Principal Financial Group Inc. - Q3 2009 8-K Summary
Business Context and Reporting Period
This Form 8-K, filed on November 2, 2009, reports the results of operations and financial condition for Principal Financial Group, Inc. (NYSE: PFG) for the quarter ended September 30, 2009. The company is a diversified financial services provider offering retirement, investment, life, and health insurance products globally.
Key Financial Metrics
- Net Income: $184.7 million ($0.57 per diluted share) for Q3 2009, compared to $90.1 million ($0.35 per diluted share) in Q3 2008.
- Operating Earnings: $238.7 million ($0.74 per diluted share) for Q3 2009, down from $251.2 million ($0.96 per diluted share) in Q3 2008.
- Assets Under Management (AUM): $280.4 billion as of September 30, 2009, a 9% increase from the prior quarter.
- Book Value: GAAP book value per share was $21.85, a 35% increase from $16.19 in Q2 2009 and nearly triple the year-end 2008 level.
- Liquidity and Capital: Liquid assets totaled $7.3 billion; excess capital position was approximately $1.5 billion.
- Realized Capital Losses: Net realized capital losses were $53.5 million for the quarter, driven by sales and impairments of fixed maturity securities and commercial mortgage loans.
Material Changes vs. Prior Period
- Sequential Improvement (Q2 to Q3 2009): Operating earnings rose 19% and net income rose 23% sequentially. AUM increased by $22.7 billion.
- Year-Over-Year Decline (Q3 2008 to Q3 2009): Operating earnings declined due to lower average AUM, higher pension costs, lower investment income, and unfavorable foreign currency movements. These were partially offset by expense management and lower deferred policy acquisition cost (DPAC) amortization.
- Share Count: Weighted average diluted shares increased from 261.0 million in Q3 2008 to 321.5 million in Q3 2009 following a May 2009 common stock offering, diluting per-share results.
- Impairments: Net impairment losses on available-for-sale securities were $117.2 million, including $28.6 million on non-agency residential mortgage-backed securities.
Outlook, Risks, and Management Commentary
Management expects the economic recovery to be protracted with muted near-term business activity. However, they noted early signs of progress, including a 30% increase in full-service accumulation sales quote activity in September compared to January. The company remains cautiously optimistic about sales and flows into 2010.
Key Risks and Contingencies:
- Adverse capital and credit market conditions affecting liquidity and cost of capital.
- Continued difficult conditions in global capital markets and the general economy.
- Investment risks diminishing the value of invested assets.
- Fluctuations in foreign currency exchange rates.
- Regulatory changes and requirements to post collateral.
Investor Verification Checklist
- Verify the reconciliation of non-GAAP operating earnings to GAAP net income, specifically the treatment of net realized capital losses and DPAC amortization.
- Review the composition of the $117.2 million in net impairment losses on available-for-sale securities to assess credit risk exposure.
- Confirm the impact of the May 2009 stock offering on future earnings per share dilution.
- Monitor the $1.5 billion excess capital position against regulatory requirements (350% NAIC risk-based capital ratio).
- Assess the sustainability of the 9% sequential AUM growth given the stated "muted" economic environment.