Registration No. 2-89972
Registration No. 811-3989
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-6
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 | / / | |||
Pre-Effective Amendment No. | / / | |||
Post-Effective Amendment No. 39 | / X / | |||
and/or | ||||
REGISTRATION STATEMENT UNDER THE INVESTMENT | ||||
COMPANY ACT OF 1940 | / / | |||
Amendment No. 41 | / X / | |||
(Check appropriate box or boxes.)
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT (Exact Name of Registrant)
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (Name of Depositor) | ||||
720 East Wisconsin Avenue, Milwaukee, Wisconsin | 53202 | |||
(Address of Depositors Principal Executive Offices) | (Zip Code) |
Depositors Telephone Number, including Area Code |
414-271-1444 |
RAYMOND J. MANISTA, General Counsel and Secretary
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Copy to:
Chad E. Fickett, Assistant General Counsel
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
414-665-1209
Approximate Date of Proposed Public Offering |
Continuous |
It is proposed that this filing will become effective (check appropriate space)
immediately upon filing pursuant to paragraph (b) of Rule 485 |
X | on May 1, 2012 pursuant to paragraph (b) of Rule 485 |
60 days after filing pursuant to paragraph (a)(1) of Rule 485 |
on (DATE) pursuant to paragraph (a)(1) of Rule 485 |
this post-effective amendment designates a new effective date for a |
previously filed post-effective amendment. |
Prospectus
May 1, 2012
Variable Life
Whole Life
Extra Ordinary Life
Single Premium Life
Issued by The Northwestern Mutual Life Insurance Company
and the Northwestern Mutual Variable Life Account
This prospectus describes three Variable Life Insurance Policies (each a Policy, together the Policies). You may choose to invest your Net Premiums in up to six Divisions of the Northwestern Mutual Variable Life Account (the Separate Account), each of which invests in one of the corresponding Portfolios listed below:
Northwestern Mutual Series Fund, Inc. | ||
Growth Stock Portfolio | International Growth Portfolio | |
Focused Appreciation Portfolio | Research International Core Portfolio | |
Large Cap Core Stock Portfolio | International Equity Portfolio | |
Large Cap Blend Portfolio | Emerging Markets Equity Portfolio | |
Index 500 Stock Portfolio | Money Market Portfolio | |
Large Company Value Portfolio | Short-Term Bond Portfolio | |
Domestic Equity Portfolio | Select Bond Portfolio | |
Equity Income Portfolio | Long-Term U.S. Government Bond Portfolio | |
Mid Cap Growth Stock Portfolio | Inflation Protection Portfolio | |
Index 400 Stock Portfolio | High Yield Bond Portfolio | |
Mid Cap Value Portfolio | Multi-Sector Bond Portfolio | |
Small Cap Growth Stock Portfolio | Commodities Return Strategy Portfolio | |
Index 600 Stock Portfolio | Balanced Portfolio | |
Small Cap Value Portfolio | Asset Allocation Portfolio | |
Fidelity® Variable Insurance Products | ||
VIP Mid Cap Portfolio | ||
VIP Contrafund® Portfolio | ||
Neuberger Berman Advisers Management Trust | ||
Socially Responsive Portfolio | ||
Russell Investment Funds Multi-Style Equity Fund |
Russell Investment Funds LifePoints® Variable Target Portfolio Series | |
Aggressive Equity Fund |
Moderate Strategy Fund | |
Global Real Estate Securities Fund |
Balanced Strategy Fund | |
Non-U.S. Fund |
Growth Strategy Fund | |
Core Bond Fund |
Equity Growth Strategy Fund |
Please note that the Policies and the Portfolios are not guaranteed to achieve their goals
and are not federally insured. The Policies and the Portfolios have not been endorsed by any bank or government agency and are subject to risks, including loss of the principal amount invested.
Each Policy is subject to the law of the state in which it is issued. Some of the terms of a Policy may differ from the terms of a Policy delivered in another state because of state specific legal requirements. Areas where state specific Policy provisions may apply include, but are not limited to:
| certain investment options and certain policy features; and |
| portfolio transfer rights. |
Please read carefully this prospectus and the accompanying prospectuses for the corresponding Portfolios
and keep them for future reference. These prospectuses provide information that you should know
before investing in the Policies. No person is authorized to make any representation in connection
with the offering of the Policies other than those contained in these prospectuses.
The Securities and Exchange Commission (SEC) has not approved or disapproved the Policies or determined that this prospectus is accurate or complete. It is a criminal offense to state otherwise.
We no longer issue the three Policies described in this prospectus. The variable life policies we presently offer
are described in separate prospectuses.
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Deductions from Premiums for Whole Life and Extra Ordinary Life Policies |
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33 |
Variable Life
· | Whole Life |
· | Extra Ordinary Life |
· | Single Premium Life |
The following summary identifies some of the benefits and risks of the three Policies described in this prospectus. It omits important information which is included elsewhere in this prospectus, in the attached mutual fund prospectuses, and in the terms of the Policies. Unless clear from their context or otherwise appropriate, all of the capitalized terms used in this prospectus are defined herein or at the end of this prospectus in the Glossary of Terms.
Death Benefit The primary benefit of each Policy is the life insurance protection that it provides. For each Policy the Death Benefit includes a guaranteed amount which will not be reduced during the lifetime of the Insured so long as you pay premiums when they are due and no Policy Debt is outstanding. The remainder of the Death Benefit is the variable insurance amount which fluctuates in response to actual investment results and is not guaranteed. The Extra Ordinary Life Policy also provides some term insurance during the early Policy Years. The Death Benefit is increased by the amount of any paid-up additions which you have purchased with any dividends that we pay, except that for Extra Ordinary Life Policies, variable insurance amount and paid-up additions will first be used to replace term insurance before increasing the Death Benefit. The relationships among the guaranteed and variable amounts and any paid-up additions and term insurance depend on the design of the particular Policy.
Access to Your Values The Policy provides access to Cash Value during the lifetime of the Insured. You may surrender your Policy for the Cash Value at any time during the lifetime of the Insured. We will permit a Death Benefit reduction so long as the Policy that remains meets our minimum size requirements. Under some circumstances there may be a release of Cash Value upon the reduction of your Death Benefit. You may borrow up to 90% of your Policys Cash Value using the Policy as security.
Flexibility You may direct the allocation of your premiums and apportion the Separate Account assets supporting your Policy among the various Divisions of the Separate Account, using as many as six Divisions at any time. Subject to certain limits, you may transfer accumulated amounts from one Division to another as often as four times in a Policy Year.
Optional Benefits Whole Life and Extra Ordinary Life Policies may include two optional benefits: a Waiver of Premium Benefit and an Additional Purchase Benefit. These optional benefits are not available for all Issue Ages and underwriting classifications, and may not be available in all states.
Payment Plan Options There are several ways of receiving proceeds under the Death Benefit and surrender provisions of the Policy, other than in a lump sum. More detailed information concerning these options is included elsewhere in this prospectus. You may also call our Income Benefits Department at 1-866-269-2950 for more information.
Tax Benefits You are generally not taxed on your Policys investment gains until you surrender the Policy.
Investment Risk Your Policy allows you to participate in the investment experience of the Divisions you select. You bear the corresponding investment risks. You will be subject to the risk that the investment performance of the Divisions will be unfavorable and that, due both to the unfavorable performance and the resulting higher insurance charges, the Policy Value and Cash Value will decrease. You could lose everything you invest. You may find a comprehensive discussion of these investment risks in the attached mutual fund prospectuses. You will also be subject to the risk that the investment performance of the Divisions you choose may be less favorable than that of other Divisions, and in order to keep the Extra Life Protection of an Extra Ordinary Life Policy from decreasing, you may be required to pay more premiums than originally planned.
Default Risk Because certain guarantees under the Policies are guaranteed by the Companys General Account assets, the ability to make good on these guarantees depends on the financial strength and claims-paying ability of the Company. Therefore, guaranteed benefits in excess of Invested Assets in the Separate Account are subject to the risk of default to the extent the Company is unable to satisfy some or all of these guarantees.
Policy for Long-Term Protection Your Policy is designed to serve your need for long-term life insurance protection. It is not a suitable investment for short-term goals. We have not designed the Policies for frequent trading.
Variable Life Prospectus
1
Policy Lapse Your Whole Life or Extra Ordinary Life Policy will lapse unless you pay the premiums when they are due, unless the Policy is continued as extended term insurance or a reduced amount of paid-up insurance.
Policy Loan Risks A loan, whether or not repaid, will affect your Policy Value and Cash Value over time because the amounts borrowed do not participate in the investment performance of the Divisions; in addition, a charge is deducted from your Policy Value while there is Policy Debt. The effect of a loan may be either favorable or unfavorable, depending on whether the earnings rate credited to the loan amount is higher or lower than the investment performance of the unborrowed amounts left in the Divisions. The Death Benefit is reduced by the amount of any Policy Debt outstanding. If you surrender the Policy or allow it to lapse while Policy Debt is outstanding, the amount of the loan, to the extent it has not previously been taxed, will be considered as an amount you received and taxed accordingly.
Limitations on Access to Your Values The Policies permit access to Cash Value by Policy loans and by surrender of the Policy. A partial withdrawal of the Cash Value is not permitted, except to the extent there is a reduction of Death Benefit which leads to a release of Cash Value.
Adverse Tax Consequences Our understanding of the principal tax considerations for the Policy under current tax law is set forth in this prospectus. There are areas of some uncertainty under current law, and we do not address the likelihood of future changes in the law or interpretations thereof. Among other risks, your Policy may become a MEC if the cumulative premium you pay exceeds a defined limit; surrenders and loans under the Policy will then be taxable as ordinary income to the extent there are earnings in the Policy, and a 10% penalty will apply to these distributions. Excessive Policy loans could cause a Policy to terminate with no value with which to pay the tax liability. In addition, please note that you may no longer change Insureds on your Policy, unless you exchange your Policy for a new Policy with mortality tables recognized by the Internal Revenue Service when satisfying the definitional test for life insurance. (See Tax Treatment of Policy Benefits.) Death Benefit proceeds may be subject to state and/or inheritance taxes.
Risk of an Increase in Current Fees and Expenses
Certain fees and expenses are currently assessed at less than their maximum levels. We may increase these current charges in the future up to the guaranteed maximum levels. If fees and expenses are increased, you may need to increase the amount of premiums to keep the Extra Life Protection of an Extra Ordinary Life Policy from decreasing.
The following tables describe the fees and expenses that you will pay when owning or surrendering a Policy. See Deductions and Charges for a more detailed description.
This table describes the fees and expenses you will pay when you pay premiums, surrender the Policy or transfer amounts between the Divisions.
Charge | When Charge is Deducted | Current Amount Deducted | Maximum Amount Deducted | |||||
Whole Life and |
Premium Taxes | When you pay premiums | 2% of the basic premium2 | 2% of the basic premium2 | ||||
Sales Load | When you pay premiums | Year 1: 30% of basic premium2 Years 2-4: 10% of basic premium2 Years 5-on: Not more than 7% of basic premium2 |
Same as the current amount | |||||
Charge for Issuance Expenses | When you pay premiumsfirst Policy Year only | Not more than $5 for each $1,000 of insurance | Same as the current amount | |||||
Single Premium |
Administrative Charge | When we issue the Policy | $150 | $150 | ||||
Surrender Charge | When you surrender the Policy during the first ten Policy Years | 0% | Not more than 9% of the premium paid for the Policy3 | |||||
All Policies |
Fee for Transfer of Assets | When you transfer assets among the Divisions | Currently waived | The fee will not exceed our administrative costs of transfers |
2
Variable Life Prospectus
Charge | When Charge is Deducted | Current Amount Deducted | Maximum Amount Deducted | |||||
Whole Life and Extra Ordinary Life Policies |
Extra Premium for Insureds Who Do Not Qualify as Select Risks | When you pay premiums | The amount depends on the underwriting classification | Same as current amount4; Variable Whole Life;
Maximum: $52.70 per $1,000 of face amount;
Variable Extra Ordinary Life Policies;
Maximum: $58.71 per $1,000 of face amount | ||||
All Policies |
Expedited Delivery Charge5 | When express mail delivery is requested | $15 per delivery (up to $45 for next day, a.m. delivery) | $50 per delivery (up to $75 for next day, a.m. delivery) adjusted for inflation6 | ||||
Wire Transfer Fee5 | When a wire transfer is requested | $25 per transfer (up to $50 for international wires) | $50 per transfer (up to $100 for international wires) adjusted for inflation6 |
1 | Some fees and expenses, such as fees applicable in Policy Years prior to your current Policy Year, may no longer apply because the Policies are no longer issued. |
2 | The basic premium for a Policy is the gross premium which would be payable if you paid the premium annually, less the annual deduction for administrative costs. See Deductions and Charges for more information. |
3 | This charge no longer applies because you have owned your Policy for longer than ten years. |
4 | This charge will vary depending on underwriting classification of the Insured. |
5 | This fee may increase over time to cover our administrative or other costs but will not exceed the maximum charge. We may discontinue this service at any time, with or without notice. |
6 | The maximum charges are subject to a consumer price index adjustment. The maximum charge will equal the maximum charge shown above multiplied by the CPI for the fourth month prior to the time of the charge, divided by the CPI for April, 2009. CPI means the Consumer Price Index for All Urban Consumers, United States City Average, All Items, as published by the United States Bureau of Labor Statistics. If the method for determining the CPI is changed, or it is no longer published, it will be replaced by some other index found by the Company to serve the same purpose. |
Periodic Charges (Other than Portfolio Operating Expenses)
These tables describe the fees and expenses, other than operating expenses for the Portfolios, that you will pay periodically during the time that you own a Policy. Please refer to the table specific to your Policy.
Charge | When Charge is Deducted | Current Amount Deducted | Maximum Amount Deducted | |||
Charge for Administrative Costs | Annually, on the Policy Anniversary | $35 | $35 | |||
Charge for Death Benefit Guarantee | Annually, on the Policy Anniversary | 1 1/2% of the basic premium1 | 1 1/2% of the basic premium1 | |||
Charge for Mortality and Expense Risks | Daily | Annual rate of .50% of the Separate Account Assets | Annual rate of .50% of the Separate Account Assets | |||
Charge for Federal Income Taxes | Daily | Annual rate of .05% of the Separate Account Assets | A rate which reflects that portion of our actual tax expenses which is fairly allocable to the Policies | |||
Cost of Insurance | Calculated at least annually on the Policy Anniversary | Maximum: $1,000 per $1,000 of net amount at risk (Attained Age 99)2
Minimum: $0.69 per $1,000 of net amount at risk (Attained Age 10 female)2
Representative: $6.71 per $1,000 of net amount at risk (Attained Age 50 male) |
Same as current amount, without the current dividend |
Variable Life Prospectus
3
Charge | When Charge is Deducted | Current Amount Deducted | Maximum Amount Deducted | |||
Charge for Mortality and Expense Risks and Expenses for Loans | Daily | Annual rate of .85% of the borrowed amount3 | Annual rate of 1.00% of the borrowed amount3 | |||
Waiver of Premium Benefit4 | Annually, on the Policy Anniversary, if this benefit is attached to your Policy and the Attained Age is less than 65 | Maximum: $2.05 per $1,000 of face amount (Issue Age 58)
Minimum: $0.13 per $1,000 of face amount (Issue Age 0-6)
Representative: $0.37 per $1,000 of face amount (Issue Age 35) |
Same as current amount | |||
Additional Purchase Benefit5 | Annually, on the Policy Anniversary, if this benefit is attached to your Policy and the Attained Age is less than 40 |
Maximum: $2.21 per $1,000 of Additional Purchase Benefit (Issue Age 38)5
Minimum: $0.54 per $1,000 of Additional Purchase Benefit (Issue Age 0)5
Representative: $0.54 per $1,000 of Additional Purchase Benefit (Issue Age 0) |
Same as current amount |
1 | The basic premium for a Policy is the gross premium which would be payable if you paid the premium annually, less the annual deduction for administrative costs. See Deductions and Charges for more information. |
2 | The Policy includes no provisions for explicit deductions or charges for the cost of insurance, but this cost is reflected in the table of Cash Values at the front of the Policy and in the table of net single premiums we use to determine the variable insurance amount. The variable insurance amount is used to calculate both the Death Benefit and the Cash Value. The cost of insurance is based on factors including but not limited to the Insureds Attained Age, the 1980 CSO Mortality Table and the net insurance amount at risk. The net insurance amount at risk is the Death Benefit minus the sum of the Cash Value and any Policy Debt. The rates shown in the table may not be representative of the charge a particular Owner may pay. The amount you pay for the cost of insurance is effectively reduced by the dividends, if any, we currently pay on your Policy. You may ask your Financial Representative for the current dividend amount. Future dividends are not guaranteed. (See Annual Dividends.) |
3 | The charge is applied to the Policy Debt. The charge shown is a loan interest spread that is deducted from the Invested Assets. We add unpaid interest to the amount of the loan. Interest on a Policy loan accrues and is payable on a daily basis at an annual effective rate of 8% or an alternative variable rate based on a bond yield index. The amount of the Policy loan will be transferred from the Divisions to our General Account and credited on a daily basis with an annual earnings rate equal to the Policy loan interest rate less the charge shown. |
4 | The charges shown in the table may not be representative of the charge that a particular Owner may pay. The charge does not vary by sex. Generally, the charge increases for older Issue Ages. In addition, higher rates may apply to substandard underwriting classifications. The charge for the Waiver of Premium Benefit is less for Extra Ordinary Life Policies than for Whole Life Policies, all other factors being equal. |
5 | The maximum benefit amount is $100,000. The charges shown in the table may not be representative of the charge that a particular Owner may pay. The charge does not vary by sex. The charge increases for older Issue Ages. |
Charge | When Charge is Deducted | Current Amount Deducted | Maximum Amount Deducted | |||
Charge for Mortality and Expense Risks | Daily | Annual rate of .50% of the Separate Account Assets | Annual rate of .50% of the Separate Account Assets | |||
Charge for Federal Income Taxes | Daily | Annual rate of .05% of the Separate Account Assets | A rate which reflects that portion of our actual tax expenses which is fairly allocable to the Policies | |||
Cost of Insurance | Calculated at least annually on the Policy Anniversary | Maximum: $1,000 per $1,000 of net amount at risk (Attained Age 99)1
Minimum: $0.85 per $1,000 of net amount at risk (Attained Age 15 female)1
Representative: $10.47 per $1,000 of net amount at risk (Attained Age 55 male) |
Same as current amount, without the current dividend | |||
Charge for Mortality and Expense Risks and Expenses for Loans | Daily | Annual rate of .85% of the borrowed amount2 | Annual rate of 1.00% of the borrowed amount2 | |||
Charge for Dividends3 | Annually, on the Policy Anniversary | Maximum: 17% of the gross annual premium4 | Same as current amount |
4
Variable Life Prospectus
Charge | When Charge is Deducted | Current Amount Deducted | Maximum Amount Deducted | |||
Extra Premium for Extra Life Protection (after the expiry of the guaranteed period) | Annually, after the expiry of the guaranteed period, on the Policy Anniversary5 | Maximum: $283.64 per $1,000 of term insurance6 (Attained Age 99 male standard)
Minimum: $1.93 per $1,000 of term insurance6 (Attained Age 52 female select)
Representative: $5.11 per $1,000 of term insurance6 (Attained Age 62 male select) |
Maximum: $1,000 per $1,000 of term insurance, without the current dividend
Minimum: $6.27 per $1,000 of term insurance, without the current dividend | |||
Charge for Administrative Costs | Annually, on the Policy Anniversary | $35 | $35 | |||
Charge for Death Benefit Guarantee | Annually, on the Policy Anniversary | 1 1/2% of the basic premium7 | 1 1/2% of the basic premium7 | |||
Waiver of Premium Benefit8 | Annually, on the Policy Anniversary, if this benefit is attached to your Policy and the Attained Age is less than 65 | Maximum: $1.48 per $1,000 of face amount
Minimum: $0.10 per $1,000 of face amount
Representative: $0.24 per $1,000 of face amount (Issue Age 35) |
Same as current amount | |||
Additional Purchase Benefit9 | Annually, on the Policy Anniversary, if this benefit is attached to your Policy and the Attained Age is less than 40 | Maximum: $2.21 per $1,000 of Additional Purchase Benefit (Issue Age 38)9
Minimum: $1.06 per $1,000 of Additional Purchase Benefit (Issue Age 15)9
Representative: $1.33 per $1,000 of Additional Purchase Benefit (Issue Age 25)9 |
Same as current amount |
1 | The Policy includes no provisions for explicit deductions or charges for the cost of insurance, but this cost is reflected in the table of Cash Values at the front of the Policy and in the table of net single premiums we use to determine the variable insurance amount. The variable insurance amount is used to calculate both the Death Benefit and the Cash Value. The cost of insurance is based on factors including but not limited to the Insureds Attained Age, the 1980 CSO Mortality Table and the net insurance amount at risk. The net insurance amount at risk is the Death Benefit minus the sum of the Cash Value and any Policy Debt. The rates shown in the table may not be representative of the charge a particular Owner may pay. The amount you pay for the cost of insurance is effectively reduced by the dividends, if any, we currently pay on your Policy. You may ask your Financial Representative for the current dividend amount. Future dividends are not guaranteed. (See Annual Dividends.) |
2 | The charge is applied to the Policy Debt. The charge shown is a loan interest spread that is deducted from the Invested Assets. We add unpaid interest to the amount of the loan. Interest on a Policy loan accrues and is payable on a daily basis at an annual effective rate of 8% or an alternative variable rate based on a bond yield index. The amount of the Policy loan will be transferred from the Divisions to our General Account and credited on a daily basis with an annual earnings rate equal to the Policy loan interest rate less the charge shown. |
3 | This charge will vary by Issue Age of the Insured. |
4 | The charge for dividends is approximately 7% to 17% of the gross annual premium. |
5 | After the guaranteed period expires, if the sum of positive variable insurance amount plus the paid-up additions is less than the initial amount of Extra Life Protection, we may reduce the amount of term insurance for the Policy Year. Alternatively, you may choose to have the coverage maintained by paying a larger premium based on the term insurance rates described here. Your right to continue to purchase term insurance on this basis will terminate as of the first Policy Anniversary when you fail to pay the additional premium when due. |
6 | Estimated year-end dividends have the effect of reducing the term insurance amounts on which the charges are based. |
7 | The basic premium for a Policy is the gross premium which would be payable if you paid the premium annually, less the annual deduction for administrative costs. See Deductions and Charges for more information. |
8 | The charges shown in the table may not be representative of the charge that a particular Owner may pay. The charge does not vary by sex. Generally, the charge increases for older Issue Ages. In addition, higher rates may apply to substandard underwriting classifications. The charge for the Waiver of Premium benefit is less for Extra Ordinary Life Policies than for Whole Life Policies, all other factors being equal. |
9 | The maximum benefit amount is $100,000. The charges shown in the table may not be representative of the charge that a particular Owner may pay. The charge does not vary by sex. The charge increases for older Issue Ages. |
Charge | When Charge is Deducted | Current Amount Deducted | Maximum Amount Deducted | |||
Charge for Mortality and Expense Risks | Daily | Annual rate of .50% of the Separate Account assets | Annual rate of .50% of the Separate Account Assets | |||
Charge for Federal Income Taxes | Daily | Annual rate of .05% of the Separate Account assets | A rate which reflects that portion of our actual tax expenses which is fairly allocable to the Policies |
Variable Life Prospectus
5
Charge | When Charge is Deducted | Current Amount Deducted | Maximum Amount Deducted | |||
Cost of Insurance | Calculated at least annually on the Policy Anniversary | Maximum: $1,000 per $1,000 of net amount at risk (Attained Age 99)1
Minimum: $0.69 per $1,000 of net amount at risk (Attained Age 10 female)1
Representative: $13.59 per $1,000 of net amount at risk (Attained Age 58 male) |
Same as current amount, without the current dividend | |||
Charge for Mortality and Expense Risks and Expenses for Loans | Daily | Annual rate of .85% of the borrowed amount2 | Annual rate of 1.00% of the borrowed amount2 |
1 | The Policy includes no provisions for explicit deductions or charges for the cost of insurance, but this cost is reflected in the table of Cash Values at the front of the Policy and in the table of net single premiums we use to determine the variable insurance amount. The variable insurance amount is used to calculate both the Death Benefit and the Cash Value. The cost of insurance is based on factors including but not limited to the Insureds Attained Age, the 1980 CSO Mortality Table and the net insurance amount at risk. The net insurance amount at risk is the Death Benefit minus the sum of the Cash Value and any Policy Debt. The rates shown in the table may not be representative of the charge a particular Owner may pay. The amount you pay for the cost of insurance is effectively reduced by the dividends, if any, we currently pay on your Policy. You may ask your Financial Representative for the current dividend amount. Future dividends are not guaranteed. (See Annual Dividends.) |
2 | The charge is applied to the Policy Debt. The charge shown is a loan interest spread that is deducted from the Invested Assets. We add unpaid interest to the amount of the loan. Interest on a Policy loan accrues and is payable on a daily basis at an annual effective rate of 8% or an alternative variable rate based on a bond yield index. The amount of the Policy loan will be transferred from the Divisions to our General Account and credited on a daily basis with an annual earnings rate equal to the Policy loan interest rate less the charge shown. |
Annual Portfolio Operating Expenses
The table below shows the range (minimum and maximum) of total operating expenses, including investment advisory fees, distribution (12b-1) fees and other expenses of the Portfolios that you may pay periodically during the time you own the Policy. The first line of this table lists expenses that do not reflect fee waivers or expense limits and reimbursements, nor do they reflect short-term trading redemption fees, if any, charged by the Portfolios. The information is based on operations for the year ended December 31, 2011. More details concerning these fees and expenses are contained in the attached prospectuses for the Funds.
