A.M. Best Affirms Ratings of Principal Financial Group, Inc. and its Subsidiaries

  A.M. Best Affirms Ratings of Principal Financial Group, Inc. and its

Business Wire

OLDWICK, N.J. -- December 03, 2012

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+
(Superior) and issuer credit ratings (ICR) of “aa-” of Principal Life
Insurance Company and Principal National Life Insurance Company (together
referred to as Principal Life). Both are life insurance operating companies of
Principal Financial Group, Inc. (PFG) [NYSE: PFG]. The outlook for these
ratings is stable.

A.M. Best also has affirmed the ICR of “a-” of PFG as well as all existing
debt ratings. Concurrently, A.M. Best has assigned debt ratings of “a-” to
each of the three senior unsecured notes recently issued by PFG. The outlook
assigned to these ratings is stable. All companies are domiciled in Des
Moines, IA. (Please see link below for a detailed listing of the companies and

Principal Life’s ratings reflect its diversified operating earnings, record
assets under management, solid risk-adjusted capitalization and its continued
performance improvement within its investment portfolio. The ratings also
reflect the strong enterprise risk management (ERM) capabilities of PFG.

PFG continues to generate favorable operating earnings across its multiple
business segments. The group's expanded product diversification, controlled
distribution strategy and ongoing expense management have contributed to its
consistent earnings. Additionally, the composition of PFG's business is less
reliant on its spread-based products relative to its fee-based products. PFG
continues to generate significant improvement in net flows, primarily from its
Full Service Accumulation and Principal Funds businesses within the Retirement
and Investor Services segment, in addition to positive net flows within the
Principal International and Principal Global Investors business segments,
where its assets under management (AUM) has continued to grow. The fee income
generated from the organization's record AUM has been able to offset the
decline in its net investment income for the year. Net income also has
benefited from the improved performance of its investment portfolio. PFG's net
realized losses have decreased considerably since the recent economic crisis.
However, A.M. Best expects realized losses to continue in 2013 as more of its
commercial mortgage-backed securities portfolio continues to mature. A.M. Best
notes PFG's ERM has been an area of strength for a number of years. A.M. Best
believes that PFG’s recent independent review from an outside audit company
will only enhance the risk management capabilities of an already strong

Despite the debt issuances in support of its recent acquisition, A.M. Best
views the organization’s adjusted financial leverage (excluding non-recourse
debt) of roughly 23%, which incorporates considerable equity credit for the
company’s outstanding perpetual preferreds per A.M. Best’s hybrid methodology,
as being relatively conservative in comparison to its similarly rated peers.
PFG’s leverage ratios, as well as its interest coverage ratio of roughly seven
times, remain well within A.M. Best’s guidelines for its current ratings.

Offsetting these positive rating factors are PFG's exposure to equity market
risk given the growth in its fee-based businesses, its exposure to country
risk due to the rapid expansion of its international operations and the
sizeable amounts of capital it deployed in recent years. Additionally, A.M.
Best is concerned with the negative impact an extended period of low interest
rates could have on Principal Life's spread business and net investment

With PFG moving more towards a fee-based business model, earnings will
continue to be susceptible to equity and credit market fluctuations. In
addition to market risk, A.M. Best will be monitoring PFG's increased exposure
to country risk. The organization has made several large overseas transactions
in recent years as it looks to expand its international operations. Some of
these acquisitions were made in countries A.M. Best believes to have moderate
levels of political and financial risk (e.g. Brazil). However, A.M. Best notes
that PFG's most recent acquisition of AFP Cuprum, S.A., a leading Chilean
mandatory pension provider, operates in a country viewed to have relatively
modest economic and political risks. As PFG continues to grow its
international businesses, A.M. Best will continue to closely monitor the
countries it does business in. Furthermore, A.M. Best will be monitoring PFG's
capitalization levels, as it has deployed over $1 billion for acquisitions,
share repurchases and dividends in each of the past two years. While most of
this year's acquisitions were funded with new debt, a sizeable amount of
excess capital was utilized. Although financial leverage remains in line with
its current ratings, PFG's leverage has grown considerably in 2012. Similar to
other life and annuity companies, an extended period of low interest rates
continues to have an adverse impact on the organization's earnings, sales and
portfolio net yields. PFG maintains a sizeable block of annuities, as it
comprises approximately one-seventh of its GAAP earnings. Core interest
spreads in PFG's annuities have remained challenged, which has impacted
earnings. The low interest rate environment continues to negatively impact the
individual annuity segment's net flows, which remains negative for the second
consecutive year. A.M. Best notes that despite a slight decline in earnings
and negative net flows, PFG's account values continue to increase.

A.M. Best believes PFG is well positioned at its current rating level in the
near to medium term. Factors that could lead to negative future rating actions
include a material decrease in PFG’s operating earnings as a result of a
decline in its net cash flow and low interest rates and/or a material
deterioration in its risk-adjusted capitalization driven by investment losses
or the deployment of capital to support further acquisitions or share
repurchase activity.

For a complete listing of Principal Financial Group, Inc. and its
subsidiaries’ FSRs, ICRs and debt ratings, please visit

The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Best’s Credit Rating Methodology can be found at

Founded in 1899, A.M. Best Company is the world’s oldest and most
authoritative insurance rating and information source. For more information,
visit www.ambest.com.

       Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.


A.M. Best Co.
Tom Zitelli, 908-439-2200, ext. 5412
Senior Financial Analyst
Thomas Rosendale, 908-439-2200, ext. 5201
Assistant Vice President
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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