2024 Policyowners Examining Committee Report

Policyowners' Examining Committee Overview

Our policyowners stay with us for decades. That's why our ongoing aim is to deliver sustainable strong business performance today while continuously evolving for tomorrow to meet clients' near- and long-term needs. Here, outside perspective is invaluable—it's one more way we optimize our strategy and its execution to ensure we're always best serving our policyowners.

Since 1907, Northwestern Mutual has observed the annual tradition of granting a group of policyowners unrestricted access to the Company to independently review its operations, management, and strategic direction. Following the review, the committee produces a written report, published along with the Company's Annual Report. This is the 2024 Policyowners' Examining Committee's complete report:

Shortly after its founding in 1857, Northwestern Mutual ("Northwestern Mutual" or the "Company") planted its flag as pre-eminently the policyowners' company, striving less to be large than to be safe, and aiming to rank first in benefits to policyowners rather than first in size.¹ Now a 167-year-old financial services icon, Northwestern Mutual remains true to that mission. The 2024 Policyowners' Examining Committee (the "Committee") is honored to continue the tradition of evaluating and confirming, on behalf of the Company's policyowners, the stability and strength of our Company.

Throughout our review, the Company's continued commitment to its foundational principles could not have been clearer. Northwestern Mutual remains grounded in core values of mutuality, exclusive distribution, financial strength, and product value. When potential conflicts arise, they are resolved—often quickly—by asking the simple question, "What's best for the policyowners?" When disruptions or recessions create dislocations in the financial markets, they are viewed as unique long-term opportunities to invest and grow rather than short-term opportunities to panic. When a new product or service is created, it is expected to cover its proportionate share of the Company's (industry-leading) expense base, contribute to the financial strength and future growth of the enterprise, and, for participating products, receive excess contributions back in the form of a dividend. (The Company's aggregate dividend is expected to be $8.2 billion in 2025.²) Suffice it to say that Northwestern Mutual is simply the best when it comes to being safe and strong.

However, one theme that resonated with the Committee is that the best must continue to get better. In that spirit, the Committee respectfully submits the following recommendations for the Company's consideration in hopes that it will thrive for another 167+ years: (a) continue to promote, through both increased investment and messaging, the wealth business as a critical element of the Company's integrated go-to-market strategy, (b) grow the business by expanding the Field to meet existing, untapped opportunities in diverse segments, and (c) retain the authentic institutional humility required to be the best, while also conveying strength, pride, and confidence by elevating and expanding the Company's messaging to highlight success and accomplishments.

Areas of focus

Integrated go-to-market strategy & the importance of the wealth business

As long-term clients of Northwestern Mutual whose histories with the Company were substantially based in its world-class risk products, the Committee members were excited to explore the Company's comprehensive go-to-market strategy: one of integrating risk products (Protect) and wealth products (Prosper) into a holistic "Protect & Prosper" solution. The strategy endeavors to ground all new client relationships in the context of a personalized financial plan, and then execute that plan over the long term with the optimal risk and wealth products. The plan and products are refined over time, as appropriate, based on the client's growing and evolving circumstances and goals. The Committee found the Protect & Prosper go-to-market strategy to be a key differentiator, as the competition does not strive to holistically solve for their clients' financial wellness throughout their life journey with an exceptional, in-house planning tool and integrated offerings.

The Committee is convinced that the success of the Protect & Prosper strategy is critical to the future success of the Company, its clients, and its advisors. The Committee was not surprised to learn that integrated clients enjoy better financial outcomes³ and emotional wellness⁴ than risk- or wealth-only clients. The Committee reviewed and affirmed the importance of the holistic offering—an integrated planning tool with risk and wealth management solutions—to the Company's comprehensive advisor value proposition. And, considering that Northwestern Mutual's integrated advisors grow their risk and wealth business faster than non-integrated advisors, the Committee reflected on the importance of the integrated strategy to the Company's future relevance and strength. Promoting the continued success of both the Protect and the Prosper components is in the best interest of the enterprise ecosystem.

