Segment Information

12 Months Ended

Dec. 31, 2011

Segment Information

Segment Information

16. Segment Information

        We provide financial products and services through the following segments: Retirement and Investor Services, Principal Global Investors, Principal International and U.S. Insurance Solutions. In addition, there is a Corporate segment. The segments are managed and reported separately because they provide different products and services, have different strategies or have different markets and distribution channels.

        The Retirement and Investor Services segment provides retirement and related financial products and services primarily to businesses, their employees and other individuals.

        The Principal Global Investors segment provides asset management services to our asset accumulation business, our insurance operations, the Corporate segment and third-party clients.

        The Principal International segment has operations in Brazil, Chile, China, Hong Kong Special Administrative Region, India, Mexico and Southeast Asia. We focus on countries with large middle classes, favorable demographics and growing long-term savings, ideally with defined contribution markets. We entered these countries through acquisitions, start-up operations and joint ventures.

        The U.S. Insurance Solutions segment provides individual life insurance and specialty benefits, which consists of group dental and vision insurance, individual and group disability insurance, group life insurance, wellness services and non-medical fee-for-service claims administration, throughout the United States.

        The Corporate segment manages the assets representing capital that has not been allocated to any other segment. Financial results of the Corporate segment primarily reflect our financing activities (including interest expense and preferred stock dividends), income on capital not allocated to other segments, inter-segment eliminations, income tax risks and certain income, expenses and other after-tax adjustments not allocated to the segments based on the nature of such items.

        Management uses segment operating earnings in goal setting, as a basis for determining employee compensation and in evaluating performance on a basis comparable to that used by securities analysts. We determine segment operating earnings by adjusting U.S. GAAP net income for net realized capital gains (losses), as adjusted, and other after-tax adjustments which management believes are not indicative of overall operating trends. Net realized capital gains (losses), as adjusted, are net of income taxes, related changes in the amortization pattern of DPAC and sales inducements, recognition of deferred front-end fee revenues for sales charges on retirement and life insurance products and services, amortization of hedge accounting book value adjustments for certain discontinued hedges, net realized capital gains and losses distributed, noncontrolling interest capital gains and losses and certain market value adjustments to fee revenues. Net realized capital gains (losses), as adjusted, exclude periodic settlements and accruals on derivative instruments not designated as hedging instruments and exclude certain market value adjustments of embedded derivatives and realized capital gains (losses) associated with our exited group medical insurance business. Segment operating revenues exclude net realized capital gains (losses) (except periodic settlements and accruals on derivatives not designated as hedging instruments), including their impact on recognition of front-end fee revenues, certain market value adjustments to fee revenues and amortization of hedge accounting book value adjustments for certain discontinued hedges, and revenue from our exited group medical insurance business. Segment operating revenues include operating revenues from real estate properties that qualify for discontinued operations. While these items may be significant components in understanding and assessing the consolidated financial performance, management believes the presentation of segment operating earnings enhances the understanding of our results of operations by highlighting earnings attributable to the normal, ongoing operations of the business.

        The accounting policies of the segments are consistent with the accounting policies for the consolidated financial statements, with the exception of income tax allocation. The Corporate segment functions to absorb the risk inherent in interpreting and applying tax law. The segments are allocated tax adjustments consistent with the positions we took on tax returns. The Corporate segment results reflect any differences between the tax returns and the estimated resolution of any disputes.

        The following tables summarize selected financial information by segment and reconcile segment totals to those reported in the consolidated financial statements:

	December 31,
	2011		2010
	(in millions)
Assets:
Retirement and Investor Services	$	109,481.8	$	110,043.0
Principal Global Investors		1,833.3		1,308.1
Principal International		15,662.8		12,774.5
U.S. Insurance Solutions		17,790.9		16,558.2
Corporate		3,529.2		4,947.3
Total consolidated assets	$	148,298.0	$	145,631.1

	For the year ended December 31,
	2011			2010			2009
	(in millions)
Operating revenues by segment:
Retirement and Investor Services	$	4,074.1		$	4,124.4		$	4,041.5
Principal Global Investors		546.3			481.4			439.4
Principal International		909.5			779.9			562.1
U.S. Insurance Solutions		2,984.4			2,775.1			2,812.6
Corporate		(189.2	)		(118.9	)		(143.4	)
Total segment operating revenues		8,325.1			8,041.9			7,712.2
Net realized capital losses, net of related revenue adjustments		(221.8	)		(286.4	)		(473.2	)
Exited group medical insurance business		606.3			1,403.9			1,610.6
Terminated commercial mortgage securities issuance operation		—			(0.8	)		(0.5	)
Total revenues per consolidated statements of operations	$	8,709.6		$	9,158.6		$	8,849.1
Operating earnings (loss) by segment, net of related income taxes:
Retirement and Investor Services	$	581.1		$	584.4		$	510.4
Principal Global Investors		74.0			58.5			38.2
Principal International		154.0			136.9			118.9
U.S. Insurance Solutions		215.9			193.7			204.1
Corporate		(146.9	)		(128.7	)		(138.3	)
Total segment operating earnings, net of related income taxes		878.1			844.8			733.3
Net realized capital losses, as adjusted (1)		(148.3	)		(194.2	)		(213.4	)
Other after-tax adjustments (2)		(47.8	)		15.7			69.8
Net income available to common stockholders per consolidated statements of operations	$	682.0		$	666.3		$	589.7

(1)

Net realized capital losses, as adjusted, is derived as follows:

