AM Best Affirms Credit Ratings of Principal Financial Group, Inc. and Its Subsidiaries

Rhea-AI Summary

AM Best affirms Principal Financial Group's strong Financial Strength Rating and Long-Term Issuer Credit Ratings. The ratings reflect Principal's balance sheet strength, strong operating performance, and favorable business profile. The outlook is stable with a very strong risk-adjusted capitalization.

Financial Analyst

The affirmation of Principal Financial Group's credit ratings by AM Best indicates a stable and robust financial position for the company. The ratings are a reflection of the company's balance sheet strength, strong operating performance and effective risk management. Investors may interpret these ratings as a sign of reduced credit risk, which could influence investment decisions favorably.

However, it's important to note that the company's higher allocations to commercial mortgages could present a level of risk, especially in volatile economic conditions. While this diversification into real estate can offer higher yields, it also increases exposure to sector-specific downturns. Investors should balance this risk with the company's overall financial stability and diversified business model.

The company's strategy to cede certain insurance blocks through reinsurance in 2022 suggests a proactive approach to managing product risk. This move can be seen as an effort to optimize the capital structure and reduce liabilities, which could lead to improved profitability and a more focused business model.

Market Research Analyst

The stable outlook of Principal Financial Group's ratings is indicative of the company's consistent market position and the expectation that it will maintain its strong financial metrics. The company's international presence is a double-edged sword, providing earnings diversity but also exposing it to geopolitical and macroeconomic risks. Investors with an interest in global financial markets might consider the potential impact of international developments on Principal's performance.

Principal's diverse lines of business and distribution channels contribute to its resilience against market fluctuations. This diversification is a key factor in the company's ability to maintain stable credit ratings, as it helps to mitigate the impact of sector-specific challenges. Nonetheless, the mention of political and macroeconomic risks in key international markets warrants careful monitoring by investors, as these factors could affect future performance.

Risk Management Consultant

The affirmation of Principal's credit ratings highlights the company's very strong enterprise risk management practices. The enhancements in risk modeling and stress-testing capabilities mentioned by AM Best suggest that Principal is well-equipped to navigate potential financial stress scenarios. This proactive risk management is important for maintaining investor confidence, particularly in uncertain economic climates.

However, the reliance on captive reinsurers and the higher allocation to commercial mortgages could introduce specific risks that require ongoing scrutiny. While these strategies can be effective in managing and distributing risk, they also require sophisticated management to avoid potential pitfalls. Investors should consider how these factors align with their risk tolerance and investment strategy.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “aa” (Superior) of Principal Life Insurance Company and Principal National Life Insurance Company. Both are life insurance operating companies of Principal Financial Group, Inc. (PFG) [NASDAQ: PFG] and collectively referred to as Principal. Concurrently, AM Best has affirmed the Long-Term ICRs of “a” (Excellent) of Principal Financial Services, Inc. and PFG, as well as the group’s Long-Term Issue Credit Ratings (Long-Term IRs). In addition, AM Best also has affirmed the group’s Short-Term Issue Credit Rating (Short-Term IR). The outlook of these Credit Ratings (ratings) is stable. (Please see below for a detailed listing of the Long- and Short-Term IRs.) All companies are headquartered in Des Moines, IA.

The ratings reflect Principal’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favorable business profile and very strong enterprise risk management.

AM Best views Principal’s risk-adjusted capitalization as strong, as measured by Best’s Capital Adequacy Ratio (BCAR), although capital growth has been limited by dividends to the parent company. The company lowered its product risk with reinsurance in 2022, ceding its in-force retail fixed annuity and universal life insurance with secondary guarantee (ULSG) blocks. The balance sheet strength assessment also benefits from historically favorable financial flexibility, liquidity profiles and significant excess capital and access to capital markets at the holding company level. AM Best’s favorable view of the company’s capital is somewhat offset by Principal’s higher allocations to commercial mortgages in comparison with the group’s peers and usage of its captive reinsurers.

The company has consistently reported favorable profitability metrics, benefiting from its diverse lines of business, distribution channels and leading market positions. An increasing presence internationally provides additional earnings diversity. However, AM Best notes that political and macroeconomic risks in Principal’s key international markets could have negative effects on the holding company going forward.

Principal has demonstrated strong risk management capabilities through continued enhancements to its risk modeling and stress-testing capabilities to support its overall business strategy, which have driven recent major business decisions.

The following Long-Term IRs have been affirmed with a stable outlook:

Principal Financial Group, Inc. –
— “a” (Excellent) on $400 million 3.40% senior unsecured notes, due 2025
— “a” (Excellent) on $350 million 3.1% senior unsecured notes, due 2026
— “a” (Excellent) on $500 million 3.70% senior unsecured notes, due 2029
— “a” (Excellent) on $600 million 2.125% senior secured notes, due 2030
— “a” (Excellent) on $505.6 million 6.05% senior unsecured notes, due 2036
— “a” (Excellent) on $400 million 5.375% senior unsecured notes, due 2033
— “a” (Excellent) on $300 million 4.625% senior unsecured notes, due 2042
— “a” (Excellent) on $300 million 4.35% senior unsecured notes, due 2043
— “a” (Excellent) on $300 million 4.30% senior unsecured notes, due 2046
— “a” (Excellent) on $300 million 5.5% senior unsecured notes, due 2053

Principal Life Global Funding I— “aa” (Superior) on program rating
— “aa” (Superior) on all outstanding notes issued under the program

Principal Life Global Funding II— “aa” (Superior) on program rating
— “aa” (Superior) on all outstanding notes issued under the program

Principal Financial Global Funding, LLC— “aa” (Superior) on program rating
— “aa” (Superior) on all outstanding notes issued under the program

Principal Financial Global Funding II LLC— “aa” (Superior) on program rating

Principal Life Income Funding Trusts— “aa” (Superior) on program rating

The following Short-Term IR has been affirmed:
Principal Life Insurance Company—
— AMB-1+ (Strongest) commercial paper rating

The following indicative Long-Term IRs on securities available under universal shelf registration have been affirmed with a stable outlook:

Principal Financial Group, Inc.—
— “a” (Excellent) on senior unsecured debt
— “a-” (Excellent) on subordinated debt
— “bbb+” (Good) on preferred stock

Principal Capital I, II and III—
— “aa” (Superior) on preferred securities

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Louis Silvers

Senior Financial Analyst

+1 908 882 2316

louis.silvers@ambest.com

Christopher Sharkey

Associate Director, Public Relations

+1 908 882 2310

christopher.sharkey@ambest.com

Jacqalene Lentz

Director

+1 908 882 2011

jacqalene.lentz@ambest.com

Al Slavin

Senior Public Relations Specialist

+1 908 882 2318

al.slavin@ambest.com

Source: AM Best

What are the Financial Strength Rating and Long-Term Issuer Credit Ratings of Principal Financial Group?

AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings of 'aa' (Superior) for Principal Life Insurance Company and Principal National Life Insurance Company.

What are the key factors contributing to the strong ratings of Principal Financial Group?

The ratings reflect Principal's balance sheet strength, strong operating performance, favorable business profile, and very strong enterprise risk management.

What is the outlook for the Credit Ratings of Principal Financial Group?

The outlook for the Credit Ratings is stable, indicating a positive assessment by AM Best.

What actions has Principal Financial Group taken to lower its product risk?

Principal Financial Group ceded its in-force retail fixed annuity and universal life insurance with secondary guarantee (ULSG) blocks to lower its product risk.

What are some potential risks highlighted by AM Best for Principal Financial Group?

AM Best notes that political and macroeconomic risks in Principal's key international markets could have negative effects on the company going forward.