10-K 1 a2227257z10-k.htm 10-K

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PRINCIPAL FINANCIAL GROUP, INC. TABLE OF CONTENTS
Item 8. Financial Statements and Supplementary Data

Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 
Commission file number 1-16725

PRINCIPAL FINANCIAL GROUP, INC.
(Exact name of Registrant as specified in its charter)

Delaware   711 High Street,   42-1520346
(State or other jurisdiction of
incorporation or organization)
  Des Moines, Iowa 50392
(Address of principal executive offices)
  (I.R.S. Employer
Identification Number)

(515) 247-5111
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, par value $0.01
  Name of each exchange on which registered
New York Stock Exchange

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No ý

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. o

        Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No ý

        As of February 3, 2016, there were outstanding 291,625,605 shares of Common Stock, $0.01 par value per share of the Registrant.

        The aggregate market value of the shares of the Registrant's common equity held by non-affiliates of the Registrant was $15,117,514,493 based on the closing price of $51.29 per share of Common Stock on the New York Stock Exchange on June 30, 2015.

Documents Incorporated by Reference

        The information required to be furnished pursuant to Part III of this Form 10-K is set forth in, and is hereby incorporated by reference herein from, the Registrant's definitive proxy statement for the annual meeting of stockholders to be held on May 17, 2016, to be filed by the Registrant with the United States Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the year ended December 31, 2015.


Table of Contents


PRINCIPAL FINANCIAL GROUP, INC.
TABLE OF CONTENTS

PART I   4

Item 1.

 

Business

 

4

Item 1A.

 

Risk Factors

 

16

Item 1B.

 

Unresolved Staff Comments

 

30

Item 2.

 

Properties

 

30

Item 3.

 

Legal Proceedings

 

31

Executive Officers of the Registrant

 

31

PART II

 

32

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

32

Item 6.

 

Selected Financial Data

 

33

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

33

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

74

Item 8.

 

Financial Statements and Supplementary Data

 

80

 

 

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

 

81

 

 

Report of Independent Registered Public Accounting Firm

 

82

 

 

Consolidated Statements of Financial Position

 

83

 

 

Consolidated Statements of Operations

 

84

 

 

Consolidated Statements of Comprehensive Income

 

85

 

 

Consolidated Statements of Stockholders' Equity

 

86

 

 

Consolidated Statements of Cash Flows

 

87

 

 

Notes to Consolidated Financial Statements

 

88

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

200

Item 9A.

 

Controls and Procedures

 

200

Item 9B.

 

Other Information

 

200

PART III

 

201

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

201

Item 11.

 

Executive Compensation

 

201

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

201

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

202

Item 14.

 

Principal Accounting Fees and Services

 

202

PART IV

 

202

Item 15.

 

Exhibits and Financial Statement Schedules

 

202

Signatures

 

203

Report of Independent Registered Public Accounting Firm on Schedules

 
204

Schedule I — Summary of Investments — Other Than Investments in Related Parties

  205

Schedule II — Condensed Financial Information of Registrant (Parent Only)

  206

Schedule III — Supplementary Insurance Information

  210

Schedule IV — Reinsurance

  212

Exhibit Index

  213

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NOTE CONCERNING FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to trends in operations and financial results and the business and the products of the Registrant and its subsidiaries, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend" and other similar expressions. Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects on us. Such forward-looking statements are not guarantees of future performance.

        Actual results may differ materially from those included in the forward-looking statements as a result of risks and uncertainties. Those risks and uncertainties include, but are not limited to, the risk factors listed in Item 1A. "Risk Factors."

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PART I

Item 1.    Business

        Principal Financial Group, Inc. ("PFG") is a leader in global investment management offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through our diverse family of financial services companies. We had $527.4 billion in assets under management ("AUM") and approximately 19.1 million customers worldwide as of December 31, 2015.

        Our global investment management businesses serve a broad range of investors in more than 70 countries through offices in 18 countries, including in the major financial centers worldwide. We provide long-term investment strategies to institutional, retirement, high net worth and retail clients by offering a range of capabilities including equity, fixed income, real estate and other alternative investments, as well as fund offerings.

        In the U.S., we primarily focus on small and medium-sized businesses, which we define as companies with fewer than 1,000 employees, by offering a broad array of retirement and employee benefit solutions and individual insurance solutions to meet the needs of the business owner and their employees. We are a leading provider of corporate defined contribution plans in the U.S. We are also a leading employee stock ownership plan consultant. In addition, we are a leading provider of nonqualified plans, defined benefit plans and plan termination annuities. We are also one of the largest providers of specialty benefits insurance product solutions in the U.S. We believe small and medium-sized businesses are an underserved market, offering attractive growth opportunities in the U.S. retirement and employee benefit markets.

        Additionally, we believe we have a significant opportunity to leverage our U.S. retirement expertise in select international markets that have adopted or are moving toward private sector defined contribution pension systems. Our international asset management and accumulation businesses focus on the opportunities created as aging populations around the world drive increased demand for retirement accumulation, retirement asset management and retirement income management solutions.

Our Reportable Segments

        In the fourth quarter of 2015 we implemented changes to our organizational structure to better align businesses, distribution teams and product offerings for future growth. Principal Funds, which included our mutual fund business and Princor Financial Services Corporation ("Princor"), our retail broker-dealer and registered investment advisor, as well as Principal Financial Advisors ("PFA") were previously reported in our Retirement and Investor Services segment. Our mutual fund business and PFA are now reported as part of our Principal Global Investors segment, while Princor is now reported as part of our Corporate segment. The Retirement and Investor Services segment has been renamed to Retirement and Income Solutions. Additionally, information used by our chief operating decision maker in assessing segment performance has changed to pre-tax operating earnings. We retrospectively applied this change to the results of our Principal International segment to remove income taxes of equity method subsidiaries that had previously been included in operating revenue and pre-tax operating earnings. Our segment results have been modified to reflect these changes, which did not have an impact on our consolidated financial statements.

        We organize our businesses into the following reportable segments:

    Retirement and Income Solutions;

    Principal Global Investors;

    Principal International and

    U.S. Insurance Solutions.

        We also have a Corporate segment, which consists of the assets and activities that have not been allocated to any other segment.

        See Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 16, Segment Information" for financial results of our segments.

Retirement and Income Solutions Segment

        Our asset accumulation activities in the U.S. date back to the 1940s when we first began providing pension plan products and services. We now offer a comprehensive portfolio of products and services for retirement savings and retirement income:

    To businesses of all sizes with a concentration on small and medium-sized businesses, we offer products and services for defined contribution plans, including 401(k) and 403(b) plans, defined benefit pension plans, nonqualified executive benefit plans and employee stock ownership plan ("ESOP") services. For more basic retirement services, we offer SIMPLE Individual Retirement Accounts ("IRA") and payroll deduction plans;

    To large institutional clients, we also offer investment-only products, including investment only guaranteed investment contracts ("GICs"); and

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    To employees of businesses and other individuals, we offer the ability to accumulate savings for retirement and other purposes through mutual funds, individual annuities and bank products.

        We organize our Retirement and Income Solutions operations into two business groupings:

    Retirement and Income Solutions — Fee: includes full service accumulation, trust services and individual variable annuities; and

    Retirement and Income Solutions — Spread: includes individual fixed annuities, investment only, full service payout and banking services.

Retirement and Income Solutions — Fee

Full Service Accumulation

        We offer a wide variety of investment and administrative products and services for defined contribution plans, including 401(k) and 403(b) plans; defined benefit pension plans; nonqualified executive benefit plans and ESOPs. A 403(b) plan is a plan described in Section 403(b) of the Internal Revenue Code that provides retirement benefits for employees of tax-exempt organizations and public schools.

Products

        Full service accumulation products respond to the needs of plan sponsors seeking both administrative and investment services for defined contribution plans or defined benefit plans. The investment component of both the defined contribution and defined benefit plans may be in the form of a guaranteed account, separate account, a mutual fund offering or a collective investment trust. In addition, defined contribution plan sponsors may also offer their own employer securities as an investment option under the plan.

        We deliver both administrative and investment services to our defined contribution plan and defined benefit plan customers through annuity contracts, collective investment trusts and mutual funds. Group annuity contracts and collective investment trusts used to fund qualified plans are not required to be registered with the United States Securities and Exchange Commission ("SEC"). Our mutual fund service platform is called Principal Advantage. It is a qualified plan service package based on our series mutual fund, Principal Funds, Inc. ("PFI"). We offer investments covering the full range of stable value, equity, fixed income, real estate and international investment options managed by our Principal Global Investors segment as well as third party asset managers. In addition, full service accumulation offers plan sponsors trust services through an affiliated trust company.

        As of December 31, 2015, we provided full service accumulation products to (a) over 34,900 defined contribution plans, of which approximately 29,900 were 401(k) plans, including $121.5 billion in assets and covering 4.4 million eligible plan participants, and (b) to over 2,200 defined benefit plans, including $16.9 billion in assets and covering over 306,200 eligible plan participants. As of December 31, 2015, approximately 57% of our full service accumulation account values were managed by our Principal Global Investors segment. Third party asset managers provide asset management services with respect to the remaining assets. 27% of our full service accumulation account values is managed entirely by the third party asset managers that are not under contract to sub-advise a PFG product, 10% is sub-advised and 6% represents employer securities.

Markets and Distribution

        We offer our full service accumulation products and services to plans, including qualified and nonqualified defined contribution plans and defined benefit plans. Our primary target market is plans sponsored by small and medium-sized businesses, which we believe remains under-penetrated. According to Retirement Resources, Inc., in 2014, only 22% of businesses with between 10 and 49 employees, 48% of businesses with between 50 and 99 employees, 53% of businesses with between 100 and 249 employees and 61% of businesses with between 250 and 500 employees offered a 401(k) plan. The same study indicates that 73% of employers with between 500 and 1,000 employees, 82% of employers with between 1,000 and 5,000 employees and 86% of employers with 5,000 or more employees offered a 401(k) plan in 2014.

        We distribute our full service accumulation products and services nationally, primarily through a captive retirement services sales force. As of December 31, 2015, 103 retirement services sales representatives in 42 offices, operating as a wholesale distribution network, maintained relationships with over 15,300 independent advisors, consultants and agents. Retirement services sales representatives are an integral part of the sales process alongside the referring consultant or independent advisor. We compensate retirement services sales representatives through a blend of salary and production-based incentives, while we pay independent advisors, consultants and agents a commission or fee.

        As of December 31, 2015, we had a separate staff of over 280 service and education specialists located in the sales offices. These specialists play a key role in the ongoing servicing of plans by providing local services to our customers, such as reviewing plan performance, investment options and plan design; communicating the customers' needs and feedback to us and helping employees understand the benefits of their plans. The following summarizes our distribution channels:

    We distribute our annuity-based products through intermediaries who are primarily state licensed individuals.

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    Principal Advantage platform is targeted at defined contribution plans through broker-dealer distribution channels. Principal Advantage gives us access to Financial Industry Regulatory Authority-registered distributors who are not traditional sellers of annuity-based products and broadens opportunities for us in the investment advisor and broker-dealer distribution channels.

    Through our Retire Secure strategy we provide financial education and other assistance to individual investors who are participants/members of employer-based accumulation solutions to help them achieve financial security.

        We believe our approach to full service accumulation plan services distribution, which gives us a local sales and service presence, differentiates us from many of our competitors. We have also established a number of marketing and distribution relationships to increase the sales of our products and services.

Individual Variable Annuities

        We offer variable annuities to individuals and plans. Individual variable annuities are savings vehicles through which the customer makes one or more deposits of varying amounts and intervals.

Products

        Our individual variable deferred annuities provide customers with the flexibility to allocate their deposits to mutual funds managed by the Principal Global Investors segment or unaffiliated third party asset managers. As of December 31, 2015, 92% of our $9.0 billion in variable annuity account balances was allocated to mutual funds managed by the Principal Global Investors segment and our guaranteed option. The remaining 8% was allocated to mutual funds managed by unaffiliated third party asset managers. Generally speaking, the customers bear the investment risk for the variable options and have the right to allocate their assets among various separate mutual funds. The value of the annuity fluctuates in accordance with the experience of the mutual funds chosen by the customer. Customers have the option to allocate all or a portion of their account to our guaranteed option, in which case we credit interest at rates we determine, subject to contractual minimums.

        Customers may elect a living benefit guarantee (commonly known in the industry as a guaranteed minimum withdrawal benefit, or "GMWB"). We bear the GMWB investment risk. Our goal is to hedge the GMWB investment risk through the use of sophisticated risk management techniques. As of December 31, 2015, $5.9 billion of the $9.0 billion of variable annuity account value had the GMWB rider. Our major source of revenue from variable annuities is mortality and expense fees we charge to the customer, generally determined as a percentage of the market value of the assets held in a separate investment sub-account. Account balances of variable annuity contracts with the GMWB rider were invested in separate account investment options as follows:

 
  December 31, 2015   December 31, 2014  
 
  (in millions)
 

Balanced funds

  $ 5,403.1   $ 5,019.0  

Equity funds

    292.7     381.4  

Bond funds

    163.0     210.7  

Money market funds

    6.3     7.0  

Specialty funds

    1.4     1.8  

Total

  $ 5,866.5   $ 5,619.9  

Percent of total variable annuity account values

    66 %   63 %

Markets and Distribution

        Our target markets for individual variable annuities include owners, executives and employees of small and medium-sized businesses and individuals seeking to accumulate and/or eventually receive distributions of assets for retirement. We market variable annuities to individuals for both qualified and nonqualified retirement savings.

        We sell our individual variable annuity products through our affiliated financial representatives, who accounted for 95%, 93% and 92% of annuity sales for the years ended December 31, 2015, 2014 and 2013, respectively. The remaining sales were made through banks, brokerage general agencies, mutual fund companies, Principal Connection and unaffiliated broker-dealer firms. Principal Connection is our direct response distribution channel for retail financial services products to individuals. Principal Connection's services are available over the phone, on the internet or by mail. Affiliated financial representatives continued to be the primary distribution channel of our variable deferred annuities.

Retirement and Income Solutions — Spread

Individual Fixed Annuities

        Individual fixed annuities may be categorized in two ways: (1) deferred, in which case assets accumulate until the contract is surrendered, the customer dies or the customer begins receiving benefits under an annuity payout option, or (2) payout, in which case payments are made for a fixed period of time or for life.

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Products

        Fixed Deferred Annuities.    Our individual fixed deferred annuities consist of both single premium deferred annuity contracts and flexible premium deferred annuity contracts ("FPDAs"). Some FPDA contracts limit the period of time deposits are allowed (e.g., only one year). For certain contracts, the principal amount is guaranteed. We credit the customer's account with a fixed interest rate for a specified number of years. Thereafter, we reset the interest rate credited to the contract based upon our discretion, subject to contractual minimums, by taking into account market and other conditions. We also offer a fixed deferred annuity where the interest credited is linked to an external equity index, subject to maximum and minimum values. One source of income from fixed deferred annuities is the difference between the investment income earned on the underlying general account assets and the interest rate credited to the contracts. We bear the investment risk because, while we credit customers' accounts with a stated interest rate, we cannot be certain the investment income we earn on our general account assets will exceed that rate. The Principal Global Investors segment manages the assets supporting these contracts.

        Fixed Income Annuities.    Our individual fixed income annuities consist of single premium immediate annuity contracts ("SPIAs") and deferred income annuity contracts ("DIAs"). SPIAs and DIAs are products where the customer pays a premium in return for periodic benefit payments. SPIA payments begin immediately and DIA payments begin after a deferral period, during which a return-of-premium death benefit is included. Payments may be contingent upon the survival of one or two individuals or payments may be fixed, meaning payments are contractually guaranteed and do not depend on the continuing survival of any individual. Our major source of income from fixed immediate annuities is the difference between the investment income earned on the underlying general account assets and the interest rate implied in the calculation of annuity benefit payments. We bear the investment risk because we cannot be certain the investment income we earn on our general account assets will exceed the rate implied in the SPIA and DIA contracts. The Principal Global Investors segment manages the assets supporting these contracts.

Markets and Distribution

        Our target markets for individual fixed annuities include owners, executives and employees of small and medium-sized businesses and individuals seeking to accumulate and/or eventually receive distributions of assets for retirement. We market fixed annuities to individuals for both qualified and nonqualified retirement savings.

        We sell our individual fixed annuity products through our affiliated financial representatives, who accounted for 6%, 11% and 9% of annuity sales for the years ended December 31, 2015, 2014 and 2013, respectively. The remaining sales were made through banks, brokerage general agencies, mutual fund companies, Principal Connection and unaffiliated broker-dealer firms. The majority of overall annuity sales, however, were from non-affiliated distribution channels, as a result of focused efforts to increase fixed annuity sales through these channels.

Investment Only

Products

        The two primary products for which we provide investment only services are: GICs and funding agreements.

        GICs and funding agreements pay a specified rate of return. The rate of return can be a floating rate based on an external market index or a fixed rate. Our investment only products contain provisions disallowing or limiting early surrenders, including penalties for early surrenders and minimum notice requirements.

        Deposits to investment only products are predominantly in the form of single payments. As a result, the level of new deposits can fluctuate from one fiscal quarter to another. The amounts earned by us are derived in part from the difference between the investment income earned by us and the amount credited to the customer. The Principal Global Investors segment manages the assets supporting the contractual promises.

Markets and Distribution

        We market GICs and funding agreements primarily to plan sponsors and other institutions. We also offer GICs as part of our full service accumulation products. We sell our GICs primarily to tax-qualified retirement plans. We sell our funding agreements directly to institutions that may or may not be pension funds and unconsolidated special purpose vehicles domiciled either in the U.S. or offshore for funding agreement-backed note programs. The funding agreements sold as part of these funding agreement-backed note programs work by having investors purchase debt obligations from the special purpose vehicle which, in turn, purchases the funding agreement from us with terms similar to those of the debt obligations. The strength of this market is dependent on debt capital market conditions. As a result, our sales through this channel can vary widely from one quarter to another. In addition to the special purpose vehicle selling the funding agreement-backed notes to U.S. and foreign institutional investors, the special purpose vehicle may also sell notes to U.S. retail investors through a SEC-registered shelf debt issuance program.

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Full Service Payout

Products

        Full service payout products respond primarily to the needs of pension plan sponsors in the form of single premium group annuities, which are immediate or deferred annuities that provide a current or future specific income amount, fully guaranteed by us. The majority of our business originates from defined benefit plans that are being terminated. In these situations, the plan sponsor transfers all its obligations under the plan to an insurer by paying a single premium. Generally, plan sponsors restrict their purchases to insurance companies with superior or excellent financial quality ratings because the Department of Labor has mandated that annuities be purchased only from the "safest available" insurers.

        Since premium received from full service payout products is generally in the form of single payments, the level of new premiums can fluctuate depending on the number of large-scale annuity sales in a particular fiscal quarter. The Principal Global Investors segment manages the assets supporting full service payout account values.

Markets and Distribution

        Our primary distribution channel for full service payout products is comprised of several specialized home office sales consultants working through consultants and brokers that specialize in this type of business. Our sales consultants also make sales directly to institutions. Our nationally dispersed retirement services sales representatives act as a secondary distribution channel for these products.

Banking Services

        IRAs are provided by Principal Bank, primarily funded by retirement savings rolled over from qualified retirement plans. Principal Bank is a federal savings bank that formed in February 1998. As of December 31, 2015, Principal Bank had over 315,000 customers and approximately $2.2 billion in assets. Principal Bank operates under a limited purpose charter and may only accept deposits held in a fiduciary capacity, may not hold demand deposits or own commercial loans and cannot originate loans.

Products

        The IRAs offered by Principal Bank provide Federal Deposit Insurance Corporation ("FDIC")-insured retirement solutions for its customers. The IRAs are held in savings accounts, money market accounts and certificates of deposit. The deposit products provide a relatively stable source of funding and liquidity for Principal Bank and are backed by purchases of investment securities and residential mortgage loans.

Markets and Distribution

        Principal Bank offers bank products and services to participants rolling out of qualified retirement plans primarily serviced by affiliates of PFG. Principal Bank services customers through the telephone, mail and internet.

Principal Global Investors Segment

        Our Principal Global Investors segment manages assets for sophisticated investors around the world, using a multi-boutique strategy that provides diverse investment capabilities including equity, fixed income, real estate and other alternative investments. We also have experience in asset allocation, stable value management and other structured investment strategies. We focus on providing services to our other segments in addition to our retail mutual fund and third party institutional clients. We maintain offices in Australia, Beijing, Brazil, Dubai, Germany, Hong Kong, Japan, the Netherlands, Singapore, the United Kingdom and the United States.

        We deliver our products and services through our network of specialized investment groups and boutiques including Principal Global Equities; Principal Global Fixed Income; Aligned Investors; Principal Real Estate Investors, LLC; Principal Enterprise Capital, LLC; Spectrum Asset Management, Inc.; Post Advisory Group, LLC; Columbus Circle Investors; Edge Asset Management, Inc.; Morley Financial Services, Inc.; Macro Currency Group; Finisterre Capital LLP; Origin Asset Management LLP; and Principal Portfolio Strategies. As of December 31, 2015, Principal Global Investors and its boutiques managed $360.8 billion in assets.

        We have been providing mutual funds to customers since 1969. We offer mutual funds to individuals, businesses and institutional investors for use within variable life contracts, variable annuity contracts and employer-sponsored pension plans; as a rollover investment option and for general investment purposes. We plan to grow into a top advisor-sold mutual fund company with a sales force focused on multiple channels. As of December 31, 2015, as reported by the Strategic Insight, we are ranked 15th according to AUM (long-term funds) of the intermediary sold mutual fund companies.

        We also maintain various other domestic and global fund platforms, separately managed accounts and segregated accounts for some larger institutional and retail investors.

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        Our products and services are provided for a fee as defined by client mandates. Our fees are generally driven by AUM.

Boutiques

        Our multi-boutique strategy is diversified across the following primary asset classes and service delivery options.

        Equity Investments.    As of December 31, 2015, Principal Global Equities, Aligned Investors and Principal Real Estate Investors, LLC along with Columbus Circle Investors, Edge Asset Management, Inc. and Origin Asset Management LLP managed $136.9 billion in global equity assets. Our equity capabilities encompass large-cap stocks, mid-cap stocks, small-cap stocks and real estate investment trusts in developed and emerging markets worldwide.

        Fixed Income Investments.    As of December 31, 2015, Principal Global Fixed Income and Principal Real Estate Investors,  LLC along with Spectrum Asset Management, Inc.; Post Advisory Group, LLC; Edge Asset Management, Inc. and Morley Financial Services, Inc. managed $160.3 billion in global fixed income assets. Collectively, our experience in fixed income management spans multiple economic and credit market cycles and encompasses all major fixed income sectors, including commercial backed securities ("CMBS"), and security types. Our research and risk management capabilities in worldwide debt markets provide a strong foundation for broadly diversified "multi-sector" portfolios, tailored to specific client objectives.

        Alternative Investments.    We offer products and services through other alternative asset classes including managing private real estate equity, commercial mortgages and bridge/mezzanine loans through Principal Real Estate Investors, LLC; managing real estate operating companies through Principal Enterprise Capital, LLC; managing currency mandates through our Macro Currency Group boutique and managing hedge fund mandates through the Finisterre Capital LLP and Columbus Circle Investors boutiques. As of December 31, 2015, we managed $59.9 billion in alternative asset classes.

        Principal Portfolio Strategies.    Principal Portfolio Strategies is a specialized asset allocation boutique offering multi-asset and/or multi-manager portfolio construction services that aim to deliver reliable, risk-adjusted investment outcomes to individual investors, institutional investors and participants in employer-sponsored plans.

Products and Services

        Products offered by the Principal Global Investors segment include individually managed accounts, separately managed accounts for high net worth individuals and several fund platforms for retail and institutional investors, as described below.

        Principal Funds, Inc.    PFI is a series mutual fund that, as of December 31, 2015, offered 84 investment options for defined contribution plans, individuals, institutional investors, adviser fee-based programs, and other retirement plan clients. We report the results for this fund in the Retirement and Income Solutions segment or Principal Global Investors segment based on the distribution channel associated with the AUM.

        Principal Variable Contracts Funds, Inc.    Principal Variable Contracts Funds, Inc. is a series mutual fund that provides investment options for variable annuity and variable life insurance contracts issued by the Principal Life Insurance Company ("Principal Life") and other insurance companies not affiliated with Principal Life. AUM backing our variable annuity contracts is reported in the Retirement and Income Solutions segment. AUM backing our variable life insurance contracts is reported in the U.S. Insurance Solutions segment.

        Other Principal Global Investors Funds.    Principal Global Investors maintains various fund platforms including Qualifying Investor Alternative Fund and Undertaking for Collective Investment in Transferable Securities funds domiciled in Dublin, Collective Investment Trusts, Business Trusts and other boutique sponsored funds. These funds are generally managed by our boutiques.

Markets and Distribution

        Our products and services are distributed through various channels to reach and meet the needs of a broad investor base. We distribute our services through institutional and retail sales representatives, relationship management, and client service professionals, who work with consultants and directly with investors to acquire and retain institutional clients, retail clients, and other investors. We also maintain relationships with independent broker-dealers to distribute our products and services, maintaining relationships with over 54,000 independent brokers, consultants, and agents. As of December 31, 2015, Principal Global Investors and its boutiques had approximately 848 third party institutional clients in 41 countries with $122.0 billion of AUM.

Principal International Segment

        Our Principal International segment has operations in Brazil, Chile, China, Hong Kong Special Administrative Region ("SAR"), India, Mexico and Southeast Asia. We focus on countries and territories with growing middle classes, favorable demographics, and increasing long-term savings, ideally with defined contribution retirement markets. We entered these locations through acquisitions, start-up operations and joint ventures.

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        The activities of our Principal International segment reflect our efforts to accelerate the growth of our AUM by capitalizing on the international trend toward private sector defined contribution pension systems and individual long-term savings. We offer pension accumulation products and services, mutual funds, asset management, income annuities and life insurance accumulation products.

Markets, Products and Distribution

        Brazil.    We offer pension accumulation and income annuity products through a co-managed joint venture, Brasilprev Seguros e Previdencia S.A. ("Brasilprev"). We own 25% of the economic interest and 50.01% of the voting shares as of December 31, 2015. The partner is Banco do Brasil ("Banco"), the largest bank in Latin America, which had approximately 5,400 Brazilian branches as of September 30, 2015.

        Brasilprev has the exclusive distribution rights of its pension accumulation and annuity products through the Banco network until October 2032. Our joint venture provides products for the retirement needs of individuals and employers. Banco's employees sell these products directly to individual clients through its bank branches. In addition, our joint venture reaches corporate clients through two wholesale distribution channels: (1) a network of independent brokers who sell to the public and (2) Banco's corporate account executives who sell to existing and prospective corporate clients.

