Northwestern Mutual 2009 annual report


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The 2009 Northwestern Mutual Annual Report is here! Check it out. Find out how we’ve stayed strong in good times and bad.

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Northwestern Mutual 2009 annual report

  1. 1. G o o d d e c i s i o n s , a lw ay s 2009 annual report
  2. 2. Always proven: despite the volatility of 2009, we paid more than twice the life insurance dividends of our nearest competitor. edward J. Zore John e. schlifske Chairman and CEO Northwestern Mutual’s 17th President results in brief (in millions) 2009 2008 Change Policyowner dividends $4,715 $4,547 +4% Policyowner benefits paid $6,807 $6,071 +12% Individual life insurance in force $1,176,845 $1,124,147 +5% Total revenue $21,366 $21,923 -3% Total assets $167,180 $155,154 +8% Surplus & asset valuation reserve $14,246 $13,424 +6% learn more about us: visit | about northwestern mutual 2
  3. 3. l ast year’s struggling economy and financial markets badly jostled families and businesses, and i’m pleased to assure you northwestern Mutual came through this environment in very good shape. Most people were relieved to see 2009 come to an end. However, northwestern Mutual will look back at 2009 as the year that provided ample evidence of how we thrive during tough times. over the year, we strengthened our financial position, boosted our commitment to our policyowners, and reinforced the value of financial security by increasing our reach. our surplus position confirms our considerable financial strength. at the end of the year, total surplus reached $14.2 billion, an increase of Good decisions, always more than $800 million over 2008. our commitment to our policyowners was evident in our expected dividend payout of more than $4.7 billion — our second largest payout ever — representing an almost $200 million increase over the previous year. certainly, there are some performance measures we’re keeping an eye on. total insurance premium and net investment income were down slightly. However, we see signs of improvement. the number of insurance policies we sold increased 6% last year, indicating the strong and growing need for financial security and the trust people place in northwestern Mutual as a financial partner. Finally, i want to personally thank you — our 3.3 million policyowners — for the privilege of serving you over the course of my 40-year career with northwestern Mutual. i plan to retire later this year and am grateful for the opportunity to lead this outstanding company over the past decade. John schlifske, who has been with our company for more than 20 years and who shares my devotion to excellence, is slated to take over as ceo. you can count on John to carry on our 153-year tradition of exceptional quality on your behalf. edward J. Zore chairman and chief executive officer 3
  4. 4. Good decisions, always our strength and unwavering stability are rooted in our well-made decisions since mid-2008, the dramatic news no matter the economic climate, we focus of the economy’s instability has on remaining consistently strong. in an shaken the nation as a whole. while unstable world, you can rest assured newscasts carried stories about the knowing that the responsibility you have effects on institutions and markets, entrusted to us is honored. our results most americans felt the impact within remain stable, protecting you against risk. their homes. the nation talked of “weathering the storm” — a storm the results speak for themselves. in these worse than any since the 1930s. extraordinary times, we provided industry- leading value. northwestern Mutual maintained the highest available ratings* we can tell you quite plainly for insurance financial strength from all that northwestern Mutual four major rating agencies. our brand of financial security is about giving people withstood this storm. confidence in their future. our philosophy requires us to stand this year, our clients — your fellow always prepared for troubled times. policyowners — speak for us. they talk our business model performs about how the way we do business brings a well in good times and bad, despite feeling of security to people’s lives in trying upheavals such as the civil and world times. Five clients report their experiences wars and the Great depression. we have over the last year or so. they confirm paid dividends every year since 1872. that they, too, have made good decisions. the work they do with their financial we are proud that today our financial representatives has helped them weather the strength remains solid. storm and continue on the path to financial security. they feel on the right track at a we have never cracked under economic time when so many americans have worried pressure. in fact, we plan for such times. about where they are headed. we have always paid a dividend to our policyowners since 1872. *Third-party ratings are subject to change. 4
  5. 5. starting early to secure their future Q As a young family, how have the economic events of the last year Brian and Jill Koch are just starting out. This young couple affected you? understands that life holds risk. In 2005, Brian lost his mom. A we’ve experienced losses “We know what can happen, and we want to be prepared.” like so many others have. But while others were losing so much, we found we were As a result, Brian and Jill own life insurance, disability actually doing pretty well in insurance, an IRA and have pre-funded two-year-old Brooke’s terms of the big picture. the college education. They willingly make sacrifices now, reason: as we watched the controlling spending and investing for the long term. They crisis unfold, we knew a big part of our strategy — whole faced last year’s crisis with a new baby and Jill no longer life insurance — was protected. a wage