Principal Financial (PFG) CORRESP Correspondence with SEC

May 19, 2011
By EDGAR
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington D.C. 20549
Attention:   Mr. Jim Rosenberg,
	Senior Assistant Chief Accountant
Re:     Principal Financial Group, Inc.
	Form 10-K for the Fiscal Year Ended December 31, 2010
	File No. 001-16725
Dear Mr. Rosenberg:
On behalf of Principal Financial Group, Inc., this letter responds to the comments of the
Division of Corporation Finance of the Securities and Exchange Commission contained in your
letter dated May 2, 2011, concerning the company’s annual report on Form 10-K, referenced
above. In order to facilitate your review of our responses, we have repeated your comments in
bold in numerical order, immediately followed by our responses in plain text.
Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Investments
Fixed Maturities Valuation and Credit Quality, page 65
1.	For your fixed maturity investments that are rated by third party credit rating
	agencies, please tell us whether you performed an analysis, including considering
	current market credit spreads, of your investments. If so, please summarize for us
	the investments for which you performed this analysis and the procedures you
	performed. Also, where this analysis resulted in you concluding that the rating
	assigned by the third party credit rating agency at December 31, 2010 was
	significantly different, provide us the fair value and amortized cost of those
	investments, as well as how and why your conclusion differed.
RESPONSE:
We monitor our fixed maturity securities portfolio, including credit ratings of those securities,
on a continuous basis, with a formal review documented annually or more frequently if material
events affect an issuer of such securities. This process is a critical component of our overall
credit risk management process and results in internal ratings that use a scale similar to that of
the major rating agencies. We develop our internal ratings independently of the Nationally
Recognized Statistical Rating Organizations (“NRSRO”) and National Association of Insurance

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Commissioners (“NAIC”) ratings, and take into account economic conditions and projections, 

industry and competitor analysis and company specific quantitative and qualitative analysis. 

In the table on page 66 of our Form 10-K, we disclose the NAIC rating and the rating agency 

equivalent of our fixed maturity investments. The rating agency equivalent is intended to 

provide a point of reference to the reader because the NAIC ratings are assigned only to 

securities held by insurance companies, and may be less familiar to the general investing public. 

As of December 31, 2010, we performed an analysis of the NAIC ratings relative to our own 

internal ratings for non-structured and agency-backed RMBS fixed maturity securities of our 

U.S. operations, which made up $39.6 billion of the $46.2 billion carrying amount of our fixed 

maturities as of December 31, 2010. 

For purposes of this response letter, we defined “significantly different” as ratings that were 

either below investment grade per the NAIC and were investment grade per our internal ratings 

or vice versa. As a result of this definition, a movement from investment grade to non- 

investment grade (or vice versa) could exist with as little difference as one notch or level of 

rating (e.g., BBB- to BB+). Per this definition, we had assets with an amortized cost of $974 

million and a carrying amount of $988 million that had a rating that was significantly different. 

Of this amount, 64%, or an amortized cost of $621 million and a carrying amount (fair value) of 

$633 million, were assets in which the NAIC rating resulted in a lower rating than our internal 

analysis. 

In situations in which our internal analysis differs significantly from the NAIC, it is primarily 

due to timing differences of when our internal analysis concludes the security warrants a 

revised rating. Normally, our analysis will make internal rating changes before the NAIC 

revises ratings. In addition, for private placement securities, the NAIC tends to look at certain 

different metrics than we do and the NAIC does not give much credit to projected performance, 

whereas forward looking information is included in our internal analysis. 

As previously discussed, we perform our own internal credit analysis of our entire investment 

portfolio of fixed maturity securities, including loan-backed and structured securities, as defined 

by the NAIC. While the NAIC rating process aligns with the NRSRO process for non- 

structured and agency-backed RMBS securities, as does our analysis, the NAIC process is 

entirely different for loan-backed and structured securities. The NAIC uses a third party model 

in its ratings process for non-agency RMBS and CMBS securities. For certain other loan- 

backed bonds, the NAIC uses a matrix that combines market prices, book values and ratings to 

arrive at the NAIC rating for a particular security. (Under NAIC definitions, agency-backed 

RMBS are not considered “loan-backed” for this purpose.) The methodologies the NAIC uses 

for loan-backed and structured securities are very different than those an NRSRO and the 

company use, therefore we do not believe any meaningful comparison of our internal rating to 

the NAIC rating can be made. 