        We offer mutual fund and asset management services through Claritas Administração de Recursos Ltda. ("Claritas"), an independent Brazilian mutual fund and asset management company. We own 71.4% of the economic interest as of December 31, 2015, and the remainder is owned by employee-partners. The company manages equity funds, balanced funds, managed accounts and other strategies for affluent clients and institutions and sells through its multi-channel distribution network.

        Chile.    We offer a complete array of pension accumulation and income annuity products. We also offer mutual fund, asset management services and life insurance accumulation products.

        We offer mandatory employee-funded pension and voluntary savings plans through Administradora de Fondos de Pensiones Cuprum S.A. ("Cuprum"). We own 97.97% of Cuprum as of December 31, 2015, and the rest is publicly floated. Cuprum's products are sold through a proprietary sales network of approximately 750 sales employees as of December 31, 2015.

        We offer income annuity and life insurance accumulation products through Principal Compañía de Seguros de Vida Chile S.A., our wholly owned life insurance company. The annuity products are distributed through a network of brokers and independent agents. Life insurance accumulation products are also offered to individuals through brokers and financial advisors.

        We offer voluntary savings plans and mutual funds through Principal Administradora General de Fondos S.A., our wholly-owned mutual fund company. Products are distributed to retail clients through our proprietary sales force, financial advisors, brokerage houses and alliances with financial institutions.

        We offer asset management services through Principal Asset Management Chile S.A. This wholly owned company sells its products through a proprietary sales force.

        China.    We offer mutual funds and asset management services to individuals and institutions through a joint venture, CCB Principal Asset Management Co., Ltd. We own 25% and China Construction Bank ("CCB") is the majority partner with 65% ownership as of December 31, 2015. We sell mutual funds primarily through our partner bank, CCB. The bank provides extensive distribution capabilities for the joint venture in terms of brand awareness and the number of branch outlets, which number approximately 15,000 as of June 30, 2015.

        Hong Kong SAR.    We offer both pension accumulation and mutual fund products to corporate and retail clients through wholly owned companies.

        We offer two types of schemes, Mandatory Provident Fund ("MPF") to serve the mandatory retirement market and Occupational Retirement Schemes Ordinance ("ORSO") to serve the voluntary retirement market. We distribute products through a proprietary sales force that maintains relationships with third party intermediaries such as insurance companies, independent financial advisors, brokers and employee benefit consultants. We also target individual account holders who have changed jobs or are looking to consolidate their retirement accounts. We serviced approximately 500,000 MPF accounts as of December 31, 2015. On September 1, 2015, we acquired AXA's MPF and ORSO business. In addition, we have an agreement for the exclusive distribution of pension products through AXA's extensive agency network in Hong Kong through 2030.

        We sell mutual funds to retail customers seeking to accumulate assets for retirement and other long-term investment needs. Our mutual funds are distributed through a proprietary sales force that maintains relationships with third party intermediaries such as banks, insurance companies, independent financial advisors, securities brokers, direct-to-customer fund platforms and private wealth management firms. To further grow our mutual fund business we expect to leverage our operations in the Hong Kong SAR and our asset management joint venture in China to pursue potential opportunities created by the mutual recognition of fund products between Hong Kong and China.

        India.    We offer mutual funds and asset management services to both retail and corporate customers through our joint venture Principal Pnb Asset Management Company Private Limited. We own 78.6% as of December 31, 2015, and the partner is Punjab National Bank, a large Indian commercial bank with a network of approximately 6,600 branches as of September 30, 2015. Mutual funds are sold through bank branches, proprietary sales offices, independent distributors and direct sales.

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        We also have a proprietary distribution company, Principal Retirement Advisors Private Limited, that focuses on promoting and advising on retirement and long-term investment products in the India market.

        Mexico.    We offer pension accumulation, mutual funds, income annuities and asset management services through our wholly-owned companies.

        We offer mandatory pension plans through Principal Afore, S.A. de C.V., Principal Grupo Financiero. We manage and administer individual retirement accounts under the mandatory privatized social security system for all employees in Mexico. As of November 30, 2015, we had approximately 3.6 million individual retirement accounts. We distribute products and services through a proprietary sales force of approximately 615 sales representatives as of December 31, 2015, as well as independent brokers who sell directly to individuals. In addition, we have an agreement for the exclusive distribution of Principal Afore's products through HSBC Bank's extensive network in Mexico through 2017.

        We offer mutual funds and asset management services through Principal Fondos de Inversión, S.A. de C.V., Operadora de Fondos de Inversión, Principal Grupo Financiero. We distribute products and services through a sales force of approximately 100 employees as of December 31, 2015, and through distribution agreements with other financial entities. We offer both domestic and international products, typically sold directly to clients.

        We also administer previously sold income annuities and life products.

        Southeast Asia.    We offer mutual funds, asset management services and pension accumulation products through our joint venture CIMB-Principal Asset Management Berhad ("CPAM"). We own 40% in CIMB-Principal and 50% in CIMB Principal Islamic as of December 31, 2015, and the partner is CIMB Group, the second largest bank by assets in Malaysia as of September 1, 2015 with a strong presence in many Asian countries. CPAM also manages a significant amount of institutional asset mandates.

        CPAM has wholly owned subsidiaries in Singapore (CIMB-Principal Asset Management (S) Pte. Ltd.), Indonesia (PT CIMB-Principal Asset Management) and Thailand (CIMB-Principal Asset Management Company Limited).

        CPAM distributes conventional and Islamic mutual funds through the branches of its partner bank (approximately 1,060 bank branches throughout Malaysia, Indonesia, Thailand and Singapore) and through an agency sales force of approximately 6,700 agents selling to retail customers as of December 31, 2015. CPAM also distributes its mutual funds through third party institutions including other banks and security houses.

U.S. Insurance Solutions Segment

        Our U.S. Insurance Solutions segment offers group and individual insurance solutions. We focus on providing comprehensive insurance solutions for small and medium-sized businesses and their owners and executives. We organize our operations into two divisions: Specialty Benefits Insurance and Individual Life Insurance. However, we share key resources in our core areas such as strategic leadership, distribution, and marketing.

Specialty Benefits Insurance

        Specialty benefits insurance, which includes group dental, vision, life and disability insurance and individual disability insurance, is an important component of the employee benefit offering at small and medium-sized businesses. We offer traditional employer sponsored and voluntary products for group dental, vision, life and disability. We also offer group dental, vision and disability on a fee-for-service basis. Our individual disability insurance is also sold on an individual or multi-life basis.

Products and Services

        Group Dental and Vision Insurance.    We began selling group dental and vision insurance in the late 1960s. Our plans provide partial reimbursement for dental and vision expenses. As of December 31, 2015, we had over 42,000 group dental and vision insurance policies in force covering over 1.1 million employee lives. According to Life Insurance and Market Research Association ("LIMRA"), we were the 8th largest group dental insurer in terms of number of contracts/employer groups in force in 2014. In addition to indemnity and preferred provider organization dental offered on both an employer paid and voluntary basis, we offer a prepaid dental plan in Arizona through our Employers Dental Services, Inc. subsidiary. We offer a discount dental product nationally and a dental network of preferred providers primarily in California through our First Dental Health subsidiary. Our indemnity vision product and our managed care vision product are offered on both an employer paid and voluntary basis.

        Group Life Insurance.    Group life insurance was one of our first group products beginning in the early 1940s. Our group life insurance provides coverage to employees and their dependents for a specified period. As of December 31, 2015, we had nearly 53,000 group policies providing $128 billion of group life insurance in force to approximately 2.1 million employee lives. According to LIMRA, in 2014 we were ranked 3rd in the U.S. in terms of the number of group life insurance contracts in force. We currently sell traditional group life insurance that does not provide for accumulation of cash values on both an employer paid and voluntary basis. Our group life insurance business remains focused on the traditional, annually renewable term product. Group term life and group universal life accounted for 98% and 2%, respectively, of our total group life insurance in force as of December 31, 2015. We no longer market group universal life insurance to new employer groups.

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        Group Disability Insurance.    Group disability insurance has also been sold since the early 1940s. Our group disability insurance provides a benefit to insured employees who become disabled. In most instances, this benefit is in the form of a monthly income. Our group disability products include both short-term and long-term disability, offered on both an employer paid and voluntary basis. As of December 31, 2015, long-term disability represented 61% of total group disability premium, while short-term disability represented 39% of total group disability premium. In addition, we provide disability management services, also called rehabilitation services, to assist individuals in returning to work as quickly as possible following disability. We also work with disability claimants to improve the approval rate of Social Security benefits, thereby reducing payment of benefits by the amount of Social Security payments received. As of December 31, 2015, we served approximately 1.6 million employee lives through more than 40,000 contracts. According to LIMRA, our group short-term disability business was ranked 6th and our group long-term disability business was ranked 4th in the U.S. as of December 31, 2014, in terms of number of contracts/employer groups in force. We also offer voluntary critical illness insurance, which provides a lump-sum cash benefit to pay for additional expenses associated with the five most common critical illnesses.

        Individual Disability Insurance.    Individual disability insurance has been sold since the early 1950s. Our individual disability insurance products provide income protection to the insured member and/or business in the event of disability. In most instances, this benefit is in the form of a monthly income. In addition to income replacement, we offer products to pay business-related costs such as overhead expenses for a disabled business owner, buy-out costs for business owners purchasing a disabled owner's interest in the business, expenditures for replacement of a key person and business loan payments. We also offer a product to protect retirement savings in the event of disability. As of December 31, 2015, we served approximately 171,000 individual disability policyholders. According to LIMRA, our individual disability business was ranked 5th in the U.S. in terms of premium in force in the non-cancellable segment of the market and 6th overall, as of December 31, 2014.

        Fee-for-Service.    We offer administration of group dental, disability and vision benefits on a fee-for-service basis.

Individual Life Insurance

        We began as an individual life insurer in 1879 when we began selling traditional life insurance products to individuals. We now specialize in providing solutions for small to medium-sized companies to protect against risk and loss, assist with succession planning and wealth transfer and to build and protect wealth for retirement. We also provide solutions to meet the personal needs of business owners, executives and affluent individuals. Our U.S. operations administered approximately 568,000 individual life insurance policies with over $260 billion of individual life insurance in force as of December 31, 2015.

Products and Services

        Our Business Owner and Executive Solutions platform as well as our nonqualified deferred compensation offering combines administration and consulting to service our clients' needs. We target the business and personal insurance needs of owners and executives of small and medium-sized businesses with an increasing focus on providing insurance solutions for nonqualified executive benefits. In addition, we market our products to meet traditional retail insurance needs. We offer a variety of individual life insurance products, including universal life insurance, variable universal life insurance and term life insurance.

        Universal and Variable Universal Life Insurance.    Universal and variable universal life insurance products offer the policyholder the option of adjusting both the premium and the death benefit amounts of the insurance contract. Universal life insurance typically includes a cash value account that accumulates at a credited interest rate based on the investment returns of the block of business. Variable universal life insurance is credited with the investment returns of the various investment options selected. For the year ended December 31, 2015, 66% of individual life insurance annualized first year premium sales were generated from universal and variable universal life insurance products. Universal and variable universal life insurance represented 32% of individual life insurance in force as of December 31, 2015.

        After a deduction for policy level expenses, we credit net deposits to an account maintained for the policyholder. For universal life contracts, the entire account balance is invested in the general account. Interest is credited to the policyholder's account based on the earnings on general account investments, subject to contractual minimums. For variable universal life contracts, the policyholder may allocate the account balance among our general account and a variety of mutual funds underlying the contract. Interest is credited on amounts allocated to the general account in the same manner as for universal life. Net investment performance on mutual funds is allocated directly to the policyholder accounts; the policyholder bears the investment risk. Some of our universal life and variable universal life insurance contracts contain what are commonly referred to as "secondary" or "no-lapse" guarantee provisions. A no-lapse guarantee keeps the contract in force, even if the contractholder's account balance is insufficient to cover all of the contract charges, provided that the contractholder has continually paid a specified minimum premium.

        Traditional Life Insurance.    Traditional life insurance includes participating whole life, adjustable life products and non-participating term life insurance products. Participating products and non-participating term life insurance products represented 34% of our individual life insurance annualized first year premium sales for the year ended December 31, 2015, and 68% of individual life insurance in force as of December 31, 2015. Adjustable life insurance products provide a guaranteed benefit in return for the payment of a fixed premium and allow the policyholder to set the coverage period,

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premium and face amount combination. Term insurance products provide a guaranteed death benefit for a specified period of time in return for the payment of a fixed premium. Policyholder dividends are not paid on term insurance.

U.S. Insurance Solutions Markets and Distribution

        For each of our products, administration and distribution channels are customized to meet customer needs and expectations for that product.

        We market our group life, disability, dental and vision insurance products to small and medium-sized businesses, primarily targeting our sales toward owners and human resources professionals. We sell our group life, disability, dental and vision products in all 50 states and the District of Columbia. We continually adapt our products and pricing to meet local market conditions. We market our fee-for-service capabilities to employers that self-insure their employees' dental, disability and vision benefits. We market our fee-for-service businesses in all 50 states and the District of Columbia.

        The group insurance market continues to see a shift to voluntary/worksite products due to various pressures on employers. In keeping with this market change, which shifts the funding of such products from the employer to the employee, we continue to place an enhanced focus on our voluntary benefits platform. We believe the voluntary/worksite market presents growth opportunities, and we will continue to develop strategies to capitalize on this expanding market.

        As of December 31, 2015, we had 119 sales representatives and 144 service representatives in 28 local markets. Our sales representatives accounted for 98% of our group insurance sales for the year ended December 31, 2015. The service representatives play a key role in servicing the case by providing local, responsive services to our customers and their brokers, such as renewing contracts, revising plans, solving administrative issues and communicating the customers' needs and feedback to us.

        We sell our individual life and individual disability income products in all 50 states and the District of Columbia, primarily targeting owners and executives of small and medium-sized businesses. Small and medium-sized business sales represented 58% of individual life sales and 61% of individual disability sales for the year ended December 31, 2015. Much of our life insurance sales efforts focus on the Business Owner and Executive Solutions market. This strategy offers solutions to address business owner financial challenges such as exiting the business, business transition, retaining key employees and retirement planning. Key employees also have needs to supplement retirement income, survivor income, and business protection. We believe the Business Owner and Executive Solutions segment offers growth opportunities and we will continue to develop strategies to capitalize on this expanding market.

        We distribute our individual life and individual disability insurance products through our affiliated financial representatives and independent brokers, as well as other marketing and distribution alliances. Affiliated financial representatives were responsible for 25% of individual life insurance sales based on first year annualized premium and 14% of individual disability sales for the year ended December 31, 2015. We had 1,261 affiliated financial representatives in 33 offices as of December 31, 2015. Although they are independent contractors, we have a close tie with affiliated financial representatives and we offer them benefits, training and access to tools and expertise. To meet the needs of the various marketing channels, particularly the independent brokers, we employ wholesale distributors — Regional Vice Presidents for individual life and Regional Vice Presidents for individual disability. A key differentiator in the nonqualified executive benefit sale is our Regional Vice Presidents-Nonqualified Plans, who are not only wholesalers but also consultants and subject-matter experts providing point-of-sale support in closing cases.

Corporate Segment

        Our Corporate segment manages the assets representing capital that has not been allocated to any other segment. Financial results of the Corporate segment primarily reflect our financing activities (including interest expense and preferred stock dividends), income on capital not allocated to other segments, inter-segment eliminations, income tax risks and certain income, expenses and other adjustments not allocated to the segments based on the nature of such items. Results of Princor, our retail broker-dealer and registered investment advisor, and our exited group medical insurance business are reported in this segment.

Competition

        Competition in our segments is based on a number of factors including: scale, service, product features, price, investment performance, commission structure, distribution capacity, financial strength ratings and name recognition. We compete with a large number of financial services companies such as banks, mutual funds, broker-dealers, insurers and asset managers. Some of these companies offer a broader array of products, more competitive pricing, greater diversity of distribution sources, better brand recognition or, with respect to insurers, higher financial strength ratings. Some may also have greater financial resources with which to compete or may have better investment performance at various times. We believe we distinguish ourselves from our competitors through our:

    full service platform;

    strong customer relationships;

    focus on investment performance and

    expansive product portfolio.

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Ratings

        Insurance companies are assigned financial strength ratings by rating agencies based upon factors relevant to policyholders. Financial strength ratings are generally defined as opinions as to an insurer's financial strength and ability to meet ongoing obligations to policyholders. Information about ratings provides both industry participants and insurance consumers meaningful insights on specific insurance companies. Higher ratings generally indicate financial stability and a stronger ability to pay claims.

        Principal Life and Principal National Life Insurance Company ("PNLIC") have been assigned the following insurer financial strength ratings:

Rating Agency   Financial Strength Rating   Rating Structure
A.M. Best Company, Inc.    A+ ("Superior") with a stable outlook   Second highest of 16 rating levels
Fitch Ratings Ltd.    AA– ("Very Strong") with a stable outlook   Fourth highest of 19 rating levels
Moody's Investors Service   A1 ("Good") with a stable outlook   Fifth highest of 21 rating levels
Standard & Poor's   A+ ("Strong") with a stable outlook   Fifth highest of 24 rating levels

        A.M. Best's ratings for insurance companies range from "A++" to "S". A.M. Best indicates that "A++" and "A+" ratings are assigned to those companies that in A.M. Best's opinion have superior ability to meet ongoing insurance obligations. Fitch's ratings for insurance companies range from "AAA" to "C". Fitch "AA" ratings indicate very strong capacity to meet policyholder and contractholder obligations. Moody's Investors Service ratings for insurance companies range from "Aaa" to "C". Moody's Investors Service indicates that "A" ratings are assigned to those companies that offer good financial security. Standard & Poor's ratings for insurance companies range from "AAA" to "NR". Standard & Poor's indicates that "A" ratings are assigned to those companies that have strong financial security characteristics. In evaluating a company's financial and operating performance, these rating agencies review its profitability, leverage and liquidity, as well as its book of business, the adequacy and soundness of its reinsurance, the quality and estimated market value of its assets, the adequacy of its policy reserves, the soundness of its risk management programs, the experience and competency of its management and other factors. All of the four rating agencies maintain a 'stable' outlook on the U.S. life insurance sector. The rating agencies have indicated they expect gradually increasing interest rates will help stabilize earnings on spread businesses and rising equity markets will grow assets under management.

        We believe our strong ratings are an important factor in marketing our products to our distributors and customers, as ratings information is broadly disseminated and generally used throughout the industry. Our ratings reflect each rating agency's opinion of our financial strength, operating performance and ability to meet our obligations to policyholders and are not evaluations directed toward the protection of investors. Such ratings are neither a rating of securities nor a recommendation to buy, hold or sell any security, including our common stock. For more information on ratings, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Financial Strength and Credit Ratings."

Regulation

        Our businesses are subject to regulation and supervision by U.S. federal and state regulatory authorities as well as non-U.S. regulatory authorities for our operations outside the U.S., which can have a significant effect on our business. Our businesses are also affected by U.S. federal, state and local tax laws as well as tax laws for jurisdictions outside the U.S.

        PFG, our parent holding company, is not licensed as an insurer, investment advisor, broker-dealer, bank or other regulated entity. However, because it is the holding company for all of our operations, it is subject to regulation of our regulated entities, including as an insurance holding company. We are subject to legal and regulatory requirements applicable to public companies, including public reporting and disclosure, securities trading, accounting and financial reporting and corporate governance.

U.S. Insurance Regulation

        We are subject to the insurance holding company laws in the states where our insurance companies are domiciled. Principal Life and PNLIC are domiciled in Iowa and their principal insurance regulatory authority is the Insurance Division of the Department of Commerce of the State of Iowa. Our other U.S. insurance companies are principally regulated by the insurance departments of the states in which they are domiciled. These laws generally require each insurance company directly or indirectly owned by the holding company to register with the insurance department in the insurance company's state of domicile and to furnish financial and other information about the operations of the companies within the holding company system. Transactions affecting the insurers in the holding company system must be fair and at arm's length. Most states have insurance laws that require regulatory approval of a direct or indirect change in control of an insurer or an insurer's holding company and laws requiring prior notification of state insurance departments of a change in control of a non-domiciliary insurance company doing business in that state.

        Annually, our U.S. insurance companies must submit an opinion from a board-appointed qualified actuary to state insurance regulators, where licensed, on whether the statutory assets held backing statutory reserves are sufficient to meet contractual obligations and related expenses of the insurer. If such an opinion cannot be rendered noting the

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sufficiency of assets, then the insurance company must set up additional statutory reserves drawing from available statutory surplus until such an opinion can be given.

        State insurance departments have broad administrative powers over the insurance business, including insurance company licensing and examination, agent licensing, establishment of reserve requirements and solvency standards, premium rate regulation, admittance of assets to statutory surplus, policy form approval, unfair trade and claims practices regulation and other matters. State insurance statutes also typically place restrictions and limitations on the amount of dividends or other distributions payable by insurance company subsidiaries to their parent companies. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" for further details.

        In order to enhance the regulation of insurer solvency, the National Association of Insurance Commissioners ("NAIC") has established risk-based capital standards. The standards require life insurers to submit a report to state regulators on an annual basis regarding their risk-based capital based upon four categories of risk: asset risk, insurance risk, interest rate risk and business risk. As of December 31, 2015, the statutory surplus of each of our U.S. life insurance companies exceeded the minimum level of risk-based capital requirements required before state insurance departments would take action against an insurer.

        State and federal insurance and securities regulatory authorities and other state law enforcement agencies and attorneys general regularly make inquiries and conduct examinations or investigations regarding our compliance with, among other things, insurance laws and securities laws.

        Each state has insurance guaranty association laws under which insurers doing business in a state can be assessed, up to prescribed limits, in order to cover contractual benefit obligations of insolvent insurance companies. The guaranty associations levy assessments on each member insurer in a jurisdiction on the basis of the proportionate share of the premiums written by such insurer in the lines of business in which the insolvent insurer is engaged. Some jurisdictions permit the member insurers to recover the assessments paid through full or partial premium tax offsets.

Securities Regulation

        Insurance and investment products such as variable annuities, variable life insurance and some funding agreements that constitute securities and mutual fund products are subject to securities laws and regulations, including state securities regulation as well as federal regulation under the SEC, the Financial Industry Regulatory Authority and other regulatory authorities. These regulations affect investment advice, sales and related activities for these products.

        We also have entities which are registered as investment advisers with the SEC under the Investment Advisers Act of 1940.

Employee Retirement Income Security Act

        As we provide products and services for U.S. employee benefit plans, we are subject to regulation under the Employee Retirement Income Security Act ("ERISA"). ERISA provisions include reporting and disclosure requirements and standards of conduct.

Banking Regulation

        Principal Bank, a wholly owned subsidiary, is a federal savings bank regulated by the Office of the Comptroller of the Currency. Principal Bank's deposits are insured by the FDIC, making the Bank subject to certain of the FDIC's regulations.

Environmental Regulation

        As we own and operate real property, we are subject to federal, state and local environmental laws and could be subject to environmental liabilities and costs associated with required remediation of our properties. We routinely have environmental assessments performed for real estate being acquired or used as collateral for commercial mortgages we use for investment.

Regulation of International Businesses

        Our international businesses are supervised by regulatory authorities in the jurisdictions in which they operate.

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Risk Management

        Like all financial services companies, we are exposed to a wide variety of financial, operational and other risks, as described in Item 1A. "Risk Factors." Effective enterprise risk management is, therefore, a key component of our business model. Enterprise risk management helps us to:

    identify and manage those risks that present profitable growth opportunities, and avoid those that do not and

    balance the sometimes competing demands of our various stakeholders, meet our customer obligations, satisfy regulatory requirements and optimize shareholder returns relative to the risks we take.

        We utilize an integrated risk management framework to help us identify, assess, monitor, report, manage and aggregate our material risks within established risk appetites and risk tolerances. The framework delivers important perspective that is used in strategic and tactical decision making and is adaptable to changes in our businesses and in the external environments in which we operate. Our approach also requires a commitment to continuous improvement and periodic validation.

        Our governance structure includes Board of Directors oversight, internal risk committees, a corporate risk management function and embedded risk professionals in our business units and functional areas. Our Board of Directors, Audit Committee, Finance Committee, Human Resource Committee and Nominating and Governance Committee provide oversight no less frequently than quarterly, addressing relevant aspects of our risk profile.

        Our internal risk committees meet on a regular and frequent basis to discuss various issues and review profile status. Each business unit and key functional area has its own committee that is responsible for oversight of the material risks within the unit or area. These committees may include corporate leaders. We also have internal committees that provide oversight around a certain risk or group of related risks across the organization. This matrix approach helps us maintain comprehensive risk coverage and preserve an integrated view of risks. The Enterprise Risk Management Committee, comprised of members from the executive management team, exercises enterprise-wide oversight for our most significant risk profiles.

        The business units and functional areas are responsible for identifying, assessing, monitoring, reporting and managing their own risks. Chief Risk Officers embedded within each business unit or risk professionals in functional areas help align risk management practice with the strategies of the unit as well as with enterprise-wide objectives. The Corporate Chief Risk Officer and supporting staff are separate from the business units and provide objective oversight, framework enablement and aggregated risk analysis. Internal Audit provides independent assurance around effective risk management design and control execution.

        Risk appetites, tolerances and limits have been established from an enterprise-wide and business unit perspective for specific risk categories, where appropriate. We monitor a variety of risk metrics on an ongoing basis and take the appropriate steps to manage our established risk appetites and tolerances. Quarterly risk reporting provides a feedback loop between business units, functional areas, our internal risk committees and the corporate risk management function. This reporting also includes perspectives on emerging risk. To the extent potentially significant business activities or operational initiatives are considered, analysis of the possible impact on our risk profile takes place. This analysis includes, but is not limited to, the capital implications; the impact on near term and long-term earnings; the ability to meet our targets with respect to return on equity, liquidity, debt/capital, cash coverage, business risk and operational risk; and the impact to our reputation.

Employees

        As of December 31, 2015, we had 14,895 employees. None of our employees are subject to collective bargaining agreements governing employment with us. We believe that our employee relations are satisfactory.

Internet Website

        Our Internet website can be found at www.principal.com. We make available free of charge, on or through our Internet website, access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material is filed with or furnished to the SEC. Also available free of charge on our Internet website is our code of business conduct and ethics, corporate governance guidelines and charters for the Audit, Finance, Human Resources and Nominating and Governance committees of our Board of Directors. Also see Item 10. "Directors, Executive Officers and Corporate Governance."

Item 1A.    Risk Factors

        This section provides an overview of the risks that may impact our performance in the future.

