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Edited Transcript of PFG earnings conference call or presentation 28-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Principal Financial Group Inc Earnings Call

DES MOINES May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Principal Financial Group Inc earnings conference call or presentation Friday, April 28, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel J. Houston

Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company

* Deanna D. Strable-Soethout

Principal Financial Group, Inc. - CFO and EVP

* James Patrick McCaughan

Principal Financial Group, Inc. - President of Global Asset Management

* John Egan

* Luis E. Valdés

Principal Financial Group, Inc. - President of International Asset Management & Accumulation

* Nora Mary Everett

Principal Financial Group, Inc. - Chairman of Principal Funds and President of Retirement & Income Solutions

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Conference Call Participants

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* Humphrey Lee

Dowling & Partners Securities, LLC - Research Analyst

* Jamminder Singh Bhullar

JP Morgan Chase & Co, Research Division - Senior Analyst

* John Bakewell Barnidge

Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research

* John Matthew Nadel

Crédit Suisse AG, Research Division - MD and Senior Research Analyst

* Ryan Krueger

Keefe, Bruyette, & Woods, Inc., Research Division - MD of Equity Research

* Seth M. Weiss

BofA Merrill Lynch, Research Division - VP

* Suneet Laxman L. Kamath

Citigroup Inc, Research Division - MD

* Thomas George Gallagher

Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Principal Financial Group First Quarter 2017 Financial Results Conference Call. (Operator Instructions) I would now like to turn the conference call over to John Egan, Vice President of Investor Relations.

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John Egan, [2]

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Thank you, and good morning. Welcome to Principal Financial Group's first quarter conference call. As always, our materials related to today's call are available on our website at principal.com/investor.

Following the reading of the safe harbor provision, CEO, Dan Houston; and our new CFO, Deanna Strable, will deliver some prepared remarks, then we will open up the call for questions. Others available for the Q&A session include Nora Everett, Retirement and Income Solutions; Jim McCaughan, Principal Global Investors; Luis Valdés, Principal International; and Tim Dunbar, our Chief Investment Officer.

Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10-K filed by the company with the U.S. Securities and Exchange Commission.

Additionally, some of the comments made during this conference call may refer to non-GAAP measures. Reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures may also be found in our earnings release, financial supplement and slide presentation.

Now I'd like to turn the call over to Dan.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [3]

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Thanks, John, and welcome to everyone on the call. This morning I'll share some performance highlights and accomplishments that position us for continued growth. Deanna will follow with details on our financial results and an update on capital deployment and our investment portfolio.

First quarter was a good start to the year for Principal. We continue to deliver strong growth, execute on a customer-focused solutions-oriented strategy, balance investments in growth and expense discipline and be good stewards of shareholder capital. At $371 million of after-tax operating earnings, we delivered 29% growth compared to first quarter 2016. This reflects good underlying growth across our fee, spread and risk businesses. It also reflects some softness in prior year quarter, driven by equity market and foreign currency headwinds. Over the trailing 12 months, we increased assets under management, or AUM, by $72 billion or 13% to a record $620 billion. This reflects strong asset appreciation and nearly $20 billion of positive net cash flow, and it provides a solid foundation for revenue and earnings growth for the year.

During the quarter, we again, received some notable third-party recognition, including Best Mixed Fund in Mexico from Morningstar, BENCHMARK Fund of the Year in Hong Kong and multiple best fund awards in Malaysia from Thomson Reuters Lipper. Additionally, our global high-yield and preferred securities Dublin Funds received multiple Lipper best fund awards in Europe.

Our longer-term Morningstar investment performance remains among the best in the industry and actually improved from year-end, as shown on Slide 5. At quarter-end, 80% of Principal mutual funds, separate accounts and collective investment trust were above median for 3-year performance and 89% were above median for 5-year performance. Clearly, the 3- and 5-year rankings are critical given our focus on managing assets for retirement, and other long-term strategies. Our 1 year performance with 46% above median is down from year-end and compared to a year ago. We continue to watch this closely, but view this as part of the normal ebb and flow of investment performance. After a somewhat disappointing 2016, our investment performance rebounded in the first quarter, with 67% of our active funds above median. Over the past 20 quarters, on average, 75% percent of our investments were above median for 1 year performance, with more than 80% above median for the 3- and 5-year periods. First quarter 2017 was our 24th consecutive quarter of positive total company net cash flow. This reflects strong, consistent investment performance; solutions that resonate with retirement, retail and institutional investors; the diversification and noncorrelation of our global, multi-asset, multi-manager, multi-boutique model; and the integration of our businesses, enabling us to meet investor needs across life stages.

Before moving on, I'll share a couple of additional thoughts on first quarter net cash flow. I was particularly pleased with the net inflows for Principal International, for RIS-Fee and RIS-Spread and from the U.S. retail funds business. Despite the undeniable success of ETFs across the industry and with the ETFs garnering record net cash flows in the first quarter, we continue to have great success selling our value-added active strategies and solutions.

I'll also comment on PGI's institutional net cash flow. As a general point, institutional flows tend to be uneven in any given quarter. We'll see investors harvest gains and rebalance portfolios. And as we saw again this quarter, we can also experience withdrawals as we reach the end of fixed-term mandates. While institutional flows for the quarter were at net negative, $900 million in total, 8 boutiques generated at least $100 million of net inflows. Just 4 boutiques had net outflows in excess of $100 million. While Columbus Circle experienced negative net cash flows of $1.3 billion in the first quarter, we were pleased to see recovery in investment performance at this boutique during the quarter. Despite flat net cash flows for PGI in the first quarter, operating revenues, less pass-through commissions, were up nearly 14% over the year ago quarter.

As expected and previously signaled, we also had net outflows in China during the quarter due to withdrawals of short-term funds. Despite recent outflows, we've increased AUM in China by $40 billion or 70% compared to a year ago. Growth in China is helping to further diversify our revenue and earnings streams overall. In fact, China is the third largest contributor to PI's pretax operating earnings.

