but beyond 2019, what we're excited about. And today's agenda is a little bit different and hopefully you kind of seen it now and I'll go through it in a second, but that was by design. Hopefully I listened to you and what I heard was, Hey, John, I want to have a lot of time for Q and A with the executives. I want to have some networking time where I can introduce myself and learn more about your team. So we have ample Q and A. The other thing I heard loud and clear was this investment in digital. What does that all mean? How much are you investing? What does it mean in each of the businesses? Probably more important, what is it each business is working on and in turn, when will that impact benefit their business and also their bottom line? So we're going to have a breakout session with representation from each of the businesses going through that digital investment and what that means for Principal. Second panel we're going to have is with the business presidents and that will be around the opportunities ahead. What are they excited about as they look at their businesses and they look out into the future. So once again, I'll go through the agenda in a second, but once again, a little bit different of agenda, but I think it will work certainly based on what you've asked of us. So let me do some housekeeping items here. First thing, obviously forward looking statements, some GAAP metrics, some non GAAP metrics. If you don't get enough of this, I even think we have some of these reconciliations in the back of the deck too. Help yourself to reviewing those. So the agenda here. What I wanted to do is before I spend a minute, kind of going through each of the topics we'll break out, what I want to do is introduce some of the executives from Principal that have made it to the NASDAQ Building here today, not presenting, but I want to introduce them. I want to talk to what they do at Principal, cause I want to encourage you to network with them. There'll be a break here and then there's a networking session afterwards and I will introduce them and once again, encourage you to get to know them. We have a very talented executive team and I think it's a great opportunity for you to get to know them on a personal basis. So, what I'll ask of principal is when I introduce your name, just kind of raise your hand so people in the audience will know who you are. I think most people know Julia Lawler. She is our Chief Risk Officer. Next to her is Karen Schaff, our General Counsel. We have Nick Sessier and we have Sean McCartney in the back of the room there. They're from our USIS distribution team. We have Tom Smith. He is Head of our Global Firm Relations. We have Paul Kim back there. He heads up our ETF efforts. Erica Jensen, Jane Slusak and Kyle Munson, they're from public relations in the back. So we have Matt Trosper, Capital Markets. We have Jeff Raider, Senior Advisor. We have Mandy McReynolds. I think she's made her way in here. If not, she'll be available for the networking. She heads up our ESG, environmental social governance issues. Once again, if she's not in the room here yet, she'll be available at our networking session. And I'd be in big trouble if I didn't do a call out to my IR team. Obviously very grateful for all they do real quickly. We have Cindy, Eddie, Jeremy, Elliot, and Lorna, and truly appreciate all their hard work putting this event together. So let go through the agenda kind of real quickly. I promise I'll get off the stage here shortly. First we have, I'll hand the stage over to Dan. Dan's title is CEO Perspective. What Dan will do, Dan, Chief Executive Officer, our President, our Chairman, what he's going to do is talk about the macro environment, both domestically and globally, talk about our integrated business model and how we are going to leverage this macro environment and how those opportunities will leverage moving forward in each one of our businesses. So that's kind of his presentation based on the opportunities that lie ahead on this macro environment. Next, we'll have this first panel I talked about, Gary Shilton, who is our Chief Digital Officer and our Chief Information Officer. Hopefully, I got the titles right. He will be the emcee on the panel with Gary will be heads well, not heads, but executives of each of the businesses. So Kara, she's in the USIS heads up our Group Benefits. Jerry Pattison heads up our RES fee business. Renee is a Chief Operating Officer for Principal International and Ellen Shumway is a Principal Global Investors. So those five executives will talk about our investment in digital and what it means moving forward. Then we'll have a break and and let me backtrack for a second. After the panel, both panel discussions, roughly about forty five, fifty minutes of prepared questions that we have, but then we'll open up the floor for you for about fifteen, twenty minutes of Q and A in addition to kind of the questions we ask. And with that said, even after Dan's presentation, he'll have a short Q and A session too. So after the break, I'll come on come back here. I have the four businesses four business presidents, Nora Everett, Amy Fredrick, Pat Halter, Luis Valdez. What we'll talk about is the business opportunities in each one of their businesses, RAS, USIS, PGI and Principal International. We'll talk about what they're excited about as they look into the future with regard to each one of their businesses. Then we'll bring Deanna, their CFO, Deanna Strobel stage. She'll give us a financial update on Principal Financial Group, talk a little bit about the general account capital deployment and that will kind of close out the prepared remarks. Then what we'll do is invite Dan and the Business Presidents back on stage and we'll finish up with a Q and A, a half hour Q and A. And once again, focus here is we want to get to everybody's questions. So there's ample time for your questions and certainly at the end, we'll take every and all questions and we welcome that. Then at the end, hopefully everybody sticks around. Hopefully it's not snowing tube head. Come join us for a networking session. We'll have that in the back of the room. I hear there'll be cocktail served. All the executives that are presenting will be back there and all the ones I've introduced will be back there and we encourage you to kind of stick around and get to know us a little bit better and kind of what we're doing here at Principal. So what I'll do now is, in the spirit of networking and also, maybe a question you might ask our next presenter. In the Midwest, college football is everything. So having been in the Midwest now for about eight and a half, nine years, I've given up on the New York Jets for obvious reasons. I'm all about college football too, but there's a really interesting game this week. It's with regard to the Big twelve championship. Now Dan is originally from Texas, still has family there, still visits quite often, but his Texas, the Texas Longhorns are actually playing the Iowa State Cyclones, Dan's Alma Mater, Dan very involved in Iowa State. So probably a question you might want to ask Dan, I have a feeling who you'd be rooting what's his thoughts on that game? And once again, the outcome could determine the Big 12 champions. So with that said, I'm honored to welcome Dan Houston, our CEO to the stage here. Thanks, John. It's a real privilege to be here today, and I just want to say thank you for all of those of you who've traveled to be here to be at our Investor Day. And I was reflecting earlier this morning how this has evolved over the years because at one point in time, this used to not be around the strategy. It was really the outlook call. And frankly, the outlook portion hijacked its real intent, the real purpose, which was to discuss in more detail what's the strategy. The second thing I'm reminded of, and again, John and I were visiting just before things got started, the best thing we can do is have a very candid, transparent conversation and frame for you what we think the future looks like. So every attempt will be made today to try to help you better understand what we think are the macro drivers to these businesses, but most importantly, what's the runway look like? What's it look like in the next one, three and five years out? So I'll try to make sure that my points are on that in that vein. The other thing I want to do is to say thank you to NASDAQ. We actually shifted to the NASDAQ, I think it was a year ago, January, late December. And from a marketing perspective, from a collaboration perspective, we could not be more pleased with the partnership that we've enjoyed with NASDAQ. They've just done an exceptional job. The second thing I want to do is just simply say that Tim Dunbar really wanted to be here. He had a personal matter that came up, prevented him from traveling here today. He's very enthusiastic about working with Pat Halter. I'll get into that in more detail. I was trading e mails with him this morning. Everything is good. And so look forward to getting Tim out on the road talking with you about his vision of what's going to be occurring within our Asset Management division. A couple of things I want to make sure I hit on the course. There are issues, and I've described the issues here as being PGI's net cash flows. We want to make sure that we have a candid conversation today about net cash flow and what we're doing about that. The need for overall lower cost investment options. This is not a passive active debate. This is around a broad sort of downward pressure that's related to asset management fees. We want to get into that. RIS, and again, I'm excited about having Jerry on the panel. We'll get into some discussion around full service accumulation and how we pivot that business to continue to enjoy the success and the growth of the future. Many of you know the fact that we are a global company, and we have a lot of businesses outside The United States. They have volatility in currency. They have volatility in political background. They certainly have volatility in their economies. And we'll spend some time with Luis on the panels, perhaps better informing you on some of those challenges. And again, excited about the ability to do that. I want to start off here, however, recognizing a couple of things. There are some really big macroeconomic drivers that haven't gone away, and I'll get into these in more detail. But this notion of government saving the day, that's long gone. It is the era of personal responsibility, and I want to delve into that. Demographics, whether it's aging or living longer, that's a big part of the theme in terms of opportunity. If I were sitting in your chairs as an investor, clearly, is a huge demand for the products and services that we offer. And then as again, as I touched on earlier, this is not a domestic U. S. Only environment. This is a global footprint for asset management as well as asset accumulation. We'll also get into some discussions around our strategy. It hasn't changed. We still believe there's a lot of upside in The U. S. Retirement business and long term savings. We feel very good about our current positioning of our of the asset management team. And again, it gets overlooked too often, and I get reminded of that by Amy with some frequency. But this protection business of principles is deliberate. It's a great source of diversification. It's continued to add a lot of value. And frankly, it's at the core of our SMB strategy. Along with that, we'll certainly address issues on fee and pressure, low cost investments, as I just mentioned a few minutes ago. This is an attempt to try to better inform you, again, how diversified the business is. I frequently get asked by investors, Dan, do you anticipate this model changing in any sort of dramatic way? I would say no. We like the asset management business. We like the accumulation business. We like retail mutual funds, institutional asset management. All of those things work in addition to being in the protection businesses. When we sort it out, we've sorted out in the past. We divested in 2010, the health insurance business. We didn't think that, that was going to be viable for our investors long term. We reshaped our bank, and that was from a regulatory perspective. But this set of businesses, we would expect to have growth coming from each and every one of those and continue to play an important part of the organization going forward. As simple as this particular slide is, I want to just remind everybody the way we sort of look at our strategy. It isn't around being in the mutual fund business or retirement business or asset management. It's to try to focus on three very purposeful clients, the first of which is SMBs, individual investors and institutional investors. That's at the core of what we do. And we think there's really four different ways that we've got to continue to hammer away at our strategy to ensure that we're going to continue to be relevant. One that you see that we've launched here within the last couple of years was the brand. Before, it was quite easy easy is an understatement, I guess but we had a focus on the adviser and focus on the employer decision makers. That's not who's making decisions internationally. It's certainly increasingly a smaller subset of who's making those decisions locally in The United States, it's individuals. So you've seen our advertising and our brand investments continue to ramp up. And as we think about these businesses migrating to more of a digital distribution model, Our brand will be increasingly important to individual decision making. Technology, and excited about the panel that you're going to hear. We've had a chance to hear that myself on a number of occasions. I think you're going to be excited about the way we're going to frame our technology set. Gary and his team, I think, have just done an outstanding job partnering with our businesses to ensure that we're relevant in how we go about meeting the needs of our clients. Solutions, it's all about solutions. We're not a pure play asset manager. We have huge engines that drive assets to the organization. Pat's going to talk about that. Ellen is going to talk about that. We have retail mutual funds. We have retirement. We have insurance. We have an $80,000,000,000 general account. Those are all very, very important components of our strategy to drive assets to the organization. And then lastly, what I'd say focus is really around ensuring that we have distribution. Someone mentioned Tom Smith in the room earlier. This morning, I've spent half the morning talking to some of our biggest distribution partners. Being on these platforms is going to require more than just a hot product. It requires size, it requires scale, it requires size and critical mass because increasingly, from a compliance perspective and an oversight perspective, the numbers of products on platforms by different companies, it isn't growing. As a matter of fact, it's shrinking in terms of numbers and Principal is fortunate to be in there. I thought I might spend just a few moments talking about our current competitive positioning and how I see that continuing in the future. We now have broken into this top 40 global asset managers. And again, I didn't think I'd ever be standing up here talking about bragging about being in the top 40. But when you think about the sheer number of global asset management firms, it's pretty cool to be in that sort of top 40, top 50. And again, it gets back to what I was mentioning earlier, your relevancy of being on the platforms of the largest distributors in this industry. Top five in retirement and the group benefits business, Again, we'll get into some of those statistics, but well in excess of 135,000 small to medium sized relationships. Again, I'll talk about the opportunity to better utilize that as a source of new revenue sources for the organization. Number one in Latin America, number four in the retail mutual fund in China, both big deals. And again, Louise will hammer away at that. There's not an earnings call that goes by, and I know many of you listen in, that we don't talk about the importance of investment management. It's the first, the choice and the range of products that you have available to our clients. And secondly, no stranger to anybody in this room, if you don't have good solid performance, you just don't get to play. It's that simple, and there's a lot to choose from. When you think about 89% of your funds over a five year period of time being in the top two quartiles, that's a very, very strong competitive position. If that's not enough of a proof point, I point to the fact if you look at Morningstar's rating system, four and five star funds to have 80% of those funds competing in four or five, which we know is the only place you're going to get flows, it's a strong position to be operating from. And then again, broad diversification, whether it's by product, geography or fee risk and spread, we've got a really good diversified source of revenue for the organization. One of the challenges, of course, is making sure we get good coordination. And in a few minutes, I'll talk about what we're trying to accomplish with the repositioning of the Principal Global Investors and how we can take advantage of that. Secondly is our ability to execute and ensure that we are launching new and relevant products. Mentioned earlier was Paul Kim, who runs our exchange traded funds. It's an organic build. It wasn't an acquisition. It takes a while to get track record. It takes a while to get seated out there in the marketplace. These are active strategies, and now we find ourselves in the top 25. But 100 new offerings launched within the last nearly two years now, again, tells you that our product innovation lab is kicking out a lot of exciting products. Equally as important, as I touched on distribution earlier, 160 placements of our products on the various distribution platforms. There are organizations unable to get their products on the platforms of these major distributors, again, very fortunate to be in that position. Technology, I'll go light here except to say that whether they're calling our call centers, they're using mobile, they're using desktop, all of those become important ways to communicate. Luis and his team have worked for years with joint venture partners, and I think most often, Luis, about Banco de Brazil, who have dealt with digital interaction with their customers for a decade. This is not new for them. We, in collaboration, continue to explore outside The U. S. Some of the most innovative ways to leverage digital. And again, during the panel discussion, you'll have a chance to look deep more deeply at that. Robust wealth, there was a lot of discussion on how you could be more value added relative to your investment lineup, having robo capabilities, having the ability to manufacture our own managed accounts in a deliberate and designed strategy approach. Again, we're very excited about robust wealth joining the organization. And then the last comment I'll make on this slide was the enhancement that was made relative to our brand. We took a dip when we moved away from the triangle in our little character, Eddie. You guys remember him, don't you? Friendly character, but we just didn't think he was going to take us into the next decade of our company's history. So you've sort of flatlined in terms of recognition. But again, a lot of credit goes to our marketing department. We've increased our awareness among not only advisers and employers, but more important, really that important target audience of individuals. So we saw a nine percentage increase in that particular metric, and we're very excited about where that positions us for the future. Let's get into some of the specifics regarding growth. And again, we know this industry is under attack in many different ways. If I went back and looked at the last five years through 2017, you can see we've enjoyed roughly 11% growth rate. Look at the top 20 managers or the global top 50. And again, I'm reminded that on a relative basis, although the industry is going through a lot of challenges, Principal has been able to demonstrate a lot of growth. And when I dissect that and try to understand that in more detail, this goes back to a slide I showed you two years ago. This is Boston Consulting Group. It's been updated to reflect the change. But what you see here is listed as in the gold color is the passive strategies and the lighter blue represents traditional active core. And then lastly, a broad category defined by Boston Consulting Group as alternatives. If you were to look at our assets at the principal, half of them fall into this alternative strategies. Why is that important? As you can see, whether you want to measure AUM growth or if you want to look at it in terms of percentage of revenue growth, those alternative capabilities have served us well in the past and will continue to serve us well. The acquisition that we made in Eastern Europe for Indernas, the commercial real estate operations that's been melded into our U. S. Domestic commercial real estate operation is a great example of an alternative that is ideally suited for principal. Why is it ideally suited? If you look at that $80,000,000,000 general account, these are long dated liabilities, thirty years, forty years, fifty years down the road. It's imperative that we make sure that we have investment capabilities that match up with our liabilities. And again, when Pat's here, we can talk about that in more detail. Maybe I can shift now and talk about some of these key trends that we're up against. And what I've identified are those five key trends and what my intentions are in the next few minutes is to drill down to each one of these and talk to you about why we think it's important. What you see listed here on the slide are the countries that Principal is currently doing business in and has what I would consider to be significant operations. What you're seeing here is this is what the government currently provides in terms of income replacement for seniors as people near retirement. So to use an example in Mexico, if you thought about that as a Social Security system, 30% income replacement at normal retirement date. I can assure you no one can survive on 30%. So what's the answer? Voluntary. And in each one of these markets that I show listed here, you can see it's not a very rosy picture in terms of income replacement at retirement based upon the government programs. That's where principal comes in. It's where our strong suit is. It's where we deliver voluntary solutions in addition to government solutions that help round out a person's ability to save appropriately for retirement. And I would say this one is still wide open to principle to take full advantage of going forward. And that's without having to go into a new country. That's just our existing installed base. Again, demographics. If there's any one thing we can predict with a lot of precision, we know how people are getting older every year and what that looks like out into the future. India, Mexico, Brazil, Chile, again, are the countries in which we currently do business. And you can see looking out to 02/1930, and it's all within our earshot today and certainly 02/1950, it's not only doubling. In some cases, it's tripling the number of people that are going to be living into retirement and living longer. I can assure you they will need the solutions that we have. They're going to be looking for additional voluntary savings. They're going to be looking for more holistic retirement solutions. They're going to be looking for digital solutions that will help them round that out. And they're also going to be looking for guaranteed income and retirement. And again, we have experience in each and every one of those areas, and we're excited about this particular broad driver and what that might mean for principal shareholders. I think this is equally as a dramatic slide. And what I've shown here for you, this is the population of the globe measured in billions. And we can talk about The U. S, we can talk about Africa, we can talk about Europe, but you got to have a discussion that talks about the emerging middle class that's coming here in China and India and