Minimum | Maximum | |||||||
Range of Total Annual Portfolio Operating Expenses (expenses include investment advisory fees, distribution (12b-1) fees, and other expenses as a percentage of average Portfolio assets)* |
0.22 | % | 1.63 | % | ||||
Range of Total Annual Portfolio Operating Expenses After Contractual Fee Waiver or Reimbursement** |
0.22 | % | 1.50 | % |
* | For certain Portfolios, certain expenses were reimbursed or fees waived during 2011. It is anticipated that these voluntary expense reimbursement and fee waiver arrangements will continue past the current year, although certain arrangements may be terminated at any time. After taking into account these arrangements and any contractual fee waiver or expense reimbursement arrangements, Annual Portfolio Operating Expenses would have ranged from a minimum of 0.22% to a maximum of 1.50%. |
** | The Range of Total Annual Portfolio Operating Expenses After Contractual Fee Waiver or Reimbursement line in the above table shows the minimum and maximum fees and expenses charged by all of the Portfolios after taking into account contractual fee waiver or reimbursement arrangements in place. Those contractual arrangements are designed to reduce Total Annual Portfolio Operating Expenses for Owners and will continue for at least one year from the date of this prospectus. For more information about which Portfolios currently have such contractual reimbursement or fee waiver arrangements in place, see the prospectuses of the underlying Funds. |
6
Variable Life Prospectus
The following table shows total annual operating expenses of each Portfolio available for investment under the Policy. Operating expenses are expressed as a percentage of average net assets for the year ended December 31, 2011, except as otherwise set forth in the notes to the table. The Russell Investment Funds LifePoints® Variable Target Portfolio Series are funds of funds and because of their two-tiered structure, may have fees that are higher than other funds. The Portfolio expenses used to prepare the table were provided to the Company by the Portfolios. The expenses shown are based on expenses incurred for the year ended December 31, 2011, or restated to reflect current expenses (see attached prospectuses for the Funds). Current or future expenses may be higher or lower than those shown, especially in periods of market volatility.
Portfolio |
Investment Advisory Fees |
12b-1 Fees |
Other Expenses |
Acquired Fund Fees and Expenses |
Total Operating Expenses |
Fee Waivers & Reimbursements |
Total Net Operating Expenses |
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Northwestern Mutual Series Fund, Inc. |
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Growth Stock Portfolio(2) |
0.42% | 0.00 | % | 0.02 | % | 0.00 | % | 0.44 | % | 0.00 | % | 0.44 | % | |||||||||||||||
Focused Appreciation Portfolio(1)(3) |
0.76% | 0.00 | % | 0.04 | % | 0.00 | % | 0.80 | % | (0.05 | %) | 0.75 | % | |||||||||||||||
Large Cap Core Stock Portfolio(4) |
0.44% | 0.00 | % | 0.03 | % | 0.00 | % | 0.47 | % | 0.00 | % | 0.47 | % | |||||||||||||||
Large Cap Blend Portfolio(1) |
0.77% | 0.00 | % | 0.11 | % | 0.00 | % | 0.88 | % | (0.03 | %) | 0.85 | % | |||||||||||||||
Index 500 Stock Portfolio |
0.20% | 0.00 | % | 0.02 | % | 0.00 | % | 0.22 | % | 0.00 | % | 0.22 | % | |||||||||||||||
Large Company Value Portfolio(1) |
0.72% | 0.00 | % | 0.13 | % | 0.00 | % | 0.85 | % | (0.05 | %) | 0.80 | % | |||||||||||||||
Domestic Equity Portfolio(1) |
0.56% | 0.00 | % | 0.02 | % | 0.00 | % | 0.58 | % | 0.00 | % | 0.58 | % | |||||||||||||||
Equity Income Portfolio(1) |
0.65% | 0.00 | % | 0.04 | % | 0.00 | % | 0.69 | % | 0.00 | % | 0.69 | % | |||||||||||||||
Mid Cap Growth Stock Portfolio(5) |
0.50% | 0.00 | % | 0.01 | % | 0.00 | % | 0.51 | % | 0.00 | % | 0.51 | % | |||||||||||||||
Index 400 Stock Portfolio(6) |
0.25% | 0.00 | % | 0.05 | % | 0.02 | % | 0.32 | % | 0.00 | % | 0.32 | % | |||||||||||||||
Mid Cap Value Portfolio(1)(7) |
0.85% | 0.00 | % | 0.11 | % | 0.00 | % | 0.96 | % | 0.00 | % | 0.96 | % | |||||||||||||||
Small Cap Growth Stock Portfolio(8) |
0.55% | 0.00 | % | 0.04 | % | 0.01 | % | 0.60 | % | 0.00 | % | 0.60 | % | |||||||||||||||
Index 600 Stock Portfolio(1) |
0.25% | 0.00 | % | 0.24 | % | 0.04 | % | 0.53 | % | (0.18 | %) | 0.35 | % | |||||||||||||||
Small Cap Value Portfolio(1)(9) |
0.85% | 0.00 | % | 0.04 | % | 0.21 | % | 1.10 | % | 0.00 | % | 1.10 | % | |||||||||||||||
International Growth Portfolio(1) |
0.67% | 0.00 | % | 0.14 | % | 0.00 | % | 0.81 | % | 0.00 | % | 0.81 | % | |||||||||||||||
Research International Core Portfolio(1) |
0.88% | 0.00 | % | 0.56 | % | 0.00 | % | 1.44 | % | (0.29 | %) | 1.15 | % | |||||||||||||||
International Equity Portfolio(10) |
0.66% | 0.00 | % | 0.07 | % | 0.00 | % | 0.73 | % | (0.05 | %) | 0.68 | % | |||||||||||||||
Emerging Markets Equity Portfolio(1) |
1.14% | 0.00 | % | 0.49 | % | 0.00 | % | 1.63 | % | (0.13 | %) | 1.50 | % | |||||||||||||||
Money Market Portfolio(11) |
0.30% | 0.00 | % | 0.02 | % | 0.00 | % | 0.32 | % | 0.00 | % | 0.32 | % | |||||||||||||||
Short-Term Bond Portfolio(1)(12) |
0.34% | 0.00 | % | 0.08 | % | 0.00 | % | 0.42 | % | 0.00 | % | 0.42 | % | |||||||||||||||
Select Bond Portfolio |
0.30% | 0.00 | % | 0.02 | % | 0.00 | % | 0.32 | % | 0.00 | % | 0.32 | % | |||||||||||||||
Long-Term U.S. Government Bond Portfolio(1) |
0.55% | 0.00 | % | 0.09 | % | 0.00 | % | 0.64 | % | 0.00 | % | 0.64 | % | |||||||||||||||
Inflation Protection Portfolio(1) |
0.57% | 0.00 | % | 0.09 | % | 0.00 | % | 0.66 | % | (0.01 | %) | 0.65 | % | |||||||||||||||
High Yield Bond Portfolio(13) |
0.44% | 0.00 | % | 0.06 | % | 0.00 | % | 0.50 | % | 0.00 | % | 0.50 | % | |||||||||||||||
Multi-Sector Bond Portfolio(1) |
0.79% | 0.00 | % | 0.12 | % | 0.00 | % | 0.91 | % | (0.01 | %) | 0.90 | % | |||||||||||||||
Commodities Return Strategy |
0.80% | 0.00 | % | 0.16 | % | 0.05 | % | 1.01 | % | (0.06 | %) | 0.95 | % | |||||||||||||||
Balanced |
0.30% | 0.00 | % | 0.01 | % | 0.02 | % | 0.33 | % | 0.00 | % | 0.33 | % | |||||||||||||||
Asset Allocation Portfolio(1)(16) |
0.54% | 0.00 | % | 0.10 | % | 0.02 | % | 0.66 | % | (0.06 | %) | 0.60 | % | |||||||||||||||
Fidelity® Variable Insurance Products |
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VIP Mid Cap Portfolio |
0.56% | 0.25 | % | 0.10 | % | 0.00 | % | 0.91 | % | 0.00 | % | 0.91 | % | |||||||||||||||
VIP Contrafund® Portfolio |
0.56% | 0.25 | % | 0.09 | % | 0.00 | % | 0.90 | % | 0.00 | % | 0.90 | % | |||||||||||||||
Neuberger Berman Advisers Management Trust |
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Socially Responsive Portfolio(17) |
0.85% | 0.00 | % | 0.21 | % | 0.00 | % | 1.06 | % | 0.00 | % | 1.06 | % | |||||||||||||||
Russell Investment Funds |
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Multi-Style Equity Fund |
0.73% | 0.00 | % | 0.12 | % | 0.00 | % | 0.85 | % | 0.00 | % | 0.85 | % | |||||||||||||||
Aggressive Equity Fund(18) |
0.90% | 0.00 | % | 0.18 | % | 0.00 | % | 1.08 | % | (0.05 | %) | 1.03 | % | |||||||||||||||
Global Real Estate Securities Fund |
0.80% | 0.00 | % | 0.15 | % | 0.00 | % | 0.95 | % | 0.00 | % | 0.95 | % | |||||||||||||||
Non-U.S. Fund(18) |
0.90% | 0.00 | % | 0.20 | % | 0.00 | % | 1.10 | % | (0.05 | %) | 1.05 | % | |||||||||||||||
Core Bond Fund(18) |
0.55% | 0.00 | % | 0.18 | % | 0.00 | % | 0.73 | % | (0.05 | %) | 0.68 | % | |||||||||||||||
Russell Investment Funds LifePoints® Variable Target Portfolio Series |
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Moderate Strategy Fund(19) |
0.20% | 0.00 | % | 0.18 | % | 0.75 | % | 1.13 | % | (0.28 | %) | 0.85 | % | |||||||||||||||
Balanced Strategy Fund(19) |
0.20% | 0.00 | % | 0.11 | % | 0.87 | % | 1.18 | % | (0.21 | %) | 0.97 | % | |||||||||||||||
Growth Strategy Fund(19) |
0.20% | 0.00 | % | 0.14 | % | 0.95 | % | 1.29 | % | (0.24 | %) | 1.05 | % | |||||||||||||||
Equity Growth Strategy Fund(19) |
0.20% | 0.00 | % | 0.29 | % | 1.00 | % | 1.49 | % | (0.39 | %) | 1.10 | % |
(1) | Northwestern Mutual Series Fund, Inc.s investment adviser, Mason Street Advisors, LLC (MSA) has contractually agreed to waive the management fee and absorb certain other operating expenses of the below portfolios to the extent necessary so that Total Operating Expenses for such portfolios will not exceed the following annual rates of each portfolios respective average net assets. These fee waivers may be terminated at any time after April 30, 2013. |
Variable Life Prospectus
7
Portfolio |
Expense Limitation |
|||
Focused Appreciation |
0.90 | % | ||
Large Cap Blend |
0.85 | % | ||
Large Company Value |
0.80 | % | ||
Domestic Equity |
0.75 | % | ||
Equity Income |
0.75 | % | ||
Mid Cap Value |
1.00 | % | ||
Index 600 Stock |
0.35 | % | ||
Small Cap Value |
1.00 | % | ||
International Growth |
1.10 | % | ||
Research International Core |
1.15 | % | ||
Emerging Markets Equity |
1.50 | % | ||
Short-Term Bond |
0.45 | % | ||
Long-Term U.S. Government Bond |
0.65 | % | ||
Inflation Protection |
0.65 | % | ||
Multi-Sector Bond |
0.90 | % | ||
Commodities Return Strategy |
0.95 | % | ||
Asset Allocation |
0.75 | % |
(2) | Growth Stock PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.60% on the Portfolios first $50 million of assets, 0.50% on the next $50 million, 0.40% of the next $400 million and 0.35% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(3) | Focused Appreciation PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.75% on the Portfolios first $100 million of assets, 0.70% on the next $200 million, 0.65% on the next $200 million and 0.60% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(4) | Large Cap Core Stock PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.60% on the Portfolios first $50 million of assets, 0.50% on the next $50 million, 0.40% of the next $400 million and 0.35% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(5) | Mid Cap Growth PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.80% on the Portfolios first $50 million of assets, 0.65% on the next $50 million, 0.50% of the next $400 million and 0.45% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(6) | Index 400 Stock PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.25% on the Portfolios first $500 million of assets and 0.20% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(7) | Mid Cap Value PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.85% on the Portfolios first $150 million of assets, 0.80% of the next $150 million and 0.75% on assets in excess of $300 million. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(8) | Small Cap Growth Stock PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.80% on the Portfolios first $50 million of assets, 0.65% on the next $50 million, 0.50% of the next $400 million and 0.45% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(9) | Small Cap Value PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.85% on the Portfolios first $500 million of assets and 0.80% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(10) | International Equity PortfolioMSA has agreed to waive a portion of its management fee such that the management fee for the Portfolio is 0.80% on the Portfolios first $50 million of assets, 0.60% on the next $950 million, 0.58% on the next $500 million and 0.51% on assets in excess of $1.5 billion. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(11) | Money Market PortfolioMSA has voluntarily agreed to waive its entire management fee on a temporary basis. This voluntary waiver will be reviewed periodically by MSA in light of market and economic developments and may be revised or discontinued at any time without advance notice. |
(12) | Short-Term Bond PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.35% on the Portfolios first $100 million of assets, 0.33% on the next $150 million, 0.30% of the next $250 million and 0.28% on assets in excess of $500 million. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(13) | High Yield Bond PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.60% on the Portfolios first $50 million of assets, 0.50% on the next $50 million, 0.40% of the next $900 million and 0.35% on assets in excess of $1 billion. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(14) | Commodities Return Strategy PortfolioMSA has agreed to waive its management fee in an amount equal to the management fee paid to it by the Portfolios wholly owned Cayman Islands subsidiary fund. The fee waiver agreement will remain in effect for as long as the Portfolio remains invested in the subsidiary fund. |
(15) | Balanced PortfolioMSA has agreed to waive a portion of its management fee such that its management fee on assets invested in the International Growth Portfolio, Research International Core Portfolio, International Equity Portfolio and Emerging Markets Equity Portfolio (Underlying Portfolios) is 0.05%. MSA may terminate this fee waiver agreement at any time after April 30, 2013. |
(16) | Asset Allocation PortfolioMSA has agreed to waive a portion of its management fee such that the management fee is 0.55% on the Portfolios first $100 million of assets, 0.45% on the next $150 million, and 0.35% on assets in excess of $250 million. In addition, MSA has agreed to waive a portion of its management fee such that its management fee on assets invested in an Underlying Portfolio is 0.05%. MSA may terminate these fee waiver agreements at any time after April 30, 2013. |
(17) | Neuberger Berman Management LLC (NBM) has undertaken through December 31, 2014 to waive fees and/or reimburse certain operating expenses, including the compensation of NBM and excluding taxes, interest, and extraordinary expenses, brokerage commissions and transaction costs that exceed, in the aggregate 1.30% of the average daily net asset value of the Socially Responsive Portfolio. The expense limitation arrangements for the Portfolio are contractual and any excess expenses can be repaid to NBM within three years of the year incurred, provided such recoupment would not cause a Portfolio to exceed its respective limitation. |
(18) | Russell Investment Management Company (RIMCo) has contractually agreed, until April 30, 2013, to waive 0.05% of its advisory fee on the Aggressive Equity Fund, Non-U.S. Fund and Core Bond Fund. These waivers may not be terminated during the relevant period except with Board approval. |
(19) | For each of the Russell Investment Funds LifePoints Variable Target Portfolio Series funds individually, until April 30, 2013, RIMCo has contractually agreed to waive up to the full amount of its 0.20% advisory fee and then to reimburse the Fund for other direct Fund-level expenses to the extent that direct Fund-level expenses exceed 0.10% of the average daily net assets of the Fund on an annual basis. Direct Fund-level expenses do not include extraordinary expenses or the expenses of other investment companies in which the Fund invests, including the Underlying Funds, which are borne indirectly by the Fund. This waiver and reimbursement may not be terminated during the relevant period except with Board approval. |
8
Variable Life Prospectus
The Northwestern Mutual Life Insurance Company is a mutual life insurance company organized by a special act of the Wisconsin Legislature in 1857. It is licensed to conduct a conventional life insurance business in the District of Columbia and in all states of the United States. The total assets of Northwestern Mutual were over $189 billion as of December 31, 2011. The Home Office of Northwestern Mutual is located at 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
Northwestern Mutual, Company, we, us, and our in this prospectus mean The Northwestern Mutual Life Insurance Company.
General Account assets are used to guarantee the payment of certain benefits under the Policies, including death benefits. To the extent that we are required to pay you amounts under these benefits that are in addition to Invested Assets in the Separate Account, such amounts will come from General Account assets. Thus, Owners must look to the strength of the Company and its General Account with regard to guarantees under the Policies. The General Account is exposed to the risks normally associated with the operation of a life insurance company, including insurance pricing, asset liability management and interest rate risk, operational risks, and the investment risks of a portfolio of securities that consists largely, though not exclusively, of fixed-income securities. Some of the risks associated with such a portfolio include interest rate, option, liquidity, and credit risk. The financial statements contained in the Statement of Additional Information include a further discussion of risks inherent within the General Account investments. The assets in the General Account are subject to the claims of the Companys general creditors.
We established the Separate Account by action of our Trustees on November 23, 1983, in accordance with the provisions of Wisconsin insurance law. The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940 (the 1940 Act). We own the assets in the Separate Account and we are obligated to pay all benefits under the Policies. We may use the Separate Account to support other variable life insurance policies we issue. We have divided the Separate Account into Divisions, each of which invests in shares of one Portfolio of the Funds.
Under Wisconsin law, Separate Account assets are held separate from our other assets and are not part of our General Account. Income, gains, and losses, whether or not realized, from assets allocated to the Separate Account will be credited to or charged against the Separate Account without regard to our other income, gains, or losses. Income, gains, and losses credited to, or charged against, a Division reflect that Division's own investment performance and not the investment performance of our other assets. We may not use the Separate Accounts assets to pay any of our liabilities other than those arising from the Policies and any other variable life insurance Policies funded by the Separate Account. We may, however, use all of our assets (except those held in certain other separate accounts) to satisfy our obligations under your Policy.
Where permitted by law and subject to any required regulatory approvals or votes by Owners, we reserve the right to:
| operate the Separate Account or a Division either as a unit investment trust or a management investment company under the 1940 Act, or in any other form permitted by law, if deemed by the Company to be in the best interest of Owners; |
| invest current and future assets of a Division in securities of another Portfolio as a substitute for shares of a Portfolio already purchased or to be purchased; |
| transfer cash from time to time between the General Account and the Separate Account as deemed necessary or appropriate and consistent with the terms of the Policy, including but not limited to transfers for the deduction of charges and in support of payment options; |
| transfer assets of the Separate Account in excess of reserve requirements applicable to the Policies supported by the Separate Account to the General Account (Invested Assets remaining in the Separate Account necessary to fulfill its obligations under the Policy are not subject to claims against or losses in the General Account); |
| register or deregister the Separate Account under the 1940 Act or change its classification under that Act; |
| create new separate accounts; |
| add, delete or make substitutions for the securities and other assets held or purchased by the Separate Account; |
| restrict or eliminate any voting rights of Owners or other persons having voting rights as to the Separate Account; and |
| make any changes to the Separate Account to conform with, or required by any change in, federal tax law, the 1940 Act and regulations promulgated thereunder, or any other applicable federal or state laws. |
In the event that we take any of these actions, we may make an appropriate endorsement of your Policy and take other actions necessary to comply with applicable law.
Variable Life Prospectus
9
A variety of investment options are offered under the Policy for the allocation of your premiums. However, the Company does not endorse or recommend a particular option, nor does it provide investment advice. You are responsible for choosing your investment options and should make your choices based on your individual situation and risk tolerances. After making your initial allocation decisions, you should monitor your allocations and periodically review the options you select and the amounts allocated to each to ensure your selections continue to be appropriate. The amounts you invest in a particular Division are not guaranteed and, because both principal and any return on the investment are subject to market risk, you can lose money.
The assets of each Division are invested in a corresponding Portfolio that is a series of one of the following mutual funds: Northwestern Mutual Series Fund, Inc.; Fidelity® Variable Insurance Products; Neuberger Berman Advisers Management Trust; and the Russell Investment Funds. The Separate Account buys shares of the Portfolios at their respective net asset values without sales charge. The Portfolios are available for investment only by separate accounts supporting variable insurance products and are not publicly traded. Their performance can differ substantially from publicly traded mutual funds with similar names. The specific Portfolios available under your Policy may change from time to time, and not all Portfolios in which assets of the Separate Account are invested may be available under your Policy. Your ability to invest in a Portfolio may be affected by the actions of such Portfolio, such as when a Portfolio closes.
The investment objectives of each Portfolio are set forth below. There is no assurance that any of the Portfolios will achieve its stated objective(s). You can find more detailed information about the Portfolios, including a description of each Portfolio, in the attached Portfolio prospectuses. Read the prospectuses for the Portfolios carefully before investing. Note: If you received a summary prospectus for a Portfolio listed below, please follow the directions on the first page of the summary prospectus to obtain a copy of the full fund prospectus.
Northwestern Mutual Series Fund, Inc.
The principal investment adviser for the Portfolios of the Northwestern Mutual Series Fund is Mason Street Advisors, LLC (MSA), our wholly-owned company. The investment advisory agreements for the respective Portfolios provide that MSA will provide services and bear certain expenses of the Fund. MSA employs a staff of investment professionals to manage the assets of the Fund and the other advisory clients of MSA. We provide related facilities and personnel, which MSA uses in performing its investment advisory functions. MSA has retained and oversees Templeton Investment Counsel, LLC, Capital Guardian Trust Company, T. Rowe Price Associates, Inc., Janus Capital Management LLC, American Century Investment Management, Inc., Massachusetts Financial Services Company, Pacific Investment Management Company LLC, and Credit Suisse Asset Management, LLC under investment sub-advisory agreements to provide day-to-day management of the Portfolios indicated below. Each such sub-adviser may be replaced without the approval of shareholders. Please see the attached prospectuses for the Northwestern Mutual Series Fund, Inc. for more information.
Portfolio | Investment Objective | Sub-adviser (if applicable) | ||
Growth Stock Portfolio | Long-term growth of capital; current income is a secondary objective | N/A | ||
Focused Appreciation Portfolio | Long-term growth of capital | Janus Capital Management LLC | ||
Large Cap Core Stock Portfolio | Long-term growth of capital and income | N/A | ||
Large Cap Blend Portfolio | Long-term growth of capital and income | Capital Guardian Trust Company | ||
Index 500 Stock Portfolio | Investment results that approximate the performance of the Standard & Poors 500® Composite Stock Price Index | N/A | ||
Large Company Value Portfolio | Long-term capital growth; income is a secondary objective | American Century Investment Management, Inc. | ||
Domestic Equity Portfolio | Long-term growth of capital and income | Capital Guardian Trust Company | ||
Equity Income Portfolio | Long-term growth of capital and income | T. Rowe Price Associates, Inc. | ||
Mid Cap Growth Stock Portfolio | Long-term growth of capital | N/A | ||
Index 400 Stock Portfolio | Investment results that approximate the performance of the S&P MidCap Stock Price 400® Index | N/A | ||
Mid Cap Value Portfolio | Long-term capital growth; current income is a secondary objective | American Century Investment Management, Inc. |
10
Variable Life Prospectus
Portfolio | Investment Objective | Sub-adviser (if applicable) | ||
Small Cap Growth Stock Portfolio | Long-term growth of capital | N/A | ||
Index 600 Stock Portfolio | Investment results that approximate the performance of the Standard & Poors SmallCap 600® Index | N/A | ||
Small Cap Value Portfolio | Long-term growth of capital | T. Rowe Price Associates, Inc. | ||
International Growth Portfolio | Long-term growth of capital | Janus Capital Management LLC | ||
Research International Core Portfolio | Capital appreciation | Massachusetts Financial Services Company | ||
International Equity Portfolio | Long-term growth of capital | Templeton Investment Counsel, LLC | ||
Emerging Markets Equity Portfolio | Capital appreciation | Massachusetts Financial Services Company | ||
Money Market Portfolio | Maximum current income to the extent consistent with liquidity and stability of capital(1) | N/A | ||
Short-Term Bond Portfolio | To provide as high a level of current income as is consistent with prudent investment risk | N/A | ||
Select Bond Portfolio | To provide as high a level of total return as is consistent with prudent investment risk; a secondary objective is to seek preservation of shareholders capital | N/A | ||
Long-Term U.S. Government Bond Portfolio | Maximum total return, consistent with preservation of capital and prudent investment management | Pacific Investment Management Company LLC | ||
Inflation Protection Portfolio | Pursue total return using a strategy that seeks to protect against U.S. inflation | American Century Investment Management, Inc. | ||
High Yield Bond Portfolio | High current income and capital appreciation(2) | N/A | ||
Multi-Sector Bond Portfolio | Maximum total return, consistent with prudent investment management | Pacific Investment Management Company LLC | ||
Commodities Return Strategy Portfolio | Total return | Credit Suisse Asset Management, LLC | ||
Balanced Portfolio | To realize as high a level of total return as is consistent with prudent investment risk, through income and capital appreciation | N/A | ||
Asset Allocation Portfolio | To realize as high a level of total return as is consistent with reasonable investment risk | N/A |
(1) | Although the Money Market Portfolio seeks to preserve its value at $1.00 per share, it is possible to lose money by investing in the Money Market Portfolio. An investment in a money market portfolio is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any government agency. During extended periods of low interest rates, the yield of a money market portfolio may also become extremely low and possibly negative. |
(2) | High yield bonds are commonly referred to as junk bonds. |
Fidelity® Variable Insurance Products
The Fidelity® VIP Mid Cap Portfolio and the Fidelity® VIP Contrafund® Portfolio are series of Variable Insurance Products III and the Variable Insurance Products Fund II, respectively. The Separate Account buys Service Class 2 shares of the Portfolios, the investment adviser for which is the Fidelity Management & Research Company (FMR). The following affiliates of FMR also assist with foreign investments: Fidelity Management & Research (U.K.) Inc., Fidelity Management & Research (Hong Kong) Limited, and Fidelity Management & Research (Japan) Inc.