	For the year ended December 31,
	2011			2010			2009
	(in millions)
Net realized capital losses:
Net realized capital losses	$	(122.3	)	$	(191.5	)	$	(398.3	)
Certain derivative and hedging-related adjustments		(98.8	)		(90.0	)		(69.0	)
Certain market value adjustments to fee revenues		(0.1	)		(3.4	)		(1.5	)
Recognition of front-end fee revenues		(0.6	)		(1.5	)		(4.4	)
Net realized capital losses, net of related revenue adjustments		(221.8	)		(286.4	)		(473.2	)
Amortization of deferred policy acquisition and sales inducement costs		(31.5	)		(25.2	)		156.4
Capital gains distributed		(3.1	)		(12.0	)		(19.8	)
Certain market value adjustments of embedded derivatives		65.6			7.2			11.8
Net realized capital (gains) losses associated with exited group medical insurance business		(0.2	)		3.0			0.5
Noncontrolling interest capital gains		(31.6	)		(11.6	)		(18.6	)
Income tax effect		74.3			130.8			129.5
Net realized capital losses, as adjusted	$	(148.3	)	$	(194.2	)	$	(213.4	)

(2)

In 2011, other after-tax adjustments included (1) the negative effect resulting from (a) the impact of a court ruling on some uncertain tax positions ($68.9 million), (b) a contribution made to The Principal Financial Group Foundation, Inc. ($19.5 million) and (c) our estimated obligation associated with Executive Life of New York's liquidation petition ($10.3 million) and (2) the positive effect of gains associated with our exited group medical insurance business that does not yet qualify for discontinued operations accounting treatment under U.S. GAAP ($50.9 million).

• In 2010, other after-tax adjustments included (1) the positive effect of gains associated with our exited group medical insurance business that does not yet qualify for discontinued operations accounting treatment under U.S. GAAP ($24.0 million) and (2) the negative effect resulting from: (a) the tax impact of healthcare reform, which eliminates the tax deductibility of retiree prescription drug expenses related to our employees incurred after 2012 ($7.8 million) and (b) losses associated with our terminated commercial mortgage securities issuance operation that has been exited but does not qualify for discontinued operations accounting treatment under U.S. GAAP ($0.5 million).

  In 2009, other after-tax adjustments included the positive effect of gains associated with our exited group medical insurance business that does not yet qualify for discontinued operations accounting treatment under U.S. GAAP ($70.5 million) and the negative effect of losses associated with our terminated commercial mortgage securities issuance operation that has been exited but does not qualify for discontinued operations accounting treatment under U.S. GAAP ($0.7 million).

        The following is a summary of income tax expense (benefit) allocated to our segments for purposes of determining operating earnings. Segment income taxes are reconciled to income taxes reported on our consolidated statements of operations.

	For the year ended December 31,
	2011			2010			2009
	(in millions)
Income tax expense by segment:
Retirement and Investor Services	$	173.7		$	170.5		$	144.2
Principal Global Investors		41.0			33.7			21.0
Principal International		4.0			(0.4	)		0.5
U.S. Insurance Solutions		101.6			91.5			97.8
Corporate		(72.9	)		(61.4	)		(71.4	)
Total segment income taxes from operating earnings		247.4			233.9			192.1
Tax benefit related to net realized capital losses, as adjusted		(74.3	)		(130.8	)		(129.5	)
Tax expense related to other after-tax adjustments		63.3			21.0			37.5
Total income tax expense per consolidated statements of operations	$	236.4		$	124.1		$	100.1

        The following table summarizes operating revenues for our products and services:

	For the year ended December 31,
	2011			2010			2009
	(in millions)
Retirement and Investor Services:
Full-service accumulation	$	1,337.1		$	1,336.4		$	1,283.9
Principal Funds		560.4			507.3			445.3
Individual annuities		1,119.2			1,018.6			945.6
Bank and trust services		100.5			91.8			83.9
Eliminations		(111.8	)		(100.3	)		(89.1	)
Total Accumulation		3,005.4			2,853.8			2,669.6
Investment only		508.0			643.4			796.0
Full-service payout		560.7			627.2			575.9
Total Guaranteed		1,068.7			1,270.6			1,371.9
Total Retirement and Investor Services		4,074.1			4,124.4			4,041.5
Principal Global Investors (1)		546.3			481.4			439.4
Principal International		909.5			779.9			562.1
U.S. Insurance Solutions:
Individual life insurance		1,476.5			1,361.5			1,358.0
Specialty benefits insurance		1,507.9			1,413.6			1,454.6
Total U.S. Insurance Solutions		2,984.4			2,775.1			2,812.6
Corporate		(189.2	)		(118.9	)		(143.4	)
Total operating revenues	$	8,325.1		$	8,041.9		$	7,712.2
Total operating revenues	$	8,325.1		$	8,041.9		$	7,712.2
Net realized capital losses (except periodic settlements and accruals on non-hedge derivatives), including recognition of front-end fee revenues and certain market value adjustments to fee revenues		(221.8	)		(286.4	)		(473.2	)
Exited group medical insurance business		606.3			1,403.9			1,610.6
Terminated commercial mortgage securities issuance operation		—			(0.8	)		(0.5	)
Total revenues per consolidated statements of operations	$	8,709.6		$	9,158.6		$	8,849.1

(1)

Reflects inter-segment revenues of $212.2 million, $203.1 million and $195.4 million in 2011, 2010 and 2009, respectively. These revenues are eliminated within the Corporate segment.