How We Stress-Test Northwestern Mutual

Mike Carter is Executive Vice President, Chief Financial Officer and Chief Risk Officer at Northwestern Mutual

We’ve been saying it a lot lately: We were ready for this. 

But what does that actually mean?  

As a company, our focus is on helping clients reach their financial goals through planning that includes investments for growth and the stability of insurance for protection against unexpected events. Our legacy as a life insurance company gives us a unique perspective when it comes to this approach to financial security. 

When we sell life insurance, annuities or other insurance products, we’re making a financial promise. That promise may be to pay a death benefit, to send annuity checks regularly or to give a client access to whole life insurance cash value, which is guaranteed to grow no matter what is happening in the stock market. Whether we’re in the middle of a bull market, the Great Depression or even a pandemic, we have to be able to make good on those promises. And because we focus on financial strength, we have always made good on them throughout our 160-plus-year history. 

WHAT IT MEANS TO FOCUS ON FINANCIAL STRENGTH 

Because our clients can depend on the strength and stability of our insurance in good times and bad, insurance is often the bedrock of their financial plans. This kind of planning isn’t new for us, it’s how we manage money as a life insurance company. 

Just like you earn an income, we have money coming through the door every month in the form of premiums on new and existing policies. Just like you may set some money aside each month into an emergency fund, we do the same, putting some into reserve. We then invest our reserves through our general account, which has a mix of stable assets and riskier assets that earn a return (this in turn helps with things like paying dividends, which can help increase your life insurance cash value and death benefit faster than what’s guaranteed through your policy).  

Over Northwestern Mutual’s history, we’ve become pretty good at growing money in a way that allows us to meet our obligations in good times and in bad. Since we have seen plenty of both throughout our history, we know how to plan for the best — and prepare for the worst.  

WHAT WE STRESS-TEST FOR 

We have top actuaries, risk managers, and investment and finance professionals who stress-test Northwestern Mutual on a regular basis so that we’re balancing growth and stability, even when times get historically bad. 

We simulate how our company would perform in very severe situations, even worse than what we expect from COVID-19. Take a pandemic. What would happen if death claims skyrocketed one year? What if the market fell by 50 percent at the same time? What happens if we have low interest rates for years? And what other factors could accompany all those conditions?  

Both our internal teams and independent ratings agencies look at Northwestern Mutual’s current financial situation and model what would happen to the company over several years if we went through any number of those severe scenarios. That stress-testing helps us build a financial plan for the company that takes enough risk to provide long-term value for our clients, without taking so much risk that we harm our ability to meet our promises. Our goal is to be able to withstand severe stress and thrive on the other side of it. The independent ratings agencies recognize this, and consistently award Northwestern Mutual the highest ratings in our industry. That’s what we mean when we say, “We were ready for this.” 

It’s not all that different from how our advisors work with clients. A solid financial plan isn’t just about looking at your financial situation when times are good. It’s also about planning for bad times like this and making sure that you can still meet your goals. That’s why we believe so strongly in a solid financial plan that includes the stability of insurance for protection and investments for growth. At times like this, you lean on your stable assets and take comfort in the security they provide, allowing you to wait for your investments to grow again. Throughout history, they always have. Embracing that philosophy has made Northwestern Mutual the strongest company in our industry.