the rest of Asia. Our joint venture with CIMB, and I know I look over here and see Renee, spent so much time there. And we have wonderful partners in CIMB in Southeast Asia to take full advantage of this growing emerging middle class. Equally well, our joint venture partner in China, China Construction Bank, have been absolutely wonderful people to work with. It's a very strong and vibrant partnership. India, the opportunity is big. We haven't quite figured out exactly the right model, but we're on the ground. We have product. We have track record. We're working on distribution. It's probably the has the most potential for Principal and shareholders. And yet I would tell you, it is a challenge. One of the green shoots, if you will, in India that makes us feel quite good, they're very digitally inclined. And we have some experiments going on today experiments, pilots. Experiments would imply we're experimenting. Pilots. Did I have that right, Renee? Yes. Yes. And these pilot programs are pretty exciting because the take up rate and the usage of digital in the area of financial services is quite high. And so we feel good about the opportunities that can emerge in India. Let's move on and talk now about the informal and the gig economy. It used to just be overseas. It's now very much part of the ecosystem here in The United States as well. People increasingly will go from job to job. They're looking for ease of transference. In some cases, they're getting compensated via ten ninety nine, our nomenclature here in The U. S. Versus a W-two income. But the sheer number of people in this informal economy, this gig economy that we're into is going to require that you have good brand, that you have good digital skills and that you're able to make connections with these individuals outside of a traditional employer relationship. So again, we are spending a lot of time and resources truly understanding how we can leverage our digital strategies to get after this very, very important and evolving opportunity. Equally as important to us is leveraging innovation around the digitizing of the businesses. I won't spend a lot of time here except to say when we have the panel discussion, you're going to hear some very interesting and very exciting updates on the investment that we had announced to you roughly nine months ago, talking about what we thought was a very important investment that was going to start paying off, and we're starting to see again opportunities arise from that. Now what I'd like to do is kind of go down the home stretch here and define for you again why I'm so enthusiastic and why I think that this business model that we have and the strategy that we have is still not only important, but frankly, has great upside opportunity for shareholders. This gives you a look out to just 2025. This isn't a 2050 slide. This is a 2025 slide, which we can see quite easily. Investable assets that are going to be managed by this industry, by this industry. The darker blue here is investable assets not managed by this industry. And by that, I mean, it is banks. These are cash deposits. This could be jewelry and so forth in countries like India. But you're going to see that the percentage of the total goes up significantly. Total global investable assets increased by $130,000,000,000,000 from 2016 to 2025, which means, again, lots of opportunity for the industry. Growth AUM up to $60,000,000,000,000 again, a very, very important number. And then that penetration rate goes from 40% to 42%. So again, the lion's share or the opportunity set for our industry continues to evolve in a positive way. This slide also is one that takes a little bit of time to understand. But again, we think and we would predict that other emerging economies, investment behaviors and habits will look more like Europe and look more like The U. S. What I've shown you is a breakdown on the far left here. If you look at the global slide, this shows you the breakdown of equities at the top, which is roughly 39%, fixed income is 17% and then cash deposits at 43%. That doesn't seem like a very responsible global asset allocation from my perspective. North America, 70% against equities. You can see fixed income comes in at 16%. Cash deposits kind of in 14%. That sort of feels right to me in some sense of the word. Now we can look at all those other countries in which we're doing business and have strategies, whether it's Western Europe, Japan, Middle East, Latin America or Europe, you can see they are disproportionately weighted towards cash deposits. Every one of those cash deposits that's sitting out there in the future, I firmly believe a significant portion of them are going to find their way to either some sort of fixed income strategy or some sort of equity based strategy, and I would throw alternatives into this particular mix. Is it potentially going to come at a lower basis points than what we've maybe enjoyed the last thirty years? It may. But you can see once again that this fire is going to be fueled significantly by people changing their asset allocation strategy. So I don't necessarily have a great deal of concern about the fact that there is some margin pressure today. And again, a lot of steps being taken by all of us in the industry to remedy that. Let me move on now to where the global asset management franchise. This was an announcement that we've made within the last six weeks. I'm very excited. PGI plays a very important role. As I mentioned earlier, Pat Halter leads that will do an outstanding job. What we tried to take advantage of with the leadership of Tim Dunbar was not only work more closely with Pat Halter, but also to then consider the general account, working with all of the accumulated assets within Principal International, our acquisition of Robust Wealth and also looking more closely at our global strategy, which involves Alan Shumway, who's with us today. That gives me a lot of confidence that we're going to get the highest and best use of our talent and efficiency of our resources as we truly take that next step of becoming a global asset manager. And again, they get fed in a significant way by those three boxes at the bottom. When I look at institutional investors, the retirement, the high net worth and the retail investors, there's a lot of pure play asset management firms that don't have those feeders feeding into them those asset flows. Again, it's what differentiates our strategy from many of our competitors. This is where we compete. And again, these are very deliberate. Some provide more of opportunity for us to harvest here in the next year or so. There's others like India that will be more long term in nature. Country by country, we've looked at it. How will we go to market? Those four things. How will we brand? How we brand also includes who we're to joint venture partner with in large part through distribution. They want our knowledge, they want our help, they want our expertise. So again, joint venture partners from our vantage point is very healthy. The second thing we've looked at is what is the size of the emerging class? Is it significant? Will it move our needle? And each one of these, it will move it in a significant way. And then lastly, are the regulations and do the laws allow us to go in with our operating model and continue to be successful? And again, I would argue, it hits all of those. So maybe going down the home stretch here, we think that there is really five ways that we can drive revenues for Principal in addition to taking out expense. One is taking market share. You've seen it. We try to update you every quarter on our net growth and the number of plans, the number of participants. And we, again, across our SMB franchise, continue to grow that. We do for individual investors as well. It's going to be a competitively priced world, and it has been. I can't think of a single industry that's gotten a pass on pressure on margins. It's up to us to leverage technology and other capabilities to keep that under control. Delivering outcomes. There was a day and age where people just wanted all sorts of choices. They don't want choices anymore defined by picking and choosing investment options. They want solid solutions resolved. Inside retirement plans, we know that roughly onethree to 40% want a target date fund. We have so many different target date funds that meet the needs of our customers, whether it's a CIT, whether it's proprietary, nonproprietary or registered product. So again, we have to continue to have that product innovation machine continue to grow. Our installed base, well in excess of 4,000,000 participants on our retirement side, again, participants in our SMB platform by group benefits, retirement, number of employers, each one of those represents opportunity for us as we continue to digitize the business to be able to tap in that and provide better solutions for those customers. New plan formation, we again, we update you on some frequency. Number of new plans continues to be very active, not only here in The U. S. But around the world. We operate from a very flexible and efficient workplace in Des Moines and around the world. Our operations in Pune have afforded us the ability to tap into technologists, people who are experienced in digital, people who are actuarial backgrounds. Again, we feel very good about our positioning in the workplace. And then lastly, the leveraging of data. Our data house is in pretty good shape. You can always be better, but our arms around that data and how we can provide better solutions for our customers. So I would tell you, I've probably never been as enthusiastic about the positioning of the company in spite of some macro issues that we're always up against, but I can't think of a time we haven't had those sorts of challenges. So with that, in the interest of time, I will take just a couple of questions here before we jump into our panel discussion. John, do I have the approval to do that? All right. John says it's okay. Yes, if you'll wait for the mic because we do have a webcast going. And we'll have Q and A again towards the at the next session. Okay. One please, we'll just we'll get the mic right there. Thank you. Eric Bass from Autonomous Research. You touched on India a bit and the opportunity and also, I think, alluded to some of the challenges of figuring out the right strategy. Was hoping you could maybe go into a little bit more detail there and what you're looking at and what you see as kind of the near term potential. The speakers aren't carrying very well. I had the same problem the other day. I think what you're saying is what about the sort of short term optimism around the businesses and Sorry, no, specifically for Oh, in India. That tells you the speakers are here going that way. So what are the short term opportunities in India? Yes. And you alluded to both tremendous growth, but also some challenges in terms of figuring out the right strategy or entry in. So just a little bit more Yes. So I think that's a great question. So again, for the webcast for people that can hear it, question specifically around India. Long term, it looks very good. Short term, it has its challenges. What are some of the key linchpins that we have to put in place to take advantage of the opportunity? It starts with, I think, potentially finding the right joint venture partner. So what's happened in Brazil, what's happened in China, what's happened in Southeast Asia, someone had significant established in place distribution. Our last joint venture partner in India was Punjab National Bank. It just didn't have the firepower to carry us from a distribution perspective. If we can't find a suitable partner that brings distribution and we go it alone, I think a lot of that's going to then rely on a digital strategy. And I said earlier, we have some pilots, not experiments, going on in India to see if we can leverage digital. For those of you who have not been there, it's big, it's complicated, it is a difficult environment to sort out. But when you look at the size of this emerging middle class, I was just there a few about a month ago, it is something that we have got to figure out and be able to lag into that opportunity. Appreciate the question. Please. Yes, one more, right behind you. It's Alex Scott, Goldman Sachs. I guess I was just interested in the comments you made about the focus on the individual consumer and the brand. Could you provide some color just on where you'd look to expand in terms of the individual? Is that with robust wealth and expanding more into like a wealth management type platform? Is it more products that are direct to consumer? What is that going to look like? Good. So good and I was able to hear that, so thank you. So in terms of the brand and the brand launch and diverting some of the resources that we're focused on, advisers and small to medium sized employers and focusing them on the individual. It isn't to try to replicate Morgan Stanley or Merrill Lynch's individual advisor strategy. It's to try to meet employees where they're at. You still have a significant percentage of the population that doesn't have an advisor. And there's frankly not going be an adviser that wants to call on them. And so the question is, are there things that we can do leveraging robust wealth, leveraging something we call principal connection, taking advantage of that installed base. As you know, we convert about 53% of job changers and retirees off our retirement platform. Again, we have a lot of knowledge, a lot of data. We need to be a little bit more consumer friendly in terms of the web and interaction leveraging technology. And to do that and do that effectively, the person out there still needs to know who Principal is and what we stand for. For those of you who've seen some of our ads lately, you will see that it takes a very personal nature and the feedback from that has been incredibly positive from the public. So thanks for the question. And again, if we need to have follow-up, we will. Can we hold that until just the we promise we'll get that the next time, and then we'll go ahead and get our panel discussion going. Thank you very much. Okay, the panel come up please. So Dan, nice job staying on time. I was worried the panel has been really excited so you stayed on time. So while the panel is getting seated, I'm Gary Shulton. As John described me upfront, I'm Chief Information Officer and Chief Digital Officer at Principal. And John also introduced our panelists. They'll be giving you more of their background, but we've Alan Shumway, Jerry Patterson, Kara Hoganson and Renee Schaff with me today. So I'm really excited to be with you to talk about and I have such a great panel to talk about where we're going with our digital business strategies. Just for my background, I have thirty eight years of experience in technology. And in 02/2002, was named Global Head of Technology for Principal. I have a few other responsibilities, one of which is I help form and now lead our, offshore subsidiary that Dan just referenced in Pune, India. Over those twelve years, it's grown to about 1,400 employees. They do business services for all of our businesses as well as technology services. On the business side, it's things like transaction processing all the way up through actuarial services. We have a team of data scientists. We have a team of doctors who are involved in our underwriting process as well as accountants. And on the technology side, we have software engineers, infrastructure engineers and we also have our center of excellence there that provides robotics, support for all of our businesses across the world. So, late twenty sixteen, Dan approached me about taking on additional responsibility of Chief Digital Officer at Principal. And we define that really as a strategy role. So my background in technology as well as I had strategy background And the main focus of my job is to work with business leaders like the one on the stage here to help drive digital technologies deeper and deeper into our business strategies. And we define digital technologies as those that focus on customer experience, data analytics, including artificial intelligence, cloud based technologies and Internet of Things. And in late two thousand so we've been by that definition, we've been doing digital business strategies for well over twenty years. So what's different now? We went through a process in late twenty sixteen. We're working with people like are on the stage with me here in all the businesses that we defined, articulated and then inventoried all of our business digital business strategies across principle, both within businesses and at the enterprise level. There are literally dozens of them. And we categorized them into three basic categories. We first split it between offensive and those which we feel are defensive. And for those that were defensive, we said, do we just want to get to parity with the industry or do we want to differentiate? Does our business strategy call for that? And so we will take all of those digital business strategies forward. And as some of you have heard in different forums, we typically spend well north of $05,000,000,000 a year on technology. And about 40% to 45% of that is discretionary, so businesses can use it for product and new products and solutions also to advance their digital business strategies. But as we looked at that inventory of digital business strategies, a handful stood out that we said we owe it to our shareholders and customers to accelerate these. The opportunities are great. They primarily are focused on growing revenue at a faster rate. And so that's why we decided to pick a few and really go through acceleration of those digital strategies. You heard about those at the outlook call last year. And so we're going to talk a little bit about those today. So to give you a sense, all of our digital business strategies really fall into one of these four categories. They're either focused on customer experience, direct to consumer through sales and advice, improving our investment processes or business efficiency. The four primary digital business strategies that we're accelerating really focus on the first three, and I'll lay those out for you. So the four that are driving additional revenue growth within The U. S. Businesses, so that includes RIS and USIS, we're developing the next generation customer experience. Also for our U. S. Businesses, which includes retirement, insurance and the funds part of PGI, we have a direct to consumer strategy that you'll hear more about in the panel. Within our principal international businesses, we have a strategy around digital advice and sales platform, which really combines an end to end solution, so it hits both customer experience and direct to consumer. And then within our asset management company, we have a future investment process based on machine learning, and you'll hear more about that today. We also have a couple of other strategies that we're accelerating that really are part of the digital infrastructure. All of our digital business strategies need them. So some are around digital marketing capabilities that we're building out and some are around the next generation of our data positioning that Dan was talking about earlier. We do have other business strategies, not the ones that we're accelerating that are focused on business efficiency and we have several we could talk about that you'll hear about in the panel. But one I wanted to call out, I mentioned our Pune, India operation is our center of excellence for robotics process automation. In about a year, in the last year and a half, we developed out over 55 use cases with a projected annual savings of about 75,000 hours per year, and we're really just getting started. So at the outlook call last year, we talked about the fact that we'd be investing in a way that would could impact 2018 over 2017 operating earnings growth by up to 2%. That translates to about 50,000,000 to $60,000,000 and we expect to be right on that for this year. We also talked about the fact that it generated a very attractive IRR, which is why we decided to accelerate. And we also are really excited about the fact that two thirds of the benefits we expect to come from additional revenue and a third to come from operating efficiencies. So with that as a backdrop, now we'll get into the panel discussion. So maybe we just start with, if you could introduce yourself and a little bit of your background. Ellen, would you start? Great. Hi, I'm Ellen Shumway. I'm Executive Director and Principal Global Asset Management. I've been in PGI for about ten years, focused on product and leading our product and marketing organizations as well as strategy and M and A. Most recently, I've been working with Jerry and Renee and folks in PGI on advancing our digital efforts, specifically thinking about things like how do we improve our investment results, how do we lower costs, how do we reach more customers more efficiently. Jerry Patterson, closing in on thirty years in financial services, seventeen with Principal, spent the first decade with Deanna and Amy over in USIS on the insurance side. Last seven years, I've been on the RIS retirement side of the business. For those of you who were here last year, I spoke to the RIS spread side of the business where I just left six point five years on that side of the business in April, came over to run the RIS Fee side of RIS, which is really the 40,000 plan sponsors, 5,500,000 participants that we serve every day. On the retirement plan side, I also brought over with me the direct to consumer efforts that are underway, robust wealth being a big component of that as well. Great. Good afternoon, everyone. I am Kara Hogansen. I am a twenty one year veteran of Principal and I've spent most of that time within Retirement and Income Solutions. In August, I made the move over to U. S. Insurance Solutions to have the privilege of leading the Group Benefits business. So today, I'll be speaking to all of our efforts across USIS. But in my my, role today, I have accountability for the ultimate profit and loss of the Group Benefits business. So all functions, underwriting, claims, product, everything related to Group Benefits outside of distribution and account management report up through me. Okay. So good afternoon. I'm Renee Schaff. I'm Chief Operating Officer for Principal International. And in my current role, I spend a lot of time thinking about and helping to drive digital strategy across our markets that we serve in Asia and Latin America. And that includes determining how we best leverage our footprint, we share best practices and how we really focus on those things that will drive business results. I've been with Principal since 1980, and I've been in both the insurance lines as well as our retirement lines. And in the last six years, I've had the opportunity and the pleasure to work, in our international lines with Luis and it's been a real pleasure. And we're just thrilled to be here with you today. Great. Thank you. So let's get started. Ellen, I'll start with you. So I mentioned that digital business strategies aren't new to us. We've been doing it for a while. Can you speak to maybe some of the places where you've leveraged technology to differentiate? Sure. Absolutely. So we pick our spots for technology investment pretty carefully thinking about where do we have the greatest impact to our customers across retirement, institutional and retail customer segments. When we think about technology, we kind of break it into two buckets. One would be, digital differentiators. This is investments we make in capabilities that we really think will differentiate and help us provide unique solutions to clients. The second area is in digital core. That's really making sure that we have the technology foundation to support our growth. Things like making sure we have clean and readily available data that the business can use. If I think about where we really focusing on differentiating, there's three kind of fun examples to use, think. The first is using, digital technology to improve investment results. So Principal Global Equities, which is our equities boutique, has integrated fundamental and systematic approaches since 02/2001, so for a