DES MOINES, Iowa, May 13, 2010 (BUSINESS WIRE) --Standard & Poor's (S&P) yesterday downgraded the financial strength rating of Principal Life and Principal National to A from A+, and changed the outlook to stable from positive. The A rating is characterized as strong and is the sixth highest of 21 rating levels. S&P's review is based on its new U.S. asset stress model.
"S&P has introduced a new 'stress model' for investment portfolio assets for U.S. life insurers, one we believe is a very simple tool for commercial real estate and is at odds with our more detailed analysis of expected losses for commercial mortgage investments. As we stated in our 1ST quarter 2010 earnings call, we believe the real estate market is returning to stability and values will be stable to rising going forward. While we expect higher than normal losses for several quarters, the losses from commercial mortgages will be quite manageable. Our track record of managing assets through periods of market instability and long term asset-liability matching is extremely strong," said Terry Lillis, chief financial officer of the Principal Financial Group(R). "We believe the investment loss assumptions on which S&P based their rating actions do not accurately reflect the quality of The Principal's investment portfolio. We expect total portfolio credit losses to be approximately $100 million less in 2010."
Added Lillis, "Our equity position and current level of excess capital puts The Principal(R) at the strongest financial point in our history. As of Dec. 31, 2009, we had a strong NAIC risk-based capital of 425 percent and $750 million available capital at the holding company level. In addition, our earnings profile is very strong. Our Q1 2010 operating earnings were up 56 percent from the year ago quarter and net income was up 65 percent," Lillis said. "We will continue to work with S&P with the intent of returning their rating to a more appropriate level."
"In the worst market and economic conditions in 75 years, the net income of The Principal was positive eight of the nine last quarters, totaling $1.2 billion. This further demonstrates the consistency and strength of our investment portfolio," Lillis said.
Lillis cited continued strong fundamentals in The Principal's investment portfolio with commercial real estate losses for the whole loan portfolio in first quarter 2010 declining to $11 million. The company's realized capital losses continue to be manageable. Portfolio stress tests continue to demonstrate that losses would occur over a multi-year period and would be manageable even under severe stress scenarios, he said.
About the Principal Financial Group
The Principal Financial Group(R) (The Principal(R))1 is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $293.4 billion in assets under management2 and serves some 18.7 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.
1"The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
2As of March 31, 2010
SOURCE: Principal Financial Group
Principal Financial Group
Susan Houser, 515-248-2268
Investor relations contact:
John Egan, 515-235-9500