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Risks relating to economic conditions, market conditions and investments

Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, as well as our access to capital and cost of capital.

        Our results of operations, financial condition, cash flows and statutory capital position could be materially adversely affected by volatility, uncertainty and disruption in the capital and credit markets.

        We maintain a level of cash and securities which, combined with expected cash inflows from investments and operations, is believed adequate to meet anticipated short-term and long-term benefit and expense payment obligations. However, withdrawal and surrender levels may differ from anticipated levels for a variety of reasons, such as changes in economic conditions or changes in our claims paying ability and financial strength ratings. For additional information regarding our exposure to interest rate risk and the impact of a downgrade in our financial strength ratings, see "— Changes in interest rates or credit spreads or a sustained low interest rate environment may adversely affect our results of operations, financial condition and liquidity, and our net income can vary from period to period" and "— A downgrade in our financial strength or credit ratings may increase policy surrenders and withdrawals, reduce new sales and terminate relationships with distributors, impact existing liabilities and increase our cost of capital, any of which could adversely affect our profitability and financial condition." In addition, mark-to-market adjustments on our derivative instruments may lead to fluctuations in our reported statutory capital. These fluctuations may result in the need for additional capital to maintain a targeted level of statutory capital relative to the NAIC's risk-based capital requirements. In the event our current internal sources of liquidity do not satisfy our needs, we may have to seek additional financing and, in such case, we may not be able to successfully obtain additional financing on favorable terms, or at all. The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, our credit ratings and credit capacity, as well as customers' or lenders' perception of our long- or short-term financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us.

        Disruptions, uncertainty or volatility in the capital and credit markets may limit our access to capital required to operate our business, most significantly our insurance operations. Such market conditions may limit our ability to replace, in a timely manner, maturing liabilities; satisfy statutory capital requirements; fund redemption requests on insurance or other financial products; generate fee income and market-related revenue to meet liquidity needs and access the capital necessary to grow our business. As such, we may be forced to delay raising capital, issue shorter tenor securities than we prefer, utilize available internal resources or bear an unattractive cost of capital, which could decrease our profitability and significantly reduce our financial flexibility and liquidity.

        In addition, we maintain credit facilities with various financial institutions as a potential source of excess liquidity. These facilities are in place to bridge timing in cash flows to minimize the cost of meeting our obligations, particularly during periods when alternative sources of liquidity are limited. Our ability to borrow funds under these facilities is conditioned on our satisfaction of covenants and other requirements contained in the facilities. Our failure to comply with these covenants, or the failure of lenders to fund their lending commitments, would restrict our ability to access these credit facilities and, consequently, could limit our flexibility in meeting our cash flow needs.

        For further discussion on liquidity risk management, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources."

Conditions in the global capital markets and the economy generally may materially and adversely affect our business and results of operations.

        Our results of operations are materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere around the world. Adverse economic conditions may result in a decline in our AUM and revenues and erosion of our profit margins. In addition, in the event of extreme prolonged market events and economic downturns, we could incur significant losses. Even in the absence of a market downturn, we are exposed to substantial risk of loss due to market volatility.

        Factors such as consumer spending, business investment, government spending, the volatility and strength of the capital markets, investor and consumer confidence and inflation levels all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment, negative investor sentiment and lower consumer spending, the demand for our financial and insurance products could be adversely affected. In addition, we may experience an elevated incidence of claims and lapses or surrenders of policies. Our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. In addition, reductions in employment levels of our existing employer customers may result in a reduction in membership levels and premium income for our specialty benefits products. Participants within the retirement plans for which we provide administrative services may elect to reduce or stop their payroll deferrals to these plans, which would reduce AUM and revenues. In addition, reductions in employment levels may result in a decline in employee deposits into retirement plans. Adverse changes in the economy could affect net income negatively and could have a material adverse effect on our business, results of operations and financial condition.

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Volatility or declines in the equity, bond or real estate markets could reduce our AUM and may result in investors withdrawing from the markets or decreasing their rates of investment, all of which could reduce our revenues and net income.

        Because the revenues of our asset management and accumulation businesses are, to a large extent, based on the value of AUM, a decline in domestic and global equity, bond or real estate markets will decrease our revenues. Turmoil in these markets could lead investors to withdraw from these markets, decrease their rates of investment or refrain from making new investments, which may reduce our net income, revenues and AUM. As we continue to shift toward a more fee-based business model, our revenues and net income may become more sensitive to fluctuations in the equity, bond, and real estate markets.

        For further discussion on equity risk management, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk — Equity Risk."

Changes in interest rates or credit spreads or a sustained low interest rate environment may adversely affect our results of operations, financial condition and liquidity, and our net income can vary from period to period.

        In recent years, interest rates have remained at or near historically low levels. During periods of declining interest rates or sustained low interest rates, the interest rates we earn on our assets may be lower than the rates assumed in pricing our products, thereby reducing our profitability. For some of our products, such as GICs and funding agreements, we are unable to lower the rate we credit to customers in response to the lower return we will earn on our investments. In addition, guaranteed minimum interest rates on our life insurance and annuity products may constrain our ability to lower the rate we credit to customers. If interest rates remain low over a sustained period of time, this may result in increases in our reserves and unlocking of our deferred acquisition cost ("DAC") asset and other actuarial balances. During periods of declining interest rates, borrowers may prepay or redeem mortgages and bonds that we own, which would force us to reinvest the proceeds at lower interest rates. Furthermore, declining interest rates may reduce the rate of policyholder surrenders and withdrawals on our life insurance and annuity products, thus increasing the duration of the liabilities and creating asset and liability duration mismatches. Low interest rates may also result in increased hedging costs. Declining interest rates or a sustained low interest rate environment may also result in changes to the discount rate assumption used for valuing our pension and other postretirement benefit ("OPEB") obligations, which could negatively impact our results of operations and financial condition. In addition, certain statutory capital and reserve requirements are based on formulas or models that consider interest rates and a prolonged period of low interest rates may increase the statutory capital we are required to hold as well as the amount of assets we must maintain to support statutory reserves.

        Increases in market interest rates may also adversely affect our results of operations, financial condition, and liquidity. During periods of increasing market interest rates, we may offer higher crediting rates on our insurance and annuity products in order to keep these products competitive. Because returns on our portfolio of invested assets may not increase as quickly as current interest rates, we may have to accept lower spreads, thus reducing our profitability. Rapidly rising interest rates may also result in an increase in policy surrenders, withdrawals, and requests for policy loans as customers seek to achieve higher returns. In addition, rising interest rates would cause unrealized losses in our investment portfolio. Despite our efforts to reduce the impact of rising interest rates, we may be required to sell assets to raise the cash necessary to respond to an increase in surrenders, withdrawals and loans, thereby realizing capital losses on the assets sold. An increase in policy surrenders and withdrawals may also require us to accelerate amortization of our DAC asset relating to these products, which would further reduce our profitability. Rising interest rates may also cause a decline in the value of the fixed income assets that we manage, resulting in a reduction in our fee revenue. In addition, a significant increase in interest rates may cause a reduction in the fair value of intangible assets in our reporting units, potentially leading to an impairment of goodwill or other intangible assets.

        For discussion on interest rate risk management, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk".

        Our exposure to credit spreads primarily relates to market price variability and reinvestment risk associated with changes in credit spreads. A widening of credit spreads would cause unrealized losses in our investment portfolio, would increase losses associated with credit-based derivatives we have sold that do not qualify or have not been designated for hedge accounting where we assume credit exposure and, if issuer credit spreads increase as a result of fundamental credit deterioration, would likely result in higher other-than-temporary impairments. Credit spread tightening will reduce net investment income associated with new purchases of fixed maturities. Credit spread tightening may also cause an increase in the reported value of certain liabilities that are valued using a discount rate that reflects our own credit spread. In addition, market volatility may make it difficult to value certain of our securities if trading becomes less frequent. As such, valuations may include assumptions or estimates that may have significant period-to-period changes from market volatility, which could have a material adverse effect on our results of operations or financial condition.

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Our investment portfolio is subject to several risks that may diminish the value of our invested assets and the investment returns credited to customers, which could reduce our sales, revenues, AUM and net income.

    An increase in defaults or write-downs on our fixed maturities portfolio may reduce our profitability.

        We are subject to the risk that the issuers of the fixed maturities we own will default on principal and interest payments, particularly if a major downturn in economic activity occurs. As of December 31, 2015, our U.S. investment operations held $47.1 billion of fixed maturities, or 74% of total U.S. invested assets, of which approximately 8% were below investment grade, including $243.8 million, or 0.52% of our total fixed maturities which we classified as either "problem," "potential problem" or "restructured." See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Investments — U.S. Investment Operations — Fixed Maturities."

        Our U.S. fixed maturities portfolio includes securities collateralized by residential and commercial mortgage loans. As of December 31, 2015, our U.S. investment operations held $4.2 billion of residential mortgage-backed securities ("RMBS"), of which $2.6 billion are Government National Mortgage Association, Federal National Mortgage Association or Federal Home Loan Mortgage Corporation pass-through securities, and $3.9 billion of commercial mortgage-backed securities, which represent in combination 17% of our total fixed maturities portfolio. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Investments — U.S. Investment Operations — Fixed Maturities." For residential mortgage-backed securities, prepayment speeds, changes in mortgage delinquency or recovery rates, credit rating changes by rating agencies, changes in property values underlying the loans and the quality of service provided by service providers on securities in our portfolios could lead to write-downs on these securities. For commercial mortgage-backed securities, changes in mortgage delinquency or default rates, interest rate movements, credit quality and vintage of the underlying loans, changes in property values underlying the loans and credit rating changes by rating agencies could result in write-downs of those securities.

        Approximately $1.1 billion of our U.S. commercial mortgage-backed securities are scheduled to mature in 2017. We may be exposed to losses if borrowers in the underlying mortgages are unable to repay their loans at the time of maturity. Several mitigating factors have resulted in strong refinancing rates in 2014 and 2015. These factors include low interest rates, improving real estate fundamentals, and the availability of capital from the new issues and high yield debt markets. However, refinancing risks could increase over the next two years if we experience high interest rates that are not supported by commensurate economic growth or a slowdown in the economy that results in lower income growth and a decline in property values.

        As of December 31, 2015, the international investment operations of our fully consolidated subsidiaries held $3.6 billion of fixed maturities, or 55%, of total international invested assets, of which 14% are government bonds. Some non-government bonds have been rated on the basis of the issuer's country credit rating. However, the ratings relationship between national ratings and global ratings is not linear with the U.S. The starting point for national ratings differs by country, which makes the assessment of credit quality more difficult. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Investments — International Investment Operations." An increase in defaults on our fixed maturities portfolio could harm our financial strength and reduce our profitability.

    An increased rate of delinquency and defaults on our commercial mortgage loans, including balloon maturities with and without amortizing payments, may adversely affect our profitability.

        Our commercial mortgage loan portfolio faces both delinquency and default risk. Commercial mortgage loans of $11.2 billion represented 16% of our total invested assets as of December 31, 2015. As of December 31, 2015, loans that were in the process of foreclosure totaled $0.0 million, or 0% of our commercial mortgage loan portfolio. The performance of our commercial mortgage loan investments, however, may fluctuate in the future. An increase in the delinquency rate of, and defaults under, our commercial mortgage loan portfolio could harm our financial strength and decrease our profitability.

        As of December 31, 2015, approximately $9.2 billion, or 82%, of our U.S. investment operations commercial mortgage loans before valuation allowance had balloon payment maturities. A balloon maturity is a loan with all or a meaningful portion of the loan amount due at the maturity of the loan. The default rate on commercial mortgage loans with balloon payment maturities has historically been higher than for commercial mortgage loans with a fully amortizing loan structure. Since a significant portion of the principal is repaid at maturity, the amount of loss on a default is generally greater than fully amortizing commercial mortgage loans. An increase in defaults on balloon maturity loans as a result of the foregoing factors could harm our financial strength and decrease our profitability.

    Mark-to-market adjustments on certain equity method investments and trading securities may reduce our profitability or cause volatility in our reported earnings.

        Our investment portfolio includes certain equity method investments and trading securities that are reported at fair value on the consolidated statements of financial position, with changes in fair value reported in net investment income on the consolidated statements of operations. Mark-to-market adjustments on these investments may reduce our profitability or cause our net income to vary from period to period. We anticipate that acquisition and investment activities may increase the number and magnitude of these investments in the future.

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    We may have difficulty selling our privately placed fixed maturities, commercial mortgage loans and real estate investments because they are less liquid than our publicly traded fixed maturities.

        We hold certain investments that may be less liquid, such as privately placed fixed maturities, mortgage loans and real estate investments. These asset classes represented approximately 42% of the value of our invested assets as of December 31, 2015.

        If we require significant amounts of cash on short notice, we may have difficulty selling these investments in a timely manner, be forced to sell them for less than we otherwise would have been able to realize or both. The reported value of our relatively illiquid types of investments, our investments in the asset classes described above and, at times, our high quality, generally liquid asset classes, do not necessarily reflect the lowest possible price for the asset. If we were forced to sell certain of our assets in the current market, there can be no assurance that we will be able to sell them for the prices at which we have recorded them and we may be forced to sell them at significantly lower prices.

    The impairment of other financial institutions could adversely affect us.

        We use derivative instruments to hedge various risks we face in our businesses. See Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." We enter into a variety of derivative instruments with a number of counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, clearinghouses, exchanges and other institutions. For transactions where we are in-the-money, we are exposed to credit risk in the event of default of our counterparty. We establish collateral agreements with nominal thresholds for a large majority of our counterparties to limit our exposure. However, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure. With regard to our derivative exposure, we have over-collateralization requirements on the portion of collateral we hold, based on the risk profile of the assets posted as collateral. We also have exposure to these financial institutions in the form of unsecured debt instruments and equity investments. Such losses or impairments to the carrying value of these assets may materially and adversely affect our business and results of operations.

    Our requirements to post collateral or make payments related to declines in market value of specified assets may adversely affect our liquidity and expose us to counterparty credit risk.

        Many of our derivative transactions with financial and other institutions specify the circumstances under which the parties are required to post collateral. The amount of collateral we may be required to post under these agreements may increase under certain circumstances, which could adversely affect our liquidity. In addition, under the terms of some of our transactions we may be required to make payment to our counterparties related to any decline in the market value of the specified assets. Such payments could have an adverse effect on our liquidity. Furthermore, with respect to any such payments, we will have unsecured risk to the counterparty as these amounts are not required to be segregated from the counterparty's other funds, are not held in a third party custodial account, and are not required to be paid to us by the counterparty until the termination of the transaction.

    Environmental liability exposure may result from our commercial mortgage loan portfolio and real estate investments.

        Liability under environmental protection laws resulting from our commercial mortgage loan portfolio and real estate investments may harm our financial strength and reduce our profitability. Under the laws of several states, contamination of a property may give rise to a lien on the property to secure recovery of the costs of cleanup. In some states, this kind of lien has priority over the lien of an existing mortgage against the property, which would impair our ability to foreclose on that property should the related loan be in default. In addition, under the laws of some states and under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, we may be liable for costs of addressing releases or threatened releases of hazardous substances that require remedy at a property securing a mortgage loan held by us, if our agents or employees have become sufficiently involved in the hazardous waste aspects of the operations of the related obligor on that loan, regardless of whether or not the environmental damage or threat was caused by the obligor. We also may face this liability after foreclosing on a property securing a mortgage loan held by us. This may harm our financial strength and decrease our profitability.

    Regional concentration of our commercial mortgage loan portfolio in California may subject us to losses attributable to economic downturns or catastrophes in that state.

        Commercial mortgage lending in the state of California accounted for 18%, or $2.0 billion, of our U.S. investment operations commercial mortgage loan portfolio before valuation allowance as of December 31, 2015. Due to this concentration of commercial mortgage loans in California, we are exposed to potential losses resulting from the risk of an economic downturn in California as well as to catastrophes, such as earthquakes, that may affect the region. While we generally do not require earthquake insurance for properties on which we make commercial mortgage loans, we do take into account property specific engineering reports, construction type and geographical concentration by fault lines in our investment underwriting guidelines. If economic conditions in California deteriorate or catastrophes occur, we may in the future experience delinquencies or defaults on the portion of our commercial mortgage loan portfolio located in California, which may harm our financial strength and reduce our profitability.

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    Gross unrealized losses may be realized or result in future impairments, resulting in a reduction in our net income.

        Fixed maturities that are classified as available-for-sale ("AFS") are reported on the consolidated statements of financial position at fair value. Unrealized gains or losses on AFS securities are recognized as a component of accumulated other comprehensive income ("AOCI") and are, therefore, excluded from net income. Our U.S. investment operations had gross unrealized losses on fixed maturities of $0.8 billion pre-tax as of December 31, 2015, and the component of gross unrealized losses for securities trading down 20% or more for over six months was approximately $0.2 billion pre-tax. The accumulated change in fair value of the AFS securities is recognized in net income when the gain or loss is realized upon the sale of the asset or in the event that the decline in fair value is determined to be other than temporary (referred to as an other-than-temporary impairment). Realized losses or impairments may have a material adverse impact on our net income in a particular quarterly or annual period.

    Fluctuations in foreign currency exchange rates could adversely impact our profitability and financial condition.

        Principal International writes policies denominated in various local currencies and generally invests the associated assets in local currencies. For diversification purposes, assets backing the products may be partially invested in non-local currencies, and the associated foreign currency exchange risk is hedged or managed to specific risk tolerances. Although our investment and hedging strategies limit the effect of currency exchange rate fluctuation on local operating results, fluctuations in such rates affect the translation of these results into our consolidated financial statements. For further discussion on foreign currency exchange risk, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency Risk."

Risks relating to estimates, assumptions and valuations

Our valuation of investments and the determinations of the amount of allowances and impairments taken on our investments may include methodologies, estimations and assumptions which are subject to differing interpretations and, if changed, could materially adversely affect our results of operations or financial condition.

        Fixed maturities, equity securities and derivatives represented the majority of total cash and invested assets reported at fair value on our consolidated statements of financial position, excluding separate accounts. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Fair value estimates are made based on available market information and judgments about the financial instrument at a specific point in time. Considerable judgment is often required to develop estimates of fair value, and the use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

        For additional information on our valuation methodology, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Fair Value Measurements."

        During periods of market disruption including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain securities, for example collateralized mortgage obligations and collateralized debt obligations, if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the current financial environment. In such cases, the valuation process may require more subjectivity and management judgment. As such, valuations may include inputs and assumptions that are less observable or require greater estimation as well as valuation methods that require greater estimation, which could result in values that are different from the value at which the investments may be ultimately sold. Further, rapidly changing credit and equity market conditions could materially impact the valuation of securities as reported within our consolidated financial statements and the period-to-period changes in value could vary significantly. Decreases in value may have a material adverse effect on our results of operations or financial condition.

        The determination of the amount of allowances and impairments vary by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. There can be no assurance that our management has accurately assessed the level of impairments taken and allowances reflected in our financial statements. Furthermore, additional impairments may need to be taken or allowances provided for in the future. Historical trends may not be indicative of future impairments or allowances.

        Additionally, our management considers a wide range of factors about the instrument issuer and uses their best judgment in evaluating the cause of the decline in the estimated fair value of the instrument and in assessing the prospects for recovery. Inherent in management's evaluation of the instrument are assumptions and estimates about the operations of the issuer and its future earnings potential. For further information regarding our impairment and allowance methodologies, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Investments — U.S. Investment Operations" under the captions "Fixed Maturities" and "Mortgage Loans" and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation — Critical Accounting Policies and Estimates — Valuation and Impairment of Fixed Income Investments."

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Any impairments of or valuation allowances against our deferred tax assets could adversely affect our results of operations and financial condition.

        Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect during the years in which the basis differences reverse. We are required to evaluate the recoverability of our deferred tax assets each quarter and establish a valuation allowance, if necessary, to reduce our deferred tax assets to an amount that is more-likely-than-not to be realizable. In determining the need for a valuation allowance, we consider many factors, including future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years and implementation of any feasible and prudent tax planning strategies management would employ to realize the tax benefit.

        Inherent in the provision for income taxes are estimates regarding the deductibility of certain items, the timing of income and expense recognition and the current or future realization of operating losses, capital losses and certain tax credits. In the event these estimates differ from our prior estimates due to the receipt of new information, we may be required to significantly change the provision for income taxes recorded in the consolidated financial statements. Any such change could significantly affect the amounts reported in the consolidated financial statements in the year these estimates change. A further significant decline in value of assets incorporated into our tax planning strategies could lead to an increase of our valuation allowance on deferred tax assets having an adverse effect on current and future results.

        For additional information, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation — Critical Accounting Policies and Estimates — Income Taxes."

We may face losses if our actual experience differs significantly from our pricing and reserving assumptions.

        Our profitability depends significantly upon the extent to which our actual experience is consistent with the assumptions used in setting prices for our products and establishing liabilities for future insurance and annuity policy benefits and claims. The premiums that we charge and the liabilities that we hold for future policy benefits are based on assumptions reflecting a number of factors, including the amount of premiums that we will receive in the future, rate of return on assets we purchase with premiums received, expected claims, mortality, morbidity, lapse rates and expenses. However, due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of the liabilities for unpaid policy benefits and claims, we cannot determine precisely the amounts we will ultimately pay to settle these liabilities. As a result, we may experience volatility in the level of our profitability and our reserves from period to period. To the extent that actual experience is less favorable than our underlying assumptions, we could be required to increase our liabilities, which may harm our financial strength and reduce our profitability.

        For example, if mortality rates are higher than our pricing assumptions, we will be required to make greater claims payments on our life insurance policies than we had projected. However, this risk may be partially offset by our payout annuity business, where an increase in mortality rates will result in a decrease in benefit payments, and our use of third party reinsurance. Our results of operations may also be adversely impacted by an increase in morbidity rates.

        Our results of operations may also be adversely impacted if our actual investment earnings differ from our pricing and reserve assumptions. Changes in economic conditions may lead to changes in market interest rates or changes in our investment strategies, either of which could cause our actual investment earnings to differ from our pricing and reserve assumptions.

        For additional information on our insurance reserves, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Insurance Reserves."

The pattern of amortizing our DAC and other actuarial balances on our universal life-type insurance contracts, participating life insurance policies and certain investment contracts may change, impacting both the level of the DAC and other actuarial balances and the timing of our net income.

        Amortization of the DAC asset and other actuarial balances depends on the actual and expected profits generated by the lines of business that incurred the expenses. Expected profits are dependent on assumptions regarding a number of factors including investment returns, benefit payments, expenses, mortality and policy lapse. Due to the uncertainty associated with establishing these assumptions, we cannot, with precision, determine the exact pattern of profit emergence. As a result, amortization of these balances will vary from period to period. To the extent that actual experience emerges less favorably than expected, or our expectation for future profits decreases, the DAC asset and other actuarial balances may be adjusted, reducing our profitability in the current period.

        For additional information, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation — Critical Accounting Policies and Estimates — Deferred Acquisition Costs and Other Actuarial Balances."

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Legal, regulatory and tax risks

We may not be able to protect our intellectual property and may be subject to infringement claims.

        We rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and protect our intellectual property. Although we use a broad range of measures to protect our intellectual property rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, patents, trade secrets and know-how or to determine their scope, validity or enforceability, which represents a diversion of resources that may be significant in amount and may not prove successful. The loss of intellectual property protection or the inability to secure or enforce the protection of our intellectual property assets could have a material adverse effect on our business and our ability to compete.

        We also may be subject to costly litigation in the event that another party alleges our operations or activities infringe upon such other party's intellectual property rights. Third parties may have, or may eventually be issued, patents or other protections that could be infringed by our products, methods, processes or services or could otherwise limit our ability to offer certain product features. Any party that holds such a patent could make a claim of infringement against us. We may also be subject to claims by third parties for breach of copyright, trademark, license usage rights, or misappropriation of trade secret rights. Any such claims and any resulting litigation could result in significant liability for damages. If we were found to have infringed or misappropriated a third party patent or other intellectual property rights, we could incur substantial liability, and in some circumstances could be enjoined from providing certain products or services to our customers or utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets or licenses, or alternatively could be required to enter into costly licensing arrangements with third parties, all of which could have a material adverse effect on our business, results of operations and financial condition.

Our ability to pay stockholder dividends and meet our obligations may be constrained by the limitations on dividends Iowa insurance laws impose on Principal Life.

        We are an insurance holding company whose assets include all of the outstanding shares of the common stock of Principal Life and other subsidiaries. Our ability to pay dividends to our stockholders and meet our obligations, including paying operating expenses and any debt service, depends upon the receipt of dividends from Principal Life. Iowa insurance laws impose limitations on the ability of Principal Life to pay dividends to us. Any inability of Principal Life to pay dividends to us in the future may cause us to be unable to pay dividends to our stockholders and meet our other obligations. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" for a discussion of regulatory restrictions on Principal Life's ability to pay us dividends.

Changes in laws or regulations may reduce our profitability.

        Our insurance business is subject to comprehensive regulation and supervision throughout the U.S. and in the international markets in which we operate. We are also impacted by federal legislation and administrative policies in areas such as securities laws, employee benefit plan regulation, financial services regulations and federal and international taxation. Changes in laws or regulations or the interpretation thereof could significantly increase our compliance costs and reduce our profitability. Failure to comply with applicable regulations may expose us to significant penalties and reputational damage.

    Changes in insurance regulations may reduce our profitability.

        The primary purpose of insurance regulation is to protect policyholders, not stockholders. In the U.S., the laws of the various states establish insurance departments with broad powers to regulate such matters as:

    licensing companies to transact business,

    licensing agents,

    prescribing allowable practices for illustrating policies,

    admitting statutory assets,

    mandating a number of insurance benefits,

    regulating premium rates,

    approving policy forms,

    regulating unfair trade and claims practices,

    establishing statutory reserve requirements and solvency standards,

    regulating insurer use of affiliated reinsurance companies,

    fixing maximum interest rates on life insurance policy loans and minimum rates for accumulation of surrender values,

    restricting various transactions between affiliates and

    regulating the types, amounts and valuation of investments.

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        State insurance regulators, federal regulators and the NAIC continually reexamine existing laws and regulations, and may impose changes in the future. New interpretations of existing laws and the passage of new legislation may harm our ability to sell new policies, increase our claims exposure on policies we issued previously and adversely affect our profitability and financial strength.

        State insurance guaranty associations have the right to assess insurance companies doing business in their state for funds to help pay the obligations of insolvent insurance companies to policyholders and claimants. Because the amount and timing of an assessment is beyond our control, the liabilities we have established for these potential assessments may not be adequate. In addition, regulators may change their interpretation or application of existing laws and regulations.