very long time. What is new in 2018 is what they are doing with internal and external partners to build out their in what they're calling their advanced analyst dashboard. They're using, technology including machine learning, including cognitive computing, including natural language processing to build decision assistance systems for their analysts. So think of this as using our analysts to train algorithms to make investment recommendations. It's very cool stuff. It's helping us systematize how analysts arrive at a recommendation using structured and unstructured data. So everything from 10 Ks to social media blogs. It is deepening and expanding the amount of coverage that any one analyst can handle and it's focusing their valuable time on making recommendations in the best possible way. Another example is in Principal Global Fixed Income where they are building out a full suite of systematic fixed income strategies. They've been using predictive modeling. They've been using machine learning platforms to build out this systematic suite of products. They're now covering everything from EM debt to high yield to the global investment grade corporates to The U. S. Ag. So that's exciting work. The second area to highlight is the use of technology to deliver customized solutions to retirement and retail customers. Key here is principal portfolio strategies. That group works across PGI, RIS and PI to build innovative multi asset solutions for clients. An example here is PPS working with Robust Wealth to develop investment solutions that are constructed to suit an individual specific needs. So think customized, dynamic, highly individualized portfolios where Robust Wealth provides the technology and PPS provides the investment brain. Today, we have models in place on the Robust Wealth platform that can support over 60,000 possible investment portfolio solutions for clients. We're still in the early phases, but we're also working with Jerry and his team and RIS to move this forward in the retirement space. That starts to look really exciting. The third area I might highlight is sales and marketing. A good example here is a recent investment we've made in a portfolio analytics tool. We're calling it Principal Portfolio Diagnostics. It's to help our distribution partners in The U. S. Retail space drive value in client portfolios. So it provides comprehensive portfolio analytics, objective insights that are delivered on a consultative basis directly to advisors. We're in pilot now. So we're taking this tool, the small team of portfolio specialists working with advisors to help them identify risks in their client portfolios and opportunities in their client portfolios. It's using very forward looking analysis that they don't have a traditional tools and we're quite excited about that rollout. Great. Jerry, same question, RIS, where have you leveraged technology for differentiation? So and as you pointed out earlier, Gary, we've been investing in technology all along heavily every year, year after year. So why accelerate now? Maybe three reasons. One, I'll call it the changing expectations of those we serve, the advisors, the plan sponsor, employers and the individual investors we serve. Two, technology, especially emerging technology is definitely going to enable us to drive efficiencies into our operating model. And last but not least, if we move fast enough on certain technologies that gives us differentiation in the marketplace and enables us to fuel growth. On the changing expectations of the stakeholders we serve, if you think about it in your own mind as a consumer, the expectation you have increasingly around anything is kind of maybe there's just a handful of increments. I want it now like this second and if you're in Amazon now market, which I think New York is, you want it in two hours or less, I'm seeing some nods. And for the rest of us out in the heartland, we got to settle for Amazon Prime two days. And then think about the time of year we're at right now around the holidays. Three to five days starts to mean something in our brains about how much we care about those we love and what we're willing to pay to get it there faster. And then there's that group that falls into five to ten, maybe not as much love. And then think about this, anything in our own minds that takes more than ten days, we think of words like back order and out of stock. In our industry, we have lots of processes that take more than ten days. In our industry, we still have lots of paper. In our lives, we don't have paper and things happen fast. And I think we may have gotten a pass in financial service, personal wealth management, retirement for a while because we could claim it's complicated, it's regulated. But we definitely are starting to feel the consumer impatience. And so for us to be in this business, for us to serve the customers we serve the way they want to be served, we have to accelerate our investment in this space. Just a couple of examples of the things we're doing right now. We're creating digital options for everything and in some cases making them a requirement, the only option, straight through processing where we can take big long journeys from beginning to end in one fell swoop. An example would be rolling over an IRA electronically with principal. You can do that straight through in one easy step. Chat, chatbots, smart search, digital advice, one of the things we're definitely focusing on are their partnerships that enable that can enable us to accelerate, taking advantage of emerging technology. Robust Wealth is a great example. We definitely concluded digital advice is a channel that's here to stay and we want to serve that channel and partnering and ultimately purchasing Robust Wealth is going to get us there quickly. Native mobile app, we're rolling out a native mobile app. It's actually in beta right now. Why are we doing that? Why does responsive design help solve the problems you're trying to solve? Smartphones get more powerful and more interesting every day when a native mobile app enables us to do is take control and leverage the power of the smartphone to serve our customers better. From a security standpoint alone, the facial recognition, the biometrics is a great ability a great feature we're going to be able to take advantage of next year. Digital financial wellness, we've partnered with a firm called Enrich that has a product called iGrad, full blown multichannel wellness covering the full spectrum of needs that are emerging in today's workers as we think about things like HSA plans and student loan debt. An oldie but goodie, but it's still paying off. We partnered with a firm called Jellyvision out of Chicago. Their roots are in gaming. For those of you over the age 45, you might have heard of So You Don't Know Jack. It's a game they have seen nods. It's a game they invented, but they're experts in creating engagement around things and these days around important issues that might be complex and hard to get people to focus on. And so we brought something called My Virtual Coach to the retirement space where when people engage it, we're seeing 300 basis point differences in deferral rates and 10 times the rate of auto escalation plans that it's available. And then last but not least, as unfortunate as it is, we're spending a lot of money in accelerating our investments around cyber and fraud because it's a real issue. I like to say at the end of every wire, a principle is an account full of money and people that's not escaping the bad guys out there. So that would be another area we're doing a lot of investing these days. Yes, great. Thanks, Jerry. So how about the insurance businesses? Where absolutely. Thanks, Gary. So Jerry articulated really well the why now. So I won't necessarily reiterate that, but really provide you some examples of what we're doing within USIS to, better serve our customers. And really those customers fall into two buckets. So we have our individual retail customers and we have our small to medium sized business customers and the individuals making decisions on behalf of that business. So if I focus first on the individuals and what we're doing there, just a couple of examples. The first of which would be our accelerated underwriting efforts. Those efforts are ones we launched about four years ago and it was really grounded in making that insurance application process easier over the phone. And so more recently, what we've done, and in fact launched within the last three weeks, the capability to do that application process online. So rather than setting up an appointment and talking to someone, if someone chooses to do their application process, the detailed more detailed medical questions at two a. M. In the morning, so be it. And they have that option to do that now. And by the first part of next year, we'll have the entire application process online. And we know research says the most recent piece of research I saw was from LIMRA that said if, 52% of people would be more likely to buy life insurance if the process was simplified. So this accelerated underwriting is is helping to simplify that. It is based on information from our reinsurers, industry leading. It covers our entire spectrum of life insurance products and it covers a much broader range of face amounts compared to others in the industry. So we're continuing to be committed to that. The other item I would highlight from an individual perspective is My Principal Lifestyle. So this is an app that we've made available within the last twelve to eighteen months, and it's really about developing digital relationships with individuals to encourage healthy behaviors. And a couple of proof points on why we think this has a lot of merit going forward. It's an engaging experience. In fact, 60 of the individuals that were using that app in pilot stayed with it when we moved it into production. And and we see it as a way to connect with new individuals. 40% of the users of that app are not actually customers of Principal. So we think that there's opportunity there to develop those relationships and promote the value of life insurance. So moving from individuals then to small to medium sized businesses. And keep in mind when we think about our target market, and I'm going to focus most of these comments really around the Group Benefits business. When we think about our average customer within Group Benefits, average number of employees is in the mid-thirty range. And if you think about companies of that size, many of them don't have dedicated HR professionals in that business. HR decision making is part of someone else's job or it's the owner's job. And so when we design our solutions, we really try and keep that in mind. And a couple of the things that we have done is late last year, we launched EasyElect, which is our online enrollment capabilities. Grounded in financial psychology and behavioral finance, we've created an Amazon like shopping experience to help individuals make really solid benefits decisions. The results we're seeing from that include a 10% to 15% increase in participation rates around voluntary benefits and a 10% average increase in premium amounts for voluntary term life. So people are able to make better more people are making better decisions around the appropriate level of coverage for for them and their personal situation. And then the other item that I would highlight is around the fact that while we have a proprietary online enrollment capability, we recognize that not every firm is going to want to use our own set of capabilities. There are a lot of third party platforms out there that have capabilities, and so we wanna make it easy to plug in and do business through those third party platforms. We're leveraging application programming interfaces or APIs to streamline that data transmission from employer to to enrollment platform to principal and back again. And we're the first in the industry that's not only doing that from an enrollment perspective, but we are also the first in the industry to do that from transaction perspective. So we're getting those members in the plans, plus we're able to allow that employer to more seamlessly make, changes as time goes on and employee situations change. So those are just a few of the things that I'd highlight. Great, Kara. So Renee, the opportunities in using technology are a little bit different internationally. So where are you looking to differentiate with technology? Yes. So certainly from a Principal International perspective, we have a lot of opportunity for operational efficiencies and improving the customer experience. But we actually think that there's a way to maybe combine both of those and really differentiate ourselves in the arena of digital advice and sales capabilities. And let me go a little bit further as to why we think this is the case and what we're seeing. So if you think about Principal International and the markets that we're serving, we're focused on emerging markets throughout Latin America and Asia, and we're providing retirement and long term savings solutions. And when you look at the nature of our almost 17,000,000 customers, you'll see that they are individual investors, so think retail. And further, we're targeting the middle class. So with that as a backdrop, one of the gaps that we see in the markets that we serve is how the consumer or how the customers reach the product and how the distribution mechanism works for them. So within the context of the middle class, most people in the middle class in emerging markets are not being reached by traditional financial advisors. There's simply not enough of them. And those that are playing in the market are going to tend to focus on the higher net worth. So there's a great number of people who simply aren't being reached at all. And oftentimes, those that are being reached tend to be reached through a product push rather than somebody really sitting down with them and understanding what are their goals, what financial advice and education do they need and how can that adviser, how can they be best advised to achieve financial security throughout their lifetime. And what this creates is a very high level of churn. So if you were to look at blocks of business, particularly in Asia, you see that the lapse rates or the churn rates as a result of somebody buying a product and selling a product are very high. In fact, in some Asian countries, the block of business for mutual funds will turn over twice every year. So that spells opportunity. There's a gap. There's a customer experience that's not working well. So we are aggressively pursuing, rolling out digital advice models. And these models really have a couple of different characteristics to them. First, think direct to consumer, reaching people who are not being touched by the traditional advisor. And second, connecting our traditional distribution to a very customer centric digital platform that can promote ongoing engagement and walking alongside that client their entire journey as they reach financial success. So when we think about this, we know that what will ultimately drive value for our business are going to be the relationships where we have more control over the client relationship and we have access to data. And the good news is, is that when you look at where we're positioned today in Principal International, over 60% of our retail clients are brought to us through proprietary distribution, which means we have a really good opportunity to pivot and to bring in digital capabilities, both direct to consumer as well as enabling traditional distribution through technology and linking them to platforms to really drive improvements in that entire process. So we are focusing our initial digital acceleration in three countries, and Dan mentioned India. So in India, we now have stood up an end to end digital model where you can go online and purchase a mutual fund. In Chile, we recently stood up a minimally viable product launch within Cuprum, and it's focused on the voluntary, on the voluntary end of that offering. And then last of all, and this is the one I think is really interesting and exciting, we have introduced in Brazil the very first digital insurance and retirement platform sales platform. And we did this in concert in partnership with Banco de Brazil. So that kind of gives you a flavor of what we're looking at and really why we're accelerating digital advice and sales. So Renee, you set up the next question really well, so I'll stay with you. So why did PI feel it was important to really accelerate our investment in digital strategy? And how is it going to help drive revenue? Yes. And driving revenue is the key, Gary. So when you look at what digital advice and sales can do, we are seeing some really interesting early indicators in our markets. So for example, in Brazil, we have a wholly owned asset management company called Claritas. Within the last twelve months, Claritas now has linked with nine digital platforms to bring retail customers into their portfolio. And over the last twelve trailing months ending September 30, about onethree of their new deposits are coming through these electronic channels. So we can see that it's working. We can see that the retail customers in our markets are amenable and acceptable to purchasing online. China is the other one. This one actually kind of blows our minds. When you look at the business that we have in China, over the last twelve to eighteen months for our retail portfolio, we've gained 8,000,000 customers through digital channels. And this is through our joint venture with CCB PAMs with China Construction Bank. And those digital customers are coming at us in two ways. One, through proprietary direct to consumer capabilities that are available through our joint venture and through CCB, but also through digital platforms and connecting with them like Ant Financial and Alibaba and Tencent. And what we're seeing is really interesting. So first off, when you look at the customers that we're bringing on digitally, over half of them are less than 35 years old, very young. Next, we see that the ticket size or the purchase the amount that they're purchasing is small, but 35% of those consumers or customers are using systematic investment plans, which means a much stickier sale, something that's much more long term. And in fact, what that's doing is it's driving down churn rates. So when you look at the digital platform and you compare the churn rate for those platforms compared to traditional distribution, you see a 27% improvement. Now these are early indicators, right? We'll be watching to see if they continue to perpetuate themselves, but it's interesting. I mentioned that we've stood up models in India and in Chile. And to give you a couple of, again, very early indicators because these were stood up relatively recently. But in India, we now, over the last quarter, most of our sales in India are being directed or targeted through equities, the equity asset management strategies. 18% of those net cash flows are coming in digitally in India, small amounts but promising. And the same thing in Chile. We stood up in Chile a digital platform to reach in Cuprum the voluntary sales. We're seeing 22% of our transactions coming in digitally and a high percentage of those are either to open new accounts or to increase contributions into the voluntary portion of Cuprum. So again, indicators, but promising and definitely driving reaching new customers and driving revenue that way and through reducing the churn rate. Great. Thank you, Renee. So Ellen, kind of a similar question. Why did PGI feel it was important to accelerate our digital investment? And then how are you going to drive revenue growth? You bet. So like it or not, asset management is having its blockbuster moment. Clients have the tools now to better understand returns and that means they are going to really separate out what they're willing to pay for. Not so much beta, not so much inefficient cost structure, but we believe absolutely clients will pay for alpha and they will pay for efficiency. So digital is really at the center of how we're looking forward and saying how are you going to meet clients' rising expectations. How does it drive revenue? A few ways. At the heart, we need to deliver outstanding investment performance. We have many, many of our teams across PGI who are using digital tools to figure out how they can continue to drive alpha, how they can continue to take out cost and how they can continue to differentiate our investment solutions to meet client demands. So that is really important. The second piece is delivering high performing in demand investment solutions It's part of the fuel we need to grow. Dan talked about the 100 plus products we've launched in the last two years. We need to keep that pace going. We're using our investments in quantitative based investing in both PGE, PG fixed income and other boutiques to develop new products. We are developing products that offer lower cost options around factor driven smart beta, around systematic strategies. This technology is already driving our ETF platform and we're building four new factor based ETFs with robust wealth this year. That's an important initiative that Paul is working on with robust wealth and with Principal Global Equities. We're also launching an ABS retirement product in Hong Kong in the next year and we have six new systematic strategies across the global fixed income space. Finally, technology is giving us much more efficient ways to reach our clients and their advisors. Customization and advice can be given with tools like Robust Wealth at a much lower cost than we were able to before. We can use data and segmentation modeling to find advisors, to find clients that we couldn't possibly find using traditional sales models. So what are some of the metrics that we're watching because we're experimenting and we're actually tracking a fair amount of metrics around this. So on the investment side, we're looking at metrics that we believe lead to outperformance like earnings surprise. So it's still early, but the new models in PGE are predicting earnings surprise with significantly more accuracy than sell side analysts. Sorry, guys. Ultimately, we do believe this will lead to increased alpha. We're targeting up to 50 basis points in outperformance in certain portfolios. We think it will lead to better client retention. We're hoping to increase our three year retention rates by 10% and new sales. We're also looking at efficiency metrics, things like AUM per analyst. So you could see a 50% increase over the current $1,000,000,000 per analyst that we target today. We're looking at higher analyst coverage ratios. So if our analysts can cover two fifty companies today with a fair amount of depth, when we're using new tools like the analyst dashboard, can we get that up to 300 or three fifty companies? And then we are also really focused on reducing our spend on outside research and data. That's been a really increasing growth category of spend. We want to bring that back down. On the sales and marketing side, we're watching metrics around things like sales from first time buyers, sales from first time advisors and sales and leads generated from digital campaigns. We're leveraging that data right now to drive a refresh of our segmentation and inform how we define the client experience. In 2018, there was a lot of testing going on, trying new tactics, building out our baseline metrics. In 2019, what we want to do is we want to really hone in on that and start driving results. And that's going to mean driving new sales. Great. So Jerry, you kind of hit it at it before, but what's the urgency and why the acceleration and how is it going to drive growth within RIS? Yes. So in the why, I think I hit that head on changing expectations of the people we serve. I want it now, I want it fast, I want it digital. We see huge opportunities to drive efficiencies into our operating model that at the same time are going to help us enable the first objective. And then finally, moving fast gives us the opportunity to differentiate and grow our business. And just a couple, guess, some really interesting examples. And again, this journey has just begun on the accelerated