Good morning and welcome to the Principal Financial Group Second Quarter 2017 Financial Results Conference Call. There will be a question-and-answer period after the speakers have completed their prepared remarks. [Operator Instructions] I would now like to turn the conference call over to John Egan, Vice President of Investor Relations.

Thank you, and good morning. Welcome to Principal Financial Group’s second quarter conference call. As always our materials related to today’s call are available on our website at principal.com/investor. Following a reading of the Safe Harbor provision, CEO, Dan Houston; and CFO, Deanna Strable will deliver some prepared remarks. Then we will open up the call for questions. Others available for the Q&A session include Nora Everett, Retirement and Income Solutions; Jim McCaughan, Principal Global Investors; Luis Valdes, Principal International; Tim Dunbar, our Chief Investment Officer; and Amy Friedrich, our new President of US Insurance Solutions. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risk and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the Company’s most recently annual report on Form 10-K, filed by the Company with the U.S. Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non-GAAP measures. Reconciliations of the non-GAAP financial measures to the most directly comparable US GAAP financial measures maybe also be found in our earnings release, financial supplement and slide presentation. Before I turn the call over Dan, I want to extend an invitation to our upcoming 2017 workshop in New York City on Thursday December 7. This year's focus will be on our spread and risk businesses and our long-term capital deployment strategy. Dan?

Thanks John and welcome to everyone on the call. A special welcome to Amy Frederick on her first earnings call. As communicated in our May announcement, Amy brings more than 20 years of business experience including extensive leadership within our Specialty Benefits division and a strong background in strategy development. This morning I'll share some performance highlighting an key accomplishments to position us for continued growth. Deanna will provide details on second quarter financial results and an update on capital deployment. Building on first quarter's momentum, we delivered a record $384 million of operating earnings in the second quarter that contributed to operating earnings of $754 million year-to-date. This is an increase of 21% compared to the first half of 2016 reflecting double digit net revenue growth and strong expense discipline. As I reflect on our performance in the first half of the year, we continued to deliver strong growth, execute our customer focused solutions oriented strategy, balance investments in growth and expense control and be good stewards of shareholder capital. I'm particularly pleased with the trailing 12 month trends across our businesses for revenue, margins and pretax earnings. Our diversified integrated business model continues to work for our customers and shareholders. Compared to a year ago, we've increased assets under management or AUM, 10% to a record $629 billion as of mid-year. This increase provides a solid foundation for revenue and earnings growth for the remainder of 2017 and it reflects strong asset appreciation as well as $9 billion of positive net cash flows. I do want to call out after 24 consecutive quarters of positive net cash flows, we had negative net cash flows during the second quarter. I don't view this as a systemic issue, there were a few primary contributors to this quarter's net cash flows.…

Thanks Dan. Good morning to everyone on the call. I’ll focus my comments on the key contributors to our financial performance during the quarter and provide an update on capital deployment. In the second quarter, we generated a record $384 million of total company operating earnings and a record $1.31 of operating earnings per share. Both a 14% increase over the year ago quarter. We had two significant variances during the second quarter that resulted in a net benefit to operating earnings. Pre-tax impacts of these items included a $10 million benefit from higher than expected variable investment income, RIS-Spread benefited by $7 million dollars and individual benefited by $3 million. And $5 million of elevated quarterly expenses in principal international primarily in Mexico. Net income available to Principal Financial Group was $310 million for second quarter 2017. This included net realized capital losses of $74 million primarily driven by derivative marks. Credit related losses were only $9 million and remain well below our pricing assumption. At quarter end, ROE excluding AOCI other than foreign currency translation adjustment was 14.8% on a reported basis. Excluding the impact from the 2015 and 2016 actuarial reviews, ROE improved 230 basis points from a year ago to 15.3% reflecting strong earnings growth, improvement in macroeconomic conditions and disciplined capital management. Keep in mind that over the long term we expect to improve ROE by 30 to 60 basis points per year with fluctuations in any period. Second quarter results were fueled by continued strong business fundamentals, underlying revenue growth and disciplined expensing and capital management. Additionally, quarterly operating earnings benefited from strong US equity market performance as the S&P 500 Index quarterly daily average increased more than 3% over first quarter and 15% over the prior year quarter. As Dan indicated, total company…

[Operator Instructions] The first question will come from John Barnidge with Sandler O'Neill.

