Of all the reasons policyowners and clients valueNorthwestern Mutual as their partner on the pathto financial security, one is paramount. It’s oftencalled the company’s “mutual advantage.”
Northwestern Mutual did not invent “mutuality.”Over time, however, and continuing today, our companyhas become what many point to as the pre-eminentexample of the power inherent in the mutual form ofcorporate governance.Indeed, Northwestern Mutual offers dramatic evidence that a company governed by mutualvalues can be, in its field, best in the nation. During the period that FORTUNE magazineconducted its “definitive report card on corporate reputations,” Northwestern Mutual wasthe only company to lead its industry as one of America’s Most Admired Companies® for25 consecutive years.1The mutual structure of Northwestern Mutual allows the company to act differently thanmost publicly traded stock companies, which typically must split their focus betweencustomers and shareholders.In the typical stock company, profits As a mutual, Northwestern Mutualgo to shareholders. In contrast, has no shareholders. The companyNorthwestern Mutual is more like a focuses solely and directly oncooperative. After setting aside a safe its customers.margin for reserves and surplus eachyear, the company returns what wouldotherwise be “profits” to its participating policyowners in the form of dividends. In otherwords, our mutual structure brings into alignment the interests of both policyowners andcompany. For policyowners, that’s an enormous “mutual advantage.”There are others. As a mutual, the company is free to employ a long-term investmentapproach within its general account investment portfolio, rather than following an approachfocused on meeting quarterly expectations. As a strategy, long-term investing has served uswell in all economic environments. Respected experts praise the company’s mutual structureand values as underpinning an “extremely strong competitive position” within the U.S. lifeinsurance industry2—one in which Northwestern Mutual focuses on helping itspolicyowners and clients achieve financial security.As practiced by Northwestern Mutual, however, mutuality extends well beyond these basicmutual advantages. The benefits of our mutuality are manifested in four key values:• Doing what’s right for policyowners and other clients• Building long-term relationships to meet client needs• Building and preserving financial strength• Offering world-class products and expert guidance that serve changing needs over a lifetimeWe invite you to explore these values on the following pages, to see how our brand ofmutuality sets us apart. We believe you will find it to be … a mutual advantage.1 FORTUNE® magazine survey, “America’s Most Admired Companies,” March 17, 20082 Standard & Poor’s, March 23, 2010
More than a Century and a Half of Doing the Right Thing for Policyowners Our steadfast dedication to doing the right special or improved benefits—benefits not thing for policyowners is as old as the available to current policyowners. company itself. Since our beginnings in 1857, generations of company leaders have tested Such an approach is not the practice the merits of corporate decisions against only at Northwestern Mutual, where all one standard: “Is what we’re doing in the policyowners are treated equitably. best long-term interest of our policyowners?” This guiding principle extends to all areas: pricing, underwriting, claims, dividend It’s an uncompromising focus on the payouts, and more. customer, one that embraces a strong belief in fairness—equitable treatment for all. Equitable treatment at work As our life and disability insurance Equitable treatment for all products are enhanced or improved, Elsewhere in the life insurance industry, our current policyowners are invited to inequitable treatment of policyowners share in the new benefits at no charge, has become commonplace. To attract new whenever possible and practical. The same customers, many companies have offered is true of policies offered by Northwestern Long Term Care Insurance Company.2 | “… It (is) …. pre-eminently the policyowner’s “Our beliefs are not the easy way— company.” but we think they are the right way. We do – Executive Committee of the not propose to change our philosophy of Board of Trustees, 1888 mutuality and fairness to all policyowner- members. This company is different.” – Francis Ferguson, President and CEO, Northwestern Mutual, 1973 “The company is a mutual organization in the strictest and best sense … This is a company operated by the policyholders and for the best “Northwestern Mutual executives use a simple interests of the policyholders.” yardstick to measure every business venture, – Examination of the Wisconsin every business decision, every contract: Insurance Department, 1905 Is it in the best interest of the 2.8 million policyowners …?” – Best’s Review, 1999
