Retirement and Investor Services Segment
Our asset accumulation activities in the U.S. date back to the 1940s when
we first began providing pension plan products and services. We now offer a
comprehensive portfolio of asset accumulation products and services for retirement
savings and investment:
To businesses of all sizes with a concentration on small and medium-sized
businesses, we offer products and services for defined contribution pension
plans, including 401(k) and 403(b) plans, defined benefit pension plans, nonqualified
executive benefit plans and employee stock ownership plan ("ESOP")
consulting services. For more basic investment needs, we offer SIMPLE Individual
Retirement Accounts ("IRA") and payroll deduction plans;
To large institutional clients, we also offer investment-only products, including
guaranteed investment contracts ("GICs") and funding agreements and
To employees of businesses and other individuals, we offer the ability to
accumulate funds for retirement and savings through mutual funds, individual
annuities and bank products.
We organize our Retirement and Investor Services operations into six product
and service categories: full service accumulation, Principal Funds (our mutual
fund business), individual annuities, bank and trust services, investment only
and full service payout.
Full Service Accumulation
Products
We offer a wide variety of investment and administrative products for defined
contribution pension plans, including 401(k) and 403(b) plans, defined benefit
pension plans, nonqualified executive benefit plans and ESOPs. A 403(b) plan
is a plan described in Section 403(b) of the Internal Revenue Code that provides
retirement benefits for employees of tax-exempt organizations and public schools.
Full service accumulation products respond to the needs of plan sponsors seeking
both administrative and investment services for defined contribution plans or
defined benefit plans. The investment component of both the defined contribution
and defined benefit plans may be in the form of a general account, separate
account, a mutual fund offering or a collective investment trust. In addition,
defined contribution plans may also offer their own employer security as an
investment option.
INTERNATIONAL ASSET MANAGEMENT AND ACCUMULATION SEGMENT
Our International Asset Management and Accumulation segment consists of Principal
International and the discontinued operations of BT Financial Group. Principal
International has subsidiaries in Argentina, Chile, Mexico, Hong Kong and India
and joint ventures in Brazil, Japan and Malaysia. We focus on countries with
favorable demographics and a trend toward private sector defined contribution
pension systems. We entered these countries through acquisitions, start-up operations
and joint ventures.
PRINCIPAL INTERNATIONAL
The activities of Principal International reflect our efforts to accelerate
the growth of our assets under management by capitalizing on the international
trend toward private sector defined contribution pension systems. Through Principal
International, we offer retirement products and services, annuities, long-term
mutual funds and life insurance. We operate through subsidiaries in Argentina,
Chile, Mexico, Hong Kong and India and joint ventures in Brazil, Japan and Malaysia.
PRODUCTS, MARKETS AND DISTRIBUTION
ASIA/PACIFIC REGION
HONG KONG. Our subsidiary in Hong Kong is actively competing in the defined
contribution pension plan market. The government requires employers and employees
each to contribute 5% of an employee's income to a Mandatory Provident Fund.
We target small and medium-sized employers and distribute products through strategic
alliances with insurance companies, mutual funds or banks, direct marketing
and through our own sales representatives. Our strategic partners help distribute
our Mandatory Provident Fund products and services, or use our administrative
and investment services in their own products. Our Mandatory Provident Fund
products and services are marketed by agents under the various distribution
arrangements we have with our strategic partners. On January 31, 2004, our wholly-owned
subsidiary, Principal Asset Management Company (Asia) Limited, purchased a 100%
ownership of Dao Heng Fund Management ("DHFM") in Hong Kong from Guoco
Group Limited. The acquisition of DHFM increases our presence in the Hong Kong
defined contribution pension market.
INDIA. Our subsidiary in India competes in the mutual fund market managing and
administering funds for both individuals and corporations. In addition to the
current mutual fund business, we are positioning to compete in the emerging
pension and long-term savings market in India. We sell our mutual funds through
regional offices and regional bank offices located throughout India.
JAPAN. We own 50% of ING/Principal Pensions Company, Ltd., which sells a new
defined contribution pension plan as a result of legislation adopted in June
2001. This company targets small and medium-sized businesses and offers full-service
record-keeping and plan administration. Our joint venture partner is ING Insurance
International B.V., a member of the ING Group. Our pension sales representatives
distribute our products through ING Life's independent agents to existing ING
Life business clients and also through additional third-party distribution relationships
developed by ING/Principal Pensions Company, Ltd.