earner. A rising attorney at a national firm, Brian of course, an insurance policy believes in being prepared. Financial Representative Darling is only as good as the company Lie-Nielsen is helping the young family work toward building behind it. we recognized early on that we don’t need glamour; we a secure financial future. need stability. and that’s what northwestern Mutual offers. Q You’ve made farsighted financial decisions when most young couples aren’t thinking that way. Why? A when we first started working with darling, she urged us to budget properly and do the right things to create a foundation for our own and our daughter’s future. Her approach included instilling in us the Darling Lie-Nielsen, Financial representative — miami, Florida importance of setting money aside, as well as investing it. our “We work very hard preparing for work led to the feeling of comfort we had during all the financial their future, so they can rest easy. upheaval. with her help, we’ve They’re doing smart things.” 5
  6. 6. worked on balancing our needs and wants we need — like saying no to some luxuries and taking the actions needed to reach our because we know we have a greater plan. goals. and that’s made us confident in the it’s feeling safe in our financial choices and future as well. we have contingency plans, making sure they reflect the best decisions we have protection in place, and we have a for our daughter. it’s knowing we’re laying game plan to meet whatever comes our way. the foundation to achieve future success. Q What does financial security mean to you? we’ve seen friends laid off and a number of talented people forced to switch jobs A to us, financial security is about ensuring our during this past year. Markets go up, and hard work supports something that lasts. it’s markets go down; people make and lose less about what we want and more about what money. Financial security has to factor in coping without mom Last year, Gregory Johnson lost his wife, Yolanda, at age 37. Now he is raising his daughters, Jamille and Jada, ages 8 and 4, alone. Yolanda’s disability insurance and her life insurance have played a major role in helping Greg and the girls through the loss. Greg speaks of Financial Representative Kevin Chadwick — who himself lost his mother when he was three years old — as a trusted ally. Q As a widowed father, how have the economic events of the last year affected you? A this financial crisis has been a time of uncertainty for most people, and i’m no exception. However, in my case, the circumstances were even worse. My wife, yolanda, who was healthy and never smoked, was diagnosed with terminal lung cancer last year. she passed away Kevin Chadwick, Financial representative — Dallas, texas shortly thereafter. My life was in disarray. Fortunately, i didn’t have to worry financially. yolanda’s northwestern Mutual “I talk to people about things disability income insurance helped pay they’d rather not think about — expenses during her illness. and then the company handled the life insurance claim to see through smaller challenges quickly and professionally. to the bigger vision.” so even when everyone was questioning their investments and strategies, i felt safe and secure. i knew i was in a good position with northwestern Mutual, a well-grounded company with a solid business model. it’s tried and true and 6
  7. 7. safeguards that protect people against such outside forces or it’s not going to work. Knowing that we have a plan we always focus on the that’s been proven to navigate through tough times, we feel confident we long term, not the latest fads. made the right decisions — and that we will be secure in the future. Greg credits Kevin with the advice that has helped the family during this difficult period. What’s more, Greg trusts Kevin to help him prepare for the family’s future. enduring. it has stood the test of time with consistent qualities and performance. Q Do you feel financially stable despite what you’ve experienced in the last year? A if i had done it my way, i might not have purchased all the insurance coverage VIeW our ClIent VIDeos onlIne: that turned out to be a lifeline for my | about northwestern mutual | our Company | annual report two young daughters and me. without it, we would have been financially devastated. But with help from Kevin and northwestern Mutual, we are financially Q What does financial security mean to you? stable and will continue to be so. we’ve maintained a consistent lifestyle — and A it means that i can prioritize what’s important. that’s an important thing when we’ve Because of northwestern Mutual, i have been able been through so much. From this to take a leave of absence from work — even during experience, i know that Kevin will a tough economy — to spend more time with my anticipate my needs; he will recommend daughters to rebuild their confidence after losing their appropriate adjustments; and he will mom, as well as take care of myself. Financial security help me take actions that are right for affords me the time to see to it that these two little girls my family and me. get their emotional footing back. that’s a blessing. 7
