Principal Financial Group, Inc. Announces Fourth Quarter And Full-Year 2012 Results

“The Principal Financial Group ended a strong 2012 with very strong fourth quarter earnings. The continued strength of our underlying business fundamentals and successful execution of our strategy gives us momentum going into 2013,” said Larry D. Zimpleman, chairman, president and chief executive officer. “We significantly advanced our international strategy with two acquisitions in Latin America last year. Closing on Cuprum will further solidify our position as a global investment management leader in 2013 and beyond.”

Added Terry Lillis, senior vice president and chief financial officer, “Our very strong earnings in the fourth quarter and the ability of our fee-based business model to continuously generate deployable capital gives us continued financial flexibility, as demonstrated by our strong capital deployment in 2012 and today’s announcement of a 10 percent increase in our quarterly common stock dividend. Full-year book value per share (excluding other comprehensive income) increased 7 percent over full year 2011 and our investment portfolio is performing very well.”

Key Highlights Fourth Quarter

• Retirement and Investor Services Accumulation sales were up 17 percent in the fourth quarter compared to the year ago quarter. This includes $3.3 billion for Full Service Accumulation, $4.2 billion for Principal Funds and $448 million for Individual Annuities. Net cash flows of $1.6 billion for Full Service Accumulation and $1.5 billion for Principal Funds.
• Principal Global Investors had record unaffiliated assets under management (AUM) of $98.2 billion.
• Principal International reported net cash flows of $2.0 billion and record AUM of $69.3 billion (excluding $11.3 billion of AUM in our asset management joint venture in China, which is not included in reported assets under management).
• Individual Life sales of $84.8 million, up 56 percent over fourth quarter 2011.
• Specialty Benefits premium and fee growth of 5 percent over fourth quarter 2011 and favorable incurred loss ratio of 64.3 percent.

Full Year Results

• Record AUM of $403.0 billion, up 20 percent compared to year-end 2011.
• Total company net cash flows of $29.8 billion.
• Strong capital position with an estimated risk based capital ratio of 415-420 percent at year end and $2.5 billion of excess capital. ³
• Book value per share, excluding AOCI ⁴ was $29.20, up 7 percent over 2011.
• Four quarterly dividends to common stockholders in 2012 totaling $0.78 cents per share, up 11 percent over 2011.
• Repurchased 9.9 million shares of common stock in 2012 at an average price of $25.92.

Net Income Fourth Quarter

• Net income available to common stockholders of $218.6 million for fourth quarter 2012, up 47 percent compared to fourth quarter 2011 reflecting:
  • Net realized capital losses of $0.5 million, which includes:
    • $15.0 million of net losses, down 48 percent from a year ago quarter, related to sales and permanent impairments of fixed maturity securities. This includes $11.1 million of losses on commercial mortgage backed securities, which is down 51 percent from $22.6 million loss in fourth quarter 2011.
  • Other after-tax adjustment loss of $24.8 million, which reflects expenses incurred extinguishing $400 million of long-term debt that was scheduled to mature in 2014.

Full Year ResultsNet income available to common stockholders of $772.9 million for the twelve months ended Dec. 31, 2012, reflects net realized capital gains of $39.1 million, up $180.9 million from a $141.8 loss in 2011. This includes:

• A net gain of $141.2 million as a result of Catalyst Health Solutions, Inc.’s merger into a subsidiary of SXC Health Solutions Corp. (SXC), and our subsequent sale of our interest in SXC (now known as Catamaran Corporation);
• $76.8 million of net losses, a 36 percent improvement over 2011 related to sales and permanent impairments of fixed maturity securities, including:
  • $60.1 million of losses on commercial mortgage backed securities, which is down 34 percent from $90.5 million loss in 2011.

Segment Results

Retirement and Investor ServicesSegment operating earnings for fourth quarter 2012 were $152.3 million, compared to $124.5 million for the same period in 2011. Full Service Accumulation earnings increased 39 percent from a year ago quarter to $81.3 million reflecting an $8 million after-tax benefit as more companies paid extraordinary and accelerated dividends in fourth quarter 2012. Principal Funds earnings were up 25 percent compared to the year-ago quarter to $13.2 million, primarily due to an increase in average account values. Individual Annuities earnings were $31.1 million compared to $27.8 million for fourth quarter 2011 reflecting $3 million after tax of favorable variable investment income. Bank and Trust Services operating earnings were $7.9 million, compared to $8.5 million for fourth quarter 2011. The guaranteed businesses, which consist of Investment Only and Full Service Payout, earned $18.8 million in the fourth quarter 2012 compared to $19.0 million in fourth quarter 2011.

Operating revenues for the fourth quarter 2012 were $1,127.9 million compared to $1,016.9 million for the same period in 2011 primarily due to higher fee revenue in the accumulations businesses and higher premiums in the guaranteed businesses.

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