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Rating Action:

Moody's affirms Northwestern Mutual (Aaa IFS) ratings and assigns Aa2 (hyb) to surplus notes; outlook stable

12 September 2019

New York , September 12, 2019 – Moody's Investors Service has affirmed the Aaa insurance financial strength (IFS) rating and Aa2 (hyb) surplus note rating of Northwestern Mutual Life Insurance Company (Northwestern Mutual or Company). Moody's also affirmed the Aaa IFS rating of subsidiary Northwestern Long Term Care Insurance Company. Moody's will also assign an Aa2 (hyb) rating to the planned issuance by Northwestern Mutual of approximately $500 million of 40-year fixed rate surplus notes. In addition, the issue size may increase as part of an anticipated exchange for its existing surplus notes due 2040. Northwestern Mutual will not receive any cash proceeds from the exchange offer. The 2040 surplus notes validly tendered and exchanged for the new 2059 surplus notes in the exchange offer will be retired and cancelled. The net proceeds from the offering are expected to be used for general corporate purposes. Interest and principal repayment on the surplus notes are subject to prior approval from the Commissioner of Insurance of the state of Wisconsin. The outlook on all ratings is stable.

RATINGS RATIONALE

According to Moody's, the affirmation of Northwestern Mutual's Aaa IFS rating reflects its exceptional business and financial profile strengths. These include a leading position and strong franchise in its core market with a significant focus on participating whole life insurance, a highly productive distribution network strengthened by its high level of retention, strong operating fundamentals reflected by its excellent persistency and favorable mortality experience, and a robust and resilient balance sheet characterized by consistent investment performance and solid capital adequacy. In addition, Northwestern Mutual's mutual ownership structure aligns the interests of all stakeholders - policyholders, creditors, and the company - leading to superior financial strength.

The company's Aa2 (hyb) surplus note rating and stable outlook reflect the standard two-notch difference between an operating company's IFS rating and its surplus note rating, because of the subordination of surplus notes to policyholder and senior creditor claims. The new surplus notes rank pari passu with the existing surplus notes. Moody's expects Northwestern Mutual's adjusted financial leverage metric to remain below 15% (adjusted leverage was 12.7% at year-end 2018) following the issuance, and further enhance capital adequacy.

Moody's also noted that the company's capital adequacy, as measured by the NAIC Risk Based Capital (RBC) ratio, is extremely strong (520% of company action level as of Dec. 31, 2018) and is expected to remain strong, even in an adverse economic environment. Other strengths include a liability profile dominated by low-risk, participating insurance reserves, inherent earnings stability, and a well-diversified investment portfolio. The company's ability to adjust dividends to policyholders (approximately $5.6 billion paid in 2018) on its participating insurance should protect the company's statutory surplus in the event of a stressful economic environment.

These strengths are tempered by an earnings profile that is weak for its rating level. This is due to the company's ability to share operating results through its policyholder dividends, the challenges of maintaining growth in the company's distribution force, the possibility of a long-term shift in consumer product preferences toward investment-oriented products over time, as well as a large exposure to below investment grade bonds, alternative assets, and commercial real estate-related investments.

RATING DRIVERS

According to Moody's, the following could place downward pressure on Northwestern Mutual's ratings: 1) a downgrade of the US government rating; 2) NAIC RBC ratio below 400% (company action level) for an extended period or a reduction in capital of more than 10% over a 12 month period; 3) a significant decline in the percentage of participating whole life insurance premiums relative to total premiums and deposits; 4) production from its career distribution network declining substantially or loss of its leadership position in life insurance sales over the medium term.

The following ratings were affirmed with a stable outlook:

Northwestern Mutual Life Insurance Company: insurance financial strength rating at Aaa, surplus note rating at Aa2 (hyb);

Northwestern Long Term Care Insurance Company: insurance financial strength rating at Aaa.

Northwestern Mutual, a mutual insurance company domiciled in Milwaukee, WI, provides insurance protection, retirement, and investment products in the United States. As of June 30, 2019, Northwestern Mutual reported consolidated statutory assets of $282.8 billion and consolidated statutory capital and surplus of $23.2 billion.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

The principal methodology used in these ratings was Life Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Bob Garofalo
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Marc R. Pinto, CFA
MD-Financial Institutions
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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