Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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| Item 7.01 | | Regulation FD Disclosure |
| |
| | | Since Principal Financial Group's November 4, 2008 call discussing third quarter 2008 |
| financial results, a number of industry analysts and media outlets have commented on potential |
| issues for the life insurance sector, including annuities with living benefits, rating agency |
| downgrades and commercial real estate holdings. The company believes some of the commentary |
| has resulted in misinterpretation and potentially misleading information concerning The Principal’s |
| financial condition. Included in the discussion below is information on: the company’s minimal |
| exposure to annuities with living benefits; recent affirmations of Principal Life’s insurer financial |
| strength ratings; and the quality and performance of the company’s commercial real estate |
| holdings, and investment portfolio overall. |
| |
| Investors who wish to be accurately informed of The Principal's financial condition should visit our |
| website atwww.principal.com and review the documents that can be found at the Investor |
| Relations portion of the website. |
| |
| · | | Discussion by various commentators of annuities with living benefits, variously referred to |
| | | as guaranteed minimum income benefits or guaranteed minimum withdrawal benefits |
| | | (“GMWB”), has created the impression that The Principal's exposure to this risk is similar |
| | | to that of other insurers. As CEO Larry Zimpleman explained at The Principal’s third |
| | | quarter earnings call, a significant point that distinguishes The Principal from other |
| | | insurers is the small part GMWB plays in The Principal's business. With only $1 billion in |
| | | this block, equity market volatility has minimal impact on the capital necessary to support |
| | | The Principal's individual annuities business. Annuities with GMWB represented |
| | | approximately 1/2 of 1% of The Principal's third quarter 2008 earnings. |
| |
| · | | Commentators have speculated about the possibility of agency downgrades as a reason to |
| | | sell shares of U.S. life insurance companies. On November 7, 2008, Moody's Investors |
| | | ServiceaffirmedThe Principal's financial strength and debt ratings, all with stable |
| | | outlooks. In addition, FitchaffirmedThe Principal's financial strength and debt ratings in |
| | | September 2008, all with stable outlooks. |
| |
| | | In our third quarter earnings call, we acknowledged the possibility of downgrades in the |
| | | insurance sector and explained that, while strong relative ratings remain important to The |
| | | Principal, our key growth engines – U.S. Asset Accumulation, Principal Global Investors |
| | | and Principal International – could continue to operate successfully at a lower rating, |
| | | particularly if downgrades were industry wide. |
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| · | | Some reports have contained broad, negative comments about The Principal's commercial |
| | | real estate loan portfolio. As Chief Financial Officer Terry Lillis pointed out at our third |
| | | quarter earnings call, every single commercial mortgage loan in our $11 billion portfolio is |
| | | performing on schedule. In releasing third quarter 2008 results, we clearly communicated |
| | | that we anticipate defaults and losses on commercial mortgages will increase in the future. |
| | | However, we believe the increase will occur over a period of several years, and that we |
| | | will have the ability to accommodate these losses going forward through the use of a |
| | | number of capital management techniques. We would like to remind investors that our |
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| | | three key growth businesses require very little capital to support organic growth, which |
| | | enables us to generate substantial free cash flows on an ongoing basis. Because of strong |
| | | liquidity in our general account, we have the flexibility to selectively scale back on certain |
| | | capital intensive businesses to free up additional capital. In addition, we manage our |
| | | investment portfolio to match our liabilities, which, like others in the life insurance |
| | | industry (and different from other financial services industries), are longer-term in nature. |
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| · | | We continue to believe the fundamentals of our fixed maturity portfolio remain sound and |
| | | that gross unrealized losses are a highly inaccurate representation of future investment |
| | | losses. Given our strong general account liquidity position, the longer-term nature of our |
| | | liabilities and our disciplined asset-liability matching, we have the ability and intent to |
| | | hold assets until maturity. |
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| · | | As we stated at our November 4 earnings call, the company has continued to enhance |
| | | liquidity, increasing cash and cash equivalent holdings by more than 50% from June 30 to |
| | | $2.3 billion at the end of the third quarter. During the third quarter, we also made |
| | | adjustments in our general account investment strategies, investing new cash flows |
| | | primarily into government and agency backed securities, and other liquid investments. In |
| | | addition, we closed out our very modest general account securities lending program. |