        The NAIC regularly reviews and updates its statutory reserve and risk-based capital requirements. Changes to these requirements may increase the amount of reserves and capital we are required to hold and may adversely impact Principal Life's ability to pay dividends to us. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" for a discussion of regulatory restrictions on Principal Life's ability to pay us dividends. In addition, changes in statutory reserve or risk-based capital requirements may adversely impact our financial strength ratings. See the risk factor entitled "A downgrade in our financial strength or credit ratings may increase policy surrenders and withdrawals, reduce new sales and terminate relationships with distributors, impact existing liabilities and increase our cost of capital, any of which could adversely affect our profitability and financial condition" for a discussion of risks relating to our financial strength ratings.

        The NAIC is developing a principles-based reserving ("PBR") approach for life insurance and non-variable annuity products. The PBR framework for individual life insurance is expected to become effective for new business in 2017 with a three year transition period. The effective date for the group and individual annuity PBR framework is not yet known, but portions could be effective as soon as 2017. Under the PBR framework, statutory reserves would reflect a combination of company experience and prescribed assumptions and methodologies. The ultimate financial impact of the PBR framework on new business is uncertain, but it could result in higher reserves, more volatile reserves and uncertain tax treatment.

        We have implemented reinsurance transactions utilizing affiliated reinsurers to finance a portion of the reserves for our term life insurance policies and universal life insurance policies with secondary guarantees. Our ability to enter into new reserve financing transactions will continue to be dependent on the cost and forms of financing available in the market and our ability to obtain required regulatory approvals. Once life insurance PBR becomes fully effective, there may no longer be any financial advantage to pursuing the use of these affiliate reinsurance transactions. For additional information regarding our use of affiliated reinsurance transactions, see Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 15, Statutory Insurance Financial Information."

        The NAIC is working on updates to its statutory framework for variable annuities, which includes statutory reserve, capital and derivative accounting requirements. While we expect only a modest financial impact from these reforms, the details of the changes are uncertain and could negatively impact our profitability, capital position, or create additional volatility. The NAIC could implement these reforms as early as January 1, 2017. In addition, the New York Department of Financial Services is considering a revision to the separate account regulations of its state. The status of these revisions is very uncertain, but if adopted, these revisions could negatively impact the ability of New York licensed insurers to issue competitive variable annuity products nationally.

        The NAIC is pursuing a variety of reforms to its risk-based capital ("RBC") framework:

    One proposal includes a new component for operational risk which could be effective as early as 2016. We anticipate the operational risk component will increase our RBC requirements; however, the magnitude of the increase is not yet known.

    The NAIC is pursuing an update to the RBC credit risk factors for fixed income investments. This update is expected to increase the capital requirements for bonds. There is a chance that we may see a favorable reduction in factors for real estate investments, although the net impact will likely be an increase to our capital requirements. The credit risk factor revisions could be effective as early as 2016.

    The NAIC is in the early stages of considering an RBC stress testing requirement. The timeframe and potential impact of this proposal is uncertain.

    The NAIC has recently announced its desire to pursue the development of a group-wide capital calculation. This calculation is not intended to be a regulatory capital requirement, but it could be used by regulators in their supervisory process.

        Our international insurance businesses are also subject to comprehensive regulation and supervision from central and/or local governmental authorities in each country in which we operate. New interpretations of existing laws and regulations or the adoption of new laws and regulations may harm our international businesses and reduce our profitability in those businesses. Changes to capital requirements are currently included in draft proposals in Chile, Brazil and Mexico. India recently revised its capital requirements for the mutual fund business.

        The International Association of Insurance Supervisors (the "IAIS") has proposed a common framework for the supervision of Internationally Active Insurance Groups ("IAIGs"), which is scheduled to be effective in 2019. Under the proposed framework, IAIGs would be supervised on a group-wide basis across national boundaries and each IAIG would

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be required to conduct its own risk and solvency assessment to monitor and manage its overall solvency. The IAIS is also developing a risk-based global Insurance Capital Standard ("ICS"), which would apply to IAIGs. In addition, the Financial Stability Board is pursuing enhanced group supervisory and capital requirements for Global Systemically Important Insurers ("G-SIIs"). The enhanced capital requirements include the Basic Capital Requirements ("BCR") developed by the IAIS, along with a Higher Loss Absorbency ("HLA") requirement. We currently are not designated as an IAIG or a G-SII. However, it is possible that we may be so designated in the future, in which case we may be subject to supervision and capital requirements beyond those applicable to any competitors who are not classified as an IAIG or G-SII. In addition, the ICS, BCR and HLA framework may influence applicable capital requirements in the jurisdictions in which we operate, potentially leading to an increase in our capital requirements.

    Changes in federal, state and foreign securities laws may reduce our profitability.

        Our asset management and accumulation and life insurance businesses are subject to various levels of regulation under federal, state and foreign securities laws. These laws and regulations are primarily intended to protect investors in the securities markets or investment advisory or brokerage clients and generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the conduct of business for failure to comply with such laws and regulations. Changes to these laws or regulations — or the interpretation thereof — that restrict the conduct of our business could significantly increase our compliance costs and reduce our profitability.

    Changes in employee benefit regulations may reduce our profitability.

        We provide products and services to certain employee benefit plans that are subject to ERISA or the Internal Revenue Code of 1986, as amended. The U.S. Congress has, from time to time, considered legislation relating to changes in ERISA to permit application of state law remedies, such as consequential and punitive damages, in lawsuits for wrongful denial of benefits, which, if adopted, could increase our liability for damages in future litigation. In addition, reductions in contribution levels to defined contribution plans may decrease our profitability.

        In April 2015, the Department of Labor ("DOL") re-proposed its rule to expand the definition of "fiduciary". The proposal creates a new definition of "fiduciary," under which almost all advisors and service providers would be considered a fiduciary when making investment recommendations to small employers, participants and IRA accountholders. In addition, the proposed rule would redefine many interactions that today are considered investment education as fiduciary investment advice. In an effort to preserve current business models, the DOL has introduced a new exemption to the fiduciary rule called the Best Interest Contract ("BIC"). The exemption would be available when providing assistance and advice to participants and IRA accountholders. The BIC would require the advisor to act in the best interest of the customer, while allowing variable compensation (which is generally not allowed for fiduciaries). The BIC would require a contract to be signed by the individual, the advisor, and their firm prior to any advice being provided. The DOL anticipates finalizing the regulation in 2016, with an additional eight month timeframe to allow the industry to comply. The potential impacts of the final regulation are uncertain and difficult to predict, as the final version of the regulation will differ from the proposed regulation. The final regulation could have varying implications for our businesses, both directly through the products and services that we are able to provide to our clients and indirectly as our distribution partners alter their business models and practices to conform to the final regulation. Among other things, this could result in increases in compliance costs, transition costs and impacts to industry sales trends.

    Financial services regulatory reform may reduce our profitability, impact how we do business or limit our ability to engage in certain capital expenditures.

        On July 21, 2010, the Dodd-Frank Act became law. The Dodd-Frank Act makes extensive changes to the laws regulating financial services firms and requires various federal agencies to adopt a broad range of new implementation rules and regulations, including regulations surrounding the use of derivatives. The federal agencies were given significant discretion in drafting the implementation rules and regulations, and consequently, some of the impacts of the Dodd-Frank Act are not fully known yet. It is likely that new margining aspects of the law will increase hedging costs for the company and possibly cause fundamental shifts to the way risks are hedged.

    Changes in tax laws could increase our tax costs and reduce sales of our insurance, annuity and investment products.

        Current federal income tax laws generally permit the tax-deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products. Taxes, if any, are payable on income attributable to a distribution under the contract for the year in which the distribution is made. The U.S. Congress has, from time to time, considered legislation that would reduce or eliminate the benefit of such deferral of taxation on the accretion of value within life insurance and nonqualified annuity contracts. Enactment of this legislation, including a simplified "flat tax" income structure with an exemption from taxation for investment income, could result in fewer sales of our insurance, annuity and investment products. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.

        In addition, we benefit from certain tax items, including but not limited to, tax-exempt bond interest, dividends-received deductions, tax credits (such as foreign tax credits) and insurance reserve deductions. From time to time, the U.S. Congress, as well as foreign, state and local governments, considers legislation that could reduce or eliminate the

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benefits associated with these tax items. Most recently, the Organisation for Economic Co-operation and Development has released proposed policy around Base Erosion and Profit Shifting. If such legislation is adopted, our profitability could be negatively impacted. We continue to evaluate the impact potential tax reform, which lacks sufficient detail and is relatively uncertain, may have on our future results of operations and financial condition.

Changes in accounting standards may reduce the transparency of our reported profitability and financial condition.

        Accounting standards are subject to change and can reduce the transparency of our reported profitability. See Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 1, Nature of Operations and Significant Accounting Policies". The Financial Accounting Standards Board is currently working on several key projects. These projects could result in significant changes to U.S. generally accepted accounting principles ("U.S. GAAP"), including the accounting standards for insurance contracts. There is still some uncertainty surrounding the effective dates and transition methods for the proposed changes. If adopted, the proposed changes in accounting standards could have the potential to negatively impact our reported profitability and financial ratios and may make it more difficult for investors and regulators to accurately assess our financial condition and profitability. In addition, the required adoption of new accounting standards may result in significant incremental costs associated with initial implementation and on-going compliance.

Results of litigation and regulatory investigations may affect our financial strength or reduce our profitability.

        We are regularly involved in litigation, both as a defendant and as a plaintiff, but primarily as a defendant. Litigation naming us as a defendant ordinarily arises out of our business operations as a provider of asset management and accumulation products and services; life and disability insurance; and our investment activities. We are, from time to time, also involved in various governmental, regulatory and administrative proceedings and inquiries.

        These factors may affect our financial strength or reduce our profitability. For further discussion on litigation and regulatory investigation risk, see Item 3. "Legal Proceedings," Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 12, Contingencies, Guarantees and Indemnifications" under the caption, "Litigation and Regulatory Contingencies" and Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 10, Income Taxes" under the caption "Other Tax Information."

From time to time we may become subject to tax audits, tax litigation or similar proceedings, and as a result we may owe additional taxes, interest and penalties in amounts that may be material.

        We are subject to income taxes in the United States as well as many other jurisdictions. In determining our provisions for income taxes and our accounting for tax-related matters in general, we are required to exercise judgment. We regularly make estimates where the ultimate tax determination is uncertain. The final determination of any tax audit, appeal of the decision of a taxing authority, tax litigation or similar proceedings may be materially different from that reflected in our historical financial statements. The assessment of additional taxes, interest and penalties could be materially adverse to our current and future results of operations and financial condition.

Applicable laws and our certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider in their best interests.

        State laws and our certificate of incorporation and by-laws may delay, defer, prevent, or render more difficult a takeover attempt that some stockholders might consider in their best interests. For instance, they may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.

        State laws and our certificate of incorporation and by-laws may also make it difficult for stockholders to replace or remove our management. These provisions may facilitate management entrenchment, which may delay, defer or prevent a change in our control, which may not be in the best interests of our stockholders.

        The following provisions, included in our certificate of incorporation and by-laws, may also have anti-takeover effects and may delay, defer or prevent a takeover attempt that some stockholders might consider in their best interests. In particular, our certificate of incorporation and by-laws:

    permit our Board of Directors to issue one or more series of preferred stock;

    divide our Board of Directors into three classes;

    limit the ability of stockholders to remove directors;

    prohibit stockholders from filling vacancies on our Board of Directors;

    prohibit stockholders from calling special meetings of stockholders;

    impose advance notice requirements for stockholder proposals and nominations of directors to be considered at stockholder meetings and

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    require the approval of at least 75% of the voting power of our outstanding common stock for the amendment of our by-laws and provisions of our certificate of incorporation governing:

    the classified board,

    the director's discretion in determining what he or she reasonably believes to be in the best interests of Principal Financial Group, Inc.,

    the liability of directors,

    the removal of directors by shareholders,

    the prohibition on stockholder actions by written consent and

    the supermajority voting requirements.

        In addition, Section 203 of the General Corporation Law of the State of Delaware may limit the ability of an "interested stockholder" to engage in business combinations with us. An interested stockholder is defined to include persons owning 15% or more of our outstanding voting stock.

Risks relating to our business

Competition from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance may impair our ability to retain existing customers, attract new customers and maintain our profitability.

        We believe that our ability to compete is based on a number of factors including scale, service, product features, price, investment performance, commission structure, distribution capacity, financial strength ratings and name recognition. We compete with a large number of financial services companies such as banks, mutual funds, broker-dealers, insurers and asset managers, many of which have advantages over us in one or more of the above competitive factors.

        Each of our segments faces strong competition. The primary competitors for our Retirement and Income Solutions and Principal Global Investors segments are asset managers, banks, broker-dealers and insurers. Our ability to increase and retain AUM is directly related to the performance of our investments as measured against market averages and the performance of our competitors. Even when securities prices are generally rising, performance can be affected by investment styles. Also, there is a risk that we may not be able to attract and retain the top talent needed to compete in our industry.

        Competition for our Principal International segment comes primarily from local financial services firms and other international companies operating on a stand-alone basis or in partnership with local firms.

        Our U.S. Insurance Solutions segment competes with other insurance companies.

A downgrade in our financial strength or credit ratings may increase policy surrenders and withdrawals, reduce new sales and terminate relationships with distributors, impact existing liabilities and increase our cost of capital, any of which could adversely affect our profitability and financial condition.

        A.M. Best, Fitch, Moody's Investors Services and Standard & Poor's publish financial strength ratings on U.S. life insurance companies as well as some of our international insurance companies. These ratings are indicators of an insurance company's ability to meet contractholder and policyholder obligations. These rating agencies also assign credit ratings on non-life insurance entities, such as PFG and Principal Financial Services, Inc. ("PFS"). Credit ratings are indicators of a debt issuer's ability to meet the terms of debt obligations in a timely manner, and are important factors in overall funding profile and ability to access external capital.

        Ratings are important factors in establishing the competitive position of insurance companies and maintaining public confidence in products being offered. A ratings downgrade, or the potential for such a downgrade, could, among other things:

    materially increase the number of surrenders for all or a portion of the net cash values by the owners of policies and contracts we have issued, and materially increase the number of withdrawals by policyholders of cash values from their policies;

    result in the termination of our relationships with broker-dealers, banks, agents, wholesalers and other distributors of our products and services;

    reduce new sales, particularly with respect to full service payout product and general account GICs and funding agreements purchased by pension plans and other institutions;

    cause some of our existing liabilities to be subject to acceleration, additional collateral support, changes in terms, or creation of additional financial obligations and

    increase our cost of capital and limit our access to the capital markets.

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        Any of these consequences could adversely affect our profitability and financial condition.

Changes in investor preferences may lead to a reduction in revenues for our asset management and accumulation businesses.

        Revenues from our asset management and accumulation products are primarily fee based. Our asset-based fees are typically calculated as a percentage of the market value of assets under management, and fee levels can vary significantly among different types of investments. We generally earn higher fees on liquid alternatives and equity investments vs. fixed income investments, and on actively managed investments vs. indexed or passive investment strategies. Therefore, our fee revenue is impacted by both the value and the composition of our AUM. Investor preferences with respect to asset classes and investment strategies may shift over time due to market conditions, tax law changes, regulatory changes, and various other factors. Changes in the composition of our assets under management may adversely affect our revenues and profitability.

Guarantees within certain of our products that protect policyholders may decrease our earnings or increase the volatility of our results of operations or financial position under U.S. GAAP if our hedging or risk management strategies prove ineffective or insufficient.

        Certain of our variable annuity products include guaranteed minimum death benefits and/or guaranteed minimum withdrawal benefits. Periods of significant and sustained downturns in equity markets, increased equity volatility or reduced interest rates could result in an increase in the valuation of the future policy benefit or policyholder account balance liabilities associated with such products, resulting in a reduction to net income. We use derivative instruments to attempt to mitigate changes in the liability exposure related to interest rate, equity market and volatility movements, and the volatility of net income associated with these liabilities. However, we remain liable for the guaranteed benefits in the event that derivative counterparties are unable or unwilling to pay. The liability exposure and volatility of net income may also be influenced by changes in market credit spreads reflecting our own creditworthiness, for which we do not attempt to hedge. In addition, we are subject to the risk that hedging and other management procedures prove ineffective or that unanticipated policyholder behavior or mortality, combined with adverse market events, produces economic losses beyond the scope of the risk management techniques employed. These, individually or collectively, may have a material adverse effect on net income, financial condition or liquidity. We are also subject to the risk that the cost of hedging these guaranteed minimum benefits increases as implied volatilities increase and/or interest rates decrease, resulting in a reduction to net income.

If we are unable to attract and retain qualified employees and sales representatives and develop new distribution sources, our results of operations, financial condition and sales of our products may be adversely impacted.

        Our continued success is largely dependent on our ability to attract and retain qualified employees. We face intense competition in attracting and retaining key employees, including investment, marketing, finance, legal, compliance and other professionals. If we are unable to attract and retain qualified employees, our results of operations and financial condition may be adversely impacted.

        We distribute our asset accumulation, asset management and life and specialty benefit insurance products and services through a variety of distribution channels, including our own internal sales representatives, independent brokers, banks, broker-dealers and other third party marketing organizations. We must attract and retain sales representatives to sell our products. Strong competition exists among financial services companies for efficient sales representatives. We compete with other financial services companies for sales representatives primarily on the basis of our financial position, support services and compensation and product features. If we are unable to attract and retain sufficient sales representatives to sell our products, our ability to compete and revenues from new sales would suffer.

        Our ability to increase and retain AUM is directly related to the performance of our investments as measured against market averages and the performance of our competitors. If we are unable to attract and retain qualified portfolio managers, we may face reduced sales and increased cash outflows in our asset accumulation and asset management businesses.

Our international businesses face political, legal, operational and other risks that could reduce our profitability in those businesses.

        Our international businesses face political, legal, operational and other risks that we do not face in our operations in the U.S. We face the risk of discriminatory regulation, nationalization or expropriation of assets, price controls and exchange controls or other restrictions that prevent us from transferring funds from these operations out of the countries in which they operate or converting local currencies we hold into U.S. dollars or other currencies. Some of our international businesses are, and are likely to continue to be, in emerging or potentially volatile markets. In addition, we rely on local staff, including local sales forces, in these countries where there is a risk that we may encounter labor problems with local staff, especially in countries where workers' associations and trade unions are strong. Some of our international businesses are joint ventures in which we hold a minority interest. In these joint ventures, we lack complete management and operational control over the operations, which may limit our ability to take action to protect or increase the value of our investment in the joint venture.

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We may need to fund deficiencies in our Closed Block assets.

        In connection with its conversion in 1998 into a stock life insurance company, Principal Life established an accounting mechanism, known as a "Closed Block" for the benefit of participating ordinary life insurance policies that had a dividend scale in force on July 1, 1998. Dividend scales are the actuarial formulas used by life insurance companies to determine amounts payable as dividends on participating policies based on experience factors relating to, among other things, investment results, mortality, lapse rates, expenses, premium taxes and policy loan interest and utilization rates. The Closed Block was designed to provide reasonable assurance to policyholders included in the Closed Block that, after the conversion, assets would be available to maintain the aggregate dividend scales in effect for 1997 if the experience underlying such scales were to continue.

        We allocated assets to the Closed Block as of July 1, 1998, in an amount such that we expected their cash flows, together with anticipated revenues from the policies in the Closed Block, to be sufficient to support the Closed Block business, including payment of claims, certain direct expenses, charges and taxes and to provide for the continuation of aggregate dividend scales in accordance with the 1997 policy dividend scales if the experience underlying such scales continued, and to allow for appropriate adjustments in such scales if the experience changed. We bear the costs of administrative expenses associated with Closed Block policies and, accordingly, these costs were not funded as part of the assets allocated to the Closed Block. Any increase in such costs in the future will be borne by us. As of December 31, 2015, Closed Block assets and liabilities were $3,994.6 million and $4,581.7 million, respectively.

        We will continue to pay guaranteed benefits under the policies included in the Closed Block, in accordance with their terms. The Closed Block assets, cash flows generated by the Closed Block assets and anticipated revenues from policies included in the Closed Block may not be sufficient to provide for the benefits guaranteed under these policies. If they are not sufficient, we must fund the shortfall. Even if they are sufficient, we may choose for business reasons to support dividend payments on policies in the Closed Block with our general account funds.

        The Closed Block assets, cash flows generated by the Closed Block assets and anticipated revenues from policies in the Closed Block will benefit only the holders of those policies. In addition, to the extent that these amounts are greater than the amounts estimated at the time we funded the Closed Block, dividends payable in respect of the policies included in the Closed Block may be greater than they would have been in the absence of a Closed Block. Any excess net income will be available for distribution over time to Closed Block policyholders but will not be available to our stockholders. See Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 6, Closed Block" for further details.

A pandemic, terrorist attack, military action or other catastrophic event could adversely affect our net income.

        Our mortality and morbidity experience could be adversely impacted by a catastrophic event. In addition, a severe catastrophic event may cause significant volatility in global financial markets, disruptions to commerce and reduced economic activity. The resulting macroeconomic conditions could adversely affect our cash flows, as well as the value and liquidity of our invested assets. We may also experience operational disruptions if our employees are unable or unwilling to come to work due to a pandemic or other catastrophe.

Our reinsurers could default on their obligations or increase their rates, which could adversely impact our net income and financial condition.

        We cede life, disability, health and long-term care insurance to other insurance companies through reinsurance. See Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 1, Nature of Operations and Significant Accounting Policies." However, we remain liable to the policyholder, even if the reinsurer defaults on its obligations with respect to the ceded business. In addition, a reinsurer's insolvency may cause us to lose our reserve credits on the ceded business, in which case we would be required to establish additional reserves.

        The premium rates that we charge are based, in part, on the assumption that reinsurance will be available at a certain cost. Most of our reinsurance contracts contain provisions which limit the reinsurer's ability to increase rates on in-force business; however, some do not. If a reinsurer raises the rates that it charges on a block of in-force business, our profitability may be negatively impacted if we are not able to pass the increased costs on to the customer. If reinsurers raise the rates that they charge on new business, we may be forced to raise the premiums that we charge, which could have a negative impact on our competitive position.

We face risks arising from acquisitions of businesses.

        We have acquired businesses in the past, and expect to continue to do so in the future. We face a number of risks arising from acquisition transactions, including difficulties in integrating the acquired business into our operations, difficulties in assimilating and retaining employees and intermediaries, difficulties in retaining the existing customers of the acquired entity, unforeseen liabilities that arise in connection with the acquired business, unfavorable market conditions that could negatively impact our growth expectations for the acquired business and sustained declines in the equity market that could reduce the AUM and fee revenues for certain acquired businesses. These risks may prevent us from realizing the expected benefits from acquisitions and could result in the impairment of goodwill and/or intangible assets recognized at the time of acquisition.

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        For additional information on our goodwill and other intangible assets, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Goodwill and Other Intangible Assets."

A computer system failure or security breach could disrupt our business, damage our reputation and adversely impact our profitability.

        We rely on computer systems to conduct business, including customer service, marketing and sales activities, customer relationship management and producing financial statements. While we have policies, procedures, automation and backup plans designed to prevent or limit the effect of failure, our computer systems may be vulnerable to disruptions or breaches as the result of natural disasters, man-made disasters, criminal activity, pandemics, or other events beyond our control. The failure of our computer systems for any reason could disrupt our operations, result in the loss of customer business and adversely impact our profitability.

        We retain confidential information on our computer systems, including customer information and proprietary business information. Any compromise of the security of our computer systems that results in the disclosure of personally identifiable customer information could damage our reputation, expose us to litigation, increase regulatory scrutiny and require us to incur significant technical, legal and other expenses.

Loss of key vendor relationships or failure of a vendor to protect information of our customers or employees could adversely affect our business or result in losses.

        We rely on services and products provided by many vendors in the United States and abroad. These include, for example, vendors of computer hardware and software and vendors of services. In the event that one or more of our vendors suffers a bankruptcy or otherwise becomes unable to continue to provide products or services, or fails to protect personal information of our customers or employees, we may suffer operational impairments, reputational damage and financial losses.

Our financial results may be adversely impacted by global climate changes.

        Atmospheric concentrations of carbon dioxide and other greenhouse gases have increased dramatically since the industrial revolution, resulting in a gradual increase in global average temperatures and an increase in the frequency and severity of natural disasters. These trends are expected to continue in the future and have the potential to impact nearly all sectors of the economy to varying degrees. Our initial research indicates that climate change does not pose an imminent or significant threat to our operations or business, but we will continue to monitor new developments in the future.

        Potential impacts may include the following:

    Changes in temperatures and air quality may adversely impact our mortality and morbidity rates. For example, increases in the level of pollution and airborne allergens may cause an increase in upper respiratory and cardiovascular diseases, leading to increased claims in our insurance businesses. However, the risk of increased mortality on our life insurance business may be partly offset by our payout annuity business, where an increase in mortality results in a decrease in benefit payments.

    Climate change may impact asset prices, as well as general economic conditions. For example, rising sea levels may lead to decreases in real estate values in coastal areas. Additionally, government policies to slow climate change (e.g., setting limits on carbon emissions) may have an adverse impact on sectors such as utilities, transportation and manufacturing. Changes in asset prices may impact the value of our fixed income, real estate and commercial mortgage investments. We manage our investment risks by maintaining a well-diversified portfolio, both geographically and by sector. We also monitor our investments on an ongoing basis, allowing us to adjust our exposure to sectors and/or geographical areas that face severe risks due to climate change.

    A natural disaster that affects one of our office locations could disrupt our operations and pose a threat to the safety of our employees. However, we have extensive Business Continuity and Disaster Recovery planning programs in place to help mitigate this risk.

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

        As of December 31, 2015, we owned 34 properties in our home office complex in Des Moines, Iowa, and in various other locations. Of these 34 properties, 17 are office buildings, 1 is a warehouse facility, 13 are parking lots and ramps, 1 is a park/green space, 1 is a childcare center and 1 is a power generation plant. Of the office and warehouse space, we occupy approximately 92.2% of the 2.6 million square feet of space in these buildings. The balance of the space in these buildings is rented to commercial tenants or is occupied by the property management company servicing these properties.

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We lease office space for various offices located throughout the U.S. and internationally. We believe that our owned and leased properties are suitable and adequate for our current business operations.

Item 3.    Legal Proceedings

        Disclosure concerning material legal proceedings can be found in Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 12, Contingencies, Guarantees and Indemnifications" under the caption, "Litigation and Regulatory Contingencies" and Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 10, Income Taxes" under the caption, "Other Tax Information," which are incorporated here by this reference.

Executive Officers of the Registrant

        The following information is furnished with respect to our executive officers, each of whom is elected by and serves at the pleasure of the Board of Directors.

