Fitch Affirms Northwestern Mutual's IFS Rating at 'AAA'

Business Wire,  July 3, 2007  

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CHICAGO -- Fitch Ratings has affirmed the insurer financial strength ratings (IFS) of The Northwestern Mutual Life Insurance Co. (NM) and Northwestern Long Term Care Insurance Co. (NLTC) as follows:

Northwestern Mutual Life Insurance Company

--Insurer financial strength (IFS) at 'AAA'.

Northwestern Long Term Care Insurance Company

--IFS at 'AAA'.

In addition, Fitch has affirmed the 'AAA' rating on Frank Russell Co.'s senior notes, which are unconditionally guaranteed by NM. The Rating Outlook is Stable.

NLTC is a wholly owned stock subsidiary of NM, and its financial strength rating reflects the strength of the entire NM organization, as well as the explicit capital support agreement between NM and NLTC.

Fitch's ratings assigned to NM reflect the company's very strong competitive position in the U.S. life insurance market and extremely strong balance sheet fundamentals. Fitch considers NM's key competitive advantages to include its career distribution network, significant scale and focus on expense control.

The Northwestern Mutual Financial Network, which is the sole distributor of NM's insurance products, is highly productive. Maintaining the growth and productivity of this distribution channel, has been a priority of NM in 2006/2007 and is critical to NM's ability to compete in the market. The company experienced a decline in financial representative recruiting and retention in 2005, but has rebounded in 2006 with a 32% increase in full-time recruits, including gains by its college recruiting program. Fitch considers this an important positive development.

NM's extremely strong balance sheet fundaments reflect the company's very strong capital position, as demonstrated in Fitch's PRISM capital model and risk based capital (RBC) scores, very low equity-credit adjusted leverage and relatively low-risk liability profile. Statutory capital increased 13.6% in 2006 to $17.1 billion driven by strong investment results and good statutory operating earnings. Fitch believes that NM's mutual ownership status enhances the company's ability to maintain a strong capital position and execute on its long-term investment strategy. Fitch expects surplus to continue to grow, although at a slower pace.

Outstanding debt consists of $350 million of senior notes issued by its affiliate Frank Russell Company and guaranteed by NM. Fitch expects consolidated financial leverage to remain well below 10%.

Other key rating factors include NM's above-average investment exposure to equity securities, real estate and commercial mortgages in its investment portfolio, and the company's operating returns that tend to be lower than similarly rated peers. Fitch notes that NM's operating returns are measured after over $4.6 billion in dividends to participating policyholders, and the company enjoys significant flexibility in the amount of such dividends declared and paid. The concern with NM's sizable equity investment portfolio is the potential volatility exposure to surplus due to capital losses over shorter time horizons. However, Fitch believes that the company's overall exposure to investment risk is reasonable considering the company's stable, long duration liabilities and strong statutory capital position.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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