Longevity Risk at the Principal Financial Group ® Chris Freese, VP and Chief Actuary March 26, 2012.

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Presentation transcript:

Longevity Risk at the Principal Financial Group ® Chris Freese, VP and Chief Actuary March 26, 2012

22 The Principal Financial Group: A LEADING FINANCIAL SERVICES COMPANY Fortune 500 company 18.0 million customers Offices in 17 countries 13,300 employees worldwide 132 year history Full range of retirement savings, investment and insurance solutions for small to medium sized businesses & their employees; individuals; and institutions Assets Under Management $335 Billion December 31, 2011 Retirement & Investor Services 53% Corporate 1 % U.S. Insurance Solutions 5 % Principal International 16% Principal Global Investors 25%

33 The Principal Financial Group: DIVERSITY OF EARNINGS Retirement & Investor Services 2011 Operating Earnings (excluding Corporate)

44 Products with Mortality or Longevity Exposure ProductsReserves (in billions) as of 12/31/2011 Longevity risk Terminal Funding Annuities$6.9 Individual Payout Annuities$1.4 International Payout Annuities (primarily Chile) $4.5 Mortality risk Individual Life Insurance$10.2 Group Life Insurance$0.3

Analysis Around Longevity Risk Longevity contribution to Economic Capital Value-at-Risk around Earnings and Embedded Value 5

66 Conclusions from Longevity Risk Analysis 99.5 th percentile longevity scenario produces a modest reduction in earnings The earnings increase for Individual Life is considerably smaller than the earnings reduction for payout annuities Terminal Funding Annuities is more sensitive to mortality improvement than our other lines of payout annuities

77 Mitigating Factors Mortality risk in Individual Life provides a natural offset to longevity risk Use of reinsurance dampens the offsetting effect Many of our payout annuities have certain periods and/or multiple beneficiaries A large portion of Principal’s earnings comes from the accumulation portion of retirement savings and investment products, which are not subject to longevity risk

88 How We Manage Longevity Risk in our Payout Annuity Businesses Monitor mortality experience on an on-going basis Update pricing mortality assumptions as needed Reflect future mortality improvement in pricing assumptions

99 Other Mitigation Options Reduce sales of life-contingent payout annuities Encourage the sale of payout annuities with longer certain periods Reduce the use of reinsurance on Individual Life business Use longevity reinsurance or longevity bonds