QUARTERLY STATEMENT OF THE

Transcription

1 QUARTERLY STATEMENT OF THE Principal Life Insurance Company TO THE Insurance Department OF THE STATE OF FOR THE QUARTER ENDED JUNE 30, 2017 LIFE AND ACCIDENT AND HEALTH 2017

2 ASSETS 1 Assets Statement Date December 31 Net Admitted Assets Prior Year Net Nonadmitted Assets (Cols. 1-2) Admitted Assets 1. Bonds 48,512,506,832 48,512,506,832 46,687,725, Stocks: 2.1 Preferred stocks 78,620,336 78,620,336 89,062, Common stocks 801,695, ,695, ,221, Mortgage loans on real estate: 3.1 First liens 12,163,509,943 12,163,509,943 11,551,484, Other than first liens 462,818, ,818, ,063, Real estate: 4.1 Properties occupied by the company (less $ encumbrances) 494,587, ,587, ,597, Properties held for the production of income (less $ encumbrances) 3,267,217 3,267,217 3,360, Properties held for sale (less $ encumbrances) 964, ,650 1,063, Cash ($ 252,104,373 ), cash equivalents ($ 231,533,643 ) and short-term investments ($ 1,999,861 ) 485,637, ,637, ,994, Contract loans (including $ premium notes) 785,455,923 2,106, ,349, ,390, Derivatives 703,158, ,158, ,715, Other invested assets 2,999,530,595 35,781,501 2,963,749,094 2,920,991, Receivables for securities 20,314,618 20,314,618 7,135, Securities lending reinvested collateral assets 11. Aggregate write-ins for invested assets (360,297,947) (360,297,947) (367,346,821) 12. Subtotals, cash and invested assets (Lines 1 to 11) 67,151,769,963 37,887,681 67,113,882,282 64,965,458, Title plants less $ charged off (for Title insurers only) 14. Investment income due and accrued 521,308,056 83, ,224, ,326, Premiums and considerations: 15.1 Uncollected premiums and agents' balances in the course of collection 55,242, ,622 54,920,914 54,824, Deferred premiums, agents' balances and installments booked but deferred and not yet due (including $ earned but unbilled premiums) 212,475, ,475, ,731, Accrued retrospective premiums ($ ) and 16. Reinsurance: contracts subject to redetermination ($ ) 16.1 Amounts recoverable from reinsurers 34,608,673 34,608,673 34,343, Funds held by or deposited with reinsured companies 16.3 Other amounts receivable under reinsurance contracts 192, , , Amounts receivable relating to uninsured plans 800, , federal and foreign income tax recoverable and interest thereon 393,002, ,002, ,080, Net deferred tax asset 690,034, ,080, ,954, ,157, Guaranty funds receivable or on deposit 24,989,867 24,989,867 14,625, Electronic data processing equipment and software 51,370,189 26,038,185 25,332,004 27,288, Furniture and equipment, including health care delivery assets ($ ) 66,000,947 66,000, Net adjustment in assets and liabilities due to foreign exchange rates 23. Receivables from parent, subsidiaries and affiliates 59,591,309 59,591,309 54,470, Health care ($ 2,023,908 ) and other amounts receivable 2,978, ,615 2,023, , Aggregate write-ins for other than invested assets 896,216, ,782,113 54,434,540 62,864, Total assets excluding Separate Accounts, Segregated Accounts and Protected Cell Accounts (Lines 12 to 25) 70,160,581,428 1,076,949,199 69,083,632,229 66,902,852, From Separate Accounts, Segregated Accounts and Protected Cell Accounts 111,830,044, ,830,044, ,434,865, Total (Lines 26 and 27) 181,990,626,151 1,076,949, ,913,676, ,337,717,794 DETAILS OF WRITE-INS rate swaps adjustment per permitted practice (233,826,185) (233,826,185) (232,486,454) Miscellaneous invested assets (126,471,762) (126,471,762) (134,860,367) Summary of remaining write-ins for Line 11 from overflow page Totals (Lines 1101 through 1103 plus 1198)(Line 11 above) (360,297,947) (360,297,947) (367,346,821) Service fee income, due and unpaid 45,437, ,235 44,783,356 39,559, Miscellaneous accounts receivable 44,885,709 9,209,344 35,676,366 51,293, Postretirement benefits asset 522,685, ,685, Summary of remaining write-ins for Line 25 from overflow page 283,208, ,233,422 (26,025,181) (27,988,744) Totals (Lines 2501 through 2503 plus 2598)(Line 25 above) 896,216, ,782,113 54,434,540 62,864,156 2