Portfolio | Investment Objective | Sub-adviser | ||
VIP Mid Cap Portfolio | Long-term growth of capital | FMR Co., Inc. | ||
VIP Contrafund® Portfolio | Long-term capital appreciation | FMR Co., Inc. |
Variable Life Prospectus
11
Neuberger Berman Advisers Management Trust
The Neuberger Berman Advisers Management Trust Socially Responsive Portfolio is a series of the Neuberger Berman Advisers Management Trust. The Separate Account buys Class I shares of the Portfolio, the investment adviser for which is Neuberger Berman Management LLC.
Portfolio | Investment Objective | Sub-adviser | ||
Socially Responsive Portfolio | Long-term growth of capital by investing primarily in securities of companies that meet the Portfolios financial criteria and social policy | N/A |
The assets of each of the Portfolios comprising the Russell Investment Funds are invested by one or more investment management organizations researched and recommended by Frank Russell Company (Russell), and an affiliate of Russell, the Russell Investment Management Company (RIMCo). RIMCo is the investment adviser of the Russell Investment Funds. Russell is our majority-owned subsidiary.
Portfolio | Investment Objective | |
Multi-Style Equity Fund | Long-term growth of capital | |
Aggressive Equity Fund | Long-term growth of capital | |
Global Real Estate Securities Fund |
Current income and long-term growth of capital | |
Non-U.S. Fund | Long-term growth of capital | |
Core Bond Fund | Current income and, as a secondary objective, capital appreciation | |
LifePoints® Variable Target Portfolio Series Moderate Strategy Fund | High current income and moderate long-term capital appreciation | |
LifePoints® Variable Target Portfolio Series Balanced Strategy Fund | Above-average capital appreciation and a moderate level of current income | |
LifePoints® Variable Target Portfolio Series Growth Strategy Fund | High long-term capital appreciation with low current income | |
LifePoints® Variable Target Portfolio Series Equity Growth Strategy Fund | High long-term capital appreciation |
We select the Portfolios offered through this Policy based on several criteria, including asset class coverage, the strength of the investment advisers or sub-advisers reputation and tenure, brand recognition, performance, and the capability and qualification of each investment firm. Another factor we consider during the selection process is whether the Portfolios investment adviser or an affiliate will make payments to us or our affiliates. We review the Portfolios periodically and may remove a Portfolio or limit its availability to new premiums and/or transfers of accumulated amounts if we determine that the Portfolio no longer meets one or more of the selection criteria, and/or if the Portfolio has not attracted significant allocations from Owners. The Northwestern Mutual Series Fund, Inc. and the Russell Investment Funds have been included in part because they are managed by subsidiaries of the Company.
We do not provide any investment advice and do not recommend or endorse any particular Portfolio. You bear the risk of any decline in the Policy Value of your Policy resulting from the performance of the Portfolios you have chosen.
Owners, through their indirect investment in the Portfolios, bear the costs of the investment advisory or management fees that the Portfolios pay to their respective investment advisors (see the Portfolios prospectuses for more information). As described above, an investment adviser of a Portfolio, or its affiliates, may make payments to the Company and/or certain of our affiliates. These payments may be derived, in whole or in part, from the advisory fee deducted from Portfolio assets. The amount of the compensation is based on a percentage of assets of the Portfolios attributable to the Policies and certain other variable insurance products that the Company issues. The percentages differ and some investment advisers (or other affiliates) may pay more than others. The percentages currently range up to 0.25%. These payments may be used for any corporate purpose, including payment of expenses that the Company and/or its affiliates incur for services performed on behalf of the Policies and the Portfolios. The Company and its affiliates may profit from these payments.
Certain Portfolios have adopted a Distribution (and/or Shareholder Servicing) Plan under Rule 12b-1 of the 1940 Act, which is described in more detail in the Portfolios prospectuses. These payments, which may be up to 0.25%, are deducted from assets of the Portfolios and are paid to our distributor, Northwestern Mutual Investment Services, LLC. These payments decrease a Portfolios investment return.
Additionally, an investment adviser or sub-adviser of a Portfolio (or of an underlying fund in which a Portfolio invests) or its affiliate may provide the Company with wholesaling services that assist in the distribution of the Policies and may pay the Company and/or certain of our affiliates amounts to participate in sales meetings. These amounts may be significant and may provide the investment adviser or sub-adviser (or their affiliate) with increased access to persons involved in the distribution of the Policies.
12
Variable Life Prospectus
Information About the Policies
We are no longer issuing these Policies.
This prospectus describes the material provisions of the Policies. You should consult your Policy for more information about its terms and conditions, and for any state specific variations that may apply to your Policy.
For Whole Life Policies and, except as explained below, for Extra Ordinary Life Policies, premiums are level, fixed and payable in advance during the Insureds lifetime on a monthly, quarterly, semiannual or annual basis. You may change the premium frequency. The change will be effective when we accept the premium on the new frequency. The amount of the premium depends on the amount of insurance for which the Policy was issued and the Insureds age and underwriting classification. The amount of the premium also reflects the sex of the Insured except where state or federal law requires that premiums and other charges and values be determined without regard to sex. We send a notice to the Owner not less than two weeks before each premium is due. If you select the monthly premium frequency, we may require that you make Premium Payments through an automatic payment plan arranged with your bank.
Premiums you pay other than on an annual basis are increased to (1) reflect the time value of money, based on a 12% interest rate, and (2) cover the administrative costs to process the additional Premium Payments. You may obtain information from your Northwestern Mutual Financial Representative about annual percentage rate (APR) calculations for premiums paid other than annually. The APR calculation is also available through www.northwesternmutual.com.
If the Insured dies after payment of the premium for the period which includes the date of death, we will refund the portion of the premium for the remainder of that period as part of the Policy proceeds.
You may send Premium Payments to our Home Office or to a payment center designated by us. All payments must be made in U.S. Dollars payable through a U.S. financial institution. We accept Premium Payments by check or electronic funds transfer (EFT). We generally will not accept cash, money orders, travelers checks or starter checks; however, in limited circumstances, we may accept some cash equivalents in accord with our anti-money laundering procedures. If you make a Premium Payment with a check or bank draft and, for whatever reason, it is later returned unpaid or uncollected, or if a Premium Payment by EFT is reversed, we reserve the right to reverse the transaction. If mandated under applicable law, we may be required to reject a Premium Payment. We may also be required to provide information about you and your account to government regulators.
We accept Premium Payments via our website if eligible. Electronic payments via our website must be made in accordance with our current procedures. However, we are not required to accept electronic payments, and we will not be responsible for losses resulting from transactions based on unauthorized electronic payments, provided we follow procedures reasonably designed to verify the authenticity of electronic payments. For more information on electronic payments see Owner Inquiries. We reserve the right to limit, modify, suspend or terminate the ability to make payments via our website at any time.
Whole Life Policy The following table for Whole Life Policies shows representative premiums for male select, standard plus, and standard risks for various face amounts of insurance. Premiums you pay other than on an annual basis are increased to (1) reflect the time value of money, based on a 12% interest rate and (2) cover the administrative costs associated with additional Premium Payments. For example, two semi-annual payments will total more than an annual premium payment.
Age at Issue |
Face Amount |
Annual Premium |
Monthly Premium |
Annual Sum of Monthly Premiums* |
Annual Sum of Monthly Premiums Minus the Annual Premium |
|||||||||||||||
SELECT | ||||||||||||||||||||
15 |
$ | 50,000 | $ | 382.50 | $ | 33.60 | $ | 403.20 | $ | 20.70 | ||||||||||
35 |
100,000 | 1,536.00 | 135.10 | 1,621.20 | 85.20 | |||||||||||||||
55 |
100,000 | 3,766.00 | 331.10 | 3,973.20 | 207.20 | |||||||||||||||
STANDARD PLUS | ||||||||||||||||||||
15 |
$ | 50,000 | $ | 406.00 | $ | 35.60 | $ | 427.20 | $ | 21.20 | ||||||||||
35 |
100,000 | 1,683.00 | 148.10 | 1,777.20 | 94.20 | |||||||||||||||
55 |
100,000 | 4,125.00 | 363.10 | 4,357.20 | 232.20 | |||||||||||||||
STANDARD | ||||||||||||||||||||
15 |
$ | 50,000 | $ | 491.50 | $ | 43.10 | $ | 517.20 | $ | 25.70 | ||||||||||
35 |
100,000 | 1,912.00 | 168.10 | 2,017.20 | 105.20 | |||||||||||||||
55 |
100,000 | 4,587.00 | 404.10 | 4,849.20 | 262.20 |
* | In some cases for policies with smaller premiums, the sum of 12 monthly premiums may be less than the sum of other periodic premium amounts due to lower administrative costs. |
Variable Life Prospectus
13
Extra Ordinary Life Policy The following table for Extra Ordinary Life Policies shows representative annual premiums for male select, standard plus and standard risks for various amounts of insurance. Premiums you pay other than on an annual basis are increased to (1) reflect the time value of money, based on a 12% interest rate and (2) cover the administrative costs associated with additional Premium Payments. For example, two semi-annual payments will total more than an annual premium payment. The amounts of insurance shown in the table are the total amounts in effect when the Extra Ordinary Life Policy is issued, including both the Minimum Death Benefit, which we guarantee for the lifetime of the Insured, and the Extra Life Protection, which we guarantee for a shorter period. (See Death Benefit and Extra Ordinary Life Policy.)
Age at Issue |
Face Amount |
Annual Premium |
Monthly Premium |
Annual Sum of Monthly Premiums* |
Annual Sum of Monthly Premiums Minus the Annual Premium |
|||||||||||||||
SELECT | ||||||||||||||||||||
15 |
$ | 50,000 | $ | 261.50 | $ | 23.10 | $ | 277.20 | $ | 15.70 | ||||||||||
35 |
100,000 | 1,014.00 | 89.10 | 1,069.20 | 55.20 | |||||||||||||||
55 |
100,000 | 2,612.00 | 230.10 | 2,761.20 | 149.20 | |||||||||||||||
STANDARD PLUS | ||||||||||||||||||||
15 |
$ | 50,000 | $ | 285.00 | $ | 25.10 | $ | 301.20 | $ | 16.20 | ||||||||||
35 |
100,000 | 1,161.00 | 102.10 | 1,225.20 | 64.20 | |||||||||||||||
55 |
100,000 | 2,971.00 | 261.10 | 3,133.20 | 162.20 | |||||||||||||||
STANDARD | ||||||||||||||||||||
15 |
$ | 50,000 | $ | 357.50 | $ | 31.60 | $ | 379.20 | $ | 21.70 | ||||||||||
35 |
100,000 | 1,377.00 | 121.10 | 1,453.20 | 76.20 | |||||||||||||||
55 |
100,000 | 3,425.00 | 301.10 | 3,613.20 | 188.20 |
* | In some cases for policies with smaller premiums, the sum of 12 monthly premiums may be less than the sum of other periodic premium amounts due to lower administrative costs. |
Single Premium Life Policy The Single Premium Life Policy was available only for applicants who met select or standard plus underwriting criteria as we determined. The premiums for these Policies are the same for both select and standard plus risks, but we expect that the dividends will be lower for Policies issued to Insureds in the standard plus classification.
The following table for Single Premium Life Policies shows representative gross single premiums for male select and standard plus risks for various face amounts of insurance:
Age at Issue |
Face Amount of Insurance |
Gross
Single Premium |
||||||
15 |
$ | 10,000 | $ | 1,498.40 | ||||
35 |
25,000 | 6,443.25 | ||||||
55 |
50,000 | 23,502.00 |
For the Whole Life and Extra Ordinary Life Policies there is a grace period of 31 days for any premium that is not paid when due. The Policy remains in force during this period. If you do not pay the premium within the grace period, the Policy will terminate as of the date when the premium was due and will no longer be in force, unless it is continued as extended term or paid-up insurance (see Extended Term and Paid-Up Insurance), or the Automatic Premium Loan provision is currently in effect (see Policy Loans and Automatic Premium Loans) to pay any overdue premiums and the premium due is less than the maximum amount allowable. If the Insured dies during the grace period we will deduct any overdue premium from the proceeds of the Policy. If the Insured dies after payment of the premium for the period which includes the date of death, we will refund the portion of the premium for the remainder of that period as part of the Policy proceeds.
Allocating Premiums to the Separate Account
We place the net annual premium for a Whole Life Policy or an Extra Ordinary Life Policy in the Separate Account on the Policy Date and on the Policy Anniversary each year. The net annual premium is the annual premium less the deductions. See Deductions and Charges for more information.
You determine how the net annual premium for a Whole Life or an Extra Ordinary Life Policy is apportioned among the Divisions. If you direct any portion of a premium to a Division, the Division must receive at least 10% of that premium. You may change the apportionment for future premiums by written request at any time, but the change will be effective only when we place the net annual premium in the Separate Account on the next Policy Anniversary, even if you are paying premiums other than on an annual basis. Your Financial Representative may provide us with instructions on your behalf involving the allocation of amounts among available Divisions, subject to our rules and requirements, including the restrictions on short-term and excessive trading.
Eligible Owners may also submit allocation requests via Northwestern Mutual Express (1-800-519-4665) or via our website at www.northwesternmutual.com (Electronic Instructions) in accordance with out then-current procedures for Electronic Instructions provided you have properly authorized us to accept Electronic Instructions in advance of your request. For more information see Owner Inquiries. However, we are not required to accept Electronic Instructions, and we will not be responsible for losses resulting from transactions based on unauthorized Electronic Instructions, provided we follow procedures reasonably designed to verify the authenticity of Electronic Instructions.
For a Single Premium Policy we placed the entire single premium, less an administrative charge of $150, in the
14
Variable Life Prospectus
Separate Account on the Policy Date, and we apportioned the amount among the Divisions as you determined.
You may apportion the Separate Account assets supporting your Policy among as many as six Divisions at any time.
Transfers Between Divisions Subject to the short-term and excessive trading limitations described below, you may transfer accumulated amounts from one Division to another so long as you are invested in no more than six Divisions at a time. Transfer requests will be effective after our receipt of your request in Good Order at our Home Office. If we receive your request for transfer before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE, we will deem your request to be received and effective that day. If we receive your request for transfer on or after the close of trading on the NYSE, we will deem your request to be received and effective on the next regular trading session of the NYSE. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements.
In order to take full advantage of these features, you should carefully consider, on a continuing basis, which investment options are best suited to your long-term investment needs. Although no fee is presently charged, we reserve the right where allowed by state law to charge a fee that will cover the administrative costs of transfers. In addition, certain Portfolios in which the Divisions invest may impose redemption fees. These fees are described in the Portfolios prospectuses. Transfer requests must be in whole percentages and in amounts greater than or equal to 1% of Invested Assets or the request will not be processed. When a transfer is made from any Division, the resulting allocation of Invested Assets must be in whole percentages in all Divisions that have any Invested Assets as a result of the transfer. Your Financial Representative may provide us with instructions on your behalf involving the transfer of accumulated amounts among available Divisions, subject to our rules and requirements, including the restrictions on short-term and excessive trading discussed below.
You may request the transfer in writing at our Home Office, via Northwestern Mutual Express (1-800-519-4665) or, if eligible, via our website at www.northwesternmutual.com. The submission of transfer instructions by telephone or through our website (Electronic Instructions) must be made in accordance with our current procedures for Electronic Instructions and you must properly authorize us to accept Electronic Instructions in advance of your request. For more information see Owner Inquiries. However, we are not required to accept Electronic Instructions, and we will not be responsible for losses resulting from transactions based on unauthorized Electronic Instructions, provided we follow procedures reasonably designed to verify the authenticity of Electronic Instructions. We reserve the right to limit, modify, suspend or terminate the ability to make transfers via Electronic Instructions.
Short-Term and Excessive Trading Short-term and excessive trading (sometimes referred to as market timing) may present risks to a Portfolios long-term investors, such as Owners and other persons who may have material rights under the Policy (e.g., beneficiaries), because it can, among other things, disrupt Portfolio investment strategies, increase Portfolio transaction and administrative costs, require higher than normal levels of cash reserves to fund unusually large or unexpected redemptions, and adversely affect investment performance. These risks may be greater for Portfolios that invest in securities that may be more vulnerable to arbitrage trading, including foreign securities and thinly traded securities, such as small cap stocks and non-investment grade bonds. These types of trading activities also may dilute the value of long-term investors interests in a Portfolio if it calculates its net asset value using closing prices that are no longer accurate. Accordingly, we discourage market timing activities.
To deter short-term and excessive trading, we have adopted and implemented policies and procedures which are designed to control abusive trading practices. We seek to apply these policies and procedures uniformly to all Owners. Any exceptions must be either expressly permitted by our policies and procedures or subject to an approval process described in them. We may also be prevented from uniformly applying these policies and procedures under applicable state or federal law or regulation. Because exceptions are permitted, it is possible that investors may be treated differently and, as a result, some may be allowed to engage in trading activity that might be viewed as market timing.
Among the steps we have taken to reduce the frequency and effect of these practices are monitoring trading activity and imposing trading restrictions, including the prohibition of more than twelve transfers among Divisions under a single Policy during a Policy Year. Multiple transfers with the same effective date made by the same Owner will be counted as a single transfer for purposes of applying the twelve transfer limitation. Further, an investor who is identified as having made a transfer in and out of the same Division, excluding the Money Market Division, (round trip transfer) in an amount in excess of $10,000 within fourteen calendar days will be restricted from making additional transfers after making two more such round trip transfers within any Policy Year, including the year in which the first such round trip transfer was made. The restriction will last until the next Policy Anniversary and the Policy Owner will be sent a letter informing him or her of the restriction. An Owner who is identified as having made one round trip transfer within thirty calendar days aggregating more than one percent (1%) of the total assets of the Portfolio underlying a Division, excluding the Money Market Division and the Divisions corresponding to the Portfolios of the Russell Investment Funds LifePoints® Variable Target Portfolio Series, will be restricted from making additional transfers after making one more such round trip transfer within any Policy Year, including the year in which the first such round trip transfer was made. The restriction will last until the next Policy Anniversary and the Policy Owner will be sent a letter informing him or her of the
Variable Life Prospectus
15
restriction. These limitations do not apply to automatic asset transfers, scheduled or systematic transactions involving portfolio rebalancing, dollar cost averaging, initial allocations or changes in future allocations. Once a Policy is restricted, we will allow one additional transfer into the Money Market Division until the next Policy Anniversary. Additionally, in accordance with our procedures, we may modify some of these limitations to allow for transfers that would not count against the total transfer limit but only as necessary to alleviate any potential hardships to Owners (e.g., in situations involving a substitution of an underlying fund).
Policies such as yours (or other Policies supported by the Separate Account) may be purchased by a corporation or other entity as a means to informally fund the liabilities created by the entitys employee benefit or similar plan. These Policies may be aggregately managed to match liabilities under such plans. Policies sold under these circumstances may be subject to special transfer restrictions. Namely, transactions involving portfolio rebalancing programs may be exempt from the twelve transfers per Policy year limitation where: (1) the purpose of the portfolio rebalancing program is to match the Policy to the entitys employee benefit or similar plan; (2) the portfolio rebalancing program adequately protects against short-term or excessive trading; and (3) the portfolio rebalancing program is managed by a third party administrator that meets our requirements. We reserve the right to monitor or limit transactions involving portfolio rebalancing programs where we believe such transactions may be potentially harmful to a Portfolio.
We may change these policies and procedures from time to time in our sole discretion without notice; provided, however, Owners will be given advance, written notice if the policies and procedures are revised to accommodate market timing. Additionally, the Funds may have their own policies and procedures described in their prospectuses that are designed to limit or restrict frequent trading. Such policies may be different from our policies and procedures, and may be more or less restrictive. As the Funds may accept purchase payments from other investors, including other insurance company separate accounts on behalf of their variable product customers and retirement plans, we cannot guarantee that the Funds will not be harmed by any abusive market timing activity relating to the retirement plans and/or other insurance companies that may invest in the Funds. The Funds policies and procedures may provide for the imposition of a redemption fee and, upon request from the Fund, require us to provide transaction information to the Fund (including an Owners tax identification number) and to restrict or prohibit transfers and other transactions that involve the purchase of shares of a Portfolio. In the event a Fund instructs us to restrict or prohibit transfers or other transactions involving shares of a Portfolio, you may not be able to make additional purchases in a Division until the restriction or prohibition ends. If you submit a request that includes a purchase or transfer into such a restricted Division, we will consider the request not in Good Order and it will not be processed. You may, however, submit a new transfer request.
If we believe your trading activity is in violation of, or inconsistent with, our policies and procedures or otherwise is potentially disruptive to the interests of other investors, you may be asked to stop such activities, and future investments and allocations or transfers by you may be rejected without prior notice. Because we retain discretion to determine what action is appropriate in a given situation, investors may be treated differently and some may be allowed to engage in activities that might be viewed as market timing.
We intend to monitor events and the effectiveness of our policies and procedures in order to identify whether instances of potentially abusive trading practices are occurring. However, we may not be able to identify all instances of abusive trading practices, nor completely eliminate the possibility of such activities, and there may be technological limitations on our ability to impose restrictions on the trading practices of Owners.
The Net Premiums we place in the Separate Account for Whole Life, Extra Ordinary Life and Single Premium Life Policies are the gross premiums after the deductions described in the next two sections below. The Net Premiums for Whole Life and Extra Ordinary Life Policies exclude any extra premium we charge for Insureds who do not qualify as select risks and the extra premium for any optional benefits. We make a charge for mortality and expense risks against the assets of the Separate Account. There is also a charge for taxes. (See Charges Against the Separate Account Assets.) In addition, the funds in which the Separate Account assets are invested pay an investment advisory fee and certain other expenses. (See Fee and Expense TablesAnnual Portfolio Operating Expenses and the attached Fund prospectuses.)
We may impose a fee for transfers that will not exceed our administrative costs associated with transfers. This fee is currently being waived.
You may have the option of receiving funds via wire transfer or priority mail. Currently, a fee of $25 is charged for wire transfers (up to $50 for international wires) and a $15 fee (up to $45 for next day, a.m. delivery) for priority mail. These fees are to cover our administrative costs or other expenses. We may discontinue the availability of these options at any time, with or without notice.
Deductions from Premiums for Whole Life and Extra Ordinary Life Policies The deductions described in this section are for Whole Life and Extra Ordinary Life Policies only. The deductions for Single Premium Life Policies are described under the next caption below.
For the first Policy Year there was a one-time deduction of not more than $5 for each $1,000 of insurance, based on the face amount for Whole Life or the Minimum Death Benefit stated in the Policy for Extra Ordinary Life. This was for the costs of processing applications, medical examinations, determining insurability and establishing records.
16
Variable Life Prospectus
There is an annual deduction of $35 for administrative costs to maintain the Policy. Expenses include costs of premium billing and collection, processing claims, keeping records and communicating with Owners.
