A.M. Best Assigns Ratings to Principal Financial Group's Non-Cumulative Preferred Stock Offerings.

OLDWICK, N.J. -- A.M. Best Co. has assigned a debt rating of "bbb+" to Principal Financial Group, Inc.'s (PFG) (Des Moines, IA) (NYSE: PFG) proposed non-cumulative perpetual preferred stock offerings. A.M. Best expects PFG to utilize substantially all of the proceeds from the concurrent offerings--roughly $500 million--to repurchase shares of its common stock. The securities will be drawn from PFG's $3 billion universal shelf registration, declared effective by the Securities and Exchange Commission in mid-2004. The group's financial strength and existing debt ratings remain unchanged. The rating outlook is stable.

PFG plans to issue shares in two tranches: Series A and B. Series A shares will have a fixed rate dividend for an initial 10-year period and will be redeemable at PFG's option after 10 years. Series B will have a fixed rate dividend for 30 years and also will be redeemable after 10 years. After the initial periods, the dividend rates on both securities will become floating, and PFG will have the option to refinance the securities.

Moreover, any accrued dividends shall cease to accrue and be payable in the event they are not declared on the preferred shares for payment on any dividend payment date. However, unless the full dividends on all Series A and B shares have been declared and paid--in full or otherwise--PFG cannot declare or pay dividends on its common stock. Additionally, PFG is prohibited from declaring dividends on the preferred shares if it fails to meet specified capital adequacy, GAAP net income and shareholders' equity measures. Although these dividend restrictions are somewhat atypical for an insurance company preferred stock issue, A.M. Best has employed its standard notching of two down from the senior debt rating to reflect the security's relative structural subordination.

Although these offerings will decrease PFG's interest coverage from the mid-double digit range to about 10 times, it remains quite strong. In addition, the group's financial leverage (excluding non-recourse debt) will reside below 20%, incorporating some equity credit for the newly issued securities per A.M. Best's hybrid methodology.

PFG's ratings reflect its dominant position in the U.S. defined contribution plan market, diverse and sustainable earnings, prudent financial management 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. These 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.

For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

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.