        Timothy M. Dunbar, 58, has been Executive Vice President of the Company and Principal Life and Chief Investment Officer of the Company since January 2014. Prior to that date, he served as Senior Vice President of the Company and Principal Life since 2011, and Chief Investment Officer of the Company and Principal Life since January 2013. Prior to that date, Mr. Dunbar was in charge of Strategy and Finance for the Company and Principal Life in 2011 and 2012, overseeing the business management and strategic direction of the capital markets, corporate strategy and corporate treasury areas. He retains his responsibility for capital markets. Mr. Dunbar previously served as the executive director and head of equities for Principal Global Investors from 2004 until 2011.

        Gregory B. Elming, 55, has been Senior Vice President and Chief Risk Officer of the Company and Principal Life since 2011. Prior to that time, he was Senior Vice President and Controller of the Company and Principal Life since 2007.

        Nora M. Everett, 56, has been President, Retirement and Income Solutions of the Company and Principal Life since March 2015. Prior to her current position, she served as President and Chief Executive Officer of Principal Funds since 2008 and Senior Vice President and Deputy General Counsel of the Company and Principal Life since 2004.

        Daniel J. Houston, 54, has been a director of the Company and Principal Life and President and Chief Executive Officer of the Company and Principal Life since August 2015. Prior to that date, he held the same positions except was Chief Operating Officer (and not Chief Executive Officer) since November 2014. Previously, he served as President, Retirement, Insurance and Financial Services of the Company and Principal Life since 2010. He was President, Retirement and Income Solutions of the Company and Principal Life from 2008 until 2010, and was Executive Vice President, Retirement and Income Solutions of the Company and Principal Life from 2006 to 2008.

        Terrance J. Lillis, 63, has been Executive Vice President and Chief Financial Officer of the Company and Principal Life since February 2014. Prior to that date, he was Senior Vice President and Chief Financial Officer of the Company and Principal Life since 2008.

        James P. McCaughan, 62, who heads the Principal Global Investors segment of our operations, has been President, Principal Global Investors of the Company and Principal Life since 2003.

        Gary P. Scholten, 58, has been Executive Vice President and Chief Information Officer of the Company and Principal Life since February 2014. Prior to that date, he was Senior Vice President and Chief Information Officer of the Company and Principal Life since 2002. From 1998 to 2002, he was Vice President of retail information services of Principal Life.

        Karen E. Shaff, 61, has been Executive Vice President and General Counsel of the Company and Principal Life since 2004 and, in addition, Secretary of the Company and Principal Life since January 2014. Prior thereto, she was Senior Vice President and General Counsel of the Company since 2001, and Senior Vice President and General Counsel of Principal Life since 2000.

        Deanna D. Strable-Soethout, 47, has been President, U.S. Insurance Solutions of the Company and Principal Life since March 2015. Prior to that, she served as Senior Vice President of the Company and Principal Life since 2005.

        Luis Valdes, 58, has been the head of the Principal International segment of our operations since 2012, has been President, Principal International of the Company and Principal Life since 2011. Prior to his current position, he was Senior Vice President and President — PFG Latin America of the Company and Principal Life since 2010, and was Vice President — Principal International of Principal Life from 2000 until 2010.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Our common stock began trading on the New York Stock Exchange ("NYSE") under the symbol "PFG" on October 23, 2001. Prior to such date, there was no established public trading market for our common stock. On February 3, 2016, there were 310,291 stockholders of record of our common stock.

        The following table presents the high and low prices per share for our common stock on the NYSE for the periods indicated and the dividends declared per share during such periods.

 
  High   Low   Dividends
declared
 

2015

                   

First quarter

  $ 52.56   $ 46.01   $ 0.36  

Second quarter

  $ 53.42   $ 49.81   $ 0.38  

Third quarter

  $ 58.02   $ 41.67   $ 0.38  

Fourth quarter

  $ 52.21   $ 43.64   $ 0.38  

2014

   
 
   
 
   
 
 

First quarter

  $ 49.83   $ 41.20   $ 0.28  

Second quarter

  $ 50.74   $ 42.90   $ 0.32  

Third quarter

  $ 55.07   $ 48.82   $ 0.34  

Fourth quarter

  $ 54.31   $ 46.49   $ 0.34  

        Future dividend decisions will be based on and affected by a number of factors, including our results and financial requirements and the impact of regulatory restrictions. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" for a discussion of regulatory restrictions on Principal Life's ability to pay dividends.

        The following table presents the amount of our share purchase activity for the periods indicated:

Period   Total number
of shares
purchased (1)
  Average
price paid
per share
  Total number
of shares
purchased as
part of publicly
announced
programs
  Maximum dollar
value of shares that
may yet be purchased
under the programs
(in millions) (2)
 

January 1, 2015 - January 31, 2015

    315   $ 51.81       $ 50.0  

February 1, 2015 - February 28, 2015

    842   $ 46.93       $ 200.0  

March 1, 2015 - March 31, 2015

    1,478,105   $ 50.96     983,863   $ 150.0  

April 1, 2015 - April 30, 2015

    573   $ 51.20       $ 150.0  

May 1, 2015 - May 31, 2015

    1,653   $ 51.67       $ 150.0  

June 1, 2015 - June 30, 2015

    534   $ 52.88       $ 150.0  

July 1, 2015 - July 31, 2015

    528,054   $ 52.26     528,054   $ 122.4  

August 1, 2015 - August 31, 2015

    575,110   $ 55.16     575,110   $ 90.7  

September 1, 2015 - September 30, 2015

    1,098,465   $ 48.50     1,098,465   $ 37.4  

October 1, 2015 - October 31, 2015

    788,234   $ 47.45     788,233   $ 150.0  

November 1, 2015 - November 30, 2015

    1,000,330   $ 50.25     1,000,330   $ 99.7  

December 1, 2015 - December 31, 2015

    497,909   $ 49.68     497,865   $ 75.0  

Total

    5,970,124           5,471,920        

(1)
Includes the number of shares of common stock utilized to execute certain stock incentive awards and shares purchased as part of a publicly announced program.

(2)
In February 2014, our Board of Directors authorized a repurchase program of up to $200.0 million of our outstanding common stock, which was completed in March 2015. In February 2015, our Board of Directors authorized a repurchase program of up to $150.0 million of our outstanding common stock, which was completed in October 2015. In October 2015, our Board of Directors authorized an additional repurchase program of up to $150.0 million of our outstanding common stock.

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Item 6.    Selected Financial Data

        The following table sets forth certain selected historical consolidated financial information. We derived the consolidated financial information (except for amounts referred to as "Other Supplemental Data") for each of the years ended December 31, 2015, 2014 and 2013 and as of December 31, 2015 and 2014 from our audited consolidated financial statements and notes to the financial statements included in this Form 10-K. We derived the consolidated financial information (except for amounts referred to as "Other Supplemental Data") for the years ended December 31, 2012 and 2011 and as of December 31, 2013, 2012 and 2011 from our audited consolidated financial statements not included in this Form 10-K. The following summary of consolidated financial information (except for amounts referred to as "Other Supplemental Data") has been prepared in accordance with U.S. GAAP.

        In order to fully understand our consolidated financial information, please also see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and the notes to the financial statements included in this Form 10-K. The results for past accounting periods are not necessarily indicative of the results to be expected for any future accounting period.

 
  As of or for the year ended December 31,  
 
  2015 (1)   2014 (1)   2013 (1)   2012   2011  
 
  ($ in millions, except per share data and as noted)
 

Income Statement Data:

                               

Revenue:

                               

Premiums and other considerations

  $ 5,310.3   $ 3,722.9   $ 3,154.1   $ 3,219.4   $ 2,891.0  

Fees and other revenues

    3,653.1     3,482.1     3,222.2     2,626.7     2,526.7  

Net investment income

    3,052.1     3,257.9     3,138.4     3,254.9     3,375.3  

Net realized capital gains (losses)

    (51.1 )   14.7     (225.2 )   114.1     (122.3 )

Total revenues

  $ 11,964.4   $ 10,477.6   $ 9,289.5   $ 9,215.1   $ 8,670.7  

Income from continuing operations, net of related income taxes

  $ 1,253.2   $ 1,176.4   $ 936.1   $ 825.4   $ 674.5  

Net income

  $ 1,253.2   $ 1,176.4   $ 936.1   $ 825.4   $ 674.5  

Earnings per Share Data:

   
 
   
 
   
 
   
 
   
 
 

Income from continuing operations, net of related income taxes, per share:

                               

Basic

  $ 4.11   $ 3.70   $ 2.99   $ 2.60   $ 1.92  

Diluted

  $ 4.06   $ 3.65   $ 2.95   $ 2.58   $ 1.91  

Net income per share:

                               

Basic

  $ 4.11   $ 3.70   $ 2.99   $ 2.60   $ 1.92  

Diluted

  $ 4.06   $ 3.65   $ 2.95   $ 2.58   $ 1.91  

Dividends declared per common share

  $ 1.50   $ 1.28   $ 0.98   $ 0.78   $ 0.70  

Balance Sheet Data:

   
 
   
 
   
 
   
 
   
 
 

Total assets

  $ 218,685.9   $ 219,087.0   $ 208,191.4   $ 161,830.2   $ 147,271.5  

Long-term debt

 
$

3,290.8
 
$

2,531.2
 
$

2,601.4
 
$

2,671.3
 
$

1,564.8
 

Series A preferred stock

 
$

 
$

 
$

 
$

 
$

 

Series B preferred stock

  $   $ 0.1   $ 0.1   $ 0.1   $ 0.1  

Total stockholders' equity

  $ 9,377.4   $ 10,232.0   $ 9,777.0   $ 9,703.4   $ 9,306.2  

Other Supplemental Data:

   
 
   
 
   
 
   
 
   
 
 

AUM ($ in billions)

  $ 527.4   $ 519.3   $ 483.2   $ 403.0   $ 335.0  

(1)
For a discussion of items materially affecting the comparability of 2015, 2014 and 2013, please see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Transactions Affecting Comparability of Results of Operations."

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following analysis discusses our financial condition as of December 31, 2015, compared with December 31, 2014, and our consolidated results of operations for the years ended December 31, 2015, 2014 and 2013, and, where appropriate, factors that may affect our future financial performance. The discussion should be read in conjunction with our audited consolidated financial statements and the related notes to the financial statements and the other financial information included elsewhere in this Form 10-K.

Forward-Looking Information

        Our narrative analysis below contains forward-looking statements intended to enhance the reader's ability to assess our future financial performance. Forward-looking statements include, but are not limited to, statements that represent our beliefs concerning future operations, strategies, financial results or other developments, and contain words and phrases such as "anticipate," "believe," "plan," "estimate," "expect," "intend," and similar expressions. Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects on us. Such forward-looking statements are not guarantees of future performance.

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        Actual results may differ materially from those included in the forward-looking statements as a result of risks and uncertainties. Those risks and uncertainties include, but are not limited to, the risk factors listed in Item 1A. "Risk Factors."

Overview

        We provide financial products and services through the following reportable segments:

    Retirement and Income Solutions;

    Principal Global Investors;

    Principal International and

    U.S. Insurance Solutions

        We also have a Corporate segment, which consists of the assets and activities that have not been allocated to any other segment. See Item 1. "Business" for a description of our reportable segments.

        In the fourth quarter of 2015 we implemented changes to our organizational structure to better align businesses, distribution teams and product offerings for future growth. Principal Funds, which included our mutual fund business and Princor, our retail broker-dealer and registered investment advisor, as well as PFA were previously reported in our Retirement and Investor Services segment. Our mutual fund business and PFA are now reported as part of our Principal Global Investors segment, while Princor is now reported as part of our Corporate segment. The Retirement and Investor Services segment has been renamed to Retirement and Income Solutions. Additionally, information used by our chief operating decision maker in assessing segment performance has changed to pre-tax operating earnings. We retrospectively applied this change to the results of our Principal International segment to remove income taxes of equity method subsidiaries that had previously been included in operating revenue and pre-tax operating earnings. Our segment results have been modified to reflect these changes, which did not have an impact on our consolidated financial statements.

Economic Factors and Trends

        Positive market performance and net customer cash flows led to account value increases in our Retirement and Income Solutions segment and AUM increases in our Principal Global Investors segment. Since account values and AUM are the base by which these businesses generate revenues, the increase in account values and AUM has contributed to the overall improvement of our operating revenues.

        In our Principal International segment, we continued to grow our business organically through our existing subsidiaries and joint ventures and through strategic acquisitions. Local currency AUM, a key indicator of earnings growth for the segment, increased significantly as a result of positive net customer cash flows and market performance. The financial results for the Principal International segment are also impacted by fluctuations of the foreign currency to U.S. dollar exchange rates for the countries in which we have business.

        The U.S. Insurance Solutions segment has been impacted by lower interest rates for the past few years as well as decreases in our long-term interest rate assumptions. The current low interest rate environment has caused spread compression, whereas the decrease in long-term interest rate assumptions has led to higher reserves and unlocking of our DAC and other actuarial balances in the segment.

Profitability

        Our profitability depends in large part upon our:

    amount of AUM;

    ability to manage the difference between the investment income we earn and the interest we credit to policyholders;

    ability to generate fee revenues by providing administrative and investment management services;

    ability to price our insurance products at a level that enables us to earn a margin over the cost of providing benefits and the related expenses;

    ability to manage our investment portfolio to maximize investment returns and minimize risks such as interest rate changes or defaults or impairments of invested assets;

    ability to effectively hedge fluctuations in foreign currency to U.S. dollar exchange rates on certain transactions and

    ability to manage our operating expenses.

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Critical Accounting Policies and Estimates

        The increasing complexity of the business environment and applicable authoritative accounting guidance requires us to closely monitor our accounting policies. Our significant accounting policies are described in Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 1, Nature of Operations and Significant Accounting Policies." We have identified critical accounting policies that are complex and require significant judgment and estimates about matters that are inherently uncertain. A summary of our critical accounting policies is intended to enhance the reader's ability to assess our financial condition and results of operations and the potential volatility due to changes in estimates and changes in guidance. The identification, selection and disclosure of critical accounting estimates and policies have been discussed with the Audit Committee of the Board of Directors.

Valuation and Impairment of Fixed Income Investments

        Fixed Maturities.    Fixed maturities include bonds, asset-backed securities ("ABS"), redeemable preferred stock and certain non-redeemable preferred securities. We classify our fixed maturities as either AFS or trading and, accordingly, carry them at fair value in the consolidated statements of financial position. The fair values of our public fixed maturities are primarily based on market prices from third party pricing vendors. We have regular interactions with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information. In addition, 22% of our invested asset portfolio as of December 31, 2015, was invested in fixed maturities that are private placement assets, where there are no readily available market quotes to determine the fair market value. The majority of these assets are valued using a spread pricing matrix that utilizes observable market inputs. Securities are grouped into pricing categories that vary by sector, rating and average life. Each pricing category is assigned a risk spread based on studies of observable public market data from the investment professionals assigned to specific security classes. The expected cash flows of the security are then discounted back at the current Treasury curve plus the appropriate risk spread. Certain market events that could impact the valuation of securities include issuer credit ratings, business climate, management changes, litigation and government actions among others. See Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Fair Value Measurements" for further discussion.

        If we are unable to price a fixed maturity security using prices from third party pricing vendors or other sources specific to the asset class, we may obtain a broker quote or utilize an internal pricing model specific to the asset utilizing relevant market information to the extent available. As of December 31, 2015, less than 1% of our fixed maturities were valued using internal pricing models.

        A rate increase of 100 basis points would produce a total value of approximately $47.5 billion, as compared to the recorded amount of $50.0 billion related to our fixed maturity, AFS financial assets with interest rate risk held by us as of December 31, 2015. For additional information see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk".

        The $1,517.7 million decrease in net unrealized gains from U.S. investment operations for the year ended December 31, 2015, can primarily be attributed to an approximate 19 basis points increase in interest rates and widening of credit spreads.

        Fixed maturities classified as AFS are subject to impairment reviews. When evaluating fixed maturities for impairment, we consider relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other than temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events; (4) for structured securities, the adequacy of the expected cash flows and (5) our intent to sell a security or whether it is more likely than not we will be required to sell the security before recovery of its amortized cost which, in some cases, may extend to maturity. To the extent we determine that a security is deemed to be other than temporarily impaired, an impairment loss is recognized. See item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 4, Investments — Other-Than-Temporary Impairments" for further discussion.

        There are a number of significant risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment is other than temporary. These risks and uncertainties include: (1) the risk that our assessment of an issuer's ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer; (2) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated; (3) the risk that our investment professionals are making decisions based on fraudulent or misstated information in the financial statements provided by issuers and (4) the risk that new information obtained by us or changes in other facts and circumstances lead us to change our intent to not sell the security prior to recovery of its amortized cost. Any of these situations could result in a charge to net income in a future period. At December 31, 2015, we had $16,874.5 million in AFS fixed maturities with gross unrealized losses totaling $823.2 million. Included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as movement in credit spreads. Net income would be reduced by approximately $823.2 million, on a pre-tax basis, if all the securities in an unrealized loss position were deemed to be other than temporarily impaired and our intent was to sell all such securities.

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        Mortgage Loans.    Mortgage loans consist primarily of commercial mortgage loans on real estate. As of December 31, 2015, the carrying value of our commercial mortgage loans was $11,237.8 million. Commercial mortgage loans on real estate are generally reported at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method and net of valuation allowances.

        Commercial mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to contractual terms of the loan agreement. When we determine that a loan is impaired, a valuation allowance is established equal to the difference between the carrying amount of the mortgage loan and the estimated value reduced by the cost to sell. Estimated value is based on either the present value of the expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or fair value of the collateral. Subsequent changes in the estimated value are reflected in the valuation allowance. Amounts on loans deemed to be uncollectible are charged off and removed from the valuation allowance. The change in the valuation allowance provision is included in net realized capital gains (losses) on our consolidated statements of operations.

        The valuation allowance is maintained at a level believed adequate by management to absorb estimated probable credit losses. Management's periodic evaluation and assessment of the valuation allowance adequacy is based on known and inherent risks in the portfolio, adverse situations that may affect a borrower's ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, portfolio delinquency information, underwriting standards, peer group information, current economic conditions, loss experience and other relevant factors. The evaluation of our impaired loan component is subjective, as it requires the estimation of timing and amount of future cash flows expected to be received on impaired loans. For more detailed information concerning mortgage loan valuation allowances and impairments, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 4, Investments — Mortgage Loan Valuation Allowance."

        We have a large experienced commercial real estate staff centrally located in Des Moines, which includes commercial mortgage underwriters, loan closers, loan servicers, engineers, appraisers, credit analysts, research staff, legal staff, information technology personnel and portfolio managers. Experienced commercial real estate senior management adheres to a disciplined process in reviewing all transactions for approval on a consistent basis. During 2015, the typical new commercial mortgage loan at origination averaged 50% loan-to-value with a 3.1 times debt service coverage ratio and was internally rated A on a bond equivalent basis. Our entire commercial mortgage loan portfolio, excluding mortgage loans held in our Principal Global Investors segment, averaged 46% loan-to-value ratio with a 2.7 times debt service coverage ratio as of December 31, 2015. The large equity cushion and strong debt service coverage in our commercial mortgage loan investments will help insulate us from stress during times of weak commercial real estate fundamentals.

Derivatives

        We primarily use derivatives to hedge or reduce exposure to market risks. The fair values of exchange-traded derivatives are determined through quoted market prices. The fair value of derivative instruments cleared through centralized clearinghouses is determined through market prices published by the clearinghouses. The fair values of non-cleared over-the-counter derivative instruments are determined using either pricing valuation models that utilize market observable inputs or broker quotes. On an absolute fair value basis as of December 31, 2015, 69% of our over-the-counter derivative assets and liabilities were valued using pricing valuation models, 24% using clearinghouse prices and the remaining 7% using broker quotes. See Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Fair Value Measurements" for further discussion. The fair values of our derivative instruments can be impacted by changes in interest rates, foreign exchange rates, credit spreads, equity indices and volatility, as well as other contributing factors.

        We also issue certain annuity contracts and other insurance contracts that include embedded derivatives that have been bifurcated from the host contract. They are valued using a combination of historical data and actuarial judgment. See Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Fair Value Measurements" for further discussion. We include our assumption for own non-performance risk in the valuation of these embedded derivatives. As our credit spreads widen or tighten, the fair value of the embedded derivative liabilities decrease or increase, leading to an increase or decrease in net income. If the current market credit spreads reflecting our own creditworthiness move to zero (tighten), the reduction to net income would be approximately $102.5 million, net of DAC and income taxes, based on December 31, 2015, reported amounts. In addition, the policyholder behavior assumptions used in the valuation of embedded derivatives include risk margins, which increase the fair value of the embedded derivative liabilities.

        The accounting for derivatives is complex and interpretations of the applicable accounting standards continue to evolve. Judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment. Judgment and estimates are used to determine the fair value of some of our derivatives. Volatility in net income can result from changes in fair value of derivatives that do not qualify or are not designated for hedge accounting and changes in fair value of embedded derivatives.

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Deferred Acquisition Costs and Other Actuarial Balances

        Incremental direct costs of contract acquisition as well as certain costs directly related to acquisition activities (underwriting, policy issuance and processing, medical and inspection and sales force contract selling) for the successful acquisition of new and renewal insurance policies and investment contract business are capitalized to the extent recoverable. Commissions and other incremental direct costs of contract acquisition for the acquisition of long-term service contracts are also capitalized to the extent recoverable. Maintenance costs and acquisition costs that are not deferrable are charged to net income as incurred.

        Amortization Based on Estimated Gross Profits.    DAC for universal life-type insurance contracts and certain investment contracts are amortized over the expected lifetime of the policies in relation to estimated gross profits ("EGPs"). As of December 31, 2015, these policies accounted for 64% of our total DAC balance. In addition to DAC, the following actuarial balances are also amortized in relation to EGPs.

    Sales inducement asset — Sales inducements are amounts that are credited to the contractholder's account balance as an inducement to purchase the contract. Like DAC, the cost of the sales inducement is capitalized and amortized over the expected life of the contract, in proportion to EGPs.

    Unearned revenue liability — An unearned revenue liability is established when we collect fees or other policyholder assessments that represent compensation for services to be provided in future periods. These revenues are deferred and then amortized over the expected life of the contract, in proportion to EGPs.

    Reinsurance asset or liability — For universal-life type products that are reinsured, a reinsurance asset or liability is established to spread the expected net reinsurance costs or profits in proportion to the EGPs on the underlying business.

        We also have additional benefit reserves that are established for annuity or universal life-type contracts that provide benefit guarantees, or for contracts that are expected to produce profits followed by losses. The liabilities are accrued in relation to estimated contract assessments.

        Key assumptions used in the calculation of EGPs include mortality, morbidity, lapses, investment yield and expenses as well as the change in our liability for certain guarantees and the difference between actual and expected reinsurance premiums and recoveries, depending on the nature of the contract. We develop an estimate of EGPs at issue and each valuation date. As actual experience emerges, the gross profits may vary from those expected either in magnitude or timing, in which case a true-up to actual occurs as a charge or credit to current net income. In addition, we are required to revise our assumptions regarding future experience if actual experience or other evidence suggests that earlier estimates should be revised; we refer to this as unlocking. Both actions, reflecting actual experience and changing future estimates, can change both the current amount and the future amortization pattern of the DAC asset and related actuarial balances.

        For individual variable life insurance, individual variable annuities and group annuities that have separate account U.S. equity investment options, we utilize a mean reversion methodology (reversion to the mean assumption), a common industry practice, to determine the future domestic equity market growth rate assumption used for the calculation of EGPs. If actual annualized U.S. equity market performance varies from our 8% long-term assumption, we assume different performance levels in the short-term such that the weighted average return is equal to the long-term assumption over the mean reversion period. However, our mean reversion process generally limits assumed returns to a range of 4 - 12% during the mean reversion period.

        Amortization Based on Estimated Gross Revenues.    DAC and certain of the actuarial balances on a portion of our universal life products are amortized in proportion to estimated gross revenues rather than EGPs. Estimated gross revenues include similar assumptions as the revenue component of EGPs and the changes of future estimates and reflection of actual experience is done in the same manner as EGPs discussed above. As of December 31, 2015, these policies accounted for 6% of our total DAC balance.

        Amortization Based on Estimated Gross Margins.    DAC for participating life insurance products are amortized in proportion to estimated gross margins ("EGMs") rather than EGPs. EGMs include similar assumption items as EGPs, and amortization schedules were developed using models last updated when we stopped selling participating business in the early 2000s. Some products allow for underwritten death benefit increases and cost of living adjustments, resulting in a material amount of new DAC each year, and the amortization schedules are modified as appropriate. As of December 31, 2015, these policies accounted for 4% of our total DAC balance.

        Amortization Based on Premium-Paying Period.    DAC of non-participating term life insurance and individual disability policies are amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policyholder liabilities. Once these assumptions are made for a given policy or group of policies, they will not be changed over the life of the policy unless a loss recognition event occurs. As of December 31, 2015, these policies accounted for 20% of our total DAC balance.

        Amortization Based on Service Period.    DAC of long-term service contracts are amortized in proportion to the revenue recognized or straight-line if no pattern of revenue recognition can be reasonably predicted. We amortize capitalized costs of long-term service contracts on a straight-line basis over the expected contract life. As of December 31, 2015, these contracts accounted for 6% of our total DAC balance.

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        Internal Replacements.    We review policies for modifications that result in the exchange of an existing contract for a new contract. If the new contract is determined to be an internal replacement that is substantially changed from the replaced contract, any unamortized DAC and related actuarial balances are written off and acquisition costs related to the new contract are capitalized as appropriate. If the new contract is substantially unchanged from the replaced contract, we continue to amortize the existing DAC and related actuarial balances.

        Recoverability.    DAC and sales inducement assets are subject to recoverability testing at the time of policy issue and loss recognition testing on an annual basis, or when an event occurs that may warrant loss recognition. If loss recognition or impairment is necessary, the asset balances are written off to the extent that it is determined that future policy premiums and investment income or gross profits are not adequate to cover related losses and expenses.

        Sensitivities.    As of December 31, 2015, the net balance of DAC and related actuarial balances, excluding balances affected by changes in other comprehensive income ("OCI"), was a $1,758.7 million asset. We perform sensitivity analyses to assess the impact that certain assumptions have on these balances. The following table shows the estimated immediate impact of various assumption changes on our DAC and related actuarial balances.

 
  Estimated impact to
net income (1)
 
 
  (in millions)
 

Reducing the future equity return assumption by 1%

  $ (8 )

Reducing the long-term general account net investment returns assumption by 0.5% (2)

    (23 )

A one-time, 10% drop in equity market values

    (8 )

(1)
Reflects the net impact of changes to the DAC asset, sales inducement asset, unearned revenue liability, reinsurance asset or liability, additional benefit reserves and related taxes. Includes the impact on net income of changes in DAC and related balances for our equity method subsidiaries. The DAC and related balances of the equity method subsidiaries are not included in the total DAC balance listed above as they are not fully consolidated.