  8. 8. starting a business in an unstable economy Clark McGhee’s employer failed last year. However, faced uncertainties. Clark believes the advice that Jeff Clark and his wife, Pam, are planners and savers who has given the couple over the years has helped them have worked very closely with Wealth Management to seize this business opportunity without risking the Advisor Jeff Miller for more than a decade. As a family’s current well-being or the couple’s distant future. result, the couple felt financially secure enough to Because the McGhees have built up significant cash start a new business venture in this “down” economy. value in permanent life insurance and assets in their The couple knows success. Clark has held executive retirement account, they have given themselves options. positions with several financial services firms; Pam If needed, they could use that money to help fund their retired from a thriving medical practice. Still, they children’s educations or develop Clark’s business. Wealth management Q You’re making career changes with advisor Jeff miller offers children nearing college. How has investment advisory the last year affected you? services to the mcGhees through northwestern mutual Wealth management A Pam: the last year’s crisis felt like an Company, a limited purpose emotional roller coaster. we were even closer federal savings bank. to it than many because clark was working for a huge firm in the financial services industry. and then clark’s company went under. Clark: Fortunately, we had started to work with Jeff Miller, Wealth management advisor — Jeff a few years ago when pam wanted to retire richmond, Virginia from her medical practice. our conversations centered on where we were then and where “Our work is very strategic and very we wanted to be in the long term. so we took actions: like purchasing whole life insurance disciplined. The McGhees’ plan gives policies, balancing our portfolio and investing them confidence in their future.” still on track for Sharon Grayden and Steve Bayne have spent the last few years dreaming of retirement. They’ve done everything right: life and long-term care insurance, investments and annuities. They came to Wealth Management Advisor Delynn Alexander 8
  9. 9. in our home. in short, together we had implemented Q What does financial security mean to you? a plan that would weather a storm like the one we experienced in the last 12 months. A Clark: that was one of the first questions Jeff asked us — and our answer was “having our bases the result was that, when the storm came, we didn’t covered.” during our first 15 years of marriage, it overreact. Having a sound advisor and a sound firm — meant disability income insurance in case there was and having planted good seeds years ago — meant an accident or illness; college funds for the kids; we didn’t have to make fast choices or emotional ones. minimal debt; life insurance in case of premature death; will and trust vehicles; cash for emergencies; Q Did you question your decisions at any point? not having to depend on our kids to take care of us in our later years. A Pam: it’s only human to do that, of course. we both talked to Jeff on several occasions about where we Pam: today, our thoughts center on “what’s next?” stood and whether there was anything we should do. Because we made good decisions early, now we have the luxury to think about new things. clark is able Clark: what we never doubted was that Jeff was the to start a new business that’s already showing signs right person or that northwestern Mutual was the of success. working with a strong company and an right company. it would have simply been too much if advisor who helped us develop a solid plan and execute we felt the need to question our advisor or our firm. it, we have options. and that’s a great feeling. retirement, despite the economy Q As you near retirement, how have the economic events of the last year affected you? and Associate Financial Representative Reena Bland after the last national crisis, A like most americans, we didn’t take the crisis lightly. But our concern wasn’t September 11, 2001, when they saw their the kind that made us lose sleep, partly investments — through a different broker — because we are optimists, but also because drop considerably. of the relationship we have with delynn, reena and northwestern Mutual. Like most people, Sharon and Steve were when we first developed our financial affected by last year’s economic turmoil, but plan, delynn coached us to remember the good news is that their retirement dreams that we were in this for the long haul. of a flat in Paris or Amsterdam and traveling the she reminded us that we would likely world are intact and on schedule. 9
  10. 10. Wealth management advisor Delynn alexander (right) offers investment advisory services to sharon Grayden and steve bayne through northwestern mutual Wealth management Company, a limited purpose federal savings bank. experience peaks and valleys but stressed the importance of keeping our eyes on our goals. and we’ve continued to make sure the plan provides a practical long-term Reena Bland, associate Financial representative; Delynn Alexander, view, taking into account our changing Wealth management advisor — Chapel Hill, north Carolina needs and interests. so at the beginning of the market slide, “It’s so rewarding to watch people you we were concerned about where the bottom care about achieve the things that are might be, but we never questioned the validity of our plan. Fundamental to our plan was important to them.” protecting against the risks of life and taking advantage of potential opportunities. Managing money for the family Adelaide Daniels Key is a high-energy woman who is “sort of” retired. She keeps her hand in several businesses and is an active philanthropist. A cancer survivor herself, she’s helped thousands of people cope with cancer through her work and generosity. Q As someone who is retirement age, how have the economic events of the last year affected you? A i didn’t grow up with money, so i never expected to have it. that happened when a company offered to buy our family newspaper. suddenly, i had a great deal of money. Because it was so sudden, i found myself buying things i didn’t need. i’m very thankful that people i trusted advised me well, helping me refocus, so that my efforts and resources would be used in ways that will make a difference. so even before this financial upheaval, i didn’t spend exorbitantly. My response has been to make some cutbacks and to rely on don and charlie. with their help, i have continued to feel secure. don and i have met frequently to look at where i am financially, but i never questioned any of my decisions about financial products — those were good decisions. 10
