northwestern mutual 2009 annual report

20
GOOD DECISIONS , ALWAYS 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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Page 1: Northwestern Mutual 2009 annual report

G o o d d e c i s i o n s , a lway s

2 0 0 9 a n n u a l r e p o r t

Page 2: Northwestern Mutual 2009 annual report

(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%

edward J. Zore John e. schlifskeChairman and CEO Northwestern Mutual’s 17th President

results in brief

2

learn more about us: visit northwesternmutual.com | about northwestern mutual

Always proven: despite the volatility of 2009, we paid more than twice the life insurance dividends of our nearest competitor.

Page 3: Northwestern Mutual 2009 annual report

Good decisions, always

3

last 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 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

Page 4: Northwestern Mutual 2009 annual report

since mid-2008, the dramatic news

of the economy’s instability has

shaken the nation as a whole. while

newscasts carried stories about the

effects on institutions and markets,

most americans felt the impact within

their homes. the nation talked of

“weathering the storm” — a storm

worse than any since the 1930s.

we have never cracked under economic

pressure. in fact, we plan for such times.

Good decisions, always

our strength and unwavering stabilityare rooted in our well-made decisions

we can tell you quite plainly that northwestern Mutual withstood this storm.

our philosophy requires us to stand always prepared for troubled times.

our business model performs well in good times and bad, despite upheavals such as the civil and world wars and the Great depression. we have paid dividends every year since 1872.

we are proud that today our financial strength remains solid.

4

no matter the economic climate, we focus

on remaining consistently strong. in an

unstable world, you can rest assured

knowing that the responsibility you have

entrusted to us is honored. our results

remain stable, protecting you against risk.

the results speak for themselves. in these

extraordinary times, we provided industry-

leading value. northwestern Mutual

maintained the highest available ratings*

for insurance financial strength from all

four major rating agencies. our brand of

financial security is about giving people

confidence in their future.

this year, our clients — your fellow

policyowners — speak for us. they talk

about how the way we do business brings a

feeling of security to people’s lives in trying

times. Five clients report their experiences

over the last year or so. they confirm

that they, too, have made good decisions.

the work they do with their financial

representatives has helped them weather the

storm and continue on the path to financial

security. they feel on the right track at a

time when so many americans have worried

about where they are headed.

*Third-party ratings are subject to change.

we have always paid a dividend to our policyowners since 1872.

Page 5: Northwestern Mutual 2009 annual report

starting early to secure their future

Brian and Jill Koch are just starting out. This young couple

understands that life holds risk. In 2005, Brian lost his mom.

“We know what can happen, and we want to be prepared.”

As a result, Brian and Jill own life insurance, disability

insurance, an IRA and have pre-funded two-year-old Brooke’s

college education. They willingly make sacrifices now,

controlling spending and investing for the long term. They

faced last year’s crisis with a new baby and Jill no longer

a wage earner. A rising attorney at a national firm, Brian

believes in being prepared. Financial Representative Darling

Lie-Nielsen is helping the young family work toward building

a secure financial future.

Q As a young family, how have the economic events of the last year affected you?

A we’ve experienced losses like so many others have. But while others were losing so much, we found we were actually doing pretty well in terms of the big picture. the reason: as we watched the crisis unfold, we knew a big part of our strategy — whole life insurance — was protected. of course, an insurance policy is only as good as the company behind it. we recognized early on that we don’t need glamour; we 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 importance of setting money aside, as well as investing it. our work led to the feeling of comfort we had during all the financial upheaval. with her help, we’ve

“ We work very hard preparing for their future, so they can rest easy. They’re doing smart things.”

5

Darling Lie-Nielsen, Financial representative — miami, Florida

Page 6: Northwestern Mutual 2009 annual report

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 shortly thereafter. My life was in disarray. Fortunately, i didn’t have to worry financially. yolanda’s northwestern Mutual disability income insurance helped pay expenses during her illness. and then the company handled the life insurance claim quickly and professionally.

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

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.

coping without mom

“ I talk to people about things they’d rather not think about — to see through smaller challenges

to the bigger vision.”

6

worked on balancing our needs and wants and taking the actions needed to reach our goals. and that’s made us confident in the future as well. we have contingency plans, we have protection in place, and we have a game plan to meet whatever comes our way.

