A.M. Best Assigns Ratings to Principal's Funding Agreement-Backed Securities Programs; Affirms Financial Strength and Debt Ratings.

OLDWICK, N.J. -- A.M. Best Co. has assigned a rating of "aa" to the three funding agreement-backed securities (FABS) programs established by Principal Life Insurance Company (Principal Life) as well as an issuer credit rating (ICR) of "aa" to Principal Life, the lead operating company of Principal Financial Group, Inc. (NYSE: PFG) (both of Des Moines, IA). A.M. Best has also assigned a debt rating of "aa" to the outstanding notes issued under Principal's European Medium-Term Notes (EMTN), Global Medium-Term Notes (GMTN) and publicly-registered funding agreement-backed notes programs. Concurrently, A.M. Best has affirmed the A+ (Superior) financial strength rating of Principal Life and the ratings on the group's outstanding debt securities. All ratings have a stable outlook.

The ratings reflect PFG's dominant position in the U.S. defined contribution plan market, diverse and sustainable earnings, prudent financial management, ample fixed charge coverage and solid capital and liquidity position. The ratings also reflect the company's well-established product lines and broad distribution, cost-efficient operations and potential for global growth. PFG's positive rating factors are somewhat offset by the limited sales growth of life/health products and competitive pressures the group faces in maintaining its leading market share within the 401(k) sector for small to medium-sized businesses.

PFG's growing investment-only product line within the Asset Accumulation businesses contributes roughly one-fourth of the businesses' operating earnings, providing earnings diversification and enabling the company to leverage its investment management expertise and advance its employer-based strategy. Additionally, PFG's prudent asset/liability management strategies ensure that close matches between funding agreement assets and liabilities are maintained.

PFG's exposure to institutional spread-based liabilities is approximately one-third of general account liabilities, residing at the upper-end of management's target of less than 35%. This exposure is somewhat mitigated by PFG's use of its registered retail program during 2004. A.M. Best believes that regular periodic retail funding helps to smooth out the uneven inflows and outflows of institutional note transactions.

PFG's $4 billion EMTN program was initially established in 1999 to issue fixed or floating rate notes in one or more series to institutional investors outside of the United States on a private placement basis through a limited liability company, Principal Financial Global Funding, LLC (PFGF), which was incorporated in the Cayman Islands. The notes have been issued in various currencies, are limited recourse obligations of PFGF and are secured solely by a series of funding agreements sold to PFGF by Principal Life.

Through its $7 billion GMTN program--established in 2001--Principal has issued various series of notes to institutional investors in the United States in accordance with Rule 144A of the Securities Act and to offshore investors via Regulation S under the Securities Act. The issuer of the notes is a Delaware statutory trust, Principal Life Global Funding I (PLGF), the principal asset being a series of funding agreements between Principal Life and PLGF. For each series, the funding agreement is deposited into a separate series trust for the benefit of the noteholders; hence, their recourse is limited to the funding agreement securing the notes.

PFG's publicly-registered FABS program, established in March 2004, provides for the issuance of up to $4 billion of secured medium-term notes to both retail and institutional investors. Each series of notes is issued in series by separate and distinct special purpose common law trusts, collectively known as the Principal Life Income Fundings Trusts. Each series of notes will be secured by a funding agreement issued by Principal Life, which is domiciled under the laws of the State of Iowa.

Based on A.M. Best's analysis of the FABS structures utilized by PFG, the programs and notes will carry the ICR of "aa" of Principal Life. This reflects that each series of notes is secured by a first priority perfected security interest in the underlying funding agreements, which are unsecured obligations of Principal Life's general account. In addition, in the event of an insolvency of an Iowa domestic insurance company, claims for principal and interest under the funding agreements would be paid equally in priority (i.e. pari passu) with Principal Life's policyholders. Therefore, in assigning the ICR above, A.M. Best believes that all investors in PFG's FABS are exposed to the inherent credit, liquidity and business risks of the sponsoring insurance company, Principal Life.

For a complete listing of Principal Financial Group's debt and financial strength ratings as well as a list of issuances under its FABS programs, please visit http://www.ambest.com/press/112306principal.pdf.

For additional insight, please refer to A.M. Best's methodology, Rating Funding Agreement-Backed Securities at http://www.ambest.com/ratings/methodology.html.

For a list of A.M. Best's Debt Ratings, please visit http://www.ambest.com/debt.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.