A few questions, the dividend was increased for a six consecutive quarter. Can you talk about ability to maybe keep that pace up, should anticipate maybe a penny every quarter? And then I’ll ask the other questions later.

I wouldn't expect $0.01 every quarter, we again try to provide you with guidance that this 40% targeted payout ratio is really ideal from our perspective, it's taken a while to get there and certainly our intention to be in around that 40% unless something material was disruptive to the business.

And then premiums were up nicely across products in Specialty Benefit. Can you talk about that a little bit, is it pricing power, maybe taken advantage of some of the disruption in the market or simply the US economy is doing better we had a decent print this morning for the second quarter? Thanks.

Good question John, I appreciate that. I’m have Amy, Amy go ahead and answer that.

Hi John, good to talk with you. You're right, premiums were good. When we look at 8% premium growth rate I'd say that’s within our expectations. We've been seeing that for the last few years. And I do think we're benefiting from some pricing power. When we're in a small market with the type of reputation we have consistently in there with good business processes, good products, good practices we're seeing an ability to get off a spreadsheet and be a preferred provider and we like that. I think one factor though, you mentioned larger trends. I do think one factor going on in that premium growth is employment growth. So when I look at our business on a trailing 12-month basis, we're seeing employment growth of about 1.4% on our group product and as we look back over the arc of the last ten years that's near a high for us. So that 1.4% is clearly helpful in driving our in-force premium. And it's indicative of employment growth going on particularly in the small market. So again with our over indexing in the small market that's a really helpful trend for us.

The next question will come from Humphrey Lee with Dowling & Partners.

Just a question on RIS-Fee, so in Dan's prepared remarks, you mentioned that there some expected terminations in the second half of the year, roughly about 3 billion. So when you factor in the pace of the net cash flows in the first half of the year and the expectation for the redemption, is the normal kind of 1% to 2% RIS net cash flows, AUM still a good expectation for full-year of 2017.

We don't provide updates on the guidance, but I would say that we're still feel reasonably good about the range, could be to the low end of that. And we again try to help investors understand the patterns there by giving you some insight when we know through M&A and other sorts of related transactions where we know we have a large known out. What we don't know is wealth at this point in time, Humphrey, is what the ins look like. But again our pipeline looks healthy, the business is very healthy and we're doing well in terms of competing out there, you can see that by the growth in the business. But maybe I can have Nora add a little bit color for you on that question. Nora?

Sure. So the estimate that Dan gave at 3 billion, one thing to be aware of is we always have timing issues. So when we say two to three quarters it could be this calendar year, some of that could slip into next calendar year 1Q in particular. So again just trying to give an approximation. Another important part of the 3 billion is the majority of that 3 billion represents one case, the one case is north of 1.5 billion. So again that timing in that particular case whether it falls on the 4Q or 1Q at this point in time we're not sure when that would occur. We don't see the balance of that $3 billion primarily reflects in M&A with a couple of larger cases. And in fact in one case a bankruptcy, so we don't see any systemic issues here. And back to Dan's earlier point, importantly what we see with our core SMB segment, small to medium business segment is continuing strong net cash flow. So whether it's 1% to 3% or not it will depend on some timing here within the 1% to 3% percent, but probably more importantly that core SMB segment has still has strong net cash flow.

And then shifting to principal international So at least the media related to China, there is a lot of discussions about financial services reform, especially they had a meeting in a couple weeks ago in July and then there seems to be a lot of thoughts about there could be some announcement following the 19th National Congress meeting in the fall. So I was just wondering if you have any kind of additional insight in terms of the pension opportunities that you've mentioned in the past?

I'll take that, Humphrey, and then pass it off to Luis. Luis and I and other members of management were just there a couple of weeks ago, right, on the heels of the financial forum that you mentioned. And what I would say is we had very healthy dialog with our joint venture partner China Construction Bank as well as with regulators. There seems to be a lot of advocacy and support on the part of state and commerce to support US companies planning a more active role working in partnership with Chinese companies. And so those trade discussions are very much alive and well. But we walked away feeling very good about the robustness of our conversations. The MOUs delivering what we had hoped it would be, which is healthy exchange of ideas on how we can usually work together to be successful. But maybe I’ll have Luis to add some additional color. Luis?

