Principal Financial Group (PFG)

DES MOINES, Iowa--(BUSINESS WIRE)--
Principal Financial Group, Inc. (NYSE: PFG) today announced results for
full year and fourth quarter 2009. The company reported net income
available to common stockholders of $589.7 million, or $1.97 per diluted
share for the twelve months ended December 31, 2009, compared to $425.1
million, or $1.63 per diluted share for the twelve months ended December
31, 2008. The company reported operating earnings of $804.1 million for
2009, compared to $942.7 million for 2008. Operating earnings per
diluted share (EPS) for 2009 were $2.69 compared to $3.61 for 2008. Per
share data is based on weighted average common shares outstanding of
298.9 million and 261.1 million, for the twelve month periods ending
December 31, 2009, and December 31, 2008, respectively. Operating
revenues for 2009 were $9,322.8 million compared to $10,725.1 million
for 2008.¹

For the three months ended December 31, 2009 the company reported net
income available to common stockholders of $141.9 million or $0.44 per
diluted share compared to a net loss available to common stockholders of
$7.5 million, or $(0.03) per diluted share for the three months ended
December 31, 2008. The company reported operating earnings of $200.9
million for fourth quarter 2009, compared to $179.0 million for fourth
quarter 2008. EPS for fourth quarter 2009 was $0.62 compared to $0.69
for the same period in 2008. Per share data is based on weighted average
common shares outstanding of 321.9 million and 259.7 million, for fourth
quarter 2009 and fourth quarter 2008, respectively. Operating revenues
for fourth quarter 2009 were $2,368.7 million compared to $2,527.0
million for the same period last year. Assets under management (AUM)
were $284.7 billion as of December 31, 2009 compared to $247.0 billion
as of December 31, 2008.

????Fourth quarter was a solid finish to a very solid year for The
Principal, demonstrating the resiliency of our businesses,????? said Larry
D. Zimpleman, chairman, president and chief executive officer. ????With
improved market conditions and business fundamentals, the fourth quarter
was a continuation of positive trends from the past two quarters.?????

????2009 was a year of strong management action to address some of the most
challenging economic and market conditions in 75 years,????? said Zimpleman.
????We took the necessary actions to align expenses with revenues; we
enhanced liquidity through the crisis; and we strengthened our capital
position with our equity and debt capital raises. We also continued to
implement our strategy to deliver sustainable, long-term growth by
expanding our portfolio of employee benefit and investment offerings;
adding new distribution alliances; and extending our joint venture with
Banco do Brasil for 23 years.²?????

Additional Highlights:

• 
  Book value including accumulated other comprehensive income per share
  more than tripled from a year ago to $23.05 as of December 31, 2009,
  reflecting a $6.3 billion decrease in net unrealized losses.³
  


• 
  Operating return on average equity excluding accumulated other
  comprehensive income improved 40 basis points in the fourth quarter to
  10.6 percent for the trailing twelve months ended December 31, 2009.
  


• 
  Total company operating expenses down $375.6 million, or 12 percent
  compared to 2008, reflecting strong expense management.
  


• 
  Strong sales in 2009 of the company????s three key U.S. retirement and
  investment products, despite a difficult sales environment ???? $14.9
  billion on a combined basis, including fourth quarter sales of $1.0
  billion for Full Service Accumulation, $1.8 billion for Principal
  Funds and $0.4 billion for Individual Annuities.
  


• 
  Strong capital and liquidity, with: an estimated risk based capital
  ratio of 415 to 425 percent at year-end; approximately $1.5 billion of
  excess capital;⁴ and approximately $6.4 billion of liquid
  assets.
  


• 
  Continued to scale back Investment Only (the company????s institutional
  GIC and funding agreement business), reducing the block by $4.3
  billion in 2009, releasing approximately $165 million of capital.
  


• 
  Record operating earnings for the Individual Annuities business of
  $100.7 million in 2009.
  


• 
  Record assets under management for Principal International of $34.6
  billion, including record net cash flows of $3.2 billion, or 14
  percent of beginning of year assets under management.
  

Added Terry Lillis, senior vice president and chief financial officer,
????We????ve seen substantial recovery in asset valuations, but with consumer
confidence still fragile, the economic recovery remains tenuous.
Businesses and institutional investors continue to proceed with caution,
which has impacted sales and net cash flows. We are however, continuing
to see signs of improvement. At a billion dollars in the fourth quarter,
full service accumulation sales more than doubled from third quarter,
and quote activity has improved sequentially for three consecutive
quarters. In addition, increased search activity from institutional
investors translated into a number of key wins for Principal Global
Investors in the fourth quarter.?????

