Northwestern’s conservatism pays off

Adding to an impressive list of
accolades earned this year, US insurer Northwestern Mutual has been
named the ‘Best Place to Work’ in the insurance industry in 2010
and the 11th-best place to work in the US overall in 2010. The
honour was bestowed on the US mutual life insurer by Glassdoor, a
specialist in career prospects and workplace conditions.

Notably, Wisconsin-based Northwestern was also
the only company in the insurance industry to rank in Glassdoor’s
Top 50 ‘Best Places to Work in 2010’.

Glassdoor noted that unlike other workplace
awards determined by industry experts or human resource
professionals, its awards are chosen by feedback from employees and
financial representatives. The Top 50 companies were selected from
more than 38,000 companies reviewed by employees and contractors
who completed a 20-question online survey.

The questions addressed key workplace factors
including work/life balance, career opportunities, communication,
compensation and benefits, employee morale, recognition and
feedback, senior leadership as well as fairness and respect. Users
were also asked if they approved or disapproved of their company’s
CEO.

In the CEO-rating category Northwestern romped
home with flying colours, with CEO Edward J Zore ranked as the most
popular insurance company CEO in the US, receiving an 89 percent
approval rating from Northwestern home office employees and
independent, contracted representatives.

A Northwestern “career-man,” Zore, 64, joined
the insurer’s investment department in 1969, rising to become chief
investment officer in 1990 as well as the department’s chief
financial officer in 1995. He held both positions until 1998 when
he moved to lead Northwestern’s life and disability income
insurance operations. In February 2000 Zore was elected to the
insurer’s board of trustees, became the 16th president in
Northwestern’s history in March 2000 and CEO in June 2001.

Zore has received high-praise for his
management of Northwestern, including being named as one of the
most influential people in business ethics by the research-based
Ethisphere Institute in January 2009.

Ethisphere’s advisory board said in its
citation: “Though the rest of the financial industry was left
vulnerable in 2008, Zore ensured that Northwestern Mutual had less
than one-half of 1 percent of assets exposed to subprime markets at
year-end. Under his leadership, Northwestern Mutual continues to be
given accolades in all areas of quality, including social
responsibility. In an era of technological advancements, Zore is
known for his loyalty to the human element – Northwestern Mutual
has retained its large sales force and highlighted the fundamentals
of personal relationships.”

A growing list

Awards from Glassdoor and Ethisphere
numbered among other notable accolades Northwestern garnered in
2009:

• In March 2009 Fortune magazine
named Northwestern one of the “World’s Most Admired” life insurance
companies, leading its industry in attributes of “quality of
management,” “financial soundness” and “people management.” This
accolade was based on responses from executives, directors and
analysts responding to a Fortune survey;

• In September 2009, for the fourth year in a
row, Northwestern was named one of the ‘Best Places to Launch a
Career’ by BusinessWeek magazine; and

• For the 13th consecutive year the
Northwestern Mutual Financial Network internship programme was
ranked among America’s “Top 10 Internships” by career information
specialist Vault.

For Northwestern, the financial crisis also
consolidated its position as one of the US’ most financially robust
life insurers.

Emphasising this, Zore said in a statement in
early 2009: “At year-end 2008, our surplus-to-reserves ratio [asset
valuation reserve] of 11.5 percent was still high by historical
standards – higher, in fact, than company surplus ratios in all but
13 of our 152 years.”

The asset valuation reserve (AVR) is intended
to provide an invested asset reserve for potential equity and
credit losses. Reserves are maintained for equity, bonds, property,
mortgages, and similar types of assets with realised and unrealised
gains and losses credited to or debited against this reserve.

The amount of reserves required to be
maintained for each invested asset is determined by actuarial
formulae set out by the National Association of Insurance
Commissioners.

Northwestern Mutual’s AVR peaked at 14.7
percent in 2006 and stood at 14.5 percent at the end of 2007.