Throughout the years, the company hasoffered several life insurance enhancementsto existing policyowners—because doing soserves the best interests of our policyowners.One program alone offered life insurancepolicyowners $4.5 billion of additionalinsurance at no increase in premium.A recognized distinctionForbes magazine acknowledged the unusualnature of our commitment: “The tactics ofMilwaukee-based Northwestern Mutual area little bit unconventional. It has a habit ofattracting new customers by giving awaymoney to old ones.”3 n3 Forbes, “Shopping for Life,” February 22, 1988 | 3“We believe mutuality provides Northwestern “We believe mutuality is at the center of Mutual with great competitive advantage Northwestern Mutual’s success. We found and is one of the factors that has enabled a near obsessive focus on the long term to the company to remain financially strong deliver the ‘promise’ to all policyowners.” and to keep decisions focused on longer- – Report of the Policyowners’ Examining Committee, 2004 term implications (rather than on reported quarterly earnings).” – Report of the Policyowners’ “… Northwestern Mutual has been able to stay Examining Committee, 2001 the course, true to its founding principles and with policyowners’ interest as its guiding light.”“A commitment to policyholders and the mutual – Report of the Policyowners’ Examining Committee, 2006 structure are key aspects of Northwestern Mutual’s strategy. These principles underlie the company’s emphasis on efficiency, “Simply put, most mutual companies have more personalized ‘high-touch’ service and and better quality capital to absorb unexpected competitive dividends to policyholders.” shocks—a vital distinguishing factor in today’s – Standard & Poor’s, 2009 challenging economy.” – Revenge of the Mutuals, Special Comment Moody’s Investors Service, August 2009
The Benefits of Taking the Long-term View Steady, stable, superior value is commonly ranked as a leader in customer satisfaction. Again this year, we lead the Policyowners receive steady, stable, and industry among U.S. life insurers.4 excellent value, in part because of the long- term investment strategy we employ in our So satisfied are policyowners that they not general account investment portfolio. Long- only keep their policies, they return for more. term investments typically outperform short- In a typical year, existing customers account term investments. In addition, focusing on for more than half of our life insurance sales.5 long-term strategies gives us flexibility in selecting investments and asset classes while The comment we so often hear from minimizing short-term risk and volatility. clients who have watched the cash value of their policies grow over the years: It’s an approach that has worked. It’s the reason that we pay far more individual life “I wish I had bought more back then.” insurance dividends each year than any other company. In 2010, we will pay $4.7 billion in The same mutual principles that protect our total individual life insurance dividends: financial strength and stability also provide policyowner value. We have paid outstanding • $4.3 billion in dividends on participating dividends6 year after year, decade after decade. permanent life insurance policies; In fact, we have paid dividends every year since 1872, no matter the economic climate. • $225 million in dividends on individual4 | disability income insurance policies; We work hard to secure customer loyalty: through our quality products, excellent value, • $8 million in dividends to long-term care policyowners through our subsidiary, consistent financial strength, and prudent yet Northwestern Long Term Care Insurance productive investment practices—as well as Company. through enduring customer relationships. Customer loyalty that leads the industry Lifetime customer relationships Our mutual business practices and the value It’s often said that we have what many others in they deliver create extraordinary loyalty our industry hope to create—lasting relationships among our policyowners. Northwestern Mutual built on confidence and trust. These relationships begin with our well-trained “For our part, we have never lost sight network of financial representatives and the of our need for financial strength— financial specialists who help them meet each and never will. We will continue to client’s individual needs. build on a strength that is manifested in our industry-leading dividend We have long been committed to maintaining and building our field force payment and our exceptionally of financial representatives who make healthy surplus.” – John Schlifske, Chairman & CEO, this profession their lifelong career. Northwestern Mutual, 2010 4 American Customer Satisfaction Index, February 2010. Produced by the Ross School of Business at the University of Michigan, the American Society for Quality and the international consulting firm CFI Group. 5 Source: Northwestern Mutual 6 Neither the existence nor the amount of the dividend is guaranteed and is limited to ordinary and group life insurance dividends. For a fuller explanation of dividends, see back cover.