front, but we've been investing, like I said, all along. And just to give you some numbers that are interesting, today 92% of the loans that we process are processed digitally. That's up 3% in a year, which is a big move and that has a lot to do with the investments we started to make. That's 10,000 less manually processed loans. Withdrawals 75%, up 4% since last year, thousand less manually managed withdrawals. Distributions, which I think the distribution number we process a couple of million distributions a year, 72% of those are done digitally, again up 3%. In total, money out call volumes. So people that are calling our call center about where's my check, where's my money, down 6% year over year. And then something sort of really interesting when you think about digital, because when you think about digital, you think you got to go to your phone, you got to go to you got to fill in boxes, you got to push submit. We just initiated the ability to take a picture of something and send us a picture of it or send us an image. So they don't really have to go into the Internet and type stuff. They just need to get us a picture of a hardship withdrawal form, spousal consent form or a check. And we've seen those transactions shift 41% of the time to people that are more comfortable sending us an image than typing into a digital interface. So that's really encouraging. Printing costs are going down. We expect those to continue to go down. Our objective across all of those metrics that I just shared and other similar metrics is we'd like to see all those above 90% in the next, call it, two to four years or sooner and many of them 100%. We just wanted to make that digital stream that straight through processing eliminate the need for the manual approach to begin with. From a straight revenue growth perspective, already talked about the success we've seen in the investment in My Virtual Coach. Roll ins, we made some investments in the last eighteen months around making that process easier. A roll in is, I'm coming over to your four zero one principal, I've got some other accounts somewhere else, love to consolidate them in one place. We've seen that number rise 21%. And probably when we're really excited about and we kind of been touching upon it, what we got out of our investment in Robust Wealth is really two accelerant streams. So like us, advisors are suffering from the same pressures. Their customers want things now, they want it fast, they want it digital. And so advisors are being forced to scale their business with technology. While the core business, the robust wealth already had when we came upon them and partnered with them is they have an advisor desktop, portfolio construction and management application that they're going out to RIAs and small broker dealers and banks to make their life easier. So Principal now has a new touch point with advisors to help them scale their business that isn't a pure product play. Second, in the fourth quarter, we will be launching our first digital advice solution and we did that in conjunction with Robust to develop. So another stream of growth opportunity to serve a channel that we weren't serving a year ago. And then in 2019, we'll be partnering with Robust Wealth to develop a digital advice solution for the participants in our retirement plan. So we kind of got three work streams, three benefits, all digital through one single partnership, which has now led to an acquisition. That would be some of the key things we're seeing. So Carrie, you gave some great examples before where we're already differentiating with technology. Why was it important from the insurance side to accelerate our investment and how is it going to drive growth? Absolutely. So as you're well aware, roughly half of U. S. Households are either underinsured or uninsured. And so there is a huge opportunity there. And despite the fact that we have a lot of various digital efforts underway across all of The U. S. Insurance Solutions businesses, we decided to accelerate one and that's really around our term automation efforts. I spoke earlier about accelerated underwriting. And so the next evolution of that is to build algorithms and rules on the back end of that process. Again, this is gonna streamline that entire experience for the the potential insured, reducing one of the barriers to actually getting the appropriate amount of insurance coverage. So these automated rules ultimately allow for us to, in many situations, not have a human underwriter actually have to evaluate the risk. And in fact, 15% of our term applications are coming in today without any human underwriter looking at them, and we expect that to be up to 50% by the 2019. So that is one element. The second component is really going paperless. So I spoke earlier about the risk. Online application, and then ultimately long term, it'll be a completely online, digital servicing experience. What traditionally has been roughly a month long process from beginning to end to, issue an insurance policy for for those that are approved, we've cut that timeline already in less than half. And in certain circumstances, we're able to issue a policy same day. And our intent is to continue to build on those circumstances in which we're able to do that in that kind of a timeframe. Keep in mind, I speak about term insurance and that's just where we're starting. Longer term, the intent capabilities will be expanded across our spectrum of life insurance products that we have available. And the other key point to keep in mind is that term insurance isn't just for retail, individuals. Clearly, it has a very prominent place in the retail market, but term insurance is actually a very efficient way to address buysell agreements to, also provide key person coverage for small business owners. So this is opening up, we believe, new opportunities in both the individual and the SMB market for us. Great. Thanks. So we'll have one more question. I'll have just a couple of closing comments and then we'll move to Q and A. So Alan, I'll start with you. So we've been pursuing digital business strategies for some time. We've accelerated it now for the last year. What are some of the lessons learned in PGI and how is it shaping culture? Okay. You bet. So one key learning for sure is how fast technology can change our business models. So what we're finding is development cycles are in the months, not years. An example in the analyst dashboard is we build it out. We're adding new sectors and new scope every 90. So that thing is just constantly evolving. Another really important learning is around talent and particularly how successful nontraditional talent can be in this industry. So if you think about it, we are really investing in hiring and dedicating resources to digital initiatives. We need new skill sets. Traditionally, our hires have come to us with things like business degrees or economic degrees or heaven forbid, actuaries. The new hires that we are looking at are coming to us with engineering, math, data science, physics. Those are the kind of degrees they're bringing to the table. We're also looking beyond financial services. So we're looking for experience in applying these new techniques in other industries, whether they've applied it in agriculture or defense or consumer goods. That's really interesting to us because they've been applying it. So sure, we have to teach them about markets, but what they bring in terms of knowledge around how to use these new techniques is really allowing us to move very quickly we think. So if you think about it, we've got this combination of long tenured and deep institutional knowledge, particularly around the markets in which we're operating. And this new talent is coming in. It is creating a very exciting and fast moving culture where we're using it. I think we are very proud that we've been recognized for the last seven years by P and I for being one of the best places to work in asset management, But we need to keep evolving our culture. We get that. We're looking outside here. We're working with new partnerships and new approaches. We're trying things like getting a mindset around the organization of experiment, fail, learn, try again. So that's important. Things that are really standing out for me, some of our new technology partners have never worked in financial services. It is fascinating sitting down with these guys and kind of thinking about, so how would you predict earnings surprise? Really interesting how they deconstruct an analyst brain. We're also working in a broader system of partners tapping into teams at Target University Target Universities. To date, we've engaged with 44 teams in 12 different universities to help us solve problems from how we reengineer our processes or investment problems like how do you predict interest rates. So that's really cool doing that. And then finally, we are thinking about new approaches to manage products and shorten time to market. One example that we've been doing with Robust Wealth, and I think Renee mentioned this too, is we've adopted to try to make ourselves faster and more agile is adopting this idea of minimally viable product. What that means is quickly scoping, engineering and testing for small units of work. The idea is to move from idea to test to final product in very short timeframes. If assumptions change or you make a wrong mistake, you can quickly retool and move forward. So that's just some of the things I can think of. Great. How about in RIS? What are some of the key lessons? So I think Ellen hit a key piece and I don't think this is unique to our industry. Talent is at the center of this fight in this journey. If you think about how much has changed in our world when the smartphone is only ten years old to find people that can comfortably navigate in an open source, cloud based, distributed software, evolving financial services ecosystem. I mean, I know I see the average age in this room. None of us know how to do that. That's not true. Did get that whole You got that whole phrase out, Mel. That's Think I would. It's a total and I think many of us do that. That's just a totally different world to design, develop and deploy your business model. And those folks are precious commodities and hard to find. And so for us, it's a mix of finding them, bringing them under the principal 10, but in the case of robust while finding partnerships and ways of leveraging people that are doing that. So I think that's a big deal. I mean, this morning, my mind hadn't been blown enough. We had a conversation with somebody that said, each of us will soon have our own personalized AI, which is kind of scary to think of. But the question that this woman had heard at convention was, do our AIs need a pension plan? Now just think about that. That's pretty deep and scary. Think about control for the grave. I'm a rusty estate planning attorney. I mean that's kind of terrifying and not totally unrealistic to think about. So the world is changing. Talent is going to be at the center for companies who can meet the challenge. Couple of other things and I think Alan talked about a couple of these, being iterative, being able to AB test, being able to deploy experience, deploy software and not walk away constantly test whether your assumptions were right is a big change for just about all of us in this business. A key one is, I call it avoiding and if all you do is create a digital option, well then your take up rate is going to it's going to play out its course and you're not going to capture the efficiencies. So for us, we've got to have the discipline to find those places we're willing to say it is the only path. The same time we can't ignore, especially in our retirement plan business, the demographic we serve from Gen Z and millennials all the way to boomers, their preferences and their needs and their way of doing business is not exactly the same. So we can't totally ignore that. But having the discipline to limit, avoid the ends is how we're going to capture the efficiency gains and we will. Then maybe last but not least, clean data is the key. It's you put garbage in, you manage garbage through your whole business model. That's probably an area we're focused a lot on how do we push the data collection out as far to the front of the experience as possible and bring clean data into our systems to avoid people waiting, following up and doing handoffs. So that's another big learning as we've learned what works in digital models and what needs to work in our own digital model. Great. Thanks, Jerry. So what's the learnings in the insurance businesses? Absolutely. I keep my comments short because I know we're kind of bumping up from a time perspective. So a lot of what Ellen and Jerry shared, are items that we've certainly learned are actively engaged in within USIS. I think the one thing I would add is we are spending a lot of time doing an ever increasing number of proof of concepts. So to the try something, learn, fail, and move on. But not only that, we are looking for ways that we can actively engage our customers, the end users or the key participants, if you will, in that process as part of that proof of concept so that we can truly understand what their needs are and what they're looking for, what they're going to find value in. Recent example, we just launched a proof of concept chatbot within one of our call centers. 1,200,000 calls to this call center annually, 800,000 of them are from a particular group of individuals trying to verify benefits. So we selected a small group of those types of stakeholders to engage with us as we develop this And early indications are it's going to be a fantastic opportunity for us to deliver a better experience and to drive some efficiencies in that part of the business. Great. So Renee, I imagine the lessons are a little bit different internationally. What are some of the key lessons when it comes to international? So much commonality really, but I would say just a couple of very quick things. First off, we found a great deal of success by creating customer obsessed dedicated teams to really focus on that. And we're calling it our DX Lab concept, and we're finding that that works. We need to get breakout thinking and that agile culture instilled and that helps. The other thing that we can do to differentiate ourselves is to leverage the entire footprint of the principal, and drive that into our market. So we know that anything that we, do, if we take advantage of a global contract, for example, that gives us economies of scale, it has to be localized to that market. The solution has to be. But still, we can gain a lot of economies of scale by creating global contracts that can be localized. And then last of all, the sharing of best practices across the globe, taking what's working for Ellen and Jerry and Kara and putting it on our markets and vice versa, really leveraging that footprint. Great. Thank you all. So great job, panel. So I just have a few closing comments and then we'll open it up for question and answer. Hopefully, you got from the discussions that we are very excited about this direction. We launched it roughly a year ago. We're more excited now than we were then, and we're seeing the early progress that you've heard from them to encourage us that this is the right thing to do. So just a couple of comments. One of the things is I hear many of my peers talking about digital business strategies happening at their businesses. In many time, it feels like it's corporately pushed or technology driven. These are absolutely being pulled by the business, which I think makes it, unique. We talked about very attractive IRRs that two thirds of the benefits are expected from revenue growth and one third from expense efficiencies. You heard the panelists talk about how they're going to watch for the revenue growth and things that are listed there, plus obviously new products and solutions will drive additional revenue. In terms of the look forward on the amount that we're investing and the net impact of that, I mentioned that 2018, we expect that to be roughly a 50,000,000 to $60,000,000 impact. So the net investment minus the benefits would be roughly 50,000,000 to $60,000,000 In 2019, the benefits are accelerating, but at the same time, we'll have a full year of investment. So we're going to be roughly in the same spot we expect in 2019, where the net impact to OE will be roughly 50,000,000 to $60,000,000 And then when we go forward into 2020, the benefits continue to accelerate. So we expect that net impact to OE to be reduced by 30% to 40%. And then starting in 2021, the benefits will be higher than the net investment. So it will be a positive net impact. So with and I guess I'd land with we're very confident in our ability to execute on this and we're very focused on getting the results. Many of you may not be familiar with, the Des Moines, Iowa market for technology. Obviously, talent is a really important Earlier this year, Des Moines was, identified as the number five tech hotspot in The U. S, surprise to many. Last year, it was identified in the top 10 of the top locations for tech talent. And Principal is very well positioned to take advantage of the tech talent that stands there. We're one of only four companies that for the last fifteen years in a row have been identified by Computer World as the top, employers for technologists. In addition to that, we have other locations to attract specialty skills like our office in New York or in Raleigh, North Carolina. And as I mentioned, we have an operation in Pune, India, which is able to get into that market. If you're not familiar with Pune, it's like the Boston of The U. S. It's the university hub, definitely a growing technology hub and it's the only way we're able to staff the data scientist positions that we had because of our location there. So we're going to move into Q and A. John, about how much time do we have? Ten minutes. Ten minutes of Q and A. And, yes, wait for the mic. Suneet Kamath from Citi. I guess for each of the panelists, I'd be curious on this investment spend. How much of this is sort of catching up to where your respective industries are, like your peers are? And how much of this is a true acceleration best in class kind of initiative? In other words, how do you benchmark this versus where your peers are? I think, Olive, you can address it. Yes. Renee, you want to From a Principal International perspective, accelerating digital advice and sales platforms and capabilities is a differentiator. So when we look in Chile and we look at our competitors in the AFP space, when we look at Brazil with a 100% digital insurance and pension platform and even in India with the ability to transact end to end digital, those are all new and competitive capabilities in the marketplace. And that's exactly why we're targeting those to accelerate. From a U. S, do you want to just go down the row? Please. So from a U. S. Insurance Solutions, again, we're focusing on the term automation effort for the acceleration. And I would say that is clearly a differentiator in the marketplace. So we are playing offense and intend to keep playing offense. Although we're not accelerating these other efforts, in group benefits and individual disability, I would say the efforts that we have going on in those lines of business as well, again, playing offense. Yes. So in the retirement plan business and for those of you who follow that business, the revenue line has taken a certain path. I think Principal has done a really good job keeping our efficiency investments below and in line with that trajectory. I would say relative to our competitors, we all know that line, we pay attention to it. So we're probably all capturing and discovering the same efficiency gains in different sequencing and it depends on the particular transaction or issues. So I think there are places where we might be moving faster and there are places where we might be moving slightly slower. But we're all kind of we all know how to make paper go away and we all have different senses of urgency around that. On the bless you, on the offensive growth side, I would say in the last few years, the hotspot where the war has been fought in the retirement plan business is around the participant. We've made huge investments even before this acceleration. We've won lots of awards. We've partnered with great thinkers like Jellyvision, like Enrich, like Robust Wealth to differentiate our offering. And so some of that's not new. We've been doing it. We're winning business and we're keeping business because of it. As we go into 2019, we're actually going to be delivering even more a broader spectrum of capabilities around participants and plan sponsors digitally that we think about new sales and capturing more customers, we feel really good about our offensive capabilities going into next year. Not only do we feel like we don't have gaps, we've got a whole bunch of differentiators, but that's winning business along that revenue line that's going in this direction. So I think we feel really good on the customer experience differentiation stuff, even the stuff we're going do with robust wealth, we didn't launch a robo advisor first and we did that very much by design. We really wanted to study and understand what it meant and what it didn't. We now have the benefit of seeing half a dozen to a dozen platforms out there and we now get to pick and choose where we think real value is created. And with a partner like Robust Wealth that can move really fast, we're only we're not only going to deliver value, we'll be able to iterate really quickly to continue to differentiate with that offering. Ellen, go ahead. Something Pat and myself and the whole PGI operating committee spends actually a lot of time thinking about. So how do you get this balance and how do you make sure that you're really focusing on the client and you're really doing stuff that can differentiate. So if you think about when I talked about digital differentiators versus digital core, on the core stuff, I don't think we're far behind. I don't think it's a behind thing. It's kind of keeping up with the new stuff. And if that's maybe 30% or 40% of our investments, we are keeping a lot of focus on those differentiators because we think that is what is going to enable us to grow and to meet customer needs. Great. And lots of questions. So we'll try to get to as many as we can, but we'll also be around later if we don't get to all of them. So next question. You. Andrew Kligerman, Credit Suisse. In maybe a sentence or a word, how much can each of your technologies reduce headcount and expenses in the next three to five years? So two percentage numbers. Wait a minute. Okay. So help So us you've all of these terrific technologies. Yeah. How much lower can your headcount be in three to five years? And how much lower will your human staffing costs be in three to five years? So Jerry, you want to start with that one? Yes. So we've got our outlook call coming up. So that's going to reflect our best thinking on the answer to that question based on what we know today. We just started pulling the stick on this investment and I would say that the technology leverage is emerging fast. So I would say I'd be able to get you a much more precise answer mid year next year because I think where we're really going to start to see this is 2019, early twenty twenty. We know we have lots of paper and we have lots of handoffs. When I say things like it's the only option, it's digital. And when I say things like straight through processing, I'm positive going to have less hands on deck around some of those processes. So I know it's fuzzy. Wish you I know you want me to say 50% reduction and a 10% run rate reduction expenses. I think we'll be able to give you those kinds of numbers soon. Will be numbers in the double digits though likely. Is that fair? Yes. At least from a USIS perspective, we are expecting just like we've communicated at a corporate level, the benefits to be roughly 35% in the expense line, if you will. But keep from a headcount perspective, keep in mind, we may be down overall from a headcount perspective, but that percentage may not be as great because we may look to redeploy headcount in areas where we need