Fitch Affirms Northwestern Mutual's IFS at 'AAA'; Outlook Stable

Fitch Ratings has affirmed the 'AAA' Insurer Financial Strength (IFS) ratings of The Northwestern Mutual Life Insurance Co. (NM) and Northwestern Long Term Care Insurance Co. (NLTC), collectively referred to as Northwestern. Fitch also affirms NM's 'AA+' Issuer Default Rating (IDR) and 'AA' surplus note rating. The Rating Outlook is Stable.

KEY RATINGS DRIVERS

Fitch's ratings reflect Northwestern's leading competitive position in the U.S. individual life insurance market, extremely strong balance sheet fundamentals, and stable earnings profile. Fitch considers Northwestern's key competitive advantages to include its successful distribution system, large and stable block of traditional life insurance, and focus on expense control.

Northwestern's extremely strong balance sheet fundamentals reflect the company's extremely strong risk-based capital position, modest financial leverage, excellent liquidity, and relatively low-risk liability profile.

Total adjusted statutory capital (TAC) increased $1.2 billion or 5% to $23.1 billion in the first nine months of 2013 due to positive contributions from statutory operating earnings and investment gains. Northwestern's estimated risk based capital was approximately 600% at Sept. 30, 2013. NM also had surplus notes to TAC of approximately 7.6% and a total financial commitment ratio (TFC) of less than 0.2 times (x).

Northwestern's business concentration in the sale of traditional cash value life insurance through a strong career distribution system gives the company very favorable credit characteristics (e.g. long-duration liabilities, limited guarantees, predictable earnings performance) that enhance NM's risk profile and earnings. At the same time, this same concentration exposes NM to changes in the regulatory, legal, economic, and tax environment that could affect demand for cash value life insurance, although Fitch is not aware of any imminent disruptions.

Northwestern's earnings before policyowner dividends and taxes in the first nine months of 2013 dipped 1% reflecting the current interest rate conditions and lower earnings distributions from subsidiaries. Fitch believes the effect of lower interest rates on Northwestern's earnings compared to other insurers is lessened given Northwestern's smaller exposure to interest sensitive life insurance and annuity products.

Fitch also believes Northwestern's stable, long-duration participating liabilities, very strong statutory capital position, and flexibility in adjusting policyowner dividend rates provide cushion to withstand the current interest rate environment and unexpected losses in its investment portfolio.

Northwestern's net realized after-tax investment gains were $189 million in the first nine months of 2013 compared to $377 million during the same period in 2012. Realized investment gains in 2013 were primarily from common stock sales while 2012 gains were primarily from the sale of the Russell Investment Center.

In the event that Fitch downgrades the credit rating for the United States of America, certain highly rated insurers such as Northwestern may continue to be rated above the sovereign rating. Fitch's opinion is that these companies are structurally shielded from foreign exchange transfer and convertibility risks and their financial condition is sufficient to withstand a sovereign crisis.

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

RATING SENSITIVITIES

Key rating drivers that could lead to a downgrade include a decline to a sustained RBC ratio less than 400%, an increase in financial leverage above 15%, an unexpected shift in tax, regulatory or market dynamics that impacts Northwestern's competitive strengths, and a downgrade of the current 'AAA' U.S. sovereign ratings below 'AA+'.

Fitch affirms the following ratings with a Stable Outlook:

Northwestern Mutual Life Insurance Company
--Long-term IDR at 'AA+';
--6.063% surplus note due 2040 at 'AA';
--IFS at 'AAA'.

Northwestern Long Term Care Insurance Company
--IFS at 'AAA'.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (November 2013).

Applicable Criteria and Related Research:
Insurance Rating Methodology -- Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=818390
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