Q What does financial security mean to you?

A to us, financial security is about ensuring our hard work supports something that lasts. it’s less about what we want and more about what

Kevin Chadwick, Financial representative — Dallas, texas

we need — like saying no to some luxuries because we know we have a greater plan. it’s feeling safe in our financial choices and making sure they reflect the best decisions for our daughter. it’s knowing we’re laying the foundation to achieve future success.

we’ve seen friends laid off and a number of talented people forced to switch jobs during this past year. Markets go up, and markets go down; people make and lose money. Financial security has to factor in

Page 7: Northwestern Mutual 2009 annual report

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 that turned out to be a lifeline for my two young daughters and me. without it, we would have been financially devastated. But with help from Kevin and northwestern Mutual, we are financially stable and will continue to be so. we’ve maintained a consistent lifestyle — and that’s an important thing when we’ve been through so much. From this experience, i know that Kevin will anticipate my needs; he will recommend appropriate adjustments; and he will help me take actions that are right for my family and me.

Q What does financial security mean to you?

A it means that i can prioritize what’s important. Because of northwestern Mutual, i have been able to take a leave of absence from work — even during a tough economy — to spend more time with my daughters to rebuild their confidence after losing their mom, as well as take care of myself. Financial security affords me the time to see to it that these two little girls get their emotional footing back. that’s a blessing.

we always focus on the long term, not the latest fads.

7

safeguards that protect people against such outside forces or it’s not going to work. Knowing that we have a plan that’s been proven to navigate through tough times, we feel confident we 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.

VIeW our ClIent VIDeos onlIne: northwesternmutual.com | about northwestern mutual | our Company | annual report

Page 8: Northwestern Mutual 2009 annual report

Q You’re making career changes with children nearing college. How has the last year affected you?

A Pam: the last year’s crisis felt like an emotional roller coaster. we were even closer 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 a few years ago when pam wanted to retire from her medical practice. our conversations centered on where we were then and where we wanted to be in the long term. so we took actions: like purchasing whole life insurance policies, balancing our portfolio and investing

starting a business in an unstable economy

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

still on track for retirement, despite the economy

Clark McGhee’s employer failed last year. However,

Clark and his wife, Pam, are planners and savers who

have worked very closely with Wealth Management

Advisor Jeff Miller for more than a decade. As a

result, the couple felt financially secure enough to

start a new business venture in this “down” economy.

The couple knows success. Clark has held executive

positions with several financial services firms; Pam

retired from a thriving medical practice. Still, they

faced uncertainties. Clark believes the advice that Jeff

has given the couple over the years has helped them

to seize this business opportunity without risking the

family’s current well-being or the couple’s distant future.

Because the McGhees have built up significant cash

value in permanent life insurance and assets in their

retirement account, they have given themselves options.

If needed, they could use that money to help fund their

children’s educations or develop Clark’s business.

“ Our work is very strategic and very disciplined. The McGhees’ plan gives them confidence in their future.”

Wealth management advisor Jeff miller offers investment advisory services to the mcGhees through northwestern mutual Wealth management Company, a limited purpose federal savings bank.

8

Jeff Miller, Wealth management advisor — richmond, Virginia

Page 9: Northwestern Mutual 2009 annual report

in our home. in short, together we had implemented a plan that would weather a storm like the one we experienced in the last 12 months.

the result was that, when the storm came, we didn’t overreact. Having a sound advisor and a sound firm — and having planted good seeds years ago — meant we didn’t have to make fast choices or emotional ones.

Q Did you question your decisions at any point?

A Pam: it’s only human to do that, of course. we both talked to Jeff on several occasions about where we stood and whether there was anything we should do.

Clark: what we never doubted was that Jeff was the right person or that northwestern Mutual was the right company. it would have simply been too much if we felt the need to question our advisor or our firm.

still on track for retirement, despite the economy

and Associate Financial Representative

Reena Bland after the last national crisis,

September 11, 2001, when they saw their

investments — through a different broker —

drop considerably.

Like most people, Sharon and Steve were

affected by last year’s economic turmoil, but

the good news is that their retirement dreams

of a flat in Paris or Amsterdam and traveling the

world are intact and on schedule.