Rooted in the Northwestern Mutual “Thank you for the fine job you are doingculture, our representatives— during these difficult times. You have my 100% support.”• Develop lifetime clients, not one-time -- South Dakota policyowner, 2010 customers;• Identify each client’s long-term needs to help people build sound plans aimed at ensuring “Keep up the good work. [You’re] what other financial security. insurance companies wish they were. ” -- Florida policyowner, 2010Our representatives work exclusively forNorthwestern Mutual. They share our values.A long history of listening to customers “The Policyowners’ Examining Committee is an extraordinary thing. I don’t know ofFor more than a century, we have any company, insurance or not, that openslistened to our policyowners. We still do. up its entire shop, in intimate detail,Our Policyowners’ Examining Committee to its customers. The ultimate winnersis unique in our industry. are the policyowners.”Since 1907, our Board of Trustees has – George Dickerman, Policyowner, Former Trustee and former member,annually named a group of three to fivepolicyowners to produce an independentand unrestricted evaluation of company Policyowners’ Examining Committee, Chairman (Retired) Spalding Sports Worldwide | 5operations, management, and strategic plans.We publish the committee’s report each year “Over the years, we have always thoughtin our Annual Report. Read the entire report in terms of the individual rather than theat www.northwesternmutual.com. mass and have consciously built towardOver the years, these reports have kept us a personal relationship between thesensitive to customer needs and prompted policyholder, the agent, and the company.”important improvements in company – Edmund Fitzgerald, President and CEO,structure and operations. n Northwestern Mutual, 1958
Maintaining Financial Strength Our mutuality sets us apart financially. We are built to withstand the good times and bad. On a basic level, of course, financial strength is an obligation. It arises from our commitment to policyowners, from the personal security they entrust with us. Company founders pioneered a culture of scrupulous responsibility for policyowner funds—to keep long-term financial promises. “… consistently receives the highest marks from rating agencies, which means it is fiscally strong enough to outlast you.” – Worth magazine, Editor’s Choice Award, July/August 2002 Very few companies receive the best possible ratings from the four major rating agencies for insurance financial strength, let alone during the most trying economic times. These important third-party perspectives on our current financial strength validate Northwestern Mutual as a proven pillar of strength and consistency.6 | Our approach to mutuality, including our long-term investment strategy and tight focus on operating fundamentals, helps us maintain the best possible insurance financial strength ratings. Financial Strength Ratings A.M. Best A++ (Superior) Fitch Ratings AAA (Exceptionally Strong) Moody’s Aaa (Exceptional) Standard & Poor’s AAA (Extremely Strong) A.M. Best (March 2010), Fitch Ratings (May 2010), Moody’s (March 2010), Standard & Poor’s (March 2010). Third-party ratings are subject to change. Ratings are for Northwestern Mutual Life Insurance Company and Northwestern Long Term Care Insurance Company. n
“Northwestern Mutual’s Aaa insurance financial strength rating is based upon the company’s exceptional franchise in individual participating life insurance, which is demonstrated by its excellent persistency, mortality, and expense management, as well as by its solid capitalization.” – Moody’s Investors Service, 2010“Northwestern Mutual has developed an excellent risk-management culture that places extreme importance on financial security, with a mission that emphasizes policyowner safety over size.” – Standard & Poor’s, 2009“If you find a client with an existing Northwestern Mutual Life policy, simply insist on retention of that policy. | 7 Northwestern Mutual is, by quite a margin, the best. So it was in 1955 when I went into the business. So it will likely be long after I’m dead.” – James Hunt, Consumer Federation of America website (www.consumerfed.org) September 2001“Everything we do must be done wisely. We won’t invest unless we can do it prudently. We won’t grow unless it’s by our values. And we may not follow the industry if we see opportunity differently. We remain financially strong because we make good decisions. And because we’re financially strong, it gives us the power to avoid poor decisions.”– Ed Zore, Chairman and CEO, Northwestern Mutual, 2009