Yes, you are totally right. I mean many reforms are coming particularly if President Xi is going to be confirmed for the next five years, they’re going to continue looking at the financial services industry. As you know China is a policy driven economy, so they're very much more focused on internal consumption and to continue development in that system. In particular, Humphrey, the pension reform in China is a big issue. And they are continually thinking how do switch their payroll system, Pillar 1 into contoured system based on Pillar 2 and Pillar 3. So very encouraging discussions, in order to do that they really need help, they need a pension experts, and global pension experts at Principal Financial Group. So we're very much more in those discussions, Humphrey.

The next question will come from Seth Weiss with Bank of America.

I want to focus on RIS margins, maybe starting with fees. Obviously you're running well ahead of the 29 to 33 margin guidance for the full year. The longer term guidance suggests that you know those margins come down significantly. Can you just help us think about what actually drives that lower, is it pricing pressure, higher expenses, just trying to understand from a modeling perspective because it seems like a steep to what your longer term suggests versus the current.

Yes Seth, I certainly appreciate the question and you're right and to ask those kinds of questions, but the first thing I would tell you is, you really have the benefit of strong domestic equity markets today that help really propel you to the high side of that and that's certainly one of the very key components. The other is and we have lighter expenses for the quarter albeit sometimes you have timing issues those do get spread out over a period of time, but the management team, Nora, Greg Burrows and others are doing a really good job managing the efficiencies of the operations. And then of course we know that we've just got a really strong investment performance for three and five year, which allows us still to manage a lot of a proprietary assets, which contributes to a successful franchise for a full service accumulation. But with that I’m going to ask Nora to put some additional color on what the future might look like relative to those margins.

Yes, as Dan said it, but you can't underestimate the power of equity market tailwinds. If you look at the daily average, up 15.5% 2Q over 2Q and so just the ability to have, for those equity markets to drive both top line and bottom line is significant. But probably as important again, not overlooking a strong fundamental, strong sales, up 25% year-to-date over year-to-date, strong recurring deposits. So the fundamental is very strong, but we certainly anticipate that the pricing pressure is going to continue. So that's why you see directionally the margins that we talk about. With that said, full year, we still expect to be at the high end of margin expectation and still expect to be at the high end of our earnings range. So we certainly are expecting continued good growth, but the margin discussion reflects both on the positive side, the equity market lift and the fact that we expect pricing pressure to continue.

Did you have a follow-up, Seth?

Yeah. A follow-up, Dan, on your comments on the timing around expenses, particularly for the back half of the year. It sounds like that could just kick up a bit from a timing perspective. Any granularity you could help us there just to avoid surprises in the back half of the year?

Yeah. It was not intended to be a sort of a loaded question, but from one quarter to the next, there are always some lumpiness the way expenses come in. When I think about, not only the balance of this year, but as we think about 2018 and beyond, enhancing the customer experience is a big deal for me. We know that competition and I'm not talking about financial services, I’m talking more broadly that consumer has a higher expectation about what that feels like and looks like. We continue to invest in the brand and we're getting really good traction there. It’s been very well received. Technology used to be a lot about the back office and middle office and we're seeing the need to make further investments on the very front end. So you'll see us making announcements around digital technology, machine learning, artificial intelligence to help us do a better job, servicing customers and running the business. And then, Jim mentioned, I know when he’s been on the road recently about the expansion of some of our sales operations around the world. Again, we look at that as a good investment for today that pays off in the future. And then the last thing I would just draw your attention to is the shifting demands of consumers away from 40 Act funds and even CITs and a strong interest in exchange traded funds, ETFs, in that franchise, Jim is adding resources, talent, platforms and all things necessary. So it’s that sort of pent-up views that I have on, of course we have to align our expenses with revenues. We want to be mindful of that, but those are the kinds of expenses I'm thinking about for the balance of the year and into ‘18.

The next question will come from Sean Dargan with Wells Fargo Securities.

Following up on Seth’s question about RIS-Fee. The revenue growth in RIS-Spread is running far ahead of the guidance for the year. Should we expect that to, a, what's driving that? Is that pension risk transfer? And b, should we expect that to drop off over the back half of the year?

