Correction: Fitch Affirms Principal Financial Group’s IDR at ‘A’; Outlook Stable
Fitch Ratings has affirmed Principal Financial Group, Inc.'s (PFG) long-term Issuer Default Rating (IDR) at 'A'. Fitch has also affirmed the 'AA-' Insurer Financial Strength (IFS) ratings of PFG's
KEY RATING DRIVERS
Today's ratings affirmations reflect PFG's strong capitalization and stable, balanced operating profitability, partially offset by above-average exposure to commercial real estate through direct mortgages, structured mortgage securities, and direct real estate investments.
PFG's strong capitalization is supported by the organization's primary insurance operating company, PLIC, which reported a risk-based capital ratio (RBC) of 431% at
PFG's financial leverage was 27% at
Fitch expects the new fiduciary rules announced by the
PFG's ratings benefit from above-average historical earnings stability, particularly in comparison to many of its peers during the financial crisis. Fitch believes the company's earnings stability is due in part to PFG's business mix, which is well diversified by product and geography. Over the last few years, growth in fees from assets under management has been an offset to lower investment income driven by persistently low interest rates. For the first half of 2016, PFG reported pre-tax operating earnings of
Fitch considers PFG's allocation to direct mortgages to be above average relative to the life insurance sector as a whole. In addition to
PFG, headquartered in
RATING SENSITIVITIES
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%;
--A PRISM capital model score of 'Extremely Strong'.
Conversely, 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% or a PRISM capital model score of 'Strong';
--Sustained increase in financial leverage to a level above 25%.
Fitch has affirmed the following ratings with a Stable Outlook:
Principal Financial Group, Inc.
--IDR at 'A';
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--Long-term IDR at 'A';
--Short-term IDR at 'F1;
--Commercial paper at 'F1'.
Insurance subsidiaries:
Principal National Life Insurance Company
--IFS at 'AA-'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub.
https://www.fitchratings.com/site/re/887191
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013888
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https://www.fitchratings.com/regulatory
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