9

Q What does financial security mean to you?

A Clark: that was one of the first questions Jeff asked us — and our answer was “having our bases covered.” during our first 15 years of marriage, it meant disability income insurance in case there was an accident or illness; college funds for the kids; minimal debt; life insurance in case of premature death; will and trust vehicles; cash for emergencies; not having to depend on our kids to take care of us in our later years.

Pam: today, our thoughts center on “what’s next?” Because we made good decisions early, now we have the luxury to think about new things. clark is able to start a new business that’s already showing signs of success. working with a strong company and an advisor who helped us develop a solid plan and execute it, we have options. and that’s a great feeling.

Q As you near retirement, how have the economic events of the last year affected you?

A like most americans, we didn’t take the crisis lightly. But our concern wasn’t the kind that made us lose sleep, partly because we are optimists, but also because of the relationship we have with delynn, reena and northwestern Mutual.

when we first developed our financial plan, delynn coached us to remember that we were in this for the long haul. she reminded us that we would likely

Page 10: Northwestern Mutual 2009 annual report

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.

Managing money for the family and helping others

“ It’s so rewarding to watch people you care about achieve the things that are important to them.”

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.

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 view, taking into account our changing needs and interests.

so at the beginning of the market slide, we were concerned about where the bottom might be, but we never questioned the validity of our plan. Fundamental to our plan was protecting against the risks of life and taking advantage of potential opportunities.

10

Reena Bland, associate Financial representative; Delynn Alexander, Wealth management advisor — Chapel Hill, north Carolina

Page 11: Northwestern Mutual 2009 annual report

Managing money for the family and helping others

i believe this economic turbulence has helped people realize what they actually do have and perhaps better understand others who are not as fortunate. i’m watching people change their attitudes, and that’s a good thing.

Q What drives you to work on behalf of others, rather than slow down and take it easy?

A My grandfather, who built that newspaper, also taught me it was important to give back. when i had friends who came into asheville for medical treatment who couldn’t afford accommodations, i opened my home. it was then i saw a need and an opportunity — to build a hospital hospitality house and run it with volunteers. everyone thought i was out of my mind, but it works. over the years, don has helped me figure out many things. i trust him. He’s a good friend and a good advisor.

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.

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.

“ The first question we always ask is ‘what are your goals, your dreams?’ Once we know the answers, we can help.”

Q What does financial security mean to you?

A i have enough to eat, a house to live in, a car to travel with. i want to be independent as long as i can and not leave my children any debt. and i have financial representatives i trust. when don and i first talked about financial security issues, he realized i didn’t know much — so he started explaining, and i listened. i was teachable because i knew that i didn’t know enough. He challenges me and doesn’t always agree with me. He and charlie make sure everything we talk about fits my life, not someone else’s. all these things put together make up financial security for me.

Q How would you describe your relationship with Delynn and Reena?

A this was a relationship formed on trust. For years, we had been searching for someone who would ask us the important questions. we finally found delynn and reena. they were interested in us — not just selling us something or impressing us with their technical knowledge. we know that delynn and reena are working for us, and we trust that northwestern Mutual will live up to its reputation of strength and stability for us.

Q What does financial security mean to you?

A it means having a plan that will allow us to reasonably transition through the rest of our lives without the typical financial shortfalls.

11

when we first sat down to sketch out a plan, we discussed the lifestyle we wanted to maintain and the things we wanted to do in the future. we looked at how we were living and decided we didn’t want to live differently in the first phase of our retirement. in fact, we hope to do more — like have a property in europe, for example. then we considered what we would need for the phase after that. we also considered how we could support causes that are important to us. when you have the ability and control to direct money to something you believe in, it’s a great pleasure.

we have prioritized our goals and now know how to focus on what we want. we trust our plan, the people working for us and northwestern Mutual.