Net Income

Net income available to common stockholders of $589.7 million for 2009
reflects net realized capital losses of $213.7 million, which includes:

• 
  $279.4 million of losses related to sales and permanent impairments of
  fixed maturity securities, including $61.0 million of losses on
  commercial mortgage backed securities; partially offset by $71.7
  million of gains related to sales of fixed maturity securities;
  


• 
  $78.1 million of losses on commercial mortgage loans;
  


• 
  $44.7 million of losses on derivatives and related hedge activities;
  


• 
  $99.0 million of gains related to deferred policy acquisition costs;
  and
  


• 
  $31.9 million of gains, primarily due to mark to market of fixed
  maturity securities held as trading.
  

Net income available to common stockholders of $141.9 million for fourth
quarter 2009 reflects net realized capital losses of $59.1 million,
which includes:

• 
  $62.6 million of losses related to sales and permanent impairments of
  fixed maturity securities including $29.1 million of losses on
  commercial mortgage backed securities; partially offset by $7.9
  million of gains related to sales of fixed maturity securities;
  


• 
  $20.6 million of losses on commercial mortgage loans;
  


• 
  $6.1 million of losses related to permanent impairments of equity
  securities;
  


• 
  $5.4 million of losses on fixed maturity securities held as trading;
  and
  


• 
  $31.2 million of gains related to deferred policy acquisition costs.
  

Segment Highlights

U.S. Asset Accumulation

Segment operating earnings for fourth quarter 2009 were $125.3 million,
compared to $102.8 million for the same period in 2008. Individual
annuities earnings were $24.2 million for fourth quarter 2009, compared
to a loss of $0.1 million in the year ago quarter. The increase from a
year ago reflects 9 percent higher average account values in fourth
quarter 2009 than a year ago, and higher amortization expense from
deferred policy acquisition costs in fourth quarter 2008 due to equity
market performance, which reduced earnings for that period by $14.8
million after tax. Full service accumulation earnings increased $13.2
million or 24 percent from a year ago to $67.5 million for fourth
quarter 2009 primarily reflecting a 10 percent increase in average
account values and lower operating expenses. Principal Funds earnings
increased $6.5 million from a year ago to $8.5 million for fourth
quarter 2009, primarily due to 7 percent higher average account values
and lower operating expenses. These increases were partially offset by a
$24.8 million decline in Investment Only earnings, reflecting 23% lower
average account values in fourth quarter 2009 than a year ago, and
higher fee income in fourth quarter 2008 resulting from a high volume of
medium term note early redemptions with no corresponding activity in
fourth quarter 2009.

Operating revenues for the fourth quarter were $1,017.1 million,
compared to $1,100.5 million for the same period in 2008. The decline
primarily reflects lower net investment income in the Investment Only
business, which the company has been scaling back over the last several
quarters.

Segment assets under management were $159.8 billion as of December 31,
2009, compared to $139.1 billion as of December 31, 2008.

Global Asset Management

Segment operating earnings for fourth quarter 2009 were $12.7 million.
This compares to $27.0 million in the prior year quarter, which included
earnings of $15.6 million after-tax from a performance fee (under the
terms of the contract, this performance fee is determined every five
years).

Operating revenues for fourth quarter were $120.4 million, compared to
$173.5 million for the same period in 2008 primarily due to the fourth
quarter 2008 performance fee noted above.

Non-affiliated assets under management were $73.8 billion as of December
31, 2009, compared to $70.3 billion as of December 31, 2008.

International Asset Management and Accumulation

Segment operating earnings for fourth quarter 2009 were $39.5 million,
compared to $18.4 million in the prior year quarter, primarily due to
higher fee revenues on higher assets under management and improving
macroeconomic conditions. The increase also reflects $3.4 million of
after-tax gains on bonds in Brazil in fourth quarter 2009, compared to
$3.3 million of after-tax losses on bonds for the same period a year
ago, included in operating earnings under equity method accounting.

Operating revenues were $180.3 million for fourth quarter, compared to
$148.6 million for the same period last year, primarily the result of
stronger earnings from Brazil and higher annuity sales in Chile.

Segment assets under management were a record $34.6 billion as of
December 31, 2009, compared to $23.1 billion as of December 31, 2008.
The increase from a year ago includes record net cash flows of $3.2
billion, or 14 percent of beginning of year assets under management.