3 LIABILITIES, SURPLUS AND OTHER FUNDS 1 2 December 31 Prior Year Statement Date 1. Aggregate reserve for life contracts $ 37,002,921,365 less $ included in Line 6.3 (including $ Modco Reserve) 37,002,921,365 35,575,701, Aggregate reserve for accident and health contracts (including $ Modco Reserve) 1,658,982,278 1,610,917, Liability for deposit-type contracts (including $ Modco Reserve) 19,556,196,771 19,562,517, Contract claims: 4.1 Life 95,584, ,103, Accident and health 163,550, ,441, Policyholders dividends $ 149,923 and coupons $ due and unpaid 149, , Provision for policyholders dividends and coupons payable in following calendar year - estimated amounts: 6.1 Dividends apportioned for payment (including $ Modco) 127,899, ,940, Dividends not yet apportioned (including $ Modco) 6.3 Coupons and similar benefits (including $ Modco) 7. Amount provisionally held for deferred dividend policies not included in Line 6 8. Premiums and annuity considerations for life and accident and health contracts received in advance less $ discount; including $ 37,891,223 accident and health premiums 61,401,095 44,333, Contract liabilities not included elsewhere: 9.1 Surrender values on canceled contracts 9.2 Provision for experience rating refunds, including the liability of $ 5,366,325 accident and health experience rating refunds of which $ is for medical loss ratio rebate per the Public Health Service Act 29,500,353 32,157, Other amounts payable on reinsurance, including $ assumed and $ 109,356,722 ceded 109,356,722 72,369, Maintenance Reserve Commissions to agents due or accrued-life and annuity contracts $ 3,043,616, accident and health $ 5,166,965 and deposit-type contract funds $ 36,569,671 44,780,252 50,898, Commissions and expense allowances payable on reinsurance assumed 1,589,925 1,345, General expenses due or accrued 235,985, ,095, Transfers to Separate Accounts due or accrued (net) (including $ (166,058,382) accrued for expense allowances recognized in reserves, net of reinsured allowances) (193,222,805) 27,889, Taxes, licenses and fees due or accrued, excluding federal income taxes 54,091,909 38,873, federal and foreign income taxes, including $ on realized capital gains (losses) 15.2 Net deferred tax liability 16. Unearned investment income 267, , Amounts withheld or retained by company as agent or trustee 41,882,830 30,669, Amounts held for agents' account, including $ 7,885,918 agents' credit balances 7,885,918 6,482, Remittances and items not allocated 108,511, ,237, Net adjustment in assets and liabilities due to foreign exchange rates 21. Liability for benefits for employees and agents if not included above 22. Borrowed money $ and interest thereon $ 23. Dividends to stockholders declared and unpaid 24. Miscellaneous liabilities: Asset valuation reserve 843,816, ,941, Reinsurance in unauthorized and certified ($ ) companies 988, , Funds held under reinsurance treaties with unauthorized and certified ($ ) reinsurers 151,935, ,039, Payable to parent, subsidiaries and affiliates 264,239,033 84,341, Drafts outstanding Liability for amounts held under uninsured plans Funds held under coinsurance 3,048,986,808 2,816,726, Derivatives 346,677, ,990, Payable for securities 245,737,517 13,157, Payable for securities lending Capital notes $ and interest thereon $ 25. Aggregate write-ins for liabilities 429,177,022 (201,317,166) 26. Total liabilities excluding Separate Accounts business (Lines 1 to 25) 64,438,874,978 62,264,237, From Separate Accounts Statement 111,821,896, ,429,689, Total liabilities (Lines 26 and 27) 176,260,771, ,693,927, Common capital stock 2,500,000 2,500, Preferred capital stock 31. Aggregate write-ins for other than special surplus funds 32. Surplus notes 33. Gross paid in and contributed surplus 2,139,488,784 2,148,580, Aggregate write-ins for special surplus funds (173,080,675) (174,768,124) 35. Unassigned funds (surplus) 2,683,997,328 2,667,478, Less treasury stock, at cost: 36.1 shares common (value included in Line 29 $ ) 36.2 shares preferred (value included in Line 30 $ ) 37. Surplus (Total Lines ) (including $ 8,148,186 in Separate Accounts Statement) 4,650,405,437 4,641,290, Totals of Lines 29, 30 and 37 4,652,905,437 4,643,790, Totals of Lines 28 and 38 (Page 2, Line 28, Col. 3) 180,913,676, ,337,717,794 DETAILS OF WRITE-INS Cash collateral on derivatives 461,999,724 80,222, Miscellaneous liabilities 25,056,185 (219,272,803) Uncashed checks/drafts pending escheatment 14,703,347 15,963, Summary of remaining write-ins for Line 25 from overflow page (72,582,234) (78,230,142) Totals (Lines 2501 through 2503 plus 2598)(Line 25 above) 429,177,022 (201,317,166) Summary of remaining write-ins for Line 31 from overflow page Totals (Lines 3101 through 3103 plus 3198)(Line 31 above) rate swaps adjustment per permitted practice (185,493,705) (180,507,357) Affordable care act assessment 7,032, Deferred gain sale leaseback 5,380,530 5,739, Summary of remaining write-ins for Line 34 from overflow page Totals (Lines 3401 through 3403 plus 3498)(Line 34 above) (173,080,675) (174,768,124) 3