Charlie Reed, Financial representative; Don Reed, Wealth management advisor — asheville, north Carolina

Page 12: Northwestern Mutual 2009 annual report

12

northwestern Mutual’s basic financial goal remains the same in any economic environment: to pay a level of dividends that delivers the highest product value to policyowners without compromising the company’s superior financial strength and stability.

strenGtH and security

Total assets(in billions)

125

75

50

08 0905 06 07

Total investmentsSeparate account assetsOther assets

100

25

$150

1989 19941974 1979 1984 2004 20091999

Total assets(in billions)

125

75

50

08 0905 06 07

Total investmentsSeparate account assetsOther assets

100

25

150

$175

General account managed investments(excludes policy loans)

72%

16%

12%

72% Bonds & cash16% Mortgage loans12% Stocks & other equities

Premium revenue(in billions)

12

9

6

3

0905 06 07 08

Life insuranceDisability/ Long-term careAnnuity

0%

3%

6%

9%

12%

15%

AVR

At year-end 2009

$15

Surplus Ratio(surplus and AVR as a percentage of general account insurance reserves)

Surplus

surplus

ratioOuR FINANCIAL POSITION remains strong — ASSuRING THAT THE COMPANY CAN KEEP ITS PROMISES TO POLICYOWNERS.

Financial strenGtHas the economic and financial market turmoil carried over into 2009, the strength and stability of financial institutions were again put to the test. northwestern Mutual met these challenges by remaining true to our time-tested strategy, including prudent management of insurance product risk; careful attention to operating expenses; and a well-balanced, diversified general account investment portfolio. these fundamental priorities, along with our commitment to mutuality and the financial flexibility of our participating dividends, enable the company to weather even extreme financial stress — and deliver on

our commitment to long-term financial security for our policy-owners and clients.

during 2009, surplus and asset valuation reserve (aVr) increased $822 million to $14.2 billion. surplus provides the company and our policy-owners with protection against the unexpected, while aVr supports our long-term investment strategy by cushioning against market volatility.

at year-end 2009, surplus and aVr represented 11.4% of general account insurance reserves, approximately the same as one year earlier. this level of surplus remains very strong relative to the

09Financial results

11.4%

Page 13: Northwestern Mutual 2009 annual report

13

company’s risk profile and regulatory benchmarks. it also compares favorably to our historical standards for a strong financial position.

Mutuality and policyowner Valuenorthwestern Mutual is managed for the long-term benefit of our policyowners. this mutual perspective requires a balance between participating dividends and long-term financial strength and security. participating dividends reflect our underlying claims experience, expense structure and investment performance.

in total, dividends to policy-owners are estimated to be more than $4.7 billion in 2010. this represents an increase of almost $200 million over the 2009 payout and is expected to be the second-highest payout of dividends in company history. this includes:

the dividend scale interest rate on most unborrowed permanent life insurance funds will be 6.15% during 2010, down from 6.5% during 2009. while important, investment performance is only a part of permanent life insurance policyowner value. our favorable claims experience and rigorous approach to expense manage-ment account for more than one-half of total dividends to be paid during 2010.

superior product value contributes to policyowner satisfaction and loyalty. our persistency rate for life insurance in force was 96% during 2009. life insurance policyowners used 76% of dividends paid during 2009 to purchase additional insurance protection, contributing to a 5% increase in total life insurance in force that reached $1.2 trillion at year-end 2009.

n $4.3 billion

in dividends on

participating permanent

life insurance policies;

n $120 million

in dividends on term life

insurance policies;

n $225 million

in dividends on individual

disability insurance

policies, an 11% increase

over the prior year;

n $8 million

in dividends paid to long-

term care policyowners

through our subsidiary,

Northwestern Long Term

Care Insurance Company;

and

n $28 million in dividends on individual

fixed and variable annuity

contracts.

09Financial results

Total assets(in billions)

125

75

50

08 0905 06 07

Total investmentsSeparate account assetsOther assets

100

25

$150

1989 19941974 1979 1984 2004 20091999

Total assets(in billions)

125

75

50

08 0905 06 07

Total investmentsSeparate account assetsOther assets

100

25

150

$175

General account managed investments(excludes policy loans)

72%

16%

12%

72% Bonds & cash16% Mortgage loans12% Stocks & other equities

Premium revenue(in billions)

12

9

6

3

0905 06 07 08

Life insuranceDisability/ Long-term careAnnuity

0%

3%

6%

9%

12%

15%

AVR

At year-end 2009

$15

Surplus Ratio(surplus and AVR as a percentage of general account insurance reserves)