  11. 11. Q How would you describe your relationship when we first sat down to sketch out a plan, with Delynn and Reena? we discussed the lifestyle we wanted to maintain and the things we wanted to do in the future. A this was a relationship formed on trust. For we looked at how we were living and decided years, we had been searching for someone who we didn’t want to live differently in the first phase would ask us the important questions. we finally of our retirement. in fact, we hope to do more — found delynn and reena. they were interested in like have a property in europe, for example. then us — not just selling us something or impressing we considered what we would need for the phase us with their technical knowledge. we know that after that. we also considered how we could delynn and reena are working for us, and we support causes that are important to us. when trust that northwestern Mutual will live up to its you have the ability and control to direct money reputation of strength and stability for us. to something you believe in, it’s a great pleasure. we have prioritized our goals and now know how Q What does financial security mean to you? to focus on what we want. we trust our plan, the A it means having a plan that will allow us to people working for us and northwestern Mutual. reasonably transition through the rest of our lives without the typical financial shortfalls. and helping others Adelaide came into money later in life. She will tell you that with money comes responsibility. Since then, she has worked to get her financial house in order for herself, her family and her philanthropy. Adelaide praises husband- and-wife-team Don and Charlie Reed — he, a wealth management advisor, and she, a long-term care specialist — for helping her use her money wisely. Charlie Reed, Financial representative; Don Reed, Wealth management advisor — asheville, north Carolina “The first question we always ask is i believe this economic turbulence has helped people realize what they actually do have and ‘what are your goals, your dreams?’ Once perhaps better understand others who are not as fortunate. i’m watching people change we know the answers, we can help.” their attitudes, and that’s a good thing. Wealth management advisor Don reed offers investment advisory services to adelaide Daniels Key through northwestern mutual Wealth management Company, a limited purpose federal savings bank. Q What drives you to work on behalf of others, rather than slow down and take it easy? Q What does financial security mean to you? A My grandfather, who built that newspaper, A i have enough to eat, a house to live in, a car also taught me it was important to give back. to travel with. i want to be independent as long when i had friends who came into asheville as i can and not leave my children any debt. and for medical treatment who couldn’t afford i have financial representatives i trust. when don accommodations, i opened my home. it was and i first talked about financial security issues, then i saw a need and an opportunity — to he realized i didn’t know much — so he started build a hospital hospitality house and run explaining, and i listened. i was teachable because it with volunteers. everyone thought i was i knew that i didn’t know enough. He challenges out of my mind, but it works. over the me and doesn’t always agree with me. He and years, don has helped me figure out many charlie make sure everything we talk about fits things. i trust him. He’s a good friend and my life, not someone else’s. all these things put a good advisor. together make up financial security for me. 11
  12. 12. 09 Financial strenGtH and security northwestern Mutual’s basic financial goal remains the same in any economic environment: to pay a level of dividends that delivers the results highest product value to policyowners without compromising the company’s superior financial strength and stability. Financial strenGtH our commitment to long-term as the economic and financial financial security for our policy- market turmoil carried over into owners and clients. 2009, the strength and stability of during 2009, surplus and financial institutions were again asset valuation reserve (aVr) put to the test. northwestern increased $822 million to Mutual met these challenges $14.2 billion. surplus provides by remaining true to our time- the company and our policy- tested strategy, including prudent owners with protection against management of insurance product the unexpected, while aVr risk; careful attention to operating supports our long-term investment expenses; and a well-balanced, strategy by cushioning against diversified general account market volatility. investment portfolio. these fundamental priorities, along with surplus our commitment to mutuality at year-end 2009, surplus and ratio aVr represented 11.4% of and the financial flexibility of our general account insurance reserves, participating dividends, enable the approximately the same as one 11.4% company to weather even extreme year earlier. this level of surplus financial stress — and deliver on remains very strong relative to the OuR FINANCIAL POSITION remains strong — ASSuRING Surplus Ratio THAT THE COMPANY (surplus and AVR as a percentage of general account insurance reserves) CAN KEEP ITS tal assets PROMISES TO 15% POLICYOWNERS. billions) 12% $150 9% 125 6% 3% 100 0% 1974 1979 1984 1989 1994 1999 2004 2009 75 Surplus AVR 12 50