4 SUMMARY OF OPERATIONS 1 Year 2 Prior Year To Date 3 Prior Year Ended December 31 To Date 1. Premiums and annuity considerations for life and accident and health contracts 3,974,062,853 3,993,094,981 7,808,453, Considerations for supplementary contracts with life contingencies 16,284,525 16,758,388 29,461, Net investment income 1,335,404,500 1,349,038,104 2,879,572, Amortization of Maintenance Reserve (IMR) (29,366,263) (25,168,079) (53,325,778) 5. Separate Accounts net gain from operations excluding unrealized gains or losses 2 1, Commissions and expense allowances on reinsurance ceded 23,820,882 19,919,006 (17,157,566) 7. Reserve adjustments on reinsurance ceded 8. Miscellaneous Income: 8.1 Income from fees associated with investment management, administration and contract guarantees from Separate Accounts 375,646, ,267, ,334, Charges and fees for deposit-type contracts (22,151,465) (12,901,212) (87,836,229) 8.3 Aggregate write-ins for miscellaneous income 380,778, ,387, ,730, Totals (Lines 1 to 8.3) 6,054,479,465 6,041,395,886 12,045,234, Death benefits 351,975, ,130, ,885, Matured endowments (excluding guaranteed annual pure endowments) 257, , , Annuity benefits 982,359, ,862,884 1,835,974, Disability benefits and benefits under accident and health contracts 444,710, ,366, ,722, Coupons, guaranteed annual pure endowments and similar benefits 15. Surrender benefits and withdrawals for life contracts 909,332, ,094,393 1,623,562, Group conversions 17. and adjustments on contract or deposit-type contract funds 182,618, ,482, ,599, Payments on supplementary contracts with life contingencies 17,251,021 17,147,076 33,873, Increase in aggregate reserves for life and accident and health contracts 1,487,111,772 1,459,797,177 2,806,150, Totals (Lines 10 to 19) 4,375,616,613 4,152,253,062 8,118,365, Commissions on premiums, annuity considerations, and deposit-type contract funds (direct business only) 298,579, ,957, ,314, Commissions and expense allowances on reinsurance assumed 137,446, ,203, ,688, General insurance expenses 656,188, ,406,065 1,368,227, Insurance taxes, licenses and fees, excluding federal income taxes 70,432,271 68,088, ,106, Increase in loading on deferred and uncollected premiums (8,668,762) (6,911,608) (18,183,268) 26. Net transfers to or (from) Separate Accounts net of reinsurance (115,925,020) 62,173,746 55,841, Aggregate write-ins for deductions 77,280,140 65,968, ,802, Totals (Lines 20 to 27) 5,490,949,313 5,414,139,796 10,570,164, Net gain from operations before dividends to policyholders and federal income taxes (Line 9 minus Line 28) 563,530, ,256,089 1,475,070, Dividends to policyholders 64,305,622 73,450, ,727, Net gain from operations after dividends to policyholders and before federal income taxes (Line 29 minus Line 30) 499,224, ,806,063 1,335,342, Federal and foreign income taxes incurred (excluding tax on capital gains) 109,228,566 91,621, ,046, Net gain from operations after dividends to policyholders and federal income taxes and before realized capital gains or (losses) (Line 31 minus Line 32) 389,995, ,184,531 1,143,296, Net realized capital gains (losses) (excluding gains (losses) transferred to the IMR) less capital gains tax of $ (29,429,758) (excluding taxes of $ (14,835,599) transferred to the IMR) 1,016,227,913 (40,458,997) (146,571,829) 35. Net income (Line 33 plus Line 34) 1,406,223, ,725, ,724,759 CAPITAL AND SURPLUS ACCOUNT 36. Capital and surplus, December 31, prior year 4,643,790,731 4,496,653,760 4,496,653, Net income (Line 35) 1,406,223, ,725, ,724, Change in net unrealized capital gains (losses) less capital gains tax of $ (37,556,899) 45,207, ,101, ,791, Change in net unrealized foreign exchange capital gain (loss) (299,508) 217, , Change in net deferred income tax (300,598,955) 41,046,373 48,041, Change in nonadmitted assets 230,084, ,200,677 5,833, Change in liability for reinsurance in unauthorized and certified companies (988,932) 43. Change in reserve on account of change in valuation basis, (increase) or decrease 44. Change in asset valuation reserve (90,875,362) (64,682,053) (16,870,184) 45. Change in treasury stock 46. Surplus (contributed to) withdrawn from Separate Accounts during period 5, Other changes in surplus in Separate Accounts Statement 2,971, ,679 1,043, Change in surplus notes 49. Cumulative effect of changes in accounting principles 50. Capital changes: 50.1 Paid in 50.2 Transferred from surplus (Stock Dividend) 50.3 Transferred to surplus 51. Surplus adjustment: 51.1 Paid in (9,091,455) 7,620,099 27,118, Transferred to capital (Stock Dividend) 51.3 Transferred from capital 51.4 Change in surplus as a result of reinsurance (656,420) (384,656) 57,265, Dividends to stockholders (1,218,400,000) (525,000,000) (1,175,000,000) 53. Aggregate write-ins for gains and losses in surplus (55,451,040) (201,615,465) (20,970,727) 54. Net change in capital and surplus for the year (Lines 37 through 53) 9,114, ,976, ,136, Capital and surplus, as of statement date (Lines ) 4,652,905,437 4,686,630,526 4,643,790,731 DETAILS OF WRITE-INS Service fee income 378,476, ,658, ,674, Miscellaneous income 2,301,986 (1,271,209) 1,055, Summary of remaining write-ins for Line 8.3 from overflow page Totals (Lines through plus ) (Line 8.3 above) 380,778, ,387, ,730, Miscellaneous deductions 77,111,011 65,902, ,689, Regulatory fines and penalties 169,128 65, , Summary of remaining write-ins for Line 27 from overflow page Totals (Lines 2701 through 2703 plus 2798)(Line 27 above) 77,280,140 65,968, ,802, Transfer of undistributed equity to parent (31,021,595) Other postretirement benefits adjustment (17,889,360) (1,173,108) 19,206, rate swaps adjustment per permitted practice (4,986,348) (184,158,517) (22,386,161) Summary of remaining write-ins for Line 53 from overflow page (1,553,737) (16,283,841) (17,790,865) Totals (Lines 5301 through 5303 plus 5398)(Line 53 above) (55,451,040) (201,615,465) (20,970,727) 4