Surplus

total assets

Page 14: Northwestern Mutual 2009 annual report

inVestMent resultsthe company’s general account investment portfolio is diversified and largely comprised of high-quality, fixed-income assets, appropriate for our investment strategy to provide superior returns over the long term while managing overall credit, market and interest-rate risk. our investment guidelines limit exposure to any single asset class or issuer.

the $91 billion bond portfolio represents 70% of our general account managed investments and remains the cornerstone of our investment strategy. this portfolio of public and private debt remained high-quality and well-diversified by sector, with 90% rated as investment grade at year-end 2009. the company’s $21 billion commercial mortgage loan portfolio, underwritten by our own real estate professionals, enjoys significant collateral protection and is well-diversified geographically and by property type.

equity investments include public and private common stocks, real estate and other holdings that enhance total portfolio returns in the long

term, but for which market values can be volatile. this time-tested investment strategy is made possible by a strong surplus position and the stable nature of our participating life insurance products.

northwestern Mutual maintains a very strong liquidity position. at year-end 2009, the company held $26 billion in cash equiv-alents, u.s. treasurys and other highly liquid, government-supported investments. we enjoy substantial positive operating cash flows, primarily from our large and stable block of participating life insurance business and general account investment portfolio. the company’s net operating cash flow was $8.3 billion during 2009.

in total, general account investments generated $349 million in net realized and unrealized capital gains during 2009, after taxes and required deferrals of interest rate-related gains. these net gains contributed to surplus growth during 2009 and represented a substantial improvement from the net capital losses incurred during the financial market turmoil of 2008.

14

diversified assetsA WELL-BALANCED AND DIvERSIFIED PORTFOLIO CONTRIBuTES TO THE COMPANY’S ExEMPLARY DIvIDEND RECORD.

Total assets(in billions)

125

75

50

08 0905 06 07

Total investmentsSeparate account assetsOther assets

100

25

$150

1989 19941974 1979 1984 2004 20091999

Total assets(in billions)

125

75

50

08 0905 06 07

Total investmentsSeparate account assetsOther assets

100

25

150

$175

General account managed investments(excludes policy loans)

72%

16%

12%

72% Bonds & cash16% Mortgage loans12% Stocks & other equities

Premium revenue(in billions)

12

9

6

3

0905 06 07 08

Life insuranceDisability/ Long-term careAnnuity

0%

3%

6%

9%

12%

15%

AVR

At year-end 2009

$15

Surplus Ratio(surplus and AVR as a percentage of general account insurance reserves)

Surplus

THE $91 BILLION BOND PORTFOLIO remains the cornerstone OF OuR GENERAL ACCOuNT INvESTMENT STRATEGY.

Bondportfolio

our favorable experience with insurance claims and rigorous expense management account for more than one-half of total dividends.

Page 15: Northwestern Mutual 2009 annual report

15

09Financial results

operatinG resultstotal premium revenue, including both new and renewal premiums, was $13 billion for 2009, a decrease of 4% from 2008. this decrease was due primarily to the change in the life insurance dividend interest rate to 6.5% for 2009, which reduced the amount of dividends available to policyowners for purchase of additional life insurance protection. premium revenue for disability and long-term care insurance increased 4% and 17%, respectively.

net investment income was $7.8 billion for 2009, a 1% decrease from 2008, primarily reflecting lower interest rates. during 2009, the company directed most new investments to investment-grade corporate bonds and government-supported mortgage-backed securities.

Benefits paid to policyowners or their beneficiaries totaled $6.8 billion during 2009, a 12% increase from 2008. Mortality and other claims experience remained favorable during 2009, a reflection of the company’s careful assessment of insurance risk. the increase in benefits paid was largely offset by a lower net increase in benefit reserves compared with 2008. reserves for future policy benefits were $125 billion

at year-end 2009. operating results for 2009 also reflected our continued commitment to the rigorous management of operating expenses.

after provision for taxes and dividends to policyowners, net gain from operations was $475 million for 2009. the 2008 net gain of $1.1 billion included the benefit of a significant, one-time reserve adjustment. net income, which includes net realized capital gains and losses, was $321 million for 2009. net realized capital losses primarily reflected impairment adjustments for investments — offset in large part during 2009 by realized capital gains on selective sales of real estate and other equity investments. net realized capital losses improved significantly over 2008.