As such, the Committee challenges the Company to ensure that the Prosper components of the strategy remain thriving and complement the Protect components both in substance and message. Compared to the Company's risk products, which enjoy broad market awareness and have largely underpinned the Company's long history of financial strength, the Company's wealth business is still emerging. It has shown rapid growth, terrific performance, and great promise for the future, but the Company's internal and external messaging could amplify the wealth business even more. The Committee was impressed by the breadth and quality of the Company's retail investment solutions and related services. We urge the Company to continue to promote its uniquely positioned wealth business through increased financial investment and messaging as a companion to its best-in-class risk products, resulting in a truly differentiating Protect & Prosper solution.

Sales growth & growing the field to meet the market

The Committee spent ample time considering how the Company could continue expanding its business. It is surprising that Northwestern Mutual, the leader in the U.S. personal life insurance market (by annual revenue), has a market share equal to or greater than 15% in only nine U.S. counties. Additionally, studies show that more than 100 million Americans believe they do not have enough life insurance, and that people increasingly lack confidence in pensions, personal savings, and government-provided benefits to fund their financial security and retirement.⁵ There is clearly a need for the products and services Northwestern Mutual provides, and it is imperative that the Company is prepared to meet that demand where it exists.

One of the primary ways in which the Company has historically sought to meet demand is by growing the number of its financial advisors, expanding the Company's reach to more and more households. Notably, a significant proportion of the Company's inflation-adjusted premium growth over the past 50 years has come from growth in the number of its advisors. Moreover, the Committee learned that, over the past 10 years, 100% of the growth in the number of the Company's financial advisors and more than 100% of the growth of its young advisor risk production has come from growth in the number of women, people of color, and other diverse advisors. While those numbers may seem astonishing, they reflect the substantial opportunity available in diverse markets. By way of example, the woman-controlled financial services market opportunity exceeds $700 billion per year and the market opportunity with Black Americans is approaching $60 billion per year. Furthermore, the buying power of the Asian-American market segment currently exceeds $1.6 trillion and the Hispanic market segment represents a majority of total U.S. population growth. In light of the data outlined here, there is one final piece of compelling research: the strong evidence that people prefer to work with a financial advisor who shares their unique background and/or experiences. The Committee acknowledges the significant work the Company has already done to grow its presence in traditionally underserved markets, but it invites the Company to lean into these initiatives even more in order to increase the number of its diverse advisors as a critical growth strategy for the benefit of all policyowners.

Conveying strength, pride, and confidence in messaging

The Committee garnered profound respect and appreciation for what the Company does for its policyowners and clients. It is clear that the values and discipline exhibited by the Company have been a driving force in its success. However, while the Committee appreciates the authentic institutional humility needed to continue striving for greatness, there should also be room in the Company's messaging strategy to celebrate the success of a 167-year-old institution and promote the actions, strategy, and management that have made the Company best in class. In most sectors, industry leader status is a headline, not a secret. Growth is directly aligned to brand recognition, and Northwestern Mutual should be a more widely recognized brand for the more than $378.3 billion in assets, $38.1 billion in revenues, and $2.3 trillion worth of life insurance protection that empower families and businesses on their path to financial freedom. That is a story that should be widely told!

The Company's financial advisors are its best brand evangelists, and they could use additional tools to help them continue to promote the Company's strengths. The Committee had the privilege of meeting with several advisors during its review. We were inspired by the conviction of the advisors, not only in the Company and its products, but also in their abilities to help clients achieve financial goals and provide a path to financial freedom. This left a lasting impression on the Committee. The advisors lauded the support services offered by the home office, stressed the importance of leveraging the Company's financial strength when competing for business, and exhibited great pride in being Northwestern Mutual financial advisors. The Committee believes that, through its advisors, the Company has more than 8,000 brand evangelists, and it has millions more through its existing customers who have first-hand experience with its risk and wealth products. The Committee recommends that the Company align messaging of strength, pride, and confidence to match the exuberance of its advisors, and that it provide them with materials that proudly proclaim the many strengths of Northwestern Mutual, all in pursuit of greater brand awareness and recognition.

Conclusion

Northwestern Mutual remains a gold-standard organization with extraordinary qualities grounded in its mission and the foundational principles on which it was built. While the Committee identified a few areas of opportunity, the members unanimously agree that Northwestern Mutual is among the strongest (and safest) companies in the world, and that it will continue to provide financial security to Americans for generations to come.