MALAYSIA. We own 30% of Commerce Asset Fund Managers Sendirian Berhad and Commerce
Trust Berhad, two mutual fund and asset management companies. Our joint venture
partner is Commerce Asset Holdings, a large Malaysian bank holding company.
The company markets mutual funds through wholesale bank channels and its own
sales force.
LATIN AMERICA
ARGENTINA. We own a life insurance company and a retirement annuity company
(our "Companies"). Principal Life Compania de Seguros, S.A., our life
insurance company, targets small and medium-sized employers. We sell group and
individual life insurance products through independent brokers. Principal Retiro
Compania de Seguros de Retiro, S.A., our annuity company, provides annuities
to individuals exiting the compulsory private pre-retirement asset accumulation
system. While recent adverse economic and political events in Argentina are
expected to impact our ongoing operations, we have been positioning our Companies
to work through this environment since mid-2001 and expect to manage revenues
and expenses accordingly.
BRAZIL. We own 46% of BrasilPrev Seguros e Previdencia S.A. ("BrasilPrev"),
a private pension company in Brazil, through a joint venture arrangement with
Banco do Brasil, Brazil's largest bank. We are Banco do Brasil's exclusive partner
for distributing pension, retirement and asset accumulation products.
BrasilPrev provides defined contribution products and annuities for the retirement
needs of employers and individuals. Banco do Brasil's employees sell directly
to individual clients through its bank branches. In addition, BrasilPrev reaches
corporate clients through two wholesale distribution channels: (1) a wholesale
distribution channel distributes products through a network of independent brokers
who sell to the public, and (2) another channel coordinates with Banco do Brasil's
corporate account executives to reach Banco do Brasil's existing corporate clients.
CHILE. We own Principal Compania de Seguros de Vida Chile S.A., a Chilean insurance
company, that primarily sells retirement annuities to individuals exiting the
pre-retirement accumulation system. In July 1998, we acquired Compania de Seguros
de Vida El Roble, S.A., or El Roble, a Chilean life insurance company. We have
fully integrated the operations of El Roble with those of Principal Compania
de Seguros de Vida Chile S.A. We distribute our annuity products through a network
of 69 captive agents and 386 independent agents as of December 31, 2003. We
utilize sales representatives who sell through brokers, and we also market life
insurance products to small and medium-sized businesses and to individuals through
brokers. Based upon assets, we were ranked as the fourth largest life insurance
company in Chile as of September 30, 2003, according to the Superintendencia
de Valores y Seguros, the Chilean regulatory agency for insurance companies.
We also own 100% of Principal Creditos Hipotecarios S.A. Through this business,
we originate, sell and service mortgage loans in Chile. In November 2001, we
acquired 70% of Tanner Administradora de Fondos Mutuos S.A., a well-known Chilean
Mutual Funds Administrator, as part of our strategy to enter the Voluntary Defined
Contribution Market in 2002.
MEXICO. We own Principal Mexico Compania de Seguros S.A. de C.V., ("Principal
Seguros"), a life insurance company, Principal Afore S.A. de C.V., a private
pension company which manages and administers individual retirement accounts
under the mandatory privatized social security system in effect for all employees
in Mexico, and Principal Pensiones S.A. de C.V., ("Principal Pensiones"),
an annuity company. Our focus is on both pre-retirement and post-retirement
savings plans. We distributed Principal Afore S.A. de C.V.'s products and services
through a dedicated sales force of approximately 1,700 sales representatives
as of December 31, 2003, who sell directly to individuals. As of December 31,
2003, Principal Pensiones used 138 employed sales representatives and independent
brokers to distribute annuities directly to customers. Our life insurance company,
Principal Seguros, distributes its products through an array of independent
agents and brokers. In May 2002, we acquired 100% of Zurich Afore S.A. de C.V.
from Zurich Financial Services to strengthen our competitive position in the
Mexican pension market. On February 28, 2003, we acquired AFORE Tepeyac S.A.
de C.V. from Mapfre American Vida, Caja Madrid and Mapfre Tepeyac . On July
31, 2003, we acquired S.I. Genera, S.A. de C.V. (Genera) a mutual fund company
that manages and administers funds for both individuals and corporations, from
Vector, Casa de Bolsa, S.A. de C.V. We distribute Genera's products and services
through a sales force of approximately 50 employees who are distributed throughout
the major cities in the country.
LIFE AND HEALTH INSURANCE SEGMENT
Our Life and Health Insurance segment offers (1) individual and group life
insurance (2) group health insurance and (3) individual and group disability
insurance throughout the U.S.