Sure. So to Dan’s comments, certainly that pension risk transfer business is absolutely helping us drive both top line and bottom line. So we're seeing that strong operating earnings growth in margins through the first half of the year, driven by all of the underlying products of spread, but in particular that pension risk transfer business. So we're going to continue to, let me back up, we've called out with regard to variable investment income as you can see from the slide, we've called out 7 million pretax for 2Q. In addition to that, we've had a -- in 2Q, we've had a mortality experience gain at a similar amount about $7 million pre-tax as part of that pension risk transfer business. We don't necessarily expect that to repeat. So as you call those two things, as you think about those two things separately and readjusting and back those out, we're still expecting to be at the top of our outlook ranges, both with regard to net revenue growth, 10% being the top end of that range and with regard to margins. So attractive opportunities continuing in that opportunistic business of ours, pension risk transfer helping drive the top end of those ranges.

Yeah. I mean you're kind of far above the top end of those ranges now, but we'll see. Then, I have a question for Amy about the quarterly spread of the specialty benefits business. In the past, Principal said that about 20% of the earnings come in the first quarter, 25% each in the second and third and 30% in the fourth quarter. Is that pattern going to hold true this year?

Yeah. I mean, there's lots of things that can happen with the business. And so when I think of 45% first half and 55% second half, I think that's a good representation of that seasonality that’s in the business. That seasonality is going to come from our dental line and some sales related expenses. So I think that's a good marker. If you're looking at kind of the ranges we've given, we are running towards kind of the mid to upper half on those ranges for growth and margin and then the lower half on the loss ratio range, which is obviously a good combination.

Does that help, Sean?

Yes.

The next question will come from Ryan Krueger with KBW.

I had a question about Brazil. There was a slowdown, some in the quarter, I know Dan, you talked about expecting a pick up back in the second half of the year, but just hoping for some more color on what you're seeing in that market?

Yeah. Sure. And I’ll have Luis do that. Brazil is an interesting market, because it has been so successful for so long in terms of dominating that local position with our joint venture partner, Banco do Brasil. And even as I mentioned in my prepared comments, when you think about getting 37% of the flows, it tells you just how successful they've been. So I think what we're dealing with is a modest setback on still a very, very strong franchise, but Luis, you want to go and build on that.

Yes. Ryan, again, this is Luis. We have to put in perspective that in our pension business in Brazil, we delivered $1 billion in net customer cash flows in second quarter. As Dan said and mentioned, this represent 37% of market share in that industry. We have had some slowdown in our deposit, nothing in our withdrawals that you could see in our supplement and the reason is simply one, Banco, our partner, they have been much more focused on their in-house banking products in the first part of the year rather than in other financial services product related like pensions and insurance. So we are expecting that our partner is starting to shifting their attention in the later part of this year into other related financial products, but anyway, the $1 billion that we put together in the second quarter has also been a stellar performance for a pension company in Brazil. We do expect some improvements, but it is -- again, Brazil continues to be the leader in that industry.

And then for Jim, performance fees were fairly I think modest in the current quarter. What are you thinking for the, I guess, the back half of the year, at this point?

On performance fees, we did indicate back when we did the guidance last December that this would be a pretty lean year, not because of bad performance, but because of incidents, because remember a large part of our performance fees are based on real estate funds with three, five maybe even longer year periods and sometimes dependent on the time that the asset gets realized. The outflow then leads to a performance fee. This year is a bit lean on that. We're expecting some pick up in 2018, but not much in the second half of the year. I'm actually pretty pleased though that the first half, we've seen revenues almost make up for what last year was a pretty good second quarter in performance fees. So -- and that's very sustainable, that’s management fees, which in the end will also be a sign that performance fees longer term could be positive. Just lastly on performance fees for the remainder of the year, I think the main element there may well be the year end performance fees on hedge funds and some of the other performance fee clients. I think that's very difficult to tell at the moment of what that will look like, but there will be almost for sure a number there in the fourth quarter. You can see from the past though that it’s fluctuated quite a lot.

The next question will come from Erik Bass with Autonomous Research.

I was hoping that you could provide more color on the PGI pipeline, both of new business opportunities, but also of potential at risk cases. And also, I was hoping you can quantify maybe the average fee rate differential between mandates that have been leaving as well as new business coming on in recent quarters?

