Des Moines-based Principal Financial Group Inc. announced today that it will exit the medical insurance business and eliminate approximately 1,500 positions, including about 650 in Greater Des Moines.

Principal has entered into an agreement with UnitedHealth Group Inc. to renew medical insurance coverage for its customers during a 36-month transition period. The company did not disclose the financial terms of that agreement.

“While a difficult decision, this is the right strategic decision for the Principal,” said Larry Zimpleman, chairman, president and CEO, in a news release. “While performing well financially, our medical business has been declining in relative size for a number of years, thanks to strong growth from our retirement and asset management business.”

In the second quarter, Principal reported its life and health premiums had decreased by $167 million, “primarily due to a reduction in covered members in our health and specialty benefits businesses.”  Life and health insurance operating income was $54.6 million for the quarter, down from $124.4 million in the second quarter of 2009.

“Our life and specialty benefit businesses continue to perform extremely well,” said Dan Houston, president of Principal’s retirement, insurance and financial services division. “The health insurance premium was the single-largest negative impact on revenues.”

Zimpleman said that as the medical insurance business continues to change, it didn’t make sense for Principal to invest additional capital into to offer competitive products. The decision follows President Barack Obama’s health care reform bill earlier this year.

The renewal process with UnitedHealth will begin immediately.

Principal, which employs approximately 7,000 people in Greater Des Moines, will keep employees to help with the transition, but positions will be eliminated as the business transfers. Approximately 150 of the 1,500 positions will be eliminated within the next 30 days, and those employees will be considered for other jobs within the company.

The company estimates that as a result of the changes, third-quarter earnings will be reduced by 3 to 4 cents a share and full-year earnings will decline by 18 to 20 cents.