AAA rating

Northwestern has not escaped
unscathed from the financial crisis, with its net income falling
from a peak of $1 billion in 2007 to $483 million in 2008 and a
loss of $48 million in the first nine months of 2009. The insurer’s
AVR also came under further pressure in the first nine months of
2009, falling to 11.1 percent as at 30 September 2009, though this
still represented the 14th-highest level in the insurer’s
history.

However, underscoring Zore’s positive
appraisal, Northwestern remains one of a handful of insurers
boasting the highest insurer financial strength ratings from the
four major rating agencies, Standard & Poors (AAA),
Moody’s Investor Service (Aaa), Fitch (AAA)
and AM Best (A++).

In its assessment of
Northwestern published in June 2009, Moody’s commented:
“Northwestern Mutual has performed well in a very difficult
economic environment. The company benefits from excellent financial
flexibility as it has no outstanding debt, has maintained a
relatively conservative investment portfolio, has a strong
liquidity profile, and its liability risk profile is conservative.
These advantages have enabled the company to avoid financial stress
during a period when many other life insurers have experienced
considerably greater strains.”

Another key factor in Northwestern’s financial
strength is the nature of its insurance business, which is composed
primarily of participating whole life insurance. Life premium
income accounts for some 80 percent of the insurer’s total premium
income, annuity premiums about 10 percent and accident and health
insurance premiums combined around 10 percent.

The significance of participating whole life
business was highlighted by Standard & Poor’s (S&P) when in
June 2009 it reaffirmed its AAA financial strength rating of
Northwestern.

In its assessment of Northwestern, S&P
commented: “The ratings on Northwestern reflect our view that it
has an extremely strong business profile, which is dominated by
participating whole life insurance and is supported by its highly
productive exclusive distribution system.

“The ratings further reflect Northwestern’s
very strong operating fundamentals in terms of mortality
experience, policyholder persistency, and expense efficiency.
Despite a decline in total adjusted capital, primarily because of
unrealised losses on common stocks, we believe that Northwestern’s
capital adequacy remains very strong and that prudent management of
policyholder dividends, which exceeded $4.5 billion in 2008,
provide substantial financial flexibility to preserve capital.”

Individual life leader

Ranking behind New York Life,
TIAA-CREF and MassMutual as the US’ fourth-largest mutual life
insurer, Northwestern has $1.1 trillion of life insurance business
in force – just under 3.5 million policyholders. Northwestern ranks
number one in the US individual life insurance market with a market
share of about 10 percent.

A market share gain also appears likely in
2009. Indicatively, in the first nine months of 2009 Northwestern
reported premium income of $9.48 billion, down 4 percent from $9.88
billion in the same period in 2008. This decline was modest
compared with a 19 percent fall in the US life industry’s
annualised premium income in the first nine months of 2009 reported
by industry organisation LIMRA.

Northwestern attributed the fall in its first
nine month premium income primarily to the change in its life
insurance dividend interest rate for 2009. This, noted the insurer,
reduced the amount of dividends available to policy owners for
purchase of additional life insurance protection.

Highlighting its financial strength,
Northwestern has announced that it will pay a dividend of $4.7
billion to participating policyowners in 2010, an increase of $200
million over its 2009 payout. Term life policyowners will receive
$120 million in dividends in 2010, up from $83 million in 2009.

Capitalising on its image of financial
strength, Northwestern has intensified its marketing efforts with
the launch in August 2009 of a television advertising campaign with
a theme dubbed “Strength and Consistency”.

“Consumers are cynical about the financial
services industry, so it’s important for us to share why they can
be confident in our company’s strength,” said Nag Odekar,
Northwestern’s director of brand and advertising at the time of the
campaigns’ launch.

The campaign made use of extensive input from
consumers and financial representatives.

Northwestern has also backed its confidence by
following an expansionary policy in terms of its distribution
capacity, adding 1,847 full-time financial representatives during
the first nine months of 2009. This represented a 19 percent
increase compared to what was a record expansionary pace set in
2008.