5 CASH FLOW 1 Year To Date 2 Prior Year To Date 3 Prior Year Ended December 31 Cash from Operations 1. Premiums collected net of reinsurance 4,041,946,080 3,933,249,260 7,269,117, Net investment income 1,549,158,058 1,443,691,235 3,100,617, Miscellaneous income 750,586, ,588,138 1,445,375, Total (Lines 1 to 3) 6,341,690,689 6,087,528,632 11,815,110, Benefit and loss related payments 2,890,038,240 2,593,590,911 5,209,380, Net transfers to Separate Accounts, Segregated Accounts and Protected Cell Accounts 105,187,607 (81,584,450) 337,728, Commissions, expenses paid and aggregate write-ins for deductions 1,222,285,278 1,159,099,947 2,271,859, Dividends paid to policyholders 72,315,027 80,863, ,854, Federal and foreign income taxes paid (recovered) net of $ 121,862,611 tax on capital gains (losses) 107,885,829 85,603, ,259, Total (Lines 5 through 9) 4,397,711,982 3,837,573,285 8,124,082, Net cash from operations (Line 4 minus Line 10) 1,943,978,707 2,249,955,347 3,691,027,725 Cash from Investments 12. Proceeds from investments sold, matured or repaid: 12.1 Bonds 4,786,545,726 3,860,503,441 8,683,920, Stocks 138,096,735 84,900, ,118, Mortgage loans 723,348, ,619,289 1,707,457, Real estate 298,149 3,765,226 3,770, Other invested assets 1,218,356, ,763, ,614, Net gains or (losses) on cash, cash equivalents and short-term investments 8,913 (1,512) 10,989, Miscellaneous proceeds 28,320,841 (22,335,095) (194,448,123) 12.8 Total investment proceeds (Lines 12.1 to 12.7) 6,894,975,025 4,754,214,384 10,760,423, Cost of investments acquired (long-term only): 13.1 Bonds 6,737,153,340 7,215,841,878 12,731,864, Stocks 155,864, ,985, ,342, Mortgage loans 1,250,088,902 1,089,124,566 2,570,348, Real estate 42,933,298 42,538,544 89,971, Other invested assets 123,334, ,228, ,882, Miscellaneous applications 43,167,805 42,632,535 86,375, Total investments acquired (Lines 13.1 to 13.6) 8,352,543,338 8,641,351,447 15,993,783, Net increase (or decrease) in contract loans and premium notes (15,355,130) 12,398,312 4,452, Net cash from investments (Line 12.8 minus Line 13.7 and Line 14) (1,442,213,182) (3,899,535,375) (5,237,812,317) 16. Cash provided (applied): 16.1 Surplus notes, capital notes Cash from Financing and Miscellaneous Sources 16.2 Capital and paid in surplus, less treasury stock (24,687,676) (19,830,177) (19,988,946) 16.3 Borrowed funds 16.4 Net deposits on deposit-type contracts and other insurance liabilities (171,594,460) 1,284,297,789 1,425,406, Dividends to stockholders 1,218,400, ,000,000 1,175,000, Other cash provided (applied) 701,560, ,380, ,156, Net cash from financing and miscellaneous sources (Line 16.1 through Line 16.4 minus Line 16.5 plus Line 16.6) (713,121,770) 983,847, ,574,331 RECONCILIATION OF CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS 18. Net change in cash, cash equivalents and short-term investments (Line 11, plus Lines 15 and 17) (211,356,245) (665,732,068) (674,210,261) 19. Cash, cash equivalents and short-term investments: 19.1 Beginning of year 696,994,122 1,371,204,384 1,371,204, End of period (Line 18 plus Line 19.1) 485,637, ,472, ,994,122 Note: Supplemental disclosures of cash flow information for non-cash transactions: Note receivable from parent in consideration of subsidiaries transferred to parent (300,000,000) Transfer of investment in undistributed equity of a subsidiary to parent 31,021, Capitalization of bond interest (927,293) (270,965) (944,386) Increase in bonds due to in kind asset transfer (103,509,050) (587,539,841) Increase in other invested assets due to in kind asset transfer (2,216,645) (6,051,980) Increase in interest receivable due to in kind asset transfer (1,026,205) (5,545,720) Other postretirement benefits liability transferred to affiliate 3,957,481 3,957, Decrease in mortgages due to transfer to other invested assets 31,851 31, Increase in other invested assets due to transfer from mortgages (31,851) (31,851) Decrease in bonds due to transfer to short-term investments 10,998,652 5

6 Note: Supplemental disclosures of cash flow information for non-cash transactions: Increase in short-term investments due to transfer from bonds (10,998,652) Decrease in bonds due to transfer to common stock 7,602, Incease in common stock due to transfer from bonds (7,602,319) Net assets from benefit plan sponsorship transferred to affiliate 600,

7 EXHIBIT 1 DIRECT PREMIUMS AND DEPOSIT-TYPE CONTRACTS 1 Year To Date 2 Prior Year To Date 3 Prior Year Ended December Industrial life 2. Ordinary life insurance 520,176, ,203,124 1,039,802, Ordinary individual annuities 1,505,383,701 1,786,819,895 3,045,341, Credit life (group and individual) 5. Group life insurance 207,525, ,010, ,225, Group annuities 989,933, ,870,311 1,971,144, A & H - group 626,974, ,987,296 1,180,117, A & H - credit (group and individual) 9. A & H - other 224,272, ,457, ,249, Aggregate of all other lines of business 11. Subtotal 4,074,265,655 4,076,348,254 8,070,879, Deposit-type contracts 12,622,586,417 11,923,366,604 21,403,467, Total 16,696,852,073 15,999,714,857 29,474,347,475 DETAILS OF WRITE-INS Summary of remaining write-ins for Line 10 from overflow page Totals (Lines 1001 through 1003 plus 1098)(Line 10 above) 6

8 NOTES TO THE FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies and Going Concern A. Accounting Practices The statement of the Company has been presented in conformity with accounting practices and procedures of the National Association of Insurance Commissioners ( NAIC ) as prescribed or permitted by the State of Iowa. The Insurance Division of the Department of Commerce of the State of Iowa ( Iowa Insurance Division ) recognizes only statutory accounting practices prescribed or permitted by the State of Iowa for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under the Iowa Insurance Law. The NAIC s Accounting Practices and Procedures Manual ( NAIC SAP ) has been adopted as a component of prescribed practices by the State of Iowa. The Commissioner of Insurance ( the Commissioner ) has the right to permit other specific practices that deviate from the prescribed practices. State of Iowa Bulletin 06-01, Accounting for Derivative Instruments Used to Hedge the Growth in Credited for Index Products, allows the Company to follow a prescribed practice related to its derivative instruments purchased to hedge indexed products. In accordance with the practice, the Company has included unrealized capital gains/(losses) as defined in the Bulletin in net investment income. The Company received approval from the Iowa Insurance Division regarding the use of a permitted practice that allows the Company to report interest rate swaps hedging its Variable Annuities with Guaranteed Living Benefits ( VA-GLB ) program at amortized cost as if they achieved hedge accounting treatment under Statement of Statutory Accounting Principles No. 86 Accounting for Derivative Instruments and Hedging Activities ( SSAP No. 86 ). During December 2016, the Company entered into a reinsurance transaction with Principal Reinsurance Company of Delaware II, a captive subsidiary of the Company that is not accredited. Reinsurance reserve credits associated with this transaction are considered a prescribed practice under Iowa Insurance Law. The Commissioner has the right to permit other specific practices that deviate from prescribed practices. The impact of all prescribed and permitted practices did not cause the Company s risk-based capital to trigger a regulatory event. A reconciliation of the Company s net income and capital and surplus between NAIC SAP and practices prescribed and permitted by the State of Iowa is shown below: SSAP F/S F/S NET INCOME # Page Line # June 30, 2017 December 31, 2016 (1) State basis (Page 4, Line 35, Columns 1 & 3) $ 1,406,223,877 $ 996,724,759 (2) State prescribed practices that is an increase/ (decrease) from NAIC SAP: Derivatives to hedge indexed products ,081,572 3,759,945 Reinsurance reserve credit ,896,824 58,014,692 (3) State permitted practices that is an increase/ (decrease) from NAIC SAP: (4) NAIC SAP (1-2-3=4) $ 1,325,245,481 $ 934,950,122 SURPLUS (5) State basis (Page 3, Line 38, Columns 1 & 2) $ 4,652,905,437 $ 4,643,790,731 (6) State prescribed practices that is an increase/ (decrease) from NAIC SAP: Reinsurance reserve credit 61 3,4 1,37 114,076,187 58,009,062 (7) State permitted practices that is an increase/ (decrease) from NAIC SAP: rate swaps hedging - VA-GLB 86 2,3,4 11,25,53 (159,468,524) (152,518,613) Tax effect of permitted practice 86 2,4 11,53 (26,025,181) (27,988,744) (8) NAIC SAP (5-6-7=8) $ 4,724,322,955 $ 4,766,289,026 B. Use of Estimates in the Preparation of the Financial Statements No significant changes have occurred in disclosure from December 31, C. Accounting Policy The Company uses the following accounting policies: (1) No significant changes have occurred in disclosure from December 31, (2) No significant changes have occurred in disclosure from December 31, (3) No significant changes have occurred in disclosure from December 31, (4) No significant changes have occurred in disclosure from December 31, (5) No significant changes have occurred in disclosure from December 31,

