Fitch Ratings Affirms Principal Financial Group & Insurance Subsidiaries.

CHICAGO -- Fitch Ratings has affirmed the senior debt, long-term, preferred stock, and short-term issuer ratings for Principal Financial Group, Inc. (PFG), intermediate holding company Principal Financial Services, Inc. (PFSI) and PFG's insurance subsidiaries. In addition, Fitch has affirmed the 'AA' insurer financial strength ratings and 'A+' surplus note rating on PFG's Principal Life Insurance Company (PLIC) subsidiary. The Rating Outlook is Stable.

In addition, the ratings for Principal Financial Group's various funding agreement backed note programs are also affirmed at 'AA', reflecting the structure and reliance on PLIC's financial strength.

Fitch's rating actions reflect PFG's strong competitive position in the pension market, consistent and diversified sources of profitability, solid risk-adjusted capitalization, and sound asset-liability management. Long-term debt ratings for PFG and Principal Financial Services, Inc. (PFSI) and short-term debt ratings for PFSI reflect the strength of cash flow from domestic asset management and insurance operations and growing international profitability, as well as moderate consolidated leverage.

Partially offsetting these positives is the slightly above-average credit risk profile of PLIC's investment portfolio. Fitch also notes that increased competition in the 401(k) business may make it increasingly more difficult for the company to obtain its pension plan new sales and enrollment goals.

Fitch estimates PFG's pro forma financial leverage was a moderate 20.4%, excluding accumulated other comprehensive income, following its June 2005 preferred stock issue. Fitch estimates that PFG's holding company pro forma cash interest and dividend coverage based on maximum statutory dividends is expected to exceed 2.3 times (x) for 2005. Fitch expects that leverage will remain near the 20%-25% level, and coverage will improve in the future.

PLIC has generated consistent earnings from its core pension, group life/health, and individual products. The company's profitability has been good with average returns on adjusted surplus of 16.3% over the five years ending 2004. Capitalization is solid with NAIC risk-based capital ratio at 357% as of year-end 2004.

Principal Financial Group, Inc. is the holding company for a diverse group of domestic and international financial services companies. These companies provide a wide range of products, including retirement and investment services, and life and health insurance. In addition, Principal Financial Group is a leader in the 401(k) plan market. Principal Financial Group's lead insurance company is Principal Life Insurance Company. Principal Financial Group has $175 billion assets under management and had $7.3 billion in equity as of March 31 2005.

The following are affirmed with a Stable Rating Outlook by Fitch:

Principal Financial Group:

-- Long-term issuer rating at 'A';

-- 5.563% preferred stock due 2015, series A at 'A-';

-- 6.518% preferred stock due 2035, series B at 'A-'.

Principal Financial Services Inc.:

-- Senior debt rating at 'A';

-- Long-term issuer rating at 'A';

-- $465 million 8.2% due Aug. 15, 2009 at 'A'.

Insurance subsidiaries:

Principal Life Insurance Company

-- Insurer financial strength at 'AA';

-- Surplus notes at 'A+';

--$100 million due 3/1/2044 at 'A+'.

Fitch affirms the following funding agreement backed notes issuance programs and their outstanding issues at 'AA' with a Stable Outlook:

Principal Financial Global Funding LLC 

Principal Life Income Fundings Trust

Principal Life Global Funding I

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.