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Principal Financial Group, Inc. Announces Third Quarter 2012 Results

  Principal Financial Group, Inc. Announces Third Quarter 2012 Results

  *Third quarter 2012 operating earnings^1 were $134.8 million; $0.45 of
    earnings per diluted share.
  *As a result of our previously announced third quarter actuarial assumption
    review, operating earnings were negatively impacted by $90.7 million;
    $0.30 of earnings per diluted share.
  *Third quarter 2012 net income was $179.7 million; $0.60 of earnings per
    diluted share.
  *Third quarter 2012 record assets under management of $392.2 billion with
    total company net cash flows of $9.8 billion.

Business Wire

DES MOINES, Iowa -- October 25, 2012

Principal Financial Group, Inc. (NYSE: PFG) today announced results for third
quarter 2012. The company reported operating earnings of $134.8 million for
third quarter 2012, compared to $193.2 million for third quarter 2011. Third
quarter operating earnings were negatively impacted by $90.7 million, or $0.30
per diluted share, as a result of the company’s previously announced third
quarter actuarial assumption review. Operating earnings per diluted share
(EPS) were $0.45 for third quarter 2012, compared to $0.61 for third quarter
2011. The company reported net income available to common stockholders of
$179.7 million, or $0.60 per diluted share for third quarter 2012, compared to
$71.9 million, or $0.23 per diluted share for third quarter 2011. Operating
revenues for third quarter 2012 were $2,638.6 million compared to $2,031.7
million for the same period last year.

“Business momentum continued to accelerate in the third quarter. With strong
sales, net cash flows and record assets under management, we feel well
positioned going into 2013. However, we continue to see macroeconomic
headwinds, including foreign exchange and low interest rates, that will
pressure financial performance in the near term,” said Larry D. Zimpleman,
chairman, president and chief executive officer of Principal Financial Group,
Inc. “We are pleased with the continuing growth in earnings from our fee-based
businesses, which gives us greater financial flexibility in this challenging
time. Our recent announcement of the intent to acquire AFP Cuprum in Chile
adds meaningfully to our fee-based model, which will add to our growth and
increase long-term value for shareholders.”

Added Terry Lillis, senior vice president and chief financial officer, “Our
periodic actuarial assumption review negatively impacted third quarter
operating earnings. However, the impact is a non-cash charge and therefore has
no impact on our capital deployment strategy. Backing out this impact and
foreign currency headwinds, third quarter total company operating earnings
were up 8 percent over normalized third quarter 2011, reflecting strong
execution and growth of the businesses.”

Key Highlights for the Third Quarter:

  *Record assets under management (AUM) of $392.2 billion are up 22 percent
    compared to the year ago quarter.
  *Strong Retirement and Investor Services sales in the third quarter, with
    $2.7 billion for Full Service Accumulation, $4.5 billion for Principal
    Funds and $447 million for Individual Annuities.
  *Net cash flows of $1.6 billion for Full Service Accumulation and a record
    $2.5 billion for Principal Funds.
  *Record unaffiliated AUM of $97.8 billion for Principal Global Investors,
    including unaffiliated net cash flows of $2.2 billion.
  *Reported record net cash flows of $2.7 billion and record AUM of $66.2
    billion for Principal International (excluding $9.7 billion of AUM in our
    asset management joint venture in China, which are not included in
    reported assets under management).
  *Individual Life sales of $48 million, up 17 percent over third quarter
    2011.
  *Specialty Benefits premium and fee growth of 5 percent over third quarter
    2011.
  *Strong capital position with an estimated risk based capital ratio of 440
    percent at quarter-end and $2.2 billion of excess capital.^2
  *Quarterly dividend of $0.21 per common share in the third quarter 2012
    represents a 17 percent increase over the second quarter 2012 dividend.
  *Repurchase of 2.7 million shares of common stock in the third quarter at
    an average price of $25.72, bringing the year-to-date total number of
    shares repurchased to 9.9 million.
  *Book value per share, excluding AOCI^3 was $28.63, up 4 percent over third
    quarter 2011 and 2 percent sequentially.