9 NOTES TO THE FINANCIAL STATEMENTS (6) Loan-backed and structured securities are reported at cost adjusted for amortization of premium and discount, both of which are computed using a constant effective yield based on security specific facts that may include expectations of delinquency and default rates, loss severity, prepayment speeds as determined by external or internal estimates and the expected maturity of the securities. An exception is certain loan-backed and structured securities, which are reported at fair value as determined by methods identified in the Purposes and Procedures Manual of the NAIC Securities Valuation Office. Significant changes in estimated cash flows from the original purchase assumptions are accounted for using the prospective method for those loan-backed and structured securities that are not of high credit quality, and the retrospective method is used for all other loan-backed and structured securities. (7) No significant changes have occurred in disclosure from December 31, (8) No significant changes have occurred in disclosure from December 31, (9) No significant changes have occurred in disclosure from December 31, (10) No significant changes have occurred in disclosure from December 31, (11) No significant changes have occurred in disclosure from December 31, (12) No significant changes have occurred in disclosure from December 31, (13) No significant changes have occurred in disclosure from December 31, D. Going Concern As of June 30, 2017, the Company did not have concerns about its ability to continue as a going concern. 2. Accounting Changes and Corrections of Errors No significant changes have occurred in disclosure from December 31, Business Combinations and Goodwill A. Statutory Purchase Method No significant changes have occurred in disclosure from December 31, B. Statutory Merger No significant changes have occurred in disclosure from December 31, C. Assumption Reinsurance No significant changes have occurred in disclosure from December 31, D. Impairment Loss No significant changes have occurred in disclosure from December 31, Discontinued Operations A. Discontinued Operation Disposed of or Classified as Held for Sale (1) List of Discontinued Operations Disposed of or Classified as Held for Sale Discontinued operation identifier of discontinued operation 1 Principal Global Investors, LLC (2) On May 1, 2017, the Company sold its ownership interest in Principal Global Investors, LLC to the Company s direct parent, Principal Financial Services, Inc., in connection with a corporate reorganization designed to better utilize and allocate capital internally. The Company received $1,368,400,000 in consideration for the sale, which was comprised of a $300,000,000 note receivable and a $1,068,400,000 intercompany receivable. The Company subsequently contributed the note receivable to a subsidiary, Principal Holding Company, LLC, and paid an extraordinary dividend of $1,068,400,000 to its parent. As the carrying value of Principal Global Investors, LLC prior to the sale was $334,335,309, the Company recognized a $1,034,064,691 pre-tax gain on sale. The Company recognized $24,000,000 in net investment income associated with dividends received from Principal Global Investors, LLC prior to the sale. (3) Loss Recognized on Discontinued Operations As of June 30, 2017, the Company did not recognize a loss on discontinued operations. 7.1

10 NOTES TO THE FINANCIAL STATEMENTS (4) Carrying Amount and Fair Value of Discontinued Operations and the Effect on Assets, Liabilities, Surplus and Income a. Carrying Amount of Discontinued Operations Carrying amount immediately Discontinued operation prior to classification fair value identifier as held for sale less costs to sell 1 $ 334,335,309 $ 1,368,400,000 b. Effect of Discontinued Operations on Assets, Liabilities, Surplus and Income Discontinued Amount attributable operation Line to discontinued identifier number Line description operations 1. Assets 1 8 Other invested assets $ (334,335,309) federal and foreign income tax recoverable and interest thereon $ 2,660, Receivable from parent, subsidiaries and affiliates $ 1,068,400, Aggregate write-ins for other than invested assets $ 300,000, Liabilities 1 14 Taxes, licenses and fees due or accrued, excluding federal income taxes $ 7,600, Surplus 1 35 Unassigned funds $ 1,029,124, Income 1 24 Insurance taxes, licenses and fees, excluding federal income taxes $ 7,600, Federal and foreign income taxes incurred $ (2,660,000) 1 34 Net realized capital gains $ 1,034,064, Change in net unrealized capital gains (losses) $ Change in deferred income tax $ (361,922,642) 1 41 Change in non-admitted asset $ 361,922, Miscellaneous surplus adjustment $ (31,021,595) B. Change in Plan of Sale of Discontinued Operation As of June 30, 2017, the Company did not have a change in plan of sale of a discontinued operation. C. Nature of Any Significant Continuing Involvement with Discontinued Operations After Disposal Principal Global Investors, LLC continues to provide asset management services for the Company. D. Equity Retained in the Discontinued Operation As of June 30, 2017, the Company did not have any equity interest retained in a discontinued operation after disposal. 7.2

