Principal Financial Group (PFG) +21.28%
The Wall Street Journal reports that the Treasury Department has decided to grant TARP funding to life insurers. No details have been released regarding which companies will receive aid. Life insurers argue that federal capital injections would allow them to buy more bank bonds and stimulate lending – the industry owns about $1 trillion in corporate debt.
AIG’s expanded and drawn-out rescue has played a big role in the delay of a decision on the insurance industry’s requests for aid. Principal Financial Group filed their TARP application back in November 2008. The insurance industry shouldn’t have been as aggressive – hindsight is 20/20 – but that won’t be a problem once the government gets involved and insurance profits are tamed for a long time.
In Principal’s case, the Life and Health insurance segment accounted for 45 percent of operating revenue in 2008. Like their peers, Principal has sizeable losses in its investment portfolio that back their policies. Principal, however, avoided guaranteeing minimum returns in their variable annuity business, which is a practice that has exacerbated problems for their peers.
Still, the bigger reason we continue to hold Principal (aside from the tremendous upside) is their Asset Management segment, which accounts for well over 50 percent of operating revenue. The bread and butter of this segment is Principal’s 401(k) business, which is a dominating player in the small to medium-size business market.
Because less than 20 percent of companies with fewer than 100 employees have 401(k) plans, Principal has plenty of opportunity to grow through this underpenetrated market. What may prove to be more important to Principal’s growth is their growing presence in several emerging markets such as Chile, Mexico, Hong Kong, Brazil, India, China and Malaysia.
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Peter Lazaroff, Junior Analyst
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