In Chile, retention improved significantly from year-end, but we still had negative net cash flows, reflecting continued turmoil in the Chilean pension system. Importantly, the business remains resilient. With record AUM in the first quarter, we're managing more customer money today than any time in Cuprum's history We continue to be recognized as the top service provider and a top-tier investment manager. Recent pension reform proposals have identified the real issue: the need for a higher savings rate. We'll continue to be actively involved in the dialogue on creating a sustainable retirement system in Chile, one that creates adequate income and retirement for its citizens through both mandatory and voluntary solutions.

I'll now share some key execution highlights in the first quarter. We continue to expand and enhance our solutions set with a focus on really 4 key areas: outcome-based funds with a particular focus on income solutions; alternative investments to enhance diversification and manage downside risks; our international retail platform to capitalize on opportunities in Latin America, Asia and Europe; our ETF and CIT platforms to provide lower-cost investment options that complement our more traditional active strategies.

Fund launches during the quarter included 2 new asset allocation strategies on our U.S. platform, designed to control volatility and a global multi-asset income fund on our UCITS platform. We also submitted 3 risk-focused fund-to-fund products designed for individual sabers for regulatory approval in China. These products will help fill a void in that country in long-term allocation-driven solutions.

We continue to advance our multi-channel, multiproduct approach to distributions as well. As key developments, we opened a new office in Zurich to strengthen and develop customer relationships and enhance our ability to deliver long-term investment capabilities to investors and institutions throughout Europe. We continue to get our funds added to recommended list and model portfolios. We earned more than 20 total placements during the quarter, getting 17 different funds on a dozen different third-party platforms with success across asset classes. We expanded our partnership with Zenefits beyond Specialty Benefits, adding our new digital 401(k) solution to their benefits exchange platform. We added new bank products to our online IRA self-serve rollover capability. And we launched a new individual disability income solution, partnering with LifePreserve to sell short-term individual disability income insurance online.

In addition, we continue to make progress on our digital advise and sales platforms not only in the U.S., but also in Latin America and Asia, responding to demand for technology-driven services, improving the customer experience overall, enabling us to cost effectively serve customers with account balances of all sizes. Clearly, digital is influencing our product set and our distribution reach as we drive towards solutions that are simpler and faster, address how future generations will buy financial services as well as reduce barriers to action and eliminate pain points for customers and advisers. There'll be more to come throughout the year on these new developments and on enhancements to existing capabilities including digital enrollment, online purchasing as well as accelerated underwriting.

Before closing, a quick update on the DOL fiduciary rule. The delay in the applicability date to June 9, 2017, doesn't change much for Principal. We continue to work closely with our distribution partners and to actively engage in discussions around the implementation of the final rule. This work has only strengthened our relationship with these key partners. We remain confident in our ability to comply and remain focused on helping advisers deliver retirement, protection and income solutions to their customers.

I'll close with some additional third-party recognition that speaks volumes about who we are as a company. We received multiple best places to work awards during the quarter. And for the seventh time, Principal was named by Ethisphere Institute as one of the world's most ethical companies. We still operate in a world where most people are under saved, underinsured and under advised. Our strategy remains intact as is our commitment to do more, to be part of the solution. We go forward from a position of strength, with excellent fundamentals and the benefit of broad diversification. I look for us to continue to build momentum in 2017 and for that momentum to translate into long-term value for our shareholders. Deanna?

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Deanna D. Strable-Soethout, Principal Financial Group, Inc. - CFO and EVP [4]

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Thanks, Dan. First, I'd like to start out by saying I'm honored to have the opportunity to be the CFO at Principal. While I may be a new face and voice in the CFO role, I've been at Principal for a long time, 27 years. In that time, I have gained invaluable experience running our U.S. Insurance businesses, and I am excited to leverage that experience as I transition into this role.

On the call this morning, I'm going to keep my comments focused on the key contributors to our financial performance during the quarter. I'll finish with an update on our capital deployment strategy and additional details around our investment portfolio.

The first quarter of 2017 was a strong start to the year for Principal and a continuation of our strong results in 2016. I'm pleased with our integrated and diversified business model and how our businesses are performing. Total company operating earnings of $371 million increased nearly 30% and operating earnings per share of $1.27 increased 31% over the prior year quarter.

We had a few significant variances during first quarter that resulted in a net benefit to operating earnings. Pretax impacts of these items included a $16 million benefit from higher-than-expected variable investment income that benefited RIS-Fee, RIS-Spread and Specialty Benefits about equally; a $12 million benefit from higher-than-expected encaje returns in Principal International. These items were partially offset by a $6 million assessment in Specialty Benefits associated with the Penn Treaty liquidation. Net income available to common stockholders was $349 million for first quarter 2017, including net realized capital losses of $17 million. Credit losses continued to be below our pricing assumptions.

First quarter 2017 ROE, excluding AOCI other than foreign currency translation adjustment, was 14.6% on a reported basis. Excluding the impact from the 2015 and 2016 actuarial reviews, ROE of 15.1% improved more than 200 basis points compared to a year ago, reflecting strong earnings growth and disciplined capital management. Keep in mind that over the long term, we expect to improve ROE by 30 to 60 basis points per year with fluctuations in any given period. These results were fueled by strong business fundamentals, underlying sales growth and disciplined expense management.

Macroeconomic conditions have been and will continue to be volatile. First quarter 2017 benefited from changes in macroeconomic conditions, including strong equity market performance, as the daily average S&P 500 Index increased more than 6% from fourth quarter and 19% from the prior year quarter; and a weaker U.S. dollar and strengthening international economies, particularly in Brazil and Chile. The first quarter 2016 results were dampened by headwinds from these same factors.

