(The following statement was released by the rating agency)
CHICAGO, June 12 (Fitch) Fitch Ratings has affirmed Principal
Inc.'s (PFG) long-term Issuer Default Rating (IDR) at 'A'. Fitch
affirmed the 'AA-' Insurer Financial Strength (IFS) ratings of
operating subsidiaries. The Rating Outlook has been revised to
Fitch has also affirmed and withdrawn the ratings of PFG's
agreement-backed notes issuance programs, as the ratings are no
considered by Fitch to be relevant to the agency's coverage. A
full list of
rating actions is shown below.
KEY RATING DRIVERS
The ratings affirmation reflects PFG's strong capitalization and
balanced operating profitability, partially offset by increased
leverage and above-average exposure to direct mortgages and
The revision in the company's Rating Outlook to Stable from
reflects diminishing concerns related to execution risk
associated with PFG's
integration of AFP Cuprum S.A. (Cuprum), which it acquired in
February 2013. To
date, the acquisition has exceeded expectations in terms of its
overall operating profitability. The revision in the Rating
reflects a gradual decline in PFG's financial leverage.
PFG's financial leverage was approximately 22.6% at March 31,
2014, down from a
recent high of 24.2% at Dec. 31, 2012 as the company issued debt
to help fund
its acquisition of Cuprum. In the first quarter of 2014 (1Q'14),
redeemed the $100 million of surplus notes issued by Principal
Company (PLIC). As PLIC no longer has publicly-held debt
outstanding, Fitch has
withdrawn the IDR of the company.
In 1Q'14, PFG reported pre-tax operating earnings of $411
million, up from $304
million in 1Q'13. For the full year 2013, the company reported
earnings of $1.4 billion, up from $1 billion in 2012. In
addition to the
earnings contribution from Cuprum, the recent improvement in
has been driven by higher fee-based revenue from growing account
tight expense management.
As a result of improving earnings, fixed charge coverage
approximately 8.5x in 2013 from approximately 6.8x in 2012. In
charge coverage was 10.0x. While Fitch expects PFG to continue
solid, stable earnings on its growing fee-based businesses, low
rates, continued competitive pressures and less robust capital
are likely to restrain earnings growth in the intermediate term.
PFG's strong capitalization is supported by the organization's
operating company, PLIC, which reported a risk-based capital
ratio (RBC) of 438%
at Dec. 31, 2013, up from 415% at year-end 2012. The company
targets RBC in a
range of 415% to 425%, and Fitch expects the company to finish
2014 in that
Fitch considers PFG's allocation to direct mortgages to be above
relative to the life insurance sector as a whole. In addition to
in direct commercial loans and $1.2 billion in residential
loans, the company
reported $4.1 billion in CMBS holdings at March 31, 2014.
Although there has
been some recovery in these asset classes within the industry,
Fitch views this
level of exposure to be a credit negative.
PFG, headquartered in Des Moines, IA, markets a range of
investment and insurance products and services primarily in the
medium-sized business segment. The company reported consolidated
assets of $211
billion, and total shareholders' equity of $10.1 billion at
March 31, 2014.
The key rating triggers that could result in an upgrade include:
--Improved diversification of the company's sources of revenue
--Sustainable return on equity of 12% or higher and fixed-charge
--Low volatility in earnings and capital over an extended period
--Financial leverage below 20%;
--Reported RBC ratio above 475%.
The key rating triggers that could result in a downgrade
--Run-rate return on equity below 10% and a GAAP-based
ratio below 7x;
--A decline in the company's reported RBC ratio to a level below
--Increase in financial leverage to a level above 25%
Fitch has affirmed the following ratings and revised the Outlook
to Stable from
Principal Financial Group, Inc.
--IDR at 'A';
--$300 million 1.850% notes due Nov. 2017 at 'A-';
--$350 million 8.875% notes due May 2019 at 'A-';
--$300 million 3.300% notes due Sept. 2022 at 'A-';
--$300 million 3.125% notes due May 2023 at 'A-';
--$600 million 6.050% notes due Oct. 2036 at 'A-';
--$300 million 4.625% notes due Sept. 2042 at 'A-';
--$300 million 4.350% notes due May 2043 at 'A-';
--5.563% preferred stock due 2015, series A at 'BBB';
--6.518% preferred stock due 2035, series B at 'BBB'.
Principal Financial Services, Inc.
--Long-term IDR at 'A';
--Short-term IDR at 'F1;
--Commercial paper at 'F1'.
Principal Life Insurance Company
--IFS at 'AA-'.
Principal National Life Insurance Company
--IFS at 'AA-'.
Fitch has affirmed and withdrawn the following rating as the
redeemed all surplus notes issued by Principal Life Insurance
--IDR at 'A+'.
Fitch has also affirmed and withdrawn the ratings on the
agreement-backed notes issuance programs and their outstanding
issues at 'AA-':
--Principal Financial Global Funding LLC
--Principal Life Income Fundings Trust
--Principal Life Global Funding I
--Principal Financial Global Funding II, LLC
Bradley S. Ellis, CFA
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
Julie A. Burke, CPA, CFA
Martha M. Butler, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (November 2013);
--'Life Insurance (U.S.) Sector Credit Factors' (Oct. 9, 2012).
Applicable Criteria and Related Research:
Insurance Rating Methodology
Life Insurance (U.S.) Sector Credit Factors
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