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   responsetosec82310.htm - Generated by SEC Publisher for SEC Filing

     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.

     Page 2

     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

     Page 3

     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

     Page 4

     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.

     Page 6

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