As a reminder, there is seasonality in some of our businesses. First quarter earnings are seasonally lower in Principal Global Investors from higher payroll taxes and Specialty Benefits due to seasonally higher [initial] claims and sales-related expenses. Also, mortality can be volatile quarter-to-quarter, and its impact varies by business unit. In first quarter 2017, mortality experience was favorable for the pension risk transfer business in RIS-Spread, slightly favorable in Individual Life and slightly unfavorable in Specialty Benefits.

As Dan indicated, total company AUM increased 13% from a year ago to a record $620 billion in first quarter 2017. This strong growth in AUM was driven by positive investment performance; favorable foreign currency translation; and importantly, positive total company net cash flows, nearly $20 billion over the trailing 12 months, including $3.7 billion during the first quarter. As expected, total company net cash flows rebounded from fourth quarter 2016 levels of $900 million and exceeded our first quarter 2016 cash flows of $3.3 billion.

One strategy that has proven successful for our U.S. retirement business has been our multi-manager investment platform that offers our customers best-in-class solutions, including affiliated and nonaffiliated managers as well as a suite of target date investments with both active and hybrid solutions. Our target date suite flows in the first quarter remained positive, with strong sales and contributions from our retirement plan participants.

Digging deeper into the business unit results. It's important to reiterate our focus on balancing growth and profitability. This means finding the appropriate balance between managing expenses and maintaining pricing discipline while continuing to invest in products and service solutions that meet our customers' needs.

On a trailing 12-month basis and excluding the impact of the 2016 actuarial assumption reviews, first quarter 2017 revenue growth and margins were within or above the 2017 guidance ranges for all of our businesses. All of my comments today on business unit earnings will exclude the impact of the significant variances I mentioned earlier. I'll also focus my comments on the business units with notable differences from expectations. As always, reported business unit results and key drivers can be found in the slides and the press release.

Principal Global Investors and Individual Life's pretax operating earnings and key metrics were in line with expectations in the first quarter. Each continue to produce growth and margins that look very attractive relative to industry results.

As shown on Slide 6, RIS-Fee's pretax operating earnings of $139 million increased 22% over the year ago quarter. The strong increase in earnings was driven by higher net revenue, stemming from higher account values as a result of favorable investment performance and positive net cash flows.

Turning to RIS-Spread on Slide 7. Pretax operating earnings were $95 million or 40% higher than the prior year quarter. RIS-Spread account values grew 11% over the year ago quarter, driven by strong sales in the pension risk transfer business and fixed annuities as well as opportunistic issuance in Investment Only. Additionally, mortality gains in our pension risk transfer business contributed to earnings.

We remain disciplined when deploying capital to our spread and risk businesses. We continue to see attractive opportunities in our pension risk transfer business, especially in our target market of small- to medium-sized businesses.

As shown on Slide 9, pretax operating earnings for Principal International were $89 million. Compared to the year ago quarter on a constant currency basis, Principal International's pretax operating earnings growth rate continues to be in the mid-teens. This reflects our strong execution in both Latin America and Asia. In fact, Brazil, China and Hong Kong all had record pretax operating earnings in the first quarter. In line with our diversification strategy in the emerging markets we operate in, on a trailing 12-month basis, Asia represents nearly 20% of PI's pretax operating earnings, increasing revenue and earnings diversification for PI and Principal in total. We continue to focus on deepening our existing relationships in PI, in particular collaborating with one of our existing joint venture partners, China Construction Bank, to become a partner in its pension company in China.

Moving to Slide 10. Specialty Benefits' quarterly pretax operating earnings were $46 million, an 18% increase from the year ago quarter, driven by growth in the business and benefits of scale. Despite higher group life claims compared to the prior period, which can be volatile in any one quarter, the overall loss ratio was within the targeted range for the quarter.

Corporate pretax operating losses of $59 million were slightly higher than our expected run rate. Keep in mind that corporate losses can be volatile in any given quarter. We anticipate full year 2017 corporate pretax operating losses to be at the favorable end of the previously announced range of $200 million to $225 million. This range reflects the $19 million annual interest expense savings from the 2016 debt refinancing and deleveraging transaction.

Turning to our investment portfolio. It continues to be high quality, well diversified, actively managed and constructed according to our liabilities. During the quarter, there has been some additional scrutiny on brick-and-mortar retailers and the financial stress they are facing. A couple of things I'd like to highlight. Our real estate portfolio is well positioned for the risk and opportunities of this evolving economy. As a leading real estate manager, we closely monitor geographic and property space trends and adjust our portfolio strategies accordingly. Over the years, retail space trends have shifted, with e-commerce taking market share from brick-and-mortar stores, in particular large department stores. While we've seen several store closure announcements, e-commerce has provided us attractive investment opportunities in industrial and other property types, and we have anticipated these trends in our portfolio construction.

It's also worth noting that our retail exposure in the commercial mortgage loan portfolio is predominantly grocery and home improvement-anchored centers. Direct exposure to regional malls represents $150 million or less than 25 basis points of our total U.S. invested assets. None of these properties were impacted by recent anchor store closure announcements.

Further, our exposure to risk of loss in the CMBS portfolio is modest. We underwrite and monitor our CMBS portfolio to the underlying property level and stress test our exposure within the CMBS structure, which gives us confidence in our estimates. We remain very comfortable with our overall portfolio, including the retail exposure within our commercial real estate and commercial mortgage-backed securities portfolios.

Moving to Slide 12. In first quarter 2017, we strategically deployed $248 million of capital, including $130 million in common stock dividends and $118 million in share repurchases. We'll continue to be strategic and disciplined in deploying capital. This balanced approach to capital deployment supports our diversified and integrated businesses, the needs of our customers and creates long-term shareholder value. As earnings continue to grow, we remain confident in our ability to deploy $800 million to $1.1 billion of capital in 2017, as we've previously announced.

Last night, we announced a $0.46 common stock dividend payable in the second quarter, an 18% increase from the prior year period. At 38%, we are well on our way to our targeted 40% dividend payout ratio.

In closing, I see great opportunity in our future, and I'm excited to grow in my new role as CFO. I look forward to meeting with each of you as I get out on the road in the coming months.

