01—Abstract
Summary
Summary of the 10-K filed February 18, 2009. Cited figures are marked; the original filing is the authoritative source.
Principal Financial Group, Inc. (PFG) reported $247.0 billiona in assets under management and approximately 19.1 million customers worldwide as of December 31, 2008.
The company focuses on small and medium-sized businesses and describes itself as the leading provider of corporate defined contribution plans in the U.S., according to Spectrum Group, with over 33,000 plans. It operates four reportable segments: U.S. Asset Accumulation, Global Asset Management, International Asset Management and Accumulation, and Life and Health Insurance, plus a Corporate segment. Net income available to common stockholders fell to $425.1 millionb in 2008 from $827.3 million in 2007, driven primarily by a $248.4 million after-tax increase in net realized capital losses.
Total revenues declined to $9,935.9 millionc from $10,906.5 million, and total stockholders' equity dropped to $2,472.8 million from $7,421.7 million, largely reflecting accumulated other comprehensive loss of $(4,911.6) million. Management cited the decline in equity markets, which reduced account values and AUM, and the credit market disruption. Cash and cash equivalents rose to $2.6 billion as the company built liquidity.
To conserve capital, the Board reduced the common dividend to $0.45d per share, suspended share repurchases, and applied for up to $2.0 billion under the U.S. Treasury's Capital Purchase Program. Rating agencies revised their outlooks on the U.S. life insurance industry to negative, and Fitch downgraded Principal Life's insurer financial strength rating to AA- on February 13, 2009. The company also reported $454.9 million of long-term debt due in 2009, which it plans to refinance.
02—Key points
Key Highlights
- AUM of $247.0 billion and approximately 19.1 million customers worldwide as of December 31, 2008.
- Net income available to common stockholders of $425.1 million in 2008, down from $827.3 million in 2007, mainly due to a $248.4 million after-tax increase in net realized capital losses.
- Total revenues of $9,935.9 million in 2008 versus $10,906.5 million in 2007; net realized capital losses were $(694.1) million.
- Total stockholders' equity fell to $2,472.8 million from $7,421.7 million, with accumulated other comprehensive loss of $(4,911.6) million.
- Dividend cut to $0.45 per share from $0.90 in 2007, and share repurchases suspended; PFG applied for up to $2.0 billion under the Treasury's Capital Purchase Program.
- Fitch downgraded Principal Life's insurer financial strength rating to AA- on February 13, 2009 (rating watch negative); Moody's and S&P affirmed with negative outlooks.
- Cash and cash equivalents increased to $2,608.0 million, and $454.9 million of long-term debt is due in 2009, which management plans to refinance.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 18, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $9.94B$10.91B | −8.9% |
| Net Income | $458.10M$860.30M | −46.8% |
| EPS (Basic) | $1.64$3.12 | −47.4% |
| EPS (Diluted) | $1.63$3.09 | −47.2% |
| Shares Outstanding (Basic) | 259.30M— | — |
| Shares Outstanding (Diluted) | 261.10M— | — |
05—Questions
Frequently Asked Questions
Why did net income fall so sharply in 2008?
Net income available to common stockholders decreased to $425.1 million from $827.3 million, primarily due to a $248.4 million after-tax increase in net realized capital losses, driven by higher impairments on fixed maturity and equity securities and mark-to-market losses on trading securities. Lower account values from poor equity markets also reduced U.S. Asset Accumulation fees.
How much did the company's capital position change?
Total stockholders' equity declined to $2,472.8 million at December 31, 2008, from $7,421.7 million a year earlier. Accumulated other comprehensive loss of $(4,911.6) million, reflecting unrealized losses on available-for-sale securities, accounts for most of the decline. Management said it had about $800.0 million of capital in excess of levels needed to maintain its current credit rating.
What actions did management take to protect liquidity?
Management increased cash and cash equivalent holdings to $2.6 billion, reduced the common dividend to $0.45 per share, suspended share repurchases effective October 13, 2008, and applied to participate in the U.S. Treasury's Capital Purchase Program for up to $2.0 billion. It also planned about 550 position reductions and limited new hiring.
What are the main risks to the company's credit ratings?
A.M. Best, Fitch, Moody's and Standard & Poor's revised their outlooks on the U.S. life insurance industry to negative. Fitch downgraded Principal Life's insurer financial strength rating to AA- on February 13, 2009. A ratings downgrade could increase policy surrenders, reduce new sales, terminate distributor relationships and raise the cost of capital.
How significant are the company's investment-related exposures?
As of December 31, 2008, fixed maturity securities were $38.8 billion, or 70% of total U.S. invested assets, with 5.2% below investment grade. Gross unrealized losses on available-for-sale fixed maturity securities totaled $8,317.3 million pre-tax, and problem, potential problem and restructured fixed maturities were $252.1 million, or 0.65% of total fixed maturity securities.
06—Continue