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Press release from Business Wire

A.M. Best Assigns Rating to Principal Life Insurance Company's New Commercial Paper Program

Thursday, May 10, 2012

A.M. Best Assigns Rating to Principal Life Insurance Company's New Commercial Paper Program09:07 EDT Thursday, May 10, 2012 OLDWICK, N.J. (Business Wire) -- A.M. Best Co. has assigned a rating of “AMB-1+” to the newly created $1 billion commercial paper (CP) program of Principal Life Insurance Company (PrincipalLife), a subsidiary of Principal Financial Group, Inc. (PFG) (headquartered in Des Moines, IA) [NYSE: PFG]. Concurrently, A.M. Best has assigned an issuer credit rating (ICR) of “aa-” with a stable outlook to PrincipalLife'sfunding agreement-backed global medium-term note (GMTN) program of Principal Life Global Funding II, a special purpose statutory trust organized under the laws of Delaware. Principal Life and PFG's existing financial strength, issuer credit and debt ratings are unchanged. The utilization of the Principal Life's CP program will be used to enhance the organization's liquidity and overall financial flexibility, providing it with additional borrowing capacity. The face amount of the existing CP program at Principal Financial Services, Inc. (PFSI) also is $1 billion. Total borrowings under the two programs will not exceed $800 million, which is the amount available under the revolving credit agreements supporting the programs. Prospectively, the maximum CP issuance may be increased to $1 billion, with a corresponding increase in the back-up line of credit. In addition to the bank credit facilities, the group has alternative sources of liquidity through membership in the Federal Home Loan Bank of Des Moines; holding company cash, cash equivalents and liquid investments of nearly $600 million as of March 31, 2012; and access to the capital markets through PFG, PFSI and Principal Life. A.M. Best notes that Principal Life's liquidity has improved recently due to favorable trends in net flows within the Principal International, Principal Global Investors, Principal Funds and Full Service Accumulation business segments. The increase in positive net cash flows has contributed to PFG's record assets under management as of March 31, 2012. Proceeds from the CP programs are expected to be utilized for general corporate purposes. As of March 31, 2012, CP outstanding (under PFSI) was $50 million, making total outstanding borrowing under existing short-term credit facilities of roughly $100 million. As PFG's financial leverage ratio is below 20% and interest coverage is in the range of seven-eight times, A.M. Best believes the group maintains considerable financial flexibility. The credit agreements contain no material adverse change clauses, and substantial cushion exists with respect to the 35% debt-to-capital ratio and $6.2 billion PFG net worth covenants. Based on A.M. Best's review of the GMTN program documentation, the program (and any notes issued thereunder) will be assigned the ICR of Principal Life, which is currently “aa-.” This reflects that each series of notes is secured by a first priority perfected security interest in the underlying funding agreements, which are unsecured obligations of Principal Life's general account. In addition, each obligation is further guaranteed by PFG. Moreover, in the event of an insolvency of an Iowa domestic insurance company, claims for principal and interest under the funding agreements would be paid equally in priority (i.e., pari passu) to Principal Life's policyholders. The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “A.M. Best's Liquidity Model for U.S. Life Insurers”; “Analyzing Commercial Paper Programs”; and “Insurance Holding Company and Debt Ratings.” Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.A.M. Best Co.Tom ZitelliSenior Financial Analyst(908) 439-2200, ext. 5412tom.zitelli@ambest.comorCarl AustinAssistant Vice President(908) 439-2200, ext. 5500carl.austin@ambest.comorRachelle MorrowSenior Manager, Public Relations(908) 439-2200, ext. 5378rachelle.morrow@ambest.comorJim PeavyAssistant Vice President, Public Relations(908) 439-2200, ext. 5644james.peavy@ambest.com