This concludes our prepared remarks. Thank you for listening to our call today. Operator, please open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Tom Gallagher of Evercore ISI.

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Thomas George Gallagher, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [2]

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Dan, I'd like to start with a question on strategy and M&A. Can you comment just broadly on things you'd be interested in, in the M&A front? I know you've done certainly more in the way of asset management deals, international pension. How about the group benefits space? Is that an area that you'd be interested in pursuing M&A? Or is it more likely to remain with what you've been doing in the last several years?

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [3]

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Yes. Thanks, Tom, for the question. To answer the question, M&A is an integral part of our strategy. We look for the right combinations, and that usually starts with making it an accretive transaction. There's really 2 reasons why we go out there. One is to add additional capabilities, and we've done that over the years, as you point out, whether it's around a different investment asset class or whether or not it's a capability within our core businesses. So capabilities is a big part of it. The second one is around scale, scale in the retirement business, scale in the asset management business. You asked a specific question around group benefits, we would be curious, of course, if there is a good match out there that overlays our existing commitment to small- to medium-sized employers, where we think that additional scale could be helpful to our long-term shareholders. Having said that, I would tell you that we feel very good about the current portfolio of businesses and our current capabilities. And so for there to be a transaction for Principal, it would have to be very financially favorable. My last comment I want to make, and I think I touched on this the last quarter as well, is we've got very favorable relationships with our joint venture partners in China, in Brazil and Southeast Asia. Sometimes they go into different countries, we want to make sure that we're able to support that. But oftentimes, it's to look at their overall strategy. And if we can complement their strategy by adding additional capabilities from Principal across our range of products, we'll want to be good partners to do that. Is that helpful, Tom?

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Thomas George Gallagher, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [4]

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That is, Dan. And then just shifting gears to Deanna, just on the RIS margins were above target. Can you comment at all? I think there was some lower DAC amortization, and expenses looked pretty favorable. Can you comment on where you see that trending? Would you view 1Q as somewhat of an anomaly and expect them to be more in line with what you've guided to? Or do you think you can sustain something a bit above the range here?

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Deanna D. Strable-Soethout, Principal Financial Group, Inc. - CFO and EVP [5]

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Yes. Thanks, Tom. I'll make a few comments on that and then see if Nora wants to add some comments as well. I think as you listened to the script and looked at our material, you are correct that even with the things that we called out, the RIS earnings, both fee and spread as well as their margins, were slightly above what we would normally expect. And I would expect some of that to trend down as we go through the year but still to be at a very strong level. Obviously, in RIS-Fee line, our expenses and our DAC were a little bit more favorable than what we would anticipate. And in the RIS-Spread, we had some benefits this quarter from mortality gains, but that will normalize over time. I think the other thing I'd say relative to that is, as you know, first quarter does have some seasonality that depresses our earnings in a few of our lines. And honestly, I'd say those were 2 pretty offsetting factors in the first quarter. So if you take out our total company normalizing items, I would say that, that's a good run rate to run off of as we go through future quarters.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [6]

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Nora, something to add?

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Nora Mary Everett, Principal Financial Group, Inc. - Chairman of Principal Funds and President of Retirement & Income Solutions [7]

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Well said. Just confirming that we would -- given what we see today and assuming equity markets cooperate with us through the balance of the year, we would expect both an RIS-Fee and in RIS-Spread to be at the high end of our -- of the margin guidance that we gave back at the outlook call.

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Operator [8]

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Your next question is from John Barnidge of Sandler O'Neill.

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John Bakewell Barnidge, Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research [9]

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On Principal International, flows were much improved from a year ago but down from 4Q '16. Can you talk about this? Is there some seasonality at play between 1Q and the rest of the quarters of the year? And then I had a follow-up question.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [10]

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Okay, John. Yes, appreciate that. And I'll have Luis weigh in on that. I mean, just as a broad comment as it relates to Principal International's net cash flows, you have countries like China that can be quite disruptive, large flows in and out. We try to call these out and recognize that there is going to be some level of volatility given the size and scope of these operations. Luis, some additional comments?

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Luis E. Valdés, Principal Financial Group, Inc. - President of International Asset Management & Accumulation [11]

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Yes. Thanks, John, for your question. And let's stay focused a little bit on the longer term. And if you're looking at PI, trailing 12 months, we put together $9.5 billion in the last trailing 12 months as of March '17. If you look in the supplements, same period, March '16, it's about $7.9 billion. So it's a 20% increase among peers. So we continue with a very strong, resilient and solid franchise out of U.S. We do have some seasonalities, particularly in the first quarter. Summertime in Latin America, probably a longer carnival that is needed in Brazil in February. But anyway, all in all, we continue putting solid net customer cash flows. And this quarter, in particular, was the 34th consecutive quarter with positive net customer cash flows for LatAm. We continue working on, and we believe that we're going to continue putting -- proceed in that customer going forward.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [12]

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John, I think you said you had a follow-up?

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John Bakewell Barnidge, Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research [13]

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Yes. PGI definitely saw investment performance rankings improved for 3- and 5-year. Can you talk about how much of a lag you believe there is between improved investment performance on the long-term rankings and resulting improved flows?

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [14]

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Yes, sure, and I'll have Jim respond to you. Jim?

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James Patrick McCaughan, Principal Financial Group, Inc. - President of Global Asset Management [15]

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Gosh, that's an interesting one. I think as was commented by Dan in the script, nearly all of our boutiques have performance that's good enough to be able to be pitching seriously for new business. So we're not worried about the pipeline. I think the 3- and 5-year are actually making us competitive. There is maybe a question mark that the 1 year is not -- it's pretty close to average. And if I go back to our more normal rating, then I think the flows would pick up. But I wouldn't want to make that a big growth story. I think the growth story is more around our ability to continue growing revenues and earnings as we did in the first quarter.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [16]

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Is that helpful, John?

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John Bakewell Barnidge, Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research [17]

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It is indeed.