Net Income
Net income available to common stockholders of $179.7 million for third
quarter 2012 reflects net realized capital gains of $88.8 million, which
includes:

  *A net gain of $141.2 million as a result of Catalyst Health Solutions,
    Inc.’s merger into a subsidiary of SXC Health Solutions Corp. (SXC), and
    our subsequent sale of our interest in SXC (now known as Catamaran
    Corporation);
  *$30.7 million net loss from the change in our GMWB embedded derivative
    primarily from the impact on fair value due to the reduction of our own
    credit spread during the quarter;
  *$22.3 million of net losses related to sales and permanent impairments of
    fixed maturity securities, including:

       *$17.9 million of losses on commercial mortgage backed securities,
         which is down 24 percent from $23.5 million loss in third quarter
         2011.

                               Segment Results

Retirement and Investor Services
Segment operating earnings for third quarter 2012 were $137.5 million,
compared to $129.6 million for the same period in 2011. Full Service
Accumulation earnings were $71.7 million compared to $69.7 million in the year
ago quarter, with growth in net revenues partially offset by a $3.4 million
charge from the actuarial assumption review of deposits. Principal Funds
earnings were $13.4 million compared to $12.5 million in third quarter 2011,
also reflecting strong revenue growth. Individual Annuities earnings were
$22.7 million compared to $17.5 million for third quarter 2011. Third quarter
2012 results reflect an $11.0 million charge from the actuarial assumption
review of long-term interest rate assumptions. The year ago quarter results
were negatively impacted by a $9.0 million DPAC amortization expense true up
due to negative equity market returns. Bank and Trust Services operating
earnings were $8.8 million, compared to $9.2 million for third quarter 2011.
The guaranteed businesses, which consist of Investment Only and Full Service
Payout, earned $20.9 million in the third quarter 2012 compared to $20.7
million in third quarter 2011.

Operating revenues for the third quarter 2012 were $1,570.7 million compared
to $996.0 million for the same period in 2011 driven by higher sales in the
Full Service Payout business.

Segment assets under management were $206.4 billion as of Sept. 30, 2012,
compared to $168.6 billion as of Sept. 30, 2011, reflecting asset appreciation
and strong net cash flows from Full Service Accumulation and Principal Funds.

Principal Global Investors
Segment operating earnings for third quarter 2012 were $20.6 million, compared
to $19.1 million in the prior year quarter, primarily due to an increase in
assets under management offset by additional investments to support growth.

Operating revenues for third quarter were $144.0 million, compared to $132.9
million for the same period in 2011.

Unaffiliated assets under management were a record $97.8 billion as of Sept.
30, 2012, compared to $77.7 billion as of Sept. 30, 2011, as a result of
improved net cash flows and investment performance.

Principal International
Segment operating earnings were $29.5 million in third quarter 2012, compared
to $35.3 million in the prior year quarter. Third quarter 2012 results were
dampened by $11.5 million due to the actuarial assumption review of lapse rate
assumptions in Mexico. Combined net revenue growth was flat compared to the
year ago quarter, though foreign currency headwinds continue to mask an
underlying 18 percent growth.

Operating revenues were $203.8 million for third quarter 2012, compared to
$220.1 million for the same period last year, down due to lower inflation in
Chile and the strengthening of the U.S. dollar.

Segment assets under management were a record $66.2 billion as of Sept. 30,
2012, compared to $54.5 billion as of Sept. 30, 2011, despite currency
headwinds.

U.S. Insurance Solutions
Segment operating losses for third quarter 2012 were $21.6 million, compared
to operating earnings of $49.1 million for the same period in 2011. Individual
Life losses were $37.9 million in the third quarter compared to earnings of
$28.2 million in third quarter 2011 primarily reflecting a $62.9 million
charge from the review of long-term interest rate assumptions and other model
enhancements.

Specialty Benefits earnings were $16.3 million in third quarter 2012, down
from $20.9 million in the same period a year ago primarily due to higher
disability claims in the quarter due to normal volatility and a $1.9 million
charge resulting from a 75 basis point reduction in the disability claims
discount rate from the year ago quarter.

Segment operating revenues for third quarter 2012 were $766.5 million compared
to $739.3 million for the same period a year ago.

