August 13, 2010
By EDGAR
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington D.C. 20549
Attention:		Mr. Jim Rosenberg,
		Senior Assistant Chief Accountant
Re: Principal Financial Group, Inc.
	Form 10-K for the Fiscal Year Ended December 31, 2009
	Form 10-Q for the Quarterly Period Ended March 31, 2010
	File No. 001-16725
Dear Mr. Rosenberg:
On behalf of Principal Financial Group, Inc., this letter responds to the comments of the
Division of Corporation Finance of the Securities and Exchange Commission contained in your
letter dated June 29, 2010, concerning the company’s annual report on Form 10-K and quarterly
report on Form 10-Q, both referenced above. In order to facilitate your review of our
responses, we have repeated your comments in bold in numerical order, immediately followed
by our responses in plain text.
Form 10-K for the Fiscal Year Ended December 31, 2009
Notes to the Consolidated Financial Statements
5. Investments, page 106
1.	Your disclosure does not appear to comply fully with note 6 to Article 7-03.1 of
	Regulation S-X. Please revise to disclose the name and aggregate amount invested in
	each person and its affiliates that exceeds 10% of your total stockholders’ equity.
RESPONSE:
As of March 31, 2010, and December 31, 2009, our aggregate amount invested in a single
person and its affiliates did not exceed 10% of our total stockholders’ equity.
Commercial Mortgage Loans, page 112
2.	Please disclose, preferably in a table, loans in your commercial loan portfolio
	grouped by current loan-to-value ratio, as appropriate, to provide informative
	disclosure about the risks in your portfolio. For example, groupings could include
	loans classified as low, medium or high loan-to-value ratio with a note explaining the
	definition of low, medium and high.

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RESPONSE:
We respectfully submit that we will address your request for additional disclosures regarding
the credit quality of our commercial mortgage loan portfolio through the implementation of
ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses, which was issued in July 2010 and will be effective for our year-
end 2010 reporting. The guidance requires interim and annual credit quality disclosures about a
portfolio by class of financing receivable, including quantitative and qualitative information
about the credit quality of financing receivables. We are in the process of evaluating alternative
ways to meet these disclosure requirements for year-end 2010 reporting.
In the interim periods we intend to continue to provide information regarding the risks in our
portfolio as we have done heretofore. Following is the disclosure included in our first quarter
2010 Form 10-Q:
	Page 84 of the MD&A - Our lending guidelines are designed to encourage 75% or less
	loan-to-value ratios and a debt service coverage ratio of at least 1.2 times. We analyze
	investments outside of these guidelines based on cash flow quality, tenancy and other
	factors. The weighted average loan-to-value ratio at origination for new brick and
	mortar commercial mortgages, excluding Global Asset Management segment
	mortgages, in our portfolio was 55% and 52% as of March 31, 2010 and December 31,
	2009, respectively. The debt service coverage ratio at loan inception for new brick and
	mortar commercial mortgages, excluding Global Asset Management segment
	mortgages, in our portfolio was 1.9 and 2.0 times as of March 31, 2010 and
	December 31, 2009, respectively. The weighted average loan-to-value ratio for loans
	held in our brick and mortar commercial mortgage portfolio, excluding Global Asset
	Management segment mortgages, was 69% as of both March 31, 2010 and December
	31, 2009. The debt service coverage ratio for loans held in our brick and mortar
	commercial mortgage portfolio, excluding Global Asset Management segment
	mortgages, was 1.8 times as of both March 31, 2010 and December 31, 2009.
Form 10-Q for the quarterly period ended March 31, 2010
Notes to the Consolidated Financial Statements
9. Fair Value Measurements, page 34
3.	Please revise your disclosures for assets and liabilities classified as Level 2 and
	Level 3 to quantify the inputs used in determining the fair value of each class of
	assets or liabilities as required by ASC 820-10-50-2e as amended by ASU 2010-
	06. Please see ASC 820-10-55-22A for examples of the inputs to be disclosed.
RESPONSE:
First Quarter 2010
In response to your request to revise our disclosure to include quantitative information about the
inputs used to fair value assets and liabilities, we would first like to describe our approach for
the first quarter of 2010 when we implemented the new guidance. As we worked through the
implementation of ASU 2010-06, it was unclear to us whether providing quantitative

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information about the inputs used in determining Level 2 and Level 3 measurements was 

required or was an alternative offered as one example to meet the requirement to describe the 

inputs used. As amended by ASU 2010-06, paragraph 820-10-50-2(e) requires that companies 

provide “a description” of the valuation techniques and of the inputs used to determine fair 

value. While ASC 820-10-55-22a and 22b discuss the disclosures of quantitative information 

on the inputs used, we did not interpret these examples as disclosure requirements, but rather as 

illustrations of ways that companies may comply with the requirements. The uncertainty 

around whether specific disclosures of quantitative inputs were required was shared by our 

peers. 