(2)
Net investment return represents net investment income plus net realized capital gains (losses).

Goodwill and Other Intangible Assets

        Goodwill and other intangible assets include the cost of acquired subsidiaries in excess of the fair value of the net tangible assets recorded in connection with acquisitions. Goodwill and intangible assets with indefinite lives are not amortized; rather, we test the carrying value for impairment at least annually. Goodwill is tested at the reporting unit level, which is a business one level below the operating segment. We formally conduct our annual goodwill and other intangible asset impairment testing during the third quarter. Under certain circumstances, interim impairment tests may be required if events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value.

        In connection with our fourth quarter 2015 operating segment changes, goodwill was tested for impairment using adjusted carrying values of the new reporting units. We concluded the fair value of each reporting unit was in excess of its carrying value and goodwill was not impaired.

        The operating segments and associated reporting units at which we perform our testing are as follows:

    Retirement and Income Solutions: Retirement and Income Solutions — Fee and Retirement and Income Solutions — Spread

    Principal Global Investors: Equity Investments, Fixed Income Investments, Real Estate and Other Alternative Investments, Mutual Funds Complex

    Principal International: countries in which Principal International does business

    U.S. Insurance Solutions: Specialty Benefits Insurance and Individual Life Insurance

    Corporate: Corporate subsidiaries

        U.S. GAAP permits entities to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test of the two-step goodwill impairment test. Similarly, U.S. GAAP permits entities to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of an intangible asset with an indefinite life is less than its carrying amount to determine whether it is necessary to perform a quantitative assessment. For 2014 testing, we began to utilize the qualitative approach on a limited basis for intangible assets with indefinite lives. We continue to perform a two-step test in our evaluation of the carrying value of goodwill.

        In Step 1 of the evaluation, the fair value of each reporting unit is determined and compared to the carrying value of the reporting unit. If the fair value is greater than the carrying value, then the carrying value of the reporting unit is deemed to be recoverable, and Step 2 is not required. After completion of our Step 1 analysis, it was determined that fair values exceeded the carrying amounts for all businesses one level below the operating segment and we do not currently have any business at risk of failing the Step 1 goodwill impairment test. If the fair value estimate had been less than the

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carrying value, it is an indicator that impairment may exist, and Step 2 would be required. In Step 2, the reporting unit's goodwill implied fair value is determined. The reporting unit's fair value as determined in Step 1 is assigned to all of its net assets (recognized and unrecognized) as if the reporting unit were acquired in a business combination as of the date of the impairment test. If the implied fair value of the reporting unit's goodwill is lower than its carrying amount, goodwill is impaired and written down to its implied fair value.

        The determination of fair value for our reporting units is primarily based on an income approach whereby we use discounted cash flows for each reporting unit. When available, and as appropriate, we use market approaches or other valuation techniques to corroborate discounted cash flow results. The discounted cash flow model used for each reporting unit is based on either income or distributable cash flow, depending on the reporting unit being valued. We use different discount rates based upon the weighted average cost of capital adjusted for risks associated with the operations.

        For the income model, we determine fair value based on the present value of the most recent income projections for each reporting unit and calculate a terminal value utilizing a terminal growth rate. The significant assumptions in the operating income model include: income projections, including the underlying assumptions; discount rate and terminal growth rate.

        For the distributable cash flow model, we determine fair value based on the present value of projected statutory net income and changes in required capital to determine distributable income for the respective reporting unit. The significant assumptions in the distributable cash flow model include: required capital levels; income projections, including the underlying assumptions; discount rate; new business projection period and new business production growth.

        We continually monitor market conditions, events, and other external or internal factors that could trigger the need to test any of our intangibles for impairment outside of the annual testing process. In the third quarter of 2015, identified intangibles that originated from the acquisition of our mutual fund company in Brazil were deemed to be impaired, resulting in a pre-tax loss of $23.0 million recorded in operating expenses. These impairments were driven by the current macroeconomic and market conditions in Brazil, including higher discount rates and change in the mix of business.

        Intangible assets with useful lives are amortized as related benefits emerge and are reviewed periodically for indicators of impairment in value. If facts and circumstances suggest possible impairment, the sum of the estimated undiscounted future cash flows expected to result from the use of the asset is compared to the current carrying value of the asset. If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized for the excess of the carrying amount of assets over their fair value. For those assets amortized as related benefits emerge, the most significant assumptions involved in the estimation of future benefits include surrender/lapse rates and interest margins.

        Other than intangible asset impairments related to our mutual fund business in Brazil, we did not recognize a material impairment in our 2015 consolidated statement of operations. In connection with our annual impairment testing process, we performed a sensitivity analysis for goodwill impairment with respect to each of our reporting units and determined that a hypothetical 10% decline in the fair value would not result in an impairment of goodwill for any reporting unit. The most significant goodwill and other intangible assets within our 2015 consolidated statement of financial position resulted from our 2013 acquisition of Cuprum, whereby we recorded $631.8 million of goodwill, and from our 2006 purchase of WM Advisors, Inc., whereby we acquired $608.0 million of investment management contracts which are considered an indefinite-lived intangible. We cannot predict certain future events that might adversely affect the reported value of goodwill and other intangible assets that totaled $1,009.0 million and $1,359.2 million, respectively, as of December 31, 2015. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, interest rate movements, declines in the equity markets, the legal environment in which the businesses operate or a material negative change in our relationships with significant customers. For further information see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Nature of Operations and Significant Accounting Policies," and "Note 2, Goodwill and Other Intangible Assets."

Insurance Reserves

        Reserves are liabilities representing estimates of the amounts that will come due, at some point in the future, to or on behalf of our policyholders. U.S. GAAP, allowing for some degree of managerial judgment, provides guidance for establishing reserves.

        Future policy benefits and claims include reserves for individual traditional and group life insurance, disability and health insurance and individual and group annuities that provide periodic income payments. These reserves are computed using assumptions of mortality, morbidity, lapse, investment performance and expense. These assumptions are based on our experience, industry results, emerging trends and future expectations. For long duration insurance contracts, once these assumptions are made for a given policy or group of policies, they will not be changed over the life of the policy. However, significant changes in experience or assumptions may require us to provide for expected future losses on a product by establishing premium deficiency reserves. Premium deficiency reserves may also be established for short duration contracts to provide for expected future losses. Our reserve levels are reviewed throughout the year using internal analysis including, among other things, experience studies, claim development analysis and annual loss recognition analysis. To the extent experience indicates potential loss recognition, we recognize losses on certain lines of business. The ultimate accuracy of the assumptions on these long-tailed insurance products cannot be determined until

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the obligation of the entire block of business on which the assumptions were made is extinguished. Short-term variances of actual results from the assumptions used in the computation of the reserves are reflected in current period net income and can impact quarter-to-quarter net income.

        Future policy benefits and claims also include reserves for incurred but unreported health, disability and life insurance claims. We recognize claims costs in the period the service was provided to our policyholders. However, claims costs incurred in a particular period are not known with certainty until after we receive, process and pay the claims. We determine the amount of this liability using actuarial methods based on historical claim payment patterns as well as emerging cost trends, where applicable, to determine our estimate of claim liabilities. We also look back to assess how our prior periods' estimates developed. To the extent appropriate, changes in such development are recorded as a change to current period claim expense. Historically, the amount of the claim reserve adjustment made in subsequent reporting periods for prior period estimates have been within a reasonable range given our normal claim fluctuations.

Benefit Plans

        The reported expense and liability associated with pension and OPEB plans requires the use of assumptions. Numerous assumptions are made regarding the discount rate, expected long-term rate of return on plan assets, turnover, expected compensation increases, health care claim costs, health care cost trends, retirement rates and mortality. The discount rate and the expected return on plan assets have the most significant impact on the level of expense.

        The assumed discount rate is determined by projecting future benefit payments inherent in the Projected Benefit Obligation and discounting those cash flows using a spot yield curve for high quality corporate bonds. Our assumed discount rate for the 2015 year-end was 4.50% for Pension and 4.15% for the Welfare Plans. Typically a 0.25% decrease in the discount rate would increase the pension benefits Projected Benefit Obligation and the Net Periodic Pension Cost ("NPPC") by approximately $115.0 million and $4.6 million, respectively. Typically a 0.25% decrease in the discount rate would increase the other postretirement benefits Accumulated Postretirement Benefit Obligation by approximately $4.3 million and would have a nominal impact on the Net Periodic Benefit Cost ("NPBC"). Typically a 0.25% increase in the discount rate would result in decreases in benefit obligations and expenses at a level generally commensurate with those noted above.

        The assumed long-term rate of return on plan assets is set at the long-term rate expected to be earned based on the long-term investment policy of the plans and the various classes of the invested funds. Historical and future expected returns of multiple asset classes were analyzed to develop a risk-free real rate of return and risk premiums for each asset class. The overall long-term rate for each asset class was developed by combining a long-term inflation component, the real risk free rate of return and the associated risk premium. A weighted average rate was developed based on long-term returns for each asset class, the plan's target asset allocation policy and the tax structure of the trusts. For the 2015 NPPC and 2015 NPBC, a 7.20% and 5.36% weighted average long-term rate of return was used, respectively. For the 2016 NPPC and 2016 NPBC, a 7.20% and 5.24% weighted average long-term rate of return assumption, respectively, will be used. Typically a 0.25% decrease in the assumed long-term rate of return would increase the NPPC by approximately $5.4 million and the NPBC by approximately $1.6 million. Typically a 0.25% increase in this rate would result in a decrease to expense at the same levels. The assumed return on plan assets is based on the fair market value of plan assets as of December 31, 2015.

        The compensation increase assumption is generally set at a rate consistent with current and expected long-term compensation and salary policy, including inflation.

        Actuarial gains and losses are amortized using a straight-line amortization method over the average remaining service period of employees, which is approximately 12 years for pension costs and approximately 10 years for other postretirement benefit costs. The qualified pension plan does not utilize the allowable corridor, while the nonqualified pension, as well as the welfare plans, utilize the 10% corridor. Prior service costs are amortized on a weighted average basis over approximately 2 years for pension and 2 years for other postretirement benefit costs. See Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11, Employee and Agent Benefits" for further discussion.

Income Taxes

        We provide for income taxes based on our estimate of the liability for taxes due. Our tax accounting represents management's best estimate of various events and transactions, such as completion of tax audits or establishment of, or changes to, a valuation allowance associated with certain deferred tax assets, which could affect our estimates and effective income tax rate in a particular quarter or annual period. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect during the years in which the basis differences reverse. We are required to evaluate the recoverability of our deferred tax assets each quarter and establish a valuation allowance, if necessary, to reduce our deferred tax assets to an amount that is more-likely-than-not to be realizable. In determining the need for a valuation allowance, we consider many factors, including future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years and implementation of any feasible and prudent tax planning strategies management would employ to realize the tax benefit.

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        U.S. federal and state deferred income taxes have not been provided on approximately $1,004.6 million and $824.8 million of accumulated but undistributed earnings from operations of foreign subsidiaries at December 31, 2015 and 2014, respectively. We do not record U.S. federal and state deferred income taxes on foreign earnings not expected to be distributed to the U.S. We apply an exception to the general rule, which under U.S. GAAP otherwise requires the recording of U.S. deferred income taxes on the anticipated repatriation of foreign earnings as recognized for financial reporting purposes. The exception permits us to not record a U.S. deferred income tax liability on foreign earnings we expect to be indefinitely reinvested in our foreign operations. The related deferred income taxes will be recorded in the period it becomes apparent we can no longer positively assert some or all the undistributed earnings will remain invested into the foreseeable future.

        Inherent in the provision for income taxes are estimates and our expectations regarding the deductibility of certain items, the timing of income and expense recognition, future performance and the current or future realization of operating losses, capital losses and certain tax credits. We regularly evaluate the capital needs of our domestic and foreign operations considering all available information, including operating and capital plans, regulatory capital requirements, parent company financing and cash flow needs, as well as tax laws applicable to our domestic and foreign subsidiaries. In the event these estimates differ from our prior estimates due to the receipt of new information, we may be required to significantly change the provision for income taxes recorded in the consolidated financial statements. Any such change could significantly affect the amounts reported in the consolidated financial statements in the year these estimates change. A further significant decline in value of assets incorporated into our tax planning strategies could lead to an increase of our valuation allowance on deferred tax assets having an adverse effect on current and future results. In management's judgment, total deferred income tax assets are more-likely-than-not to be realized.

        In addition, the amount of income taxes paid is subject to audits in the U.S. as well as various state and foreign jurisdictions. Tax benefits are recognized for book purposes when the more-likely-than-not threshold is met with regard to the validity of an uncertain tax position. Once this threshold is met, for each uncertain tax position we recognize in earnings the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with the Internal Revenue Service or other income taxing authorities for audits ongoing or not yet commenced.

        We had $229.9 million and $298.3 million of current income tax receivables associated with outstanding audit issues reported as other assets in our consolidated statements of financial position as of December 31, 2015 and 2014, respectively. We believe that we have adequate defenses against, or sufficient provisions for, the contested issues, but final resolution of contested issues could take several years while legal remedies are pursued. Consequently, we do not anticipate the ultimate resolution of audits ongoing or not yet commenced to have a material impact on our net income.

Transactions Affecting Comparability of Results of Operations

Acquisitions

        We entered into acquisition agreements for the following businesses.

        AXA Hong Kong Pension Business.    On September 1, 2015, we finalized the purchase of AXA's MPF and ORSO pension business in Hong Kong for $335.5 million. As part of the transaction, we entered into an exclusive 15-year distribution agreement with AXA to provide co-branded pension products through AXA's extensive agency network in Hong Kong. We more than doubled the AUM in our Hong Kong pension business to $5.9 billion. AXA's MPF and ORSO pension business is consolidated within our Principal International segment.

        Columbus Circle Investors.    On September 30, 2014, we acquired an additional 24.65% interest in Columbus Circle Investors from the minority shareholder partners and contracted to purchase the remaining interest from the minority shareholder partners in two installments. On April 28, 2015, we purchased an additional 2.5% interest. We now own 97.5% of Columbus Circle Investors and are expected to purchase the remaining 2.5% from the minority shareholder partners in April 2016. Columbus Circle Investors is consolidated within our Principal Global Investors segment.

        Cuprum.    On February 4, 2013, we finalized the purchase of Cuprum, a premier pension manager in Chile. As a result of the public tender offer, we initially acquired a 91.55% ownership stake in Cuprum for a purchase price of $1.3 billion. Cuprum had $34.3 billion in AUM at the time of acquisition and is consolidated within our Principal International segment.

Other

        Actuarial Assumption Updates.    We periodically review and update actuarial assumptions that are inputs to the models for DAC and other actuarial balances and make model refinements as necessary. During the third quarter of 2015, assumption updates and model refinements were made resulting in an unlocking of DAC and other actuarial balances that increased total company net income by $26.2 million for the year ended December 31, 2015. The net positive segment pre-tax operating earnings impact was $48.1 million, which was comprised of $76.8 million for our U.S. Insurance Solutions segment and $(28.7) million for our Retirement and Income Solutions segment for the year ended December 31, 2015.

        During the third quarter of 2014, assumption updates and model refinements were made resulting in an unlocking of DAC and other actuarial balances that increased total company net income by $45.3 million for the year ended December 31, 2014. The net positive segment pre-tax operating earnings impact was $62.6 million, which was comprised

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of $60.0 million for our U.S. Insurance Solutions segment and $2.6 million for our Retirement and Income Solutions segment for the year ended December 31, 2014.

        Our review and update of actuarial assumptions in 2013 did not result in a material impact to net income.

        The individual life insurance business actuarial assumption updates and model refinements had the most significant impact and affected several line items within our income statement. The following table presents the increase (decrease) on the individual life insurance income statement line items for the years ended December 31, 2015 and 2014. The impact for the year ended December 31, 2013, was not material.

 
  For the year ended
December 31,
 
 
  2015   2014  
 
  (in millions)
 

Pre-tax operating earnings

  $ 64.6   $ 60.0  

Fee revenues

    (3.0 )   3.1  

Benefits, claims and settlement expenses

    (43.5 )   (131.6 )

Operating expenses

    (24.1 )   74.7  

        Chilean Legal Entity Merger.    In January 2015, we received regulatory approval and executed upon the merger of two of our Chilean legal entities. As a result of the merger, we recognized a $105.2 million benefit in net income available to common stockholders in first quarter 2015 to reflect a change in deferred tax balances related to the merged entity.

        Liongate Capital Management LLP and Liongate Limited.    On May 1, 2013, we finalized the purchase of a 55% interest in Liongate Capital Management LLP and Liongate Limited ("Liongate"), a global alternative investment boutique based in London and New York. Liongate is focused on managing portfolios of hedge funds. The purchase price was $44.0 million. Liongate had $1.4 billion in AUM at the time of acquisition and was accounted for on the equity method within our Principal Global Investors segment. In the fourth quarter of 2014, we impaired our investment in Liongate.

Fluctuations in Foreign Currency to U.S. Dollar Exchange Rates

        Fluctuations in foreign currency to U.S. dollar exchange rates for countries in which we have operations can affect reported financial results. In years when foreign currencies weaken against the U.S. dollar, translating foreign currencies into U.S. dollars results in fewer U.S. dollars to be reported. When foreign currencies strengthen, translating foreign currencies into U.S. dollars results in more U.S. dollars to be reported.

        Foreign currency exchange rate fluctuations create variances in our financial statement line items. The most significant impact occurs within our Principal International segment where pre-tax operating earnings were negatively impacted $69.3 million for the year ended December 31, 2015, as a result of fluctuations in foreign currency to U.S. dollar exchange rates. For a discussion of our approaches to managing foreign currency exchange rate risk, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency Risk."

Stock-Based Compensation Plans

        For information related to our Stock-Based Compensation Plans, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 17, Stock-Based Compensation Plans."

Effects of Inflation

        The impact of inflation has not had a material effect on our annual consolidated results of operations over the past three years. However, we may be materially affected by inflation in the future.

Employee and Agent Benefits Expense

        The 2015 annual defined benefit pension expense for substantially all of our employees and certain agents was $123.4 million pre-tax, which is a $38.4 million increase from the 2014 pre-tax pension expense of $85.0 million. This increase is due to a decrease in the discount rate from 4.90% for 2014 to 4.00% for 2015 and a change in the mortality assumptions. Offsetting these increases were a better than expected asset return in 2014 and an increase in the expected long-term return on plan assets to 7.20% for 2015 from 6.75% used in 2014.

        The 2016 annual defined benefit pension expense for substantially all of our employees and certain agents is expected to be $119.7 million pre-tax, which is a $3.7 million decrease from the 2015 pre-tax pension expense of $123.4 million. This decrease is due to an increase in the discount rate from 4.00% for 2015 to 4.50% for 2016, offset by less than expected investment returns in 2015. The expected long-term return on plan assets is 7.20% for 2016 and 2015.

        The 2015 annual OPEB plan income for employees and certain agents was $38.8 million pre-tax, which is a $9.5 million decrease from the 2014 pre-tax OPEB income of $48.3 million. The 2015 income includes an expense of $5.8 million due to certain adjustments related to dental plan benefits during the fourth quarter. The weighted average expected long-term return on plan assets used to develop the income in 2015 was 5.36%, which was based on weighted average expected long-term asset returns for the medical, life and long-term care plan. The discount rate used to develop

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the 2015 income decreased to 4.00%, down from 4.90% used in 2014. The mortality table was changed for the calculation of the OPEB liabilities as well, but it had less impact than on pension expense.

        The 2016 annual OPEB plan income for employees and certain agents is expected to be $43.5 million pre-tax, which is a $4.7 million increase from the 2015 pre-tax OPEB income of $38.8 million. The 2016 OPEB plan income reflects a $15.5 million reduction in the accumulated postretirement benefit obligation due to a plan change in post-65 medical coverage for employees who retired from January 1, 1992 to December 31, 2010. The weighted average expected long-term return on plan assets used to develop the income in 2016 is 5.24%, which was based on weighted average expected long-term asset returns for the medical, life and long-term care plan. The discount rate used to develop the 2016 income increased to 4.15%, up from 4.00% used in 2015.

        The mortality assumption model is the same for both 2015 and 2016 expense for all plans; however, 2016 reflects an update for 2 additional years of experience released by the Social Security Administration in 2015, which caused virtually no change in any of the plans' expenses.

Impact of Low Interest Rate Environment

        The exposure from the low interest rates is reflected in a reduction in the difference between the investment income we earn and the interest we credit to our customers. Some of our products, primarily our fixed deferred annuity, general account group annuity and universal life insurance products, include guaranteed minimum interest rates. During periods of low or declining interest rates, borrowers may prepay or redeem mortgages and fixed maturities that are invested to support our product obligations, which would force us to reinvest the proceeds at lower interest rates. The resulting lower net investment income may make it more difficult for us to maintain our desired difference between the investment income we earn and the interest we credit to our customers and thereby reduce our profitability. See Item 7A. "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk" for a presentation of the differences between the interest rates being credited to contractholders and the respective guaranteed minimum interest rates within the Retirement and Income Solutions and U.S. Insurance Solutions segments.

        Some of our universal life insurance contracts contain secondary guarantees, which keep the contract in force, even if the contractholder's account balance is insufficient to cover all of the contract charges, provided that the contractholder has continually paid a specified minimum premium. It is possible that more of these secondary guarantees could be triggered, possibly increasing our policyholder obligation and thereby reducing our profitability.

        Declining or low interest rates could impact the discount rate assumption used for the purposes of valuing reserves and our pension and OPEB obligations. A decrease in the discount rate could result in higher reserves as well as unlocking of DAC and other actuarial balances and an increase in the annual pension and OPEB expense.

        Our expectation of EGPs is an important consideration in determining the amortization of DAC and other actuarial balances. To the extent a low interest rate environment impacts our assumptions regarding future EGPs, an unlocking of DAC and other actuarial balances could occur, decreasing net income.

        Lastly, lower net investment income could result in the establishment of a premium deficiency reserve for certain of our insurance products.

        We anticipate that a sustained low interest rate environment would reduce the growth in net income.

Recent Accounting Changes

        For recent accounting changes, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 1, Nature of Operations and Significant Accounting Policies" under the caption, "Recent Accounting Pronouncements."

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Results of Operations

        The following table presents summary consolidated financial information for the years indicated:

 
  For the year ended
December 31,
  Increase (decrease)  
 
  2015 vs. 2014   2014 vs. 2013  
 
  2015   2014   2013  
 
  (in millions)
 

Revenues:

                               

Premiums and other considerations

  $ 5,310.3   $ 3,722.9   $ 3,154.1   $ 1,587.4   $ 568.8  

Fees and other revenues

    3,653.1     3,482.1     3,222.2     171.0     259.9  

Net investment income

    3,052.1     3,257.9     3,138.4     (205.8 )   119.5  

Net realized capital gains (losses), excluding impairment losses on available-for-sale securities

    (20.9 )   92.7     (109.2 )   (113.6 )   201.9  

Net other-than-temporary impairment (losses) recoveries on available-for-sale securities

    (0.8 )   23.8     (91.5 )   (24.6 )   115.3  

Other-than-temporary impairment losses on fixed maturities available-for-sale reclassified from other comprehensive income

    (29.4 )   (101.8 )   (24.5 )   72.4     (77.3 )

Net impairment losses on available-for-sale securities

    (30.2 )   (78.0 )   (116.0 )   47.8     38.0  

Net realized capital gains (losses)

    (51.1 )   14.7     (225.2 )   (65.8 )   239.9  

Total revenues

    11,964.4     10,477.6     9,289.5     1,486.8     1,188.1  

Expenses:

                               

Benefits, claims and settlement expenses

    6,697.7     5,231.0     4,683.6     1,466.7     547.4  

Dividends to policyholders

    163.5     177.4     189.0     (13.9 )   (11.6 )

Operating expenses

    3,672.4     3,574.3     3,292.9     98.1     281.4  

Total expenses

    10,533.6     8,982.7     8,165.5     1,550.9     817.2  

Income before income taxes

    1,430.8     1,494.9     1,124.0     (64.1 )   370.9  

Income taxes

    177.6     318.5     187.9     (140.9 )   130.6  

Net income

    1,253.2     1,176.4     936.1     76.8     240.3  

Net income attributable to noncontrolling interest

    19.2     32.3     23.4     (13.1 )   8.9  

Net income attributable to Principal Financial Group, Inc. 

    1,234.0     1,144.1     912.7     89.9     231.4  

Less:

                               

Preferred stock dividends

    16.5     33.0     33.0     (16.5 )    

Excess of redemption value over carrying value of preferred shares redeemed            

    8.2             8.2      

Net income available to common stockholders

  $ 1,209.3   $ 1,111.1   $ 879.7   $ 98.2   $ 231.4  

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

    Net Income Available to Common Stockholders

        Net income available to common stockholders increased primarily due to a change in deferred tax balances related to the merger of two of our Chilean legal entities, partially offset by net realized capital losses in 2015 as compared to net realized capital gains in 2014 primarily due to decreased gains on sales of real estate investments and joint venture real estate and a write-off of unamortized book value on corporate owned real estate in 2015. This was partially offset by an impairment of Liongate, an equity method investment, in 2014.

    Total Revenues

        Premiums increased $1,426.9 million for the Retirement and Income Solutions segment primarily due to higher sales of single premium group and individual annuities with life contingencies. The single premium group product, which is typically used to fund defined benefit plan terminations, can generate large premiums from very few customers and therefore premiums tend to vary from period to period.

        Fee revenues increased $88.5 million for the Principal Global Investors segment primarily due to higher management fee revenue as a result of increased AUM. Fee revenues increased $52.9 million for the Corporate segment primarily due to income on a tax indemnification.

        Net investment income decreased primarily due to lower investment yields and prepayments on invested assets and cash in our U.S. Operations. In addition, net investment income decreased due to the weakening of the Latin American currencies against the U.S. dollar, lower inflation-based investment returns on average invested assets and cash as a result of lower inflation in Chile and unfavorable market changes on our required regulatory investment in the pension funds of our Chilean pension company. For additional information, see "Investments — Investment Results."

        Net realized capital gains (losses) can be volatile due to other-than-temporary impairments of invested assets, mark-to-market adjustments of certain invested assets and our decision to sell invested assets. We had net realized capital

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losses in 2015 as compared to net realized capital gains in 2014 primarily due to decreased gains on sales of real estate investments and joint venture real estate, write-off of unamortized book value on corporate owned real estate in 2015 and increased losses on derivatives not designated as hedging instruments. This was partially offset by an impairment of Liongate, an equity method investment, in 2014. For additional information, see "Investments — Investment Results."