There is a deduction each year for sales costs. This amount may be considered a sales load. The deduction will be not more than 30% of the basic premium (as defined below) for the first Policy Year, not more than 10% for each of the next three years and not more than 7% each year thereafter. The basic premium for a Policy is the gross premium which would be payable if you paid the premium annually, less the annual deduction of $35 for administrative costs. The basic premium is based on the cost of insurance for Insureds who qualify as select risks and does not include any extra premium amounts for Insureds whom we place in other underwriting classifications. The basic premium does not include the extra premium for any optional benefits. For an Extra Ordinary Life Policy, the basic premium does not include any extra premium for the Extra Life Protection; the amount of term insurance included in the Extra Life Protection affects the dividends payable on the Extra Ordinary Life Policies. The current charge is a maximum of $1,000 per $1,000 of term insurance, without current dividend, and the minimum is $6.27 per $1,000 of the term insurance, without the current dividend, depending on the age and sex of the Insured.
The amount of the deduction for sales costs for any Policy Year is not specifically related to sales costs we incur for that year. We expect to recover our total sales expenses from the amounts we deduct for sales costs over the period while the Policies are in force. To the extent that sales expenses exceed the amounts deducted, we will pay the expenses from our other assets. These assets may include, among other things, any gain realized from the charge against the assets of the Separate Account for the mortality and expense risks we assume. (See Charges Against the Separate Account Assets.) To the extent that the amounts deducted for sales costs exceed the amounts needed, we will realize a gain.
We make a deduction equal to 2% of each basic premium for state premium taxes. Premium taxes vary from state to state and currently range from 0% to 3.5% of life insurance premiums. The 2% rate is an average, and we charge the same percentage regardless of the state in which you live, which may be more or less than the percentage charged by your state of residence.
Provided that all premiums are paid when due, we guarantee that the Death Benefit, before adjustments, for a Whole Life Policy will never be less than the face amount of the Policy, regardless of the investment experience of the Separate Account and that, for an Extra Ordinary Life Policy, the Death Benefit, before adjustments, will never be less than the Minimum Death Benefit stated in the Policy. For both Policies, there is a deduction equal to 1.5% of each basic premium to compensate us for the risk that the Insured may die at a point in time when the Death Benefit that would ordinarily be paid is less than this guaranteed minimum amount.
For an Extra Ordinary Life Policy there is a deduction for dividends that may be paid or credited in accordance with the dividend scale in effect on the issue date of the Policy. This deduction will vary by age of the Insured and duration of the Policy, and we expect it to be in the range of approximately 7-17% of the gross annual premium. Future dividends are not guaranteed. (See Annual Dividends.)
The following tables illustrate the amount of net annual premium, for select and standard risks, to be placed in the Separate Account at the beginning of each Policy Year after the deductions described above:
Whole Life
Beginning of Policy Year |
Male Age 35 - Select Risk Annual Premium |
|||||||||||
$500 | $1,000 | $5,000 | ||||||||||
1 |
$ | 154.28 | $ | 320.16 | $ | 1,647.28 | ||||||
2 through 4 |
402.11 | 834.48 | 4,293.51 | |||||||||
5 and later |
416.05 | 863.41 | 4,442.36 | |||||||||
Beginning of Policy Year |
Male Age 35 - Standard Risk Annual Premium |
|||||||||||
$500 | $1,000 | $5,000 | ||||||||||
1 |
$ | 123.37 | $ | 256.03 | $ | 1,317.30 | ||||||
2 through 4 |
321.57 | 667.33 | 3,433.44 | |||||||||
5 and later |
332.71 | 690.46 | 3,552.48 |
Extra Ordinary Life
Beginning of Policy Year |
Male Age 35 - Select Risk Annual Premium |
|||||||||||
$500 | $1,000 | $5,000 | ||||||||||
1 |
$ | 134.23 | $ | 278.56 | $ | 1,433.21 | ||||||
2 through 4 |
369.62 | 767.07 | 3,946.64 | |||||||||
5 and later |
383.58 | 796.05 | 4,095.74 | |||||||||
Beginning of Policy Year |
Male Age 35 - Standard Risk Annual Premium |
|||||||||||
$500 | $1,000 | $5,000 | ||||||||||
1 |
$ | 97.92 | $ | 203.21 | $ | 1,045.54 | ||||||
2 through 4 |
269.65 | 559.59 | 2,879.11 | |||||||||
5 and later |
279.83 | 580.73 | 2,987.88 |
Deductions for Single Premium Life Policies For a Single Premium Life Policy, the only deduction from the single premium was an administrative charge of $150. The administrative costs for issuing and maintaining a Single Premium Life Policy are similar to those we incur with a Whole Life Policy or an Extra Ordinary Life Policy, except for the costs of premium billing and collection. (See Deductions from Premiums for Whole Life and Extra Ordinary Life Policies.) We placed the entire premium for a Single Premium Life Policy, after this deduction of $150, in the Separate Account when we issued the Policy without any of the other deductions which apply to premiums for Whole Life and Extra Ordinary Life Policies. There is no annual fee for a Single Premium Life Policy.
For a Single Premium Life Policy during the first ten Policy Years, the Cash Value payable on surrender of the Policy was reduced by a deduction for sales costs. The deduction during the first Policy Year was not more than 9% of the Policys
Variable Life Prospectus
17
tabular Cash Value. (See Cash Value.) The deduction decreased over time until it was eliminated at the end of the tenth Policy Year. We intended the deduction to recover the costs we incurred in distributing Single Premium Life Policies which were surrendered in their early years. The deduction was never more than 9% of the single premium paid for the Policy, excluding the administrative charge of $150.
The following table illustrates the schedule for the decreasing deduction for sales costs for a policy surrendered at the end of each of the first ten Policy Years. The illustration is for a Single Premium Life Policy, male age 35. The schedule varies slightly by age and sex and amount of insurance.
Policy Year End When Policy Is Surrendered |
Deduction as % of Tabular Cash Value |
|||
1 |
7.9 | % | ||
2 |
7.1 | |||
3 |
6.3 | |||
4 |
5.4 | |||
5 |
4.6 | |||
6 |
3.7 | |||
7 |
2.8 | |||
8 |
1.9 | |||
9 |
0.9 | |||
10 and subsequent years |
0 |
Charges Against the Separate Account Assets There is a daily charge to the Separate Account for the mortality and expense risks that we have assumed. The charge is at the annual rate of .50% of the assets of the Separate Account. The mortality risk is that Insureds may not live as long as we estimated. The expense risk is that expenses of issuing and administering the Policies may exceed the estimated costs, including other costs such as those related to marketing and distribution. The actual mortality and expense experience under the Policies will be a factor used in determining dividends. (See Annual Dividends.)
The Policies provide that we may make a charge for taxes against the assets of the Separate Account. Currently, we are making a daily charge for income taxes we incur at the annual rate of .05% of the assets of the Separate Account. We may increase, decrease or eliminate the charge for taxes in the future to reflect the portion of our actual tax expenses which is fairly allocable to the Policies.
Optional Benefits There is a separate charge for any optional benefit you have selected. (See Other Policy ProvisionsOptional Benefits.) For a Whole Life Policy, the Waiver of Premium Benefit has a maximum charge of $2.05 per $1,000 of face amount and a minimum charge of $0.13 per $1,000 of face amount. The Additional Purchase Benefit has a maximum charge of $2.21 per $1,000 of Additional Purchase Benefit and a minimum charge of $0.54 per $1,000 of Additional Purchase Benefit.
For an Extra Ordinary Life Policy, the Waiver of Premium Benefit has a maximum charge of $1.48 per $1,000 of face amount and a minimum charge of $0.10 per $1,000 of face amount. The Additional Purchase Benefit has a maximum charge of $2.21 per $1,000 of Additional Purchase Benefit and a minimum charge of $1.06 per $1,000 of Additional Purchase Benefit.
We will realize a gain from these charges to the extent they are not needed to provide benefits and pay expenses under the Policies, in which case the gain may be used for any Company purpose.
The Portfolios in which the assets that support your Policy are invested also bear expenses which reduce the investment rate of return. (See Fee and Expense TablesRange of Total Annual Portfolio Operating Expenses and attached mutual fund prospectuses.)
Guarantee of Premiums, Deductions and Charges
We guarantee that the premiums, the amounts we deduct from premiums, and the charge for mortality and expense risks will not increase over time. These amounts will not increase regardless of future changes in longevity or increases in expenses. The Extra Ordinary Life Policy provides an opportunity to pay an additional amount of premium after the guaranteed period for the Extra Life Protection has expired if the total Death Benefit would otherwise fall below the initial amount of insurance. (See Extra Ordinary Life Policy.)
Your beneficiary may receive the Death Benefit as a cash settlement either by electing to receive a lump sum check or by electing the Northwestern Access Fund account (an interest-bearing account), if the case settlement amount meets our criteria. If no affirmative election is made, the beneficiary will receive the Death Benefit as a lump sum check. If a Northwestern Access Fund account is elected, payment of the full Death Benefit is accomplished by the opening of the Northwestern Access Fund account in the name of the beneficiary. Northwestern Access Fund account information, along with a book of drafts (which function much like checks from a checking account at a bank), will be sent to the beneficiary, and the beneficiary will have access to funds in the account simply by writing a draft for all or part of the amount of the Death Benefit (or other available balance), and depositing or using the draft as desired. When the draft is paid through the bank that administers the account for Northwestern Mutual, the bank will receive the amount the beneficiary requests as a transfer from the Company's General Account. The Northwestern Access Fund is part of the Company's General Account. Any interest paid within a Northwestern Access Fund may be taxable, so please consult your tax advisor. The Northwestern Access Fund is not a bank account, and it is not insured by the FDIC or any other government agency. As part of our General Account, the Northwestern Access Fund is backed by the financial strength of the Company, although it is subject to the claims of our creditors. In addition, funds held in the Northwestern Access Fund are guaranteed by State Insurance Guarantee Associations. The Company may make a profit on all amounts held in the Northwestern Access Fund. We may discontinue the Northwestern Access Fund at any time, with or without notice.
If a payment plan was not previously elected by the Owner and in lieu of a lump sum payment, Death Benefits, less any
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Variable Life Prospectus
Policy Debt, may be paid under a payment plan selected by your beneficiary after the death of the Insured. Available payment plans include an interest income plan, installment income plans, and life income plans. Generally, (1) an interest income plan accrues interest on the Death Benefit, the interest may be received monthly, and any remaining proceeds or interest may be withdrawn at any time; (2) an installment income plan pays the Death Benefit in installments for a fixed period of time, and any remaining proceeds may be withdrawn at any time; and (3) a life income plan makes payments monthly for a chosen period and after that, for the life of the person on whose life the payments are based (or two persons if the joint option is selected). The choice of payment plans will vary depending on financial situation and the amount of income desired monthly for a chosen time period. The Owner may elect the payment plan while the Insured is living or, if the Insured is not the Owner, during the first 60 days after the Insureds date of death. A payment plan that is elected by the Owner will take effect on the date of death of the Insured if the notice of election is received in our Home Office while the Insured is living. In all other cases, the payment plan will take effect on the date of receipt of the notice of election. If no payment plan is elected, the benefit is paid to the beneficiary with interest based on rates declared by the Company or as required by applicable state law on the date of death of the Insured.
The amount payable under the Death Benefit will be reduced by the amount of any Policy Debt. Subject to the terms and conditions of the Policy, the proceeds will be paid to a beneficiary or other payee after proof of the death of the Insured is received in our Home Office. The amount of proceeds will be determined as of the date of death. We will pay interest on the proceeds from that date until payment is made.
The Death Benefit for a variable life insurance policy is, in part, a guaranteed amount which will not be reduced during the lifetime of the Insured so long as you pay premiums when they are due and no Policy Debt is outstanding. The remainder of the Death Benefit is the variable insurance amount which fluctuates in response to actual investment results and is not guaranteed. The amount of any paid-up additions is also included in the total Death Benefit and, in addition, the Extra Ordinary Life Policy provides some term insurance during the early Policy Years. Paid-up additions are amounts of permanent insurance, paid for with dividends and added to a basic life insurance policy, and for which the premium for the entire lifetime of the Insured has been paid. Paid-up additions have Cash Value and loan value. The relationships among the guaranteed and variable amounts and any paid-up additions and term insurance depend on the design of the particular Policy. For a more detailed description of how the Death Benefit is calculated for your Policy, see Whole Life Policy and Single Premium Life Policy and Extra Ordinary Life Policy below.
Variable Insurance Amount The variable insurance amount reflects, on a cumulative basis, the investment experience of the Divisions in which the Policy has participated. We adjust the variable insurance amount annually on each Policy Anniversary. For the first Policy Year the variable insurance amount was zero. For any subsequent year it may be either positive or negative. If the variable insurance amount is positive, subsequent good investment results will produce a larger variable insurance amount and therefore an increase in the Death Benefit. If the variable insurance amount is negative, subsequent good investment results will first have to offset the negative amount before the Death Benefit will increase.
In setting the premium rates for each Policy we have assumed that investment results will cause the Separate Account assets supporting the Policy to grow at a net annual rate of 4%. If the assets grow at a net rate of exactly 4% for a Policy Year, the variable insurance amount will neither increase nor decrease on the following Policy anniversary. If the net rate of growth exceeds 4%, the variable insurance amount will increase. If it is less than 4%, the variable insurance amount will decrease.
The method for calculating the changes in the Death Benefit is described in the Policy. The Policy includes a table of net single premiums used to convert the investment results for a Policy into increases or decreases in the variable insurance amount. The insurance rates in the table depend on the sex and the Attained Age of the Insured for each Policy Year. For a Whole Life Policy, the changes in the Death Benefit will be smaller for a Policy issued with a higher premium for extra mortality risk. The net single premium for a particular variable insurance amount is the price for that amount of paid-up whole life insurance based on the Insureds age on the Policy Anniversary.
To illustrate how the variable insurance amount affects the Death Benefit for a Whole Life Policy, suppose that on your Policy Anniversary investment results since your last Policy Anniversary (excluding investment results on paid-up additions) were $500 less than the amount that would have been expected assuming a net annual growth rate of 4%. By way of example, if your net single premium (based on your underwriting classification as indicated in your Policy) per $1.00 of insurance was .40440, the variable insurance amount for the current year will decrease by $1,236 ($500/.40440), thereby decreasing the Death Benefit if the variable insurance amount had been positive. (See Whole Life Policy and Single Premium Life Policy.)
Because the variable insurance amount is adjusted only on the Policy Anniversary, we bear the risk that the Insured may die before the next anniversary after an interim period of adverse investment experience. If investment experience during the interim period is favorable, you will forgo the benefit and we will realize a gain. However, if on the date of death of the Insured the value of the Policy, considered as a net single premium, would buy more Death Benefit than the amount otherwise determined under the Policy, we will pay this increased Death Benefit.
The cost of life insurance increases with the advancing age of the Insured, and therefore a larger dollar amount of investment earnings is required to produce the same increase in the Death Benefit in the later Policy Years. In general,
Variable Life Prospectus
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however, the effect of investment results on the Death Benefit will tend to be greater in the later Policy Years because the amount of assets invested for the Policy will tend to increase as the Policy remains in force.
The cost of providing insurance protection under a Policy is reflected in the Cash Value of the Policy. (See Cash Value.) The cost is actuarially computed for each Policy each year, based on the Insureds Attained Age, the 1980 Commissioners Standard Ordinary Mortality Table and the net insurance amount at risk under the Policy. The net insurance amount at risk is the Death Benefit for the Policy minus the sum of the Cash Value and any Policy Debt. The cost of insurance differs each year because the probability of death increases as the Insured advances in age, and the net insurance amount at risk decreases or increases from year to year depending on investment experience. The cost assumes that all Insureds are in the select underwriting classification. The differences in the mortality rates of the various underwriting classifications are reflected in the different premiums (or different dividend scales) for those underwriting classifications. The cost of insurance is based on the mortality table identified above and we guarantee it for the life of a Policy regardless of any future changes in mortality experience. Our revenues attributable to this charge may exceed our costs attributable to this charge, in which case we may realize a gain.
Whole Life Policy and Single Premium Life Policy For a Whole Life Policy or a Single Premium Life Policy the Death Benefit is the face amount of the Policy plus any positive variable insurance amount in force. We adjust the Death Benefit on each Policy Anniversary when we determine the variable insurance amount for the following year. The total Death Benefit also includes the amount of insurance provided by any paid-up additions which you have purchased with dividends. The Death Benefit for a Whole Life Policy will not be less than the face amount so long as you pay premiums when they are due. For a Single Premium Life Policy the Death Benefit will not be less than the face amount. The amount payable at death is reduced by the amount of any Policy Debt outstanding.
Paid-up additions you have purchased with dividends are not counted for purposes of the guarantee that the Death Benefit of a Whole Life Policy or a Single Premium Life Policy will never be less than the face amount of the Policy. If the variable insurance amount is negative, the total Death Benefit will be the guaranteed face amount plus the amount of insurance provided by any paid-up additions. Paid-up additions are amounts of permanent insurance, paid for with dividends and added to a basic life insurance policy, and for which the premium for the entire lifetime of the Insured has been paid. Paid-up additions have Cash Value and loan value.
Extra Ordinary Life Policy The Death Benefit for an Extra Ordinary Life Policy is affected by the amount of Extra Life Protection in force. Initially, the amount of Extra Life Protection is 40% of the total amount of insurance and is in the form of one year term insurance; the amount of term insurance may be adjusted on each Policy Anniversary thereafter. Term insurance is life insurance which pays a Death Benefit only if the Insured dies during the term for which the insurance has been purchased. Term insurance is ordinarily purchased on an annual basis at a cost which rises with the increasing age of the Insured. It has no cash surrender value or loan value. Over time, positive variable insurance amounts and paid-up additions purchased with dividends will reduce the one year term insurance portion of the Extra Life Protection to an amount that (with variable insurance amounts and paid-up additions) will maintain the total Death Benefit at the amount for which the Policy was issued. The term insurance is eliminated at any time when the sum of positive variable insurance amount plus the paid-up additions equals or exceeds the initial amount of Extra Life Protection.
The amount of Extra Life Protection may increase over time but it will not decrease below the initial amount during the Policys guaranteed period, so long as you pay premiums when they are due, all dividends are applied to purchase paid-up additions and no paid-up additions are surrendered for their Cash Value. The length of the guaranteed period depends on the age of the Insured at issue. Please note that neither the actual investment results nor the dividends to be paid on the Policy are guaranteed. You may request an in-force illustration to illustrate the effect of various future rates of return on the amount of Extra Life Protection.
After the guaranteed period expires, if the sum of positive variable insurance amounts plus the paid-up additions is less than the initial amount of Extra Life Protection on any Policy Anniversary, we may reduce the amount of your term insurance for the Policy Year. We will give you notice of the reduction and you will have an opportunity to pay an additional amount of premium in order to keep the initial amount of insurance in force. The maximum premium rate is set forth in the Policy. Your right to continue the Extra Life Protection will terminate as of the first Policy Anniversary when you fail to pay the additional premium when due.
The Death Benefit for an Extra Ordinary Life Policy is the sum of the Minimum Death Benefit plus the amount of Extra Life Protection in force. The Minimum Death Benefit is 60% of the total amount of insurance for which the Policy was issued. We guarantee the Minimum Death Benefit for the lifetime of the Insured so long as you pay premiums when they are due.
The total Death Benefit is not affected by either investment results or the amount of dividends paid, so long as the Policy is within the guaranteed period of Extra Life Protection unless the term insurance has been eliminated by positive variable insurance amount and paid-up additions as described above. Good investment results and increases in dividends increase the likelihood that the total Death Benefit will begin to rise before the guaranteed period of Extra Life Protection expires. Adverse investment results or decreases in dividends could cause the total Death Benefit to fall below the amount of insurance which was initially in force, after the guaranteed period of Extra Life Protection expires, but it cannot fall below the Minimum Death Benefit so long as you pay premiums when they are due. In each case the amount payable at death is reduced by any Policy Debt outstanding.
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Variable Life Prospectus
The following three examples illustrate how Extra Life Protection operates during the guaranteed period. In each example the Policy was issued for a total amount of $250,000. The minimum death benefit is $150,000 (60% of $250,000) and the initial amount of Extra Life Protection is $100,000 (40% of $250,000).
| Example 1: On a Policy Anniversary, there is a total positive variable insurance amount of $10,000 and paid-up additions are $15,000. The Extra Life Protection for the following year would consist of term insurance in the amount of $75,000 ($100,000 minus the sum of $10,000 and $15,000) in order to maintain the initial amount of Extra Life Protection. There would be no effect on the current Death Benefit because the total of the variable insurance amount and paid-up additions has not exceeded the initial amount of Extra Life Protection. |
| Example 2: On a Policy Anniversary, there is a total negative variable insurance amount of -$12,000 and paid-up additions are $15,000. The Extra Life Protection for the following year would consist of term insurance in the amount of $85,000, reflecting a reduction for paid-up additions but not negative variable insurance amounts. Again, there would be no effect on the current Death Benefit. In subsequent years positive variable insurance amounts will need to make up for the negative variable insurance amounts in order to affect the amount of term insurance. |
| Example 3: On a Policy Anniversary, there is a total positive variable insurance amount of $60,000 and paid-up additions are $50,000. The Extra Life Protection for the following year would consist of no term insurance and would increase to $110,000 (the sum of $60,000 and $50,000). In this case the current Death Benefit would increase to reflect variable insurance amounts and paid-up insurance in excess of the Extra Life Protection (see Variable Insurance Amount above). |
We have designed the Extra Ordinary Life Policy for a purchaser who intends to use all dividends to purchase paid-up additions. If you use dividends for any other purpose, or if any paid-up additions are surrendered for their Cash Value, the term insurance in force will immediately terminate, any remaining guaranteed period of Extra Life Protection will terminate and your right to continue the amount of Extra Life Protection as described above will terminate. The amount of Extra Life Protection thereafter will be the sum of positive variable insurance amount plus any paid-up additions which remain in force.
The Cash Value of a Policy is equal to the amount you are eligible to receive when you surrender the Policy. If investment results were a net level 4% every year, the Cash Value would increase each year according to a table in your Policy (tabular Cash Value). However, the Cash Value for all Policies will change daily in response to investment results. For any given date, to calculate the Cash Value, the tabular Cash Value for the last Policy Anniversary is adjusted to reflect the time elapsed since the last Policy Anniversary. We then adjust the sum of the tabular Cash Value and the net single premium for the variable insurance amount (see the discussion of net single premiums under Variable Insurance Amount) to reflect investment results from the last Policy Anniversary to the date for which the calculation is being made. The Cash Value is increased by the value of any paid-up additions which have been purchased with dividends. If a portion of the premium for the current Policy Year has not been paid, the Cash Value of a Whole Life Policy or an Extra Ordinary Life Policy will be reduced. The Cash Value for all Policies will be reduced by any Policy Debt outstanding. No minimum Cash Value is guaranteed.
If a portion of the premium for the current Policy Year has not been paid, the Cash Value of a Whole Life Policy or an Extra Ordinary Life Policy will be reduced.
The Cash Value for the Whole Life Policy, the Extra Ordinary Life Policy and the Single Premium Life Policy will be reduced by the amount of any Policy Debt outstanding.
We determine the Cash Value for a Policy at the end of each valuation period (typically, 4:00 p.m. Eastern Time each business day). Each business day, together with any non-business days before it, is a valuation period. A business day is any day on which the NYSE is open for trading. In accordance with the requirements of the 1940 Act, we may also determine the Cash Value for a Policy on any other day on which there is sufficient trading in securities to materially affect the value of the securities held by the Portfolios.
You may surrender a Policy for the Cash Value at any time during the lifetime of the Insured. We will surrender your Policy upon receiving a surrender request in Good Order at our Home Office. Requests for surrender received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE are deemed to be received and effective that day. If received on or after the close of trading, requests are deemed to be received and effective as of the close of the next regular trading session of the NYSE. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements. Alternatively, you may use the Cash Value of a Whole Life Policy or an Extra Ordinary Life Policy to provide extended term insurance or a reduced amount of fixed or variable paid-up insurance. (See Extended Term and Paid-Up Insurance.) Surrender proceeds may be paid under a payment plan requested by an Owner at the time of surrender. Available payment plans include an interest income plan, installment income plans, and life income plans.
You may request a Death Benefit reduction, so long as the Policys Death Benefit after reduction meets the regular minimum size requirements. A proportionate refund of the Policys Cash Value will result from any Death Benefit reduction. The refund of Cash Value will first be applied toward any existing loan balance. The remainder of the Cash Value refunded will be returned to the Owner. The remaining
Variable Life Prospectus
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Policy will be based on the age and underwriting classification of the Insured at the time of issuance of the original Policy. We will allocate reductions among the Divisions in proportion to the amounts in the Divisions.
The Policies are eligible to share in the divisible surplus, if any, of the Company. Each year we determine, in our sole discretion, the amount and appropriate allocation of divisible surplus. Divisible surplus allocated to your Policy is referred to as a dividend. A Policys share, if any, will be credited as a dividend on the Policy Anniversary. We will not pay a dividend on a Whole Life Policy or an Extra Ordinary Life Policy which is in force as extended term insurance. There is no guaranteed method or formula for the determination or allocation of divisible surplus. The Companys approach is subject to change. There is no guarantee of a divisible surplus. Even if there is a divisible surplus, the payment of a dividend on a Policy is not guaranteed.
