Fitch Rates Principal Financial Group's Senior Unsecured Notes 'A-'

CHICAGO--()--Fitch Ratings has assigned an 'A-' rating to Principal Financial Group, Inc.'s (PFG) issuance of approximately $400 million of 10-year senior unsecured notes. Fitch has also assigned a 'BBB' rating to PFG's issuance of approximately $400 million of 40-year junior subordinated debentures. PFG's Long-term Issuer Default Rating (IDR) is unaffected by this rating action.

KEY RATING DRIVERS

The notes are guaranteed by Principal Financial Services, Inc., PFG's intermediate holding company, whose Long-term IDR is currently 'A'. Fitch affirmed the ratings of PFG and its insurance operating subsidiaries with a Stable Outlook on April 13, 2015.

Approximately $550 million of the proceeds from the issuance are expected to be used to redeem PFG's series A non-cumulative perpetual preferred stock and series B non-cumulative perpetual preferred stock, with the remainder expected to be used for general corporate purposes.

PFG's ratings are supported by the company's strong competitive position in several key markets and product lines, strong capitalization, and stable and balanced earnings profile, partially offset by above-average exposure to direct mortgages and structured mortgage securities. The company's recent operating performance has been strong.

Fitch expects PFG's financial leverage to increase on a pro forma basis to approximately 27% from 21% at March 31, 2015, as a result of newly issued debt and the pending redemption of the preferred stock. Whereas the existing preferred stock receives full equity credit in accordance with Fitch's rating criteria, the newly issued subordinated debt receives no equity credit. The increase in financial leverage exceeds Fitch's rating tolerance of 25%. Fitch expects financial leverage to decline to approximately 25% within the next 12 months.

RATING SENSITIVITIES

The key rating triggers that could result in an upgrade include:

--Improved diversification of the company's sources of revenue and earnings;

--Sustainable return on equity of 12% or higher and fixed-charge coverage above 12x;

--Low volatility in earnings and capital over an extended period of time;

--Financial leverage below 20%;

--Reported RBC ratio above 475%.

The key rating triggers that could result in a downgrade include:

--Run-rate return on equity below 10% and a GAAP-based fixed charge coverage ratio below 7x;

--A decline in the company's reported RBC ratio to a level below 375%;

--Sustained increase in financial leverage to a level above 25%.

Fitch has assigned the following ratings:

Principal Financial Group, Inc.

--$400 million senior unsecured notes due 2025 'A-';

--$400 million junior subordinated debentures due 2055 'BBB'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (September 2014);

--'Life Insurance (U.S.) Sector Credit Factors' (October 2012).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Life Insurance (U.S.) Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686297

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984135

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Contacts

Fitch Ratings
Primary Analyst
Bradley S. Ellis, CFA
Director
+1 312-368-2089
Fitch Ratings, Inc.
70 W. Madison St.
13th Floor
Chicago, IL 60602
or
Secondary Analyst
Nelson Ma, CFA
Director
+1 212-908-0273
or
Committee Chairperson
Martha M. Butler, CFA
Senior Director
+1 312-368-3191
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Bradley S. Ellis, CFA
Director
+1 312-368-2089
Fitch Ratings, Inc.
70 W. Madison St.
13th Floor
Chicago, IL 60602
or
Secondary Analyst
Nelson Ma, CFA
Director
+1 212-908-0273
or
Committee Chairperson
Martha M. Butler, CFA
Senior Director
+1 312-368-3191
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com