Our investment portfolio is very large and diverse, covering multiple asset classes. One third- 

party pricing service with whom we work to determine the fair valuation of our Level 2 

securities is International Data Corporation (IDC), a global provider of market data. During our 

first quarter evaluation of the guidance, we had discussions with IDC regarding the availability 

of quantitative valuation information, and at that time we understood that no other clients were 

requesting that level of information. At that time, IDC had no plans to expand the information it 

already provided. Through conversations with peer companies and other pricing vendors, we 

found no companies in our sample that were planning to include quantitative information in 

their disclosures, both because of the lack of clarity around the requirement and the lack of 

available information. 

In response to the ASU, we enhanced our disclosure by providing expanded qualitative 

discussion of the inputs by asset class (Attachment A illustrates, via highlighting, all instances 

where qualitative discussion of inputs are discussed). Because of the size and diversification of 

our portfolio, we did not believe that it would be practical to provide aggregated quantitative 

information that would be meaningful to the users of the financial statements. We reviewed 

peer company first quarter reports, found that our disclosures were comparable, and that no one 

had provided quantitative information on the specific inputs used. Upon receipt of your letter, 

we again reached out to IDC. It still has no plans to expand upon the information it provides in 

order to address this issue. The pricing service informed us that no other companies requested 

such information. IDC’s inability to provide the data does not reflect an unwillingness to do so, 

but rather the same challenge we face - to find a way to provide the information in a way that is 

meaningful and useful. 

Validation of Fair Values 

As financial statement preparers, it is our responsibility to understand the inputs into the fair 

value determination so that we are able to make the proper determination of the fair value level 

and are able to validate the period-end values for inclusion in our financial statements. 

Although we do not obtain detailed input on the multiple assumptions the pricing vendors use 

to value each security, we do have an understanding of the methodologies and types of inputs 

used by asset class and have a formal process to validate fair value prices provided by external 

sources. The review process includes investment analyst validation of all stale prices and a 

sample of externally sourced prices considered to have utilized observable inputs in order to 

validate the reasonableness of the prices. In addition, all externally sourced prices considered 

to have utilized unobservable inputs are validated. The validation process for both of these may 

include comparison of the price to a second external source, review of recent trade activity, use 

of internal models and direct interaction with external sources such as pricing vendors, brokers 

or other traders. Additionally, at the macro level, we perform analysis of our portfolio 

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compared to the current market environment based on interest rates and credit spreads by
sector, duration and credit quality to confirm reasonableness of overall prices.
Looking Forward
We appreciate and support the desire to provide financial statement users with information that
assists in their assessment of the quality of the fair values of a company’s investment holdings.
Furthermore, we acknowledge that we can continue to improve upon the qualitative disclosures
regarding valuation techniques and inputs. Specifically, we are evaluating how to improve the
qualitative discussion of the valuation and inputs of our Level 3 securities, excluding separate
account assets. Because these securities are valued using unobservable inputs, we believe that
disclosing more information for those securities could be useful to investors.
We have real concerns with our ability, as a single financial statement preparer, to find an
effective solution with regard to disclosing quantitative inputs that is satisfactory to all
interested parties. Our observation is that the majority of preparers did not provide disclosure
that quantifies their fair value inputs. We can only conclude that there is a lack of clarity with
the required disclosure, challenges with compliance, or both. To that end, we respectfully
request the Commission (perhaps through the Office of Chief Accountant) to consider whether
this situation warrants a working group consisting of financial statement preparers, pricing
services, auditors, standard setters and financial statement users to obtain a broader perspective
on the issues with the goal of finding a workable solution for all, and to facilitate consistent
interpretation and application of the solution.
We are willing to discuss in more detail the challenges we have identified in meeting your
request as well as share our perspective on how changes in the requirement could be modified
to find the right balance between providing meaningful information and doing so in an effective
manner.
*      *      *      *      *
After you have completed your review of our response, please call me if you have any questions
or comments.
Sincerely,
/s/ Terrance J. Lillis
Terrance J. Lillis
Senior Vice President and
Chief Financial Officer
(515) 247-4885
cc:	Vanessa Robertson (Securities and Exchange Commission)
	Mary Mast (Securities and Exchange Commission)

Page 5
	Attachment A

From 3/31/2010 Principal Financial Group 10-Q Note 9 – Fair Value Measurements:

Determination of fair value

The following discussion describes the valuation methodologies used for assets and
liabilities measured at fair value on a recurring basis or disclosed at fair value. The techniques
utilized in estimating the fair values of financial instruments are reliant on the assumptions
used. Care should be exercised in deriving conclusions about our business, its value or financial
position based on the fair value information of financial instruments presented below.

