Segment Information

6 Months Ended

Jun. 30, 2012

Segment Information

Segment Information

10.  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 select financial information by segment and reconcile segment totals to those reported in the consolidated financial statements:

	June 30, 2012		December 31, 2011
	(in millions)
Assets:
Retirement and Investor Services	$	111,536.2	$	108,998.0
Principal Global Investors	1,218.4		1,833.3
Principal International	17,229.1		15,612.1
U.S. Insurance Solutions	18,082.5		17,389.1
Corporate	3,984.5		3,529.2
Total consolidated assets	$	152,050.7	$	147,361.7

	For the three months ended						For the six months ended
	June 30,						June 30,
	2012			2011			2012			2011
	(in millions)
Operating revenues by segment:
Retirement and Investor Services	$	1,081.2		$	1,044.2		$	2,136.3		$	2,062.1
Principal Global Investors	141.1			136.3			279.2			261.6
Principal International	210.6			227.2			473.1			433.3
U.S. Insurance Solutions	751.5			730.7			1,448.5			1,462.7
Corporate	(48.1		)	(39.9		)	(93.4		)	(73.7		)
Total segment operating revenues	2,136.3			2,098.5			4,243.7			4,146.0
Net realized capital gains (losses), net of related revenue adjustments	(21.7		)	12.2			(52.1		)	(68.3		)
Exited group medical insurance business	4.0			180.8			22.9			435.7
Assumption change within our Individual Life business	—			4.9			—			4.9
Total revenues per consolidated statements of operations	$	2,118.6		$	2,296.4		$	4,214.5		$	4,518.3
Operating earnings (loss) by segment, net of related income taxes:
Retirement and Investor Services	$	141.7		$	154.7		$	285.3		$	308.8
Principal Global Investors	18.2			20.8			34.4			37.4
Principal International	36.9			36.3			78.7			64.1
U.S. Insurance Solutions	50.2			49.0			100.4			102.4
Corporate	(30.7		)	(31.8		)	(69.5		)	(63.9		)
Total segment operating earnings, net of related income taxes	216.3			229.0			429.3			448.8
Net realized capital gains (losses), as adjusted (1)	(39.2		)	23.5			(49.2		)	(31.4		)
Other after-tax adjustments (2)	(4.0		)	(35.2		)	(5.5		)	(18.1		)
Net income available to common stockholders per consolidated statements of operations	$	173.1		$	217.3		$	374.6		$	399.3

(1)Net realized capital gains (losses), as adjusted, is derived as follows:

	For the three months ended						For the six months ended
	June 30,						June 30,
	2012			2011			2012			2011
	(in millions)
Net realized capital gains (losses):
Net realized capital gains (losses)	$	0.2		$	37.7		$	(6.5	)	$	(20.3	)
Certain derivative and hedging-related adjustments	(22.4		)	(25.5		)	(45.7		)	(47.8		)
Certain market value adjustments to fee revenues	—			(0.1		)	—			(0.1		)
Recognition of front-end fee revenue	0.5			0.1			0.1			(0.1		)
Net realized capital gains (losses), net of related revenue adjustments	(21.7		)	12.2			(52.1		)	(68.3		)
Amortization of deferred policy acquisition and sales inducement costs	(28.7		)	(14.3		)	4.2			6.3
Capital (gains) losses distributed	5.6			(3.0		)	(1.9		)	(11.7		)
Certain market value adjustments of embedded derivatives	0.5			60.0			(1.4		)	63.8
Net realized capital (gains) losses associated with exited group medical insurance business	0.1			(0.1		)	0.2			(0.2		)
Noncontrolling interest capital gains	(0.1		)	(19.3		)	(8.2		)	(36.8		)
Income tax effect	5.1			(12.0		)	10.0			15.5
Net realized capital gains (losses), as adjusted	$	(39.2	)	$	23.5		$	(49.2	)	$	(31.4	)

(2)For the three months ended June 30, 2012, other after-tax adjustments included the negative effect resulting from losses associated with our exited group medical insurance business that does not yet qualify for discontinued operations accounting treatment under U.S. GAAP.

For the three months ended June 30, 2011, other after-tax adjustments included (1) the negative effect of (a) an assumption change in our Individual Life business ($34.5 million) and (b) a contribution made to The Principal Financial Group Foundation, Inc. ($19.5 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 ($18.8 million).

For the six months ended June 30, 2012, other after-tax adjustments included the negative effect resulting from losses associated with our exited group medical insurance business that does not yet qualify for discontinued operations accounting treatment under U.S. GAAP.

For the six months ended June 30, 2011, other after-tax adjustments included (1) the negative effect of (a) an assumption change in our Individual Life business ($34.5 million) and b) a contribution made to The Principal Financial Group Foundation, Inc. ($19.5 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 ($35.9 million).

	For the three months ended						For the six months ended
	June 30,						June 30,
	2012			2011			2012			2011
	(in millions)
Retirement and Investor Services:
Full service accumulation	$	334.4		$	342.3		$	667.1		$	685.7
Principal Funds	149.1			144.2			296.2			285.8
Individual annuities	289.6			288.2			561.9			562.4
Bank and trust services	25.3			24.6			49.8			48.4
Eliminations	(29.0		)	(28.5		)	(58.2		)	(57.4		)
Total Accumulation	769.4			770.8			1,516.8			1,524.9
Investment only	108.3			127.8			223.6			263.4
Full service payout	203.5			145.6			395.9			273.8
Total Guaranteed	311.8			273.4			619.5			537.2
Total Retirement and Investor Services	1,081.2			1,044.2			2,136.3			2,062.1
Principal Global Investors (1)	141.1			136.3			279.2			261.6
Principal International	210.6			227.2			473.1			433.3
U.S. Insurance Solutions:
Individual life insurance	358.7			353.5			672.2			711.8
Specialty benefits insurance	392.8			377.2			776.3			750.9
Total U.S. Insurance Solutions	751.5			730.7			1,448.5			1,462.7
Corporate	(48.1		)	(39.9		)	(93.4		)	(73.7		)
Total operating revenues	$	2,136.3		$	2,098.5		$	4,243.7		$	4,146.0
Total operating revenues	$	2,136.3		$	2,098.5		$	4,243.7		$	4,146.0
Net realized capital gains (losses), net of related revenue adjustments	(21.7		)	12.2			(52.1		)	(68.3		)
Exited group medical insurance business	4.0			180.8			22.9			435.7
Assumption change within our Individual Life business	—			4.9			—			4.9
Total revenues per consolidated statements of operations	$	2,118.6		$	2,296.4		$	4,214.5		$	4,518.3

(1)   Reflects inter-segment revenues of $53.3 million and $55.8 million for the three months ended June 30, 2012 and 2011, respectively, and $105.9 million and $107.5 million for the six months ended June 30, 2012 and 2011, respectively.