looKinG aHeadwhile the economic and financial market environment appears to be improving, significant risks and uncertainties remain. northwestern Mutual remains strong, stable and committed to our promise of financial security to our policyowners and clients. our focus on long-term policyowner value and financial strength will remain constant regardless of the challenges that may lie ahead.

we have received the best possible insurance financial strength rating from the four major rating agencies.

premium revenue

Total assets(in billions)

125

75

50

08 0905 06 07

Total investmentsSeparate account assetsOther assets

100

25

$150

1989 19941974 1979 1984 2004 20091999

Total assets(in billions)

125

75

50

08 0905 06 07

Total investmentsSeparate account assetsOther assets

100

25

150

$175

General account managed investments(excludes policy loans)

72%

16%

12%

72% Bonds & cash16% Mortgage loans12% Stocks & other equities

Premium revenue(in billions)

12

9

6

3

0905 06 07 08

Life insuranceDisability/ Long-term careAnnuity

0%

3%

6%

9%

12%

15%

AVR

At year-end 2009

$15

Surplus Ratio(surplus and AVR as a percentage of general account insurance reserves)

Surplus

Page 16: Northwestern Mutual 2009 annual report

These summary financial statements are derived from the company’s audited consolidated financial statements, which are prepared on the statutory basis of accounting.

Insurance regulators require that financial statements be prepared on a statutory basis of accounting that differs materially from financial statements prepared in accordance with generally accepted accounting principles (GAAP).

09Financial results

16

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 www.northwesternmutual.com or by written request to Northwestern Mutual, Corporate Relations, Room N04, 720 E. Wisconsin Ave., Milwaukee, Wisconsin 53202.

Year ended December 31: 2009 2008

Premiums $13,062 $13,551Net investment income 7,772 7,835Other income 532 537

Total revenue 21,366 21,923

Policyowner benefits paid 6,807 6,071Increase in benefit reserves 7,138 8,389Commissions and expenses 2,189 2,070

Total benefits and expenses 16,134 16,530

Gain before dividends and taxes 5,232 5,393

Policyowner dividends 4,715 4,547

Gain before taxes 517 846

Income tax expense (benefit) 42 (304)

Net gain from operations 475 1,150

Net realized capital gains (losses) (154) (667)

Net income $321 $483

SuMMARy of opeRAtioNS(consolidated statutory basis, in millions)

SuMMARy of fiNANCiAL poSitioN(consolidated statutory basis, in millions)

Year ended December 31: 2009 2008

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 9,185Cash 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

Page 17: Northwestern Mutual 2009 annual report

Many of us know northwestern Mutual as the preeminent life insurance company. But more and more, northwestern Mutual’s clients turn to their financial representatives to provide expert guidance and the company’s full range of insurance and investment products to meet their financial security goals. we believe the company is uniquely poised to capitalize on this opportunity and differentiate itself in the marketplace with its financial strength, human capital, integrated financial security strategy and its exclusive distribution system.

Financial Strength Mutuality, which allows the company to take a long-term view, served the policyowners well during a period of great economic turmoil. throughout the financial crisis that began in the fall of 2008, the company performed admirably and today holds an unmatched position of financial strength in its industry.

several factors contributed to the company’s resilience, including conservative underwriting guidelines, sound investment practices and disciplined expense management. these factors, together with a top-notch sales force and an impressive policy renewal rate of 96%, contributed to the company earning

the highest available ratings for insurance financial strength from all four major rating agencies. northwestern Mutual’s enviable financial position made it possible for the company to announce a 2010 dividend payout of $4.7 billion, the second largest in the company’s history, despite the turbulent financial markets. we applaud management for its long-term investment discipline and encourage the company to continue its commitment to cost control.

Human CapitalBecause northwestern Mutual primarily promotes its leaders from within, leadership development in both the home office and the network offices is a vital component of the company’s future growth. we encourage the company to support local network offices by investing in front-line management teams and identifying future leaders. at the home office, management has acknowledged that operating efficiencies and leadership development can be supported by performance-based compensation practices. to enhance its competitiveness, the company must continue to build a performance culture that aligns compensation and other forms of recognition with individual and company-wide achievements.

