Northwestern Mutual

Northwestern Mutual Reports 2001 Financial Results; Dividends, Surplus, Recruiting all Up for Year

2001 was a year of record dividends, continued financial strength and the best recruiting result in company history for Northwestern Mutual, the nation's leading individual life insurance company.

"We responded to a year of challenges with a year of achievements," said President & CEO Edward J. Zore. "With the recession, stock-market declines and the tragedy of September 11, last year was one that challenged all financial institutions. Northwestern Mutual performed very well in a difficult environment."

  Zore pointed to the following highlights for 2001:
  -- Dividends to policy-owners for 2002 increased 9.5 percent to a record
     $3.7 billion.
  -- The company finished 2001 with a record total surplus of $8.9 billion
     and a surplus ratio of 13.1 percent, which matched the ratio of year-
     end 2000.
  -- Recruiting results were best in company history, up 21%, with 1,698 new
     financial representatives joining the Northwestern Mutual Financial
  -- Total premium revenue increased to $9.4 billion.

Sales of life insurance face amount increased 9 percent to $88 billion, which contributed to life insurance in force of $690 billion. New life insurance policies sold increased 3 percent. Although new life insurance premium sales were flat, total life insurance premium increased 8% due to strong renewal premium growth.

"We saw a drop in new variable life insurance sales countered by an increase in new life sales backed by our general portfolio," Zore said. "That's good news for us going forward, because we enjoy a significant competitive advantage in portfolio products."

In addition, the company's historically strong policy persistency improved further as its lapse rate fell to 4.1 percent-expected to remain less than half the U.S. industry average.

Sales of other protection products were strong, as new disability income premium sales rose 6 percent, and long-term care premium sales grew 12 percent.

The economic downturn and decline in equity markets led to decreases in sales of annuities and investment products. Consistent with industry experience, annuity premium fell 18 percent. However, sales of mutual funds and other securities by financial representatives through the Northwestern Mutual Financial Network fell only a modest 6 percent, to $3.2 billion. The Financial Network's sales of investment products through the company's subsidiary, Frank Russell Company, increased 12%. Russell assets under management at year-end 2001 rose to $68.5 billion.

Northwestern Mutual's net investment income increased 4 percent to $5.5 billion. The company's gain from operations, a strong $391 million, was less than the prior year's gain, which was aided by a favorable one-time tax settlement in 2000.

"Our long-time strategy of employing a well-diversified investment portfolio again worked well in 2001," Zore said.

Total surplus grew 9 percent to more than $8.9 billion. Increases in total surplus came from the gain from operations and a one-time increase resulting from adoption of mandatory changes in statutory accounting rules. The increase in total surplus was reduced by net capital losses of $296 million. The total surplus ratio of 13.1 percent matched the record level of a year earlier. Total assets grew 7 percent to $98.4 billion.

The financial impact of the tragic events of September 11 was less than initially expected. The company paid about $125 million in death benefits on 287 life insurance polices. On average, the company paid most of these benefits within five days of claim receipt.

"We demonstrated our ability to respond quickly and fully to those who counted on us," Zore said. "Our response to September 11 was a sign of both our financial strength and our commitment to be there when needed."

Northwestern Mutual, the nation's leading provider of individual life insurance according to the American Council of Life Insurers, has always received the highest possible ratings for financial strength from Standard & Poor's, Moody's, Fitch Ratings, and A.M. Best. In addition to life insurance, the company, its subsidiaries and affiliates also provide annuities, mutual funds, long-term care insurance and disability income insurance. These products and services are distributed through the Northwestern Mutual Financial Network and its 7,800 financial representatives. Among Northwestern Mutual's majority-owned subsidiaries are the Frank Russell Company, which provides manager-of-manager investment products and services in more than 35 countries; Northwestern Mutual Investment Services, LLC, a securities brokerage firm; Northwestern Long Term Care Insurance Company and Northwestern Mutual Trust Company. Further information on Northwestern Mutual, based in Milwaukee, Wis., can be found at: .

               Summary of Operations and Changes in Surplus
               (consolidated statutory basis, in millions)

  Year ended December 31:                             2001           2000
  Premiums                                          $9,408         $8,925
  Net investment income                              5,532          5,339
  Other income                                         405          1,118
    Total revenue                                   15,345         15,382

  Policyowner benefits                               3,808          4,541
  Increase in benefit reserves                       5,869          5,284
  Commissions and expenses                           1,453          1,416
  Income tax expense                                   173            125
    Total benefits and expenses                     11,303         11,366

    Gain before dividends                            4,042          4,016

  Policyowner dividends                              3,651          3,334
    Gain from operations                               391            682

  Capital gains (losses), net                         (296)           104
  Other surplus changes                                637            (32)
    Net increase in surplus and AVR                   $732           $754

  Changes in Statutory Accounting

The accompanying summary financial information is based on statutory accounting principles. Beginning January 1, 2001, the company and other insurers domiciled in Wisconsin were required to adopt changes in statutory accounting rules known as "codification." The initial increase in surplus from these new rules is $749 million, due primarily to accounting for deferred income taxes, and is included in "Other surplus changes" for 2001.

Because these new rules are not permitted to be applied to prior years, certain financial information for 2001 is not comparable to information provided for 2000. For example, reported decreases in "Other income" and "Policyowner benefits" primarily reflect changes in statutory accounting, which beginning in 2001 did not include certain "deposit-type" transactions in either "Other income" or "Policyowner benefits" in the Summary of Operations.

                      Summary of Financial Position
               (consolidated statutory basis, in millions)

  December 31:                                        2001           2000
  Bonds and cash                                   $46,324        $41,824
  Mortgage loans                                    15,164         14,431
  Policy loans                                       9,028          8,504
  Common and preferred stocks                        5,369          6,216
  Real estate                                        1,671          1,627
  Other investments                                  4,817          4,508
    Total investments                               82,373         77,110

  Other assets                                       4,233          2,518
  Separate account assets                           11,786         12,497
    Total assets                                   $98,392        $92,125

  Policy benefit reserves                          $68,432        $62,816
  Policyowner dividends                              3,650          3,350
  Other liabilities                                  5,598          5,268
  Separate account liabilities                      11,786         12,497
    Total liabilities (except AVR)                  89,466         83,931

  Asset valuation reserve (AVR)                      2,034          2,298
  Surplus                                            6,892          5,896
    Total surplus and AVR                            8,926          8,194
    Total liabilities and surplus                  $98,392        $92,125


SOURCE: Northwestern Mutual

Contact: Deanna Tillisch, +1-414-665-2705, , or Mark Lucius, +1-414-665-7343, , both for Northwestern Mutual


3/18/2002 3:00:00 PM