SECURITIES AND EXCHANGE COMMISSION
| Washington, D.C. 20549 |
| FORM 8-K CURRENT REPORT |
| Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: November 18, 2008 (Date of earliest event reported) |
PRINCIPAL FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 1-16725 | 42-1520346 | ||
| (State or other jurisdiction | (Commission file number) | (I.R.S. Employer | ||
| of incorporation) | Identification Number) |
| 711 High Street, Des Moines, Iowa 50392 (Address of principal executive offices) (515) 247-5111 (Registrant’s telephone number, including area code) |
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:
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR | |
| 240.14d-2(b)) | ||
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR | |
| 240.13e-4(c)) |
| Page 2 | ||||
| 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 at www.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 | ||||
| Service affirmed The Principal's financial strength and debt ratings, all with stable | ||||
| outlooks. In addition, Fitch affirmed The 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. | ||||
| · | 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 | ||||
| Page 3 | ||
| 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. | ||
| · | 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. | ||
| · | 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. | ||
| SIGNATURE | ||
| Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly | ||
| caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | ||
| PRINCIPAL FINANCIAL GROUP, INC. | ||
| By: /s/ Terrance J. Lillis | ||
| Name: Terrance J. Lillis | ||
| Title: Senior Vice President and Chief Financial | ||
| Officer | ||