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.

2009 policyowners’ examining committee report

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.

Page 18: Northwestern Mutual 2009 annual report

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each year, a small group of policyowners with requisite business expertise assess our operations on behalf of their fellow policyowners.

Integrated Financial Security we are impressed by northwestern Mutual’s ongoing evolution from an insurance company to a provider of diversified financial products and services. today, the company offers a spectrum of insurance and investment products designed to provide clients with a foundation of risk management that allows them to save for the future with confidence and to build, preserve and distribute their wealth during their lifetime and beyond. the integration of the company’s product lines is evidenced by the reorganization of insurance and investment products areas under common leadership.

we find it ironic that a firm of northwestern Mutual’s quality is not more widely known.

as a company with the highest available insurance financial strength ratings and an unsurpassed reputation, the company should capitalize on its unique opportunity to increase market share, recruit top talent and grow brand recognition. the company’s new marketing campaign emphasizes its strength and consistency and is evolving northwestern Mutual from its identity as the Quiet company. we encourage the company to be more intentional about communicating the integrated financial security message internally and externally. the current economic environment offers opportunity for the company to distinguish itself and build market share. we encourage the company to take advantage of this opportunity.

we note that the current regulatory climate could impact northwestern Mutual’s business model and financials. we are encouraged by the thoughtfulness and depth of the enterprise risk assessment, scenario planning and risk mitigation efforts. we feel that management is taking appropriate steps to monitor legislative developments and plan for adverse impacts.

Distributionnorthwestern Mutual’s exclusive distribution system of network offices and financial representatives is recognized as a competitive advantage in the industry. the company is executing its well-defined strategy for growth, including the expansion of the number of financial representatives and a focus on skill development and retention. progress is evidenced by several initiatives, including a new contract to stimulate field force growth, an incentive program to help new financial representatives establish strong practices, added resources in network offices to support new representatives and continued emphasis on the company’s award-winning college internship program.

we encourage the company to continue to partner with field management to build out their financial representative footprint. this is an appropriate investment designed to benefit policyowners in the long run. the company should continue to hold field management accountable for results. as capacity builds in the field force, we encourage the company to leverage this capacity to expand in underserved markets.

Conclusionin this time of economic uncertainty, the experience and conviction of northwestern Mutual’s leadership team is one of its greatest assets. during his tenure, ed Zore has led the company’s evolution from a life insurance provider to a business that helps meet the overall financial security needs of people like us. He has done so while holding firm to the founding principle of mutuality and our best interests as policyowners. we applaud ed, John schlifske and the entire senior management team on a smooth leadership transition. John’s experience and knowledge of the company, together with his evident passion and vision for the future, leave us confident about northwestern Mutual’s continued success.

Page 19: Northwestern Mutual 2009 annual report

NoRthweSteRN MutuALnorthwestern mutual helps clients protect against financial risk and achieve financial security. the company, its subsidiaries and affiliates offer life, disability and long-term care insurance, investment products, advisory services and trust services that address client needs for financial protection, wealth accumulation, estate preservation and asset distribution. Headquartered in milwaukee, Wisconsin, the mutual company has more than 3 million policyowners and expects to continue as the leading u.s. company in total individual life insurance dividends paid to policyowners.

SuBSiDiARieSQuietCare® long-term care insurance is offered through northwestern long term Care Insurance Company, milwaukee, Wisconsin. strategic employee benefit services™ is a nationwide group marketing program providing specialized services in the employee benefit arena. securities are offered through Northwestern Mutual investment Services, LLC (NMiS), suite 600, 611 e. Wisconsin ave., milwaukee, Wisconsin, 53202, 1-866-664-7737. nmIs, a registered investment adviser, broker-dealer and member of FInra and sIPC, is a wholly owned company of northwestern mutual. northwestern mutual Wealth management Company, a wholly owned company of northwestern mutual, is a limited purpose federal savings bank authorized to offer a range of financial planning, trust, fiduciary, investment advisory and investment management products and services. russell Investment Group is a Washington, usa, corporation, which operates through subsidiaries worldwide and is a subsidiary of the northwestern mutual life Insurance Company.