Fair value estimates are made at a specific point in time, based on available market
information and judgments about the financial instrument. Such estimates do not consider the
tax impact of the realization of unrealized gains or losses. In addition, the disclosed fair value
may not be realized in the immediate settlement of the financial instrument. We validate prices
through an investment analyst review process, which includes validation through direct
interaction with external sources, review of recent trade activity or use of internal models. In
circumstances where broker quotes are used to value an instrument, we generally receive one
non-binding quote. Broker quotes are validated through an investment analyst review process,
which includes validation through direct interaction with external sources and use of internal
models or other relevant information. We did not make any significant changes to our valuation
processes during the first quarter of 2010.

Fixed Maturities

Fixed maturities include bonds, asset-backed securities, redeemable preferred stock and
certain nonredeemable preferred stock. When available, the fair value of fixed maturities is
based on quoted prices of identical assets in active markets. These are reflected in Level 1 and
primarily include U.S. Treasury bonds and actively traded redeemable corporate preferred
securities.

When quoted prices are not available, our first priority is to obtain prices from third
party pricing vendors. We have regular interaction with these vendors to ensure we understand
their pricing methodologies and to confirm they are utilizing observable market information.
Their methodologies vary by asset class and include inputs such as estimated cash flows,
benchmark yields, reported trades, broker quotes, credit quality, industry events and economic
events. Fixed maturities with validated prices from pricing services, which includes the
majority of our public fixed maturities in all asset classes, are generally reflected in Level 2.
Also included in Level 2 are corporate bonds where quoted market prices are not available, for
which a matrix pricing valuation approach is used. In this approach, securities are grouped into
pricing categories that vary by sector, rating and average life. Each pricing category is assigned
a risk spread based on studies of observable public market data from the investment
professionals assigned to specific security classes. The expected cash flows of the security are
then discounted back at the current Treasury curve plus the appropriate risk spread. Although
the matrix valuation approach provides a fair valuation of each pricing category, the valuation
of an individual security within each pricing category may actually be impacted by company
specific factors.

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If we are unable to price a fixed maturity security using prices from third party pricing
vendors or other sources specific to the asset class, we may obtain a broker quote or utilize an
internal pricing model specific to the asset utilizing relevant market information, to the extent
available, which are reflected in Level 3 and can include fixed maturities across all asset
classes. These models primarily use projected cash flows discounted using a rate derived from
market interest rate curves and relevant risk spreads. As of March 31, 2010, less than 1% of our
fixed maturity securities, which were classified as Level 3 assets, were valued using internal
pricing models.

Equity Securities

Equity securities include mutual funds, common stock and nonredeemable preferred
stock. Fair values of equity securities are determined using quoted prices in active markets for
identical assets when available, which are reflected in Level 1. When quoted prices are not
available, we may utilize internal valuation methodologies appropriate for the specific asset that
use observable inputs such as underlying share prices, which are reflected in Level 2. Fair
values might also be determined using broker quotes or through the use of internal models or
analysis that incorporate significant assumptions deemed appropriate given the circumstances
and consistent with what other market participants would use when pricing such securities,
which are reflected in Level 3.

Mortgage Loans

Mortgage loans are not measured at fair value on a recurring basis. Fair values of
commercial and residential mortgage loans are primarily determined by discounting the
expected cash flows at current treasury rates plus an applicable risk spread, which reflects credit
quality and maturity of the loans. The risk spread is based on market clearing levels for loans
with comparable credit quality, maturities and risk. The fair value of mortgage loans may also
be based on the fair value of the underlying real estate collateral, which is estimated using
appraised values.

Policy Loans

Policy loans are not measured at fair value on a recurring basis. Fair values of policy
loans are estimated by discounting expected cash flows using a risk-free rate based on the U.S.
Treasury curve.

