Principal Financial Extends Joint Venture in Brazil

Principal Financial Group said it has inked a deal to extend its joint venture in Brazil by 23 years.

BrasilPrev Seguros e Previdencia S.A. will have the exclusive right to develop and distribute pension and long-term asset accumulation plans and products within the Banco do Brasil network.

BrasilPrev was formed in 1999 between Principal and Banco do Brasil, the largest bank in Brazil, and mostly sells defined-contribution retirement plans for employers and individuals, said Paula Chizek, a spokeswoman for Principal (NYSE: PFG).

Principal's relationship with Banco do Brasil through BrasilPrev gives it access to more than 54 million customers. Brazil offers opportunity "especially given its growing middle class who are looking for retirement and investment options," Chizek said.

Principal's share of profits will now be 25.00%, while its previous share was 46.01%. Banco do Brasil's share is 74.99%. Principal's share is down due to the exchange for the economic interest of the long-term, or 23-year, extension of the exclusive distribution agreement, Chizek said.

The joint venture will be co-managed, with Principal owning 50.01% of BrasilPrev common stock and Banco do Brasil owning 49.99 %.

Principal offers pension, retirement and asset-accumulation products through BrasilPrev and its JV partner is Banco do Brasil, she said. Under the agreement, BrasilPrev sells the plans, Chizek said.

Principal is positioned for international growth by leveraging its retirement plan expertise in the United States to serve countries with favorable demographics and growing long-term savings and defined contribution markets, according to A.M. Best Co. (BestWire, Nov. 25, 2009). While investment in international businesses through the use of joint ventures and acquisitions has been judicious, legislative actions, government controls and intense competition from insurers worldwide may limit growth or unexpectedly turn a viable business unprofitable, Best said.

Over the past 10 years, Principal "built BrasilPrev into one of Brazil's top retirement services companies," with about 3 million accounts and nearly $16 billion in assets under management, said Larry Zimpleman, chairman, president and chief executive officer of Principal, in a statement.

Principal Life Insurance Co. currently has a Best's Financial Strength Rating of A+ (Superior).

On the afternoon of May 4, Principal's stock was trading at $29.99 a share, down 0.89% from the previous close.

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)