  13. 13. company’s risk profile and regulatory benchmarks. it also compares favorably to our historical standards for a strong financial position. n $8 million in dividends paid to long- term care policyowners through our subsidiary, 09 Financial Mutuality and Northwestern Long Term Care Insurance Company; results policyowner Value and northwestern Mutual is managed for the long-term n $28 million benefit of our policyowners. in dividends on individual this mutual perspective requires fixed and variable annuity a balance between participating contracts. dividends and long-term financial strength and security. participating dividends reflect the dividend scale interest our underlying claims rate on most unborrowed total assets experience, expense structure permanent life insurance and investment performance. funds will be 6.15% during 2010, down from 6.5% in total, dividends to policy- during 2009. while important, owners are estimated to be Total assets investment performance is (in billions) more than $4.7 billion in 2010. only a part of permanent this represents an increase of $175 life insurance policyowner almost $200 million over the value. our favorable claims 2009 payout and is expected to 150 experience and rigorous be the second-highest payout of approach to expense manage- dividends in company history. 125 ment account for more than this includes: one-half of total dividends to 100 be paid during 2010. n $4.3 billion in dividends on superior product value 75 contributes to policyowner participating permanent satisfaction and loyalty. 50 life insurance policies; our persistency rate for life insurance in force was 96% 25 n $120 million during 2009. life insurance in dividends on term life policyowners used 76% of 05 06 07 08 09 insurance policies; dividends paid during 2009 to Total investments purchase additional insurance Separate account assets n $225 million protection, contributing Other assets in dividends on individual to a 5% increase in total life disability insurance insurance in force that reached Premium revenue policies, an 11% increase $1.2 trillion at year-end 2009. (in billions) over the prior year; $15 13 12
  14. 14. 1974 1979 1984 1989 1994 1999 2004 2009 Surplus AVR our favorable experience with insurance claims and rigorous expense management account for more than one-half of total dividends. diversified assets A WELL-BALANCED AND inVestMent results term, but for which market DIvERSIFIED PORTFOLIO the company’s general values can be volatile. this CONTRIBuTES TO THE account investment portfolio time-tested investment strategy COMPANY’S ExEMPLARY is diversified and largely is made possible by a strong DIvIDEND RECORD. comprised of high-quality, surplus position and the stable General account fixed-income assets, appropriate nature of our participating life managed investments for our investment strategy insurance products. (excludes policy loans) to provide superior returns northwestern Mutual maintains over the long term while a very strong liquidity position. managing overall credit, market 72% at year-end 2009, the company and interest-rate risk. our held $26 billion in cash equiv- investment guidelines limit 12% alents, u.s. treasurys and exposure to any single asset 16% other highly liquid, government- class or issuer. supported investments. we enjoy At year-end 2009 the $91 billion bond portfolio substantial positive operating 72% Bonds & cash represents 70% of our general cash flows, primarily from 16% Mortgage loans account managed investments our large and stable block of 12% Stocks & and remains the cornerstone participating life insurance other equities of our investment strategy. business and general account this portfolio of public and investment portfolio. the private debt remained high- company’s net operating quality and well-diversified cash flow was $8.3 billion by sector, with 90% rated as during 2009. investment grade at year-end in total, general account 2009. the company’s $21 billion investments generated commercial mortgage loan $349 million in net realized portfolio, underwritten by our Bond own real estate professionals, and unrealized capital gains during 2009, after taxes and portfolio enjoys significant collateral required deferrals of interest protection and is well- rate-related gains. these net THE $91 BILLION BOND diversified geographically gains contributed to surplus PORTFOLIO remains and by property type. growth during 2009 and the cornerstone OF OuR GENERAL ACCOuNT equity investments include represented a substantial INvESTMENT STRATEGY. public and private common improvement from the net stocks, real estate and other capital losses incurred during holdings that enhance total the financial market turmoil portfolio returns in the long of 2008. 14
  15. 15. 09 operatinG results at year-end 2009. operating Total assets total premium revenue, results for 2009 also reflected (in billions) including both new and renewal our continued commitment to $175 premiums, was $13 billion for the rigorous management of 2009, a decrease of 4% from operating expenses. 150 2008. this decrease was due primarily to the change in the after provision for taxes and Financial 125 life insurance dividend interest dividends to policyowners, results rate to 6.5% for 2009, which net gain from operations was 100 reduced the amount of dividends $475 million for 2009. the available to policyowners for 2008 net gain of $1.1 billion 75 purchase of additional life included the benefit of a significant, one-time reserve 50 insurance protection. premium revenue for disability and long- adjustment. net income, which includes net realized 25 term care insurance increased 4% and 17%, respectively. capital gains and losses, was $321 million for 2009. 