AM Best Comments on Credit Ratings of Principal Financial Group, Inc. and Its Subsidiaries Following Reinsurance Announcement

Rhea-AI Summary

AM Best has maintained the Credit Ratings of Principal Financial Services, Inc. (PFG) and its subsidiaries following the January 31, 2022, announcement regarding the cession of in-force U.S. retail fixed annuities and universal life insurance with secondary guarantee blocks to Sutton Cayman, Ltd. This strategic shift aligns with Principal's June 2021 review, impacting statutory reserves of $16 billion (annuity) and $9 billion (ULSG). The transaction will close in Q2 2022, with Principal retaining administration responsibilities and appointing Principal Global Investors, LLC for asset management.

Positive

• The transaction aligns with Principal's strategic review, indicating a focused business direction.
• Principal retains administrative responsibilities, ensuring continuity in operations.
• Appointment of Principal Global Investors, LLC for asset management could enhance asset performance.

Negative

• The cession of in-force blocks may indicate potential underlying challenges in the retail fixed annuity and life insurance segments.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has commented that the Credit Ratings (ratings) of Principal Financial Services, Inc. (Principal) [NASDAQ: PFG] (headquartered in Des Moines, IA) and its insurance subsidiaries remain unchanged following the Jan. 31, 2022, announcement that Principal Life Insurance Company and Principal National Life Insurance Company have entered into an agreement to cede its in-force U.S. retail fixed annuities and universal life insurance with secondary guarantee (ULSG) blocks of business to Sutton Cayman, Ltd, an affiliate of Talcott Resolution Life, Inc.

The divestitures of the retail fixed annuity and ULSG in-force blocks are consistent with the results of Principal’s strategic review announced in June 2021. The retail fixed annuity and ULSG statutory reserves are $16 billion and $9 billion, respectively. The transaction will be structured through 100% coinsurance cessions and retrocessions, each on a coinsurance or coinsurance with funds withheld basis. There are several counterparty protections for the benefit of Principal. Principal will retain all responsibility for the administration of the ceded business, and Principal Global Investors, LLC will be appointed as investment adviser to manage the transferred commercial mortgage loans and private credit assets. The transaction is expected to close in the second quarter of 2022.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220131005923/en/

Louis Silvers

Senior Financial Analyst

+1 908 439 2200, ext. 5802

louis.silvers@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Jacqalene Lentz, CPA

Director

+1 908 439 2200, ext. 5762

jacqalene.lentz@ambest.com

Jim Peavy

Director, Communications

+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Source: AM Best

FAQ

What did AM Best announce about Principal Financial Services, Inc. (PFG) on January 31, 2022?

AM Best announced that the Credit Ratings of Principal Financial Services, Inc. (PFG) and its subsidiaries remain unchanged.

What is the impact of the cession of in-force U.S. retail fixed annuities on Principal Financial Services, Inc. (PFG)?

The cession of these blocks, which have statutory reserves of $16 billion, reflects a strategic business decision to enhance operations.

When is the transaction involving Principal Financial Services, Inc. (PFG) expected to close?

The transaction is expected to close in the second quarter of 2022.

What are the statutory reserves affected by the agreement announced by Principal Financial Services, Inc. (PFG)?

The affected statutory reserves are $16 billion for retail fixed annuities and $9 billion for universal life insurance with secondary guarantees.

Who will manage the transferred commercial mortgage loans and private credit assets for Principal Financial Services, Inc. (PFG)?

Principal Global Investors, LLC will be appointed as the investment adviser to manage the transferred assets.