Corporate
Operating losses for third quarter 2012 were $31.2 million compared to
operating losses of $39.9 million in third quarter 2011. Third quarter 2011
had $12.0 million of lower variable investment income on excess capital at the
holding company due to negative marks caused by widening of credit spreads.

Forward looking and cautionary statements
This press release contains forward-looking statements, including, without
limitation, statements as to operating earnings, net income available to
common stockholders, net cash flows, realized and unrealized gains and losses,
capital and liquidity positions, sales and earnings trends, and management's
beliefs, expectations, goals and opinions. The company does not undertake to
update these statements, which are based on a number of assumptions concerning
future conditions that may ultimately prove to be inaccurate. Future events
and their effects on the company may not be those anticipated, and actual
results may differ materially from the results anticipated in these
forward-looking statements. The risks, uncertainties and factors that could
cause or contribute to such material differences are discussed in the
company's annual report on Form 10-K for the year ended Dec. 31, 2011, and in
the company’s quarterly report on Form 10-Q for the quarter ended June 30,
2012, filed by the company with the Securities and Exchange Commission, as
updated or supplemented from time to time in subsequent filings. These risks
and uncertainties include, without limitation: adverse capital and credit
market conditions may significantly affect the company’s ability to meet
liquidity needs, access to capital and cost of capital; continued difficult
conditions in the global capital markets and the economy generally; continued
volatility or further declines in the equity markets; changes in interest
rates or credit spreads; the company’s investment portfolio is subject to
several risks that may diminish the value of its invested assets and the
investment returns credited to customers; the company’s valuation of
securities may include methodologies, estimations and assumptions that are
subject to differing interpretations; the determination of the amount of
allowances and impairments taken on the company’s investments requires
estimations and assumptions that are subject to differing interpretations;
gross unrealized losses may be realized or result in future impairments;
competition from companies that may have greater financial resources, broader
arrays of products, higher ratings and stronger financial performance; a
downgrade in the company’s financial strength or credit ratings; inability to
attract and retain sales representatives and develop new distribution sources;
international business risks; the company’s actual experience could differ
significantly from its pricing and reserving assumptions; the company’s
ability to pay stockholder dividends and meet its obligations may be
constrained by the limitations on dividends or distributions Iowa insurance
laws impose on Principal Life; the pattern of amortizing the company’s DPAC
and other actuarial balances on its universal life-type insurance contracts,
participating life insurance policies and certain investment contracts may
change; the company may need to fund deficiencies in its “Closed Block” assets
that support participating ordinary life insurance policies that had a
dividend scale in force at the time of Principal Life’s 1998 conversion into a
stock life insurance company; the company’s reinsurers could default on their
obligations or increase their rates; risks arising from the company's ability
to obtain regulatory approval and consummate the acquisition of A.F.P. Cuprum
S.A. and from other acquisitions of businesses; changes in laws, regulations
or accounting standards; a computer system failure or security breach could
disrupt the company’s business, and damage its reputation; results of
litigation and regulatory investigations; from time to time the company may
become subject to tax audits, tax litigation or similar proceedings, and as a
result it may owe additional taxes, interest and penalties in amounts that may
be material; fluctuations in foreign currency exchange rates; and applicable
laws and the company’s certificate of incorporation and by-laws may discourage
takeovers and business combinations that some stockholders might consider in
their best interests.

Use of Non-GAAP Financial Measures
The company uses a number of non-GAAP financial measures that management
believes are useful to investors because they illustrate the performance of
normal, ongoing operations, which is important in understanding and evaluating
the company’s financial condition and results of operations. They are not,
however, a substitute for U.S. GAAP financial measures. Therefore, the company
has provided reconciliations of the non-GAAP measures to the most directly
comparable U.S. GAAP measure at the end of the release. The company adjusts
U.S. GAAP measures for items not directly related to  ongoing operations.
However, it is possible these adjusting items have occurred in the past and
could recur in future reporting periods. Management also uses non-GAAP
measures for goal setting, as a basis for determining employee and senior
management awards and compensation, and evaluating performance on a basis
comparable to that used by investors and securities analysts.