Yeah. The one comment I would make here, Erik and I think you just touched on it, which is a reminder to all of us. Our franchise has passive hybrid active alternatives, it has hedge funds and I think if you go back five and ten years ago, you saw a strong correlation between AUMs and the corresponding revenues. That has now been effectively separated. It is no longer -- it’s highly correlated, especially when we think about all the different structures, ETFs, 40 Act funds, CIT. So we’re going to have to be thinking about year end and communicating to you as we provide you with better outlook and guidance on what we can expect, because not every AUM today carries anywhere near the same revenue. It's so broad and what that, I’ll ask Jim to add answer your similar specific questions.

Firstly, the range that Dan talks about, it goes from 3 basis points to 2.20. So there is a very wide range, maybe ten years ago, our range was a lot narrower than that. It didn't go as high because we didn't have so many alternatives, it didn't go so low because there were less in the more commoditized index products. Secondly, the two clients who took away the large mandates, I should emphasize are still clients and are still buying added value capabilities from us. But to give the specific numbers on the large mandates that were mentioned, the 3.3 billion in two large mandates that were lost in the second quarter was on 7 basis points. If I look at the average for the deposits in the second quarter of 4.5 billion, the average was 42 basis points. So in other words, those assets are much heavier in their impact on revenue than the ones we lost. And actually if you will trade $1 billion account for $200 million higher added value on for the same client, the flows look terrible, but you’re ahead in terms of the quality of the business. The pipeline is strong. We do regularly review the pipeline and I would actually say just subjectively without a lot of numbers, it's probably the strongest it's been and I think it demonstrates that with our capabilities in specialty strategies, in multi-asset strategies the ability to add value, we are in a pretty good place to grow the revenue. So if you like, I’m a lot more confident that we’ll continue to produce above industry revenue growth than I am about the fee -- the flows in any given quarter. Lastly, on cases at risk, yes, those got to be cases at risk because things change and the hedging has been a source of some difficulty, both when we had dollar strength last year and then when we had increasing hedging costs on the Japanese yen this year. So there are cases that are at risk, not anything extraordinary though, not anything that makes the clients unhappy and we're certainly confident that it won’t be a matter of losing clients, it's more a matter of shifting balances on particular clients. So I'm really just trying to portray that we're managing this business more for revenue than for flows, but obviously the flows is an indicator you need to look out.

And one follow-up just on the investment performance and the one year numbers continue to face some pressure and I was hoping for a little bit more color there on what's driving it now, as we move into the back half of the year, how you see that changing as kind of, I think the second half of last year was a bit challenging.

Yeah. You just hit on it too and Jim can elaborate, what was a rough third and fourth quarter year ago.

Yeah. And the annual numbers should look a little bit better as those rough quarters that Dan mentioned roll off, hopefully we’ll do better in the second half of this year. But it's also, there is a bit of noise around the performance numbers and I’ll give you a couple of statistics that may help here. If I look at our year-to-date results, how we're doing in 2017, 53% by number of our funds are above median. That doesn't sound great. That sounds almost random. But if I cut out the funds that are either indexed or predominantly indexed and remember this is a period when active management has paid off. Excluding those, we are 67% above median year-to-date. I think that shows that we're still on track with our very focused multi boutique strategy, leading to very tightly focused investment teams that can outperform. So I remain confident that we've got plenty of good stuff for our sales people to use versus clients. We mentioned 56^ by number had four and five star in the US mutual funds. It’s actually 69% by assets, which I think really shows that our sales people have a lot to work with. So that's kind of underlying my continuing confidence, which is, as I said, more on revenues than on flows.

The next question will come from Jimmy Bhullar Peeler with JP Morgan.

I had a question for Luis on just the Chilean business. Like what's really driving the outflows there and do you see it more as being systemic or is it more of an aberration? And then relatedly, we've seen one of your competitors cut fees by a decent amount, MetLife subsidiary in Chile. Are you planning on any reductions in your fees in the market?

Thanks, Jimmy for the question. Oftentimes, you reflect back on certain deals that you did and how you feel about the country in total. And as we go back and still interrogate our decisions around starting in the voluntary business, nearly 10 years ago and certainly the mandatory business within the last five years, we’re reassured we're in the right markets. Some things challenge you from time to time on the political front, but I'll ask Luis to delve right into your questions related to the flows and what our outlook is. Luis?

