Letter to our
Shareholders

Dear Fellow Shareholders:

There are millions like João, Darrin, McKenna, and Hector around the globe earning a good living and planning for what's next. Though worlds apart, they have plenty in common. Connected in their desire to be confident about the future…connected in their aspiration to achieve financial security.

Great things happen when you connect people with confidence, aspirations with experience. As a leading global investment manager, the Principal Financial Group is uniquely positioned to make these connections…to connect the hopes and dreams of millions of people around the world with expertise, ideas and guidance…to secure a better tomorrow.

This is the noble work that we do. At the Principal Financial Group. Every day.

We do it by bringing together an integrated portfolio of businesses that weathers economic volatility, but continues to deliver year after year, as evidenced by outstanding 2014 results. In doing this work, we grow. But growth alone is not our preoccupation. Our preoccupation is to help millions of people achieve financial security. This has been our focus since 1879.

I encourage you to examine 2014 results as but one chapter in a long story—another outstanding year, despite ongoing economic headwinds, in a series of strong years—that illustrates an enduring strategy, excellent execution, and long-term vision. A few highlights from the year:

• Total company operating earnings reached a record $1.3 billion, up 24% from 2013, a result of record earnings in each of our four operating segments.
• Net income grew 26% to a record $1.1 billion or $3.65 per diluted share.
• Return on equity improved 210 basis points in 2014 to 14.2%.
• Assets under management reached a record $519.3 billion.
• Strong net cash flows of $17.6 billion, demonstrated the competitiveness of our businesses, outstanding investment performance and the strength of our distribution partnerships.
• More than 85% of the company's investment options were in the top half of Morningstar rankings on a 1-, 3-, and 5-year basis at year end.*

Throughout this report, you'll learn more about ways we're working to meet retirement and long-term savings needs by bringing our expertise to bear in the most attractive retirement and long-term savings markets in the world. In 2014, we further strengthened our presence in markets where aging populations and the number of middle-class workers continue to grow…making the need for what we do more relevant every day in Latin America, Asia, and the United States.

Strong growth of our fee-based businesses allows us to generate increasing amounts of free cash flow, which provides the opportunity to return greater amounts of our net income to shareholders. We increased our 2014 common stock dividend by 31% over 2013. We also continue to use our free cash flow to fund acquisitions that further grow the business. For example, in 2014 we announced our intent to acquire AXA's Mandatory Provident Fund (MPF) and Occupational Retirement Schemes Ordinance (ORSO) pension business in Hong Kong. The deal includes a 15-year exclusive distribution agreement to sell pension products through AXA's agency network of 4,400 agents in Hong Kong. This bold, strategic move will more than double the assets under management of our Hong Kong pension business to more than U.S. $6 billion, making us the fifth largest MPF provider in that market.

Behind the numbers, we're wired differently than many companies:

• An integrated business model with diversified revenue streams: One business or diversified businesses? Tension always exists when it comes to this question. We lean toward a mix of businesses for these reasons:
  • We can meet all of a client's long-term financial security needs across life stages—save, invest, protect, and manage income when it's time to reap the benefits. Our deep global investment management expertise enables us to meet the needs of retail investors and retirement investors as well as the needs of large institutions like central banks, sovereign wealth funds, and large pension funds.
  • Diversification helps us manage through difficult times—Economic volatility, regulatory changes, etc., can wreak havoc on a single line of business. Diversification affords us the ability to manage through tough times. Our success over 136 years has come from multiple businesses. Our success in the future will continue to be fueled by this diversification.
• Long-term view: Our focus is always toward creating long-term value. Waves of progress are continually set in motion by our rigorous strategic planning process, ensuring we are never at rest. Our history and track record stand as proof of our foresight and persistence…since our founding in 1879…since becoming a public company in 2001… since the financial crisis in 2008.
• Global talent: Enduring strategies are built by teams not individuals. Our talented team works from 18 countries serving clients in more than 70 countries. We execute in an ever-changing environment by invoking a never- changing set of values, like integrity and service, woven together by a distinct culture of doing what you say you'll do and always looking for a better way.

• Over the next decade, the demographic face of the workforce will change dramatically as boomers dwindle in number and millennials soar. In preparation for the talent shift, we seek to attract and retain top global talent. Our Des Moines, Iowa, campus, currently under renovation, will be just one more way The Principal remains a premiere place to work. Upon completion, our contemporary global headquarters will help us attract top-tier talent from around the world, connecting people in different buildings, states, countries and continents with each other and with clients. We're incorporating the latest in technology and flexible workspace to meet the needs of multiple generations and work styles for decades to come.
• Relentless pursuit of simplicity: Financial services can be complicated and overwhelming. People need to save more. But uncertainty and inertia often hold them back. At The Principal, we work diligently to make it easier. Through simple innovations like our new digital experience designed to provide 401(k) plan participants in the United States a quick view of their retirement preparedness or our completely digital planning experience in India—both intended to help savers know where they stand relative to their goals and how to take the next step. Simplicity doesn't come easily in our industry, but we're working to change that.

As we look ahead, here are our growth and capital deployment plans:

• In the next five to seven years, we expect to double assets under management (AUM). One of the best leading indicators of where revenue and operating earnings are going is assets under management. As AUM goes, so goes the organization.
• We expect to achieve 50–80 basis points of annual improvement in return on equity.
• In 2015, we plan to deploy $800 million to $1 billion in capital through quarterly common stock dividends, opportunistic acquisition and share repurchase activity.

In closing, 2014 was an outstanding year, but our best days are ahead. We remain singularly focused on meeting the needs of customers around the world, and, in doing so, providing superior value to long-term investors.

I urge you to vote your shares before the annual meeting on May 19. What you have to say matters to our Board, to our employees and to me.