05 06 07 08 09 net investment income net realized capital losses premium Total investments Separate account assets revenue was $7.8 billion for 2009, primarily reflected impairment Other assets a 1% decrease from 2008, adjustments for investments — primarily reflecting lower interest offset in large part during 2009 rates. during 2009, the company by realized capital gains on Premium revenue (in billions) directed most new investments selective sales of real estate and $15 to investment-grade corporate other equity investments. net bonds and government-supported realized capital losses improved mortgage-backed securities. significantly over 2008. 12 Benefits paid to policyowners looKinG aHead or their beneficiaries totaled while the economic and financial 9 $6.8 billion during 2009, market environment appears a 12% increase from 2008. to be improving, significant 6 Mortality and other claims risks and uncertainties remain. experience remained favorable northwestern Mutual remains during 2009, a reflection of the strong, stable and committed 3 company’s careful assessment to our promise of financial of insurance risk. the increase security to our policyowners and in benefits paid was largely clients. our focus on long-term 05 06 07 08 09 offset by a lower net increase policyowner value and financial Life insurance Disability/ in benefit reserves compared strength will remain constant Long-term care with 2008. reserves for future regardless of the challenges that Annuity policy benefits were $125 billion may lie ahead. we have received the best possible insurance financial strength rating from the four major rating agencies. 15
  16. 16. 09 SuMMARy of opeRAtioNS (consolidated statutory basis, in millions) Year ended December 31: 2009 2008 Premiums $13,062 $13,551 Net investment income 7,772 7,835 Other income 532 537 Financial Total revenue 21,366 21,923 results Policyowner benefits paid 6,807 6,071 Increase in benefit reserves 7,138 8,389 Commissions and expenses 2,189 2,070 These summary financial statements are derived Total benefits and expenses 16,134 16,530 from the company’s audited Gain before dividends and taxes 5,232 5,393 consolidated financial Policyowner dividends 4,715 4,547 statements, which are prepared on the statutory Gain before taxes 517 846 basis of accounting. Income tax expense (benefit) 42 (304) Insurance regulators require Net gain from operations 475 1,150 that financial statements Net realized capital gains (losses) (154) (667) be prepared on a statutory basis of accounting that Net income $321 $483 differs materially from financial statements SuMMARy of fiNANCiAL poSitioN prepared in accordance (consolidated statutory basis, in millions) with generally accepted Year ended December 31: 2009 2008 accounting principles (GAAP). Bonds $91,004 $79,314 Mortgage loans 21,024 21,677 Policy loans 13,717 12,884 Common and preferred stocks 5,918 5,744 Real estate 1,582 1,528 Other investments 8,587 9,185 Cash and short-term investments 2,610 4,807 Total investments 144,442 135,139 Other assets 6,394 6,628 Separate account assets 16,344 13,387 Total assets $167,180 $155,154 Policy benefit reserves $125,025 $117,954 Policyowner dividends payable 4,730 4,555 Other liabilities 6,835 5,834 Separate account liabilities 16,344 13,387 Liabilities (excluding AVR) 152,934 141,730 Asset valuation reserve (AvR) 1,843 1,023 Surplus 12,403 12,401 Surplus and AVR 14,246 13,424 Total liabilities and surplus $167,180 $155,154 PricewaterhouseCoopers LLP is the company’s independent auditor. The accompanying financial information is derived from the company’s audited consolidated financial statements. The company’s audited consolidated financial statements are available at or by written request to Northwestern Mutual, Corporate Relations, Room N04, 720 E. Wisconsin Ave., Milwaukee, Wisconsin 53202. 16
  17. 17. Marna P. Borgstrom, President and Chief Executive Officer, Yale-New Haven Hospital and Yale-New Haven Health System, New Haven, Connecticut. P. Russell Hardin, President, Robert W. Woodruff Foundation, Joseph B. Whitehead Foundation, Lettie Pate Evans Foundation and Lettie Pate Whitehead Foundation, Atlanta, Georgia. Eric T. Token, Senior vice President, Sales, Marketing and Operations, Rose International, St. Louis, Missouri. Michael D. Hayford (chair), Executive vice President and Chief Financial Officer, FIS, Jacksonville, Florida. 2009 policyowners’ examining committee report We were pleased to serve as members of the 2009 Policyowners’ Examining Committee, an independent group representing nearly 3.5 million clients of Northwestern Mutual. In place since 1907, this unique committee structure reflects Northwestern Mutual’s heritage as The Policyowners’ Company. In conducting our work, we interacted with senior management, emerging leaders, and field representatives. We also spent considerable time with Chairman and Chief Executive Officer Ed Zore and new President John Schlifske. This report summarizes our observations and recommendations. Many of us know northwestern Mutual the highest available ratings for insurance as the preeminent life insurance company. financial strength from all four major rating But more and more, northwestern Mutual’s agencies. northwestern Mutual’s enviable clients turn to their financial representatives financial position made it possible for the to provide expert guidance and the company to announce a 2010 dividend company’s full range of insurance and payout of $4.7 billion, the second largest in investment products to meet their financial the company’s history, despite the turbulent security goals. we believe the company financial markets. we applaud management is uniquely poised to capitalize on this for its long-term investment discipline and opportunity and differentiate itself in the encourage the company to continue its marketplace with its financial strength, commitment to cost control. human capital, integrated financial security strategy and its exclusive distribution system. Human Capital Because northwestern Mutual primarily Financial Strength promotes its leaders from within, leadership Mutuality, which allows the company