Earnings Conference Call
On Friday, Oct. 26, 2012 at 10:00 a.m. (ET), Chairman, President and Chief
Executive Officer Larry Zimpleman and Senior Vice President and Chief
Financial Officer Terry Lillis will lead a discussion of results, asset
quality and capital adequacy during a live conference call, which can be
accessed as follows:

  *Via live Internet webcast. Please go to www.principal.com/investor at
    least 10-15 minutes prior to the start of the call to register, and to
    download and install any necessary audio software.
  *Via telephone by dialing 800-374-1609 (U.S. and Canadian callers) or
    706-643-7701 (International callers) approximately 10 minutes prior to the
    start of the call. The access code is 29872826.
  *Replay of the earnings call via telephone is available by dialing
    855-859-2056 (U.S. and Canadian callers) or 404-537-3406 (International
    callers). The access code is 29872826. This replay will be available
    approximately two hours after the completion of the live earnings call
    through the end of day Nov. 2, 2012.
  *Replay of the earnings call via webcast as well as a transcript of the
    call will be available after the call at: www.principal.com/investor.

The company's financial supplement and additional investment portfolio detail
for third quarter 2012 is currently available at www.principal.com/investor,
and may be referred to during the call. Slides related to the call will be
available at www.principal.com/investor approximately one-half hour prior to
call start time.

About the Principal Financial Group
The Principal Financial Group^® (The Principal ^®)^4 is a global investment
management leader offering retirement services, insurance solutions and asset
management. The Principal offers businesses, individuals and institutional
clients a wide range of financial products and services, including retirement,
asset management and insurance through its diverse family of financial
services companies. Founded in 1879 and a member of the FORTUNE 500^®, the
Principal Financial Group has $392.2 billion in assets under management^5 and
serves some 18.3 million customers worldwide from offices in Asia, Australia,
Europe, Latin America and the United States. Principal Financial Group, Inc.
is traded on the New York Stock Exchange under the ticker symbol PFG. For more
information, visit www.principal.com.


Summary of Segment and Principal Financial Group, Inc. Results
                      

                        Operating Earnings (Loss)*
                         in millions

                         Three Months Ended,       Nine Months Ended,
Segment                09/30/12    09/30/11    09/30/12     09/30/11
Retirement and         $ 137.5    $ 129.6    $ 422.8     $ 438.4  
Investor Services
Principal Global        20.6      19.1      55.0       56.5   
Investors
Principal               29.5      35.3      108.2      99.4   
International
U.S. Insurance          (21.6 )    49.1      78.8       151.5  
Solutions
Corporate               (31.2 )    (39.9 )    (100.7 )    (103.8 )
Operating Earnings     $ 134.8    $ 193.2    $ 564.1     $ 642.0  
Net realized capital
gains (losses), as      88.8      (56.8 )    39.6       (88.2  )
adjusted
Other after-tax         (43.9 )    (64.5 )    (49.4  )    (82.6  )
adjustments
Net income available
to common              $ 179.7    $ 71.9     $ 554.3     $ 471.2  
stockholders

                         Per Diluted Share
                        Three Months Ended,       Nine Months Ended,
                       09/30/12    09/30/11    09/30/12     09/30/11
Operating Earnings     $ 0.45     $ 0.61     $ 1.87      $ 2.00   
Net realized capital
gains (losses), as      0.30      (0.18 )    0.13       (0.28  )
adjusted
Other after-tax         (0.15 )    (0.20 )    (0.16  )    (0.25  )
adjustments
Net income available
to common              $ 0.60     $ 0.23     $ 1.84      $ 1.47   
stockholders
Weighted-average
diluted common          297.5     314.8     301.4      320.9  
shares outstanding
                                                             

*Operating earnings versus U.S. GAAP (GAAP) net income available to common
stockholders
Management uses operating earnings, which excludes the effect of net realized
capital gains and losses, as adjusted, and other after-tax adjustments, for
goal setting, as a basis for determining employee compensation, and evaluating
performance on a basis comparable to that used by investors and securities
analysts. Segment operating earnings are determined by adjusting U.S. GAAP net
income available to common stockholders for net realized capital gains and
losses, as adjusted, and other after-tax adjustments the company believes are
not indicative of overall operating trends. Note: it is possible these
adjusting items have occurred in the past and could recur in future reporting
periods. While these items may be significant components in understanding and
assessing our consolidated financial performance, management believes the
presentation of segment operating earnings enhances the understanding of
results of operations by highlighting earnings attributable to the normal,
ongoing operations of the company’s businesses.