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Operator [18]

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Your next question is from Seth Weiss of Bank of America.

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Seth M. Weiss, BofA Merrill Lynch, Research Division - VP [19]

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I want to return to RIS-Spread, and I understand some of the seasonal benefits that come in the first quarter. But from speaking to the team last night, it sounded like mortality was maybe just a marginal improvement versus last -- the year ago quarter, 1Q '16. So I'm just struggling to get a run rate down here because the growth in earnings far outpaced the growth in assets when looking over the previous year's quarter. So if you could comment on what you think is an appropriate margin level or ROA level for this business, that would be really helpful.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [20]

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Okay. I'll -- and I'll have Nora do that. But before I do, I just want to remind all the investors out there that the RIS-Spread business is really an integral and important part of our overall franchise and serving the needs of our customers. We think there's natural growth that's going to be coming because people are going to demand income and retirement, and not only income and retirement, guaranteed income and retirement. Principal is fortunate that we do that 1 of 2 ways, either through the payout business, which is more lumpy; and the other, of course, is by providing individual retail annuities to our customers. So again, I think this is an important conversation to be having because we typically get caught up on the RIS-Fee talking about the defined contribution plan, but we see this as a real growth driver for Principal in the future. We've been in it for a very long time and feel as if we have a lot of skill. And now with that, I'll have Nora speak specifically to the earnings here in the most recent quarter.

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Nora Mary Everett, Principal Financial Group, Inc. - Chairman of Principal Funds and President of Retirement & Income Solutions [21]

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Sure. And obviously, we had a really, really strong quarter. But if you look back -- and that was -- and that's being driven by that -- by the growth in the business, no doubt. But if you look back at our outlook call and look at what we talked then with regard to net revenue growth at 5% to 10% and then pretax margins at 55% to 60%, as we talked about a moment ago, we expect, sitting here today, looking through full year, to be at the high end of that margin based on what we're seeing here in 1Q. Equally important with regard to net revenue growth against -- sitting here today, looking at 1Q and projecting forward, we would expect to be at the high end of that net revenue growth as well. What was driving some of the high 1Q over and above the strong growth in the underlying business were things like the variable investment income that we called out. We called out a piece of that, a $5 million piece of that. But there -- we also are looking forward at variable investment income, and that's what's moderating some of that view. The mortality gains in 1Q were about $9 million. So on an absolute basis, it certainly helped drive 1Q. And again, as we look at all those things and project forward, we would expect to be at the high end of that net revenue growth outlook.

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Seth M. Weiss, BofA Merrill Lynch, Research Division - VP [22]

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Okay. But -- well, if I could just press on just the profitability there, because even if I take out the mortality gains and the VII above trend, I still get to a quarterly ROA of about 90 basis points, which is a full 10 to 12 basis points better than what you did in 2016 on an adjusted basis. So it just seems that the earnings run rate had a dramatic improvement there. I'm just having a hard time reconciling it as I think about a run rate.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [23]

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Let me have Deanna dive down into that one a little bit in more detail.

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Deanna D. Strable-Soethout, Principal Financial Group, Inc. - CFO and EVP [24]

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Yes. I think, Seth, we pointed you to, to really focus on the return on net revenue versus the return on assets. And I think Nora is correct that the current quarter would be above that range. Some of that is going to normalize. As we go throughout the year, we wouldn't expect mortality gains in every single quarter. And so again, I think the more appropriate way to look at that is the return on net revenue. And as Nora mentioned, we do -- as we look through to the remainder of the year and consider our first quarter results, we expect to be at the favorable end of our guidance range relative to that return.

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Operator [25]

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Your next question comes from Suneet Kamath of Citi.

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Suneet Laxman L. Kamath, Citigroup Inc, Research Division - MD [26]

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Just a question for Luis. We were just noticing during the quarter, I think, Provida cut its compensation pretty sizably in some asset classes or some products in the quarter. So just wondering if there is some additional competitive pressure that's going on in the Chilean market.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [27]

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Yes. Suneet, thanks for that question. And of course, we monitor every one of these markets very close, and they all have their own kind of unique aspects. And what we would tell you is very consistent. I'll have Luis comment here in just a minute. From the very beginning, when we were identifying the right target in the Chilean marketplace, we're looking were we felt like we could have the most long-term success. And that had a lot to do with the makeup of Cuprum in relationship to the other potential acquisition we could have made. And that's proving out to be the case. And Luis, maybe we can delve into that a little bit closer and talk about some of the details.

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Luis E. Valdés, Principal Financial Group, Inc. - President of International Asset Management & Accumulation [28]

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Yes, sure. Suneet, it's important to keep in mind first that Provida and Cuprum are 2 important pensions companies but focused on different market segments. So we don't see Provida as a direct competitor. That's number one. Number two, we follow very closely what all those pension companies are doing in that market, how they position themselves. And I don't really understand what they're doing and why they are doing. But having said that, in our case, Suneet -- and due to our customer segment that we're focused on that, in fact, is the one that has the highest average balance per customer in that market. We continue with a more differentiated value proposition to them. So to our customer -- our value proposition to our customer is based on superior long-term investment performance, financial advice and excellent customer service. In fact, we have received the #1 customer service ranking in the last 5 periods, and we continue to rank in #2 in the long-term investment performance. So we do position Cuprum in a very unique way in order to be very much more focused on the segment that we serve in Santiago, Chile.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [29]

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Does that help, Suneet?

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Suneet Laxman L. Kamath, Citigroup Inc, Research Division - MD [30]

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No, it does. And then just a follow-up for Luis on the Chilean market. It seems like on these calls we've talked about uncertainty in the pension market for quite a few quarters now. So I guess, what is the outlook there? At what point do we think we'll have some stability in that market?

