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Best’s News & Research Service - May 21, 2015 09:28 AM (EDT)

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

  • May 21, 2015 09:28 AM (EDT)
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Oldwick //BestWire// - 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 domiciled in 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 leading market position and the strength of its franchise as the top writer of whole life insurance in the United States, its highly productive exclusive distribution system and superior risk-adjusted capitalization. The ratings also recognize Northwestern Mutual's favorable liability profile and the strength of its business profile as one of the largest mutual insurance companies in the United States, with $230 billion in consolidated statutory assets as of Dec. 31, 2014. The company's large block of traditional participating whole life insurance is viewed favorably in terms of product creditworthiness, and the company historically has exhibited favorable investment, expense, persistency and mortality results. Additionally, its ordinary life business is complemented by its annuity and disability products, which provide earnings diversification. A.M. Best notes that Northwestern Mutual's products are sold with a lack of aggressive product features (i.e., secondary guarantees on universal life products and living benefit riders on variable annuities) and provide for stable, long-term cash flows that contribute to the organization's favorable and highly predictable operating performance.

While life insurance premiums have increased modestly over the most recent period, A.M. Best notes the U.S. ordinary life insurance market remains saturated, with many companies competing for the same affluent customers. The number of Northwestern Mutual financial advisers has remained relatively stable, despite a modest decline during 2014. Northwestern Mutual may be challenged to increase and retain the same level of productive agents in the long term given the increasingly competitive marketplace. A.M. Best also notes that Northwestern Mutual has historically maintained above average, albeit declining exposure, to higher risk assets classes (i.e., below investment grade bonds, equities and alternative assets). However, A.M. Best believes Northwestern Mutual's superior balance sheet strength, combined with its stable liability structure, enables it to accept a somewhat greater degree of asset risk without considerable liquidity, capital or disintermediation concerns. Consistent with the U.S. life industry, Northwestern Mutual's portfolio yield has compressed due to the low interest rate environment.

NLTC has exhibited solid revenue growth in recent years, reflecting strong long-term care insurance sales, the exit of several companies from the market and substantial premium increases by a shrinking list of competitors. NLTC has experienced operating losses associated with higher sales costs and an increase in reserves due to the low interest rate environment and less favorable morbidity. Currently, the NLTC block remains modest in relation to overall reserves, although A.M. Best will continue to review its performance given its cautious view of the long-term care insurance market. While the company has not raised premiums for many years, it has de-risked its product through the elimination of more generous product features and revised its pricing to be gender distinct to improve operating performance. Recently, the vast majority of NLTC's reserves were reinsured with Northwestern Mutual, with the exception of an existing modest portion of reserves with an unaffiliated reinsurer.

A.M. Best believes the primary drivers of potential negative rating actions over the near term would be significant investment losses, substantial operating losses in the long-term care block, a material shift in business mix toward lower creditworthy products, a sustained decline in ordinary life production or a material decrease in risk-adjusted capitalization.

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.

Key insurance criteria reports utilized:


  • A.M. Best's Liquidity Model for U.S. Life Insurers

  • A.M. Best's Perspective on Operating Leverage

  • Evaluating U.S. Surplus Notes

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center .

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



United States Wisconsin Financial Strength Life Insurers Press Release Issue Credit Rating Insurance Issuer Credit Rating Best's Credit Rating Action


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