Principal Financial Group, Inc.
Results of Operations
(in millions)
                                              
                   Three Months Ended,           Nine Months Ended,
                   09/30/12      09/30/11      09/30/12      09/30/11
Premiums and
other              $ 1,158.1     $ 583.0       $ 2,516.5     $ 1,750.4
considerations
Fees and other       674.4           608.6           1,889.2         1,806.9
revenues
Net investment      806.1       840.1       2,476.6     2,620.4 
income
Total
operating           2,638.6     2,031.7     6,882.3     6,177.7 
revenues
                                                                   
Benefits,
claims and           1,651.9         1,034.2         3,973.3         3,143.1
settlement
expenses
Dividends to         49.7            52.2            149.5           158.7
policyholders
Commissions          160.2           147.7           478.7           442.3
Capitalization       (102.7  )       (90.4   )       (303.1  )       (254.3  )
of DPAC
Amortization         112.7           94.2            56.5            185.4
of DPAC
Depreciation
and                  28.5            15.8            70.3            52.3
amortization
Interest
expense on           31.2            30.0            92.8            92.2
corporate debt
Compensation        546.8       497.7       1,632.3     1,498.3 
and other
Total expenses      2,478.3     1,781.4     6,150.3     5,318.0 
                                                                   
Operating
earnings
before tax,
noncontrolling       160.3           250.3           732.0           859.7
interest and
preferred
stock
dividends
Less:
Income tax           13.9            48.1            136.1           186.8
Operating
earnings
attributable         3.4             0.8             7.1             6.2
to
noncontrolling
interest
Preferred
stock               8.2         8.2         24.7        24.7    
dividends
Operating          $ 134.8      $ 193.2      $ 564.1      $ 642.0   
earnings
                                                                   
Net realized
capital gains        88.8            (56.8   )       39.6            (88.2   )
(losses), as
adjusted
Other
after-tax           (43.9   )    (64.5   )    (49.4   )    (82.6   )
adjustments
Net income
available to       $ 179.7      $ 71.9       $ 554.3      $ 471.2   
common
stockholders
                                                                             


Selected Balance Sheet Statistics
                                 
                                   Period Ended,
                                   09/30/12      12/31/11      09/30/11
Total assets (in billions)         $  159.2     $  147.4     $  142.4
Total common equity (in            $   9,285.5     $   8,475.9     $   8,831.5
millions)
Total common equity excluding
accumulated other                  $   8,404.7     $   8,217.9     $   8,369.4
comprehensive income (in
millions)
End of period common shares            293.6           301.1           305.1
outstanding (in millions)
Book value per common share        $   31.63       $   28.15       $   28.95
Book value per common share
excluding accumulated other        $   28.63       $   27.29       $   27.43
comprehensive income
                                                                       


Principal Financial Group, Inc.
Reconciliation of Non-GAAP Financial Measures to U.S. GAAP
(in millions, except as indicated)
                                               
                    Three Months Ended,           Nine Months Ended,
                    09/30/12      09/30/11      09/30/12      09/30/11
Diluted
Earnings Per                                                 
Common Share:
Operating           $ 0.45          $ 0.61          $ 1.87          $ 2.00
earnings
Net realized
capital gains         0.30            (0.18   )       0.13            (0.28   )
(losses)
Other after-tax      (0.15   )    (0.20   )    (0.16   )    (0.25   )
adjustments
Net income
available to        $ 0.60       $ 0.23       $ 1.84       $ 1.47    
common
stockholders
                                                                    
Book Value Per
Common Share
Excluding
Accumulated
Other
Comprehensive
Income:
Book value per
common share
excluding
accumulated         $ 28.63         $ 27.43         $ 28.63         $ 27.43
other
comprehensive
income
Net unrealized        4.42            2.82            4.42            2.82
capital gains
Foreign
currency              (0.28   )       (0.11   )       (0.28   )       (0.11   )
translation
Net
unrecognized
postretirement       (1.14   )    (1.19   )    (1.14   )    (1.19   )
benefit
obligations
Book value per
common share
including
accumulated         $ 31.63      $ 28.95      $ 31.63      $ 28.95   
other
comprehensive
income
                                                                    