    Total Expenses

        Benefits, claims and settlement expenses increased $1,391.5 million for the Retirement and Income Solutions segment primarily due to an increase in reserves resulting from higher sales of single premium group and individual annuities with life contingencies.

        Operating expenses increased $64.5 million for the Retirement and Income Solutions segment primarily due to an unfavorable DAC unlocking associated with the review and update of our actuarial assumptions in 2015 and an increase in staff related costs including pension and OPEB. Operating expenses increased $48.1 million for the Principal Global Investors segment primarily due to expenses supporting growth in the business.

    Income Taxes

        The effective income tax rates were 12% and 21% for the years ended December 31, 2015 and 2014, respectively. The effective income tax rate for the year ended December 31, 2015, was lower than the U.S. statutory rate of 35% ("U.S. statutory rate") primarily due to income tax deductions allowed for corporate dividends received, a change in deferred tax balances related to the merger of two of our Chilean legal entities and the presentation of taxes on our share of earnings generated from equity method investments reflected in net investment income, partially offset by the negative impact of a court ruling on some uncertain tax positions. The effective income tax rate for the year ended December 31, 2014, was lower than the U.S. statutory rate primarily due to income tax deductions allowed for corporate dividends received, the presentation of taxes on our share of earnings generated from equity method investments reflected in net investment income and tax credits, partially offset by an increase in net deferred tax liabilities resulting from the third quarter 2014 enactment of tax legislation in Chile. The effective income tax rate decreased to 12% from 21% for the years ended December 31, 2015 and 2014, respectively, primarily due to a change in deferred tax balances related to the merger of two of our Chilean legal entities, a change in net deferred tax liabilities resulting from the third quarter 2014 enactment of tax legislation in Chile not replicated in 2015, partially offset by the negative impact of a court ruling on some uncertain tax positions.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

    Net Income Available to Common Stockholders

        Net income available to common stockholders increased primarily due to double digit earnings growth in all of the segments, lower net realized capital losses associated with derivatives not designated as hedging instruments and gains on fixed maturities. These increases were partially offset by an increase in net deferred tax liabilities resulting from the third quarter 2014 enactment of tax legislation in Chile and the impact of a court ruling on some uncertain tax positions in the second quarter of 2014.

    Total Revenues

        Premiums increased $539.0 million for the Retirement and Income Solutions segment primarily due to higher sales of single premium group and individual annuities with life contingencies.

        Fee revenues increased $138.6 million for the Retirement and Income Solutions segment primarily due to higher fees stemming from an increase in average account values, which resulted from positive equity market performance and growth in the business. Fee revenue increased $74.4 million for the Principal Global Investors segment primarily due to higher management fee revenue due to increased AUM. The increase in management fee revenue was partially offset by a decrease in performance fees primarily seen in alternative strategies.

        Net investment income increased due to higher inflation-based investment returns on average invested assets and cash as a result of higher inflation in Chile and favorable market changes on our required regulatory investment in the pension funds of our Chilean pension company. These increases were partially offset by the weakening of the Chilean peso against the U.S. dollar and lower yields on average invested assets and cash in our U.S. operations. For additional information, see "Investments — Investment Results."

        Net realized capital gains (losses) can be volatile due to other-than-temporary impairments of invested assets, mark-to-market adjustments of certain invested assets and our decision to sell invested assets. Net realized capital gains (losses) improved due to lower losses on derivatives not designated as hedging instruments and gains on fixed maturities. For additional information, see "Investments — Investment Results."

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    Total Expenses

        Benefits, claims and settlement expenses increased $463.5 million for the Retirement and Income Solutions segment primarily due to an increase in reserves resulting from higher sales of single premium group and individual annuities with life contingencies.

        Operating expenses increased $115.0 million for the U.S. Insurance Solutions segment primarily due to DAC unlocking associated with actuarial model and assumption updates in 2014. Operating expenses increased $113.2 million for the Retirement and Income Solutions segment primarily due to higher sub-advisory fee costs stemming from an increase in average account values, which resulted from positive equity market performance, an increase in non-deferrable distribution costs and an increase in DAC amortization related to individual annuities.

    Income Taxes

        The effective income tax rates were 21% and 17% for the years ended December 31, 2014 and 2013, respectively. The effective income tax rate for the year ended December 31, 2014 was lower than the U.S. statutory rate primarily due to income tax deductions allowed for corporate dividends received, the presentation of taxes on our share of earnings generated from equity method investments reflected in net investment income and tax credits, partially offset by an increase in net deferred tax liabilities resulting from the third quarter 2014 enactment of tax legislation in Chile. The effective income tax rate for the year ended December 31, 2013, was lower than the U.S. statutory rate primarily due to income tax deductions allowed for corporate dividends received, the presentation of taxes on our share of earnings generated from equity method investments in net investment income and lower tax rates of foreign jurisdictions. The effective income tax rate increased to 21% from 17% for the years ended December 31, 2014 and 2013, respectively, primarily due to an increase in net deferred tax liabilities resulting from the third quarter 2014 enactment of tax legislation in Chile.

Results of Operations by Segment

        For results of operations by segment see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 16, Segment Information."

Retirement and Income Solutions Segment

Retirement and Income Solutions Trends

        Several key factors impact revenue and earnings growth in the Retirement and Income Solutions segment. These factors include: the ability of our distribution channels to generate new sales and retain existing business; pricing decisions that take account of competitive conditions, persistency, investment returns, mortality trends, and operating expense levels; investment management performance; equity market returns and interest rate changes. Profitability ultimately depends on our ability to price products and invest assets at a level that enables us to earn a margin over the cost of providing benefits and the expense of acquiring and administering those products.

        Net revenue is a key metric used to understand Retirement and Income Solutions earnings growth. Net revenue is defined as operating revenues less benefits, claims and settlement expenses less dividends to policyholders. Net revenue from Retirement and Income Solutions — Fee is primarily fee based and is impacted by changes in the equity markets. Net revenue from Retirement and Income Solutions — Spread is driven by the difference between investment income earned on the underlying general account assets and the interest rate credited to the contracts. Retirement and Income Solutions — Fee net revenue has grown due to improvement in the equity markets as well as growth in the block of business. Retirement and Income Solutions — Spread net revenue has decreased due to a decline in variable investment income.

        The following table presents the Retirement and Income Solutions segment net revenue for the years indicated:

 
  For the year ended
December 31,
  Increase (decrease)  
 
  2015 vs. 2014   2014 vs. 2013  
 
  2015   2014   2013  
 
  (in millions)
 

Net revenue:

                               

Retirement and Income Solutions — Fee

  $ 1,573.5   $ 1,563.7   $ 1,388.8   $ 9.8   $ 174.9  

Retirement and Income Solutions — Spread            

    437.6     470.2     496.4     (32.6 )   (26.2 )

Total Retirement and Income Solutions

  $ 2,011.1   $ 2,033.9   $ 1,885.2   $ (22.8 ) $ 148.7  

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Retirement and Income Solutions Segment Summary Financial Data

        The following table presents certain summary financial data relating to the Retirement and Income Solutions segment for the years indicated:

 
  For the year ended
December 31,
  Increase (decrease)  
 
  2015 vs. 2014   2014 vs. 2013  
 
  2015   2014   2013  
 
  (in millions)
 

Operating revenues:

                               

Premiums and other considerations

  $ 3,011.4   $ 1,584.5   $ 1,045.5   $ 1,426.9   $ 539.0  

Fees and other revenues

    1,338.8     1,309.7     1,171.1     29.1     138.6  

Net investment income

    1,816.7     1,905.5     1,995.9     (88.8 )   (90.4 )

Total operating revenues

    6,166.9     4,799.7     4,212.5     1,367.2     587.2  

Expenses:

                               

Benefits, claims and settlement expenses, including dividends to policyholders

    4,155.8     2,765.8     2,327.3     1,390.0     438.5  

Operating expenses

    1,271.0     1,182.7     1,132.7     88.3     50.0  

Total expenses

    5,426.8     3,948.5     3,460.0     1,478.3     488.5  

Pre-tax operating earnings

  $ 740.1   $ 851.2   $ 752.5   $ (111.1 ) $ 98.7  

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

    Pre-Tax Operating Earnings

        Pre-tax operating earnings decreased $85.0 million in our Fee business primarily due to an unfavorable DAC unlocking associated with the review and update of our actuarial assumptions in 2015 and an increase in staff related costs including pension and OPEB. Pre-tax operating earnings decreased $26.1 million in our Spread business primarily due to a decrease in variable investment income resulting from a decline in loan prepayment activity and associated fees.

    Net Revenue

        Net revenue decreased $32.6 million in our Spread business primarily due to a decrease in variable investment income resulting from a decline in loan prepayment activity and associated fees. Net revenue increased $9.8 million in our Fee business primarily due to higher fees stemming from growth in the business and an increase in average account values.

    Operating Expenses

        Operating expenses increased $94.8 million in our Fee business primarily due to an unfavorable DAC unlocking associated with the review and update of our actuarial assumptions in 2015 and an increase in staff related costs including pension and OPEB.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

    Pre-Tax Operating Earnings

        Pre-tax operating earnings increased $127.5 million in our Fee business primarily due to higher fees stemming from an increase in average account values, which resulted from positive equity market performance and growth in the business. Pre-tax operating earnings decreased $28.8 million in our Spread business primarily due to a decrease in net interest margin.

    Net Revenue

        Net revenue increased $174.9 million in our Fee business primarily due to higher fees stemming from an increase in average account values, which resulted from positive equity market performance and growth in the business.

    Operating Expenses

        Operating expenses increased $47.4 million in our Fee business primarily due to higher sub-advisory fee costs stemming from an increase in average account values, which resulted from positive equity market performance, an increase in non-deferrable distribution costs and an increase in DAC amortization related to individual variable annuities.

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Principal Global Investors Segment

Principal Global Investors Trends

        Our overall AUM increased $18.1 billion in 2015 due to continued strong portfolio management as well as positive net cash flows resulting from strong distribution results. We also continue to expand our global presence and experience success in winning institutional asset management mandates and other deposits.

        The following table provides a summary of Principal Global Investors' affiliated, institutional and retail AUM as of the years indicated:

As of   Affiliated
AUM
  Institutional
AUM
  Retail
AUM
  Total
AUM
 
 
  (in billions)
 

December 31, 2015

  $ 164.0     122.0   $ 74.8   $ 360.8  

December 31, 2014

    157.5     114.0     71.2     342.7  

December 31, 2013

    147.6     109.4     61.8     318.8  

Principal Global Investors Segment Summary Financial Data

        AUM is a key indicator of earnings growth for the Principal Global Investors segment, as AUM is the base by which we generate revenues. Net cash flow and market performance are the two main drivers of AUM growth. Net cash flow reflects our ability to attract and retain client deposits. Market performance reflects equity, fixed income, real estate and other alternative investment market performance. The percentage growth in revenues of the segment will generally track with the percentage growth in AUM. This trend may vary due to changes in business and/or product mix.

        The following table presents the AUM rollforward for assets managed by Principal Global Investors for the periods indicated:

 
  For the year ended
December 31,
 
 
  2015   2014   2013  
 
  (in billions)
 

AUM, beginning of period

  $ 342.7   $ 318.8   $ 283.7  

Net cash flow (1)

    15.5     6.4     7.6  

Investment performance (2)

    0.6     19.9     29.2  

Other (3)

    0.1     (2.4 )   (3.1 )

Operations acquired (4)

    1.9         1.4  

AUM, end of period

  $ 360.8   $ 342.7   $ 318.8  

(1)
Positive net cash flows are primarily due to continued strong distribution results.

(2)
Variations in investment performance are primarily the result of fluctuations in market performance over time.

(3)
Primarily reflects the transfer of assets between managers and the effect of exchange rates in 2014 and the transfer of cash needed for the Cuprum acquisition in 2013.

(4)
Reflects assets managed by Principal Global Investors resulting from the acquisition of AXA's MPF and ORSO pension business in September 2015 and the acquisition of Liongate in May 2013.

        The following table presents certain summary financial data relating to the Principal Global Investors segment for the years indicated:

 
  For the year ended
December 31,
  Increase (decrease)  
 
  2015 vs. 2014   2014 vs. 2013  
 
  2015   2014   2013  
 
  (in millions)
 

Operating revenues:

                               

Fees and other revenues

  $ 1,335.4   $ 1,246.9   $ 1,172.5   $ 88.5   $ 74.4  

Net investment income

    8.1     10.5     17.2     (2.4 )   (6.7 )

Total operating revenues

    1,343.5     1,257.4     1,189.7     86.1     67.7  

Expenses:

                               

Total expenses

    950.6     894.9     883.5     55.7     11.4  

Pre-tax operating earnings attributable to noncontrolling interest

   
4.4
   
12.4
   
16.6
   
(8.0

)
 
(4.2

)

Pre-tax operating earnings

  $ 388.5   $ 350.1   $ 289.6   $ 38.4   $ 60.5  

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Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

    Pre-Tax Operating Earnings

        Pre-tax operating earnings increased due to higher management fee revenue as a result of increased AUM, performance fees realized in our real estate business and our increased ownership in Columbus Circle Investors. These increases were partially offset by increased expenses to support our business.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

    Pre-Tax Operating Earnings

        Pre-tax operating earnings increased due to higher management fee revenue as a result of increased AUM as well as our increased ownership in Columbus Circle Investors. These increases were partially offset by a decrease in performance fees primarily in our alternative strategies as well as expense increases to support our business.

Principal International Segment

Principal International Trends

        Our Principal International businesses focus on countries with growing middle classes, favorable demographics and increasing long-term savings, ideally with defined contribution retirement markets. With variations depending upon the specific country, we have targeted these markets for sales of retirement and related products and services, including mutual funds, asset management, income annuities and life insurance accumulation products to businesses and individuals.

        We have pursued our international strategy through a combination of acquisitions, start-up operations and joint ventures, which require infusions of capital consistent with our strategy of long-term growth and profitability.

Principal International Segment Summary Financial Data

        AUM is generally a key indicator of earnings growth for the segment, as AUM is the base by which we can generate local currency profits. The Cuprum business in Chile differs in that the majority of fees are collected with each deposit by the mandatory retirement customers, based on a capped salary level, as opposed to asset levels. Net customer cash flow and market performance are the two main drivers of local currency AUM growth. Net customer cash flow reflects our ability to attract and retain client deposits. Market performance reflects the investment returns on our underlying AUM. Our financial results are also impacted by fluctuations of the foreign currency to U.S. dollar exchange rates for the countries in which we have business. AUM of our foreign subsidiaries is translated into U.S. dollar equivalents at the end of the reporting period using the spot foreign exchange rates. Revenue and expenses for our foreign subsidiaries are translated into U.S. dollar equivalents at the average foreign exchange rates for the reporting period.

        The following table presents the Principal International segment AUM rollforward for the years indicated:

 
  For the year ended
December 31,
 
 
  2015   2014   2013  
 
  (in billions)
 

AUM, beginning of period

  $ 114.6   $ 104.5   $ 69.3  

Net cash flow (1)

    9.3     13.1     8.5  

Investment performance (2)

    7.7     11.0     3.6  

Operations acquired (3)

    4.0         34.3  

Effect of exchange rates

    (27.3 )   (13.5 )   (11.1 )

Other (4)

    1.6     (0.5 )   (0.1 )

AUM, end of period

  $ 109.9   $ 114.6   $ 104.5  

(1)
Positive net cash flows are primarily due to continued strong distribution results.

(2)
Variations in investment performance are primarily the result of fluctuations in market performance over time.

(3)
Reflects the acquisition of AXA's MPF and ORSO pension business in September 2015, Finansa Asset Management Limited in January 2015 and Cuprum in February 2013.

(4)
Includes $1.9 billion transfer of CIMB-Principal Islamic Asset Management Sdn. Bhd from Principal Global Investors in April 2015.

        Net revenue is a key metric used to understand the earnings growth for the Principal International segment. The following table presents the net revenue of the Principal International segment for the years indicated.

 
  For the year ended
December 31,
  Increase (decrease)  
 
  2015 vs. 2014   2014 vs. 2013  
 
  2015   2014   2013  
 
  (in millions)
 

Net revenue

  $ 655.6   $ 717.0   $ 633.8   $ (61.4 ) $ 83.2  

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        Net revenue decreased in 2015 as compared to 2014 primarily due to the weakening of the Latin American currencies against the U.S. dollar partially offset by higher earnings in our equity method investment in Brazil. Net revenue increased in 2014 as compared to 2013 primarily due to the acquisition and growth of our Chilean pension company and favorable market changes on our required regulatory investment in the pension funds in Chile. These increases were partially offset by the weakening of the Chilean peso against the U.S. dollar.

        The following table presents certain summary financial data relating to the Principal International segment for the years indicated:

 
  For the year ended
December 31,
  Increase (decrease)  
 
  2015 vs. 2014   2014 vs. 2013  
 
  2015   2014   2013  
 
  (in millions)
 

Operating revenues:

                               

Premiums and other considerations

  $ 252.9   $ 225.7   $ 291.6   $ 27.2   $ (65.9 )

Fees and other revenues

    401.8     438.9     404.4     (37.1 )   34.5  

Net investment income

    565.9     665.2     505.2     (99.3 )   160.0  

Total operating revenues

    1,220.6     1,329.8     1,201.2     (109.2 )   128.6  

Expenses:

                               

Benefits, claims and settlement expenses

    565.0     612.8     567.4     (47.8 )   45.4  

Operating expenses

    387.6     361.8     333.9     25.8     27.9  

Total expenses

    952.6     974.6     901.3     (22.0 )   73.3  

Pre-tax operating earnings (losses) attributable to noncontrolling interest

   
(3.3

)
 
2.5
   
5.5
   
(5.8

)
 
(3.0

)

Pre-tax operating earnings

  $ 271.3   $ 352.7   $ 294.4   $ (81.4 ) $ 58.3  

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

    Pre-Tax Operating Earnings

        Pre-tax operating earnings decreased primarily due to the weakening of the Latin American currencies against the U.S. dollar, unfavorable market changes on our required regulatory investment in the pension funds of our Chilean pension company and the intangible asset impairments in our mutual fund company in Brazil in third quarter 2015. These were partially offset by higher earnings in our equity method investments in Brazil and China.

    Operating Revenues

        Premiums increased primarily due to higher sales of single premium annuities with life contingencies in Chile partially offset by the weakening of the Chilean peso against the U.S. dollar.

        Fees and other revenues decreased primarily due to the weakening of the Latin American currencies against the U.S. dollar. This decrease was partially offset by higher fees from higher average AUM in Hong Kong following the AXA acquisition in September 2015 and in Chile.

        Net investment income decreased primarily due to the weakening of the Latin American currencies against the U.S. dollar, lower inflation-based investment returns on average invested assets and cash as a result of lower inflation in Chile and unfavorable market changes on our required regulatory investment in the pension funds of our Chilean pension company. These were partially offset by higher earnings in our equity method investments in Brazil and China and higher investment income in Hong Kong following the AXA acquisition in September 2015.

    Total Expenses

        Benefits, claims and settlement expenses decreased in Chile primarily due to the weakening of the Chilean peso against the U.S. dollar and a decrease in the change in reserves due to lower inflation-based interest crediting rates to customers. These decreases were partially offset by higher sales of single premium annuities with life contingencies.

        Operating expenses increased primarily due to the intangible asset impairments in our mutual fund company in Brazil in third quarter 2015.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

    Pre-Tax Operating Earnings

        Pre-tax operating earnings increased primarily due to the acquisition and growth of our Chilean pension company and favorable market changes on our required regulatory investment in the pension funds of our Chilean pension company. These increases were partially offset by the weakening of the Chilean peso against the U.S. dollar.

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    Operating Revenues

        Premiums decreased in Chile primarily due to the weakening of the Chilean peso against the U.S. dollar and lower sales of single premium annuities with life contingencies.

        Fees and other revenues increased primarily due to the acquisition and growth of our pension company in Chile partially offset by the weakening of the Chilean peso against the U.S. dollar.

        Net investment income increased primarily due to the higher inflation-based investment returns on average invested assets and cash as a result of higher inflation in Chile and favorable market changes on our required regulatory investment in the pension funds of our Chilean pension company partially offset by the weakening of the Chilean peso against the U.S. dollar.

    Total Expenses

        Benefits, claims and settlement expenses increased in Chile primarily due to higher inflation-based interest crediting rates to customers partially offset by lower sales of single premium annuities with life contingencies and the weakening of the Chilean peso against the U.S. dollar.

        Operating expenses increased primarily due to the acquisition and growth of our Chilean pension company and higher Principal International infrastructure costs partially offset by the weakening of the Chilean peso against the U.S. dollar.

U.S. Insurance Solutions Segment

        Several key drivers impact earnings growth in the U.S. Insurance Solutions segment. The ability of our distribution channels to generate new sales and retain existing business drives growth in our premium and fees. Our earnings growth also depends on our ability to price our products at a level that enables us to earn a margin over the cost of providing benefits and the expense of acquiring and administering those products. Factors impacting pricing decisions include competitive conditions, economic trends, persistency, our ability to assess and manage trends in mortality and morbidity and our ability to manage operating expenses.

U.S. Insurance Solutions Insurance Trends

        Premium and fees are a key metric for growth in the U.S. Insurance Solutions segment. We receive premiums on our specialty benefits insurance products as well as our traditional life insurance products. Fees are generated from our specialty benefits fee-for-service products as well as our universal life and variable universal life insurance products.

        Premium and fees are influenced by economic, industry and regulatory trends. In our specialty benefits insurance business, premium and fees growth is a result of strong sales and retention, as well as continued in-group growth. In our individual life insurance business, we have intentionally decreased sales of certain interest sensitive products in favor of more traditional products due to the low interest rate environment.

        The following table presents the U.S. Insurance Solutions segment premium and fees for the years indicated:

 
  For the year ended
December 31,
  Increase (decrease)  
 
  2015 vs. 2014   2014 vs. 2013  
 
  2015   2014   2013  
 
  (in millions)
 

Premium and fees:

                               

Specialty benefits insurance

  $ 1,732.6   $ 1,591.4   $ 1,492.7   $ 141.2   $ 98.7  

Individual life insurance

    966.1     935.7     907.1     30.4     28.6  

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U.S. Insurance Solutions Segment Summary Financial Data

        The following table presents certain summary financial data relating to the U.S. Insurance Solutions segment for the years indicated:

 
  For the year ended
December 31,
  Increase (decrease)  
 
  2015 vs. 2014   2014 vs. 2013  
 
  2015   2014   2013  
 
  (in millions)
 

Operating revenues:

                               

Premiums and other considerations

  $ 2,045.9   $ 1,913.8   $ 1,816.5   $ 132.1   $ 97.3  

Fees and other revenues (1)

    652.6     613.1     583.1     39.5     30.0  

Net investment income

    742.1     735.7     706.8     6.4     28.9  

Total operating revenues

    3,440.6     3,262.6     3,106.4     178.0     156.2  

Expenses:

                               

Benefits, claims and settlement expenses (1)            

    1,964.1     1,842.9     1,836.2     121.2     6.7  

Dividends to policyholders

    163.2     176.2     187.5     (13.0 )   (11.3 )

Operating expenses (1)

    883.8     899.4     792.1     (15.6 )   107.3  

Total expenses

    3,011.1     2,918.5     2,815.8     92.6     102.7  

Pre-tax operating earnings (1)

  $ 429.5   $ 344.1   $ 290.6   $ 85.4   $ 53.5  

(1)
For further details related to the impact associated with actuarial assumption updates and model refinements on results for 2015 and 2014, see "Transactions Affecting Comparability of Results of Operations — Actuarial Assumption Updates."

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

    Pre-Tax Operating Earnings

        Pre-tax operating earnings increased $44.2 million in our individual life insurance business primarily due to improved mortality and a more favorable impact from unlocking associated with assumption updates and model refinements in 2015 than in 2014. Pre-tax operating earnings increased $41.2 million in our specialty benefits insurance business primarily due to more favorable claim experience, growth, a favorable impact from assumption updates and model refinements and the recovery of reinsurance premiums. These increases were partially offset by higher sales related expenses and staff related costs, including pension and OPEB.

    Operating Revenues

        Premium and fees increased $141.2 million in our specialty benefits insurance business primarily due to growth in the business and the recovery of reinsurance premiums, partially offset by an unfavorable impact from assumption updates and model refinements.

    Total Expenses

        Benefits, claims and settlement expenses increased $81.7 million in our individual life insurance business primarily due to a less favorable impact from unlocking associated with assumption updates and model refinements in 2015 than in 2014, which was partially offset by improved mortality. Benefits, claims and settlement expenses increased $39.5 million in our specialty benefits insurance business primarily due to growth in the business, which was partially offset by more favorable claim experience and a favorable impact from assumption updates and model refinements.

        Operating expenses decreased $75.9 million in our individual life insurance business primarily due to a more favorable impact from unlocking associated with assumption updates and model refinements in 2015 than in 2014, which was partially offset by higher expenses related to growth in the business. Operating expenses increased $60.3 million in our specialty benefits insurance business primarily due to growth in the business, higher staff related costs, including pension and OPEB and reimbursement of a reinsurance expense allowance.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

    Pre-Tax Operating Earnings

        Pre-tax operating earnings increased $36.1 million in our individual life insurance business primarily due to favorable unlocking associated with actuarial model and assumption updates in 2014 and higher prepayment fees, partially offset by higher mortality. Pre-tax operating earnings increased $17.4 million in our specialty benefits insurance business primarily due to growth in the business and lower frequency and severity of dental claims.

    Operating Revenues

        Premiums and fees increased $98.7 million in our specialty benefits insurance business primarily due to growth as a result of strong sales and retention, as well as improving employment and salary trends. Premiums and fees increased $28.6 million in our individual life insurance business primarily due to strong sales and retention.

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        Net investment income increased due to an increase in average invested assets and higher prepayment fees.

    Total Expenses

        Benefits, claims and settlement expenses increased $61.4 million in our specialty benefits insurance business primarily due to growth in the business partially offset by lower frequency and severity of dental claims. Benefits, claims and settlement expenses decreased $54.7 million in our individual life insurance business primarily due to favorable unlocking associated with actuarial model and assumption updates in 2014, partially offset by higher mortality and growth in the business.

        Operating expenses increased $82.6 million in our individual life insurance business primarily due to DAC unlocking associated with actuarial model and assumption updates in 2014. Operating expenses increased $24.7 million in our specialty benefits insurance business primarily due to growth in the business.

