Principal Financial Group, Inc. -- Moody's rates Principal Financial Group's senior notes A3; negative outlook

New York, November 14, 2012 -- Moody's Investors Service has assigned an A3 senior debt rating with a negative outlook to the $900 million of senior notes issued by Principal Financial Group, Inc. (PFG: NYSE). The notes, issued in five-year, ten and a half-year, and thirty and a half-year maturities of $300 million each, is guaranteed by Principal Financial Services, Inc. (PFSI; issuer rating at A3, negative outlook) -- PFG's intermediate holding company. The net proceeds from issuance will be used along with other available cash to acquire AFP Cuprum ("Cuprum", not rated by Moody's), a Chilean pension provider, for approximately $1.5 billion.

RATINGS RATIONALE

Commenting on the debt issuance, Moody's said that it was based on an unconditional and irrevocable guarantee from PFSI, the direct owner of Principal Life Insurance Company (insurance financial strength rating at Aa3, negative outlook), which is a major U.S. pension and life insurance provider, particularly in the specialized 401(k) pension sector, where it is a market leader. Because of the structural subordination of PFG's obligations to those of PFSI, PFG's senior debt rating would be a notch lower (Baa1) without the PFSI guarantee.

Commenting further on the issuance, the rating agency said that it completes PFG's acquisition financing package for Cuprum, eliminating one of the risks associated with the acquisition. "Now PFG can prepare for the expected closing of the Cuprum acquisition in Q1 2013, and focus on integrating the company into the PFG fold," said Laura Bazer, Vice President and Senior Credit Officer. "Separately, our expectation that PFG will repay $400 million of notes maturing in 2014 by the end of Q1 2013 eliminates refinancing risk for PFG down the road," the analyst added.

Moody's said that PFG's consolidated financial leverage and coverage were not expected to change materially, given the early repayment of the 2014 notes, as well as the lower interest coupon on the new debt.

The rating agency said that the negative outlook on PFG and the new issuance is due to the greater proportion of PFG's businesses, including Cuprum, with lower stand-alone credit profiles than that of Principal Life, weakening the group's overall credit profile. In addition to significant execution and integration risks of the acquisition, PFG's cash coverage ratio was already weak for its rating level prior to the largely debt-financed acquisition, so the acquisition puts further pressure on this metric and the company's financial flexibility.

Moody's noted that the following factors could lead to a downgrade of PFG's and its affiliates' ratings: the unsuccessful execution /integration of Cuprum, leading to elevated lapses and a 20% decline in Cuprum's profits; consolidated financial leverage of more than 30% or cashflow coverage of less than 4x over an extended period; material deterioration in core 401(k) defined contribution business, leading to significant reduction in market position; another sizable acquisition (in excess of $1 billion) or expansion into new/higher risk/foreign business

Conversely, the following factors could bring PFG's and its affiliates' rating outlook back to stable: the successful execution/integration of the Cuprum acquisition, with expected contribution to PFG's earnings in 2013 and beyond; annual consolidated ROCs at PFG of at least 7%; and consolidated financial leverage of less than 30% and cashflow coverage of at least 4x .

Principal Financial Group, Inc., is an Iowa-based retirement savings, insurance and investment product provider. At September 30, 2012, Principal Financial Group, Inc. reported total consolidated GAAP assets of $159 billion and shareholders' equity of $9.8 billion. At September 30, 2012, Principal Life Insurance Company had statutory assets of $128 billion and statutory capital of approximately $4 billion.

The principal methodologies used in this rating was Moody's Global Rating Methodology for Life Insurers published in May 2010, and Moody's Global Rating Methodology for Asset Management Firms published in October 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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Laura Bazer VP - Senior Credit Officer Financial Institutions Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Robert Riegel MD - Insurance Financial Institutions Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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