11 5. Investments NOTES TO THE FINANCIAL STATEMENTS A. Mortgage Loans, including Mezzanine Real Estate Loans No significant changes have occurred in disclosure from December 31, B. Debt Restructuring No significant changes have occurred in disclosure from December 31, C. Reverse Mortgages No significant changes have occurred in disclosure from December 31, D. Loan-Backed Securities (1) Prepayment assumptions for loan-backed bonds and structured securities were obtained from broker dealer surveys or internal estimates. These assumptions are consistent with the current interest rate and economic environment. For loan-backed and structured securities not of high credit quality, the effective yield is recalculated on a prospective basis. For all other loan-backed and structured securities, the effective yield is recalculated on the retrospective basis. (2) The Company did not recognize any other-than-temporary impairments ( OTTI ) on the basis of the intent to sell during the six months ended June 30, The Company did not recognize any OTTI on the basis of the inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis during the six months ended June 30, (3) Following is information for each security with an OTTI recognized in the current reporting period by the Company, as the present value of cash flows expected to be collected is less than the amortized cost basis of the securities: Book/adj carrying value/ amortized Date of cost before Present financial current value of Amortized statement period projected Recognized cost after Fair where CUSIP OTTI cash flows OTTI OTTI (1) value reported 05947U4Q8 $ 5,015,060 $ 631,797 $ 4,383,263 $ 631,797 $ 1,008,512 03/31/ AG0 1,622 1,622 1,716 03/31/ F6U7 2,927,525 2,763, ,964 2,763,561 2,081,525 03/31/ VAY4 183, ,222 46, , ,960 03/31/ YAJ9 5,892,873 5,676, ,453 5,676,420 5,549,396 03/31/ EAE8 2,663,724 2,398, ,469 2,398,255 2,364,822 03/31/ PAM9 104,258 73,381 30,877 73, /31/ QBC4 45,161 7,240 37,921 7, /31/ SN46 71,717 54,967 16,750 54,967 72,557 03/31/ BNG9 671, , , , ,579 03/31/ AEV85 6,640,294 6,589,298 50,996 6,589,298 6,206,699 03/31/ AKKD2 3,557,984 3,467,348 90,636 3,467,348 3,484,475 03/31/ AL6W4 1,840,252 1,817,736 22,516 1,817,736 1,765,359 03/31/ AQVX3 4,707,780 4,648,862 58,918 4,648,862 4,530,077 03/31/ B1B27 4,579,325 4,552,377 26,948 4,552,377 4,237,071 03/31/ QKY1 7,437,515 7,392,430 45,085 7,392,430 7,410,062 03/31/ YBP7 1,398, ,783 1,239, , ,240 03/31/ YUJ0 1,924,122 1,874,673 49,449 1,874,673 2,078,992 03/31/ EAG6 12,473,290 12,324, ,769 12,324,521 12,266,025 03/31/ LAF9 4,006,815 3,929,118 77,697 3,929,118 3,781,998 03/31/ HEM2 7,409,348 7,226, ,224 7,226,124 4,196,503 03/31/ YBD3 32,084 6,744 25,340 6, /31/ CZ0 1,618,594 1,465, ,715 1,465, ,000 03/31/ MAG4 3,830,792 3,446, ,168 3,446,624 2,536,105 03/31/ KAM7 48,998 8,375 40,623 8,375 5,985 03/31/ DAJ1 7,499,899 7,395, ,377 7,395,522 7,495,212 03/31/ GAA5 3,676,188 3,099, ,148 3,099,040 2,462,922 03/31/ CAH3 6,218,930 6,054, ,421 6,054,509 6,123,324 03/31/ PAL8 5,606,442 5,513,977 92,465 5,513,977 5,291,940 03/31/ QAL1 7,482,019 7,413,447 68,572 7,413,447 7,434,375 03/31/2017 BCC0XPWW3 534, ,176 03/31/2017 1st Qtr 2017 $ 110,100,346 $ 100,465,889 $ 9,634,457 $ 100,465,889 $ 93,178,

12 NOTES TO THE FINANCIAL STATEMENTS Book/adj carrying value/ amortized Date of cost before Present financial current value of Amortized statement period projected Recognized cost after Fair where CUSIP OTTI cash flows OTTI OTTI (1) value reported 05947U4Q8 $ 613,609 $ 542,289 $ 71,320 $ 542,289 $ 1,081,007 06/30/ UD88 6,035,584 4,046,483 1,989,101 4,046,483 1,710,000 06/30/ AAQ7 2,005,233 1,206, ,268 1,206,965 1,882,401 06/30/ F6U7 2,702,566 2,671,358 31,208 2,671,358 2,012,306 06/30/ AS6 2,383,914 2,239, ,233 2,239,681 1,776,722 06/30/ AC9 8,231,311 7,645, ,480 7,645,831 5,420,242 06/30/ XAE8 9,224,506 9,137,167 87,339 9,137,167 8,407,925 06/30/ BAB4 22,787 14,832 7,955 14, /30/ AQVX3 3,968,042 3,901,975 66,067 3,901,975 3,902,337 06/30/ B2GX2 2,361,345 2,335,688 25,657 2,335,688 2,212,143 06/30/ LAF9 3,652,020 3,513, ,440 3,513,580 3,525,932 06/30/ AAL3 5,182,881 4,567, ,552 4,567,329 3,986,856 06/30/ HEM2 7,052,846 6,803, ,472 6,803,374 4,194,260 06/30/ CZ0 1,480,349 1,480,349 06/30/ DA4 117, ,560 06/30/ DB2 100, ,412 06/30/ MAG4 3,449,141 2,956, ,278 2,956,863 2,535,364 06/30/ KAM7 1, /30/ DAX9 10,430,987 10,303, ,201 10,303,786 10,258,571 06/30/ XAG1 7,518,577 7,249, ,544 7,249,033 7,138,884 06/30/ FAD4 15,298 5,942 9,356 5,942 6,471 06/30/ QAL1 7,391,270 7,366,723 24,547 7,366,723 7,425,669 06/30/ QAM9 13,563,359 13,399, ,020 13,399,339 13,502,018 06/30/2017 2nd Qtr 2017 $ 97,505,347 $ 89,909,120 $ 7,596,227 $ 89,909,120 $ 80,979,262 (1) Amortized cost after OTTI is the projected cash flow amount at the date of impairment. (4) For loan-backed and structured securities with unrealized losses as of June 30, 2017, the gross unrealized losses and fair value, aggregated by length of time that individual securities had been in a continuous unrealized loss position were as follows: a. Aggregate amount of unrealized losses: 1. Less than twelve months $ 54,028, Twelve months or longer 59,002,018 b. Aggregate related fair value of securities with unrealized losses: 1. Less than twelve months $ 4,039,356, Twelve months or longer 901,216,849 (5) The Company considers relevant facts and circumstances in evaluating whether the impairment of a security is other-than-temporary. Relevant facts and circumstances considered include (1) the length of time the fair value has been below amortized cost, (2) the reasons for the decline in value, (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) the Company s ability and intent to hold the security to maturity or until it recovers in value. The Company estimates the amount of the credit loss component of a loan-backed or structured security impairment as the difference between amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate cash flows discounted at the effective interest rate to accrete the security. The cash flow estimates are based on security specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. E. Repurchase Agreements and/or Securities Lending Transactions The Company participates in tri-party reverse repurchase agreements. In accordance with these agreements, the Company loans cash to other institutions for short periods of time in exchange for securities. The securities are held by a third party custodian and the Company agrees to resell the securities back to the transferor on a specific date for a stated price plus interest. The Company requires collateral valued at 102% to 107% of the purchase price, depending on the category of security pledged. As of June 30, 2017, the General Account was not subject to any reverse repurchase agreements. Separate Account policies and procedures related to reverse repurchase agreements are the same as those of the General Account. As of June 30, 2017, securities pledged as collateral for separate account investments in reverse repurchase agreements had an aggregate book value of $75,000,000 and an aggregate fair value of $76,191,052 with a range in maturity dates from 2017 to As of June 30, 2017, the Company was not engaged in securities lending in the General Account or Separate Accounts. 7.4

