A.M. Best Affirms Ratings of Northwestern Mutual; Affirms Debt Rating of Frank Russell Co.
Oldwick, N.J.-(Business Wire)-(May 23, 2006)-A.M. Best Co. has affirmed the financial strength rating of A++ (Superior) of The Northwestern Mutual Life Insurance Company (Northwestern Mutual) and its subsidiary, Northwestern Long Term Care Insurance Company (both of Milwaukee, WI). Concurrently, A.M. Best affirmed the issuer credit rating of “aaa” of Northwestern Mutual. A.M. Best has also affirmed the debt rating of “aaa” on the $350 million 5.625% senior unsecured notes of its subsidiary, Frank Russell Company (Russell) (Tacoma, WA). Principal and interest payments on these securities are unconditionally guaranteed by Northwestern Mutual. The outlook for all ratings is stable.
These ratings are a reflection of Northwestern Mutual’s well regarded individual life insurance franchise, conservative operating profile, excellent earnings 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.
Offsetting these factors is the company’s recent history of sluggish life sales, reflecting the increasingly competitive individual life insurance market. Additionally, Northwestern Mutual’s career agency system head count has begun to slowly decline, as the company remains challenged to effectively recruit and retain productive sales professionals. A.M. Best notes that concerns over the declining fundamentals within Northwestern Mutual’s career agency system are heightened by the lack of distribution diversification. Nevertheless, relative to its peers, Northwestern Mutual’s agent retention rates remain quite favorable.
Northwestern Mutual has consistently provided individual life policyowners with dividend rates that are among the industry’s highest, contributing to both its marketing efforts as well as its excellent policy persistency. The growth and stability of the inforce business, combined with Northwestern Mutual’s focus on operating fundamentals, has enabled it to consistently generate favorable earnings from its traditional individual life insurance segment. In addition, the company has conservatively grown its individual annuity business and improved the profitability of its individual disability income line. Additionally, A.M. Best believes that the negative statutory book value associated with the company’s investment in Russell is a source of significant embedded value and effectively understates Northwestern Mutual’s capital and surplus.
Broadening Northwestern Mutual’s global presence in asset management, Russell’s mutual funds are distributed through the Northwestern Mutual Financial Network, as well as to other retail clients through financial institutions, registered investment advisors and brokers. Russell funds are also made available as investment options in Northwestern Mutual’s variable products. Russell has experienced favorable growth in revenues and operating earnings, enabling it to provide sufficient stand-alone debt service coverage, notwithstanding the guarantee. Furthermore, Northwestern Mutual’s financial leverage is expected to remain in the low single digits, consistent with its conservative approach to balance sheet management.
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