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Rating agency A.M. Best Co. reiterated the issuer credit rating (“ICR”) of ‘a-’ and all current debt ratings of Principal Financial Group (PFG - Analyst Report). The rating agency also conferred ‘a-’debt ratings to the three senior unsecured notes recently issued by Principal Financial. The outlook is stable.
Concurrently, A.M. Best reiterated the financial strength rating (“FSR”) of A+ (Superior) and ICR of ‘aa-’ of Principal Life Insurance Company and Principal National Life Insurance Company, the life insurance subsidiaries of the company. The outlook remains stable.
The rating affirmations of Principal Financial largely accounts for its continued solid operational performances driving sturdy results. The company continues to deliver solid operating numbers riding on the back of wide arrays of product offering, efficient distribution strategy and cost control.
Principal Financial is experiencing better net flows stemming from its Full Service Accumulation and Principal Funds businesses within the Retirement and Investor Services segment and Principal International and Principal Global Investors business segments.
Further, fee income generated from solid assets under management successfully offset the lower net investment income.
Moreover, despite the fact that the net realized losses have moderated A.M. Best estimates it to continue in 2013, as many of its commercial mortgage-backed securities portfolio will mature next year. The rating agency is also positive toward the company’s enterprise risk management.
To fund acquisitions, Principal Financial has issued debts. Nevertheless, A.M. Best expects its financial ratio to hover around 23% with an interest coverage ratio of 7x, well within the rating agency’s benchmark.
However, the company’s exposure to equity market volatility and continued low interest rate environment dwarfs the positives.
A.M. Best stated that it will continue to supervise the company’s exposure to country risk as it has made several overseas acquisitions, capitalization levels as it has utilized a big chunk in acquisitions, share buybacks and dividends.
The rating affirmations of the subsidiaries came on the back of branched out operating earnings, solid assets under management, sturdy risk-adjusted capitalization and improving investment portfolio. The ratings also account for efficient enterprise risk management of the parent company.
The rating agency stated that the ratings could be subject to further downgrade if operating earnings deteriorated due to lower cash flows and depressed interest rates or in case risk-adjusted capitalization erodes due to investment losses or capital is utilized for acquisitions or share buybacks.
Recently, A.M. Best has reiterated Lincoln National Corp. (LNC - Analyst Report) by asserting its credit and FSR. Accordingly, A.M. Best affirmed its ICR of ‘aa-’ and FSR of ‘A+’ for the major subsidiaries of Lincoln, and avowed an ‘a-’ on the company’s long-term debt. However, the rating agency has lowered the ICR and FSR of Lincoln’s separate subsidiary – First Penn-Pacific Life Insurance Co. – to ‘a+’ and ‘A’ from ‘aa-’ and ‘A+’, respectively.
Principal Financial carries a Zacks #3 Rank, translating into a short-term Hold rating while Lincoln holds a Zacks #2 Rank, translating into a short-term Buy rating.