13 F. Real Estate NOTES TO THE FINANCIAL STATEMENTS No significant changes have occurred in disclosure from December 31, G. Low-Income Housing Tax Credits No significant changes have occurred in disclosure from December 31, H. Restricted Assets (1) Restricted assets (including pledged) Gross (admitted & non-admitted) restricted year Total Separate S/A assets Restricted asset Total General G/A supporting Account (S/A) supporting G/A category Account (G/A) S/A activity (a) restricted assets activity (b) Total (1 plus 3) a. Subject to contractual obligation for which liability is not shown $ $ $ $ $ b. Collateral held under security lending agreements c. Subject to repurchase agreements d. Subject to reverse repurchase agreements 75,000,000 75,000,000 e. Subject to dollar repurchase agreements f. Subject to dollar reverse repurchase agreements g. Placed under option contracts h. Letter stock or securities restricted as to sale - excluding FHLB capital stock 44,313,290 44,313,290 i. FHLB capital stock 140,000, ,000,000 j. On deposit with states 2,546,231 2,546,231 k. On deposit with other regulatory bodies l. Pledged as collateral to FHLB (including assets backing funding agreements) 4,004,388,614 4,004,388,614 m. Pledged as collateral not captured in other categories 3,845,679, ,173,316 3,949,853,245 n. Other restricted assets o. Total restricted assets $ 8,036,928,064 $ $ 179,173,316 $ $ 8,216,101,380 (a) Subset of Column 1 (b) Subset of Column 3 7.5

14 NOTES TO THE FINANCIAL STATEMENTS Gross (admitted & non-admitted) restricted Percentage Gross Total admitted & Admitted Increase/ Total admitted non-admitted restricted to Restricted asset Total from (decrease) non-admitted restricted restricted to total admitted category prior year (5 minus 6) restricted (5 minus 8) total assets (c) assets (d) a. Subject to contractual obligation for which liability is not shown $ $ $ $ % % b. Collateral held under security lending agreements % % c. Subject to repurchase agreements % % d. Subject to reverse repurchase agreements 95,000,000 (20,000,000) 75,000,000 % % e. Subject to dollar repurchase agreements % % f. Subject to dollar reverse repurchase agreements % % g. Placed under option contracts % % h. Letter stock or securities restricted as to sale - excluding FHLB capital stock 55,843,728 (11,530,438) 44,313,290 % % i. FHLB capital stock 120,000,000 20,000, ,000,000 % % j. On deposit with states 2,460,175 86,056 2,546,231 % % k. On deposit with other regulatory bodies % % l. Pledged as collateral to FHLB (including assets backing funding agreements) 3,313,630, ,758,454 4,004,388,614 2% 2% m. Pledged as collateral not captured in other categories 3,814,012, ,840,416 3,949,853,245 2% 2% n. Other restricted assets % % o. Total restricted assets $ 7,400,946,892 $ 815,154,488 $ $ 8,216,101,380 4% 4% (c) Column 5 divided by Asset Page, Column 1 Line 28 (d) Column 9 divided by Asset Page, Column 3 Line

