Business Context and Reporting Period
This Form 8-K filing by Principal Financial Group, Inc. (Principal) was submitted on March 4, 2008, to address investor inquiries regarding exposure to monoline insurance companies and mortgage insurers. The data primarily reflects the position of Principal Life Insurance Company (PLIC) as of December 31, 2007, with specific updates for FGIC exposure as of February 29, 2008.
Key Financial Metrics
As of December 31, 2007, PLIC reported a total exposure of $996.5 million to monoline and mortgage insurers based on GAAP carrying values. This exposure is categorized as follows:
- Wrapped Guarantees: $774.1 million (guarantees on underlying municipal bonds, corporate credit, or asset-backed securities).
- Direct Exposure: $222.4 million (securities issued directly by monoline and mortgage insurers).
The composition of Wrapped Guarantees included 44% municipal bonds (99% investment grade), 40% investment grade bank perpetual preferreds, 9% ABS backed by investment grade subprime first lien mortgages, and 7% investment grade corporate bonds.
Material Changes
During February 2008, PLIC reduced its exposure to FGIC on an amortized cost basis. The total exposure to FGIC decreased from $198.7 million as of December 31, 2007, to $160.0 million as of February 29, 2008. This reduction was driven by a decrease in Direct Exposure from $55.6 million to $17.3 million, while Wrapped Guarantee exposure remained relatively stable, decreasing slightly from $143.1 million to $142.7 million.
Outlook, Risks, and Contingencies
The filing serves as a Regulation FD disclosure to clarify the company's risk profile regarding the financial stability of bond insurers and mortgage insurers. The filing does not provide forward-looking guidance, management commentary on future strategy, or specific risk factors beyond the quantification of current exposure. No unusual items or contingencies were disclosed outside of the exposure details.
Investor Verification Checklist
- Verify the credit ratings of the underlying assets within the $774.1 million in Wrapped Guarantees, particularly the 9% allocated to ABS backed by subprime mortgages.
- Confirm the current financial status of major counterparties, specifically MBIA ($375.5M total exposure) and AMBAC ($234.1M total exposure).
- Monitor further reductions in FGIC exposure and the impact of amortized cost adjustments on reported figures.
- Review subsequent filings for any changes in the $222.4 million Direct Exposure portfolio.