Principal Financial plans to exit health insurance, cuts 150 jobs now, more later

By David Pitt, AP
Thursday, September 30, 2010

Principal Financial to exit health insurance

DES MOINES, Iowa — Principal Financial Group Inc., an insurance, retirement and financial services company, said Thursday it is getting out of the health insurance business.

It said the move will eliminate 150 jobs initially and more later.

Principal’s health insurance division employs 1,500 workers but some will be considered for other jobs in the company, which employs 14,000 people.

It has agreed to have UnitedHealthcare renew medical insurance coverage for its customers as the policies come up over the next 36 months.

The business has shrunk in recent years and to remain competitive the company would have had to pour money into it, CEO Larry Zimpleman said in a statement.

“The medical business continues to be one that undergoes rapid change, which would mean investing additional capital into the business to be able to offer competitive products. For us, that just does not make sense,” he said.

Principal will stop selling health insurance and immediately begin renewing with UnitedHealthcare, a division of Unitedhealth Group Inc., based in Minnetonka, Minn. The phase-out of policies is expected to take about 36 months.

As the business transfers, positions will be eliminated with 150 workers expected to lose their jobs initially and more as the transition occurs. Workers will be eligible to apply for other jobs, so not all of the 1,500 people in health care will be unemployed, the company said.

Exiting health care will allow Principal to focus capital on its asset accumulation and asset management businesses in the United States and internationally, Zimpleman said.

The company, which was founded about 130 years ago, got into the group life and health insurance businesses about 60 years ago.

It covers customers in 31 markets nationwide, mostly in the central United States.

It will continue to offer life insurance, dental, disability, vision and wellness programs.

In recent years its asset management business has become increasingly profitable and the insurance business less so.

It also is one of the leading providers of 401(k) retirement plans to small and mid-sized companies.

Principal expects elimination of the business to reduce its third-quarter earnings by 3 cents to 4 cents per share and full-year results to be cut by 18 cents to 20 cents per share.

Between $100 million and $120 million of capital now allocated to health insurance will be available for other uses once health insurance is phased out.

Principal shares rose 19 cents to $26.14 in midday trading while UnitedHealth Group shares rose 11 cents to $35.31.

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