15 NOTES TO THE FINANCIAL STATEMENTS (2) Detail of assets pledged as collateral not captured in other categories (contracts that share similar characteristics, such as reinsurance and derivatives, are reported in the aggregate) Gross (admitted & non-admitted) restricted year Total Separate S/A assets Restricted asset Total General G/A supporting Account (S/A) supporting G/A category Account (G/A) S/A activity (a) restricted assets activity (b) Total (1 plus 3) Derivative collateral $ 215,996,800 $ $ 103,962,143 $ $ 319,958,943 Reinsurance collateral 3,627,283,239 3,627,283,239 Lending arrangement 2,399,890 2,399,890 Master securities forward transaction agreements 211, ,173 Total (c) $ 3,845,679,929 $ $ 104,173,316 $ $ 3,949,853,245 Gross (admitted & non-admitted) restricted Percentage Gross admitted Admitted Increase/ Total current & non-admitted restricted to Restricted Total from (decrease) year admitted restricted to total admitted asset category prior year (5 minus 6) restricted total assets assets Derivative collateral $ 424,359,060 $ (104,400,117) $ 319,958,943 % % Reinsurance collateral 3,383,749, ,534,076 3,627,283,239 2% 2% Lending arrangement 2,899,844 (499,954) 2,399,890 % % Master securities forward transaction agreements 3,004,762 (2,793,589) 211,173 % % Total (c) $ 3,814,012,829 $ 135,840,416 $ 3,949,853,245 2% 2% (a) Subset of column 1 (b) Subset of column 3 (c) Total Line for Columns 1 through 7 should equal 5H(1)m Columns 1 through 7 respectively and Total Line for Columns 8 through 10 should equal 5H(1)m Columns 9 through 11 respectively (3) The Company did not have any other restricted assets as of June 30, (4) Collateral received and reflected as assets within the financial statements % of BACV Book/adjusted to total assets % of BACV to carrying value (admitted and total admitted Collateral Assets (BACV) Fair value non-admitted)* assets** a. Cash $ 462,286,724 $ 462,286,724 1 % 1 % b. Schedule D, Part 1 c. Schedule D, Part 2, Section 1 d. Schedule D, Part 2, Section 2 e. Schedule B f. Schedule A g. Schedule BA, Part 1 h. Schedule DL, Part 1 i. Other j. Total collateral assets $ 462,286,724 $ 462,286,724 1 % 1 % (a+b+c+d+e+f+g+h+i) * Column 1 divided by Asset Page, Line 26 (Column 1) ** Column 1 divided by Asset Page, Line 26 (Column 3) 1 2 % of liability to total Amount liabilities* k. Recognized obligation to return collateral asset $ 462,286,724 1 % * Column 1 divided by Liability Page, Line 26 (Column 1) I. Working Capital Finance Investments The Company did not have any working capital finance investments as of June 30, J. Offsetting and Netting of Assets and Liabilities The Company did not have any offsetting and netting of assets and liabilities as of June 30,

16 NOTES TO THE FINANCIAL STATEMENTS K. Structured Notes No significant changes have occurred in disclosure from December 31, L. 5* Securities Number of 5* securities Aggregate BACV Aggregate fair value Investment (1) Bonds - AC $ $ $ $ (2) LB&SS - AC 1 1 1,117 12, ,597 (3) Preferred stock - AC (4) Preferred stock - FV (5) Total ( ) 1 1 $ 1,117 $ 12,984 $ 494 $ 5,597 AC - Amortized cost FV - Fair value M. Short Sales The Company did not have any short sales as of June 30, N. Prepayment Penalty and Acceleration Fees General Account Separate Account (1) Number of CUSIPs (2) Aggregate amount of investment income $ 17,173,223 $ 1,601, Joint Ventures, Partnerships and Limited Liability Companies A. No significant changes have occurred in disclosure from December 31, B. The Company did not have any impairments as of June 30, Investment Income A. Due and accrued income excluded from investment income No significant changes have occurred in disclosure from December 31, B. The total amount non-admitted No significant changes have occurred in disclosure from December 31, Derivative Instruments A. No significant changes have occurred in disclosure from December 31, B. No significant changes have occurred in disclosure from December 31, C. No significant changes have occurred in disclosure from December 31, D. No significant changes have occurred in disclosure from December 31, E. No significant changes have occurred in disclosure from December 31, F. No significant changes have occurred in disclosure from December 31, Income Taxes A. No significant changes have occurred in disclosure from December 31, B. No significant changes have occurred in disclosure from December 31,

17 NOTES TO THE FINANCIAL STATEMENTS C. 1. income taxes (benefits) incurred consist of the following major components: June 30, 2017 December 31, 2016 Change (a) Federal $ 110,328,725 $ 199,455,615 $ (89,126,890) (b) 165,738 1, ,945 (c) Subtotal 110,494, ,457,408 (88,962,945) (d) Federal income tax on net capital gains (44,265,357) (100,341,565) 56,076,208 (e) Utilization of capital loss carryforwards (f) Other - federal income tax interest (1,265,897) (7,411,233) 6,145,336 Federal and foreign income taxes (g) incurred $ 64,963,209 $ 91,704,610 $ (26,741,401) 2. No significant changes have occurred in disclosure from December 31, No significant changes have occurred in disclosure from December 31, No significant changes have occurred in disclosure from December 31, D. As of June 30, 2017, the income tax benefit and change in deferred taxes differs from the amount obtained by applying the federal statutory rate of 35% to pretax net income for the following reasons: Amount Tax effect Provision computed at statutory rate $ 505,272, % Dividends received deduction (82,500,624) (5.7) Reserve basis and other surplus adjustments (16,308,454) (1.1) tax credits (14,923,924) (1.0) Tax-exempt investment income (11,612,096) (0.8) Exclude subsidiary income (8,935,500) (0.6) General business credits (8,697,905) (0.6) Stock options (6,145,896) (0.4) Change in non-admitted assets (1,365,523) (0.1) on federal income taxes (822,833) (0.1) Audit adjustments (121,894) Exclude IMR amortization 10,744, Business meals and nondeductible lobbying expenses 852, Other 127,470 Total $ 365,562, % Federal and foreign income taxes incurred $ 64,963,209 Change in net deferred income taxes 300,598,955 Total statutory income tax benefits $ 365,562, % E. 1. As of June 30, 2017, the Company had no net operating loss carryforwards and had no capital loss carryforwards. As of June 30, 2017, the Company had the following tax credit carryforwards: General Alternate business minimum Tax year (FTC) (GBC) (AMT) 2013 and prior $ $ 9,659,305 $ ,877,460 3,474, ,290,811 3,042,699 66,053, ,246,253 79,896, to date 1,265,389 51,000,000 Total credit carryforwards $ 38,168,271 $ 19,688,494 $ 196,950,225 The FTC carryforwards begin to expire in 2024 and the GBC carryforwards begin to expire in The AMT credit carryforwards have no expiration. All accumulated U.S. federal tax credit carryforwards are anticipated to be utilized before expiration. 2. The following income taxes were incurred in the current and prior years that will be available for recoupment in the event of future net losses: 2017 $ 82,828, ,889, ,780, No significant changes have occurred in disclosure from December 31, F. No significant changes have occurred in disclosure from December 31,