Fitch Ratings reiterated the long-term Issuer Default Rating
Principal Financial Group Inc.
) at 'A'. Concurrently, the rating agency reiterated the Insurer
Financial Strength (IFS) at 'AA-' of Principal Financial's
operating subsidiaries. The ratings carry a negative outlook.
The rating affirmations came on the back of Principal Financial's
sturdy capitalization and continued solid operational
performance. However, these positives are dwarfed by higher
leverage and substantial exposure to direct mortgages and
structured mortgage securities.
The outlook took into account the execution risk associated with
the Cuprum acquisition, lower-than-expected fixed charge coverage
and higher financial leverage. As of Dec 31, 2012, financial
leverage was higher at 24%, an increase of 900 basis points (bps)
year over year. The increase was largely due to the
issuance of debt to fund the acquisition. Nevertheless,
Chile-based AFP Cuprum compliments Principal Financial's strategy
to widen its presence in the emerging marketplace. Also, fixed
charge coverage was 7.1x in 2012, lower from nearly 7.9x in 2011.
Fitch, nonetheless, expects that Principal Financial will be able
to deliver sustained profitability on its growing fee-based
businesses. At the same time, the rating agency believes that
continued low interest rate environment and competition will
weigh on earnings improvement in the near term.
Rating affirmations or upgrades from credit rating agencies play
an important part in retaining investors' confidence on the stock
as well as maintaining creditworthiness in the market. We believe
that the company's strong score with the credit rating agencies
will help it write more business going forward.
The ratings might be subject to downgrade if investment losses
escalate considerably, return on equity falls below 10%, fixed
charge coverage ratio moves below 7x, risk-based capital ratio
goes down below 375% or financial leverage moves above 25%.
Principal Financial currently carries a Zacks Rank #3 (Hold).
Assured Guaranty Ltd.
) carries a Zacks Rank #1 (Strong Buy), while
CNO Financial Group Inc.
) carry a Zacks Rank #2 (Buy) and appear impressive.
ASSURED GUARNTY (AGO): Free Stock Analysis
CIGNA CORP (CI): Free Stock Analysis Report
CNO FINL GRP (CNO): Free Stock Analysis
PRINCIPAL FINL (PFG): Free Stock Analysis
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