Principal CEO Larry Zimpleman: Q&A

Principal Financial CEO Larry Zimpleman talks to TheStreet about the current state of lending, how his company may be impacted by the new health care legislation, and other topics.
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) --

Principal Financial Group

(PFG) - Get Report

turned in a

strong first-quarter profit

after Monday's closing bell, beating Wall Street's consensus estimate by a dime.

But despite posting quarterly earnings of $190 million for the March period, an increase of nearly 70% from its year-ago total, shares of the Des Moines, Iowa-based provider of insurance products and retirement savings plans for corporations were pulling back on Tuesday

amid the weakness in the broad market


One area of concern for Principal Financial was weakness in the company's health division, where earnings dropped 15% year-over-year because of a decline in the number of group medical-covered members.


recently spoke to CEO Larry Zimpleman about how he thinks the new health care legislation will affect the company and other issues.

401k's Coming Back

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TheStreet: Larry, what trends are you seeing right now in finance? What seems to be doing better and what's still struggling?

Larry Zimpleman:

Well, certainly the market has come back as we all know over the last 12 months and we're all sort of glad and thankful for that. I think the primary area today that's still under a little bit of pressure would be credit flowing to small and medium businesses. We still haven't see a full restoration of that and then probably the other area that we still had some level of pain attached to it would be commercial real estate here in the U.S.

TheStreet: That's a good topic, commercial real estate. Are you seeing a bottom in this area? We had heard there was going to be a huge commercial real estate bust like we saw with housing, but it really hasn't materialized.


No it really hasn't. I think there are some reasons that it's different. First of all, commercial real estate generally involves much more sophisticated borrowers and lenders. I think that makes a difference. We do think commercial real estate is bottoming out in terms of prices. We've seen prices come off about 35% peak to trough. The recovery will be a little bit spotty. It would depend. For example, Phoenix and Las Vegas would be different than New York or Washington

D.C.. But there is pretty clear indication that we've bottomed out and we're starting to see money that's starting to get ready to come into that market, which I think is positive as we go forward.

TheStreet: What about rents in that area?


Rents have stabilized. Again, it depends on type of property and depends on location. But I think even here in New York for example you've actually started to see some early indications of actual rent increases.

TheStreet: We've had legislation in the health care side and you do have insurance, how has that affected you?


We are in the health care arena, we're in the commercial area. The employer area of health insurance, we're not in the individual health insurance area, nor are we in the Medicaid area. I would say at this point, we've had health care reform, what that's going to do is bring in about 30-35 million people into the health insurance universe, that's a good thing. We don't yet know what the legislation will do on sort of claim costs overall because many of the provisions of health care actually aren't going to be implemented until 2013, 2014, 2015. So it's going to take years before we have a full understanding of what the implications are of reform.

TheStreet: You would expect that you would see new customers.


I think there's the potential for that. Health insurance for us today is around 5% of our business so its meaningful to us, but it's not necessarily the core of what we do, having said that, we do think there will be some opportunities in the commercial space that are going to come out of health care reform.

TheStreet: You mentioned employers, now with 10% unemployment and that's a rough figure because some people say it's more it has affected the amount of money going into 401k's you don't have as many people working, don't have as much money coming out. Also people were in distress and they took money out of their 401s. So where are you seeing that business at this time?


Let me first talk about the employer side and then I'll talk about the employee side. I think on the employer side, a lot of the things you were talking about are true, where you've seen reduction or suspension of employer matches in 401k plans and somewhere around 15% of 401k plans have either reduced or suspended their match. The good news is that about 75% of those have now been restored to some level near where they were to begin with. So on the employer side we've seen reductions but we've started to see that come back. On the employee side, in terms of participant contributions actually the behavior there has been very consistent and very steady and we haven't really seen large numbers of participants either reduce or stop their contributions. So participants are actually exhibiting very healthy behavior throughout the financial crisis.

TheStreet: What about hiring for Principal? What is the company's current situation?


We would say cautious optimism. We're starting to see lift. The asset markets have come back, so that's given us some lift. We're starting to see more new business opportunities. So, while we're still sort of watching our employment levels carefully, I would expect as we get into the summer and get into the fall I would expect that we'll start to see some hiring as we get one or two more quarters down the road.

TheStreet: So you might end the year with more people?


I would expect we'll have a larger employment base at the end of the year than we do today.

TheStreet: What's your strategy for the end of this year and going into next year?


We're going to continue to manage resources carefully and we're gonna we're seeing those new sale pipelines come back quarter over quarter, so again cautious optimism, watch the recovery we don't expect any double dips in housing we don't expect any double dips in recession so its going to be slow and steady as we build our way back.

Edited for length and clarity



Written by Debra Borchardt in New York