DES MOINES, Iowa - Searching the globe for opportunities since 1990, Principal International Inc., a unit of the Principal Financial Group, now has a presence in six largely emerging markets countries and an eye on some developed ones.
Thus far, the company has invested some $200 million to $300 million to create operations from Europe to Latin America to Asia. Principal International now has a presence in Spain, Mexico, Argentina, Indonesia, Chile and Hong Kong; has a representative office in Beijing, athough it's not yet selling products; and expects to open soon a representative office in India.
In Mexico, the company has two units, one that will manage pension assets as part of the country's new private pension system. In Argentina, it has three units, including a pension fund administration company. In all operational offices, the company sells life insurance, and it offers annuities and other retirement products in most other markets where it has offices.
Down the road, the company plans to offer a broad range of retirement services in all countries where it has planted its flag. Principal doesn't want to be everywhere. But in selected markets where it sees the best opportunities, it aims to be the "recognized leader in retirement services," said Camilo Salazar, vice president of Principal International.
The company has a way to go to reach that goal. Assets under management from outside the United States total about $300 million; that hardly compares with the $63 billion of U.S.-sourced assets under management by the Principal Financial Group. Of that $63 billion, $43 billion represents U.S. pension assets.
Outside of the United States, none of the units is yet profitable - although Chile's is coming close. But for most of the foreign operations, "it's too early to be getting any payback," said Mr. Salazar. He estimates it should take seven to 10 years for many of these operations to become profitable. "We are convinced that although we might not have a profit line (now), we are building economic value in each operation," he said. The company is creating a business "base, infrastructure, name recognition, systems procedures and products that have value."
Principal International also is looking at other promising markets. In Latin America, it's studying Brazil and Venezuela, both of which are debating pension privatization to different degrees, Mr. Salazar said. And in Europe, it's keeping a close eye on the pension markets of the United Kingdom, France and Italy, where pension reforms and changes are afoot.
But in some cases, there still may be impediments to market penetration. For example, even though legislation to create private pensions has passed in France, regulations still need to be approved. The outcome of the recent elections could throw into question just when those regulations will be forthcoming.
In general, Principal has five key reasons for looking abroad: to learn from other markets; to find opportunities where it can leverage its U.S. expertise; to attract and keep top-flight employees who seek international posts; to diversify economically; and to learn to compete overseas with players in those markets - some of whom are setting up shop in the United States.
But thus far, Principal has approached foreign markets in different ways. In Spain, Principal sells annuity and group and individual life insurance products. In 1993, it became the first new insurer in Mexico in 50 years to be granted a license to sell insurance products; and this year it was granted a license to operate a private pension fund management firm with its Mexican partner, Grupo Financiero Abaco.
In Argentina, it has four operations under the rubric of a holding company, while in Chile it is a part owner in a company called Banrenta that sells annuities and other life insurance products.
In Asia, Principal International's presence has expanded from Indonesia, where it became licensed in 1994 to sell life insurance and manage pension assets, to China and Hong Kong, where it opened offices in 1995. Last year, Principal International became the first U.S. insurer to be granted a license to sell insurance in Hong Kong, the company said.
These markets have features in common. Not only do they appear economically and political stable to the Principal, but they boast overall improving living standards. And in some cases, the countries have adopted reforms of their ailing pay-as-you-go pension systems. Thus, they appear to be locales where Principal can best reemploy its longtime experience.