Negative Book Value Surprise Drags On Principal Financial
February 10 2009 - 12:39PM
Dow Jones News
A big drop in Principal Financial Group's (PFG) book value in
the fourth quarter helped drive down its share price on Tuesday,
despite the company's estimate that its capital position was
strong.
Principal's book value dropped to $7.45 per share in the fourth
quarter from $19.56 at the end of the third quarter, as unrealized
investment losses rose. The drop, larger than others in its peer
group, drove down the insurer's share price as low as $12.30 in
trading Tuesday. Recently, Principal's shares were down 25.6% to
$12.68.
Book value per share is a measure of a company's total
underlying value divided by the number of common shares
outstanding.
"Fourth quarter was a particularly unusual quarter," Larry
Zimpleman, Principal's president and chief executive officer, said
during an earnings conference call on Tuesday. He said the
company's relatively small program of variable annuities that
offered income or return guarantees meant the company didn't do as
much hedging of its investments, resulting in big unrealized losses
for the quarter that knocked just over $16.00 off book value.
"We remain comfortable with our decisions to minimize that
variable annuity exposure," Zimpleman said. "While it may have had
what looks to be negative impacts on GAAP (generally accepted
accounting procedures), it is still the right decision over the
long-term."
The unrealized losses may largely reverse, but the drop in book
value "will be too dramatic for the market to ignore, said Keefe,
Bruyette and Wood analyst Jeffrey Schuman in a Tuesday research
note of the company's book value drop.
Moody's followed by revising its ratings outlook on Principal to
negative, but left its rating unchanged. The rating on Principal's
life-insurance unit is at Aa2, or two steps below AAA. Moody's
noted the business' strong position in the U.S. group pension
markets, solid profitability, "excellent capital adequacy and
strong liquidity."
The company said its risk-based capital ratio remained well
above target at the end of the year, in a range between 420% and
445%.
On Monday, Principal reported a fourth-quarter net loss
available to common stockholders of $7.5 million or 3 cents per
share. Operating earnings, which exclude investment gains and
losses and other unusual items, was $179.0 million, or 69 cents per
share, compared to 87 cents for the same period in 2007.
Operating revenue for fourth quarter was $2.527 billion compared
to $2.899 billion for the same period last year.
Assets under management were $247.0 billion as of Dec. 31,
compared to $311.1 billion as of Dec. 31, 2007.
The stock has lost three-quarters of its value the past five
months as Principal, along with other life insurers, has been
dealing in recent months with rising investment-portfolio losses
amid the slumping equities market. Last year, the company halved
its dividend and suspended stock buybacks as it looked to boost
liquidity.
-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141;
lavonne.kuykendall@dowjones.com
(Shirleen Dorman contributerd to this report.)