How the Building Blocks of Mutuality Work We are able to offer policyowners superior Therefore, the average company has that value because, as a mutual company, we much less to return in dividends. diligently monitor our business practices in four vital areas: The chart below represents an industry study • Mortality that compares the “mortality” rate of Northwestern Mutual and 20 of its major • Expenses competitors over a period of years. It includes all • Customer Loyalty ages and the best classes of smokers and non- smokers, the vast majority of our policyowners. • Portfolio Management The chart shows that our policyowners tend to live longer—producing a mortality experience These building blocks lay the groundwork for a about 35 percent better than the inter- mutual company and create advantages for our company average. customers. As you’ll see in the four sections that follow, we excel in these areas—and frequently We credit our superiority in this area to a field surpass the industry averages by a wide margin. force that seeks out people who live responsibly and to a medical and underwriting staff exceptionally skilled in assessing health risks. Superior mortality results Why is this important? Because the average This is only one building block that contributes company pays proportionately more in death to the long-term value we offer policyowners.8 | benefits than Northwestern Mutual does. Society of Actuaries | Intercompany Mortality Study All Ages, Select Period. Because the average company pays Intercompany Average Northwestern Mutual SOA Intercompany Mortality Study proportionately more All Ages, Select Period, Excludes 9/11 in death benefits than 160 160 Northwestern Mutual Mortality Ratio (Using 1975-80 Basic Table) does, the average 140 140 company has that much less to return in Mortality Ratio (using the 1975-80 Basic Table) 120 120 dividends to surviving 100 100 policyowners. 80 80 60 60 40 40 20 20 0 0 69-74 71-76 73- 75- 77- 79- 81- 83- 85- 87- 89- 91- 93- 95- 97- 99- 01- 03- 69- 71- 73-78 75-80 77-82 79-84 81-86 83-88 85-90 87-92 89-94 91-96 93-98 95-00 97-02 99-04 01-06 03-08 74 76 78 80 82 84 86 Average 90 92 Northwestern Mutual 00 02 04 06 08 Intercompany 88 94 96 98 SOURCE: Society of Actuaries Intercompany Mortality Studies For Internal or Financial Representative use only, Not for use with the general public (5-year Periods) Source: Society of Actuaries Intercompany Mortality Studies Prepared and calculated by The Northwestern Mutual Life Insurance Company, Milwaukee, WI. Intercompany Average data is currently available only through 2005.
“Thanks Northwestern Mutual for beingKeeping expenses low who you are—dependable, sound, trustworthy. In these times of economicTaken together, our careful approach to uncertainty, it is nice to have at least onemanaging expenses and our favorable place where I am sure my principal is safe.”claims experience account for more than – Alabama policyowner, 2010one-half of the total dividends to be paidduring 2010. “The company has a long-held reputation for safety, stability, and performanceOur vigilance in keeping costs down has during difficult times ...”been a hallmark of ours for decades and – Business Management magazine, 2008gives us a strong competitive advantagetoday. It’s another important factor that “Our character means 108 years ofcontributes to the value we offer clients. adherence to principles and practices that have produced outstanding results. OurThe chart below makes this case by record of quality performance and integritycomparing the expenses on our principal gives this company unique character.”product line with the industry average. – Donald Slichter, President and CEO,We consistently spend about one-third less on Northwestern Mutual, 1965expenses than other companies. These savingscan contribute to dividend and surplus,providing more value to policyowners. | 9Ordinary Life Expenses as Percent of Premium* Company** 2005 2007 2009 Northwestern Mutual 18% 17% 18% Ameriprise Financial Group 33 34 20 Manulife Financial (1) 27 29 22 Guardian Life 25 24 23 AXA Financial Group (2) 26 32 23 Genworth Financial Group 32 25 25 State Farm Life Group 28 25 24 Principal Life Group 28 28 25 New York Life Group 28 28 26 Prudential of America Group 24 26 26 Lincoln National Group 29 30 27 Mass Mutual Financial Group 24 25 28 AEGON USA, Inc 25 22 28 Metropolitan Life and Affiliated Companies (3) 25 28 28 Industry Average 25 23 26 * Direct premiums measured at 100%, excluding dividends to additions.** Family data(1) Primary Companies – John Hancock, John Hancock USA(2) Primary Companies – Equitable, MONY(3) Primary Companies – Metropolitan Life, New England, General American, TravelersSource: SNL FinancialPrepared and calculated by The Northwestern Mutual Life Insurance Company, Milwaukee, WI