a different set skills to continue to drive revenue growth and ultimately earnings growth for shareholders. So maybe the other just kind of overlying that I would say is just remember with these digital strategy acceleration, 20% IRR, two thirds will come from revenue growth, one third from expense reduction and most of that expense reduction will come from reduced headcount. So you can kind of get a sense there. So next question. Thanks. John Nadel from UBS. Maybe more for you, Gary, or even you, Dan. But it seems to me when I think about a 50,000,000 to $60,000,000 incremental investor investment or accelerated investment, why not even more than that? It sounds like the impacts could be pretty dramatic here over the next couple of years. Is it just a matter of how much can you all handle? Or was there more around we just don't want to make that kind of significant commitment that hurts earnings growth? Yes. I'll certainly start and then Dan, feel free to add on. So if you remember the comment that I made earlier, we spend about over $500,000,000 on technology a year and we're one of the best in class because 40% to 45% is available for discretionary activity. So we already were investing significantly in improving our business through digital strategy. So we're able to divert a fair amount of that to that. When we went through this process of inventorying, some of them we said, we're on a good pace, we'll get there in time to take full advantage. It was these handful of things that we said the window could close on these. We really want to go after these and they were sort of shovel ready. We've done a lot of work on them already. But yes, Dan, feel free. Yes, I think that's exactly right, John. The other thing I'd add to it, and this was a great discussion with our Board of Directors, they asked the exact same question. Why 60 or 70 make it $1.2 $1.4 We want to make sure that these solutions aren't on an island by themselves. They've got to be integrated across the entire platform. We'd much rather get this very right on these six initiatives and really implement them and start adding a value immediately. But my guess is we'll be back at you guys talking about other future investments long before these sort of cycle their way through. It is the deployment of resources and it's to ensure that these are very operational across the entire platform and that we don't create these islands. So I think we have time for one more. One question. There's one back here. Josh Shanker, Deutsche Bank. Do you have any thoughts on moat widening to the extent that you look at your competitors, they have some sort of technologies. Obviously, you want to duplicate it. Did you have an example of a technology that you've built that you're able to sort of hide your tracks in some way that's not duplicatable at that point that you feel like you talk about the business cycle, think Alan said it's now a matter of months rather than a matter of years. Well, that's actually frightening, not really encouraging that what can you build that actually has a lasting impact that's hard to copy into the next business cycle? I mean, I can think of a couple and maybe I'd ask Alan and Renee. I think you probably both have examples. So I think our investment teams believe deeply that they can create sustainable advantage by using some of this technology. Listen, we did it with GRP and Principal Global Equities back in 02/2001. This is kind of GRP on steroids. Really, are embedding the analyst thought process into this technology. And I absolutely believe and I think Mustafa Segun who leads that group absolutely believes that will be sustainable. Listen, you can never sit still in any of our investment teams. The sign of a healthy and thriving investment team is they are constantly reinventing themselves, but I think that they are pretty confident that they're going stay ahead. Renee? Yes. When I think about sustainability and sustainable competitive edge with technology, it's more than just the technology. It's everything that you wrap around that with the customer experience. So for example, in Chile, it's taking products that are best in class. It's wrapping that with customer service that's also best in class. It's pairing that then with technologies that incorporate new and fast ways of doing business like facial recognition, apps that, are incredibly intuitive and easy to use. So I think that, and India is another good example where if you look at our technology in India and the ability to purchase online, the thing that makes that so appealing is we also have really top notch investment performance in India. And so it's the whole thing. It's not just an app that's going to make it so that you win. It's the entire principal experience and that being obsessed with the customer experience and wrapping everything around that. That's what's hard to get. It's the DNA of the whole value chain. I'm sorry we didn't get to all of your questions, but we'll be around during the break. We'll be around during the networking session and happy to address any of them. So we now are going to take a five minute break. Okay. So welcome back everybody. And, next up is the next panel where we're going to talk about the business opportunities. We have a great opportunity and it's great to have all four of our business presidents from each of our businesses up on stage here. Once again, a similar format to what we had last panel where we'll try and do fifteen minutes of prepared questions, then turn it over back to you, for maybe fifteen minutes of questions from the audience. So once again, all the way to the left, have Amy Friedrich. She's our President of our U. S. Insurance Solutions. We'll get a chance to learn a little bit more about your kind of history in minute here within Principal. We have Pat Halter, President of Principal Global Investors Laura Everett, President of Retirement Income Solutions and Luis Valdez, who's President of Principal International. So my first question, I'll get right to the heart of, this panel. Tell us a little bit about your background here at Principal and what areas you lead. I'll start with Amy on the Sure. Left Yep. Thanks. Again, Amy Fredrick. I'm responsible for the U. S. Insurance Solutions business. I've been with Principal for eighteen years. Prior to that, I was with Accenture. What I'd like to say is Accenture sort of, you know, broke me down as a business person and built me up and Principal made me human. So I, I've loved the years I've had at Principal. I was originally part of a corporate strategy, function. In that corporate strategy function, I had the opportunity to work with Deanna Strobel and really create the specialty benefits business unit. It didn't exist. And when we moved that, kinda created that, put that in existence, I went out. And, as Deanna said at the time, you know, you've been recommending, you've been consulting, you've been giving advice, help us go do it now. So that's what I really spent the last twelve, thirteen years doing is helping us, grow the group benefits business, grow the specialty Benefits business. And eighteen months ago, I had the opportunity to lead all of U. S. Insurance Solutions. So I've met some of you. I've enjoyed the conversations. I look forward to our discussion today. Great. Thanks, Amy. So same question to you, Pat. Give us a little bit about your background here at Principal. Well, good afternoon, everybody. I guess I'm new to the row here. A little over two months as President and CEO of Principal Global Investors. A thirty year plus veteran of Principal. Most of my career has been in real estate, leading over the last thirteen years Principal Real Estate Investors, which is a top 10 global real estate investment management organization. Very proud to build a team over those past thirteen years that has been really producing, in my opinion, some of the best in class performance worldwide for clients that we've been able to attract for our four quadrants of real estate, getting to know both the public and the private markets and both debt and equity. What I'm really excited about in terms of my new role is really the vision that Dan has laid out in terms of how we take Principal now with its global asset management capabilities, including PGI and really connect much more tighter with the broader Principal mission and its client base. I think it's an incredible opportunity for us. I look forward to today's conversation and your questions. Great. Thank you, Pat. So Nora, you're next. All right. A little bit about your history here at Principal and what you currently do. Sure. Way back. Nora Everett, President of RIS Retirement and Income Solutions. I've been in this role since 2015, March 2015. This is our these are our U. S. Retirement businesses, think retirement savings and think retirement income. And if you're looking at the sup, it's RAS fee and RAS spread. Prior to 2015, I had the great privilege of helping build our principal funds, our U. S. Mutual fund franchise. For those of you who been with us for a while, we acquired WAMU's, retail mutual fund operation way back in 02/2006. So I took that role on in 02/2008. I didn't yet know we were right in front of the global recession. But walked into that role in 2008 and it was an absolute fabulous opportunity. We, the team, we grew that business from about $60,000,000,000 to about 120,000,000,000 We took we were probably the thirtieth largest advisor sold business advisor sold mutual fund business. We took that to a top 20. We drove retail mutual fund sales from about $5,000,000,000 a year to about $20,000,000,000 a year. And we really did that on the back of a very innovative set of products that we were we called our outcome based mutual funds. We were first to market with global diversified income, diversified real asset, and that really helped drive that business from $5,000,000,000 to 20,000,000,000 Prior to that time, I was with the law department at Principal. I'm a reformed lawyer. I will confess to that. It was a an actually, an absolutely fantastic experience. I started in 1991 as an investment lawyer. I had the opportunity to do merger and acquisition work with Principal for about five to seven years and then also worked on a number of regulatory matters. Before coming to Principal, I was in private practice in Washington, D. C. Having gone to law school on the East Coast. Great. Thank you, Nora. So Luis, give us a little bit about your background and currently what you lead up here, Prince Sure. Thanks. Well, first, good afternoon. My name is Luis Valdez. I am the President and CEO of Prince George International. Our global pension and long term saving franchise out of U. S, in which we serve 17,000,000 individuals and also we manage something like 300,000,000,000 in assets. And I have been with Principal for twenty three years, always with International. Prior to Principal, I served in different positions in the private sector and also the government of Chile. I'm a civil engineer, so good. And I got my MBA degree in Barcelona, Spain. And certainly, I'm the guy that is watching strange sports and weird sport in Iowa, like real soccer, football, rugby and Formula one. So that's Great. Essentially. Great. Okay. Thank you. All right. Maybe I'll start with the ladies. So next question is talk to us, maybe we'll start with Nora about your business strategy how that fits into the overall principal strategy. Bet. So in The U. S, retirement savings, retirement income, we serve about, 40,000 plan sponsors, so think employers. We also serve north of 6,000,000 individuals. The vast majority of those individuals are part of that qualified plan business. When I think about our mission and that's really where we start, we're all about helping more people here in The U. S. Save enough during their working years and then more and more importantly, have enough during their retirement years. With our ability, it's once again cool to be an insurance company. Guaranteed income is becoming a very, very significant piece of the puzzle here. So one of the things that I think sets us apart from some of our competitors these days is the ability to go from the very beginning of somebody's journey. They're 21 years old. They're putting that first paycheck against a four zero one ks plan. And literally because we're in the guaranteed business, being able to follow them all the way through with a lifetime income solution. And we do the same thing from a plan sponsor perspective. Two things on the plan sponsor front that are really important to our strategy. One, we compete well in every part of that market, but we are doubling down in the small to medium business market as is Amy and her businesses. And if you think about that and the growth in the SMB market, we have today between the two of us about 140,000 relationships in that part of the market. And the only way we can attack that part of the market successfully is with the distribution footprint that we have. These plans are not selling themselves. They may one day, but they are not selling themselves. You sell four zero one plans. So our distribution footprint, which is broad and deep, is absolutely a competitive advantage. When you're working on a local basis, local advisers, local TPAs, We still work at the firm level. We're working at the BD level. We're working at the platform level. But having that footprint, that broad and deep footprint in this SMB part of the market is just critical. The other part of our differentiator story, and it's again, it's been around a long time. So it will sound a little bit like old tape, but it is still absolutely a differentiator is our total retirement suite. And Jerry mentioned that earlier. Our ability to give one stop shopping, one stop shopping to both plan sponsors and their advisors because we offer DB, number one in The U. S. With regard to the number of DB plans, ESOP, number one in The U. S. With regard to ESOP plans, nonqualified deferred comp in concert with Amy and her team, number one in The U. S. With regard to number of plans and then defined contribution, that uber competitive defined contribution space where we're top five across any metric you want to use, plans, participants, etcetera. But the ability to combine those solutions and then more and more important today is the ability to even extend that total retirement suite into pension risk transfer. So think about the expertise we built up and defined benefit plans, then the ability to expertise, understand plan design, understand underwriting, etcetera, and take that DB plan sponsor when and if they're ready to lay off liabilities and provide that guaranteed income for their employees. So that total retirement suite is still a very, very significant differentiator for us. And then the final point I will make is asset allocation. Pat, Tim Dunbar and the team and many that came before you all, we started as an asset allocator. We were one of the first to market back in 2001 with our target date funds. We're one of the only folks in the market with a total target risk suite. And then coming out really first to market with those outcome based mutual funds. At our core, we're asset allocators. The reason that's so critical in this defined contribution space is we all know that target date, that qualified default river is the largest river in the defined contribution industry in The U. S. And it's going to get larger on a relative basis. So our ability to provide a whole suite of qualified default, in this case, target date funds, whether you want and Dan mentioned it, regardless of the rep or CIT, separate accounts, 40 Act funds, just as important, do you want an active strategy? Do you want a hybrid strategy? So those that kind of choice, that broad choice across that QDIA spaces has been really critical to our success. And one of the reasons that we continue to lead the industry with our ability to garner AUM, not just AUA when we're out in this qualified plan market. Great. Thank you, Nora. So Amy, you're next. Talk about USIS, your strategy there and how it fits into the overall principal Sure. Nora talked about having enough. She talked about saving enough. And definitely, we fit in by helping you protect enough. I think when people think of the insurance businesses, they immediately leap to life insurance. What we know is that life insurance, group benefits, taking care of executives, taking care of things like individual disability needs, those are all important. So our portfolio is a vast portfolio of protection products. Where we make them make sense and differentiate is that small business is our marketplace. I've talked about this time and time again, Nora just hit on it. But when I look at group benefits, it's certainly clear that small business is where we put our focus. When I hear other folks in the industry talk about our target market is maybe employers who have 500 and above. My thought is you just left yourself with 0.3% of the employer marketplace. 99.7% of the employer marketplace are employers who employ less than 500 people. We're going to be deeply in that market. You heard Kara mention it earlier, we have about an average case size in terms of employees for the group benefits business of 38 lives. So that means these are small businesses, maybe without HR positions, and we are helping them put their portfolios together. We're also doing a business market focus in the individual life marketplace. Where we don't compete in the individual marketplace, and that's intentionally, is always running after ultra high net worth, very complex planning, going to use protection products not so much for their actual protective value, but going to look at it as an accumulation vehicle. What we find is when we help business owners in the business market and we actually give them things that they want, sometimes the first discussion isn't even product. It's a business appraisal. It's key employees. It's what can you do for my key employees to retain them, to give them more disability, to help them do a buysell agreement if they don't have that in place. So how we differentiate in that small market for life and for small business is we start with the small business owner needs. Great. Thank you, Amy. So Pat, tell us about PGI, Principal Global Investors, your strategy and how it fits into the overall Principal strategy. So in terms of the asset management group, we basically are there to make sure we enhance the Principal's capabilities to go deeper and broader with its clients and to really help facilitate Principal in going into new markets, new market segments and markets throughout the world. If we produce good investment results, good investment solutions through Principal, we're going to grow the platform, we're going grow the organization. This group is basically the powerful engine behind how we can grow our assets along with Principal Global itself producing good growth in terms of client base and institutional base of market sort of activity. So from the perspective of Principal and its global asset management organization, putting the investment pieces together, whether it's PGI, the general account, all the investment engines of Principal International, which makes up around $670,000,000,000 today and effectively organized in a way to really enhance the potential of Principal in terms of driving business growth and then the assets that come with that, that's the great opportunity for us as we think about the new structure that we've unveiled over the last month or two. Principal Global Investors also has a great opportunity to grow its platform with its distribution capabilities. It's a $430,000,000,000 organization. It has over 1,000 institutional clients in the world, some of the most sophisticated, some the most demanding clients and has millions of individual and high net worth market sort of clients to manage money for. If we can continue to invent, maintain, advance new investment solutions, both within pension, with insurance, within Louisa's sort of international markets and with our existing client base, we're going to continue to grow the franchise as we look forward. Couple of things that I think are really important as I think about that, how do we collaborate better? We're doing a lot of work today with Nora in terms of the whole de accumulation phase of the marketplace. How do we bring income orientated products to that phase of marketplace? Some very exciting things I think that could lead to growth in the future. Working with Louise and his team, thinking about how do we leverage local distribution within the nine, ten emerging markets that Louise has a great footprint in, in terms of his capabilities and his platform? How do we enhance Louise's investment talent and his skills to be better investment skill providers in the future in terms of solution orientated strategies? How do we create new products in these emerging markets that are continuing to become more affluent, that are becoming more developed in terms of types of investment strategies they want? Incredible opportunities for us as we collaborate, we think about how we connect further and tighter within the broader principal organization. The multi boutique model has served us well within Principal Global Investors. We're committed to the multi boutique model. It's going to continue in our belief to produce significant active alpha generation capabilities. I'll talk a little bit later about some of the innovative things we're doing to continue to enhance that active capability and to broaden it. But we continue to think that 15 distinct investment boutiques we have, their investment capabilities are going to continue to serve us very, very well as we go forward. And then lastly, just in terms of some things that are very important in terms of how we continue to think about investing for growth within principal global investors. Dan highlighted the pan European real estate platform that we announced an acquisition of earlier this year. Very exciting early developments in terms of how we take our franchise in terms of real estate investment capabilities and globalize it. And Europe is a great start in that effort or it holds great promise in terms of growth. Being able to continue to expand our private investment capabilities like infrastructure are things that we have underway, continue to look at more specialist investment capabilities, which plays into the DNA of our multi boutique model, continues to go deeper and wider as we think about equity specialist capabilities that we want to expand into. We talked in the last panel about all the exciting things that are going on in terms of data analytics, in terms of systematic strategies. I'll spend more time on that later, but a lot of just innovative skunk work projects that I think are going to play very well as we go forward in terms of continuing the growth that we need to be innovative and to be current with the marketplace. Great. Thanks, Pat. So Luis, tell us about Principal International, your strategy and how that fits into the overall Principal strategy. Okay. Our strategy first is to help millions and millions of middle class citizens in our chosen markets to plan, save and invest for their financial security through our platform. And the countries that we operate in are the countries that are very well suited in order to deploy our strategy in a multi pillar, multidimension strategy in order to offer individual solutions, group solutions, nonqualified, qualified, accumulation, deacumulation with compulsory money and voluntary money. So we are going into those countries in which governments are allowing the private sector to really participate directly in order to resolve the pension issue in those countries. We approach those countries and those markets in a very flexible and pragmatic manner. So with wholly owned operations when possible and with joint venture when it's needed. In terms of fits, I would say that what we're doing in Principal International is a natural extension and expansion of our core competencies in U. S, retirement and global asset management. So what Dan talked about demographics, people is living longer and the sudden drop of fertility rate and also about the labor market trends, we are facing