01—Abstract
Summary
Summary of the 10-K filed February 27, 2008. Cited figures are marked; the original filing is the authoritative source.
Principal Financial Group, Inc. (PFG) reported $311.1 billiona in assets under management and approximately nineteen million customers worldwide as of December 31, 2007.
The company describes itself as a leading provider of retirement savings, investment and insurance products, with a primary focus on small and medium-sized businesses. Its segments are U.S. Asset Accumulation, Global Asset Management, International Asset Management and Accumulation, and Life and Health Insurance. Net income available to common stockholders was $827.3 millionb in 2007, down from $1,031.3 million in 2006, and diluted earnings per share were $3.09 versus $3.74.
The decline was driven largely by $328.8 millionc of net realized/unrealized capital losses, including $184.6 million of after-tax losses from impairments, linked to the second-half 2007 credit market disruption. Total revenues rose to $10,906.5 million from $9,873.1 million, and total assets reached $154,520.2 million. Total stockholders' equity declined to $7,421.7 million from $7,860.8 million, reflected in part by $756.3 million of share repurchases.
Segment operating earnings totaled $1,058.4 milliond, up from $972.1 million, with U.S. Asset Accumulation contributing $655.8 million. The company paid an annual common dividend of $0.90 per share for 2007, up from $0.80.
The filing also flags risks including market declines affecting AUM, credit defaults in a $44.5 billion U.S. fixed maturity portfolio, commercial mortgage concentration in California, and possible rating downgrades. Management reports $1,187.6 million of gross unrealized losses on available-for-sale fixed maturities as of year-end 2007.
02—Key points
Key Highlights
- AUM of $311.1 billion and approximately nineteen million customers worldwide as of December 31, 2007, with AUM up from $256.9 billion in 2006.
- Net income available to common stockholders fell to $827.3 million from $1,031.3 million, reflecting $184.6 million of after-tax realized capital losses from impairments in 2007.
- Total revenues increased to $10,906.5 million from $9,873.1 million, driven by fees (up to $2,634.7 million from $1,902.5 million) and net investment income ($3,966.5 million).
- Operating earnings for the segments rose to $1,058.4 million from $972.1 million, with U.S. Asset Accumulation producing $655.8 million.
- Gross unrealized losses on available-for-sale fixed maturity securities were $1,187.6 million at year-end 2007, compared with $299.9 million a year earlier, attributed to the second-half 2007 credit disruption.
- Repurchased common stock for $756.3 million in 2007, and paid $235.6 million in common dividends ($0.90 per share).
- Principal Life's statutory surplus was $3,695.0 million and it could pay approximately $686.5 million in stockholder dividends in 2008 without exceeding statutory limits.
03—One dollar
04—Financials
05—Questions
Frequently Asked Questions
What drove the decline in net income in 2007?
Net income available to common stockholders fell to $827.3 million from $1,031.3 million. The filing attributes the decline mainly to $328.8 million of net realized/unrealized capital losses, including impairments of fixed maturity and equity securities and losses on derivatives, which were tied to the credit market disruption in the second half of 2007.
How large is the company's invested asset base and what is its credit quality?
Total invested assets were $64.4 billion at December 31, 2007, and total assets were $154.5 billion. Fixed maturity securities were the largest category, and 95% of the fixed maturity portfolio carried an NAIC designation of 1 or 2 (investment grade). Below-investment-grade and problem, potential problem and restructured securities totaled $48.2 million, or 0.11% of total fixed maturities.
Is the company's AUM growing and what supports it?
AUM rose to $311.1 billion from $256.9 billion. The filing cites net cash flows and market performance as the main drivers, along with the December 31, 2006 acquisition of WM Advisors, Inc. (which had $22.5 billion in AUM at acquisition) and the 2007 acquisition of Morley Financial Services.
What are the main risks highlighted in the filing?
Key risks include declines or volatility in securities markets reducing AUM and fees, increased defaults or delinquencies in the fixed maturity and commercial mortgage portfolios (with 17% of invested assets in commercial mortgage loans and 18% of those loans in California), ratings downgrades that could increase policy surrenders, and dependence on dividends from Principal Life, which are limited by Iowa insurance law.
How did the company return capital to shareholders in 2007?
The company returned $991.9 million in total to common stockholders, consisting of $235.6 million in dividends and $756.3 million in share repurchases, and repurchased 11.5 million shares. At year-end, $250.0 million remained under the November 2007 repurchase authorization.
06—Continue