Operating
Revenues:
RIS                 $ 1,570.7       $ 996.0         $ 3,707.0       $ 3,058.1
PGI                   144.0           132.9           423.2           394.5
PI                    203.8           220.1           676.9           653.4
USIS                  766.5           739.3           2,215.0         2,202.0
Corporate            (46.4   )    (56.6   )    (139.8  )    (130.3  )
Total operating       2,638.6         2,031.7         6,882.3         6,177.7
revenues
Net realized
capital gains
(losses) and          64.9            (55.8   )       12.8            (119.2  )
related
adjustments
Exited group
medical              1.2         117.7       24.1        553.4   
insurance
business
Total GAAP          $ 2,704.7    $ 2,093.6    $ 6,919.2    $ 6,611.9 
revenues
                                                                    
Operating
Earnings:
RIS                 $ 137.5         $ 129.6         $ 422.8         $ 438.4
PGI                   20.6            19.1            55.0            56.5
PI                    29.5            35.3            108.2           99.4
USIS                  (21.6   )       49.1            78.8            151.5
Corporate            (31.2   )    (39.9   )    (100.7  )    (103.8  )
Total operating       134.8           193.2           564.1           642.0
earnings
Net realized
capital gains
(losses) and          88.8            (56.8   )       39.6            (88.2   )
related
adjustments
Other after-tax      (43.9   )    (64.5   )    (49.4   )    (82.6   )
adjustments
Net income
available to        $ 179.7      $ 71.9       $ 554.3      $ 471.2   
common
stockholders
                                                                    
Net Realized
Capital Gains
(Losses):
Net realized
capital gains       $ 88.8          $ (56.8   )     $ 39.6          $ (88.2   )
(losses), as
adjusted
Certain
derivative and        22.7            25.4            68.4            73.2
hedging-related
adjustments
Amortization of
DPAC and sale         (30.5   )       43.8            (34.7   )       37.5
inducement
costs
Certain market
value
adjustments of        -               (0.9    )       1.4             (64.7   )
embedded
derivatives
Capital gains
(losses)              6.8             (9.7    )       8.7             2.0
distributed
Tax impacts           (0.2    )       (25.8   )       (10.2   )       (41.3   )
Noncontrolling
interest              -               (6.4    )       8.2             30.4
capital gains
(losses)
Recognition of
front-end fee         0.1             (0.3    )       -               (0.2    )
revenues
Certain market
value                 -               -               -               0.1
adjustments to
fee revenues
Net realized
capital gains
(losses)
associated with      -           -           (0.2    )    0.2     
exited group
medical
business
GAAP net
realized            $ 87.7       $ (30.7   )   $ 81.2       $ (51.0   )
capital gains
(losses)
                                                                    
Other After-Tax
Adjustments:
Exited group
medical             $ (4.1    )     $ 14.9          $ (9.6    )     $ 50.8
insurance
businesses
Court ruling
regarding some        -               (68.9   )       -               (68.9   )
uncertain tax
positions
ELNY
liquidation           -               (10.5   )       -               (10.5   )
estimated
obligation
Contribution to       (39.8   )       -               (39.8   )       (19.5   )
PFG Foundation
Assumption
change within        -           -           -           (34.5   )
the Individual
Life business
Total other
after-tax           $ (43.9   )   $ (64.5   )   $ (49.4   )   $ (82.6   )
adjustments
                                                                              

^1 Use of non-GAAP financial measures is discussed in this release after
segment results.
^2 Excess capital includes cash at the holding company and capital at the life
company above the amount needed to maintain a 350 percent NAIC risk based
capital ratio for the life company.
^3 Accumulated Other Comprehensive Income
^4 “The Principal Financial Group” and “The Principal” are registered service
marks of Principal Financial Services, Inc., a member of the Principal
Financial Group.
^5 As of September 30, 2012.

Contact:

Principal Financial Group, Inc.
Media contact:
Susan Houser, 515-248-2268
houser.susan@principal.com
or
Investor contact:
John Egan, 515-235-9500
egan.john@principal.com
 
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