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DUFF & PHELPS: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY CLAIMS PAYING ABILITY REAFFIRMED AT 'AAA'

 CHICAGO, Oct. 25 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has reaffirmed the "AAA" (Triple-A) claims paying ability rating of Principal Mutual Life Insurance Company. The rating reflects Principal Mutual's key strengths, including: (A) a very strong and large capital position; (B) solid profitability achieved on very conservative operating leverage; (C) leading market positions in small-to-medium size group health and pension markets; (D) significant contractual safeguards which enhance good persistency; (E) well disciplined investment management and asset/liability management processes; and (F) extensive management depth and breadth. These positive attributes overshadow the risks associated with a larger than average exposure to commercial mortgages and real estate and its concentration in California properties. However, uncertainty regarding the impact of additional federal government involvement in the health care system has been increasing, and such changes may ultimately pose significant earnings risks for Principal Mutual and the health care industry as, a whole.
 Principal Mutual Life Insurance Company (Principal Mutual) is the tenth largest life insurance company in the United States, based on yearend 1992 admitted assets of $35.1 billion. Principal Mutual is the largest company of The Principal Financial Group, which is a diversified group of insurance and financial service companies. Principal Mutual has three core businesses, each with several unique features which have contributed to the company's above average profitability over the years. The largest unit is the pension operation which produced $4.1 billion of statutory premiums and deposits during 1992. The group life and health operation generated $2.9 billion of statutory premium. The company's individual insurance business produced statutory premiums in 1992 totaling $1.1 billion. Core statutory after tax operating gains from these operations in 1992 were divided: 46 percent, 58 percent, and -4 percent, respectively. Significant marketing positions have been developed in the small-to-medium size employer and group markets through a combination of superior customer service, technical competency, and a unique philosophy of providing a highly trained generalist sales force in combination with focused marketing organizations.
 The past several years' premium growth and statutory financial results have been strong for Principal Mutual. The return on adjusted surplus has averaged almost 13 percent over the past five years, significantly higher than industry norms. The company's return on average assets is considered strong for its mix of business and expense ratios are considered to be very good. The largest contributor to Principal Mutual's earnings is its group insurance business. One of the more significant risks facing Principal Mutual (and the health care industry as a whole) is uncertainty regarding additional federal involvement in the health care system.
 Principal Mutual's adjusted surplus totaled approximately $2,300 million at mid-year, 1993. The company's operating leverage as of June 30, 1993 was 12.3 times. Principal Mutual's operating leverage is considered to be conservative given the company's liability mix and the structure of its asset risks. Over the past several years the operating leverage ratio has been declining due to strong operating gains driven by its very profitable pension and group life and health operations. The company's earnings growth is expected to be slower over the next several years reflecting the impact of lost investment income and asset write-downs due to continued weak real estate markets; however, we expect only modest change in the operating leverage ratio for the foreseeable future.
 Principal Mutual had significant exposure to both private placement investments and mortgages at year end 1992. The mortgage portfolio is predominantly commercial mortgages. The company's historical loss experience in both asset categories has been better than average. At mid-year 1993, Principal Mutual's commercial mortgage portfolio had an incidence ratio of delinquencies, restructures and foreclosures at about half the rate of the industry. Most private placement securities have diminished risk due to their seniority and strong covenants.
 The company's liquidity profile is excellent relative to its surrenderability and withdrawal risks and management possesses in-depth asset/liability management expertise.
 -0- 10/25/93
 /CONTACT: Kevin A. Ceurvorst, CFA, of Duff & Phelps Credit Rating Co., 312-368-3144/


CO: Principal Mutual Life Insurance Company ST: Illinois IN: INS SU: RTG

MP -- NY056 -- 6257 10/25/93 11:17 EDT
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Publication:PR Newswire
Date:Oct 25, 1993
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