Life and Health Insurance

Segment operating earnings for fourth quarter 2009 were $44.6 million,
compared to $50.6 million for the same period in 2008. The decline
primarily reflects higher claim costs in fourth quarter 2009 for the
Health division, which had an operating loss of $11.4 million, compared
to an operating loss of $5.6 million for fourth quarter 2008. Losses in
both periods reflect claim seasonality in higher deductible plans.
Individual Life earnings were $30.5 million compared to $29.6 million in
fourth quarter 2008. Specialty Benefits earnings were $25.5 million
compared to $26.6 million in fourth quarter 2008.

Operating revenues for fourth quarter were $1,095.8 million, compared to
$1,154.9 million for the same period a year ago. The decline was
primarily due to a 10 percent decline in Health division premiums, which
primarily reflects a decline in group medical covered members.

Corporate

Operating losses for fourth quarter 2009 were $21.2 million, compared to
operating losses of $19.8 million for the same period in 2008, primarily
reflecting higher interest on corporate debt in fourth quarter 2009.

Other-than-temporary impairments for fourth quarter 2009 and
year-ended December 31, 2009

On April 9, 2009, the Financial Accounting Standards Board established
new requirements for measuring and presenting other-than-temporary
impairment charges on available-for-sale securities, which the Company
adopted with first quarter 2009 reporting.

Based on the new requirements, on a pre-tax basis, total other than
temporary impairment losses on available-for-sale securities were $204.1
million for fourth quarter 2009 and the noncredit portion of loss
recognized in other comprehensive income was $98.5 million. Net
impairment losses on available-for-sale securities of $105.6 million for
fourth quarter 2009 reflect: the company????s actions to reduce asset
ratings drift risk by selling or tendering certain securities, which
resulted in a loss of $8.0 million; and deterioration in expected cash
flows, which resulted in a $19.0 million net impairment charge on
non-agency residential mortgage backed securities and residential
collateralized debt obligations, and a $44.7 million net impairment of
commercial mortgage backed securities and commercial mortgage backed
collateralized debt obligations. The remainder of the net impairment
losses for fourth quarter 2009 primarily relates to impairments of
corporate credits.

On a pre-tax basis, total other than temporary impairment losses on
available-for-sale securities were $714.1 million for year-ended
December 31, 2009 and the noncredit portion of loss recognized in other
comprehensive income was $260.9 million. Net impairment losses on
available-for-sale securities of $453.2 million for the year-ended
December 31, 2009 reflect: the company????s actions to reduce asset ratings
drift risk by selling or tendering certain securities, which resulted in
a loss of $87.4 million; deterioration in expected cash flows, which
resulted in an $84.4 million net impairment charge on non-agency
residential mortgage backed securities and residential collateralized
debt obligations, and a $93.9 million net impairment of commercial
mortgage backed securities and commercial mortgage backed collateralized
debt obligations. The remainder of the net impairment losses for the
year-ended December 31, 2009 primarily relates to impairments of
corporate credits.

Forward looking and cautionary statements

This press release contains forward-looking statements, including,
without limitation, statements as to operating earnings, net income
available to common stockholders, net cash flows, realized and
unrealized losses, capital and liquidity positions, sales and earnings
trends, and management's beliefs, expectations, goals and opinions. The
company does not undertake to update or revise these statements, which
are based on a number of assumptions concerning future conditions that
may ultimately prove to be inaccurate. Future events and their effects
on the company may not be those anticipated, and actual results may
differ materially from the results anticipated in these forward-looking
statements. The risks, uncertainties and factors that could cause or
contribute to such material differences are discussed in the company's
annual report on Form 10-K for the year ended December 31, 2008, and in
company????s quarterly report on Form 10-Q for the quarter ended September
30, 2009, filed by the company with the Securities and Exchange
Commission, as updated or supplemented from time to time in subsequent
filings. These risks and uncertainties include, without limitation:
adverse capital and credit market conditions that may significantly
affect the company????s ability to meet liquidity needs, access to capital
and cost of capital; a continuation of difficult conditions in the
global capital markets and the general economy that may materially
adversely affect the company????s business and results of operations; the
actions of the U.S. government, Federal Reserve and other governmental
and regulatory bodies for purposes of stabilizing the financial markets
might not achieve the intended effect; the risk from acquiring new
businesses, which could result in the impairment of goodwill and/or
intangible assets recognized at the time of acquisition; impairment of
other financial institutions that could adversely affect the company;
investment risks which may diminish the value of the company????s invested
assets and the investment returns credited to customers, which could
reduce sales, revenues, assets under management and net income;
requirements to post collateral or make payments related to declines in
market value of specified assets may adversely affect company liquidity
and expose the company to counterparty credit risk; changes in laws,
regulations or accounting standards that may reduce company
profitability; fluctuations in foreign currency exchange rates that
could reduce company profitability; Principal Financial Group, Inc.????s
primary reliance, as a holding company, on dividends from its
subsidiaries to meet debt payment obligations and regulatory
restrictions on the ability of subsidiaries to pay such dividends;
competitive factors; volatility of financial markets; decrease in
ratings; interest rate changes; inability to attract and retain sales
representatives; international business risks; a pandemic, terrorist
attack or other catastrophic event; and default of the company????s
re-insurers.