and the emerging markets are facing exactly the same problem. So at the end, bottom line, people is not saving enough for their financial security. And we are there in order to work with that people. And we're extracting a lot of information almost for free from Nora every day. And certainly, it's all about know how, it's about products, about best practices, it's about mistakes that we have made and so forth. So I would say that it's the natural extension about what we're doing in retirement. Going forward, with PAT, I would say that we are the beachhead for Principal Global Investor as those markets really mature and are going with local solution first, regional solutions and then global. So now we're connecting the dots with PGI, and PGI is one of our very important differentiators in the markets that we're in, but we have a way to go with PGI and they do have a great opportunity in order to leverage their capabilities in the markets that we're in. Great. Thank you, Luis. So next question, Pat, I'll start with you. So maybe talk to us about the current environment within PGI, maybe some of the growth and maybe the drivers of the growth within PGI moving forward. So let's talk a little bit about the environment in terms of the marketplace. We've been very successful, but the asset management industry and the environment has become more difficult. There's a lot more headwinds. There's a lot more sort of pressure just in terms of what's going on relative to fee compression, choice for lower cost investments and clearly there's more regulatory burden. That being said, Principal Global Investors have continued to be very successful. Our margins continue to be in the high 30s, 36% to 38%. We continue to see some very strong revenue growth in terms of our business block and we continue to believe our strategy is very strong in terms of our ability to continue to provide alpha generation capabilities to the marketplace. So the industry is kind of a tough neighborhood. But I think in terms of the house that we built within Principal and within Principal of Investors, we think it's a pretty shiny house in terms of the ability to continue to offer incredible investment selection to the broad global marketplace. There's three things that give me confidence in making that statement. The first is we continue to really produce great investment capabilities in terms of performance. If you look at and Dan highlighted this earlier, but if you look at the investment results that we're producing, it's been a very consistent story for many, many years. The last quarter, in terms of Morningstar ratings, 80% of our mutual funds by assets under management have a four or five store Morningstar rating. That is very, very strong in the industry, having 89% of our funds having a five year track record in the top two quartiles, an incredibly strong indication of the investment talent and investment capabilities we can continue to produce. So I continue to believe very profoundly in the investment alpha producing engine that Principal brings to the marketplace. The second thing is I have as much confidence in our ability to not only maintain that investment capability in terms of performance, but to continue to advance in terms of new strategies and continue to innovate. And I think that's very, very important as market conditions change, as a client voice and what their desires are and what their objectives are changes and as we continue to have to move and adapt very quickly to those changing preferences in the marketplace and a client voice. We have an incredible alpha producing capability, but we also do passive. We do passive in combination with Active in terms of our ability to produce investment solutions in the retirement marketplace. We have incredible new incubation capabilities as we take our Active skills and apply them to the smart beta marketplace. I think one of the most exciting future places for us is going to be in how we continue to build our smart beta strategies. And I think some early results in terms of the investment performance from those strategies is quite positive. And then last thing, again, just to highlight, we're going to be working, I think, much more tighter from an asset management perspective across the Principal Financial Group to make sure we really leverage on the power of the distribution we have within the broader organization and a much more collaborative, much more connected organization. It's always been there, but we're going to double down on that connectivity with the broader organization to make sure as the business of Principal grows, we can capture those assets. So I feel fairly good about the journey ahead. A couple of things as we work on 2019 that I think needs to be called out. We have some work to do on distribution within PGI. We've had four quarters now, frankly, of negative net cash flow. That's not acceptable. And so we're making some changes to our distribution, both in terms of how we organize our distribution and also the leadership in our distribution teams. We're going to connect more tighter our retail, high net worth, retirement and institutional coverage for two reasons. One is the marketplace demands that clients are becoming more blurred in terms of how they access different channels and how they access different service providers in terms of the asset management industry. We need to be much more flexible in how we face off to the client base. And then secondly, as we globalize the role of consultants and how consultants play a bigger role in some of our products is very important. So we're organizing around a consultant led model. We're bringing some new leadership in, in terms of U. S. Institutional sales And we're bringing in some new leadership in terms of national accounts on the retail side. So we're making some very effective changes, believe, that will be, I think, very important as we think about our net cash flow going into 2019. Great. Thanks, Pat. So Nora, we'll do the same question. So talk about the current environment within Retirement Income Solutions, the growth prospects and certainly the drivers that you monitor moving forward. Growth prospects, I have one word and this this word is relevant to both RES, the fee side and the spread side of our business and that's demographics. And Dan spoke to it, I think it deserves a few minutes specifically around the RES opportunity here in The U. S. You all know this, but I'm going to repeat it. When you're we're in the SMB market. These are employers with less than a thousand employees. 50% of that market does not today have a worksite solution. That is a huge opportunity and that is going to continue to increase. This is the first generation that hasn't had that traditional DB plan at the worksite. This is the first generation that's going to demand. And then you think about we were talking about how it's tougher these days to attract and retain. More and more small business owners are recognizing the need to have a worksite retirement solution. That is a huge opportunity for someone like Principal because we're in that space. We have the distribution footprint that I described earlier. That's on the fee side. On the spread side of the business, and again, you know this demographic, but I can't overstate just the importance and the tailwind that is creating in our guaranteed income business. 10,000 baby boomers a day, 10,000 baby boomers a day retiring, that's going to go up to 11,000 in a couple of years. And as I as we talked about, more and more of these folks cannot replace their income with just Social Security and a traditional DB plan. Most of them, the generation right behind me, don't have that DB plan. So you think about the opportunity for us to help those folks replace a paycheck. You're coming into retirement, you've got to figure out how to convert your nest egg into a stream of income. Many, many folks don't have an advisor standing next to them. But even if they do have an advisor standing next to them, there has been an uptick and an interest in how do I get a guaranteed income stream. So the demographic is going to create tremendous tailwinds in this guaranteed income business that we're all in. The other thing I would say about growth, and I'm going to focus on the full service recordkeeping business here, we have had tremendous pricing pressure. We all know that. This is not a new issue. This has been many, many years. Dan called it out as well. We know how to operate. We know how to operate in that ecosystem. We are at scale, 40,000 plan sponsors, 5,000,000 plan participants. So we know how to operate in that ecosystem. Our fundamentals are really strong and I'll just throw out a couple of stats. When you're able to add over 1,100 net new plans over the last twelve months, when you're able to add 200,000 participants who are now have an account value, not just adding participants, but participants with an account value, think about the power of that engine. When I look at transfer deposits, we're up over 20% quarter over quarter. Look at recurring deposits. Recurring deposits is where it's at. That is one of the most important metrics for anybody in our business. And we're looking at a trailing twelve month recurring deposit of around 7%. And if you want to look quarter over quarter, closer to 9%. Then you think about payroll. You think about job growth in The U. S, you think about payroll growth in The U. S, whether you think it's 3%, 3.5%. The point is demographics, tailwind, we're in the right market, we're already at scale and we're able to compete. Understandable, we're going to continue to align expenses with revenue, but we're also going to continue to invest in this business. And one of the things, and I know it's not lost on you, but this business, this franchise, our full service retirement business actually feeds multiple P and Ls around the principal. So in addition to the P and L that I'm responsible for, the franchise, the platform provides north of $400,000,000 for other places that in principle, whether that's PGI, whether that's the bank, etcetera. But the point is there's a revenue multiplier with this business that is really, really significant. Great. Thanks, Nora. So Louis, same question. Tell us about the current environment in the 10 emerging markets that you operate in. Talk about some of the growth prospects and certainly some of the drivers that you monitor. Yes, sure. When you're asking what is the environment in your emerging markets, seemed to me that you have one word in your brain, volatile. So I would say yes. But I'm going to try to step back a little bit in order to give you some context about what we're doing and why we're doing and how we're performing in the emerging markets that we're in. It's important to keep in mind first that when we went public seventeen years ago, Principal International was just aspirational. Principal International, we were just close to breakeven point. Today, we represent in the ballpark something close to 20% of Principal Financial Group. And if you're looking what we have reported, we reported 40 consecutive quarters with positive net customer cash flows in the countries that we're in. Ten years, 40 consecutive quarters. And we reported $74,000,000,000 being collected as positive net customer cash flows. And if you are going including China, combined, these are $221,000,000,000 of positive net customer cash flows coming from our chosen markets. So and also, we have experienced double digit growth in a compound basis in the last ten years in earnings and in revenues in USD and also in local currency. So this is our track record. And yes, we have to say, emerging markets are volatile. So what is the solution for? Well, having the right portfolio. So we have been extremely thoughtful about the countries that we're in and certainly extremely thoughtful about the capital allocation and the weightening in those countries. And certainly, we're looking for countries that they have huge growth potential in order to equalize FX movements going forward. So demographics and high and rapid GDP growth is the right way that we're looking for. So going forward, in terms of our future growth, it seems to me that we have, in those markets that we're in, four very important secular important things that are happening are going to continue happening. Demographics. We talk a lot about But one thing that you have to put in your mind, we cover in the countries that we're in 48% of the world's millennials. Is what 48% of the world millennials. So that's why the digital strategy for us is a must because those markets are going to go digital no matter what. Number two is what in the new economy close is being called that secular movement is inclusion. Inclusion means organization. Inclusion means women's being part of the labor force. And also the demonetization of those economies, that's it means that you're formalizing part of that economy and has a very profound impact in terms of the financial markets. The third thing is trade. Regardless of the trade discussion between U. S. And China, trade is moving those economies. And the fourth thing is going digital. So those four things are going to continue happening. And the reason is when you see the growth prospect in the countries that we're in, GDP growth in the 5.5% up to 7.5% for China and India. When you're looking Southeast Asia, it's a 5% average growth going forward. When you're looking at Latin America, it's between 2.5% up to 4% between Mexico, Brazil and Chile. So that's the countries that we're in. Those are the demographics and those are the macro projection that we do have. So I would say that we have a long way to go. And the million customers that we do have today are going to looks like in a small number in ten more years maybe. Okay, Amy. Well, same question to you. Talk about USIS, the current environment, the growth drivers and the growth prospects as you come Yes. I'll just bring up a couple of points. The current environment is really favorable given the strategy that we have. Small business growth has been powerful this year in terms of moving premium for us. I think we've talked a little bit about when we look back at those in group growth, meaning an employer who has added their staff, Those employee growth numbers, the wage growth numbers are exciting for us. I would also point to things like when we know we can reprice our business because we're in the small market for group benefits, We know we can reprice 75% to 80% of that business because it's in a one year rate guarantee because that's what you generally offer in the small market. We have power in able to turn our pricing quickly if things do change, either from a loss ratio or other macro factors. And then the other thing that I think I feel really comfortable with for Group Benefits for Growth is really speaking to new market. Looking five years ago, we were getting about 8% of our new business premium from an employer purchasing a benefit for the first time, so a new start up benefit. That number year to date this year is 16%. So 16 of a very healthy number is coming from employers who've made a decision to add a new benefit, not add with us, add a new benefit they've never had before with any prior carrier. So when I look at our ability to go down into the very underpenetrated small market and get products, services, solutions to them, I feel great about growth. Turning just briefly to the Individual Life business. One of the reasons I really feel strongly about growth is certainly the capabilities we've built for that business owner, business appraisal services, buysell agreements, the ability to link in our disability solutions and rising interest rate environment. That's certainly something that's going to be helpful for these businesses. It's going to be a nice tailwind for us, and we're going to enjoy that. Great. Thanks, Amy. So I'm going to have one more prepared question, then we'll open it up to the audience here. So get ready with your questions. So my last question, and Amy, we'll stay with you. What are you most excited about as you kind of look at your businesses and looking out into the future? And second part to that question, not that anybody in this audience would ever get anything wrong or missing, but what is the street missing about your business? Oh, can I do that one first? Okay. So what I'm really excited about. Across USIS, when I go industry meetings, the topic and my peers around the protection and insurance is basically really boring things like replacing their legacy systems. So that is one of when you ask where are your resources going, what are you doing, they're out there taking care of what I would consider kind of the blocking and tackling of their business. With Principal, in our insurance businesses, whether we're talking about individual life or group benefits, we've already done the vast majority of that work. We are on modern new systems. We made that decision seven to eight years ago, and we're nearly complete with that journey. So instead of spending time working on legacy system replacements, we're spending time on things like 15 proofs of concept across the whole segment, engagement, proof of concept, you heard Kara mention some of them related to benefits verification, a proof of concept going on related to will people digitally purchase through the whole process a smaller, more defined benefit for disability. So these are revenue generating ideas that we're out there testing and these are efficiency ideas. Many of them were not even in the discussion that we talked about today because we felt like our progress on them was appropriate and we didn't need to accelerate them. So I'm really excited about the things that we're not having to do that others in the industry are. I think maybe what they're getting wrong about the business, maybe what there's not as much understanding about is that when you are able to not just have a game that is taking business over, it's all takeover business. It's all fighting for the same business. But you're out there actually both building new market and expanding on that new market. What that gives you is a growth rate that is simply literally not possible for others in the industry. So whether we're talking about a business owner purchasing life insurance or whether we're talking about a group benefits or a multi life policy for disability, finding those new markets of people who've never purchased is a huge opportunity for us. And for those of you who aren't asking questions of the rest of the industry on, is it all about takeover or is it truly about new market, I think we should be talking about that more. Great. Thank you, Amy. So Pat, similar question. Principal Global Investors, what are you excited about kind of in your new role moving forward? And certainly, maybe The Street is missing something as far as valuation for your business? And if so, what do you think? Yes. First of all, I think we just have an incredible exceptional talent pool of investment professionals. When I came over from real estate over the last two years, I was a Chief Operating Officer. And I was just I marveled at the investment talent, the skill, the passion that the 15 multi boutiques that we have within Principal Global Investors and the five forty investment professionals that make up those 15 boutiques, how skillful they are in terms of their craftsmanship and the abilities they have not only to produce alpha for today's world, but the creativity, the innovation, the sort of perspectives of intelligence and market awareness and gaining that sort of perspective of what an investment craftsman has to do to be creating sustainable alpha. We have an incredible talented group of people. And I think with that talent and if we continue to develop and nurture that talent, I'm incredibly excited about what we can do going forward and sustain the investment performance that our clients expect from us as look forward. So that's probably the most sort of exciting thing as I think about the capabilities. I think we're doing some really neat stuff. I know Ellen talked about this earlier, so I won't go into it again in terms of systematic strategies, some of the things we're doing both in the equities and the fixed income area, what we're doing in terms of our multi asset allocation capabilities and providing solutions to clients throughout the world now is very exciting. A lot of sort of new incubation of new strategies is underway within the organization that I think you'll see over the next year or two as we continue to incubate and create the track record and performance in that regard. So a lot of I think as I think about you may not see it over the next couple of quarters, but the next two, three years, you're going see a lot of really interesting, I think, products and investments capabilities coming out of the organization and maintaining the great things I think we have today. In terms of this what's missing from The Street's perspective, I don't know. I think there's a big knock on alpha sort of producing capabilities in terms of active management, in terms of our clients and customers willing to pay for And they are. We have such a wide swath of distribution reach throughout the world. And so we're following the money. And we also are following the money in terms of clients who are willing to pay for that sort of alpha producing capability in terms of access strategies. And I think we'll do quite well in that sort of pursuit going forward. So I think that's one thing. And then second, I just think I highlighted this a couple of times earlier, but I do believe that the power of Principal and the ability for Principal in terms of its new business development to create assets for Principal Global Asset Management and the ability to generate those sort of opportunities in the future, think, is really quite significant. Great. Thanks, Pat. So same question, Nora. What are you excited about with your businesses, Retirement Income Solutions and maybe if the street is missing something, what would The excitement is easy and you heard it with Jerry. I am so excited about what we're going to be able to do with this digital and technology spend and just the work that's being done around being able to touch. Let me step back. 40,000 plan sponsors, 5,000,000 plan participants, we can't touch them. We haven't been able to touch them historically. We haven't been able to necessarily create relationships at the employee level. The ability to take technology and digital experiences, whether that's My Virtual Coach, whether that's a native app, what we're able to do now, what we're going to be able to do is really scale with technology with regard to being able to connect with our customers on a mass basis, personalize that experience with them so that it feels personal and ultimately deepen the relationship earlier on in particular with plan participants. So technology in and of itself is not a strategy, but the ability to take these emerging technologies and actually create this next generation of customer experience is really powerful with regard to our ability to actually touch our existing customers and probably as important, grow this block of business and still have that connectivity. So that's easily the number one from an excitement perspective. From as far as missing, I really don't I would argue that you're not missing anything. I did mention earlier though, that I do think sometimes our full service retirement platform gets somewhat undervalued with regard to this revenue multiplier, with regard to the fact that number one, leading margins just in this business in the industry, but two, and probably as important, if not more important, just a very valuable franchise to the rest of the Principal Financial Group. You think about the mandates that we get for PGI when we bring in a qualified plan. You think about the rollovers that we get into principal funds through our principal connection. As we, as a plan participant has a benefit of them, whether they're retiring or job changing, our ability to touch them at that point and roll them into principal funds. So the franchise in and of itself, not that you're missing it at all, but I just think sometimes it may get