Derivatives

The fair values of exchange-traded derivatives are determined through quoted market
prices, which are reflected in Level 1. Exchange-traded derivatives include interest rate and
equity futures that are settled daily such that their fair value is not reflected in the consolidated
statements of financial position. The fair values of over-the-counter derivative instruments are
determined using either pricing valuation models that utilize market observable inputs or broker
quotes. The majority of our over-the-counter derivatives are valued with models that use market
observable inputs, which are reflected in Level 2. Significant inputs include contractual terms,
interest rates, currency exchange rates, credit spread curves, equity prices, and volatilities.

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These valuation models consider projected discounted cash flows, relevant swap curves, and
appropriate implied volatilities. Certain over-the-counter derivatives utilize unobservable
market data, primarily independent broker quotes that are nonbinding quotes based on models
that do not reflect the result of market transactions, which are reflected in Level 3.

Our derivative contracts are generally documented under ISDA Master Agreements,
which provide for legally enforceable set-off and close-out netting of exposures to specific
counterparties. Collateral arrangements are bilateral and based on current ratings of each entity.
We utilize the LIBOR interest rate curve to value our positions, which includes a credit spread.
This credit spread incorporates an appropriate level of nonperformance risk into our valuations
given the current ratings of our counterparties, as well as the collateral agreements in place.
Counterparty credit risk is routinely monitored to ensure our adjustment for non-performance
risk is appropriate.

Interest rate contracts. We use discounted cash flow valuation techniques to determine
the fair value of interest rate swaps using observable swap curves as the inputs. These are
reflected in Level 2. In addition, we have a limited number of complex inflation-linked interest
rate swaps and interest rate collars that are valued using broker quotes. These are reflected in
Level 3. We use option pricing models to determine the fair value of swaptions using
observable swap interest rate curves and observable implied volatilities as inputs. These are
reflected in Level 2.

Foreign exchange contracts. We use discounted cash flow valuation techniques that
utilize observable swap curves and exchange rates as the inputs to determine the fair value of
foreign currency swaps. These are reflected in Level 2. In addition, we have a limited number
of non-standard currency swaps that are valued using broker quotes. These are reflected within
Level 3. Currency forwards are valued using observable market inputs, including forward
currency exchange rates. These are reflected in Level 2.

Equity contracts. We use an option pricing model using observable implied volatilities,
dividend yields, index prices and swap curves as the inputs to determine the fair value of equity
options. These are reflected in Level 2.

Credit contracts. We use either the ISDA Credit Default Swap Standard discounted cash
flow model that utilizes observable default probabilities and recovery rates as inputs or broker
prices to determine the fair value of credit default swaps. These are reflected in Level 3.

Other contracts. We use broker prices to determine the fair value of commodity swaps.
These are reflected in Level 3.

Other Investments

Other investments reported at fair value primarily include seed money investments, for
which the fair value is determined using the net asset value of the fund. The net asset value of
the fund represents the price at which we feel we would be able to initiate a transaction. Seed
money investments in mutual funds for which the net asset value is published are reflected in
Level 1. Seed money investments in mutual funds or other investment funds in markets that do
not have a published net asset value are reflected in Level 2.

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Other investments reported at fair value also include commercial mortgage loans of
consolidated VIEs for which the fair value option was elected, which are reflected in Level 3.
Fair value of these commercial mortgage loans is computed utilizing a discount rate based on
the current market. The market discount rate is then adjusted based on various factors that
differentiate it from our pool of loans.

The carrying amounts of other assets classified as other investments in the
accompanying consolidated statements of financial position, which are not measured at fair
value on a recurring basis, approximate their fair values.

Cash and Cash Equivalents

Certain cash equivalents are reported at fair value on a recurring basis and include
money market instruments and other short-term investments with maturities of less than three
months. Fair values of these cash equivalents may be determined using public quotations, when
available, which are reflected in Level 1. When public quotations are not available, because of
the highly liquid nature of these assets, carrying amounts may be used to approximate fair
values, which are reflected in Level 2.

The carrying amounts of cash and cash equivalents that are not reported at fair value on
a recurring basis approximate their fair value.

Separate Account Assets

Separate account assets include equity securities, debt securities and derivative
instruments, for which fair values are determined as previously described, and are reflected in
Level 1, Level 2 and Level 3. Separate account assets also include commercial mortgage loans,
for which the fair value is estimated by discounting the expected total cash flows using market
rates that are applicable to the yield, credit quality and maturity of the loans. The market
clearing spreads vary based on mortgage type, weighted average life, rating and liquidity. These
are reflected in Level 3. Finally, separate account assets include real estate, for which the fair
value is estimated using discounted cash flow valuation models that utilize public real estate
market data inputs such as transaction prices, market rents, vacancy levels, leasing absorption,
market cap rates and discount rates. In addition, each property is appraised annually by an
independent appraiser. The real estate within the separate accounts is reflected in Level 3.

