AM Best


A.M. Best Affirms Ratings of The Northwestern Mutual Life Insurance Company and Its Subsidiary


CONTACTS:


Michael Adams, FLMI
Senior Financial Analyst
(908) 439-2200, ext. 5133
michael.adams@ambest.com

Ken Johnson, CFA
Assistant Vice President
(908) 439-2200, ext. 5056
ken.johnson@ambest.com

Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
rachelle.morrow@ambest.com

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - APRIL 17, 2014 10:44 AM (EDT)
A.M. Best has affirmed the financial strength rating of A++ (Superior) and the issuer credit ratings of "aaa" of The Northwestern Mutual Life Insurance Company (Northwestern Mutual) and its subsidiary, Northwestern Long Term Care Insurance Company (NLTC) (both of Milwaukee, WI). Concurrently, A.M. Best has affirmed the debt rating of "aa" on the outstanding $1.75 billion 6.063% surplus notes due 2040 of Northwestern Mutual. The outlook for all ratings is stable.

The ratings reflect Northwestern Mutual's sizable and mature participating ordinary life insurance business, overall positive operating performance and strong risk-adjusted capitalization. The ratings also recognize the loyalty and productivity of the company's exclusive distribution system, as well as the competitive advantages derived from historically favorable investments, expenses, persistency and mortality experiences in its core business lines. These advantages allow Northwestern Mutual to consistently provide policy owners with dividend rates that are among the industry's highest, further contributing to the company's excellent persistency and leadership position in the individual life insurance market. A.M. Best notes that Northwestern Mutual maintains the flexibility to make modest adjustments to its dividend payout scale, which has mitigated the impact of declining investment yields associated with the low interest rate environment in recent periods.

While Northwestern Mutual has recently reduced allocations of certain higher risk assets including private partnerships and common stock, it maintains a somewhat elevated exposure to private placement bonds, below investment grade bonds and commercial mortgage loans in its general account investment portfolio. However, A.M. Best believes Northwestern Mutual's stable liability structure enables it to accept a somewhat greater degree of asset risk without considerable liquidity or disintermediation concerns. Additionally, although Northwestern Mutual maintains the number one market share position in individual life as measured by new business annualized premium, overall life insurance sales were relatively flat over the past year. A.M. Best notes that the individual life insurance market remains highly saturated with many companies competing for the same affluent market customers. In addition, A.M. Best notes that the number of financial advisors within the company's distribution system has increased only modestly over the past five-year period and that the retention rate of financial advisors has declined somewhat over the past year. A.M. Best will continue to monitor Northwestern Mutual's ability to increase its traditional whole life market share in the current competitive market environment.

NLTC has exhibited solid revenue growth in recent years, reflecting high persistency rates and strong long-term care insurance sales associated with improving economic conditions, as well as several recent market exits by its shrinking list of competitors. The company experienced a surge in sales in the second half of 2012 that carried over into 2013 after announcing that it would be suspending certain policy features. A.M. Best notes that operating results within the long-term care insurance line of business have been impacted by costs associated with increasing sales and substantial increases in reserves due to the low interest rate environment and less favorable morbidity. While A.M. Best maintains a cautious view on long-term care insurance, NLTC has not implemented premium rate increases on inforce policies since it entered the business in 1998. However, the company recently increased premiums on new sales, suspended policyholder dividends on most policies and eliminated some of the more generous product features in an effort to decrease risk and improve profitability in this line of business. A.M. Best notes the challenges faced by long-term care insurance writers due to the current low interest rate environment and will monitor Northwestern Mutual's ongoing performance in this product line.

Northwestern Mutual is currently afforded A.M. Best's highest ratings. Factors that could lead to potential negative rating actions would be a significant change in the company's current mix of business, substantial investment losses or continued sizable operating losses in its growing long-term care block of business, resulting in a material decline in risk-adjusted capital.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.


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