“As it happens, Northwestern Mutual, Customer satisfaction — our customers keep the master of loyalty, is also famous for what they buy its careful cost management … yet all of Satisfied policyowners are loyal—they keep what they Northwestern Mutual’s savings would not have purchased. In the insurance world, this is called sustain superior production if they weren’t “persistency.” reinvested in the delivery of superior value to customers and agents, earning their We lead the industry in “persistency,” and that’s loyalty in the process.” important to you. – Frederick Reichheld, “The Loyalty Effect,” 1996 • Persistency is perhaps the truest measure of customer satisfaction—people voting with their dollars, so to “A commandment that flows from our credo speak. is a policy of aggressive fairness. We treat • Persistency acts as an indicator: that the products “fit.” all of our policyowners with the same They were properly bought and sold in the first place. thorough respect.” – Donald J. Schuenke, President and CEO, Persistency benefits the company in two ways. First, Northwestern Mutual, 1988 incoming premiums create a steady cash flow that adds to our investment portfolio. Second, retaining clients “Our company has embraced mutuality for gives us a larger base over which to spread expenses. 143 years. But ironically, today, as more Both can contribute to the dividend payout, resulting in and more companies abandon the mutual greater value for our policyowners. form, the advantage of mutuality is finally In the insurance industry, the “lapse ratio” is the getting its rightful attention. We like being10 | a mutual company.” inverse of persistency. Policies lapse when people stop paying their premiums. The latest available data show – James D. Ericson, President and CEO, Northwestern Mutual’s annual life insurance lapse ratio Northwestern Mutual, 2000 is almost half the industry average. Persistency and lapse ratios are two sides of the same coin. The Power of Our Portfolio How we manage our general account investment portfolio is the final building block of superior value. Our investment goal is well-defined: to perform well both in good times and in bad. • We invest in all the major asset classes and market sectors, maintaining a diversified portfolio that blends fixed income and equity investments. • We seize opportunities when we invest and are value-oriented in our investment approach. • We take a long-term perspective, but when prudent, we can invest more aggressively with portions of the portfolio. This strategy has enabled us to maximize total returns with reduced volatility. To learn more about how we invest to create additional value for policyowners (pie chart at right), visit northwesternmutual.com | About Us | Investment Information | The Power of the Portfolio.7 n
Lapse Ratio by Amount, Combining New Business & In-Force Business Company* 2005 2007 2009 Northwestern Mutual 3.6 3.6 4.5 Metropolitan Life & Affiliated Companies (3) 5.9 4.8 4.5 Genworth 4.3 5.0 5.9 MassMutual Financial Group 5.1 4.5 5.9 Lincoln National Corp 6.6 6.5 6.6 New York Life Group 5.5 5.6 6.5 Prudential of America Group 5.2 5.4 6.3 Guardian Life 6.0 5.9 6.5 Principal Life Insurance Company 5.4 5.5 6.5 Ameriprise 4.7 5.1 6.3 AXA (2) 7.2 5.4 6.8 John Hancock / ManuLife (ManuLife Financial Group) (1) 5.5 6.1 7.6 State Farm Group 6.1 6.8 7.6 AEGON USA, Inc. 7.5 6.5 9.1 Industry Average 6.6 6.4 7.3 * Family data (1) Primary Companies – John Hancock, John Hancock USA (2) Primary Companies – Equitable, MONY (3) Primary Companies – Metropolitan Life, New England, General American, Travelers Source: SNL Financial | 11 Prepared and calculated by The Northwestern Mutual Life Insurance Company, Milwaukee, WIPortfolio Composition Portfolio Composition Portfolio Composition December 31, 2009 | Total Managed Assets: $131.6 Billion (Statement Value)Fixed Income:Income: 88% Fixed 88%Equities: Equities: 12% 12% Public Bonds and Preferred Stock 54% 3% 2% 2% Public Bonds and Preferred Stock 54% 4% 3% Private Bonds and Preferred Stock 17% 5% 4% Private Bonds and Preferred Stock 17% 5% Mortgage Loans 15% 15% 54% Mortgage Loans 15% & Subsidiaries 5% Private Equities Private Equities & Subsidiaries 5% Real Estate Equities 4% 15% 54% Real Estate Equities 4% 3% Public Common Stock 17% Money Market 2% Public Common Stock 3% 17% Money Market 2% Source: Northwestern Mutual Investment Report 7 Available upon request, Northwestern Mutual’s brochure, “The Power of the Portfolio,” contains a fuller explanation of the investment portfolio.
