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Principal Jettisons Health Insurance Unit

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Principal Financial Group Inc. is getting out of the medical insurance and self-insured plan administration businesses, and it has arranged for UnitedHealth Group Inc. to handle renewals.

Caduceus

Principal, Des Moines, Iowa (NYSE:PFG), will stop selling health coverage, and it will begin a 36-month process of transferring renewal business to UnitedHealth, Minnetonka, Minn. (NYSE:UNH), as soon as state and federal regulatory requirements permit it to do so, the company says.

The decision does not affect Principal’s wellness, dental or vision benefits businesses, and it also has no effect on the company’s retirement, asset management and life insurance businesses, the company says.

Principal generated $344 million in premium revenue by providing health coverage for about 725,000 people in the second quarter.

Principal has about 1,500 employees in its health insurance business. The decision to get out of the health insurance business will affect 150 employees immediately, the company says.

Principal hopes to place some of the affected employees

in other jobs at the company, the company says.

Principal has been selling group health insurance since 1941.

Principal Chairman Larry Zimpleman says rapid changes in the medical insurance business would require the company to invest more capital to continue to offer competitive products.

“For us, that just does not make sense,” Zimpleman says in a statement.

Principal’s medical insurance business has been performing well financially, but the company’s retirement and asset management businesses have grown more quickly, and the relative size of the medical insurance business has been declining, Zimpleman says.

Shutting down the medical insurance business should free more than $100 million in capital, the company says.

Securities analysts at UBS Securities L.L.C., New York, say they like the move because the Principal health insurance unit is small in comparison with Principal and small in size overall. Special charges related to the move should fall as Principal “right-sizes personnel and infrastructure expenses over the next few years,” the analysts say.

Principal has proven to be a good judge of “knowing when to fold them” in the past. It agreed to sell a well-established mortgage-lending unit to Citigroup Inc., New York, back in May 2004.