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Luis E. Valdés, Principal Financial Group, Inc. - President of International Asset Management & Accumulation [31]

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Yes. You know the whole discussion, the pension reform is making that market a little bit kind of uneasy bet. First of all, let me try to go back and to try to put ordinary comments under -- into perspective about the Chile and our Chile performance in particular. Our trailing 12-month operating earnings in Chile, they delivered $148 million OE pretax. That's #1. So it's a 7% increase over the same period in 2016. Same thing for our revenues, also growing at 7%. So with all this discussion, what I'm trying to say to you, Suneet, that this is a very resilient operation and assets. Also, we are reporting this quarter our AUMs are record high $44 billion for our franchise in Chile and also record high for our AUMs in Cuprum, $37 billion that we managed for our customers. That is a record point in the whole history of Cuprum. In that sense, we're well aware and we understand that we have been experiencing some outflows over the past 3 quarters. Although still negative, our first quarter '17, we have shown meaningful improvements in our ability in order to retain customers and clients. And our management team in Cuprum is going to continue being laser-focused on improving our net customer cash flows within our company. And again, in order to do that, we'd rely on our track record, as I mentioned to you, to serve our customer needs and expectations, particularly in the areas like superior loans, investment performance and customer service. So this is where we are and we're going to continue working for. So this is essentially where we are.

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Operator [32]

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Your next question is from Humphrey Lee of Dowling & Partners.

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Humphrey Lee, Dowling & Partners Securities, LLC - Research Analyst [33]

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Just a question on the China kind of earnings contribution. Looking at a local currency basis, it's actually improved by more than 20% year-over-year. I was just wondering, how much of that was benefit from kind of you have a mix shift in your AUM base, kind of shifting to the mutual fund as opposed to the money market fund? And then also, in terms of the flows in this quarter, from a growth sales perspective, can you share in terms of the mix between the mutual funds versus the money market funds product?

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [34]

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You. So good question. And your question was a little hard to hear on this end for some reason, Humphrey. But I think we've got it generally. And the reality is this, we've worked very closely with China Construction Bank on focusing and emphasizing these long-term assets, more long-term in nature and to discourage really loading up on money market or short-term assets. And so that's been a very deliberate strategy. And with that, I'll ask if Luis would like to add some additional detail on what it looks like going forward.

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Luis E. Valdés, Principal Financial Group, Inc. - President of International Asset Management & Accumulation [35]

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Yes. Thanks for your question. And certainly, if you're looking at our numbers in the supplement and going after the facts, very good earnings, $13.4 million for China. And -- but if you're looking at our net revenues and if you're looking at the growth of our net revenues versus China, quarter-over-quarter 18%; and in consecutive quarters, 4%. So we continue in line and in trying in order to put a double-digit growth for this year. The main shift that we are experiencing, it is -- as in any other country, it's very motivated because China is a very government policy-driven market. And today -- and this year, 2017 in particular, is a year of political transition. So you know on October, President Xi is going to renew his second term. So this is a year that the Chinese government, they are looking for no surprises to lower their rates to deleverage and derisk that financial market. So in that sense, we continue to focus on our strategy. Those money that flow into our company, money market, institutional mandates, very small fees on that. Were incidental, but we continue to focus on our target market, which is to put long-term saving products for the middle class in China. And these are much more higher fees based and based on mutual funds. So this is the numbers, and we continue to transition in that sense.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [36]

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Humphrey, did that accurately answer your question?

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Humphrey Lee, Dowling & Partners Securities, LLC - Research Analyst [37]

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Yes. I think what I'm trying to get is in terms of the growth deposits in the quarter, the $46 billion, what portion of that would be going into those lower-cost money market funds versus those going to the higher long-term -- higher-fee long-term assets?

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Luis E. Valdés, Principal Financial Group, Inc. - President of International Asset Management & Accumulation [38]

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Probably less than 20%, but we can go back to you and to provide that information very precisely.

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Humphrey Lee, Dowling & Partners Securities, LLC - Research Analyst [39]

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Okay. And then just one more question, if I can. On the life insurance side -- with the proposal from the White House that there'd potentially be a repeal of estate tax. And then looking at Principal's life insurance business, kind of looking at the average policy count, it tends to be a little bit on the higher side. So I was just wondering if you have any high-level thoughts right now in terms of what a repeal of the estate tax would affect your life insurance business in general.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [40]

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Good question. And you're right, it will be at a high level and it will be speculative because we really don't have much detail out of the White House, except to say broadly they're looking for an across-the-board reduction in corporate tax rates to try to stimulate the economy. And I would call your attention, to the fact, that a lot of the discussion has to do with growing and helping small- to medium-sized businesses. So a revised tax policy that stimulates small- to medium-sized growth for small business is good for PFG. I look at it really in 2 buckets. The first bucket is really around retirement savings and implications either at the corporate level or the individual level. And I come to this conclusion: employees generally benefit significantly by employer matches regardless of what the impacts on the tax deferral might be in a 401(k) plan. And again, it's not a tax deduction. It's simply a tax deferral. They benefit from employer matches, they benefit from payroll deduction and they benefit from institutionally priced products. So that's a big part of our franchise, as you know, Humphrey. The second, around estate planning, whether they're using life insurance or mutual fund as a funding device for nonqualified deferred compensation, which is another important part of our franchise, is key. And then lastly, for key man insurance, I don't see that, that goes away. If you have an individual, there are 2 key partners and it's -- they're trying to drive the success of the business, life insurance proceeds are what ensure that, that business can continue to go on. And a lot of estate planning, we'll see what happens in the ultimate bill whether or not there's a tax bill or not. But I just don't think that Principal has a disproportionate percentage of its business that's directly tied to estate planning that there wouldn't be that additional and needed life insurance protection. So I would tell you, we think we're sitting actually in a very favorable position related to the tax reform. Again, at the core of that is growing small- to medium-sized businesses. Is that helpful?

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Humphrey Lee, Dowling & Partners Securities, LLC - Research Analyst [41]

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Yes.

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Operator [42]

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Your next question is from Jimmy Bhullar of JP Morgan.