Corporate Segment

Corporate Segment Summary Financial Data

        The following table presents certain summary financial data relating to the Corporate segment for the years indicated:

 
  For the year ended
December 31,
  Increase (decrease)  
 
  2015 vs. 2014   2014 vs. 2013  
 
  2015   2014   2013  
 
  (in millions)
 

Operating revenues:

                               

Total operating revenues

  $ (50.5 ) $ (40.3 ) $ (51.2 ) $ (10.2 ) $ 10.9  

Expenses:

                               

Total expenses

    134.7     117.2     140.8     17.5     (23.6 )

Pre-tax operating earnings attributable to noncontrolling interest

   
7.1
   
17.5
   
1.1
   
(10.4

)
 
16.4
 

Pre-tax operating losses

  $ (192.3 ) $ (175.0 ) $ (193.1 ) $ (17.3 ) $ 18.1  

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

    Pre-Tax Operating Losses

        Pre-tax operating losses increased primarily due to higher interest expense associated with the debt issuances that occurred in the second quarter of 2015.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

    Pre-Tax Operating Losses

        Pre-tax operating losses decreased primarily due to lower interest expense on corporate debt and litigation settlement expenses in 2013.

Liquidity and Capital Resources

        Liquidity and capital resources represent the overall strength of a company and its ability to generate strong cash flows, borrow funds at a competitive rate and raise new capital to meet operating and growth needs. Our legal entity structure has an impact on our ability to meet cash flow needs as an organization. Following is a simplified organizational structure.

GRAPHIC

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Liquidity

        Our liquidity requirements have been and will continue to be met by funds from consolidated operations as well as the issuance of commercial paper, common stock, debt or other capital securities and borrowings from credit facilities. We believe that cash flows from these sources are sufficient to satisfy the current liquidity requirements of our operations, including reasonably foreseeable contingencies.

        We maintain a level of cash and securities which, combined with expected cash inflows from investments and operations, is believed to be adequate to meet anticipated short-term and long-term payment obligations. We will continue our prudent capital management practice of regularly exploring options available to us to maximize capital flexibility, including accessing the capital markets and careful attention to and management of expenses.

        We perform rigorous liquidity stress testing to ensure our asset portfolio includes sufficient high quality liquid assets that could be utilized to bolster our liquidity position under increasingly stressed market conditions. These assets could be utilized as collateral for secured borrowing transactions with various third parties or by selling the securities in the open market if needed.

        We also manage liquidity risk by limiting the sales of liabilities with features such as puts or other options that can be exercised against the company at inopportune times. For example, as of December 31, 2015, approximately $8.4 billion, or 99%, of our institutional guaranteed investment contracts and funding agreements cannot be redeemed by contractholders prior to maturity. Our individual annuity liabilities also contain surrender charges and other provisions limiting early surrenders.

        The following table summarizes the withdrawal characteristics of our domestic general account investment contracts as of December 31, 2015.

 
  Contractholder funds   Percentage  
 
  (in millions)
   
 

Not subject to discretionary withdrawal

  $ 9,360.7     33.2 %

Subject to discretionary withdrawal with adjustments:

             

Specified surrender charges

    6,303.5     22.3  

Market value adjustments

    5,530.7     19.6  

Subject to discretionary withdrawal without adjustments

    7,035.3     24.9  

Total domestic investment contracts

  $ 28,230.2     100.0 %

        Universal life insurance and certain traditional life insurance policies are also subject to discretionary withdrawals by policyholders. However, life insurance policies tend to be less susceptible to withdrawal than our investment contracts because policyholders may be subject to a new underwriting process in order to obtain a new life insurance policy. In addition, our life insurance liabilities include surrender charges to discourage early surrenders.

        As of both December 31, 2015 and 2014, we had short-term credit facilities with various financial institutions in an aggregate amount of $1,005.0 million. As of December 31, 2015 and December 31, 2014, we had $181.1 million and $28.0 million, respectively, of outstanding borrowings, with no assets pledged as support as of December 31, 2015. During the first quarter of 2015, we extended or renewed $900.0 million of our revolving credit facilities. The facilities and their new maturity dates include a $400.0 million 5-year facility with PFG, PFS and Principal Life as co-borrowers that matures March 2020; a $300.0 million 364-day facility with Principal Life as borrower that matures March 2016; and a $200.0 million 3-year credit facility with PFG, PFS, Principal Life and Principal Financial Services V (UK) LTD as co-borrowers, maturing March 2020. The revolving credit facilities are committed and provide 100% back-stop support for our commercial paper program. The $300.0 million and the $400.0 million facilities are supported by sixteen banks and the $200.0 million facility is supported by fifteen banks, most of which have other relationships with us. In addition to the revolving credit facilities, Principal International Chile has the capacity to access up to $60.0 million in unsecured lines of credit offered by Chilean financial institutions and Principal Life has a $45.0 million unsecured line of credit. Due to the financial strength and the strong relationships we have with these providers, we are comfortable there is a very low risk the financial institutions would be unable or unwilling to fund these facilities.

        The Holding Companies: Principal Financial Group, Inc. and Principal Financial Services, Inc.    The principal sources of funds available to our parent holding company, PFG, to meet its obligations, including the payments of dividends on common stock, debt service and the repurchase of stock, are dividends from subsidiaries as well as its ability to borrow funds at competitive rates and raise capital to meet operating and growth needs. The declaration and payment of common stock dividends by us is subject to the discretion of our Board of Directors and will depend on our overall financial condition, results of operations, capital levels, cash requirements, future prospects, receipt of dividends from Principal Life (as described below), risk management considerations and other factors deemed relevant by the Board. No significant restrictions limit the payment of dividends by PFG, except those generally applicable to corporations incorporated in Delaware. Dividends from Principal Life, our primary subsidiary, are limited by Iowa law.

        Under Iowa law, Principal Life may pay dividends only from the earned surplus arising from its business and must receive the prior approval of the Insurance Commissioner of the State of Iowa ("the Commissioner") to pay stockholder dividends or make any other distribution if such distributions would exceed certain statutory limitations. Iowa law gives the Commissioner discretion to disapprove requests for distributions in excess of these limits. Extraordinary dividends

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include those made within the preceding twelve months that exceed the greater of (i) 10% of Principal Life's statutory policyholder surplus as of the previous year-end or (ii) the statutory net gain from operations from the previous calendar year. Based on December 31, 2015 statutory results, the dividend limitation for Principal Life is approximately $937.0 million in 2016.

        In 2015, total stockholder dividends paid by Principal Life to its parent were $504.4 million, all of which were extraordinary and approved by the Commissioner. As of December 31, 2015, we had $930.0 million of cash and liquid assets held in our holding companies and other subsidiaries, which is available for corporate purposes. Corporate balances held in foreign holding companies meet the indefinite reinvestment exception (see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 10, Income Taxes") such that deferred income taxes are not provided as the accumulated earnings would be used offshore and not otherwise repatriated to the U.S.

        In 2014, total stockholder dividends paid by Principal Life to its parent were $850.0 million, of which $400.0 million was extraordinary and was approved by the Commissioner.

        In 2013, Principal Life distributed paid-in and contributed surplus in the amount of $150.0 million to its parent, which was extraordinary and was approved by the Commissioner. In addition, total stockholder dividends paid by Principal Life to its parent were $80.0 million, which were extraordinary and were approved by the Commissioner.

        Operations.    Our primary consolidated cash flow sources are premiums from insurance products, pension and annuity deposits, asset management fee revenues, administrative services fee revenues, income from investments and proceeds from the sales or maturity of investments. Cash outflows consist primarily of payment of benefits to policyholders and beneficiaries, income and other taxes, current operating expenses, payment of dividends to policyholders, payments in connection with investments acquired, payments made to acquire subsidiaries, payments relating to policy and contract surrenders, withdrawals, policy loans, interest payments and repayment of short-term debt and long-term debt. Our investment strategies are generally intended to provide adequate funds to pay benefits without forced sales of investments. For a discussion of our investment objectives, strategies and a discussion of duration matching, see "Investments" as well as Item 7A. "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk."

        Cash Flows.    Activity, as reported in our consolidated statements of cash flows, provides relevant information regarding our sources and uses of cash. The following discussion of our operating, investing and financing portions of the cash flows excludes cash flows attributable to the separate accounts.

        Net cash provided by operating activities was $4,377.1 million, $3,102.9 million and $2,221.2 for the years ended December 31, 2015, 2014 and 2013, respectively. Our insurance business typically generates positive cash flows from operating activities, as premiums collected from our insurance products and income received from our investments exceed acquisition costs, benefits paid, redemptions and operating expenses. These positive cash flows are then invested to support the obligations of our insurance and investment products and required capital supporting these products. Our cash flows from operating activities are affected by the timing of premiums, fees and investment income received and benefits and expenses paid. The increase in cash provided by operating activities in 2015 compared to 2014 was primarily due to growth in the business including higher sales of single premium group annuities and individual annuities with life contingencies. The increase in cash provided by operating activities in 2014 compared to 2013 was primarily due to growth in the business, fluctuations in receivables and payables associated with the timing of settlements as well as sales of certain real estate.

        Net cash used in investing activities was $3,167.6 million, $1,172.7 million and $1,226.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. Cash used in investing activities in 2015 compared to 2014 increased due to higher net purchases of fixed maturity securities and the acquisition of AXA's MPF and ORSO pension business in Hong Kong in 2015. Cash used in investing activities in 2014 compared to 2013 was relatively flat as increased net purchases of investments in 2014 primarily offset the first quarter 2013 acquisition of Cuprum.

        Net cash used in financing activities was $508.6 million, $2,438.1 million and $2,800.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. The decrease in cash used in financing activities in 2015 compared to 2014 was the result of the issuance of long-term debt in 2015 and decreased net withdrawals of investment contracts. The proceeds of the debt issuance were primarily used for the redemption of preferred stock in 2015. The decrease in cash used in financing activities in 2014 compared to 2013 was primarily due to fewer net withdrawals of investment contracts. Cash used in financing activities increased in 2014 compared to 2013 for cash used to acquire noncontrolling interests in Columbus Circle Investors and Cuprum, treasury stock acquired and dividends to common stockholders.

        Shelf Registration.    On May 7, 2014, our shelf registration statement was filed with the SEC and became effective. The shelf registration replaces the shelf registration that had been in effect since May 2011. Under our current shelf registration, we have the ability to issue in unlimited amounts, unsecured senior debt securities or subordinated debt securities, junior subordinated debt, preferred stock, common stock, warrants, depository shares, stock purchase contracts and stock purchase units of PFG, trust preferred securities of three subsidiary trusts and guarantees by PFG of these trust preferred securities. Our wholly owned subsidiary, PFS, may guarantee, fully and unconditionally or otherwise, our obligations with respect to any non-convertible securities, other than common stock, described in the shelf

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registration. For information on senior notes issued from our shelf registration, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 9, Debt."

        Short-Term Debt.    For short-term debt information, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 9, Debt."

        Long-Term Debt.    On May 7, 2015, we issued $400.0 million of senior notes and $400.0 million of junior subordinated notes, which are subordinated to all our senior debt. For additional long-term debt information regarding these debt issuances and all outstanding long-term debt, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 9, Debt."

        Stockholders' Equity.    On June 30, 2015, we redeemed our 3.0 million shares of series A preferred stock for $300.0 million and our 10.0 million shares of series B preferred stock for $250.0 million. Proceeds from the issuance of our common stock were $76.1 million, $77.5 million and $125.8 million in 2015, 2014 and 2013, respectively.

        The following table summarizes our return of capital to common stockholders.

 
  For the year ended
December 31,
 
 
  2015   2014   2013  
 
  (in millions)
 

Dividends to stockholders

  $ 441.0   $ 376.6   $ 288.4  

Repurchase of common stock

    300.6     222.7     153.6  

Total cash returned to stockholders

  $ 741.6   $ 599.3   $ 442.0  

Number of shares repurchased

    6.0     4.7     4.4  

        For additional stockholders' equity information, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 13, Stockholders' Equity."

Capitalization

        The following table summarizes our capital structure:

 
  December 31, 2015   December 31, 2014  
 
  ($ in millions)
 

Debt:

             

Short-term debt

  $ 181.1   $ 28.0  

Long-term debt

    3,290.8     2,531.2  

Total debt

    3,471.9     2,559.2  

Equity excluding AOCI

    10,194.1     10,133.6  

Total capitalization excluding AOCI

  $ 13,666.0   $ 12,692.8  

Debt to equity excluding AOCI

    34 %   25 %

Debt to capitalization excluding AOCI

    25 %   20 %

Contractual Obligations

        The following table presents payments due by period for long-term contractual obligations as of December 31, 2015.

 
   
  Payments due in year ending  
Contractual obligations (1)   Total
payments
  2016   2017 - 2018   2019 - 2020   2021 and
thereafter
 
 
   
   
  (in millions)
   
   
 

Contractholder funds (2)

  $ 79,204.0   $ 5,675.5   $ 11,099.8   $ 8,466.7   $ 53,962.0  

Future policy benefits and claims (3)

    41,736.9     2,471.8     4,566.5     4,279.8     30,418.8  

Long-term debt (4)

    3,290.8     42.8     299.9     350.0     2,598.1  

Certificates of deposit (5)

    613.9     291.8     222.1     100.0      

Other long-term liabilities (6)

    2,035.0     1,553.2     167.5     159.7     154.6  

Capital leases (7)

    9.9     5.8     3.7         0.4  

Long-term debt interest (4)

    2,682.4     160.8     318.2     246.2     1,957.2  

Operating leases (8)

    164.0     40.3     58.1     27.8     37.8  

Purchase obligations (9)

    681.6     667.0     14.6          

Total contractual obligations

  $ 130,418.5   $ 10,909.0   $ 16,750.4   $ 13,630.2   $ 89,128.9  

(1)
Contractual obligations exclude short-term liabilities, other policyholder funds, taxes and short-term debt as these are not long-term and/or not contractual in nature. Contractual obligations also exclude obligations under our pension and OPEB plans as we do not anticipate contributions will be needed to satisfy the minimum funding requirements of ERISA for our qualified pension plan. In addition, separate account liabilities are excluded. Separate account liabilities represent the fair market value of funds that are separately administered by us. Generally, the separate account contract owner, rather than us, bears the investment risk of these funds. The separate account liabilities are legally segregated and are not subject to claims that arise out of any other business of ours. Net deposits, net

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    investment income and realized and unrealized capital gains and losses on the separate accounts are not reflected in the consolidated statements of operations. The separate account obligations will be fully funded by cash flows from the separate account assets.

(2)
Contractholder funds include GICs, funding agreements, individual fixed annuities, universal life insurance and other investment contracts. See Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 8, Insurance Liabilities" for additional information.


Amounts included in the contractholder funds line item reflect estimated cash payments to be made to policyholders. The sum of the cash outflows shown for all years in the table exceeds the corresponding liability amount included in our consolidated statements of financial position as of December 31, 2015. The liability amount in our consolidated statements of financial position reflects either the account value (in the case of individual fixed annuities, universal life insurance and GICs) or the par value plus accrued interest and other adjustments (in the case of funding agreements and other investment contracts).

(3)
Amounts included in the future policy benefits and claims line item reflect estimated cash payments to be made to policyholders. The sum of the cash outflows shown for all years in the table exceeds the corresponding liability amount included in our consolidated statements of financial position as of December 31, 2015. The liability amount in our consolidated statements of financial position reflects estimated cash payments to policyholders, reductions for expected future premiums, assumptions with regard to the timing of cash payments and discounting for interest.

(4)
For long-term debt information, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 9, Debt."

(5)
Amounts included in the certificates of deposit line item reflect estimated cash payments to be made, including expected interest payments. Certificates of deposit are reported with other liabilities on our consolidated statements of financial position.

(6)
Amounts included in the other long-term liabilities line item are contractual, non-cancelable and long-term in nature. The total payments primarily relate to savings deposits as well as premium associated with purchased option contracts where payments are made over the life of the contract. This line item excludes accruals, short-term items and items not contractual in nature.

(7)
Amounts included in the capital leases line item represent future minimum lease payments due under capital leases for buildings and hardware storage equipment. For capital lease information, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 12, Contingencies, Guarantees and Indemnifications" under the caption, "Capital Leases."

(8)
Amounts included in the operating leases line item represent payments due under various operating leases for office space, data processing equipment and office furniture and equipment. For operating lease information, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 12, Contingencies, Guarantees and Indemnifications" under the caption, "Operating Leases."

(9)
Purchase obligations include material contracts where we have a non-cancelable commitment to purchase goods and services in addition to commitments to originate loans and purchase investments.

Pension and OPEB Plan Funding

        We have defined benefit pension plans covering substantially all of our U.S. employees and certain agents. See Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11, Employee and Agent Benefits" for a complete discussion of these plans and their effect on the consolidated financial statements.

        We report the net funded status of our pension and OPEB plans in the consolidated statements of financial position. The net funded status represents the difference between the fair value of plan assets and the projected benefit obligation for pension and OPEB plans. The measurement of the net funded status can vary based upon the fluctuations in the fair value of the plan assets and the actuarial assumptions used for the plans as discussed below. The net underfunded status of the pension and OPEB obligation was $424.6 million pre-tax and $371.7 million pre-tax as of December 31, 2015 and 2014, respectively. Nonqualified pension plan assets are not included as part of the funding status mentioned above. The nonqualified pension plan assets are held in Rabbi trusts for the benefit of all nonqualified plan participants. The assets held in a Rabbi trust are available to satisfy the claims of general creditors only in the event of bankruptcy. Therefore, these assets are fully consolidated in our consolidated statements of financial position and are not reflected in our funded status as they do not qualify as plan assets under U.S. GAAP. The market value of assets held in these trusts was $330.8 million and $329.6 million as of December 31, 2015 and 2014, respectively.

        Our funding policy for the qualified pension plan is to fund the plan annually in an amount at least equal to the minimum annual contributions required under ERISA and, generally, not greater than the maximum amount that can be deducted for federal income tax purposes. We do not anticipate contributions will be needed to satisfy the minimum funding requirements of ERISA for our qualified pension plan. At this time, it is too early to estimate the amount that may be contributed, but it is possible that we may fund the plans in 2016 up to $125 million. This includes funding for both our qualified and nonqualified pension plans. We may contribute to our OPEB plans in 2016 pending further analysis.

Contractual Commitments

        In connection with our banking business, we have made commitments to extend credit under home equity lines of credit, which are agreements to lend to a customer as long as there is no violation of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A majority of these lines of credit are expected to expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash funding requirements. We evaluate each customer's creditworthiness on a case-by-case basis. The total commitments to fund home equity loans were $5.1 million as of December 31, 2015.

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        We have made commitments to provide liquidity for certain benefit plans transitioning to us from another provider. As funds from the plans become available, they will be used to pay down outstanding balances. As of December 31, 2015, the amount of unfunded commitments was $16.4 million.

        We have made commitments to fund certain limited partnerships in which we are a limited partner. As of December 31, 2015, the amount of unfunded commitments was $461.6 million. We are only required to fund additional equity under these commitments when called upon to do so by the general partner; therefore, these commitments are not liabilities on our consolidated statements of financial position.

Off-Balance Sheet Arrangements

        Variable Interest Entities.    We have relationships with various types of special purpose entities and other entities where we have a variable interest as described in Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 3, Variable Interest Entities." We have made commitments to fund certain limited partnerships, as previously discussed in "Contractual Commitments", some of which are classified as unconsolidated variable interest entities.

        Guarantees and Indemnifications.    As of December 31, 2015, there have been no significant changes to guarantees and indemnifications since December 31, 2014. For guarantee and indemnification information, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 12, Contingencies, Guarantees and Indemnifications" under the caption, "Guarantees and Indemnifications."

Financial Strength and Credit Ratings

        Our ratings are influenced by the relative ratings of our peers/competitors as well as many other factors including our operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), risk exposures, operating leverage, ratings and other factors.

        In January 2016, A.M. Best affirmed the credit ratings and financial strength ratings of Principal Life and Principal National Life Insurance Company at 'A+'. The outlook remains 'stable' for all ratings. The affirmation reflects our strong business profile, consistently good sales and operating results and good financial flexibility.

        In November 2015, Fitch affirmed PFG's credit ratings and the financial strength ratings of Principal Life and Principal National Life Insurance Company at 'AA–'. The outlook remains 'stable' for all ratings. The affirmation reflects PFG's strong capitalization and stable, balanced operating profitability, partially offset by above average exposure to direct mortgages and structured mortgage securities.

        In April 2015, Standard & Poor's ("S&P") affirmed PFG's credit ratings and the financial strength ratings of Principal Life and Principal National Life Insurance Company at 'A+'. The outlook remains 'stable' for all ratings. Principal Life's enterprise risk management rating was affirmed as 'Strong'. The rating affirmation reflects S&P's view that we are a leading competitor in the U.S. small to midsize 401K market, with strong asset management and insurance solution capabilities that are supported by a respected brand, a diversified and sophisticated product portfolio, strong distribution relationships and increasing global reach. Further, S&P cites our favorable earnings, well diversified investment portfolio and strong financial flexibility, with proven access to capital markets and credit facilities.

        All four of the rating agencies maintain a 'stable' outlook on the U.S. life insurance sector. The rating agencies acknowledge that interest rates have remained at historically low levels for a longer than expected time. However, the agencies have also cited that the U.S. life insurance industry has maintained strong risk-adjusted capital, generated steady U.S. GAAP and statutory earnings, improved balance sheet fundamentals and enhanced risk focused decision making. Continued low rates will pressure interest margins and reserve adequacy, but the agencies believe that will not have a material impact and is manageable over the near term.

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        The following table summarizes our significant financial strength and debt ratings from the major independent rating organizations. The debt ratings shown are indicative ratings. Outstanding issuances are rated the same as indicative ratings unless otherwise noted. Actual ratings can differ from indicative ratings based on contractual terms.

 
  A.M. Best   Fitch   Standard & Poor's   Moody's

Principal Financial Group

               

Senior Unsecured Debt (1)

  a–       BBB+   Baa2

Junior Subordinated Debt (1)(2)

  bbb+       BBB   Baa3

Principal Financial Services

               

Senior Unsecured Debt

  a–       BBB+   Baa1

Commercial Paper

  AMB-1       A-2   P-2

Principal Life Insurance Company

               

Insurer Financial Strength

  A+   AA–   A+   A1

Issuer Credit Rating

  aa–            

Commercial Paper

  AMB-1+       A-1+   P-1

Enterprise Risk Management Rating

          Strong    

Principal National Life Insurance Company

               

Insurer Financial Strength

  A+   AA–   A+   A1

(1)
Principal Financial Group's senior debt issuance has been rated "Baa1" by Moody's.

(2)
Principal Financial Group's junior subordinated debt issuance has been rated "BBB–" by S&P, and "Baa2" by Moody's.

Impacts of Income Taxes

        For income tax information, see Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 10, Income Taxes."

Fair Value Measurement

        Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and gives the lowest priority (Level 3) to unobservable inputs. An asset or liability's classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. See Item 8. "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 14, Fair Value Measurements" for further details, including a reconciliation of changes in Level 3 fair value measurements.

        As of December 31, 2015, 39% of our net assets (liabilities) were Level 1, 57% were Level 2 and 4% were Level 3. Excluding separate account assets as of December 31, 2015, 4% of our net assets (liabilities) were Level 1, 95% were Level 2 and 1% were Level 3.

        As of December 31, 2014, 39% of our net assets (liabilities) were Level 1, 58% were Level 2 and 3% were Level 3. Excluding separate account assets as of December 31, 2014, 2% of our net assets (liabilities) were Level 1, 97% were Level 2 and 1% were Level 3.

Changes in Level 3 Fair Value Measurements

        Net assets (liabilities) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2015, were $7,318.6 million as compared to $6,350.1 million as of December 31, 2014. The increase was primarily related to gains on other invested assets and real estate included in our separate account assets.

        Net assets (liabilities) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2014, were $6,350.1 million as compared to $5,885.5 million as of December 31, 2013. The increase was primarily related to gains on other invested assets and real estate included in our separate account assets. The increase was partially offset by losses on bifurcated embedded derivatives in investment contracts.

Investments

        We had total consolidated assets as of December 31, 2015, of $218,685.9 million, of which $69,820.5 million were invested assets. The rest of our total consolidated assets are comprised primarily of separate account assets for which we do not bear investment risk. Because we generally do not bear any investment risk on assets held in separate accounts, the discussion and financial information below does not include such assets.

Overall Composition of Invested Assets

        Invested assets as of December 31, 2015, were predominantly high quality and broadly diversified across asset class, individual credit, industry and geographic location. Asset allocation is determined based on cash flow and the risk/return requirements of our products. As shown in the following table, the major categories of invested assets are fixed maturities

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and commercial mortgage loans. The remainder is invested in other investments, residential mortgage loans, real estate and equity securities. In addition, policy loans are included in our invested assets.

 
  December 31, 2015   December 31, 2014  
 
  Carrying amount   % of total   Carrying amount   % of total  
 
  ($ in millions)
 

Fixed maturities:

                         

Public

  $ 35,308.9     50 % $ 34,863.2     51 %

Private

    15,344.4     22     15,412.2     23  

Equity securities

    1,307.2     2     963.2     1  

Mortgage loans:

                         

Commercial

    11,237.8     16     10,696.9     15  

Residential

    1,101.6     2     1,114.7     2  

Real estate held for sale

    169.7         174.0      

Real estate held for investment

    1,282.1     2     1,170.6     2  

Policy loans

    817.1     1     829.2     1  

Other investments

    3,251.7     5     3,209.8     5  

Total invested assets

    69,820.5     100 %   68,433.8     100 %

Cash and cash equivalents

    2,564.8           1,863.9        

Total invested assets and cash

  $ 72,385.3         $ 70,297.7        

Investment Results

Net Investment Income

        The following table presents the yield and investment income, excluding net realized capital gains and losses, for our invested assets for the years indicated. We calculate annualized yields using a simple average of asset classes at the beginning and end of the reporting period. The yields for available-for-sale fixed maturities and available-for-sale equity securities are calculated using amortized cost and cost, respectively. All other yields are calculated using carrying amounts.

 
  For the year ended December 31,   Increase (decrease)  
 
  2015   2014   2013   2015 vs. 2014   2014 vs. 2013  
 
  Yield   Amount   Yield   Amount   Yield   Amount   Yield   Amount   Yield   Amount  
 
  ($ in millions)
 

Fixed maturities

    4.5 % $ 2,153.2     4.9 % $ 2,311.7     4.9 % $ 2,343.8     (0.4 )% $ (158.5 )   % $ (32.1 )

Equity securities

    4.4     50.2     7.6     68.4     4.5     27.4     (3.2 )   (18.2 )   3.1     41.0  

Mortgage loans — commercial

    4.6     505.8     5.2     541.4     5.3     541.2     (0.6 )   (35.6 )   (0.1 )   0.2  

Mortgage loans — residential