Northwestern Mutual Life Insurance Co. and Subsidiary ‘AAA’ Ratings Affirmed; Outlook Stable

S&P Announces: Northwestern Mutual Life Insurance Co. and Subsidiary ‘AAA’ Ratings Affirmed; Outlook Stable

NEW YORK — On June 30, 2004, Standard & Poor’s Ratings Services affirmed its ‘AAA’ counterparty credit and financial strength ratings on Northwestern Mutual Life Insurance Co. and its ‘AAA’ financial strength rating on the company’s subsidiary, Northwestern Long Term Care Insurance Co. The outlook is stable.

At the same time, Standard & Poor’s affirmed its ‘AAA’ senior debt rating on the $350 million, 5.625% senior notes issued by Frank Russell Co., a subsidiary of Northwestern. The rating is based on a guarantee provided by Northwestern.

The ratings on Northwestern reflect the company’s market-leading individual life insurance business, extremely strong capitalization, and very strong operating performance. Other rating factors include the company’s effective and unique investment strategy and strong liquidity.

Outlook

Although sales results will depend in part on the level of recovery of the equity markets, Standard & Poor’s expects sales of protection products to grow in the mid-single digits, with slower growth in life insurance and continued growth in disability and long-term care. At the same time, annuity and mutual fund sales are expected to grow more significantly, reflecting more stable equity markets. The company’s capital adequacy is expected to remain extremely strong. Operating performance will depend on investment performance as well as actions taken relative to the dividend scale, but pretax operating ROA before capital gains is expected to improve to approximately 50 basis points (bps). Rising interest rates and improved earnings on investment-oriented products are expected to increase this figure over time. Liquidity is expected to remain strong.

Major Rating Factors

–Exceptional business position. Northwestern has a market share of about 9% in individual life insurance in the U.S., making it the industry leader. The company is widely admired for its productive and expense-efficient sales force and its high-quality products, including the company’s flagship dividend-paying permanent life insurance products.

–Extremely strong capital. Northwestern has consistently maintained extremely strong capital, as demonstrated by a Standard & Poor’s capital adequacy ratio of 685% at year-end 2003. Capital strength is a key element to Northwestern’s strategy of providing superior returns and financial security to its policyowners.

–Very strong earnings. Northwestern’s pretax statutory operating ROA was 43 bps in 2003, up from 32 bps in 2002. Including realized investment gains, the 2003 operating ROA was 95 bps thanks to the strong equity and credit-market recovery. Earnings are somewhat lower than historical levels, in part because of the maintenance of a strong, though somewhat reduced, dividend interest rate during a period of low interest rates and reduced investment earnings. Northwestern’s substantial capital base allows it to absorb short-term volatility in investment results, while the dividend scale reflects performance over a longer time horizon.

–Unique investment strategy. Northwestern maintains a proven investment strategy that maximizes the long-term risk/return payoff for its policyowners through a well-diversified mix of fixed-income and equity investments. The company’s total return on its portfolio was 10.1% in 2003 and has averaged 9.13% over the last four years.

–Disciplined management team. Northwestern’s management team is extremely disciplined in its strategic approach, in which policyowner security and value are the paramount focus. The company avoids risky product features, and moderates investment risk through a highly diversified approach. Management has also been extremely disciplined in expense management, with general expense ratio among the best in the industry at 6%.

Ratings List

Northwestern Mutual Life Insurance Co.

Counterparty credit rating AAA/Stable/–

Financial strength rating AAA/Stable

Northwestern Long Term Care Insurance Co.

Financial strength rating AAA/Stable

Frank Russell Co.

Senior debt rating AAA

Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor’s public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find Ratings, then Credit Ratings Search.

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