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Jamminder Singh Bhullar, JP Morgan Chase & Co, Research Division - Senior Analyst [43]

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I had a couple of questions. First, just on the fee retirement business, you had pretty strong flows this quarter. And just wondering to what extent that gives you confidence for the rest of the year. And are you -- do you feel that you could exceed your 1% to 3% target on net flows for the year as a whole?

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [44]

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Sure. Thank you for that, and I'll ask Nora to fill those blanks in for you.

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Nora Mary Everett, Principal Financial Group, Inc. - Chairman of Principal Funds and President of Retirement & Income Solutions [45]

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Yes. Thanks, Jimmy, for the question. Obviously, a really strong 1Q on net cash flow at $2.2 billion. And it really reflects 2 things: those strong sales at $3.8 billion and then the continued outstanding retention across all of our plan sizes. We've talked about quarterly results being lumpy, and they can be impacted by 1 or 2 larger case decisions. We've had that discussion before. As you look at that 1% to 3% that we've talked about with regard to positive net cash flow as a percentage of the beginning of your account value, it's important to remember that when we're in this rising -- when we're in rising equity markets, that can put pressure on that percentage. In other words, those withdrawal amounts are driven by these higher equity markets, but the payroll base contributions are unchanged by that market growth. So just from a percentage basis, something to keep in mind. But certainly, based on what we see today, based on the sales pipeline, the expectation that this outstanding retention we'll continue to see that, we're comfortable in that 1% to 3% range with that caveat around these rising equity markets.

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Jamminder Singh Bhullar, JP Morgan Chase & Co, Research Division - Senior Analyst [46]

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Okay. And then I had a question for Jim on PGI. Your flows were flat this quarter, and I think you had some fixed income mandates that matured. That happened last quarter as well. So can you just give us an idea on how much more of this you have as you're looking at the rest of 2017?

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James Patrick McCaughan, Principal Financial Group, Inc. - President of Global Asset Management [47]

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Yes. Thanks, Jimmy. On the fixed income mandates, there are -- there is a steady kind of drip of those because we did quite a few 3- and 5-year mandates 3 and 5 years ago, it’s the way particularly Japanese funds tend to be drawn up. And the challenge we have actually for flows isn't so much just the dropoff at the end of those mandates, which is a kind of mission accomplished thing. It's the challenge of finding further products for them to roll into typically 5 years after they rolled into this one first time. And that's what we're aggressively working on. But in terms of quantifying it, it's a steady drip. It won't change much from the position in the fourth quarter last year and the first quarter this year. The bigger number has really been the outflows at Columbus Circle. And since we're on flows, maybe I'll mention Columbus Circle had a very, very strong start to this year in terms of investment performance. The other thing that has been done at Columbus Circle, and I have to credit the management there to develop the next group of people, and there were 4 promotions to portfolio manager among the group there. We believe the combination of the revised performance and the management clear signs of succession planning, I think that's going to help us get back clients' confidence. So that's the piece that I think will right the ship by later this year. So I'm not pessimistic about the flow outlook.

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Operator [48]

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Your next question is from John Nadel of Credit Suisse.

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John Matthew Nadel, Crédit Suisse AG, Research Division - MD and Senior Research Analyst [49]

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I'd sort of going to apologize in advance because I want to dive a little bit deeper into: first, RIS-Fee; and second, RIS-Spread. And on RIS-Fee, I guess, the question is this, recurring deposits have just been terrific, sort of a steady increasing pace of year-over-year growth in recurring deposits, but transfer deposits sort of inflected this quarter. And I'm wondering if you could sort of help us understand why and what to expect from -- on that particular line item moving forward.

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Nora Mary Everett, Principal Financial Group, Inc. - Chairman of Principal Funds and President of Retirement & Income Solutions [50]

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So this is Nora, John. When you talk about transfer deposits inflecting, transfer deposits were $3.9 billion, strong on the transfer deposit side. So we may be -- maybe you're using that term of art in a different way than I typically use it. But certainly, we're always going to see -- when we talk about sales, there sometimes can be some timing differences between the sale and then the actual transfer deposit when that -- when those funds come in. But if you take -- again, I would encourage you to take a long-term view because quarter-over-quarter you can have -- or sequential quarters, you can have timing issues. But as you look at it, if you take a long-term view of both sales and transfer deposits, they have been strong. Recurring deposits, that in-plan cash flow, you talk about those being strong, they absolutely are strong. That 8% quarter-over-quarter is a very significant growth driver for us. So the transfer deposits related to sales and then the in-plan cash flow, which we call recurring deposits, those 2 things have both done very well over the last several quarters. So I may be missing your question.

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John Matthew Nadel, Crédit Suisse AG, Research Division - MD and Senior Research Analyst [51]

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No, I think -- I understand what they're both related to. I'm just -- and I'm not really looking at sequential because I know there can be some impact relative to the timing on the transfer deposit line. I'm looking at year-over-year, 1Q versus 1Q. And these past bunch of quarters on a year-over-year basis, you've had really good growth in transfer deposits. This quarter, they were down on a year-over-year basis. That's -- I was just wondering if there was anything to point to there that we might need to be thinking about.

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Nora Mary Everett, Principal Financial Group, Inc. - Chairman of Principal Funds and President of Retirement & Income Solutions [52]

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Yes. And there were are a few cases a year ago that the timing issue that I discussed where there was a difference in quarter because the sales -- when we reported sales and when the transfers came in. So that's that noise that I was identifying, and that actually did happen a year ago. So that's probably what you're picking up.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [53]

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John, one other last comment on RIS-Fee before we go to spread, and that has to do with where we're at in the economic cycle and that has to do with new plan formation. And we are finding ourselves in that sweet spot right now where we far exceeded the pre-2008 period, where there is a lot of new plan formation, which is exciting to us because it's interesting and fun as it is to get a transfer asset from an established plan. Seeing small- to medium-sized businesses grow, add new plans and add new participants, that's what's good for all of America. And that's -- those are the kind of proof points that we're on Capitol Hill talking about the effectiveness of the 401(k) model, and how it's working needs to be told. And I think you had a follow-up question on RIS-Spread?

