A.M. Best Affirms Ratings of Principal Financial Group, Inc. and Its Subsidiaries
January 28, 2016 by Best's News Service
Oldwick – A.M. Best has affirmed the financial strength rating of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of Principal Life Insurance Company (PLIC) and Principal National Life Insurance Company. Both are life insurance operating companies of Principal Financial Group, Inc. (PFG) [NYSE: PFG], which is headquartered in Des Moines, IA. These companies are collectively referred to as Principal. Concurrently, A.M. Best has affirmed the ICR of “a-” of PFG as well as the group’s existing issue ratings. The outlook for all ratings is stable.
Principal’s ratings reflect the organization’s strong business profile and recognized position as a leader in the global investment market, where the company competes by offering insurance and asset management products and services through a diverse array of distribution channels. The company offers products through its key business segments, Retirement and Income Solutions, Principal International, Principal Global Investors and U.S. Insurance Solutions, with each segment contributing meaningfully to consolidated revenue and operating income through the first three quarters of 2015. Principal’s double-digit return on equity and favorable net cash flow has been supported by the company’s strategic shift towards fee-based businesses, which currently account for over 60% of operating earnings. The remaining businesses are a complimentary mix of insurance risks within the individual life and specialty benefits markets and spread-based business.
Consistently good sales and operating results at PLIC continue to support holding company needs, with the insurance company upstreaming over $200 million to PFG through the nine months ending Sept. 30, 2015. However, while PLIC maintains a more than adequate level of risk-adjusted capitalization, given its insurance and investment-related risks, it is on the lower end, relative to similarly rated peers. Financial flexibility for the organization is considered good, with debt-to-capital of roughly 25% and interest coverage at over 11 times. Holding company cash and marketable assets were roughly $800 million, and include the cost of Principal’s acquisition of AXA Hong Kong, which closed in the third quarter. The transaction secures a market-leading position for the company in Hong Kong’s Mandatory Provident Fund market. A.M. Best will also consider Principal’s increased exposure to country risk, specifically as several of the countries Principal operates in possess moderate levels of political and financial risk.
With the diversity of the operations and business mix as partial offsets, Principal continues to be impacted by the low interest rate environment. Additionally, A. M. Best notes that the company holds a somewhat higher level of riskier assets, including lower rated bonds and structured securities, as well as commercial mortgage loans and other real-estate related assets. Principal’s investment management capabilities are an appropriate match to its appetite for investment risk, and underperforming and problem loans and securities continue to moderate relative to prior years.
For a complete listing of Principal Financial Group, Inc. and its subsidiaries’ FSRs, ICRs and issue ratings, please visit Principal Financial Group, Inc.
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activityweb page.
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