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AM Best Revises Principal Financial (PFG) and Arms' Outlook

Zacks Equity Research

Credit rating giant AM Best has revised the outlook from stable to positive with respect to the Long-Term Issuer Credit Ratings (Long-Term ICR) for Principal Life Insurance Company and Principal National Life Insurance Company. These two firms are the life insurance operating units of Principal Financial Group, Inc. PFG. Additionally, the rating agency affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the aforementioned companies. The outlook for FSR remained stable.

At the same time, the rating body updated the outlook from stable to positive and asserted the Long-Term ICRs of “a-” for Principal Financial and its subsidiary, Principal Financial Services. This apart, the Long-Term Issue Credit Ratings (Long-Term IR) of Principal Financial have been confirmed by the credit rating agency. Also, the company’s Short-Term Issue Credit Ratings (Short-Term IR) were affirmed by the rating giant.

The ratings of the aforementioned life insurance operating units represent a strong balance sheet, solid operational performance, favorable business portfolio and an appropriate enterprise risk management (ERM).

The arms’ balance sheet strength acknowledges the sustained level of an extremely strong risk-adjusted capitalization that these firms have maintained historically. So, the ratings signify the noticeable liquidity and financial flexibility of these subsidiaries and its parent company, Principal Financial as a whole.

With respect to the Long-Term ICR outlook of these units, the positive revision denotes the consistent strength and progress of the firms’ ERM abilities besides the disciplined risk culture and governance reflected in the operating efficiency.

Per the rating agency’s expectations, the risk management practices will continue to see a favorable progression, fueled by strategic efforts and development throughout the marketplace. The agency also anticipates the units to further improve abilities in the future.

It is important to note that rating affirmations or upgrades from credit rating agencies play a pivotal role in retaining investor confidence and maintaining the stock’s credit worthiness. Whereas rating downgrades not only hamper the respective company’s business but also increase its cost of future debt issuances. We believe, such ratings will help Principal Financial keep investors’ trust and write more businesses going forward.

Zacks Rank and Share Price Movement

Shares of this Zacks Rank #5 (Strong Sell) investment manager have lost 17.5% in a year’s time, narrower than the industry’s decrease of 19.4%. We expect the company’s sustained investment performance, strong asset under management plus a solid capital position to turn the stock around and perk it up in the near term.

Stocks to Consider

Investors interested in better-ranked stocks from the finance sector can consider Arch Capital Group Ltd. ACGL, Cincinnati Financial Corporation CINF and Torchmark Corporation TMK.  

Arch Capital Group provides property, casualty and mortgage insurance and reinsurance products worldwide. The company delivered positive surprises in all the last four reported quarters, the average being 14.72%. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cincinnati Financial provides property and casualty insurance products in the United States. The company pulled off positive surprises in three of the trailing four reported quarters, the average positive surprise being 18.08%. The company flaunts a Zacks Rank of 1.

Torchmark provides various life and health insurance products, and annuities in the United States, Canada and New Zealand. The company came up with positive surprises in three of the preceding four reported quarters, the average beat being 2%. The company holds a Zacks Rank #2 (Buy).

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