Illustrated dividends published at the time a life insurance policy is issued generally reflect the actual recent experience of the issuing company with respect to mortality and expenses and hypothetical investment results. State law generally prohibits a company from projecting or estimating future results.
If you receive dividends, you may use them to purchase variable paid-up additions, unless the Policy is in force as reduced fixed paid-up insurance. We will also pay dividends in cash, or you may use them to pay premiums or leave them to accumulate with interest (see Tax ConsiderationTax Treatment of Life Insurance); but unless you use all dividends we pay on an Extra Ordinary Life Policy to purchase paid-up additions, the term insurance portion of the Extra Life Protection will be terminated. (See Extra Ordinary Life Policy.) We hold dividends you leave to accumulate with interest in our General Account and we will credit them with a rate of interest we determine annually. The interest rate will not be less than an annual effective rate of 3.5%. If a Whole Life Policy or an Extra Ordinary Life Policy is in force as reduced fixed benefit paid-up insurance, dividends may be used to purchase fixed benefit paid-up additions. (See Extended Term and Paid-Up Insurance.) Dividends used to purchase variable benefit paid-up additions will be allocated to the Divisions of the Separate Account according to the allocation of Net Premiums then in effect.
Policy Loans and Automatic Premium Loans
Described below are certain terms and conditions that apply when you borrow amounts under the Policy. For information on the tax treatment of loans, see Tax Treatment of Policy Benefits and consult with your tax advisor.
Policy Loans You may borrow an amount that, when added to existing Policy Debt, is not more than the loan value. The loan value is 90% of the sum of the Cash Value and any existing Policy Debt on the date of the loan. You may take loan proceeds in cash or, for the Whole Life and Extra Ordinary Life Policies, you may use them to pay premiums on the Policy. We normally pay the loan proceeds within seven days after we receive a proper loan request at our Home Office. Eligible Owners may also submit loan requests via the Variable Life Service Center (1-866-424-2609). Written and telephone requests will be processed based on the date and time they are received in the Home Office, provided the request is received in Good Order. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements. Based on our administrative procedures, you may have the option of receiving funds via wire transfer or priority mail, and we may charge a fee for this service to cover our administrative costs. We may postpone payments of loans under certain conditions described in the Deferral of Determination and Payment section of this prospectus.
Automatic Premium Loans If you have chosen the Automatic Premium Loan provision or it is currently in effect for your Policy, a premium loan, which is a form of Policy loan, will automatically be made to pay an overdue premium if the premium is less than the maximum amount available for a new loan. A confirmation statement will be sent each time an automatic premium loan occurs.
General Loan Terms Interest on a loan accrues and is payable on a daily basis. We add unpaid interest to the amount of the loan. The Policys Cash Value is reduced by the amount of the loan. If the Cash Value decreases to zero, the Policy will terminate unless a sufficient portion of the loan is repaid. We will send you a notice at least 31 days before the termination date. The notice will show how much you must repay to keep the Policy in force.
You select the loan interest rate. The loan interest rate is applied to both the amount of the loan and accrued interest. A specified annual effective rate of 8% is one choice. (The specified annual effective rate may be lower in Arkansas.) The other choice is a variable rate based on a corporate bond yield index. We will adjust the variable rate annually. It will not be less than 5%.
We will take the amount of a loan, including interest as it accrues, from the Divisions in proportion to the amounts in the Divisions. We will transfer the amounts withdrawn to our General Account and will credit those amounts on a daily basis with an annual earnings rate equal to the loan interest rate less a charge for the mortality and expense risks we have assumed and for expenses, including taxes. The aggregate charge is currently at the annual rate of .85% for the 8% specified loan interest rate and .85% for the variable loan interest rate. For example, the earnings rate corresponding to an 8% loan interest rate is currently 7.15%. A loan, even if you repay it, will have a permanent effect on the Policys variable insurance amount and Cash Value because the amounts you have borrowed will not participate in the Separate Accounts investment results while the loan is outstanding. The effect may be either favorable or unfavorable depending on whether the earnings rate credited to the loan amount is higher or lower than the investment performance of the unborrowed amounts left in the Divisions of the Separate Account.
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Variable Life Prospectus
The amount payable at death will also be reduced by the amount of any Policy Debt outstanding. If you surrender or exchange the Policy or allow it to lapse while Policy Debt is outstanding, the amount of the loan, to the extent it has not previously been taxed, will be considered as an amount you received and taxed accordingly.
You may repay a loan, and any accrued interest outstanding, in whole or in part, at any time while the Insured is alive. If we receive a payment without specific instructions, we will first apply the payment to any premium due, with any remaining amount being applied to any outstanding loans. Payments in excess of outstanding debt and premiums due will be returned unless such amounts are deemed to be de minimis according to our procedures. Except as described below, if we receive your loan payments before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE, we will credit payments as of the date we receive them and transfer them from our General Account to the Divisions, in proportion to the amounts in the Divisions, as of the same date. If we receive your loan payments on or after the close of trading on the NYSE, we will credit payments as of the close of the next regular trading session of the NYSE and transfer them from our General Account to the Divisions, in proportion to the amounts in the Divisions, as of the date we credit the payment. Payments must be in Good Order to be processed. If your payment is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your payment to our then-current requirements.
Policy loan payments received within 34 days after the loan interest billing date will be credited as of the loan interest billing date. Automatic premium loans are effective as of the premium due date unless a loan payment is received between the premium due date and the date the Automatic Premium Loan is made. Automatic premium loan payments received up to 66 days after the loan interest billing date will be credited as of the Policy Anniversary, depending on your premium payment schedule. We will send you a notice indicating your loan interest billing date. Loan repayments are not subject to transaction fees.
Extended Term and Paid-Up Insurance
If a premium for a Whole Life Policy or an Extra Ordinary Life Policy is not paid when due or within the 31-day grace period (see Grace Period), and you have not chosen the Automatic Premium Loan (APL) provision or do not have sufficient loan value to pay the premium, (see Policy Loans and Automatic Premium Loans), the Cash Value will purchase extended term insurance, or, at your request, a reduced amount of either fixed or variable benefit paid-up insurance.
If you use the Cash Value to provide a reduced amount of fixed benefit paid-up insurance or for extended term insurance, we will transfer the amount of the Cash Value from the Separate Account to our General Account at the conclusion of the 31 day grace period. Thereafter the Policy will not participate in the Separate Accounts investment results unless the Policy is subsequently reinstated. (See Reinstatement.) You may select variable benefit paid-up insurance only if the Policy has at least $1,000 of Cash Value.
For fixed paid-up insurance, you must have selected paid-up insurance within three months after the due date of your first unpaid premium. We determine the amount of paid-up insurance by the amount of Cash Value and the age and sex of the Insured, using the table of net single premiums at the Attained Age. Fixed benefit paid-up insurance has guaranteed cash and loan values. Paid-up insurance remains in force for the lifetime of the Insured unless the Policy is surrendered or the Cash Value is reduced to zero because of a Policy loan.
If the Policy remains in force as extended term insurance, the amount of insurance will equal the Death Benefit prior to the date the premium was due, less any Policy Debt. The amount of Cash Value and the age and sex of the Insured will determine how long the insurance continues. We will, upon your request, tell you the amount of insurance and how long the term will be. Extended term insurance is not available if the Policy was issued with a higher premium for extra mortality risk. Extended term insurance has a Cash Value but no loan value.
If a premium for a Whole Life Policy or an Extra Ordinary Life Policy is due and remains unpaid at the end of the grace period, the Policy will lapse. The Policy may be reinstated after lapse within five years after the premium due date. The Insured must provide satisfactory evidence of insurability. Any premium or other payment due, including any applicable interest, will also be required. If we approve your request for reinstatement and the request is received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE, we will deem your request to be received and effective that day. If we receive your request on or after the close of trading on the NYSE, we will deem your request to be received and effective on the next regular trading session of the NYSE. Applications must be received in Good Order to be processed. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements. The Company may waive the requirement to provide satisfactory evidence of insurability if the reinstatement is applied for, and any premium or other payment due is paid, within 90 days after the premium due date and while the Insured is alive. Upon reinstatement, your Policy Date will not change. Therefore, fees and charges that vary by Policy year will take into account the period of time your Policy was terminated. In addition, following the reinstatement the Policy will have the same Death Benefit and amount in each Division as if all premiums had been paid when due. We will make an adjustment for any Policy Debt or the debt may be reinstated. A reinstatement may have important tax consequences. If you contemplate any such transaction you should consult a qualified tax adviser.
Variable Life Prospectus
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While Owners have no right to reinvestment after a surrender, we may, at our sole discretion, permit such reinvestments as described in this paragraph. In special limited circumstances, we may allow payments into a Policy in the form of returned surrender proceeds in connection with a request to void a surrender if the request is received by the Company within a reasonable time after the surrender proceeds are mailed. These payments may be processed without a sales load in the case of a Whole Life Policy or an Extra Ordinary Life Policy. The period for which we will accept requests for the return of surrender proceeds after a surrender may vary in accordance with our administrative procedures. The returned surrender proceeds will be reinvested after our receipt of the reinvestment request in Good Order at our Home Office. If we receive your request before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE, we will deem your request to be received and effective that day. If we receive your request on or after the close of trading on the NYSE, we will deem your request to be received and effective on the next regular trading session of the NYSE. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements. Proceeds will be applied to the same Division from which the surrender was made.
Depending on the Insureds underwriting classification, we may not accept the reinvestment or we may accept the reinvestment with different charges and expenses under the Policy. We may refuse to process reinvestments where it is not administratively feasible. Decisions regarding requests for reinvestment will take into consideration differences in costs and services and will not be unfairly discriminatory. Policies with reinvested surrender proceeds will have the same Death Benefit as if the proceeds had not been surrendered, except the values will reflect the fact that amounts were not invested in the Separate Account during the period of time the surrender proceeds were not in the Policy as well as any changes in charges and expenses due to a change in underwriting classification. We will make an adjustment for any Policy Debt or the debt may be reinstated.
Right to Exchange for a Fixed Benefit Policy
It is currently Company practice to allow you to exchange your Policy for a policy that does not vary with the investment experience of the Separate Account (Fixed Benefit Policy). We may require evidence of insurability. The Fixed Benefit Policy will be on the life of the same Insured and at the time of the exchange will have the same Policy Date and Issue Age and a Death Benefit at least as great as the initial guaranteed Death Benefit of your Policy (assuming no reduction in Death Benefit prior to the exchange). The premiums and Cash Value will be the same as those for fixed benefit policies that we issue on the issue date of the Fixed Benefit Policy. The exchange may be subject to an equitable cash adjustment, which will recognize the investment performance of the Policy through the effective date of the exchange, and may have tax consequences. An exchange will be effective when we receive a proper written request, as well as the Policy, and any amount due on the exchange. We may modify or terminate this accommodation at any time, with or without notice.
In addition, you may exchange a Policy for a Fixed Benefit Policy if, at any time, a Fund changes its investment adviser or if there is a material change in the investment objectives or restrictions of a Portfolio. There may be a cost associated with the exchange. We will give you notice of any such change and you will have 60 days to make the exchange.
Any Policy change that you request is subject to our then current insurability and processing requirements. Processing requirements may include, for example, completion of certain forms and satisfying certain evidentiary requirements.
If the Policy is changed or modified, we may make appropriate endorsements to the Policy, and we may require you to send your Policy to our Home Office for endorsement. Any modification or waiver of our rights or requirements under the Policy must be in writing and signed by an officer of the Company. No agent or other person may bind us by waiving or changing any provision contained in the Policy.
Upon notice to you, we may modify a Policy:
| to conform the Policy, our operations, or the Separate Accounts operations to the requirements of any law (including any regulation issued by a government agency) to which the Policy, the Company, or the Separate Account is subject; |
| to ensure continued qualification of the Policy as a life insurance contract under the federal tax laws; or |
| to reflect a change in the Separate Accounts operation. |
Owner The Owner is identified in the Policy. The Owner may exercise all rights under the Policy while the Insured is living. Ownership may be transferred to another. Written proof of the transfer must be received by Northwestern Mutual at its Home Office. In this prospectus you means the Owner of a Policy. Generally, only Owners are entitled to important information about the Policy. Other persons, such as beneficiaries or payors, are entitled to only limited information.
Beneficiary The beneficiary is the person to whom the Death Benefit is payable. The beneficiary is named in the Application. You may change the beneficiary in accordance with the Policy provisions.
Incontestability We will not contest a Policy after it has been in force during the lifetime of the Insured for two years from the Date of Issue or two years from the effective date of a reinstatement.
Misstatement of Age or Sex If the age or sex of the Insured has been misstated, we will adjust benefits under a Policy to reflect the correct age and sex.
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Variable Life Prospectus
Collateral Assignment You may assign a Policy as collateral security. We are not responsible for the validity or effect of a collateral assignment and will not be deemed to know of an assignment before receipt of the assignment in writing at our Home Office.
Optional Benefits If available in your state, there are two optional benefits available for purchase under the Whole Life Policy or Extra Ordinary Life Policy: (1) a Waiver of Premium Benefit; and (2) an Additional Purchase Benefit.
Subject to the terms and conditions of the benefit, the Waiver of Premium Benefit waives the payment of all premiums that come due during the total disability of the Insured if the disability is due to accident or sickness and it begins on or before the Policy Anniversary nearest the Insureds 60th birthday. If the disability occurs after the Policy Anniversary nearest the Insureds 60th birthday, the benefit waives the payment of all premiums that come due during the total disability of the Insured until the Policy Anniversary nearest the Insureds 65th birthday.
Subject to the terms and conditions of the benefit, the Additional Purchase Benefit guarantees the right to buy more insurance without proof of insurability.
If you selected one or both of these optional benefits, you are subject to a separate charge. (See Periodic Charges (Other than Fund Operating Expenses) and Deductions and ChargesOptional Benefits for more information about the charges.) Any charge will continue to be assessed as long as the benefit remains in force. Once the Policy has been issued, an optional benefit may be issued only upon mutual agreement.
Benefit Payment Plans The Policy provides a variety of payment plans for Policy benefits. Any Northwestern Mutual Financial Representative authorized to sell the Policies can explain these provisions on request.
Deferral of Determination and Payment So long as premiums have been paid when due, we will ordinarily pay Policy benefits within seven days after we receive all required documents at our Home Office. However, we may defer determination and payment of benefits during any period when it is not reasonably practicable to value securities because the NYSE is closed, or the SEC, by order, either has determined that an emergency exists or permits deferral of the determination and payment of benefits for the protection of Owners. If a Whole Life Policy or an Extra Ordinary Life Policy is continued in force as extended term or reduced fixed benefit paid-up insurance, we have the right to defer payment of the Cash Value for up to six months from the date of a Policy loan or surrender. If payment of surrender proceeds is deferred for 30 days or more, we will pay interest at an annual effective rate of 4%. If, under SEC rules, the Money Market Portfolio suspends payments of redemption proceeds in connection with a liquidation of the Portfolio, we will delay payment of any transfer, partial surrender, surrender, death benefit from the Money Market Division until the Portfolio is liquidated.
If you have submitted a check or draft to our Home Office, we have the right to defer payment of surrender proceeds, Cash Value resulting from a Death Benefit reduction, Death Benefit or loan proceeds or payment plan benefits until the check or draft has been honored.
If mandated under applicable law, we may be required to block an Owners account and thereby refuse to pay any requests for transfer, Death Benefit reduction, surrender, loans, or Death Benefits, until instructions are received from the appropriate legal authority. We may also be required to provide additional information about an Owner and an Owners account to government authorities.
As long as the Separate Account continues to be registered as a unit investment trust under the 1940 Act, and as long as Separate Account assets of a particular Division are invested in shares of a given Portfolio, we will vote the shares of that Portfolio held in the Separate Account in accordance with instructions we receive from Owners. Periodic reports relating to the Portfolios, proxy material, and a form on which one can give instructions with respect to the proportion of shares of the Portfolio held in the Separate Account corresponding to the Owners Policy Value, will be made available to the Owner(s). We will vote shares for which no instructions have been received and shares held in our General Account in the same proportion as the shares for which instructions have been received from Owners. The effect of such proportional voting is that a small number of Owners may control the outcome of a particular vote.
Substitution of Fund Shares and Other Changes
If, in our judgment, a Portfolio or Fund becomes unsuitable for continued use with the Policies because of a change in investment objectives or restrictions, we may substitute shares of another Portfolio or Fund or another mutual fund. Any substitution of shares will be subject to any required approval of the SEC, the Wisconsin Commissioner of Insurance or other regulatory authority. We have also reserved the right, subject to applicable federal and state law, to operate the Separate Account or any of its Divisions as a management company under the 1940 Act, or in any other form permitted, or to terminate registration of the Separate Account if registration is no longer required, and to change the provisions of the Policies to comply with any applicable laws.
In the event we take any of these actions, we may make an appropriate endorsement of your Policy and take other actions to carry out what we have done.
Reports and Financial Statements
For each Policy Year you will receive a statement showing the Death Benefit, Cash Value and any Policy loan (including interest charged) as of the Policy anniversary. We will also send you a confirmation statement when you transfer among Divisions, take a Policy loan, or surrender the Policy. The annual statement and confirmation statements will show your
Variable Life Prospectus
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apportioned amounts among the Divisions. If the Policy is in force as extended term or fixed benefit paid-up insurance, statements and reports will be limited to an annual Policy statement showing the Death Benefit, Cash Value and any Policy loan.
Annually, we will send you a report containing financial statements of the Separate Account and semi-annually, we will send you reports containing financial information and schedules of investments for the Portfolios underlying the Divisions to which your Invested Assets are allocated. The financial statements of the Company appear in the Statement of Additional Information. To receive a copy of the Annual Report, Semi-Annual Report and/or the Statement of Additional Information, call 1-866-424-2609. Certain reports and other information can be obtained on our website at www.northwesternmutual.com.
The premium for the standard Policy is based in part on the sex of the Insured. The standard annuity rates for payment plans which last for the lifetime of the payee are also based, in part, on the sex of the payee. However, if your Policy was issued in connection with an employer sponsored benefit plan or arrangement, federal law and the laws of certain states may require that premiums and annuity rates be determined without regard to sex. You are urged to review any questions in this area with qualified counsel.
To reduce costs, we may send only a single copy of the same disclosure document(s) (such as prospectuses, prospectus supplements, reports, announcements, proxy statements, notices, and information statements) to each consenting household (rather than sending copies to each Owner residing in a household). If you are or become a member of such a household, you can revoke your consent to householding at any time, and can begin receiving your own copy of such disclosure documents, by calling us at 1-866-424-2609.
Northwestern Mutual, like other life insurance companies, is generally involved in litigation at any given time. Although the outcome of any litigation cannot be predicted with certainty, we believe that, as of the date of this prospectus, there are no pending or threatened lawsuits that will have a materially adverse impact on the ability of Northwestern Mutual to meet its obligations under the Policy, on the Separate Account, or on Northwestern Mutual Investment Services, LLC, the principal underwriter for the Separate Account, and its ability to perform its duties as underwriter for the Separate Account.
This Policy, or any of its riders, should not be used for any type of speculative collective investment scheme (including, for example, arbitrage). Your Policy is not intended to be traded on any stock exchange or secondary market, and attempts to engage in such trading may violate state and/or federal law.
If eligible, you may get up-to-date information about your Policy at your convenience with your Policy number and your Personal Identification Number (PIN). Call Northwestern Mutual Express toll-free at 1-800-519-4665 to review Policy values, make transfers among Divisions, change the allocation and obtain performance information. With your User ID and password, you can also visit our website www.northwesternmutual.com to access performance information, forms for routine service, and daily Policy values for Policies you own. Eligible Owners may also set up certain electronic payments, transfer accumulated amounts among Divisions and change the allocation of future contributions online, subject to our administrative procedures. For enrollment information, please visit our website www.northwesternmutual.com. Please note that electronic devices may not always be available. Any electronic device, whether it is yours, your service providers, your agents or ours, can experience outages or slowdowns for a variety of reasons, which may delay or prevent our processing of your request or payment. Although we have taken precautions to limit these problems, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your request or payment in writing at our Home Office. Electronic requests or payments are deemed to be received by us upon receipt at the electronic location designated by us in our procedures. If you have questions about surrendering your Policy, please call your Financial Representative or the Variable Life Service Center at 1-866-424-2609. To file a claim, please call your Financial Representative or Life Benefits at 1-800-635-8855.
Your Northwestern Mutual Financial Representative will provide you with an illustration for your Policy upon request. The illustration will reflect the performance of your Policy to date and will show how the amount payable at death and Cash Value would vary based on hypothetical future investment results.
Illustrations for variable life insurance policies do not project or predict investment results. The illustrated values assume that non-guaranteed elements such as dividends, policy charges and level investment returns will not change. Given the volatility of the securities markets over time, the illustrated scenario is unlikely to occur and the Policys actual Cash Value, amount payable at death, and certain expenses (which will vary with the investment performance of the Portfolios) will be more or less than those illustrated. In addition, the actual timing and amounts of payments, deductions, expenses and any values removed from the policy will also impact product performance. Due to these variations, even a Portfolio that averaged the same return as illustrated will produce values which will be more or less than those which were illustrated.
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Variable Life Prospectus
General The following discussion provides a general description of federal tax considerations relating to your Policy. The discussion is based on current provisions of the Internal Revenue Code (Code) as currently interpreted by the Treasury and the Internal Revenue Service (IRS). The discussion is not exhaustive, it does not address the likelihood of future changes in federal tax law or interpretations thereof, and it does not address state or local tax considerations which may be significant in the purchase and ownership of a Policy.
This tax discussion is intended to describe the tax consequences associated with your Policy. It does not constitute legal or tax advice, and is not intended to be used and cannot be used to avoid any penalties that may be imposed on a taxpayer. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.
Life Insurance Qualification Section 7702 of the Code defines life insurance for federal income tax purposes. Under Section 7702, a Policy will generally be treated as life insurance for federal tax purposes if at all times it meets either a guideline premium test or a cash value accumulation test. We have designed your Policy to comply with only the cash value accumulation test. We may take any action that may be necessary for the Policy to qualify as life insurance for tax purposes.
The definitional tests under the Code are based on the Commissioner's Standard Ordinary (CSO) mortality tables in effect when the Policies were issued. For Policies issued or materially changed after 2008, the tests must be based on the 2001 CSO mortality tables. Because Policies issued based on the 1980 CSO mortality tables may not satisfy the definitional tests using the 2001 CSO mortality tables, certain changes to those Policies will not be permitted (as defined by IRS Notices 2004-61 and 2006-95). Special safe harbor calculation rules apply to life insurance after the Insured attains age 100. See IRS Rev. Proc. 2010-28.
As provided by Section 817(h) of the Code, the Secretary of the Treasury has set standards for diversification of the investments underlying variable life insurance policies. Failure to meet the diversification requirements would disqualify your Policy as life insurance for purposes of Section 7702 of the Code. We believe that your Policy complies with the provisions of Sections 7702 and 817(h) of the Code, but the application of these rules is not entirely clear. We may make changes to your Policy if necessary for the Policy to qualify as life insurance for tax purposes.
IRS Rev. Ruls. 2003-91 and 2003-92 provide guidance on when an Owners control of Separate Account assets will cause the Owner, and not the life insurance company, to be treated as the owner of those assets. Important indicators of investor control are the ability of the Owner to select the investment advisor, the investment strategy or the particular investments of the Separate Account. If the Owner of a Policy were treated as the owner of the mutual fund shares held in the Separate Account, the income and gains related to those shares would be included in the Owners gross income for federal income tax purposes. We believe that we own the assets of the Separate Account under current federal income tax law.
Tax Treatment of Life Insurance While your Policy is in force, increases due to investment experience are not subject to federal income tax until there is a distribution as defined by the Code. The Death Benefit received by a beneficiary will generally not be subject to federal income tax.
Unless the Policy is a MEC, as described below, a loan received under your Policy will not be treated as a distribution subject to current federal income tax. Interest paid by individual Owners of a Policy will ordinarily not be deductible. You should consult a qualified tax advisor as to the deductibility of interest paid, or accrued, by business Owners of a Policy. (See Business-Owned Life Insurance.)
So long as your Policy is not classified as a MEC (see Modified Endowment Contract), as a general rule, the proceeds from a surrender or withdrawal will be taxable only to the extent that the proceeds exceed the basis of the Policy. The basis of the Policy is generally equal to the premiums paid less any amounts previously received as tax-free distributions. Dividends paid in cash (or, if allowable under your Policy, used to purchase additional insurance or used to pay premiums) are generally taxable as withdrawals with a resulting reduction in basis. However, when the dividend is applied to increase Cash Value or to pay premiums, the reduction in the basis of the Policy is offset by a corresponding increase in basis. In certain circumstances, a withdrawal of Cash Value during the first 15 Policy Years may be taxable to the extent that the Cash Value exceeds the basis of the Policy. This means that the amount withdrawn may be taxable even if that amount is less than the basis of the Policy.