Use of Non-GAAP Financial Measures

The company uses a number of non-GAAP financial measures that management
believes are useful to investors because they illustrate the performance
of normal, ongoing operations, which is important in understanding and
evaluating the company????s financial condition and results of operations.
They are not, however, a substitute for U.S. GAAP financial measures.
Therefore, the company has provided reconciliations of the non-GAAP
measures to the most directly comparable U.S. GAAP measure at the end of
the release. The company adjusts U.S. GAAP measures for items not
directly related to
ongoing operations. However, it is possible
these adjusting items have occurred in the past and could recur in the
future reporting periods. Management also uses non-GAAP measures for
goal setting, as a basis for determining employee and senior management
awards and compensation, and evaluating performance on a basis
comparable to that used by investors and securities analysts.

Earnings Conference Call

On Tuesday, February 9, 2010 at 10:00 A.M. (ET), Chairman, President and
Chief Executive Officer Larry Zimpleman and Senior Vice President and
Chief Financial Officer Terry Lillis will lead a discussion of results,
asset quality and capital adequacy during a live conference call, which
can be accessed as follows:

• 
  Via live Internet webcast. Please go to www.principal.com/investor
  at least 10-15 minutes prior to the start of the call to register, and
  to download and install any necessary audio software.
  


• 
  Via telephone by dialing 800-374-1609 (U.S. and Canadian callers) or
  706-643-7701 (International callers) approximately 10 minutes prior to
  the start of the call. The call leader's name is Tom Graf.
  


• 
  Replays of the earnings call are available at: www.principal.com/investor
  or by dialing 800-642-1687 (U.S. and Canadian callers) or 706-645-9291
  (International callers). The access code is 48727511. Replays will be
  available approximately two hours after the completion of the live
  earnings call through the end of day February 16, 2010.
  

The company's financial supplement and additional investment portfolio
detail for fourth quarter 2009 is currently available at www.principal.com/investor,
and may be referred to during the call.

About the Principal Financial Group

The Principal Financial Group^???? (The Principal ^????)⁵
is a leader in offering businesses, individuals and institutional
clients a wide range of financial products and services, including
retirement and investment services, life and health insurance, and
banking through its diverse family of financial services companies. A
member of the Fortune 500, the Principal Financial Group has $284.7
billion in assets under management⁶ and serves some 18.9
million customers worldwide from offices in Asia, Australia, Europe,
Latin America and the United States. Principal Financial Group, Inc. is
traded on the New York Stock Exchange under the ticker symbol PFG. For
more information, visit www.principal.com.

¹ Use of non-GAAP financial measures is discussed in this
release after Segment Highlights.

² Pending completion of necessary approvals and transactions
associated with the Memorandum of Understanding announced on October 27,
2009, to extend the pension and long-term asset accumulation joint
venture in Brazil.

³ Net unrealized losses equal the excess of gross unrealized
losses over gross unrealized gains.

⁴ Excess capital includes cash at the holding company and
capital at the life company above that needed to maintain a 350 percent
NAIC risk based capital ratio for the life company.

⁵ "The Principal Financial Group" and ????The Principal????? are
registered service marks of Principal Financial Services, Inc., a member
of the Principal Financial Group.

⁶ As of December 31, 2009.

*Operating earnings versus U.S. GAAP (GAAP) net income available to
common stockholders

Management uses operating earnings, which excludes the effect of net
realized capital gains and losses, as adjusted, and other after-tax
adjustments, for goal setting, as a basis for determining employee
compensation, and evaluating performance on a basis comparable to that
used by investors and securities analysts. Segment operating earnings
are determined by adjusting U.S. GAAP net income available to common
stockholders for net realized capital gains and losses, as adjusted, and
other after-tax adjustments the company believes are not indicative of
overall operating trends. Note: it is possible these adjusting items
have occurred in the past and could recur in future reporting periods.
While these items may be significant components in understanding and
assessing our consolidated financial performance, management believes
the presentation of segment operating earnings enhances the
understanding of results of operations by highlighting earnings
attributable to the normal, ongoing operations of the company????s
businesses.