undervalued. Great. Thanks, Nara. So we'll finish with Luis. Tell us what you're excited about with your businesses, Principal International and maybe what the Street is missing with regard to Principal International. What I'm really excited about with Principal International is about our growth prospect going forward. Honestly, I'm absolutely sure that we have a great runway to go. And we're just scratching the surface with the numbers that you have heard, 17,000,000 customers, dollars 300,000,000,000 in assets. You already know, and we talk a lot about the demographics. But also in a macro level, you really understand the problem. But also in the micro level, I would say, talking about what really happened in each country and with our partners. In Brazil, we own in a joint venture with Banco de Brazil, the largest pension company in Brazil with 2,000,000 customer. Well, Banco de Aracile has 65,000,000 customers. In our mutual fund company, which is the fourth largest mutual fund company in China, we have 7,000,000 individual customers. Well, CCB Bank has 300,000,000 customers. So you have the sense that you're warming your muscles in order to go. And that is very important to keep in mind because digital is going to be a very important accelerator in order to do two things: being able to provide advice sales and advice to that middle class, brand new middle class in those countries and second is making our business model more scalable, reducing frictions. And that's a very important thing. If you are thinking about it, frictions are diminishing your ability in order to continue scaling your system and your business model. So this is what we're very excited about. And the problem, the pension problem and the pension gap in emerging market is much more complex to resolve than even in here in U. S. Or in the developed markets. For one particular caveat, everything looks similar, but one thing. Those countries are getting older before getting rich. So the era of personal responsibility that Dan Houston referred to is important here, much more important in those emerging markets in order to provide financial security because the two pieces that we're going to miss for demographics, your family. It's not going to be there. And number two, governments are going to be super busy in order to sustain their pillar one in system which are unsustainable and inadequate. So it's a huge challenge. In that sense, we continue working with governments in any given pension reform that is underway, Chile, China, Mexico, India, and we're very fairly committed. What probably you're missing, it seemed to me that I would say that what we put together is a formidable platform outside. Ten years ago, we were just a $33,000,000,000 operation share of assets, dollars 33,000,000,000. Today, it's a $300,000,000,000 plus. So we multiply by 10, and I'm not correcting by FX. So I'm having a hard time to find a platform that has had this kind of performance. And we don't scare that much about short term volatility and FX because we are thinking that the smart money is going into those countries when the full money is getting out. So we have faced a very indiscriminatory sell off for emerging markets, bonds and stocks. But when you're looking the numbers about foreign tied back investments in Brazil, in India, for example, for 2018, records. So anyway, it seems to me that like in any given portfolio, it's all about country selection, capital allocation, having the right weighting in. And that is a it is a pretty interesting exercise that we do like that. And that is why I have to say we're very, very encouraging about our future. Great, great. So as we get the microphones ready, maybe what I'll do is just kind of recap real quickly. We have a summary slide here. So if I look at Nora's business retirement income solutions, I'd say my takeaway is three here. A, if you look at the small end of the market, less than half of them actually have retirement plans, so great opportunity there. If you look at just The U. S. Market and that's more than double the next nine countries combined. So The U. S. Retirement market is obviously a huge one and a great opportunity for us. And then the third thing with regard to Retirement Income Solutions, I'd call out is just the ability to offer guarantee, both with the as the baby boomers look to retire and have some sort of annuity guarantee outflow And then also in the pension risk transfer business where we see great opportunity there too. So in Pat's world, Principal Global Investors, we do have strong investment performance and that matters. Once through one year, three year, five year across the board, we have very good investment performance. Second thing I heard from Pat is that active management boutique model, it still works, not only here domestically, but certainly internationally. And then the other thing, the collaboration between Principal Global Investors. The way I look at Principal Global Investors, that's the investment chassis for the rest of enterprise, right? They manage 100% of the general account, USIS. They manage a good part of NORA's portfolio. And also now more and more so they're working with Luis and International and some of the synergies there with the investments in addition to unaffiliated retail, high net worth individuals. So there's a lot of ways for Principal Global Investors to garner assets throughout the complex here. In Luis's world, Principal International, right now, we cover half the population of the world and the operations we're in, countries we're in currently. We don't need to plan additional flagpoles. What we need to do is just dig a little deeper. Luis talked about just scratching the surface as far as the opportunities in these emerging markets. The other thing is favorable demographics, right? We don't do insurance in emerging markets. What we do is what we do best, long term savings retirement and that's the products we're selling to growing middle classes in these emerging markets. And then certainly, you heard quite a bit about our marquee partners. I would tell you certainly the envy of many of our peers. If you look at Banco Brazil, we have about fifteen years left of exclusivity on that contract where they're selling our retirement product across their bank distribution. Banco Brazil is the largest bank in all LatAm. China Construction Bank, second largest bank in China. We now partner with them on the asset management side. We're the fourth largest retail mutual fund in China. And then we talked about CIMB, obviously a very big and formidable player in Southeast Asia where we just increased our ownership there from 40% to 60%. In Amy's world, U. S. Insurance Solutions, just the strategic importance of that it really does complement our mix and what we as Principal Financial Group offer to our clients. If I think about Specialty Benefits, that focus on the small end of the market, that average case size around 40, that really, really distinguishes us in the marketplace and gives us an edge. And then just to finish with individual life, the focus on that business owner executive solution that equates for more than 50% of the sales, once again a differential in that market. So with that said, I think the mics are ready. We invite your questions. How about we start with Humphrey here? Humphrey Humphrey Lee, Dowling Partners. A question from Nora. You've talked about, how Principal has been able to leverage your local distribution footprint to target the small business, the SMB market. But at the same time, you've talked about how technologies enable you to touch have more touch points. So on the flip side, how is that presenting a threat to your home turf in this SMB business from other competitors that are enabled by technology to come to your home turf? I got the first part of the question. I couldn't hear the It's second part your hard to hear up here. Sorry. I apologize. So I just let me so the first part of your question is kind of flipping it around. We talk about our local footprint with regard to full service retirement and how valuable that is in selling retirement plans. But then you asked about but with technology, with emerging technologies, how that might impact and that's where I lost you. Yes. So on the other hand, then with the technology that would potentially enable other players that who are currently in the SMB market coming into your target market? Great question. So in our market, what we're seeing is we have scaled players like Principal. And then I think what your question is kind of that fintech competitor. Is a technology competitor that would come into the space with regard to distributing? Not necessarily fintech, but also more traditional players that have not been a player in the SMB marketplace because, like you mentioned, it's very distribution focused. But then now with technology, they will be able to come into your marketplace. How are going to defend your position? Great question. So it's going to be a combination. I am still a believer and it may not sound as visionary as as others that say that humans are gonna someday be out of the picture. We are big believers. I am a big believer that it's gonna be a combination. That there's it doesn't mean that you have to be sitting across the table, but it's going to be a combination of tech and talent, tech and sales. That sales relationship today, and I would predict for the next five to ten years, is still a critical is still critical to getting a four zero one, I'll use four zero one ks as the proxy, a $4.00 1 ks sale done. And not just a $4.00 1 ks sale done, but creating an ongoing relationship to be the long term partner with that local advisor, with that local TPA. So I would argue that there's always going to be now how we go about that in the efficiencies and what that looks like and how much we leverage technology as part of that relationship? Absolutely. But I believe it's going to be those of us at scale that are able to harness some of these emerging technologies and some of them have been here for a while in combination with creating that relationship. How you create that relationship will evolve. But I strongly believe it's going to be both. We have John Nadel down here. Thank you. John Nadel from UBS. Amy, had a question for you. I think, if I recall about eighteen months ago or so, you had talked about tax reform would unlikely be a permanent positive contributor to the group insurance business that it'd be competed away through premium rate reduction, etcetera. We're going into that period of time, maybe a little bit less important for SMB, that January 1 renewal period. But are you seeing that come through at all yet? Because underwriting margins have been so strong, maybe employment economically driven in part. Right. But is there any pressure to pass back some of that through savings? Well, keep in mind, it's a good question. So let me give you kind of an update on my thinking on that. Keep in mind that you can pass that through kind of new sales pricing. And I would argue I'm kind of seeing that happen through some of the new sale pricing. Dental and vision are very competitively priced, and I would say they're appropriately priced, but they're probably taking into account some of these tax reform changes. Life and disability that tend to be longer products, some of them for other competitors, even when you're initially offering them, you sit with two and three and four year rate guarantees. It's harder to get that worked in both in your new sale and in your existing block. So the other piece I would offer up is that, we do a lot of talk about new sale. But in any given year, really, the dollars that impact your group benefits business are coming from that persistency and the pricing in your existing block. And so what I see is there are some existing block changes happening. I would argue principle is as good or better than anyone in the industry of knowing exactly the status of every single case coming through their in force block. Others who are less precise about their enforced block management probably aren't passing through some of those things quite as much. Can I summarize that by I don't know if I've got this right? It seems to me and I frankly, I think this is a good thing. It seems to me that you feel like you'll see it through your results, but you think maybe it's going to be a little bit more lasting effect for some of Yes. The lasting effect for us is going to be a growth rate that's higher than our competitors. Got you. Thank you. Great. Go ahead, Eric. Eric Bass with Autonomous. A question for Pat. I think you talked about two opportunities to improve sales, both from the distribution side and then new products. Can you just talk about how quickly you would expect to see that start to see a benefit there on, I guess, the distribution and how quickly can you get new products commercially viable? Yes. Yes, that's a reasonable question to ask. So as I highlighted some of the changes that we have put into place in terms of leadership changes and bringing in some additional new talent to help us both on the institutional side, which has been really a big part of where we've had some challenges historically over the last four quarters in terms of this net cash flow equation for PGI. But we're starting to see a little bit on the retail side also. So and that's why I mentioned we've done some changes in terms of bringing in a new national accounts head to help in that sort of effort also. So I think we have the right team in place and have confidence in the right team. But anytime you have a new team, it's going to take a little bit of time to turn that around. So we're expecting progress to be made clearly in terms of changing the trajectory of that sort of negative net cash flow. And we hope to see those and expect to see those changes over the next couple of quarters. Now when we get back to the types of performance we saw back in 2016 and 2015 in terms of 10,000,000,012 billion $14,000,000,000 of net positive net cash flow next year, That's to be determined. But obviously, we have a good team in place. We have a good plan in place, but it will take a little bit of time, but we're expecting some improvement over the next couple of quarters. Thank you. And then on the product side, just what's the time frame when you introduce a new product to get it commercially viable in terms of having the performance track record or whatever Yes. Else you It's two things. One is actually take some of the existing investment products we have and just making sure that our distribution team is prioritizing them because we have an incredible suite of great products that frankly haven't probably been given the support and maybe a little bit of love they need from our distribution sort of efforts. So that's one very important effort that's underway right now. And then secondly, obviously, some incubation of new products and supporting some of the things that we have in terms of getting some of the systematic strategies underway and offered into marketplace. That's a little bit longer term, but that obviously will have a big profound impact on us over the next year or two. Great. So thank you. So before we give the panel applause here, let me also welcome Deanna Stribel, our CFO, and she'll kind of close out the prepared So thank you everybody on the panel. So you're in the home stretch. We tried a little different format today than I think you probably have at most people's investor days. And there's been a few things that haven't surprised me, but there's actually been one thing that has. So the thing that hasn't surprised me is how great my colleagues did over the last few hours. But it has surprised me that we had over 10 people up here that acted like it was perfectly normal to be wearing this thing on our ear with this microphone that wrapped around our face. So either they're karaoke people in their spare time, but this is really strange. And I told a guy in the back I felt like a solid gold backup singer and he looked at me like he had no idea what I was talking about. So hopefully some of you in the room do that and I'm sure some of you were recognizing that. And I just thought I thought it was incredibly weird that we acted all normal relative to that. So our goal today was to really step back from what we talk to all of you about all the time. So we focus a lot on short term results. We focus a lot on financial metrics that are very quarterly or short term in focus. And we really wanted to step back and talk about our strategy. We wanted to talk about our business priorities. And we wanted to talk about the things that actually are going to drive our performance over the long term. So for those of you that don't know me, I'm relatively new to this role. And I'm actually missing a little bit my old role where I would have been sitting up here in one of those chairs. And so coming from that seat, I know that this is what is driving our performance today and it's ultimately what's going to drive shareholder value over the long term. I only have ten, fifteen minutes here today to wrap up. So briefly, what I want to talk about is really our strong financial position and really how all of this has come together to deliver the financial performance that we have. So a few takeaways. I think there's two things that really differentiate us as we think about Principal relative to some of our peers. I think the first thing, and we've stressed this over the last three hours, we have a growth oriented strategy. We're operating in markets and in products and in segments of the market that delivers the ability to deliver above market growth. I also think the other thing is we have a proven history of execution. We've made promises and we've laid out of our objectives to you many times in the past and we've delivered on them. We've laid out our capital deployment strategies. Some of you in this room don't agree with our capital deployment strategy, but we've stayed true to that. And we've made decisions every single day that ultimately benefit our customer and ultimately, we think, deliver long term shareholder value. Three takeaways I want you to come from today. First of all, we have delivered market leading earnings growth. So if we look at the last five years, both our operating earnings growth and our EPS growth have been in the 10% to 11% range per year. A couple of takeaways from that. The first thing I would say is because those two numbers are so close together, we actually did it by growing our numerator, not shrinking our denominator. To me, that's much more sustainable over the long term. The other thing I hear when sometimes I say that, especially for those of us that are U. S. Focused, well, yes, but that was a time of incredible tailwinds from The U. S. Equity markets. Actually, when we look back over the last five years, macro factors has really been a push. We did get some tailwinds from equity markets of about 1% to 1.5%, but that's been entirely offset from headwinds from the FX market. So really, this is true performance. The other thing I would say as I look at that is it hasn't been a consistent 10% a year. We actually had in that five year period a one year where we were actually negative growth rate. Macroeconomic driven, we then reacted and we put up some strong growth. And so to me, that's the other takeaway is that you have to look at our business over the long term. You can't focus on a quarter, you can't focus on a one year period. And then I think the other thing is how does that compare to our competitors? We look at both asset management peers and we look at insurance company peers and we think that that growth rate is about 2x what we see from our peer set. Second thing, and I we've hit this one a lot today, but it's the importance of investing for the future. Things that were that delivered that 10% growth is due to things we invested five, ten, fifteen years ago, and it's critical that we're now investing to continue to deliver that going forward. That comes in terms of organic growth. That comes in terms of inorganic growth. And it comes in terms of us investing in business capabilities. We highlighted technology today, but it's also investing in product development, in talent, in distribution and those things. And as I'll mention on the next couple of pages, the other thing I think that sets us apart is that we strongly feel we're at probably one of the strongest financial positions that we have ever been as a public company. So on that last point, definitely coming from a position of strength. And I think that position of strength comes in terms of capital, comes in terms of leverage, comes in terms of profitability. So capital, sitting here today as of ninethirty, over $2,000,000,000 of excess and available capital. That's spread throughout our entities, but also specifically at our life company sitting today with a risk based capital over 450%. You all know that at the end of this year, there'll be some risk based capital changes. Over the next couple of years, there'll be some other risk based capital changes. We feel very well positioned relative to our capital position. Secondly, leverage. 