Caution must be used when taking cash out of a Policy through policy loans. If interest is not paid annually, it is added to the principal amount and the total amount will continue to accrue for as long as the loan is maintained on the Policy. If the Policy remains in force until the death of the Insured or, in the case of joint life insurance, the second death, the loan will be repaid from the tax-free Death Benefit. However, if the Policy terminates by any method other than death, the loan will be repaid from the Cash Value of the Policy, and the total Cash Value, including the total amount of the loan, will be taxable to the extent it exceeds the basis of the Policy. If the extended term insurance nonforfeiture option is available in your Policy, and it lapses to extended term insurance, the loan will be repaid from Cash Value of the Policy and the loan repayment will be treated as income and taxable to the extent it exceeds the amount of premiums paid. In extreme situations, Owners can face what is called the surrender squeeze. The surrender squeeze occurs when the unborrowed value remaining in the Policy is insufficient to cover the interest payment required to keep the Policy in
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force or to cover the tax due if the Policy terminates. Either the interest would have to be paid annually or it would be added to the Policy loan, causing the Policy to terminate and any income tax due on the loan amount to be payable with other assets of the Owner.
Subject to the agreement of the Company, and the Owner meeting any conditions set by the Company, a Policy may be exchanged tax-free for another life insurance policy or an annuity contract covering the same Insured (or, in the case of joint life insurance, covering the Insureds or a surviving Insured). The Code also allows certain policies to be exchanged for stand-alone and combination long-term care policies on a tax-free basis. Policies that are exchanged for life insurance policies after 2008 may only be exchanged for life insurance policies using 2001 CSO mortality tables. Any cash received or loan repaid in an exchange will be taxed to the extent of the gain in the Policy (i.e., on gain-first basis).
Ownership of a Policy may be transferred to a new owner and is taxable to the extent the sales proceeds exceed the basis of the Policy. In Rev. Rul. 2009-13, the IRS ruled that, when a life insurance policy is sold to a person with no insurable interest in the insured, the taxable gain is calculated by reducing the basis of the policy by the annual cost of the insurance protection provided by the policy. The death benefit of a policy in excess of the basis also may become taxable as a result of a transfer, unless the new owner is the insured, a partner of the insured, a partnership in which the insured is a partner or a corporation in which the insured is a shareholder or officer. You should seek qualified tax advice if you plan a transfer of ownership.
For taxable years beginning in 2013, part or all of the taxable benefits from and sales of the Policies may be subject to an additional 3.8% Medicare tax. The tax will be assessed on the Owners net investment income for the year to the extent that the Owners adjusted gross income (with slight modifications) exceeds $250,000 (married filing jointly or surviving spouse), $125,000 (married filing separately) or $200,000 (other filers) (not indexed). Although the term net investment income does not specifically refer to life insurance, there is a possibility that it could be construed to include transfers of and/or distributions from life insurance, to the extent they are taxable.
Modified Endowment Contracts (MEC) A Policy may be classified as a MEC if the cumulative premiums paid at any time during the first seven Policy Years exceed a defined seven-pay limit. The seven-pay limit is the sum of the premiums (net of expense and administrative charges) that would have to be paid in order for the Policy to be fully paid for after seven level annual payments based on defined interest and mortality assumptions. A Policy will be treated as a MEC unless any excess premiums are reversed from the Policy and returned with interest within 60 days after the end of the Policy Year in which they are paid. If excess premium is reversed, all Policy values are recalculated as though the excess premium had never been paid.
Whenever there is a material change under a Policy, it will generally be treated as a new contract for purposes of determining whether the Policy is a MEC, and it will be subjected to a new seven-pay period and a new seven-pay limit. The new seven-pay limit would be determined taking into account the value of the Policy at the time of such change. A materially changed Policy would be considered a MEC if it failed to satisfy the new seven-pay limit. A material change could occur as a result of certain changes to the benefits or terms of the Policy, such as a change in a death benefit option or a change in the Insured, if allowable under your Policy. A material change could occur as a result of an increase in the death benefit, the addition of a benefit or the payment of a premium after the seven-pay period, which could be considered unnecessary under the Code.
If the benefits under the Policy are reduced during the first seven Policy Years after entering into the Policy (or within seven years after a material change) or, in the case of joint life Policies, the lifetime of either Insured, the seven-pay premium limit will be redetermined based on the reduced level of benefits and applied retroactively for purposes of the seven-pay test. If the premiums previously paid are greater than the recalculated seven-pay premium level limit, the Policy will become a MEC. A reduction in benefits includes a decrease in the amount of coverage, a withdrawal or any other action resulting in a surrender of Cash Value to you according to the terms of the Policy, an election of the paid-up option or, in some cases, a lapsing of the Policy. A life insurance policy which is received in exchange for a MEC will also be considered a MEC.
If a Policy is a MEC, any distribution from the Policy will be taxed on a gain-first basis. Distributions for this purpose include a loan (including any increase in the loan amount to pay interest on an existing loan or an assignment or a pledge to secure a loan), a withdrawal of Cash Value or a surrender of the Policy. Distributions taken within the two-year period prior to the Policy becoming a MEC may also be taxed under the MEC tax rules. If a Policy terminates while there is a Policy loan, the cancellation of the loan and accrued loan interest also will be treated as a distribution to the extent not previously treated as such. Any such distributions will be considered taxable income to the extent the Cash Value exceeds the basis in the Policy. For MECs, the basis would be increased by the amount of any prior loan under the Policy that was considered taxable income. For purposes of determining the taxable portion of any distribution, all MECs issued by Northwestern Mutual to the same Owner (excluding certain qualified plans) during any calendar year are to be aggregated. The Secretary of the Treasury has authority to prescribe additional rules to prevent avoidance of gain-first taxation on distributions from MECs.
A 10% penalty tax will apply to the taxable portion of a distribution from a MEC. The penalty tax will not, however, apply to distributions (i) to taxpayers 59 1/2 years of age or older, (ii) in the case of a disability (as defined in the Code) or (iii) received as part of a series of substantially equal periodic annuity payments for the life (or life expectancy) of
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Variable Life Prospectus
the taxpayer or the joint lives (or joint life expectancies) of the taxpayer and the taxpayers beneficiaries. The exceptions generally do not apply to life insurance policies owned by corporations or other entities.
Estate and Generation Skipping Taxes The amount of the Death Benefit will generally be includible in the Owners estate for federal estate tax purposes and any applicable state inheritance tax. If your Policy is a joint life Policy, the Life Insurance Benefit will be includible in the Owners estate if the second of the Insureds to die owns the Policy, and the fair market value of the Policy will be includible in the Owners estate if the Owner is not the last surviving Insured. An unlimited marital deduction permits deferral of federal estate and gift taxes until the death of the Owners surviving spouse.
If ownership of a Policy is transferred, either directly or in trust, to a person two or more generations younger than the Owner, the value of the Policy may be subject to a generation skipping transfer tax.
During 2010, the estate tax and generation skipping transfer tax was repealed and the gift tax was subject to a $1 million exemption amount and a 35% maximum rate. The basis step-up for inherited assets was also replaced with a modified carryover basis. In December of 2010, Congress reinstated the estate tax, generation skipping transfer tax and the basis step-up rules for years 2010 to 2012, subject to an increased exemption limit of $5 million (single)/$10 million (married) (with inflation indexing in 2012) and a maximum rate of 35% (except the GSTT rate remains zero for 2010). Congress also extended the higher exemption limits to the gift tax for those years. Finally, any unused exemption limit may be carried over to the surviving spouse. Estates of decedents who died in 2010 can elect to apply the estate tax rules in effect in 2010 without regard to the reinstatement. Unless Congress again intervenes, the reinstatement will sunset in 2013 and the law will revert to the rules in effect in 2001($1 million exemption and 55% maximum tax rate).
Business-Owned Life Insurance Business-owned life insurance may be subject to certain additional rules. Section 101(j) of the Code provides that the Death Benefit payable under business-owned life insurance in which the business is also the beneficiary will be taxable unless (i) the Insured is an eligible employee and (ii) the employee is given notice of the insurance and the maximum face amount and consents to be insured and to the continuation of the insurance after the employee terminates service with the employer. Generally, an eligible employee is an officer, a director, a person who owns more than 5% of the business, an employee earning more than $110,000 annually (increased for cost of living) or an employee who is among the highest paid 35% of employees. The law also imposes an annual reporting and record-keeping obligation on the employer. Increases in Policy or Cash Value may also be subject to tax under the corporation alternative minimum tax provisions.
Section 264(a)(1) of the Code generally disallows a deduction for premiums paid on Policies by anyone who is directly or indirectly a beneficiary under the Policy. Section 264(a)(4) of the Code limits the Owners deduction for interest on loans taken against life insurance policies to interest on an aggregate total of $50,000 of loans per covered life only with respect to life insurance policies covering key persons. Generally, a key person means an officer or a 20% owner. However, the number of key persons will be limited to the greater of (a) five individuals, or (b) the lesser of 5% of the total officers and employees of the taxpayer or 20 individuals. Deductible interest for these Policies will be subject to limits based on current market rates.
In addition, Section 264(f) of the Code disallows a proportionate amount of a businesss interest deduction on non-life insurance indebtedness based on the amount of unborrowed Cash Value of non-exempt life insurance policies held in relation to other business assets. Exempt policies include policies held by natural persons unless the business is a direct or indirect beneficiary under the policy and policies owned by a business and insuring an individual who at the time the policy is issued is an employee, director, officer or 20% owner (as well as joint policies insuring 20% owners and their spouses). The IRS ruled in 2011 that a policy received in a tax-free exchange is newly issued for this purpose.
The IRS ruled privately in 2009 that losses in business-owned life insurance could be deducted upon the surrender of the policy if there was no reasonable prospect of recovery, but that the losses would be calculated by reducing the basis of the policy by the annual cost of the insurance protection provided by the policy. Private rulings apply only to the taxpayer who receives the ruling but may be indicative of the IRSs thinking on an issue.
IRS Notice 2007-61 has established a safe harbor under which the annual increase in the cash value of life insurance policies owned by life insurance companies is not taxable provided the policies cover no more than 35% of the companys employees, directors, officers and 20% owners. The Notice adds that there is an unresolved issue whether cash value increases of other policies owned by life insurance companies may be taxable.
Policy Split Right If your Policy is a joint life Policy, your Policy permits the Owner to exchange the Policy for two policies, one on the life of each Insured, without evidence of insurability, if a change in the federal estate tax law results in either the repeal of the unlimited marital deduction or a 50% or greater reduction in the maximum estate tax rate set forth in the law. The exchange must be made while both Insureds are alive (and neither Insured is classified as a Joint Insurable). The request for exchange must be received no later than 180 days after the earlier of the enactment of the law repealing the unlimited marital deduction or the enactment of the law reducing the estate tax rate by at least 50%.
The IRS has ruled with respect to one taxpayer that such a transaction would be treated as a non-taxable exchange. If not so treated, such a split of the Policy could result in the recognition of taxable income.
Variable Life Prospectus
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Split Dollar Arrangements Life insurance purchased under a split dollar arrangement is subject to special tax rules. IRS Notice 2002-8 provides that (1) the value of the current life insurance protection provided to the employee under the arrangement is taxed to the employee each year and, until the issuance of further guidance, can be determined using the governments Table 2001 rates or the insurers lower one year term rates (which, for arrangements entered into after January 28, 2002, must satisfy additional sales requirements); and (2) for split dollar arrangements entered into on or before September 17, 2003, taxation of the equity (cash surrender value in excess of the amount payable to the employer) is governed by prior law and is subject to the following three safe harbors: (a) the annual accrual of income will not, by itself, be enough to trigger a taxable transfer; (b) equity will not be taxed regardless of the level of the employers economic interest in the life insurance policy as long as the value of the life insurance protection is treated and reported as an economic benefit; and (c) the employee can elect loan treatment at any time, provided all premiums paid by the employer are treated as a loan entered into at the beginning of the first year in which payments are treated as loans.
The Treasury and IRS regulations regarding the taxation of split dollar arrangements apply only to arrangements entered into or materially changed after September 17, 2003. The regulations provide that such split dollar arrangements must be taxed under one of two mutually exclusive tax regimes depending on the ownership of the underlying life insurance policy. Collateral assignment split dollar arrangements, in which the employee owns the policy, must be taxed under a loan regime. Where such an arrangement imposes a below market interest rate or no interest rate, the employee is taxed on the imputed interest under Section 7872 of the Code. Endorsement split dollar arrangements, in which the employer owns the policy, must be taxed under an economic benefit regime. Under this regime, the employee is taxed each year on (i) the value of the current life insurance protection provided to the employee, (ii) the increase in the amount of policy Cash Value to which the employee has current access, and (iii) the value of any other economic benefits provided to the employee during the taxable year.
Under the Sarbanes-Oxley Act of 2002, it is a criminal offense for an employer with publicly traded stock to extend or arrange a personal loan to a director or executive officer after July 30, 2002. One issue that has not been clarified is whether each premium paid by such an employer under a split dollar arrangement with a director or executive officer is a personal loan subject to the new law.
Section 409A of the Code imposes requirements for nonqualified deferred compensation plans with regard to the timing of deferrals, distribution triggers, funding mechanisms and reporting requirements. Nonqualified deferred compensation plans that fail to meet these conditions are taxed currently on all compensation previously deferred and interest earned thereon and assessed an additional 20% penalty. The law does not limit the use of life insurance as an informal funding mechanism for nonqualified deferred compensation plans, but IRS Notice 2007-34 treats certain split dollar arrangements as nonqualified deferred compensation plans that must comply with the new rules. The effective date of these rules was December 31, 2008. Congress has also considered limiting an individuals annual aggregate deferrals to a nonqualified deferred compensation plan to $1,000,000.
Valuation of Life Insurance Special valuation rules apply to life insurance contracts distributed from a qualified plan to a participant or transferred by an employer to an employee. IRS Notice 2005-25 provides safe harbor formulas for valuing variable and non-variable life insurance under which the value is the greater of the interpolated terminal reserve increased by a pro rata portion of the estimated dividends for the Policy Year or the cash value without reduction for any surrender charges (but adjusted by a surrender factor for policies distributed from qualified plans). These rules do not apply to split dollar arrangements entered into on or before September 17, 2003 and not materially modified thereafter.
Other Tax Considerations Taxpayers are required by regulation to annually report all reportable transactions as defined in the regulations. Reportable transactions include transactions that are offered under conditions of confidentiality as to tax treatment and involve an advisor who receives a fee of $250,000 or more, or transactions that include a tax indemnity. Rev. Proc. 2003-25 further held that the purchase of life insurance policies by a business does not, by itself, constitute a reportable transaction.
Depending on the circumstances, the exchange of a Policy, a Policy loan (including the addition of unpaid loan interest to a Policy loan), or a change in ownership or an assignment of the Policy may have federal income tax consequences. In addition, federal, state and local transfer, estate, inheritance, and other tax consequences of Policy ownership, premium payments and receipt of Policy proceeds depend on the circumstances of each Owner or beneficiary. If you contemplate any such transaction you should consult a qualified tax adviser. In addition, a Death Benefit under the Policy may be subject to federal estate tax and state inheritance taxes.
We sell the Policy through our Financial Representatives who also are registered representatives of Northwestern Mutual Investment Services, LLC (NMIS). NMIS, our wholly-owned company, was organized under Wisconsin law in 1998 and is located at 611 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. NMIS is a registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority. NMIS is the principal underwriter and distributor of the Policy and has entered into a Distribution Agreement with us.
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Variable Life Prospectus
Northwestern Mutual variable insurance and annuity products are available exclusively through NMIS and its registered representatives and cannot be held with or transferred to an unaffiliated broker-dealer. Except in limited circumstances, NMIS registered representatives are required to offer Northwestern Mutual variable insurance and annuity products. The amount and timing of sales compensation paid by insurance companies varies. The commissions, benefits, and other sales compensation that NMIS and its registered representatives receive for the sale of a Northwestern Mutual variable insurance or annuity product might be more or less than that received for the sale of a comparable product from another company.
The maximum commission payable to the registered representative who sold the Whole Life or Extra Ordinary Life Policy is 55% of the premium during the first Policy Year; 9% of the premium in Policy Years 2-3; 6% of the premium in Policy Years 4-7; 3% of the premium in Policy Years 8-10; and 2% of Premium Payments thereafter. For the Single Premium Life Policy, commissions were 2.75% of the premium. Registered representatives may receive less than the maximum commission or no commission in certain circumstances according to pre-established guidelines. We may also pay new registered representatives differently during a training period. The entire amount of sales commissions paid to registered representatives is passed through NMIS to the registered representative who sold the Policy and to his or her managers. The Company pays compensation and bonuses for the management team of NMIS, and other expenses of distributing the Policies.
Because registered representatives of NMIS are also our appointed agents, they may be eligible for various cash benefits, such as bonuses, insurance benefits, retirement benefits, and non-cash compensation programs that we offer, such as conferences, achievement recognition, prizes, and awards. In addition, registered representatives of NMIS who meet certain productivity, persistency, and length of service standards and/or their managers may be eligible for additional compensation. For example, registered representatives who meet certain annual sales production requirements with respect to their sales of Northwestern Mutual insurance and annuity products may qualify to receive additional cash compensation for their other sales of investment products and services. Sales of the Policies may help registered representatives and/or their managers qualify for such compensation and benefits. Certain registered representatives of NMIS may receive other payments from us for the recruitment, training, development, and supervision of financial representatives, production of promotional literature and similar services.
Commissions and other incentives and payments described above are not charged directly to Owners or to the Separate Account. We intend to recoup commissions and other sales expenses through fees and charges deducted under the Policy. NMIS registered representatives receive ongoing servicing compensation related to the Policies, but may be ineligible to receive ongoing servicing compensation paid by issuers of other investment products for certain smaller accounts.
APPLICATION
The form completed by the applicant when applying for coverage under the Policy. This includes any:
1. amendments or endorsements;
2. supplemental Applications;
3. reinstatement Applications; and
4. Policy change Applications.
ATTAINED AGE
The Insureds Issue Age listed in the Policy, plus the number of complete Policy Years that have elapsed since the Policy Date.
CASH VALUE
The amount available in cash if the Policy is surrendered.
DATE OF ISSUE
The date on which insurance coverage takes effect as shown in the Policy.
DEATH BENEFIT
The gross amount payable to the beneficiary upon the death of the Insured, before the deduction of Policy Debt and other adjustments.
DIVISION
A subdivision of the Separate Account. We invest each Divisions assets exclusively in shares of one Portfolio.
FINANCIAL REPRESENTATIVE
An individual who is authorized to sell you the Policy and who is both licensed as a Northwestern Mutual insurance agent and registered as a representative of our affiliate, Northwestern Mutual Investment Services, LLC, the principal underwriter of the Policy.
FUND
Each Fund is registered under the 1940 Act as an open-end management investment company or as a unit investment trust, or is not required to be registered under the Act. Each Portfolio of the Funds is available as an investment option under the Policy. The assets of each of the Divisions of the Separate Account are used to purchase shares of the corresponding Portfolio of a Fund.
GENERAL ACCOUNT
All assets of the Company, other than those held in the Separate Account or in other separate accounts that have been or may be established by the Company.
GOOD ORDER
Your request or payment meets all the current requirements necessary for us to process it. For certain requests this may include, as applicable, the return of proceeds, evidence of insurability, underwriting, MEC-limit (or insurance qualification) requirements or any premium payments due.
Variable Life Prospectus
31
HOME OFFICE
Our office at 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-4797.
INSURED
The person named as the Insured on the Application and in the Policy.
INVESTED ASSETS
The sum of all amounts in the Divisions of the Separate Account.
ISSUE AGE
The Insureds age on his or her birthday nearest the Policy Date.
MEC
Modified endowment contract as described in section 7702A of the Internal Revenue Code.
NET PREMIUM
The amount of Premium Payment remaining after Premium charges have been deducted.
NYSE
New York Stock Exchange.
OWNER (You, Your)
The person named in the Application as the Owner, or the person who becomes Owner of a Policy by transfer or succession.
POLICY ANNIVERSARY
The same day and month as the Policy Date in each year following the first Policy Year.
POLICY DATE
The date shown in the Policy from which the following are computed, among other things:
1. Policy Year;
2. Policy Anniversary;
3. the Issue Age of Insured; and
4. the Attained Age of the Insured.
POLICY DEBT
The total amount of all outstanding Policy loans, including both principal and accrued interest.
POLICY VALUE
The sum of Invested Assets and Policy Debt less applicable charges.
POLICY YEAR
A year that starts on the Policy Date or on a Policy Anniversary.
PORTFOLIO
A series of a Fund available for investment under the Policy, which corresponds to a particular Division of the Separate Account.
PREMIUM PAYMENTS
All payments you make under the Policy other than loan repayments and transaction charges.
SEPARATE ACCOUNT
Northwestern Mutual Variable Life Account.
32
Variable Life Prospectus
More information about the Separate Account is included in a Statement of Additional Information (SAI), which is dated the same day as this prospectus, is incorporated by reference in this prospectus, and is available free of charge from the Company. To request a free copy of the Separate Accounts SAI, or current annual report, call us toll-free at 1-866-424-2609. Information about the Separate Account (including the SAI) can be reviewed and copied at the Public Reference Room of the SEC in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. Reports and other information about the Separate Account are available on the SECs Internet site at http://www.sec.gov, or they may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC, 100 F Street, NE, Washington, DC 20549-0102.
Your Northwestern Mutual Financial Representative will provide you with illustrations for your Policy free of charge upon your request. The illustrations show how the Death Benefit, Invested Assets and cash surrender value for the Policy would vary based on hypothetical investment results. Your Northwestern Mutual Financial Representative will also respond to other inquiries you may have regarding the Policy, or you may contact the Variable Life Service Center at 1-866-424-2609.
Investment Company Act File No. 811-3989
Variable Life Prospectus
33
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2012
VARIABLE LIFE
Whole Life
Extra Ordinary Life
Single Premium Life
Issued by The Northwestern Mutual Life Insurance Company
and
Northwestern Mutual Variable Life Account
We no longer issue the three Policies described in this Statement of Additional
Information. The Policies we currently offer are described in separate Prospectuses
and Statements of Additional Information.
This Statement of Additional Information (SAI) is not a prospectus, but supplements, and should be read in conjunction with, the prospectus for the Policies identified above and dated the same date as this SAI. The prospectus may be obtained by writing The Northwestern Mutual Life Insurance Company (Northwestern Mutual), 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or by calling telephone number 1-866-424-2609.
The (i) statement of assets and liabilities as of the end of the most recent fiscal year, (ii) the statement of operations for the most recent fiscal year, and (iii) the changes in net assets for the two most recent fiscal years from the audited financial statements of the Northwestern Mutual Variable Life Account (the Account), and the related notes to the financial statements and the report of the independent registered public accounting firm thereon from the Accounts Annual Report to Policy Owners for the year ended December 31, 2011, are incorporated by reference into this SAI. See Financial Statements of the Account. No other information is incorporated by reference.
Page | ||||
B-2 | ||||
B-2 | ||||
B-2 | ||||
F-1 |
B-1
The Policies are offered on a continuous basis exclusively through individuals who, in addition to being life insurance agents of Northwestern Mutual, are registered representatives of Northwestern Mutual Investment Services, LLC (NMIS). NMIS is our wholly-owned company. The principal business address of NMIS is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
NMIS is the principal underwriter of the Policies for purposes of the federal securities laws. We paid the following amounts to NMIS with respect to sales of variable life insurance policies issued in connection with the Account during each of the last three fiscal years representing commission payments NMIS made to our agents and related benefits. None of these amounts was retained by NMIS and no amounts were paid to other underwriters or broker-dealers. We also paid additional amounts to NMIS in reimbursement for other expenses related to the distribution of variable life insurance policies.
Year |
Amount |
|||||||||
2011 |
$ | 15,981,855 | ||||||||
2010 |
$ | 22,325,029 | ||||||||
2009 |
$ | 27,055,697 |
NMIS also provides certain services related to the administration of payment plans under the Policies pursuant to an administrative services contract with Northwestern Mutual. In exchange for these services, NMIS receives compensation to cover the actual costs incurred by NMIS in performing these services.
The financial statements of the Account, and the related notes and report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, contained in the Annual Report to Policy Owners for the fiscal year ended December 31, 2011, that are incorporated by reference in this Statement of Additional Information, and the consolidated financial statements of Northwestern Mutual, and the related notes and report of PricewaterhouseCoopers LLP, for the fiscal year ended on the same date that have been included in this Statement of Additional Information are so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP provides audit services for the Account. The address of PricewaterhouseCoopers LLP is 100 East Wisconsin Avenue, Suite 1800, Milwaukee, Wisconsin 53202.