Meeting Changing Needs—For Life Northwestern Mutual’s world-class insurance Our financial representatives products result from a vision and passion These financial products are presented to to be “simply the best” in quality and value. customers in a coordinated way through We have always aimed to: Northwestern Mutual’s network of financial • Provide superior products representatives who develop enduring • Avoid fads and gimmicks relationships with clients by providing expert guidance for a lifetime of financial security. • Upgrade our policies in both the scope of coverage and ability to provide better With access to a network of specialists, financial benefits at lower costs representatives take a holistic approach to identifying client needs, including: • Asset and income protection “This insurance and financial firm has zero • Education funding new-economy glamour, and that’s just fine. It’s only gaining market share, boosting • Business needs analysis sales, and successfully retaining its top- • Investment services performing sales agents.” • Employee and executive benefits – Sales and Marketing Management, #1 Sales Force: Co-Winner, July 2001 • Retirement solutions • Estate analysis12 | In recent decades, policyowners have brought to us a broader range of financial needs. And our “mutual advantage” thrives. As we continue to do what’s right for policyowners, Northwestern Mutual has answered with we will draw upon the benefits of the culture more diverse products and services. While and values that have defined our company keeping our focus on world-class insurance, over time: build long-term relationships to we’ve also added a careful selection of related meet client needs, build and preserve financial financial products. strength, and provide expert guidance. n
“For our part, we have never lost sight of our need for financial strength—and never will. We will continue to build on a strength that is manifested in our industry-leading dividend payment and our exceptionally healthy surplus.” – John Schlifske, Chairman & CEO, Northwestern Mutual, 2010
“Fitch believes that Northwestern Mutual’s mutual status and policyowner dividend enhances the company’s ability to maintain a strong capital position and execute on its long- term investment and financial strategy.” – Fitch Ratings, June 2009 6 Dividends for Northwestern Mutual policies are distributions of the company’s surplus. They arise when premiums plus investment income are more than enough to cover company operating expenses (including taxes), claim costs, guaranteed increases in policy cash values and additions to surplus. Dividends are paid annually to policyowners in proportion to company earnings on their policies. However, decisions with respect to the determination and allocation of divisible surplus are at the discretion and sound business judgment of the company’s Board of Trustees. There is no guaranteed specific method or formula for the determination and allocation of divisible surplus. Accordingly, the company’s approach is subject to change. Also, there is no guarantee that any dividend will be paid on an individual policy in any given year. Securities are offered through Northwestern Mutual Investment Services, LLC, 1-866-664-7737, a wholly-owned company of Northwestern Mutual, broker-dealer and member FINRA and SIPC. Northwestern Long Term Care Insurance Company, Milwaukee, WI, (long-term care insurance) is a subsidiary of Northwestern Mutual. Charts contained in this brochure were prepared and calculated by The Northwestern Mutual Life Insurance Company, Milwaukee, WI. The Northwestern Mutual Life Insurance Company • Milwaukee, WI www.northwesternmutual.com19-0185 (1002) (REV 0910)