20% debt to cap ratio, which is at the low end of our targeted range. A couple of things that beyond that, we have no debt maturities until 2022. I think that gives us a lot of optionality. It gives us optionality if there happens to be a transaction that we find attractive in the marketplace. It also gives us optionality if there is a market downturn and things go a little bit more awry. And then finally, profitability. Sitting here today, we're at a 14.5% ROE. We think that's a strong result if you look at our business mix. But if you also take into account where we are from a capital position as well. For some of our peers, they say that's an aspiration. For us, we feel it's a reality of where we are today. Given where we might be in a credit crisis or a credit cycle, we have started to get a few more questions about some of our risk management topics. So I want to touch on two. I want to talk about our asset portfolio. I also want to talk about our liability structure. Dan no, John introduced earlier Julia Lawler, Chief Risk Officer. But what I would say is risk management is a team effort. Everyone you've heard from today owns where we are from a risk management perspective and ensures that we're taking the appropriate risk relative to our company. So asset portfolio, I'll focus today probably on the one you focus on, That's our U. S. General account, 80,000,000,000 in assets. And you can see on the left side, very diversified portfolio, but I think what hopefully I've illustrated here on the right side, a very high quality portfolio. So a couple of metrics I'll point out there. Our fixed maturity portfolio, NAAC I's, and what I've shown here is how did this portfolio look 'eight, end of 'eight, how does it look today? And I think for those of you that have followed us, we actually came through the great financial crisis very positively. And if you look at these metrics, I think you'll feel we're well positioned today. So fixed maturity portfolio, NAIC-1s back in 02/2008, 57%, currently 68%. If you go down to the second chart, commercial mortgages. This is actually an asset class that we love. It has served us very, very well for two reasons. One, it matches very well our liabilities. But two, and Pat's a great part of this, we have an incredible expertise in this asset class. So if you look at the quality of that, 92% high quality compared to 61% at the end of 'eight loan to value 45% relative to 62% debt coverage 2.6x versus 1.7. So hopefully, this gives you a little bit of comfort. I don't think anyone thinks we will have a cycle like we had in 'eight, 'nine, but we feel well positioned. Liabilities. I think from the left, a very diversified liability structure. And I think very different from when we went public back in 02/2001. All of these businesses have grown but at different rates and so you see a very balanced and diversified portfolio of liability. What I think is probably more importantly is what liabilities aren't included here. First of all, no long term care exposure, very small and conservative variable annuity block, and we very much managed how much exposure we have in products with minimum interest rate guarantees. That's mainly our annuity block business and our UL secondary guarantee business. So you've heard me say before, you've heard Terry Lillis say it, liabilities really do matter. They don't all look the same. And we are very focused on making sure that the liabilities we manage are the ones that we want to manage and that we're doing it in an effective way. Now I want to turn to capital deployment. I'll have one slide that reminds you of our strategy and then one slide that shows kind of our results over the last five years. So bottom line, balance and discipline. I think those are our takeaways. Over the long term, we've said and we continue to believe about 65% to 70% of our net income will be deployed externally. When I say deployed externally, that's M and A, that's share buyback, that's common stock dividend. How we prioritize? Our ultimate priority as a management team is to grow this company. And because of that, we prioritize deploying capital either to organic growth or inorganic growth. Having said that, our business mix affords us the luxury of also being able to do that, but also deploy by returning capital to shareholders. So dividend has been a great story for us. So we've raised dividend 11 consecutive times. We've doubled our dividend in the last five years. So back in 2013, it was $0.98 Today, it's at $2.05 That's an average annual growth rate in excess of 15%. We are near our targeted payout ratio of 40% and currently about a 4% dividend yield. It's probably higher than I'd like because it's there for the wrong reason. But even if we felt if we went back to probably a more traditional valuation, still in that 3% to 4% range. Capital deployment, you've heard us say time and time again, it's all due the amount we do in any given year is going to be driven by the valuation of our stock and what other deployment opportunities we have. For 2018, you've seen that we have deployed capital strongly in that manner. So this is a longer term look of how we've done relative to that. So a few takeaways I think, hopefully, you'll get from this. One, it is balanced. It is diversified. You'll see kind of that growing base. The bottom is really dividends. You'll see that probably the most volatile year by year is the gold, M and A. Over five years, we've deployed during this time period nearly $5,000,000,000 And if you average how much we've deployed as a percent of net income, it actually averages to about 76%. So that is slightly above our targeted range of 65% to 70%. Why is it above it? One, I would say we've had strong opportunities to deploy. And we've actually had during this time some strong capital generation that allows us to deploy that as well. There is fluctuations year by year, but over long term, we this is what we've actually delivered. So that's all you have to hear from an actuary today. So proven results. We're sitting here today strongly positioned. And I come back to where I started. It actually does start with strategy. That strategy provides us opportunity for growth. We then execute according to that strategy and ultimately you get the results that we just talked about today. So with that, I'm going to invite my other backup singers up here for Q and A. And Dan, you're going to moderate? That's a rare quality indeed, but one we're incredibly proud of. And with that, this is your opportunity. We want to make sure we left plenty of time for Q and A. Anything on your mind, it's all fair, Gabe, myself, Deanna and the rest of the senior management team. If they get too difficult, we'll go ask the rest of the executives that are here. First question. And wait for the mic again. So right here, please. Thanks. Ryan Krueger, KBW. I have one for Deanna. So you've deployed a lot of capital over the last five years as you showed, but you also have this $2,000,000,000 of excess and available capital. Are you I guess, scenarios, would lead you to dip into that and deploy it? Or are you thinking about it as more of a cushion if we're towards the end of a credit cycle or some of the RBC impacts are more negative? Yes. I would say that we have been deploying it. So some of the reasons we're at that level today is we had a few things at the 2017 that generated capital. We had a real estate transaction at the end of third quarter and we felt it was prudent to kind of wait for opportunities to do that. There will be a portion of that excess capital that will basically go away at the end of the year, because of the risk based capital formula that's about $500,000,000 So there's some things like that that I think will naturally do it. But our plan through the 2018 and the 2019 is to, continue to see that come down to more of our targeted level. Our targeted level is more in that twelve months of obligation. And assuming that the environment is right and the opportunities present themselves, we'll continue to kind of stay on that path. And then a quick one for Pat. On the distribution and product initiatives, should we think about any material costs that would, I guess, initially from those? Or would that be absorbed nor within your current cost structure? Yes, that's a good question. I think some of those costs, I think we started to realize already in the third quarter. And I think that was highlighted in the third quarter results. There could be some minor additional costs involved with that, but I think it would be very nonmaterial. Yes. Don't think those are measurable. This is in large part around sales leadership and those changes have already occurred. And again, I feel very good about those individuals that have been charged now with growing this organization, both domestically as well as internationally. Thanks, Ryan. John Barnett, Sandler O'Neill. At your last Investor Day, you talked about your wellness study that you do for your SMB clients every third quarter was Could at a you talk about what it is this year if you completed it? We actually took a pause this year on the well-being index for the employer study because we're basically recalibrating to a bunch of new research. But one of the findings that's not yet available on some new research, primary research we've done with employer business owners, speaks not to optimism, it speaks more to the pain points that we're seeing on their purchasing, on the things that they need to do. As a business owner, I'd say one of the things we're seeing there is they're saying it's less about enrollment and the actual purchase process and more about the fact that they want to start digitally into the process and things like research. They want to know how to benchmark. They want to know how to even understand what other small business owners are offering. And I suspect that's because the war for talent to keep their employees and to get new employees has grown so fierce even for small business owners. So you'll see us releasing some of that and addressing that more probably in 2019. And then a follow-up question, I would say, these digital investments, maybe how many principal products per customer do you have today? And where do you see these digital investments driving that? So that would really vary by the size of the client. It's more than one, but less than two is probably a good way to think about that. Frankly, there hasn't been necessarily a consorted effort. But again, you have to really step back and say, well, what's a traditional cross sell? We have the vast majority of our employer plan sponsors that are cross sell. Over 65% of our retirement plans had more than one coverage. So that was defined benefit, defined contribution, nonqualified deferred comp or ESOP. The question that you're really bearing down on as it relates to digital gets down to that individual. And again, we're just rolling that out. I do think it will have a significant impact down the road, but that's one of those twenty four, thirty six month outlooks as opposed to something in media. Thank you. Just wait for a mic. Thanks. Eric Bass with Autonomous. A question for Nora. Given the investments you've made in your platform, I'm assuming it's pretty scalable. As you think about opportunities down the road, if the market continues to consolidate, would you be interested in being a consolidator? Absolutely. We see it's interesting because before Dan, when Larry was here, we were all predicting that there'd be massive consolidation. And it's just our industry has been relatively slow to consolidate. But one of the flip sides of some pricing compression and one of the outcomes of that is we're starting to see more activity, with regard to people thinking about, getting out of the recordkeeping business. So we believe there is opportunity. We're definitely going to be opportunistic. We're in the hunt. We're we're looking at it. For us, it's got to bring a couple things. It's it's got to bring an opportunity and this is back to the conversation Pat and I were having on both the RAS side of the house and the PGI side of the house. So we're going be very strategic about that opportunity. But certainly there's a number of subscale players. There's actually a significant number of subscale players that are likely to continue to feel some pressure. So my at the end of the day, there'll be a handful of us. This is core to Principal and this is core to our strategy that will be the consolidators and Principal certainly be part of that play. Steve, do have a follow-up? You're good. Okay. Right behind you. And then we'll come to the front row here. Hi, it's Alex Scott from Goldman Sachs. I just wanted to circle back on the tech investing and I guess the net expense turning into a benefit in 2021. I just wanted to make sure I understood what that represents. Is that just the impact on expenses? So when I think about the, I guess, was 50,000,000 to 60 turning into a positive eventually, does that include some benefit from the revenue generation? Because I think the IRR was twothree from increased revenue. So I'm just I just want to understand if that benefit is representative of the onethree or the full pie of what you get back? Great question, and I'll ask Deanna to answer it. But before she does that, just a couple of reminders here. We have really taken a very hard look and have full confidence that these six focused initiatives, these additional investments for the company have very strong ROIs and we'll realize those gains. As you said, the portfolio is really two thirds, one third, which should make people feel very good. The idea of driving revenues as opposed to ripping out expense is some of the most valuable and if you will, it will compound over years to come. And again, feel very good about the numbers and the managing of that. But Deanna, do you want to go ahead and add some additional details on the numerics? Yes. So just a couple of things and I think Gary did a good job setting this up. But really what how we're thinking of that is kind of the net impact to our pretax earnings. And so in 2018, that was primarily expenses, very little earnings. And in 2019, the expenses go up a little bit, but we see more. And so it is both the revenue and the expense side. So on the revenue side, we apply appropriate margin, expense side that kind of takes that out and then netted against that. So it's both. Thank you. Andrew Kligerman, Credit Suisse. Dan, can you prioritize your order of where you'd like to make an acquisition and then size how big in terms of dollars you'd be willing to spend? Yes. And again, hard to hear the question, so I'll just repeat that for the benefit of the group. And that is as we deploy capital and make acquisitions, where would we prioritize those investments. And it really focuses on two areas. One is around capabilities and the second is scale. You've heard every one of our speakers today speak to the fact that we've actually got very good scale in each one of these businesses. And that doesn't mean that the scale metric won't increase in the future. We don't feel any immediate pressure sitting on top of us today that say we're subscale in any one of these businesses. However, having said that, we would certainly look to the those the right priced opportunities. On the capability side, there are things within asset management. We've talked about them in the past, things like infrastructure, other alternative asset classes that could strengthen our portfolio of offerings because they, frankly, align with the liabilities of the business units in which Deanna appropriately outlined. So those are really the priorities. Pension business and pension recordkeeping, it has to be the right combination. Ideally, you want some combination of asset management, record keeping and unique capabilities that would put Principal in a better position. We made two prior acquisitions. If you think about the acquisition of ESOPs, very powerful additional capabilities. The creation and the deployment around nonqualified deferred compensation, another one of those great areas. The last point I would make, and again, you know this for a fact because in the marketplace, it's fairly well known in the group benefits area. We love it. We think it's a great space. It's core to SMB. And again, if the right property came up that would allow us to add additional capabilities, products and services to support SMBs group benefits area, would be very interesting to us. Great. And a follow-up, just you're in a lot of very capital light businesses. At a 14.5% ROE today, 50 basis 50 bps of improvement a year, where can you level out? How high can it get? It's a great question. But again, it's one in which the market is always going to have some sort of, I think, top down sort of compression on some numbers that start going north. Whether that number is 16%, 16.5 or 17%, I don't know where that number is. But we've been down this path before. I remember this exact same conversation in 2006 and 02/2007, and there's models that take you out to 20%. But while you're making plans and life happens and the fact of the matter is, I think there's going to be a lot of resistance when you start thinking about extrapolating that north of that 16% or 17 But having said that, I'm going look to my very capable CFO to pile on that. It's great to have a CEO that has a financial acumen. That was great. Perfect. Check mark, love that. John, over here. Deanna, this is the right time of year to make that comment about Dan. Merry Christmas, Deanna, as for you others. John Nadel from UBS. I have two questions, one for Pat. If you look across sort of the product lineup and maybe thinking more retail versus institutional, where are you willing right now to be competitive against fee rate pressure that you're seeing in the market? And where are you walking away for the time being? And then my second question is just one real quick for Nora. One of your competitors lost, gave up whatever they did, a $40,000,000,000 record keeping block. Did you guys take it? Do want to answer that first? Yes, sure. I think that was easy. Pat? Yes. So that's a great question, John. I think from the retail perspective, we do think that yield orientated products are still desired by clients. Short duration, particularly yield orientated products are very much desired by products. So I think we're going to become more aggressive in terms of continuing to because we do want to really turn this growth around. And I think we have some very good products to turn the growth around. But we're probably going to modernize a couple of products in terms of pricing. One is our Global Diversified Income Fund, which is a very successful product that we've had great success with over time, kind of a multi strategy, multi asset class sort of mix of different sort of boutiques capabilities and as one of our significant growth engines over the past. I think we don't need to make a big change, but a minor change in sort of pricing strategy. And I think that's going to be very effective in terms of retail space. So I think that's a good example of something that you'll be seeing over the next few quarters in terms of how we continue to make sure we're staying very relevant with some very competent products that the marketplace still wants. And just real quick follow-up, please. You hear back from distribution partners, is it price? Or when you're benchmarked a single product against the competitor's single like product, is price a real important factor in the retail space? I would say it's interesting because I think different strategies have a different sort of elasticity in terms of that price conversation. Strategies that we really have great alpha producing. So for instance, Global REITs, incredible alpha capabilities, Lipper Awards, ten year top global and real estate investment management firm, price is not even an issue. It doesn't even surface to the discussion And so I'm getting great alpha, I'm willing to pay for it. Other strategies where maybe the alpha is not as great becomes more of the issue. So I think it's kind of dependent on the strategy, the alpha producing capabilities of that strategy and the elasticity around that. Thanks for the question, John. Next question. Next question. Over here. Suneet, right behind you. Thanks, Dan. Sidney Kommuth from Citi. One of your one of the other competitors in this space, the life insurance space, has talked about looking for ways to free up capital from enforced blocks and using that capital to take advantage of what I think you'd agree is a pretty attractive valuation for your stock in the sector. Does that come into play? I know you have a lot of capital to deploy and there's some moving pieces, but does that come into play in terms of your toolkit for managing capital going forward? Yes, it absolutely would. And I'll ask Deanna to respond to it specifically. But we really are very careful and thoughtful about all capital deployment, not only the sources of where that capital came from, but how we go about deploying it and frankly, at what point of the cycle we find ourselves and where we want to be lighter on debt in that cycle. And again, as we look at those blocks of business, they do have value. And if we think that we can unlock that value and provide more value for shareholders, we do consider that and take a hard look at it. Dana, you to add some additional Yes. I'd say we've quietly done that many, many times over the past five years. And sometimes it's been in those types of similar transactions, sometimes it's been at looking at things within our real estate portfolio and seeing where we could potentially monetize some capital as well. And so we'll continue to evaluate all of those opportunities. I do think those are well performing assets for us across the board. And so I think the motivation to do it may be pitched as freeing up capital, but in some situations it may be helping some other issues as well. So again, I think we'll evaluate those. It is an attractive market where there's probably more capacity for that, But we don't sit here today with an incredible need to do that to still meet our goals going forward. And then just a follow-up on the investment portfolio. Can you just give us you gave some good color, which is helpful, but what's on your watch list? Where are you seeing cracks in some irrational either lending or capital providing out there? Yes. I'll maybe see if Pat wants to ask for that as well. I think actually all of us on stage today sits on general account investment committee. We meet every Friday. We're stress testing both the new transactions we're looking at as well as our existing block. And I think it's probably not an across the board kind of concern, it's within those. So within the real estate portfolio, there's markets or type of properties that we're seeing a little bit more concerning. And ultimately then that's impacting what we're jettisoning or what we're buying, but it's not an across the board. We've looked at retail, we've looked at energy, we've looked at all of those. We feel confident with our exposure and the risks there, but I'll see if maybe Pat wants to add anything there. I think the area that we've spent a lot of time is in the high yield marketplace. Really, are we starting to see credit deterioration in the marketplace either because of balance sheets becoming over levered and the stresses associated with that or because certain industries slowing down. But frankly, The U. S. Economy has continued to be very strong in terms of a tailwind in terms of credit and in terms of the company's ability to continue to be in a fairly good place from a balance sheet perspective. Relative to other places, we continue to see, as Deanna mentioned, in certain parts of real estate, we're actually selling real estate today. And why are we selling real estate? Because we believe that the market value to exit on that strategy versus our belief of the intrinsic value of that real estate is the time to sell. That's actually one of the reasons we've actually have had a little bit of headwind in terms of our net cash flow numbers we're doing the right thing, which is we're actually selling as a strong fiduciary to our clients real estate at the right time. And I think that's the right thing to do. And so but I think in general, Main Street, the economy is doing quite well and not really seeing major divots yet come at us. Thanks for the question. Next question. In the back here. Thank you. Andrew Molloy, Bank of America. Deanna, this question is for you. Given your comments on leverage, balance sheet, potential of inorganic growth, Can you comment on your view of the potential for using the High Street Trust as a funding mechanism for inorganic growth? Yes. I think you're referring to our PCAPS that we put in place over the last twelve months. And, you know, we do think that is another arrow in our quiver relative to that. We do have some restrictions on how we would use that, but I do think whether it be some bridge financing, if a crisis happened when a debt was coming true, those would be some of the things that we could access that part of our capital. $750,000,000 is what we have in place, both ten and thirty year tranches. So it's just an additional kind of amount and it doesn't become leverage unless you tap into it. And so again, it's something we would consider. It'd be a little bit case specific. We'd first look to kind of the normal market, but if that was a more attractive opportunity, we have the option to look at that as well. Additional questions? If not, I know we've got cocktails, pardon me, outside. But before we do that, panel can stay right there. Your time is valuable. We very much appreciate you taking the time to come here. You asked us to provide more Q and A time. We tried to do that. You asked that we provide more specificity around some of these initiatives, which around our not only our capital deployment, but our growth initiatives and our digital investments. We tried to accomplish that today. We didn't talk about some of the things that we also get recognized for. And Frank, as the CEO, I'd be remiss if I didn't comment on them. One of the recognized one the most ethical companies in America, recognized most recently by Forbes as the number one place for women to work. We've been recognized as, I believe, Alan mentioned seven times in P and I as the best places to work in money management, best places to work for working women. And we take great pride in our commitment to diversity and inclusion and ensuring that we can create an environment that we can attract the very best talent there is, whether it's Des Moines or around the world, and we take great pride in that. Hopefully, you also walked away with a renewed sense of our commitment to a diversified business model, one that goes across a broad range of businesses that are aligned with the SMB marketplace, individual investors and that the cohesiveness inside this organization using asset management as the jet fuel to help drive these businesses is not only worked in the past, but we think it's going to intensify and work for us in the future even better. So thank you for your time, your attention and your continued support. Let's go enjoy cocktail. Thank you.

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