Yes. Jimmy, thanks for your question and probably you remember a couple of quarters ago that I mentioned to you that the main reasons for those outflows are two. The first reason is more customers are anticipating their retirement decisions and Cuprum is an accumulator and at the same time, we’ve paid programmers withdraw. So there is a source of, I’d say, outflows and the second reason for these outflows is about market aggressiveness. And we have been in a kind of an interesting environment, but if you’re looking in our supplement, our deposits, our ability in order to put deposits remains intact. So my comment about that is that the discussions about pension reforms and movements in that market is making us our inflows a little choppy, but I like to go back with Cuprum and I want to try to qualify my answer is, we are managing today more money in Cuprum than at any given point on its history. That’s number one. Number two, Cuprum is still in this kind of environment, a very resilient company and we are reporting in a normalized base, more earnings and revenues and they’re slightly apt in a TTM and also in quarter over quarter and in a sequential quarter. So even having those negative net customer cash flows again, I’m saying that we are very pleased and with Cuprum and Cuprum, we have improved that very resilient organization and business. The discussion about the pension reform, which is driving all this kind of noise that you have mentioned, it is a very interesting one, but we’ve remained very optimistic about the future of the pension industry in Chile and in particular about Cuprum, but Chileans are not saving enough, and that’s a main reason for the market adequacy that we do have there. So this is actually where we’re working, paying a lot of attention about asset retention, claim retentions. We have seen improvements in May, June and July in our net customer cash flows so we remain optimistic going forward.

I had a follow-up for just for Dan. As you’re looking at your sort of global footprint in the international business and also just your capabilities on the asset management side, are you still interested in acquisitions and if so, what specific markets or asset classes and all the environment in those markets for deals.

So I guess a couple of points I would make. First, from a geographical perspective, when you think about the countries we're in and we face those off against, our projections for kind of 2025 and 2050 and where we think the emerging markets are going to grow in developing middle classes that would likely be candidates for buying these sorts of products and services, it is Chile, it is India, it is Brazil, it is India, it is in those markets where we've planted seeds and been there for a long time. So in terms of geography, I feel really, really good about where we are operating today and again, a lot of credit goes to Barry and Larry over the years for making sure we got into the right markets. The second thing I would say as it relates to products and services, it's been amazing to me Jimmy how much they've evolved to look a lot the same around the world and both in terms of structures and asset classes. And I know both Jim and Luis have talked on many occasions that it's really local investing, regional investing and then global investing. I think what's changed to me is the pace of play, it’s just evolving more quickly. So we do have to continue to be nimble, we have PI and PGI working very closely together to make sure that we're as efficient as we can be in building our products and solutions, investment solutions locally. Having said that, we'd still like to do more infrastructure. We think that that's an asset class that’s very interesting. European real estate and more, other markets where we can leverage our real estate capabilities from the United States would be good. And I think again, you're witnessing the advantage of the boutique model with the uncorrelated investment result. CCI has struggled in some of their strategies while we have other mid small and large cap capabilities and other boutiques that have performed quite well, but we have shopping list, we have very active pipeline; Tim Dunbar, Lou Flori and team just do a terrific job of sorting through it, but we feel again good about the countries, we feel good about the shopping list relative to where we could add capabilities and in some extreme instances, scale.

The next question will come from Suneet Kamath with Citi.

Just a follow up to Jimmy’s line of questioning on the capital deployment, just kind of given how the stock has had a nice move so far this year and more multiples are, is the thought that maybe capital deployment would skew a little bit more towards M&A over the next couple or quarters or do you think buybacks at this level are still attractive?

You phrased the question around line of questioning, it sounds more like a deposition, but I appreciate that Suneet and all kidding aside. So a couple of thoughts. The first where we want to focus is on organic growth. We think that that's good value for our shareholders and building scale, building capabilities. The spread business that you’ve seen, nice growth in here in the last couple of years with again things we're getting properly -- investors are being properly rewarded with good returns there. The targeted payout ratio was a high priority to get to that 40%. So you've seen us increase the dividend. There has been a lot of work in the last 12 months on the repositioning of debt ladder to make sure that that was in good order, so that we didn’t experience something as we did back in 2008 and 2009 when we had some debt maturing that was short term in nature. And then of course, as I mentioned earlier, we feel good about our pipeline for M&A. And against selectively purchasing our shares, but I have a lot of confidence that we’ll hit that 800 million to 1.1 billion of capital deployment for the full year 2017.