to take development in both the home office and a long-term view, served the policyowners well the network offices is a vital component during a period of great economic turmoil. of the company’s future growth. we throughout the financial crisis that began encourage the company to support local in the fall of 2008, the company performed network offices by investing in front-line admirably and today holds an unmatched management teams and identifying future position of financial strength in its industry. leaders. at the home office, management has acknowledged that operating efficiencies and several factors contributed to the company’s leadership development can be supported by resilience, including conservative underwriting performance-based compensation practices. guidelines, sound investment practices and to enhance its competitiveness, the company disciplined expense management. these must continue to build a performance culture factors, together with a top-notch sales force that aligns compensation and other forms of and an impressive policy renewal rate of recognition with individual and company- 96%, contributed to the company earning wide achievements. 17
  18. 18. Integrated Financial Security Distribution we are impressed by northwestern Mutual’s northwestern Mutual’s exclusive distribution ongoing evolution from an insurance company system of network offices and financial to a provider of diversified financial products representatives is recognized as a competitive and services. today, the company offers a advantage in the industry. the company is spectrum of insurance and investment products executing its well-defined strategy for growth, designed to provide clients with a foundation including the expansion of the number of of risk management that allows them to save financial representatives and a focus on skill for the future with confidence and to build, development and retention. progress is evidenced preserve and distribute their wealth during by several initiatives, including a new contract their lifetime and beyond. the integration of to stimulate field force growth, an incentive the company’s product lines is evidenced by program to help new financial representatives the reorganization of insurance and investment establish strong practices, added resources in products areas under common leadership. network offices to support new representatives and continued emphasis on the company’s we find it ironic that a firm of northwestern award-winning college internship program. Mutual’s quality is not more widely known. each year, a small group of policyowners with requisite business expertise assess our operations on behalf of their fellow policyowners. as a company with the highest available we encourage the company to continue to insurance financial strength ratings and partner with field management to build out an unsurpassed reputation, the company their financial representative footprint. this is should capitalize on its unique opportunity an appropriate investment designed to benefit to increase market share, recruit top talent policyowners in the long run. the company and grow brand recognition. the company’s should continue to hold field management new marketing campaign emphasizes its accountable for results. as capacity builds in the strength and consistency and is evolving field force, we encourage the company to leverage northwestern Mutual from its identity as the this capacity to expand in underserved markets. Quiet company. we encourage the company to be more intentional about communicating Conclusion the integrated financial security message in this time of economic uncertainty, the internally and externally. the current economic experience and conviction of northwestern environment offers opportunity for the Mutual’s leadership team is one of its greatest company to distinguish itself and build assets. during his tenure, ed Zore has led the market share. we encourage the company company’s evolution from a life insurance provider to take advantage of this opportunity. to a business that helps meet the overall financial we note that the current regulatory climate security needs of people like us. He has done so could impact northwestern Mutual’s business while holding firm to the founding principle of model and financials. we are encouraged by mutuality and our best interests as policyowners. the thoughtfulness and depth of the enterprise we applaud ed, John schlifske and the entire risk assessment, scenario planning and risk senior management team on a smooth leadership mitigation efforts. we feel that management is transition. John’s experience and knowledge of taking appropriate steps to monitor legislative the company, together with his evident passion developments and plan for adverse impacts. and vision for the future, leave us confident about northwestern Mutual’s continued success. 18
  19. 19. NoRthweSteRN MutuAL subject to change. neither the existence nor mutual and its affiliated companies met northwestern mutual helps clients protect the amount of a dividend is guaranteed on their needs. the personal financial needs against financial risk and achieve financial any policy in any given policy year. some and results of the clients shown in this security. the company, its subsidiaries policies may not receive any dividends in report may not reflect the experience of and affiliates offer life, disability and a particular year or years even while other other clients. Please discuss your personal long-term care insurance, investment policies receive dividends. In its 2010 financial situation with your northwestern products, advisory services and trust dividend scale resolution, the board of mutual financial representative before services that address client needs for trustees has exercised its discretion to purchasing any product or