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Rating Action:

MOODY'S ASSIGNS Aa2 SENIOR DEBT RATING TO THE PRINCIPAL LIFE GLOBAL FUNDING I NOTE PROGRAM

09 Feb 2001
MOODY'S ASSIGNS Aa2 SENIOR DEBT RATING TO THE PRINCIPAL LIFE GLOBAL FUNDING I NOTE PROGRAM

Approximately US$3 Billion of Debt Securities Affected.

New York, February 09, 2001 -- Moody's Investors Service has assigned a Aa2 long-term debt rating to the funding agreement-backed global note program of Principal Life Global Funding I (PLGF), a newly organized Delaware business trust. Under the program, PLGF will issue notes in US dollars and other currencies to third party debt investors in both US and foreign capital markets.

These notes will be secured by funding agreement contract obligations issued by Principal Life Insurance Company (Principal Life, rated Aa2 for insurance financial strength) and held by PLGF. The PLGF program is similar to an existing program under which similar notes backed by Principal Life funding agreements are marketed internationally to non-US investors.

Moody's intends to rate each draw down of the PLFG program individually, since the terms of the program's individual series may affect their credit characteristics and rating; for example, Moody's will not rate notes linked to an external index based on equity price movements.

Funds for payment of the notes issued under the program are provided by the Principal Life funding agreement and a swap contract, when necessary, between Principal Life and PLGF. Moody's will normally rate notes issued in currencies other than US dollars at the same Aa2 rating as the US dollar denominated instruments, when the funding agreement and the notes are issued in the same currency (i.e., when no swap is required).

However, when the funding agreement and the notes are issued in different currencies (i.e., requiring a swap), then the instruments will carry a slightly greater level of risk to investors because the swap backing the notes will be subordinate to Principal Life's policyholder obligations. Under Iowa law, the funding agreements of Iowa-domiciled life insurance companies are considered pari passu with the other policyholder obligations of the company in the event of an insurer's liquidation, whereas swaps rank pari passu with the claims of their general creditors.

It is Moody's understanding that Principal Life does not intend to issue funding agreements in different currencies than the notes issued by PLGF. However, Moody's will monitor the swap portion of foreign currency obligations carefully, should a swap be utilized.

Moody's Aa2 insurance financial strength rating of Principal Life Insurance Company (Principal Life), the lead company of the Principal Financial Group (PFG), reflects its strong, broad-based position in the U.S. markets for group pensions and its good earnings diversity. It also reflects the company's captive distribution channels, its efficient, technology-based operations, disciplined financial and investment management, and its growing presence abroad. Principal Life's potential access to the equity market, as either a mutual holding company, or, possibly a fully demutualized company, is an additional corporate strength.

These strengths are tempered by the mounting competitive pressures, narrowing margins, and growing equity market exposure of PFG's key group pension and asset management businesses; by its sizable exposure to commercial mortgages, real estate, and mortgage banking activities, which have higher risk and volatility than the company's core life insurance business; and by its exposure (albeit declining) to the troubled health care industry. In addition, Principal Life's international expansion initiatives through other PFG affiliates (including its Australian asset management operation acquired in 1999), have increased its consolidated financial leverage, and expose the company to related pressures and financial risks. Nevertheless, these risks are well managed, and the outlook for Principal Life's rating is stable.

Principal Life Insurance Company is the lead operating company of the Principal Financial Group, a diversified life insurance and financial services group based in Des Moines, Iowa. At September 30, 2000, the company had statutory assets of $76 billion, and statutory capital of approximately $4.1 billion.

Visit Moody's Web site at www.moodys.com/insurance

New York
Robert Riegel
Managing Director
Life Insurance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Laura Bazer
VP - Senior Credit Officer
Life Insurance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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