The COVID-19 health crisis and resulting swift and volatile global market correction has stunned the economy and created real uncertainty for individuals and businesses. Our daily lives have been thrown off-kilter—the way we work, how we feed our families, even our interactions with our friends and neighbors—and no one can tell us for how long. Markets haven’t been spared from the disruption either.
Naturally, many look back to the last time we experienced such a violent reversal of fates, the Great Recession. While the whiplash may feel the same, the differences in circumstance for Principal Financial Group® are significant.
Principal entered 2020 in a position of financial strength with long-term fundamentals, enabling us to effectively navigate this crisis. Every company took lumps in 2008, but some took notes and adjusted accordingly. We continued to meet the needs of our customers throughout the Great Recession and emerged from the turmoil, partly due to the diversification and discipline of our business model. Since then, we’ve bolstered areas we needed to, and today we’re in one of the most robust financial positions in our 141-year history in terms of capital, liquidity, and balance sheet.
While we’ll undoubtedly experience near-term consequences from the current financial market pullback, the decline in interest rates, and the negative economic growth over the next couple financial quarters, Principal will power through this period with continued fortitude and a sustained ability to empower our customers to reach their financial goals.
The core financial levers of our company—capital, liquidity, and the quality of our balance sheet—enable us to manage through periods of economic volatility and put us in one of the strongest financial positions in company history.
As recently as January 2020, top rating agencies continued to count Principal among the strongest financial institutions:
| Moody’s Investors Service Rating: A1, Good (fifth highest of 21 rating levels) Outlook: Stable | Fitch Ratings Rating: AA, Very Strong (fourth highest of 19 rating levels) Outlook: Stable |
| S & P Global Rating: A+, Strong (fifth highest of 20 rating levels) Outlook: Stable | A.M. Best Company Rating: A+, Superior (second highest of 13 rating levels) Outlook: Stable |
Financial strength ratings related to Principal Life Insurance Company and Principal National Life Insurance Company as of January 2020.
Our sources of strength
Debt maturity
One challenge for Principal during the Great Recession was a pending debt maturity of nearly $500M. We are in a much stronger position today, having built targeted liquidity levels at our Holding Company; while also maintaining a balanced and well-spaced maturity ladder of maturing debt. Our next debt maturity, for $300M, isn't until 2022.
- We have a debt-to-capital ratio of 21% as of December 31, 2019, which is on the low end of our target range of 20-25%.
- Our next five years’ worth of maturities totals $600M, with $300M in 2022 and another $300M in 2023.
Capital and liquidity position
We're in a very strong capital and liquidity position with access to revolving and contingent funding agreements, if needed. This puts us in a position to continue to meet all long-term obligations to customers and policyholders.
- We ended 2019 with a Risk-Based Capital position of 412%, in excess of our 400% target, with an additional $1.2B in capital at the holding companies at the end of 2019.
- From a liquidity perspective, we ended 2019 with $1.8B in available cash and Holding Company’s liquid assets. We are monitoring our liquidity closely and feel confident in our position.
- Other sources of liquidity include an $800M revolving credit facility which matures in November 2023 and two contingent funding agreements totaling $900M in available liquidity.
Investment portfolio
Our investment portfolio is diversified, high quality, and maintains a focus on investments that meet the needs of our product liabilities.
| U.S. Fixed Maturities portfolio | 12/31/2008 | 12/31/2019 |
| NAIC 1 | 57% | 69% |
| NAIC 2 | 38% | 27% |
| NAIC 3-6 | 5% | 4% |
| Commercial Mortgage quality | 12/31/2008 | 12/31/2019 |
| Bond equivalent rating (A and above) | 31% | 93% |
| Current loan-to-value | 62% | 45% |
| Current debt service coverage | 1.7x | 2.6x |
Like most companies, our near-term financials are expected to take a hit from the current market and economic environment, but the strength of our balance sheet and our global, balanced, and diversified business model will support the long-term success of our company. During times like these, quality companies, quality investment choices, and diversified portfolios are well-positioned to stand the test of time and volatility.
Asset allocation and diversification do not ensure a profit or protect against a loss.
Ratings current as of January 2020.
Third party ratings relate to Principal Life Insurance Company and Principal National Life Insurance Company only, and do not reflect any ratings actions or notices relating to the US life insurance sector generally.
Ratings are not a recommendation to buy, sell or hold a security. Ratings are subject to revision or withdrawal at any time by the assigning agency, and each rating should be evaluated independently of any other rating.
Information is current as of the creation of this piece. Keep in mind that portfolio holdings are subject to risk.
Insurance products from the Principal Financial Group® are issued by Principal National Life Insurance Company (except in New York) and Principal Life Insurance Co. Plan administrative services provided through Principal Life. Principal National and Principal Life are members of the Principal Financial Group®, Des Moines, IA 50392.