Item 8. Financial Statements and Supplementary Data 

Notes to Consolidated Financial Statements 

1.   Nature of Operations and Significant Accounting Policies 

Basis of Presentation, page 90 

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2.	You state that “Investments in LLCs, partnerships and real estate joint ventures in
	which we have an ownership percentage of 3% to 5% are accounted for under the
	equity or cost method depending upon the specific facts and circumstances of our
	ownership and involvement”. For those that you account for at cost, please tell us
	why you do not use the equity method. Please refer to ASC 323-30-599-1. Also,
	assuming that equity method is not required for these investments, tell us why you
	do not account for them at fair value as required by ASC 944-325-30-1 and 944-325-
	35-1.
RESPONSE:
As of December 31, 2010, we did not account for any investments in LLCs, partnerships and
real state joint ventures in which we had an ownership percentage of 3% to 5% under the cost
method. Therefore, we respectfully submit that beginning with the filing of our Annual Report
on Form 10-K for the year ended December 31, 2011, we will revise the first paragraph under
the caption “Basis of Presentation” to read as follows:
	The accompanying consolidated financial statements include the accounts of PFG and
all other entities in which we directly or indirectly have a controlling financial interest as well
as those variable interest entities (“VIEs”) in which we are the primary beneficiary. Entities in
which we have significant management influence over the operating and financing decisions
but are not required to consolidate are reported using the equity method. The consolidated
financial statements have been prepared in conformity with U.S. generally accepted accounting
principles (“U.S. GAAP”). All significant intercompany accounts and transactions have been
eliminated.
2. Investments
Mortgage Loans, page 111
3.	You state that you “actively monitor and manage our commercial mortgage loan
	portfolio. All commercial mortgage loans are analyzed regularly and substantially
	all are internally rated, based on a proprietary risk rating cash flow model, in order
	to monitor the financial quality of these assets.” Please revise your disclosure to
	provide qualitative information on how those internal risk ratings relate to the
	likelihood of loss as required by ASC 310-10-50-30.
RESPONSE:
We respectfully submit that beginning with our Quarterly Report on Form 10-Q for the quarter
ending June 30, 2011, we will revise our disclosure to provide qualitative information on how
our internal risk ratings relate to the likelihood of loss. The revised disclosure will read as
follows:
Commercial Credit Risk Profile Based on Internal Rating
	We actively monitor and manage our commercial mortgage loan portfolio. All
commercial mortgage loans are analyzed regularly and substantially all are internally rated, based