MoRe ABout DiviDeNDS Decisions with respect to the determination and allocation of divisible surplus are left to 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. neither the existence nor the amount of a dividend is guaranteed on any policy in any given policy year. some policies may not receive any dividends in a particular year or years even while other policies receive dividends. In its 2010 dividend scale resolution, the board of trustees has exercised its discretion to guarantee a minimum amount of dividends to be paid in 2010 to the policyholders as a group. If this guaranteed amount exceeds the aggregate amount of dividends actually paid to individual policyholders in 2010, that excess will be paid out in 2011 pursuant to the 2010 dividend scale resolution. the presence of a guaranteed minimum amount in the 2010 dividend scale resolution does not obligate northwestern mutual to declare a dividend in future years or to guarantee any portion of dividends that may be declared in future years.

ANNuAL MeetiNg 8 A.M., MAy 26, 2010 the annual meeting of Policyowners of the northwestern mutual life Insurance Company will be held at 8 a.m., Wednesday, may 26, 2010, at the company’s milwaukee campus, 720 e. Wisconsin ave., milwaukee, Wisconsin. the only item on the agenda for a vote is the election of trustees of the company.

hAve A queStioN?For policy inquiries or general information, see www.northwesternmutual.com. For billing and payment inquiries, call 1-800-388-8123. the company’s general phone number is (414) 271-1444.

RepoRtiNg fRAuDevery year, insurance fraud costs companies and consumers billions of dollars. What can policyowners do to help the company’s anti-fraud efforts? the company’s Web site has information on this topic. to report fraud, e-mail [email protected] or call toll-free 1-877-607-2485.

CLieNt-RepReSeNtAtive ReLAtioNShipSthis report contains profiles of certain northwestern mutual clients, their personal financial needs and how northwestern

mutual and its affiliated companies met their needs. the personal financial needs and results of the clients shown in this report may not reflect the experience of other clients. Please discuss your personal financial situation with your northwestern mutual financial representative before purchasing any product or service. Please keep in mind that working with a northwestern mutual financial representative or any other financial services provider is not a guarantee as to future investment success.

eNteRpRiSe RiSK MANAgeMeNtnorthwestern mutual has a strong risk management culture that is vigilant in identifying and managing risks — whether financial, operational, strategic or environmental — that could impact the strength and security of your company. We apply risk models, experience and judgment as part of a well-coordinated structure to identify, evaluate, address and monitor current and emerging risks. this structure assures accountability for scrutinizing risks, defining tolerance levels and managing risks within those levels.

Cross-functional senior management committees have been established to review risks related to our business. they are central to our internal system of checks and balances. these committees work in partnership with the Chief risk officer, who facilitates consistent direction and communication between various risk management functions in the company and reports directly to the Chief executive officer. the company’s board of trustees oversees all risk management efforts.

as a financial security company, we believe that managing risks lies at the heart of our business and is deeply rooted in the more than 150-year-old culture that guides our employees and financial representatives.

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For more information about northwestern mutual, please visit www.northwesternmutual.com | about northwestern mutual

Page 20: Northwestern Mutual 2009 annual report

The Northwestern Mutual Life Insurance Company • Milwaukee, WI www.northwesternmutual.com

90-0073-01 (0310)

*Third-party ratings are subject to change.

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.

strong —always

VIeW our ClIent VIDeos onlIne: northwesternmutual.com | about northwestern mutual | our Company | annual report

FORTuNE®

Most Admired

We have been named one of the World’s

most admired life insurance companies in

Fortune® magazine’s march 16, 2009, annual survey. the

survey’s participating executives, directors and analysts placed

the company first in the attribute of

financial soundness.

northwestern mutual

maintained the highest

available ratings for insurance

financial strength from all four major rating agencies.*

HIGHEST financial strengthRATINGS

northwestern mutual leads the industry with the highest customer

satisfaction score among

u.s. life insurers. — The American

Customer Satisfaction Index, fourth quarter

2009 report

HIGHESTCUSTOMERsatisfaction

We expect to pay more than $4.7 billion in dividends to

policyowners in 2010 — more than twice the life insurance

dividends of our closest competitor.

$4.7 billiondividend payout