Obviously, stock price is a good problem to have. Just on China, following up on Humphrey’s question, could that be an opportunity for you guys to deploy capital going forward?

Yeah. It absolutely does represented a good opportunity. It’s a big market. If you look at CCB pension, they’ve already grown to be over $100 billion in a short period of time that they've been in business. They're adding a lot of scale and capability. It will take investment there to fully build out what’s going to be necessary, but I would definitely say that as we think about gaining more momentum, more capabilities in Brazil, in Southeast Asia with our joint venture partner, CIMB as well as in China, there will be an ample opportunity to deploy capital quite wisely to help build on the prior success.

The final question is from John Nadel with Credit Suisse.

I guess a question on RIS spread and I sort of talked about this I think last quarter too. I'm looking at -- I know you've talked about a couple of adjustments that we should think about for the pre-tax operating income there, mostly variable investment income, but also some mortality gains. If I make those adjustments and I look at the growth on a year-to-date basis versus the first half of ’17, account value growth is up I think about 11% year-over-year on average, but your core pre-tax operating income is up about 28% year-over-year. Can you help us understand a little bit better, is there a significant mix shift going on in the account values that's driving the margin higher here or was the first half of ’16 just lower than normal level of earnings and thus we're recovering, just a little help there would be, I‘d like to hear some commentary there?

John, you’re hitting on some good topics there. And variable investment income certainly has been a nice tailwind to enjoy in prepays and those sorts of things, but I’ll ask Nora to pile on here with some additional thoughts on what that might look like going forward?

Yeah. So, John, you’ve hit on some of the delta, the higher, obviously higher VII, higher mortality experience gains, lower expenses, but there are -- to your point, there's also some higher course spread and when you talk about product mix, it's as much about the opportunities we've had in those opportunistic businesses. So you think about the pension risk transfer business, you think about investment only. We certainly have gained around some of that core spread, but with that said, we still take you back to those outlook ranges and the high end of those outlook ranges, because as you take out some of those items that I identified, yes, it brings you to the high end or slightly over the range. But there's a mix -- there's a product mix there, but it's a combination of those drivers. So we're just wanting you to take a balanced approach as you look through to what's driving this first half of the year relative to the second half.

Well, it’s been kind of interesting to me to see the demand for income and retirement, whether it's by individual or corporations trying to get out from underneath these liabilities associated with their defined benefit plan and that places where we’ve played is, you’ve been in a relatively small end of that marketplace, and we’re getting good pricing relative to what historically you would have thought. We would have had, so again, we look at that, it’s not only opportunistic, but it’s certainly been opportunistic in our favor within the last few years.

Well, that’s I guess sort of the point that I'm trying to get at right is that, this is, I mean, you guys call the segment RIS spread. So spread based earnings in a difficult spread environment and you're, even if I make those adjustments for higher variable investment income and other things, you're outpacing your account value growth, earnings growth is outpacing account value growth by almost 3 times in a tough spread environment. So it has to be a mix shift, no?

Yeah. I think the other comment I would make, John, is we have shown very strong sales over the last two years in this segment and it takes a while for those sales to actually translate into earnings. And so again, you did kind of a point-to-point account value growth, but obviously some of the emergence of those earnings do take some time. And so I think it's important to look at the increase in earnings, but probably more importantly to look at kind of what we're earning today and what we think that run rate is going forward, which I think if you normalize for the variable investment income and the mortality gain is really a good earnings to kind of build on going forward. And so I think that emergence of earnings relative to the growth is probably the other piece that's important to think about as well.

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

Yeah. Just maybe three very quick comments. The first of which is from our vantage point, we believe the fundamentals of these businesses are very much intact. Secondly, we're going to continue to focus and find that delicate balance between growth and profitability. And the third is, we’re going to put a lot of emphasis on understanding the needs of our customers. That is our highest priority to make sure that we remain relevant to our customers and we all know that it's a very dynamic and shifting market, but we look forward to seeing you on the road. And again, thank you for taking the time today to participate in the call.

Thank you for participating in today's conference call. This call will be available for replay beginning at approximately 1 PM Eastern Time until end of day, August 4, 2017. 48354928 is the access code for the replay. The number to dial for the replay is 855-859-2056, US and Canadian callers; or 404-537-3406, international callers.