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on a proprietary risk rating cash flow model, in order to monitor the financial quality of these
assets. The model stresses expected cash flows at various levels and at different points in time
depending on the durability of the income stream, which includes our assessment of factors such
as location (macro and micro markets), tenant quality and lease expirations. Our internal rating
analysis presents expected losses in terms of an S&P bond equivalent rating. As the credit risk for
commercial mortgage loans increases, we adjust our internal ratings downwards with loans in the
category “B+ and below” having the highest risk for credit loss. Internal ratings on commercial
mortgage loans are updated at least annually and potentially more often for certain loans with
material changes in collateral value or occupancy and for loans on an internal “watch list”.
	Commercial mortgage loans that require more frequent and detailed attention than other
loans in our portfolio are identified and placed on an internal “watch list”. Among the criteria that
would indicate a potential problem are imbalances in ratios of loan to value or contract rents to
debt service, major tenant vacancies or bankruptcies, borrower sponsorship problems, late
payments, delinquent taxes and loan relief/restructuring requests.
12.  Contingencies, Guarantees and Indemnifications
Litigation and Regulatory Contingencies, page 147
4.	You state on page 148, “While the outcome of any pending or future litigation or
	regulatory matter cannot be predicted, management does not believe that any
	pending litigation or regulatory matter will have a material adverse effect on our
	business or financial position. The outcome of such matters is always uncertain, and
	unforeseen results can occur. It is possible that such outcomes could materially
	affect net income in a particular quarter or annual period.” We do not believe that
	this disclosure meets the requirements of ASC 450-20-50-3 and 50-4. Please revise
	your disclosure to include an estimate of the possible loss or range of loss or a
	statement that such an estimate cannot be made for loss contingencies that are at
	least reasonably possible but not accrued, either because it is not probable that a loss
	has been incurred or the amount of loss cannot be reasonably estimated.
RESPONSE:
We respectfully submit that we are mindful of and will continue to comply with all relevant
accounting literature in future quarterly and annual reports. In response to the Staff’s comments,
we intend to disclose the following in our Quarterly Report on Form 10-Q for the quarter
ending June 30, 2011:
Litigation and Regulatory Contingencies
	We are regularly involved in litigation, both as a defendant and as a plaintiff, but
primarily as a defendant. Litigation naming us as a defendant ordinarily arises out of our
business operations as a provider of asset management and accumulation products and services,
life, health and disability insurance. Some of the lawsuits may be class actions, or purport to
be, and some may include claims for unspecified or substantial punitive and treble damages.

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	We may discuss such litigation in one of three ways. We accrue a charge to income and
disclose legal matters for which the chance of loss is probable and for which the amount of loss
can be reasonably estimated. We may disclose contingencies for which the chance of loss is
reasonably possible, and provide an estimate of the possible loss or range of loss or a statement
that such an estimate cannot be made. Finally, we may voluntarily disclose loss contingencies
for which the chance of loss is remote in order to provide information concerning matters that
potentially expose us to possible losses.
	In addition, regulatory bodies such as state insurance departments, the SEC, the
Financial Industry Regulatory Authority, the Department of Labor and other regulatory
agencies regularly make inquiries and conduct examinations or investigations concerning our
compliance with, among other things, insurance laws, securities laws, ERISA and laws
governing the activities of broker-dealers. We receive requests from regulators and other
governmental authorities relating to industry issues and may receive additional requests,
including subpoenas and interrogatories, in the future.
[Significant litigation updates inserted here]
	While the outcome of any pending or future litigation or regulatory matter cannot be
predicted, management does not believe that any such matter will have a material adverse effect
on our business or financial position. As of June 30, 2011, there were no estimated losses
accrued related to the legal matters discussed above because we believe the loss from these
matters is not probable and cannot be reasonably estimated.
	We believe all of the litigation contingencies discussed above involve a chance of loss
that is either remote or reasonably possible. All of these matters involve unspecified claim
amounts, in which the respective plaintiffs seek an indeterminate amount of damages. To the
extent such matters present a reasonably possible chance of loss, we are not able to estimate the
possible loss or range of loss associated therewith.
The outcome of such matters is always uncertain, and unforeseen results can occur. It is
possible that such outcomes could require us to pay damages or make other expenditures or
establish accruals in amounts that we could not estimate at June 30, 2011.
We acknowledge that we are responsible for the adequacy and accuracy of the disclosure
contained in our periodic reports filed pursuant to the Securities Exchange Act of 1934, and that
your comments or our changes to disclosure in response to your comments do not foreclose the
Commission from taking any action with respect to our reports. Further, we acknowledge that
we may not assert your comments as a defense in any proceeding initiated by the Commission
or any person under the federal securities laws of the United States.
*	*	*	*	*

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After you have completed your review of our response, please call me if you have any questions
or comments.
Sincerely,
/s/ Terrance J. Lillis
Terrance J. Lillis
Senior Vice President and
Chief Financial Officer
(515) 247-4885
cc:	James Peklenk (Securities and Exchange Commission)
	Joel Parker (Securities and Exchange Commission)