FINANCIAL STATEMENTS OF THE ACCOUNT
The financial statements of the Account, related notes and the related report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, contained in the Annual Report to Policy Owners as of December 31, 2011, and for the year then ended are hereby incorporated by reference to Form N-30B-2 for the Account, File No. 811-3989, filed on March 12, 2012. Copies of the Accounts Annual Report may be obtained, without charge, by writing to The Northwestern Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or by calling 1-866-464-2609.
B-2
The following consolidated financial statements of Northwestern Mutual should be considered only as bearing upon the ability of Northwestern Mutual to meet its obligations under the Policy.
CONSOLIDATED FINANCIAL STATEMENTS OF NORTHWESTERN MUTUAL
The Northwestern Mutual Life Insurance Company
Consolidated Statement of Financial Position
(in millions)
December 31, | ||||||||
2011 | 2010 | |||||||
Assets: |
||||||||
Bonds |
$ | 103,753 | $ | 96,829 | ||||
Mortgage loans |
22,804 | 21,291 | ||||||
Policy loans |
15,147 | 14,472 | ||||||
Common and preferred stocks |
7,420 | 9,170 | ||||||
Real estate |
1,632 | 1,619 | ||||||
Other investments |
11,006 | 10,018 | ||||||
Cash and temporary investments |
2,421 | 1,928 | ||||||
|
|
|
|
|||||
Total investments |
164,183 | 155,327 | ||||||
Due and accrued investment income |
1,806 | 1,732 | ||||||
Net deferred tax assets |
2,356 | 1,924 | ||||||
Deferred premium and other assets |
2,603 | 2,508 | ||||||
Separate account assets |
18,697 | 18,663 | ||||||
|
|
|
|
|||||
Total assets |
$ | 189,645 | $ | 180,154 | ||||
|
|
|
|
|||||
Liabilities and Surplus: |
||||||||
Reserves for policy benefits |
$ | 140,917 | $ | 133,066 | ||||
Policyowner dividends payable |
4,976 | 4,859 | ||||||
Interest maintenance reserve |
1,112 | 811 | ||||||
Asset valuation reserve |
3,349 | 3,250 | ||||||
Income taxes payable |
605 | 398 | ||||||
Other liabilities |
5,176 | 4,722 | ||||||
Separate account liabilities |
18,697 | 18,663 | ||||||
|
|
|
|
|||||
Total liabilities |
174,832 | 165,769 | ||||||
Surplus: |
||||||||
Surplus notes |
1,750 | 1,750 | ||||||
Unassigned surplus |
13,063 | 12,635 | ||||||
|
|
|
|
|||||
Total surplus |
14,813 | 14,385 | ||||||
|
|
|
|
|||||
Total liabilities and surplus |
$ | 189,645 | $ | 180,154 | ||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F - 1
The Northwestern Mutual Life Insurance Company
Consolidated Statement of Operations
(in millions)
For the year
ended December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenue: |
||||||||||||
Premiums |
$ | 14,618 | $ | 14,252 | $ | 13,062 | ||||||
Net investment income |
8,439 | 8,306 | 7,772 | |||||||||
Other income |
538 | 551 | 532 | |||||||||
|
|
|
|
|
|
|||||||
Total revenue |
23,595 | 23,109 | 21,366 | |||||||||
|
|
|
|
|
|
|||||||
Benefits and expenses: |
||||||||||||
Benefit payments to policyowners and beneficiaries |
7,074 | 6,876 | 6,807 | |||||||||
Net additions to policy benefit reserves |
7,949 | 7,950 | 7,178 | |||||||||
Net transfers to (from) separate accounts |
481 | 382 | (40 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total benefits |
15,504 | 15,208 | 13,945 | |||||||||
Commissions and operating expenses |
2,437 | 2,320 | 2,189 | |||||||||
|
|
|
|
|
|
|||||||
Total benefits and expenses |
17,941 | 17,528 | 16,134 | |||||||||
|
|
|
|
|
|
|||||||
Gain from operations before dividends and taxes |
5,654 | 5,581 | 5,232 | |||||||||
Policyowner dividends |
4,973 | 4,861 | 4,715 | |||||||||
|
|
|
|
|
|
|||||||
Gain from operations before taxes |
681 | 720 | 517 | |||||||||
Income tax expense (benefit) |
6 | (224 | ) | 42 | ||||||||
|
|
|
|
|
|
|||||||
Net gain from operations |
675 | 944 | 475 | |||||||||
Net realized capital losses |
(30 | ) | (188 | ) | (154 | ) | ||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 645 | $ | 756 | $ | 321 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F - 2
The Northwestern Mutual Life Insurance Company
Consolidated Statement of Changes in Surplus
(in millions)
For the year
ended December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
Beginning of year balance |
$ | 14,385 | $ | 12,403 | $ | 12,401 | ||||||
Net income |
645 | 756 | 321 | |||||||||
Change in net unrealized capital gains (losses) |
(213 | ) | 1,278 | 503 | ||||||||
Change in net deferred tax assets |
242 | (119 | ) | (204 | ) | |||||||
Change in nonadmitted assets and other |
(142 | ) | (276 | ) | 141 | |||||||
Change in asset valuation reserve |
(99 | ) | (1,407 | ) | (820 | ) | ||||||
Surplus note issuance |
- | 1,750 | - | |||||||||
Change in accounting principle |
(5 | ) | - | 61 | ||||||||
|
|
|
|
|
|
|||||||
Net increase in surplus |
428 | 1,982 | 2 | |||||||||
|
|
|
|
|
|
|||||||
End of year balance |
$ | 14,813 | $ | 14,385 | $ | 12,403 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F - 3
The Northwestern Mutual Life Insurance Company
Consolidated Statement of Cash Flows
(in millions)
For the year
ended December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Premiums and other income received |
$ | 10,529 | $ | 10,169 | $ | 9,264 | ||||||
Investment income received |
8,537 | 8,309 | 7,779 | |||||||||
Benefit payments to policyowners and beneficiaries |
(7,336 | ) | (7,206 | ) | (7,122 | ) | ||||||
Net transfers (to) from separate accounts |
(459 | ) | (355 | ) | 66 | |||||||
Commissions, expenses and taxes paid |
(2,607 | ) | (1,988 | ) | (1,644 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
8,664 | 8,929 | 8,343 | |||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from investments sold or matured: |
||||||||||||
Bonds |
44,677 | 37,109 | 41,409 | |||||||||
Common and preferred stocks |
8,618 | 7,301 | 9,057 | |||||||||
Mortgage loans |
2,974 | 3,190 | 2,058 | |||||||||
Real estate |
151 | 138 | 460 | |||||||||
Other investments |
1,725 | 1,453 | 825 | |||||||||
|
|
|
|
|
|
|||||||
58,145 | 49,191 | 53,809 | ||||||||||
|
|
|
|
|
|
|||||||
Cost of investments acquired: |
||||||||||||
Bonds |
51,051 | 42,791 | 53,306 | |||||||||
Common and preferred stocks |
7,040 | 8,970 | 7,408 | |||||||||
Mortgage loans |
4,485 | 3,488 | 1,411 | |||||||||
Real estate |
233 | 247 | 250 | |||||||||
Other investments |
2,127 | 2,350 | 1,658 | |||||||||
|
|
|
|
|
|
|||||||
64,936 | 57,846 | 64,033 | ||||||||||
|
|
|
|
|
|
|||||||
Disbursement of policy loans, net of repayments |
674 | 755 | 834 | |||||||||
|
|
|
|
|
|
|||||||
Net cash applied to investing activities |
(7,465 | ) | (9,410 | ) | (11,058 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash flows from financing and miscellaneous sources: |
||||||||||||
Surplus notes issuance |
- | 1,750 | - | |||||||||
Net inflows (outflows) on deposit-type contracts |
(154 | ) | 56 | (20 | ) | |||||||
Other cash provided (applied) |
(552 | ) | (2,007 | ) | 538 | |||||||
|
|
|
|
|
|
|||||||
Net cash provided by (applied to) financing and miscellaneous sources |
(706 | ) | (201 | ) | 518 | |||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and temporary investments |
493 | (682 | ) | (2,197 | ) | |||||||
Cash and temporary investments, beginning of year |
1,928 | 2,610 | 4,807 | |||||||||
|
|
|
|
|
|
|||||||
Cash and temporary investments, end of year |
$ | 2,421 | $ | 1,928 | $ | 2,610 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F - 4
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
1. | Basis of Presentation |
The accompanying consolidated statutory financial statements include the accounts of The Northwestern Mutual Life Insurance Company and its wholly-owned subsidiary, Northwestern Long Term Care Insurance Company (together, the Company). All intercompany balances and transactions have been eliminated. The Company offers life, annuity, disability and long-term care insurance products to the personal, business and estate markets throughout the United States of America.
The consolidated financial statements were prepared in accordance with accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin (statutory basis of accounting), which are based on the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners (NAIC). Financial statements prepared on the statutory basis of accounting differ from financial statements prepared in accordance with generally accepted accounting principles (GAAP), primarily because on a GAAP basis: (1) certain policy acquisition costs are deferred and amortized, (2) most bond and preferred stock investments are reported at fair value, (3) policy benefit reserves are established using different actuarial methods and assumptions, (4) deposit-type contracts, for which premiums, benefits and reserve changes are not included in revenue or benefits as reported in the statement of operations, are defined differently, (5) majority-owned, non-insurance subsidiaries are consolidated, (6) changes in deferred taxes are reported as a component of net income and (7) no deferral of realized investment gains and losses is permitted. The effects on the Companys financial statements attributable to the differences between the statutory basis of accounting and GAAP are material.
Certain accounting practices used by the Company vary from the Accounting Practices and Procedures Manual of the NAIC with the permission of the Office of the Commissioner of Insurance of the State of Wisconsin (permitted practices). Permitted practices are used in situations where the NAIC does not provide accounting guidance specific to a transaction entered into by the Company or where the Company and the Office of the Commissioner of Insurance of the State of Wisconsin (OCI) agree that an alternative accounting practice would be more appropriate based on the Companys circumstances.
The Company currently utilizes permitted accounting practices for valuation of its oil and gas investments (see Note 3) and its investment in Frank Russell Company common stock (see Note 11).
2. | Summary of Significant Accounting Policies |
The preparation of financial statements in accordance with the statutory basis of accounting requires management to make estimates or assumptions about the future that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the annual periods presented. Actual future results could differ from these estimates and assumptions.
Investments
See Notes 3, 4 and 15 regarding the statement value and fair value of the Companys investments in bonds, mortgage loans, common and preferred stocks, real estate and other investments, including derivative instruments.
Policy Loans
Policy loans represent amounts borrowed from the Company by life insurance policyowners, secured by the cash value of the related policies, and are reported at unpaid principal balance.
F - 5
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Policy loans earn interest at either a fixed rate or at a variable rate that is reset annually, dependent on the related election made by the policyowner when applying for their policy. Some policies with a fixed rate loan provision permit the Company, at its discretion, to annually set an interest rate below that specified by the policy. Annual interest rates on policy loans ranged from 5.00% to 8.00% for loans outstanding at December 31, 2011. Policy loans have no stated maturity date, with repayment of principal made at the discretion of the policyowner. Policyowner dividends available on the portion of life insurance cash values that serve as collateral for policy loans are generally determined using the direct recognition method, whereby dividends on the loaned portion of such policies are calculated with reference to the interest rate charged on the policy loan. As a result, the Company considers the unpaid principal balance of policy loans to approximate fair value.
Temporary Investments
Temporary investments represent securities that had maturities of one year or less at purchase, primarily money market funds and short-term commercial paper. These investments are reported at amortized cost, which approximates fair value.
Separate Accounts
Separate account assets and related reserve liabilities represent the segregation of balances attributable to variable life insurance and variable annuity products, as well as a group annuity separate account used to fund certain of the Companys employee and financial representative benefit plan obligations. All separate account assets are legally insulated from claims by the Companys general account policyowners and creditors. Policyowners bear the investment performance risk associated with variable products. Separate account assets related to variable products are invested at the direction of the policyowner in a variety of mutual fund options. Variable annuity policyowners also have the option to invest in stated-rate investment options through the Companys general account. Separate account assets are generally reported at fair value based primarily on quoted market prices for the underlying investment securities. See Note 7 for more information regarding the Companys separate accounts and Note 8 for more information regarding the Companys employee and financial representative benefit plans.
Reserves for Policy Benefits
Reserves for policy benefits generally represent the net present value of future policy benefits less future policy premiums, calculated using actuarial methods, mortality and morbidity experience tables and valuation interest rates prescribed or permitted by the OCI. These actuarial tables and methods include assumptions regarding future mortality and morbidity experience. Actual future experience could differ from the assumptions used to make these reserve estimates. See Note 5 for more information regarding the Companys reserves for policy benefits.
Policyowner Dividends
All life, disability and long-term care insurance policies and certain annuity policies issued by the Company are participating. Annually, the Companys Board of Trustees approves dividends payable on participating policies during the subsequent fiscal year, which are accrued and charged to operations when approved. Depending on the type of policy they own, participating policyowners generally have the option to receive their dividends in cash, use them to reduce future premiums due, use them to purchase additional insurance benefits or leave them on deposit with the Company to accumulate interest. Dividends used by policyowners to purchase additional insurance benefits are reported as premiums in the consolidated statement of operations but are not included in premiums received or benefit payments in the consolidated statement of cash flows. The Companys annual approval and declaration of policyowner dividends includes a guarantee of a minimum aggregate amount of dividends to be paid to policyowners as a group in the subsequent calendar year. If this guaranteed amount is greater than the aggregate of actual dividends paid to
F - 6
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
policyowners in the subsequent year, the difference is paid in the immediately succeeding calendar year.
Interest Maintenance Reserve
The Company is required to maintain an interest maintenance reserve (IMR). The IMR is used to defer realized capital gains and losses, net of any income tax, on fixed income investments and derivatives that are attributable to changes in market interest rates, including both changes in risk-free market interest rates and market credit spreads. Net realized capital gains and losses deferred to the IMR are amortized into investment income over the estimated remaining term to maturity of the investment sold or the asset/liability hedged by an interest rate-related derivative instrument.
Asset Valuation Reserve
The Company is required to maintain an asset valuation reserve (AVR). The AVR represents a reserve for invested asset valuation using a formula prescribed by the NAIC. The AVR is intended to protect surplus by absorbing declines in the value of the Companys investments that are not related to changes in interest rates. Increases or decreases in the AVR are reported as direct adjustments to surplus in the consolidated statement of changes in surplus.
Premium Revenue
Most life insurance premiums are recognized as revenue at the beginning of each respective policy year. Universal life insurance and annuity premiums are recognized as revenue when received. Considerations received on supplementary annuity contracts without life contingencies are deposit-type transactions and excluded from revenue in the consolidated statement of operations. Disability and long-term care insurance premiums are recognized as revenue when due. Premium revenue is reported net of ceded reinsurance. See Note 9 for more information regarding the Companys use of reinsurance.
Net Investment Income
Net investment income primarily represents interest and dividends received or accrued on bonds, mortgage loans, common and preferred stocks, policy loans and other investments. Net investment income also includes dividends and distributions paid to the Company from the accumulated earnings of joint ventures, partnerships and unconsolidated non-insurance subsidiaries and prepayment fees on bonds and mortgage loans. Net investment income is reduced by investment management expenses, real estate depreciation, depletion related to oil and natural gas investments, interest costs associated with securities lending and interest and issuance costs related to the Companys surplus notes. See Note 3 for more information regarding net investment income and Note 14 for more information regarding the Companys surplus notes.
Other Income
Other income primarily represents ceded reinsurance expense allowances and various insurance policy charges. See Note 9 for more information regarding the Companys use of reinsurance.
Benefit Payments to Policyowners and Beneficiaries
Benefit payments to policyowners and beneficiaries include death, surrender, disability and long-term care benefits, as well as matured endowments and payments on supplementary annuity contracts that include life contingencies. Benefit payments on supplementary annuity contracts without life contingencies are deposit-type transactions and excluded from benefits in the consolidated statement of operations. Benefit payments are reported net of ceded reinsurance recoveries. See Note 9 for more information regarding the Companys use of reinsurance.
Commissions and Operating Expenses
Commissions and other operating costs, including costs of acquiring new insurance policies, are generally charged to expense as incurred.
F - 7
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Information Technology Equipment and Software
The cost of information technology (IT) equipment and operating system software is generally capitalized and depreciated over three years using the straight-line method. Non-operating system software is generally capitalized and depreciated over a maximum of five years. IT equipment and operating software assets of $30 million at each of December 31, 2011 and 2010 are included in other assets in the consolidated statement of financial position and are net of accumulated depreciation of $219 million and $197 million, respectively. Non-operating software costs, net of accumulated depreciation, are nonadmitted assets and thereby excluded from assets and surplus in the consolidated statement of financial position. Depreciation expense for IT equipment and software totaled $71 million, $80 million and $83 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Furniture, Fixtures and Equipment
The cost of furniture, fixtures and equipment, including leasehold improvements, is generally capitalized and depreciated over the useful life of the assets using the straight-line method. The cost of furniture, fixtures and equipment, net of accumulated depreciation, are nonadmitted assets and thereby excluded from assets and surplus in the consolidated statement of financial position. Depreciation expense for furniture, fixtures and equipment totaled $7 million for each of the years ended December 31, 2011, 2010 and 2009.
Investment Capital Gains and Losses
Realized capital gains and losses are recognized based upon specific identification of investment assets sold. Realized capital losses also include valuation adjustments for impairment of bonds, mortgage loans, common and preferred stocks, real estate and other investments that have experienced a decline in fair value that management considers to be other than temporary. Realized capital gains and losses as reported in the consolidated statement of operations are net of any capital gains tax (or benefit) and exclude any deferrals to the IMR of interest-rate related capital gains or losses. See Note 3 for more information regarding realized capital gains and losses, including other-than-temporary valuation adjustments.
Unrealized capital gains and losses primarily represent changes in the fair value of common stocks and other equity investments and are reported net of any related changes in deferred taxes. Changes in the Companys equity method share of the accumulated earnings of joint ventures, partnerships and unconsolidated non-insurance subsidiaries are also reported as changes in unrealized capital gains and losses. See Note 3 for more information regarding unrealized capital gains and losses.
Nonadmitted Assets
Certain assets are designated as nonadmitted on the statutory basis of accounting. Such assets, principally related to pension funding, amounts advanced to or due from the Companys financial representatives, furniture, fixtures, equipment and non-operating software (net of accumulated depreciation), deferred tax assets in excess of statutory limits and certain investments are excluded from assets and surplus in the consolidated statement of financial position. Changes in nonadmitted assets are reported as a direct adjustment to surplus in the consolidated statement of changes in surplus.
Foreign Currency Translation
All of the Companys insurance operations are conducted in the United States of America on a U.S. dollar-denominated basis. The Company does make bond, equity and other investments that are denominated in a foreign currency or issued by an entity doing business in another country. Investment assets denominated in a foreign currency are translated to U.S. dollars at each reporting date using then-current market foreign exchange rates. Translation gains or losses relating to
F - 8
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
fluctuations in market exchange rates are reported as a change in unrealized capital gains and losses until the related investment security is sold or matures, at which time a realized capital gain or loss is reported. Transactions denominated in a foreign currency, such as receipt of foreign-denominated interest or dividends, are translated to U.S. dollars based on the actual exchange rate at the time of the transaction. See Note 4 for more information regarding the Companys use of derivatives to mitigate exposure to fluctuations in foreign currency exchange rates.
Subsequent Events
Company management has evaluated events subsequent to December 31, 2011 through February 23, 2012, the date these consolidated financial statements were available to be issued. Based on this evaluation, it is managements opinion that no events subsequent to December 31, 2011 have occurred that are material to the Companys financial position at that date or the results of its operations for the periods then ended.
Reclassifications
Certain amounts in prior year footnote disclosures have been reclassified to conform to the current year presentation.
3. | Investments |
Bonds
The Securities Valuation Office (SVO) of the NAIC evaluates the credit quality of the Companys bond investments and issues related credit ratings. Bonds rated at 1 (highest quality), 2 (high quality), 3 (medium quality), 4 (low quality) or 5 (lower quality) are reported in the financial statements at amortized cost, less any valuation adjustment. Bonds rated 6 (lowest quality) are reported at the lower of amortized cost or fair value. The interest method is used to amortize any purchase premium or discount, including estimates of future prepayments that are obtained from independent sources. Prepayment assumptions are updated at least annually, with the retrospective method used to adjust net investment income for changes in the estimated yield to maturity.
The statutory basis of accounting permits fair value disclosures for bonds to be based on valuations published by the SVO, quoted market prices, independent pricing services or internally-developed pricing models. The Companys disclosure of fair value for bonds is primarily based on independent pricing services or internally-developed pricing models utilizing observable market data. See Note 15 for more information regarding the fair value of the Companys investments in bonds.
F - 9
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Statement value and fair value of bonds at December 31, 2011 and 2010, summarized by asset categories required in the NAIC Annual Statement, were as follows:
December 31, 2011 |
Reconciliation to Fair Value | |||||||||||||||
Statement Value |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
(in millions) | ||||||||||||||||
U.S. Government |
$ | 7,444 | $ | 1,370 | $ | - | $ | 8,814 | ||||||||
States, territories and possessions |
739 | 55 | (4 | ) | 790 | |||||||||||
Special revenue and assessments |
20,489 | 1,298 | (16 | ) | 21,771 | |||||||||||
All foreign governments |
353 | 61 | - | 414 | ||||||||||||
Hybrid securities |
559 | 22 | (81 | ) | 500 | |||||||||||
Industrial and miscellaneous |
74,169 | 6,556 | (755 | ) | 79,970 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total bonds |
$ | 103,753 | $ | 9,362 | $ | (856 | ) | $ | 112,259 | |||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2010 |
Reconciliation to Fair Value | |||||||||||||||
Statement Value |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
(in millions) | ||||||||||||||||
U.S. Government |
$ | 7,945 | $ | 531 | $ | (196 | ) | $ | 8,280 | |||||||
States, territories and possessions |
699 | 5 | (50 | ) | 654 | |||||||||||
Special revenue and assessments |
17,248 | 800 | (144 | ) | 17,904 | |||||||||||
All foreign governments |
321 | 49 | - | 370 | ||||||||||||
Hybrid securities |
668 | 30 | (37 | ) | 661 | |||||||||||
Industrial and miscellaneous |
69,948 | 4,783 | (665 | ) | 74,066 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total bonds |
$ | 96,829 | $ | 6,198 | $ | (1,092 | ) | $ | 101,935 | |||||||
|
|
|
|
|
|
|
|
Statement value of bonds by NAIC rating category at December 31, 2011 and 2010 were as follows:
December 31, 2011 |
NAIC Rating | |||||||||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
U.S. Government |
$ | 7,444 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 7,444 | ||||||||||||||
States, territories and possessions |
719 | 20 | - | - | - | - | 739 | |||||||||||||||||||||
Special revenue and assessments |
20,445 | 11 | 33 | - | - | - | 20,489 | |||||||||||||||||||||
All foreign governments |
327 | 26 | - | - | - | - | 353 | |||||||||||||||||||||
Hybrid securities |
236 | 224 | 86 | 8 | - | 5 | 559 | |||||||||||||||||||||
Industrial and miscellaneous |
34,351 | 30,135 | 4,590 | 3,301 | 1,586 | 206 | 74,169 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total bonds |
$ | 63,522 | $ | 30,416 | $ | 4,709 | $ | 3,309 | $ | 1,586 | $ | 211 | $ | 103,753 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 10
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
December 31, 2010 |
NAIC Rating | |||||||||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
U.S. Government |
$ | 7,945 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 7,945 | ||||||||||||||
States, territories and possessions |
679 | 20 | - | - | - | - | 699 | |||||||||||||||||||||
Special revenue and assessments |
17,200 | 14 | 34 | - | - | - | 17,248 | |||||||||||||||||||||
All foreign governments |
274 | 47 | - | - | - | - | 321 | |||||||||||||||||||||
Hybrid securities |
494 | 112 | 10 | 45 | - | 7 | 668 | |||||||||||||||||||||
Industrial and miscellaneous |
33,307 | 27,164 | 3,994 | 3,501 | 1,811 | 171 | 69,948 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total bonds |
$ | 59,899 | $ | 27,357 | $ | 4,038 | $ | 3,546 | $ | 1,811 | $ | 178 | $ | 96,829 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on statement value, 91% and 90% of the Companys bond portfolio was rated either 1 or 2 (i.e., was rated as investment grade) by the NAIC at December 31, 2011 and 2010, respectively.
Statement value and fair value of bonds by contractual maturity at December 31, 2011 are summarized below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment premiums.