service. financial protection, wealth accumulation, guarantee a minimum amount of dividends Please keep in mind that working estate preservation and asset distribution. to be paid in 2010 to the policyholders with a northwestern mutual financial Headquartered in milwaukee, Wisconsin, as a group. If this guaranteed amount representative or any other financial the mutual company has more than exceeds the aggregate amount of dividends services provider is not a guarantee as to 3 million policyowners and expects to actually paid to individual policyholders future investment success. continue as the leading u.s. company in in 2010, that excess will be paid out in total individual life insurance dividends 2011 pursuant to the 2010 dividend paid to policyowners. scale resolution. the presence of a For more information about northwestern mutual, please visit guaranteed minimum amount in the | about northwestern mutual SuBSiDiARieS 2010 dividend scale resolution does QuietCare® long-term care insurance is not obligate northwestern mutual offered through northwestern long term to declare a dividend in future years or to Care Insurance Company, milwaukee, guarantee any portion of dividends that eNteRpRiSe RiSK MANAgeMeNt Wisconsin. strategic employee benefit may be declared in future years. northwestern mutual has a strong risk services™ is a nationwide group marketing management culture that is vigilant in program providing specialized services ANNuAL MeetiNg identifying and managing risks — whether in the employee benefit arena. securities 8 A.M., MAy 26, 2010 financial, operational, strategic or are offered through Northwestern Mutual the annual meeting of Policyowners of environmental — that could impact the investment Services, LLC (NMiS), suite the northwestern mutual life Insurance strength and security of your company. 600, 611 e. Wisconsin ave., milwaukee, Company will be held at 8 a.m., Wednesday, We apply risk models, experience and Wisconsin, 53202, 1-866-664-7737. may 26, 2010, at the company’s milwaukee judgment as part of a well-coordinated nmIs, a registered investment adviser, campus, 720 e. Wisconsin ave., milwaukee, structure to identify, evaluate, address broker-dealer and member of FInra and Wisconsin. the only item on the agenda and monitor current and emerging risks. sIPC, is a wholly owned company for a vote is the election of trustees of this structure assures accountability for of northwestern mutual. northwestern the company. scrutinizing risks, defining tolerance levels mutual Wealth management Company, and managing risks within those levels. a wholly owned company of northwestern hAve A queStioN? Cross-functional senior management mutual, is a limited purpose federal For policy inquiries or general information, committees have been established to savings bank authorized to offer a range see review risks related to our business. they of financial planning, trust, fiduciary, For billing and payment inquiries, call are central to our internal system of investment advisory and investment 1-800-388-8123. the company’s general checks and balances. these committees management products and services. phone number is (414) 271-1444. work in partnership with the Chief russell Investment Group is a Washington, RepoRtiNg fRAuD risk officer, who facilitates consistent usa, corporation, which operates every year, insurance fraud costs direction and communication between through subsidiaries worldwide and companies and consumers billions of various risk management functions in is a subsidiary of the northwestern dollars. What can policyowners do to help the company and reports directly to the mutual life Insurance Company. the company’s anti-fraud efforts? the Chief executive officer. the company’s company’s Web site has information board of trustees oversees all risk MoRe ABout DiviDeNDS on this topic. to report fraud, e-mail management efforts. Decisions with respect to the determination and allocation of divisible surplus are as a financial security company, we left to the discretion and sound business or call toll-free 1-877-607-2485. believe that managing risks lies at the judgment of the company’s board of heart of our business and is deeply CLieNt-RepReSeNtAtive ReLAtioNShipS trustees. there is no guaranteed specific rooted in the more than 150-year-old this report contains profiles of certain method or formula for the determination culture that guides our employees and northwestern mutual clients, their personal and allocation of divisible surplus. financial representatives. financial needs and how northwestern accordingly, the company’s approach is 19
  20. 20. strong— always the northwestern Mutual business model is built to perform well both in good times and bad. in 2009, our strength and consistency shone brightly in a volatile time. HIGHEST HIGHEST $ 4 .7 billion FORTuNE ® financial strength CUSTOMER Most Admired dividend payout RATINGS satisfaction We expect to northwestern northwestern We have been named pay more than mutual mutual leads the one of the World’s $4.7 billion in maintained industry with the most admired dividends to the highest highest customer life insurance policyowners in available ratings satisfaction companies in 2010 — more for insurance score among Fortune® magazine’s than twice the financial strength u.s. life insurers. march 16, 2009, life insurance from all four — The American annual survey. the dividends of our major rating Customer Satisfaction survey’s participating closest competitor. agencies.* Index, fourth quarter executives, directors 2009 report and analysts placed the company first in the attribute of financial soundness. VIeW our ClIent VIDeos onlIne: | about northwestern mutual | our Company | annual report The Northwestern Mutual Life Insurance Company • Milwaukee, WI 90-0073-01 (0310) *Third-party ratings are subject to change.