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

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength rating of A++ (Superior) and 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). A.M. Best also 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 franchise, consistently positive operating performance and superior risk-adjusted capitalization. The ratings also recognize the loyalty and productivity of the Northwestern Mutual Financial Network, its exclusive distribution system, as well as the competitive advantages derived from historically favorable investment, expense, persistency and mortality experience in its core business lines. These advantages allow Northwestern Mutual to consistently provide policyowners 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. Although Northwestern Mutual maintains the number one market share position in individual life as measured by new business annualized premiums, A.M. Best notes that it remains a highly saturated marketplace with many companies competing for the same affluent market customers.

Partially offsetting these positive rating factors are Northwestern Mutual’s above average aggregate exposure to private placement bonds, below investment grade bonds, commercial mortgages and equities (both common and private) in its general account investment portfolio. This exposure to higher risk assets led to substantial realized and unrealized investment losses during the recent financial crisis. However, A.M. Best notes that the company has recently begun to reduce its exposure to equities and other alternative investments. In addition, 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 or disintermediation concerns.

Long-term care premium growth at NLTC has accelerated over the past two years, reflecting strong sales associated with improving economic conditions, as well as several recent market exits and significant premium increases by its shrinking list of competitors. While A.M. Best maintains a cautious view on long-term care insurance, NLTC is one of only a few carriers that offer participating policies and has not implemented premium rate increases on inforce policies since the company entered the business in 1998. While A.M. Best notes the challenges faced by long-term care insurance writers due to the current low interest rate environment, long-term care insurance is not a significant contributor to revenue and earnings for the group and represents less than 1% of the organization’s overall general account reserves.

The primary driver of potential negative rating actions over the near term at Northwestern Mutual would be significant investment losses 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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life/Health Insurers”; and “Rating Members of Insurance Groups.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.Michael Adams, 908-439-2200, ext. 5133
Senior Financial Analyst
[email protected]
orThomas Rosendale, 908-439-2200, ext. 5201
Assistant Vice President
[email protected]
orRachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
[email protected]
orJim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Co.