INDIVIDUAL AND GROUP LIFE INSURANCE
We began as an individual life insurer in 1879. We began as a group life insurer
in 1941.
Our individual and group life insurance products include: universal and variable
universal life insurance, traditional life insurance and group life insurance.
GROUP HEALTH INSURANCE
We began offering group health insurance in 1941. We offer a wide array of
group health insurance products including medical, dental and vision insurance.
In addition, we offer administrative services on a fee-for-service basis to
large employers in the U.S.
Our U.S. group health insurance products and services include: medical insurance,
dental and vision insurance and fee-for-service.
INDIVIDUAL AND GROUP DISABILITY INSURANCE
We began as an individual disability insurer in 1952. We began as a group disability
insurer in 1941.
PRODUCTS AND SERVICES
INDIVIDUAL DISABILITY INSURANCE. Individual disability insurance products provide
a benefit in the event of the disability of the insured. In most instances,
this benefit is in the form of a monthly income.
MORTGAGE BANKING SEGMENT
We began our residential lending activities in 1936. Our Mortgage Banking segment
is primarily engaged in residential loan production and loan servicing in the
U.S. Through our wholly-owned subsidiary, Principal Residential Mortgage, Inc.,
("Principal Residential Mortgage"), we originate, purchase, sell and
service mortgage loans. We principally originate "A" quality home
mortgages and do not originate subprime mortgages to any material degree, nor
do we service or purchase any subprime mortgage loans. "A" quality
loans are generally defined as loans eligible for sale to the Federal National
Mortgage Association, ("Fannie Mae"), Federal Home Loan Mortgage Corporation,
("Freddie Mac") and using the Government National Mortgage Association,
("Ginnie Mae") Program.
LOAN PRODUCTION
Our loan production strategy is to manage our three distribution channels:
correspondent lending, wholesale lending and Principal Residential Mortgage
Direct, in a manner that is consistent with our loan servicing strategy. We
obtain new customers through each of our three distribution channels, with the
majority being obtained through our correspondent lending and wholesale lending
operations.
CORRESPONDENT LENDING. Our "Correspondent Lending Service Center"
on our Internet website currently offers online access to loan registration,
an interactive sellers' procedure manual, seller-specific rate/price quotations
and simplified contact information. We are developing online technologies to
offer automated underwriting systems, pipeline reporting and account management
tools and electronic business-to-business capabilities for our correspondent
sellers. Additionally, we are entering into numerous alliances with third-party
service providers to further streamline processes, improve productivity and
provide outstanding customer service.
WHOLESALE. Mortgage loan brokers are approved only after a review of their
reputation and mortgage lending expertise and financial condition. Through the
"Wholesale Lending Service Center" on our Internet website, wholesale
lenders can retrieve contact information and seller specific interest rate quotations.
We have developed plans and are working to provide online registration, automated
underwriting systems, pipeline reporting and account management services to
our brokers. We are also developing electronic document delivery and execution
capabilities for wholesale sellers to exchange secure documents with wholesale
purchasers.
PRINCIPAL RESIDENTIAL MORTGAGE DIRECT. Our Mortgage Direct channel originates
prime credit quality mortgage loans through direct contact with current and
new customers via telephone and the Internet. The goal of our Internet channel
is to give our current customers access to a customer-focused website, allowing
them to obtain home financing quickly, confidently and at an attractive value,
while preserving acceptable profit margins for us. We believe that providing
current customers with choice, ease of access, convenient processes and simplified
procedures will encourage a growing percentage of our customers to choose us
for all of their home financing needs.
LOAN SERVICING
We service residential mortgages in return for a servicing fee. Our servicing
division receives and processes mortgage payments for home owners, remits payments
to investors and others, holds escrow funds, contacts delinquent borrowers,
supervises foreclosures and property dispositions and performs other miscellaneous
duties related to loan administration. We acquire only "A" or "A-"
quality home mortgages for servicing. This practice simplifies the systems necessary
for servicing and reduces the amount of time and money spent on collections
and foreclosure administration activities. Our goal is to service, on a non-recourse
basis, a majority of the loans that we originate.
CORPORATE AND OTHER SEGMENT
Our Corporate and Other segment manages the assets representing capital that
has not been allocated to any other segment. Financial results of the Corporate
and Other segment primarily reflect our financing activities (including interest
expense), income on capital not allocated to other segments, intersegment 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.