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John Matthew Nadel, Crédit Suisse AG, Research Division - MD and Senior Research Analyst [54]

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Yes. I was just going to comment that I think I see where your second career is going to go. The question on spread is -- and I don't mean to beat this horse too deeply. I understand you're having really good results there. But if I look at the relationship of net revenue growth, which you pointed us to, these last 9 months on a year-over-year basis, you've had exceptional 23%, 24% growth on a year-over-year basis in net revenues. Against that, the non benefit-related expenses are down on a year-over-year basis, sort of low single digits. And I guess, my question is this, how long can you maintain that kind of differential? I mean, I know you don't expect to grow net revenues at 20-something percent. I know your target is 5% to 10%. But can you continue to grow net revenues at a pace that so significantly exceeds the pace of expense growth?

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Nora Mary Everett, Principal Financial Group, Inc. - Chairman of Principal Funds and President of Retirement & Income Solutions [55]

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So the first thing I would say is this is a highly scalable business, and certainly we're getting the benefit of reaping some of that scale as we grow this business. And again, it's an interesting dilemma to be in and exceeding expectation so significantly, which we've done in RIS-Spread over and over again the last couple of quarters. But we've looked forward and revisited that outlook call and really are confident that, yes, we're in the ballpark, we're going to be at the high end of the range with regard to net revenue growth. Now will we exceed on margins? Will we exceed on net revenue growth? Certainly, possibly, that can happen. But as we look at that business going forward and look at the benefit that the operating leverage that we know we're going to continue to be able to reap, that's where we guide you back to. If we exceed that rate, but sitting here today, as we balance both the top line and the bottom line and look at our -- look at that scale issue, that's where we come out today.

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John Matthew Nadel, Crédit Suisse AG, Research Division - MD and Senior Research Analyst [56]

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Nora, can I follow up on that just real quick? Because one of the things you did so well as a company at your Investor Day was you talked to us about an outlook for 2017 and then also a margin outlook longer term. And if this is a highly scalable business, I'm surprised that the shorter-term 2017 margin range of 55% to 60% isn't something higher, looking out at that longer-term outlook, which is also 55% to 60%. So I mean, is that longer-term outlook really pretty conservative now as you think about what you're seeing in the dynamics of this business?

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [57]

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I wouldn't say it's conservative. The way I would describe that, John, is that we continue to have a very strong pricing discipline. Right now, the market is in demand for this type of product. We are very disciplined in how we go about setting that price. We have no reason to believe that the margin is going to expand in the future. And likewise, there may have been some pent-up demand because we have seen interest rates rise in the relatively short term here in the last year or so.

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Nora Mary Everett, Principal Financial Group, Inc. - Chairman of Principal Funds and President of Retirement & Income Solutions [58]

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And the other thing I would add there is a reminder that we are quite opportunistic in the space, both with the full-service -- the pension risk transfer business and our Investment Only business. So I think you have to add that piece to the equation as well as we are seeing some very attractive opportunity, but don't forget that these are still opportunistic businesses for us. So that's another piece of the equation that we keep in mind.

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Operator [59]

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Your next question is from Ryan Krueger of KBW.

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Ryan Krueger, Keefe, Bruyette, & Woods, Inc., Research Division - MD of Equity Research [60]

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I just had a quick follow-up on the M&A discussion and just curious on how you'd characterize the M&A environment at this point following the election and generally higher valuations in the market.

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [61]

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In one word, expensive, I think, is the answer. There's a lot of inflated values associated with most of the businesses that we're in, whether it's the group benefits business. And you see some of these transactions on annuity blocks and life blocks. We've seen it certainly on the asset management. The reality is there hasn't been a lot of transactions. I would tell you that we've got a good set of eyes. We work very closely with the industry investment bankers to understand what's going on across all the continents. And again, we put in place with Tim Dunbar's leadership a very strong and disciplined approach to reviewing these opportunities. And we do it both proactively as well as those things that maybe we didn't anticipate would come to market. But the values are inflated, and we're going to grow the company either through organic acquisition or through M&A. And right now, the best way to deploy our capital seemingly is around more organic growth. Does that help?

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Ryan Krueger, Keefe, Bruyette, & Woods, Inc., Research Division - MD of Equity Research [62]

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Yes, it's very helpful.

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Operator [63]

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We have reached the end of our Q&A. Mr. Houston, your closing comments, please?

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Daniel J. Houston, Principal Financial Group, Inc. - Chairman, CEO, President, Chairman of Principal Life Insurance Company, CEO of Principal Life Insurance Company and President of Principal Life Insurance Company [64]

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Just a couple of quick ones. We've just finished up with a series of visits with a lot of our distribution partners and advisors. And there's something they kept reminding me, reminding me about as it related to DOL change. And as you know, we do now have a new Secretary of Labor appointed, and we're excited about that. But they make the point that they really are about financial planning, helping with life and disability protection, wealth distribution strategies, asset management strategies, education funding and securing their customers' financial future. That's the business we're in. We manufacture those products and solutions for our advisors. So regardless of the DOL reg -- tax regulatory changes, the demand for these products that we're engaged in is not diminished. And of course, our target markets of small- to medium-sized business and individuals fits that very well. So we look forward to coming out, chatting with you over the course of the next quarter about our strategy. Again, very pleased with the transition between Terry and Deanna. And again, we'll see you out on the road. Thank you for taking the time this morning to listen to the story.

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Operator [65]

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Thank you for participating in today's conference call. This call will be available for replay beginning at approximately 1:00 p.m. Eastern Time until end of day May 5, 2017. 92541154 is the access code for the replay. The number to dial for the replay is (855) 859-2056, that's for U.S. and Canadian callers; or (404) 537-3406 for international callers. You may now disconnect.