Cash Collateral and Cash Collateral Payable

Cash collateral is not measured at fair value on a recurring basis. The carrying amounts
of cash collateral received and posted under derivative credit support annex (collateral)
agreements and the carrying amount of the payable associated with our obligation to return the
cash collateral received approximate their fair value.

Investment-Type Insurance Contracts

Investment-type insurance contracts are not measured at fair value on a recurring basis.
The fair values of our reserves and liabilities for investment-type insurance contracts are

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estimated using discounted cash flow analyses based on current interest rates, including non-
performance risk, being offered for similar contracts with maturities consistent with those
remaining for the investment-type contracts being valued. Investment-type insurance contracts
include insurance, annuity and other policy contracts that do not involve significant mortality or
morbidity risk and are only a portion of the policyholder liabilities appearing in the
consolidated statements of financial position. Insurance contracts include insurance, annuity
and other policy contracts that do involve significant mortality or morbidity risk. The fair values
for our insurance contracts, other than investment-type contracts, are not required to be
disclosed.

Certain annuity contracts and other investment-type insurance contracts include
embedded derivatives that have been bifurcated from the host contract and that are measured at
fair value on a recurring basis, which are reflected in Level 3. The key assumptions for
calculating the fair value of the embedded derivative liabilities are market assumptions (such as
equity market returns, interest rate levels, market volatility, correlations, among other things)
and policyholder behavior assumptions (such as lapse, mortality, utilization, withdrawal
patterns, among other things). They are valued using a combination of historical data and
actuarial judgment. Stochastic models are used to value the embedded derivatives that
incorporate a spread reflecting our own creditworthiness and risk margins.

The assumption for our own non-performance risk for investment-type insurance
contracts and any embedded derivatives bifurcated from certain annuity and investment-type
insurance contracts is based on the current market credit spreads for debt-like instruments that
we have issued and are available in the market.

Short-Term Debt

Short-term debt is not measured at fair value on a recurring basis. The carrying amount
of short-term debt approximates its fair value because of the relatively short time between
origination of the debt instrument and its maturity.

Long-Term Debt

Long-term debt is not measured at fair value on a recurring basis. Fair values for debt
issues are estimated using discounted cash flow analysis based on our incremental borrowing
rate for similar borrowing arrangements.

Separate Account Liabilities

Separate account liabilities are not measured at fair value on a recurring basis. Fair
values of separate account liabilities, excluding insurance-related elements, are estimated based
on market assumptions around what a potential acquirer would pay for the associated block of
business, including both the separate account assets and liabilities. As the applicable separate
account assets are already reflected at fair value, any adjustment to the fair value of the block is
an assumed adjustment to the separate account liabilities. To compute fair value, the separate
account liabilities are originally set to equal separate account assets because these are pass-
through contracts. The separate account liabilities are reduced by the amount of future fees
expected to be collected that are intended to offset upfront acquisition costs already incurred

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that a potential acquirer would not have to pay. The estimated future fees are adjusted by an
adverse deviation discount and the amount is then discounted at a risk-free rate as measured by
the yield on U.S. Treasury securities at maturities aligned with the estimated timing of fee
collection.

Bank Deposits

Bank deposits are not measured at fair value on a recurring basis. The fair value of
deposits of our Principal Bank subsidiary with no stated maturity, such as demand deposits,
savings, and interest-bearing demand accounts, is equal to the amount payable on demand (i.e.,
their carrying amounts). The fair value of certificates of deposit is based on the discounted
value of contractual cash flows. The discount is estimated using the rates currently offered for
deposits of similar remaining maturities. The fair value estimates do not include the benefit that
results from the low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market.

Other Liabilities

Certain obligations reported in other liabilities include embedded derivatives to deliver
underlying securities of structured investments to third parties. The fair value of the embedded
derivatives is calculated based on the value of the underlying securities. We have had an
embedded derivative in which the fair value of the underlying securities was obtained from a
third party pricing vendor and was reflected in Level 2. We also have an embedded derivative
in which the fair value of the underlying securities is calculated utilizing the yield, credit quality
and average maturity of each security, which is reflected in Level 3.

Additionally, obligations of consolidated VIEs for which the fair value option was
elected are included in other liabilities. These obligations are valued either based on prices
obtained from third party pricing vendors as utilized and described in our discussion of how fair
value is determined for fixed maturities, which are reflected in Level 2, or broker quotes, which
are reflected in Level 3.