Statement Value |
Fair Value |
|||||||
(in millions) | ||||||||
Due in one year or less |
$ | 1,501 | $ | 1,522 | ||||
Due after one year through five years |
22,198 | 23,176 | ||||||
Due after five years through ten years |
33,434 | 36,193 | ||||||
Due after ten years |
17,413 | 20,474 | ||||||
|
|
|
|
|||||
74,546 | 81,365 | |||||||
Mortgage-backed and structured securities |
29,207 | 30,894 | ||||||
|
|
|
|
|||||
Total bonds |
$ | 103,753 | $ | 112,259 | ||||
|
|
|
|
F - 11
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The Companys bond portfolio includes investments in structured securities, with a significant concentration in residential mortgage-backed securities issued by government agencies. Statement value and fair value of structured securities at December 31, 2011 and 2010, aggregated by NAIC rating category, were as follows:
December 31, 2011 |
Investment Grade | Below Investment Grade | Total | |||||||||||||||||||||
Statement Value |
Fair Value | Statement Value |
Fair Value | Statement Value |
Fair Value | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Residential mortgage-backed: |
||||||||||||||||||||||||
Government agencies |
$ | 19,398 | $ | 20,589 | $ | - | $ | - | $ | 19,398 | $ | 20,589 | ||||||||||||
Other prime |
850 | 876 | 7 | 6 | 857 | 882 | ||||||||||||||||||
Other below-prime |
314 | 305 | 70 | 58 | 384 | 363 | ||||||||||||||||||
Commercial mortgage-backed: |
||||||||||||||||||||||||
Government agencies |
605 | 650 | - | - | 605 | 650 | ||||||||||||||||||
Conduit |
2,211 | 2,304 | 238 | 141 | 2,449 | 2,445 | ||||||||||||||||||
Re-REMIC |
343 | 367 | 54 | 51 | 397 | 418 | ||||||||||||||||||
Collateralized debt obligations |
28 | 24 | 21 | 11 | 49 | 35 | ||||||||||||||||||
Other commercial mortgage-backed |
67 | 74 | 7 | 7 | 74 | 81 | ||||||||||||||||||
Other asset-backed |
4,529 | 4,934 | 465 | 497 | 4,994 | 5,431 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total structured securities |
$ | 28,345 | $ | 30,123 | $ | 862 | $ | 771 | $ | 29,207 | $ | 30,894 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2010 |
Investment Grade | Below Investment Grade | Total | |||||||||||||||||||||
Statement Value |
Fair Value | Statement Value |
Fair Value | Statement Value |
Fair Value | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Residential mortgage-backed: |
||||||||||||||||||||||||
Government agencies |
$ | 16,517 | $ | 17,321 | $ | - | $ | - | $ | 16,517 | $ | 17,321 | ||||||||||||
Other prime |
1,248 | 1,275 | - | - | 1,248 | 1,275 | ||||||||||||||||||
Other below-prime |
404 | 387 | 85 | 64 | 489 | 451 | ||||||||||||||||||
Commercial mortgage-backed: |
||||||||||||||||||||||||
Government agencies |
596 | 588 | - | - | 596 | 588 | ||||||||||||||||||
Conduit |
2,602 | 2,673 | 234 | 162 | 2,836 | 2,835 | ||||||||||||||||||
Re-REMIC |
450 | 469 | 77 | 59 | 527 | 528 | ||||||||||||||||||
Collateralized debt obligations |
40 | 33 | 36 | 26 | 76 | 59 | ||||||||||||||||||
Other commercial mortgage-backed |
21 | 20 | 7 | 7 | 28 | 27 | ||||||||||||||||||
Other asset-backed |
2,919 | 3,086 | 119 | 76 | 3,038 | 3,162 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total structured securities |
$ | 24,797 | $ | 25,852 | $ | 558 | $ | 394 | $ | 25,355 | $ | 26,246 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Based on statement value, 97% and 98% of the Companys structured securities portfolio was rated either 1 or 2 (i.e., was rated as investment grade) by the NAIC at December 31, 2011 and 2010, respectively.
Mortgage Loans
Mortgage loans consist solely of commercial mortgage loans underwritten and originated by the Company and are reported at unpaid principal balance, less any valuation adjustments or unamortized commitment or origination fees. Such fees are generally deferred upon receipt and amortized into net investment income over the life of the loan using the interest method.
The maximum and minimum interest rates for mortgage loans originated during 2011 were 8.50% and 3.83%, respectively, while these rates during 2010 were 8.15% and 4.00%, respectively. The aggregate ratio of amounts loaned to the fair value of collateral (loan-to-value ratio) for mortgage loans originated during 2011 and 2010 was 59% and 62%, respectively, with a maximum of 100% for any single loan during each of 2011 and 2010. Loans with a 100% loan-to-value ratio at origination are made on a very limited basis and generally represent construction loans on build-
F - 12
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
to-suit properties. These loans are expected to be refinanced with conventional mortgage loans having a loan-to-value ratio between 50% and 70% upon completion of construction. At December 31, 2011 and 2010, the aggregate loan-to-value ratio for the mortgage loan portfolio was 59% and 65%, respectively.
The estimated fair value of the collateral securing each commercial mortgage loan is updated at least annually by the Companys real estate professionals. More frequent updates are performed if deemed necessary by changes in market capitalization rates, borrower financial strength and/or property operating performance. Fair value of the collateral is estimated using the income capitalization approach based on stabilized property income and market capitalization rates. Stabilized property income is derived from actual property financial statements adjusted for non-recurring items, normalized market vacancy and lease rollover, among other factors. Other collateral, such as excess land and additional capital required to maintain property income, is also factored into fair value estimates. Both private market transactions and public market alternatives are considered in determining appropriate market capitalization rates. See Note 15 for more information regarding the fair value of the Companys investments in mortgage loans.
In circumstances where management has deemed it probable that the Company will be unable to collect all contractual principal and interest on a mortgage loan, a valuation allowance is established to reduce the statement value of the mortgage loan to its net realizable value. Changes to mortgage loan valuation allowances are reported as a change in unrealized capital gains and losses in the consolidated statement of changes in surplus. If management later determines that the decline in value is other than temporary, a realized capital loss is reported, and any temporary valuation allowance is reversed. The Company had no mortgage loan valuation allowances at either December 31, 2011 or 2010.
The statement value of mortgage loans by collateral property type and loan-to-value ratio at December 31, 2011 and 2010 was as follows:
December 31, 2011 |
< 50% | 51%-70% | 71%-90% | > 90% | Total | |||||||||||||||
(in millions) | ||||||||||||||||||||
Apartment |
$ | 1,478 | $ | 3,869 | $ | 1,022 | $ | 110 | $ | 6,479 | ||||||||||
Office |
2,096 | 3,256 | 1,048 | 188 | 6,588 | |||||||||||||||
Retail |
1,436 | 3,743 | 950 | 60 | 6,189 | |||||||||||||||
Warehouse/Industrial |
490 | 997 | 937 | 186 | 2,610 | |||||||||||||||
Other |
169 | 537 | 184 | 48 | 938 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 5,669 | $ | 12,402 | $ | 4,141 | $ | 592 | $ | 22,804 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2010 |
< 50% | 51%-70% | 71%-90% | > 90% | Total | |||||||||||||||
(in millions) | ||||||||||||||||||||
Apartment |
$ | 1,197 | $ | 2,341 | $ | 2,278 | $ | 219 | $ | 6,035 | ||||||||||
Office |
1,703 | 2,324 | 1,455 | 200 | 5,682 | |||||||||||||||
Retail |
636 | 2,923 | 1,773 | 190 | 5,522 | |||||||||||||||
Warehouse/Industrial |
174 | 1,064 | 1,209 | 461 | 2,908 | |||||||||||||||
Other |
90 | 722 | 224 | 108 | 1,144 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 3,800 | $ | 9,374 | $ | 6,939 | $ | 1,178 | $ | 21,291 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The aggregate statement value of mortgage loans with loan-to-value ratios in excess of 100% was $242 million and $280 million at December 31, 2011 and 2010, respectively.
F - 13
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The statement value of mortgage loans by collateral property type and U.S. geographic location at December 31, 2011 and 2010 was as follows:
December 31, 2011 |
East | Midwest | South | West | Total | |||||||||||||||
(in millions) | ||||||||||||||||||||
Apartment |
$ | 1,995 | $ | 353 | $ | 1,456 | $ | 2,675 | $ | 6,479 | ||||||||||
Office |
2,076 | 482 | 1,703 | 2,327 | 6,588 | |||||||||||||||
Retail |
2,190 | 475 | 1,690 | 1,834 | 6,189 | |||||||||||||||
Warehouse/Industrial |
464 | 368 | 515 | 1,263 | 2,610 | |||||||||||||||
Other |
178 | 146 | 389 | 225 | 938 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 6,903 | $ | 1,824 | $ | 5,753 | $ | 8,324 | $ | 22,804 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2010 |
East | Midwest | South | West | Total | |||||||||||||||
(in millions) | ||||||||||||||||||||
Apartment |
$ | 1,785 | $ | 350 | $ | 1,523 | $ | 2,377 | $ | 6,035 | ||||||||||
Office |
1,842 | 672 | 1,241 | 1,927 | 5,682 | |||||||||||||||
Retail |
1,928 | 635 | 1,409 | 1,550 | 5,522 | |||||||||||||||
Warehouse/Industrial |
473 | 495 | 583 | 1,357 | 2,908 | |||||||||||||||
Other |
189 | 239 | 448 | 268 | 1,144 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 6,217 | $ | 2,391 | $ | 5,204 | $ | 7,479 | $ | 21,291 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The statement value of mortgage loans by contractual maturity at December 31, 2011 is summarized below. Actual maturities may differ from contractual maturities because certain borrowers have the right to prepay obligations with or without prepayment premiums.
Statement Value |
||||
Due in one year or less |
$ | 1,360 | ||
Due after one year through two years |
2,354 | |||
Due after two years through five years |
6,247 | |||
Due after five years through eight years |
5,527 | |||
Due after eight years |
7,316 | |||
|
|
|||
$ | 22,804 | |||
|
|
In the normal course of business, the Company may modify the terms of an existing mortgage loan, typically in reaction to a proposal by the borrower. These modifications can include a partial repayment of outstanding loan principal, changes to interest rates, extensions of loan maturity and/or changes to loan covenants. When such modifications are made, statutory accounting guidance requires that the new terms of the loan be evaluated to determine whether the modification qualifies as a troubled debt restructuring. If new terms are extended to a borrower that are less favorable to the Company than those being offered to new borrowers under similar circumstances in an arms-length transaction, a realized loss is reported for the estimated amount of the economic concessions made and the reported value of the mortgage loan is reduced. At December 31, 2011 and 2010, the Company had $34 million and $57 million, respectively, of principal outstanding on mortgage loans that were considered restructured. The Company reported $0, $2 million and $8 million of realized losses related to troubled debt restructuring of mortgage loans for the years ended December 31, 2011, 2010 and 2009, respectively.
F - 14
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Common and Preferred Stocks
Common stocks are generally reported at fair value, with $6.6 billion and $8.5 billion of common stock included in the consolidated statement of financial position at December 31, 2011 and 2010, respectively. The statutory basis of accounting permits fair value for common stocks to be based on valuations published by the SVO, quoted market prices, independent pricing services or internally developed pricing models. The estimated fair value for common stocks is based primarily on quoted market prices. For private common stocks without quoted market prices, fair value is based upon internally-developed pricing models that utilize observable market data (such as prices for comparable public equities), external pricing sources (such as valuations by private equity firms holding controlling stakes in the underlying issuer) and cash flow modeling. The equity method is generally used to report investments in common stock of unconsolidated non-insurance subsidiaries. See Note 11 regarding the Companys investment in Frank Russell Company common stock and Note 15 for more information regarding the fair value of the Companys investments in common stock.
Preferred stocks rated 1 (highest quality), 2 (high quality) or 3 (medium quality) by the SVO are reported at amortized cost. Preferred stocks rated 4 (low quality), 5 (lower quality) or 6 (lowest quality) by the SVO are reported at the lower of amortized cost or fair value. At December 31, 2011 and 2010, the consolidated statement of financial position included $785 million and $712 million, respectively, of preferred stocks. The statutory basis of accounting permits fair value for preferred stocks to be based on valuations published by the SVO, quoted market prices, independent pricing services or internally-developed pricing models. The estimated fair value for preferred stocks is based primarily on internally-developed pricing models. See Note 11 regarding the Companys investments in Frank Russell Company preferred stock and Note 15 for more information regarding the fair value of the Companys investments in preferred stock.
Real Estate
Real estate investments are reported at cost, less any valuation adjustments, encumbrances and accumulated depreciation of buildings and other improvements. Depreciation of real estate investments is recorded using a straight-line method over the estimated useful lives of the improvements. Fair value of real estate is estimated based primarily on the capitalization of stabilized net operating income (for multi-family residential properties) or the present value of estimated future cash flow (for other commercial properties).
The statement value of real estate investments by property type and U.S. geographic location at December 31, 2011 and 2010 was as follows:
December 31, 2011 |
East | Midwest | South | West | Total | |||||||||||||||
(in millions) | ||||||||||||||||||||
Apartment |
$ | 218 | $ | 73 | $ | 9 | $ | 240 | $ | 540 | ||||||||||
Office |
82 | 412 | 147 | 172 | 813 | |||||||||||||||
Warehouse/Industrial |
11 | - | 48 | 164 | 223 | |||||||||||||||
Other |
51 | - | 5 | - | 56 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 362 | $ | 485 | $ | 209 | $ | 576 | $ | 1,632 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F - 15
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
December 31, 2010 |
East | Midwest | South | West | Total | |||||||||||||||
(in millions) | ||||||||||||||||||||
Apartment |
$ | 211 | $ | 92 | $ | - | $ | 184 | $ | 487 | ||||||||||
Office |
81 | 406 | 149 | 181 | 817 | |||||||||||||||
Warehouse/Industrial |
11 | - | 48 | 172 | 231 | |||||||||||||||
Other |
59 | - | 25 | - | 84 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 362 | $ | 498 | $ | 222 | $ | 537 | $ | 1,619 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The Companys home office properties are included in the tables above (Office/Midwest) and had an aggregate statement value of $255 million and $260 million at December 31, 2011 and 2010, respectively.
Other Investments
Other investments consist primarily of partnership investments (including real estate, leveraged buyout funds and other private equity limited partnerships), real estate joint ventures and unconsolidated non-insurance subsidiaries organized as limited liability companies. The partnerships, real estate joint ventures and limited liability companies are reported using the equity method of accounting. The unconsolidated non-insurance subsidiaries are reported based on their audited GAAP equity. These subsidiaries primarily invest in public and private equity securities, investment-grade municipal bonds and real estate joint ventures.
Statement value of other investments at December 31, 2011 and 2010 was as follows:
December 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Unconsolidated non-insurance subsidiaries |
$ | 5,865 | $ | 5,469 | ||||
Partnerships and LLCs |
3,949 | 3,419 | ||||||
Low income housing tax credit properties |
405 | 465 | ||||||
Leveraged leases |
276 | 310 | ||||||
Derivative instruments |
115 | 104 | ||||||
Oil and gas investments |
44 | 60 | ||||||
Other |
352 | 191 | ||||||
|
|
|
|
|||||
Total |
$ | 11,006 | $ | 10,018 | ||||
|
|
|
|
Oil and gas investments are reported using the full cost method, under which all exploration and development costs, whether successful or not, are capitalized and amortized as a reduction of net investment income as oil and natural gas reserves are produced. This accounting method is permitted by the OCI, as the Accounting Practices and Procedures Manual of the NAIC does not provide accounting guidance for oil and gas investments.
See Note 4 for more information regarding the Companys use of derivatives.
F - 16
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Net Investment Income
The sources of net investment income for the years ended December 31, 2011 and 2010 and 2009 were as follows:
For the year ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Bonds |
$ | 5,382 | $ | 5,366 | $ | 4,932 | ||||||
Mortgage loans |
1,336 | 1,317 | 1,356 | |||||||||
Policy loans |
1,068 | 1,017 | 976 | |||||||||
Common and preferred stocks |
246 | 227 | 182 | |||||||||
Real estate |
235 | 210 | 231 | |||||||||
Derivative instruments |
26 | 24 | 19 | |||||||||
Other investments |
545 | 571 | 428 | |||||||||
Amortization of IMR |
119 | 37 | 39 | |||||||||
|
|
|
|
|
|
|||||||
Gross investment income |
8,957 | 8,769 | 8,163 | |||||||||
Less: investment expenses |
518 | 463 | 391 | |||||||||
|
|
|
|
|
|
|||||||
Net investment income |
$ | 8,439 | $ | 8,306 | $ | 7,772 | ||||||
|
|
|
|
|
|
Accrued investment income more than ninety days past due is a nonadmitted asset and reported as a direct reduction of surplus in the consolidated statement of changes in surplus. Accrued investment income that is ultimately deemed uncollectible is included as a reduction of net investment income in the period that such determination is made.
Realized Capital Gains and Losses
Realized capital gains and losses for the years ended December 31, 2011, 2010 and 2009 were as follows:
For the year ended December 31, 2011 |
For the year ended December 31, 2010 |
For the year ended December 31, 2009 |
||||||||||||||||||||||||||||||||||
Realized Gains |
Realized Losses |
Net Realized Gains (Losses) |
Realized Gains |
Realized Losses |
Net Realized Gains (Losses) |
Realized Gains |
Realized Losses |
Net Realized Gains (Losses) |
||||||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
Bonds |
$ | 988 | $ | (277 | ) | $ | 711 | $ | 766 | $ | (711 | ) | $ | 55 | $ | 1,397 | $ | (1,412 | ) | $ | (15 | ) | ||||||||||||||
Common and preferred stocks |
884 | (514 | ) | 370 | 581 | (285 | ) | 296 | 1,101 | (695 | ) | 406 | ||||||||||||||||||||||||
Mortgage loans |
2 | (1 | ) | 1 | - | (32 | ) | (32 | ) | - | (8 | ) | (8 | ) | ||||||||||||||||||||||
Real estate |
66 | (4 | ) | 62 | 54 | (9 | ) | 45 | 232 | (17 | ) | 215 | ||||||||||||||||||||||||
Other investments |
318 | (595 | ) | (277 | ) | 413 | (535 | ) | (122 | ) | 897 | (1,402 | ) | (505 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal |
$ | 2,258 | $ | (1,391 | ) | 867 | $ | 1,814 | $ | (1,572 | ) | 242 | $ | 3,627 | $ | (3,534 | ) | 93 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Less: IMR gains |
645 | 396 | 563 | |||||||||||||||||||||||||||||||||
Less: Capital gains tax (benefit) |
252 | 34 | (316 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Net realized capital gains (losses) |
$ | (30 | ) | $ | (188 | ) | $ | (154 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
F - 17
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Realized capital gains and losses are generally the result of normal investment trading activity. Proceeds from the sale of bond investments totaled $34 billion, $24 billion and $32 billion for the years ended December 31, 2011, 2010 and 2009, respectively.
On a quarterly basis, the Company performs a review of bonds, mortgage loans, common and preferred stocks, real estate and other investments to identify those that have experienced a decline in fair value that is other than temporary. Factors considered include the duration and extent to which fair value has been less than cost, the financial condition and near-term financial prospects of the issuer and the Companys ability and intent to hold the investment for a period of time sufficient to allow for an anticipated recovery in value. If the decline in an investments fair value is considered to be other than temporary, the statement value of the investment is generally written down to fair value and a realized capital loss is reported.
For fixed income investments, the review focuses on the issuers ability to remit all contractual interest and principal payments and the Companys ability and intent to hold the investment until the earlier of a recovery in value or maturity. The Companys intent and ability to hold an investment takes into consideration broad portfolio management parameters such as expected net cash flows and liquidity targets, asset/liability duration management and issuer and industry segment credit exposures. Mortgage loans considered to have experienced an other-than-temporary decline in value are written down to net realizable value based on appraisal of the collateral property.
For equity securities, greater weight and consideration is given to the duration and extent of the decline in fair value and the likelihood that the fair value of the security will recover. A real estate equity investment is evaluated for an other-than-temporary valuation adjustment when the fair value of the property is lower than its depreciated cost.
During 2009, the Company adopted Statement of Statutory Accounting Principle No. 43R, Loan Backed and Structured Securities (SSAP 43R). SSAP 43R requires that valuation adjustments for other-than-temporary impairments of loan-backed and other structured securities be based on fair value only if the Company intends to sell or cannot assert the intent and ability to hold the investment until its anticipated recovery. However, if the Company can assert the intent and ability to hold the investment until its anticipated recovery, the valuation adjustment is based on the discounted expected future cash flows of the security. Under SSAP 43, the discount rate used would generally be either the effective yield at purchase or the effective yield immediately prior to the valuation adjustment. The Companys adoption of SSAP 43R was effective September 30, 2009 and resulted in a cumulative increase to surplus of $61 million, representing the difference between other-than-temporary valuation adjustments for structured securities that were remeasured using the discounted cash flow method required by SSAP 43R and the fair value measurement for such valuation adjustments required by previous guidance. This increase in surplus is reported as a change in accounting principle in the consolidated statement of changes in surplus for the year ended December 31, 2009.
F - 18
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Realized capital losses related to declines in fair value of investments that were considered to be other-than-temporary for the years ended December 31, 2011, 2010 and 2009 were as follows:
For the year ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Bonds, common and preferred stocks: | (in millions) | |||||||||||
Structured securities |
$ | (37 | ) | $ | (259 | ) | $ | (166 | ) | |||
Financial services |
(38 | ) | (65 | ) | (69 | ) | ||||||
Consumer discretionary |
(23 | ) | (39 | ) | (133 | ) | ||||||
Industrials |
(7 | ) | (24 | ) | (48 | ) | ||||||
Energy |
(22 | ) | (4 | ) | (25 | ) | ||||||
Technology |
- | (1 | ) | (7 | ) | |||||||
Other |
(13 | ) | - | (74 | ) | |||||||
|
|
|
|
|
|
|||||||
Subtotal |
(140 | ) | (392 | ) | (522 | ) | ||||||
Other investments: |
||||||||||||
Real estate and RE funds |
(49 | ) | (67 | ) | (151 | ) | ||||||
Mortgage loans |
- | (32 | ) | (8 | ) | |||||||
Security partnerships |
- | (5 | ) | (52 | ) | |||||||
Energy and transportation |
(30 | ) | - | (12 | ) | |||||||
Derivatives |
- | - | (4 | ) | ||||||||
|
|
|
|
|
|
|||||||
Subtotal |
(79 | ) | (104 | ) | (227 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | (219 | ) | $ | (496 | ) | $ | (749 | ) | |||
|
|
|
|
|
|
In addition to the realized capital losses above, $30 million, $23 million and $40 million of other-than-temporary valuation adjustments were recorded by the Companys unconsolidated non-insurance subsidiaries for the years ended December 31, 2011, 2010 and 2009, respectively. The decline in the Companys equity in these subsidiaries resulting from the valuation adjustments is included in changes in net unrealized capital gains and losses in the consolidated statement of changes in surplus.
Other-than-temporary valuation adjustments on loan-backed and other structured securities for the years ended December 31, 2011, 2010 and 2009, including the circumstances of the adjustment, were as follows:
For the years ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Intent to sell | $ | - | $ | (45 | ) | $ | - | |||||
Inability or lack of intent to retain investment for a period of time sufficient to recover the amortized cost basis | - | - | - | |||||||||
Present value of cash flows expected to be collected is less than amortized cost basis | (37 | ) | (214 | ) | (166 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | (37 | ) | $ | (259 | ) | $ | (166 | ) | ||||
|
|
|
|
|
|
At December 31, 2011, the Company continued to hold structured securities with aggregate statement values and fair values of $192 million and $130 million, respectively, for which other-than-temporary valuation adjustments totaling $275 million had been recognized since the
F - 19
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
adoption of SSAP 43R. These valuation adjustments were necessary because the aggregate present value of expected cash flows was less than the amortized cost basis of the security.
Unrealized Capital Gains and Losses
Changes in net unrealized capital gains and losses for the years ended December 31, 2011, 2010 and 2009 were as follows:
For the year ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Bonds |
$ | (89 | ) | $ | (16 | ) | $ | 117 | ||||
Common and preferred stocks |
(550 | ) | 1,286 | 903 | ||||||||
Other investments |
248 | 359 | (316 | ) | ||||||||
|
|
|
|
|
|
|||||||
(391 | ) | 1,629 | 704 | |||||||||
Change in deferred taxes |
178 | (351 | ) | (201 | ) | |||||||
|
|
|
|
|
|
|||||||
Change in net unrealized capital gains (losses) |
$ | (213 | ) | $ | 1,278 | $ | 503 | |||||
|
|
|
|
|
|
Unrealized capital gains and losses primarily represent changes in the fair value of common stocks and other equity investments. Changes in the Companys equity-method share of the undistributed earnings of joint ventures, partnerships and unconsolidated non-insurance subsidiaries are also reported as changes in unrealized capital gains and losses. Net unrealized capital gains (losses) for the years ended December 31, 2011, 2010 and 2009 included $(204) million, $(265) million and $(311) million, respectively, related to distributions made to the Company from unconsolidated non-insurance subsidiaries. The Companys share of the earnings or losses of these subsidiaries is reported as a change in unrealized capital gains and losses when earned under the equity method of accounting. If net gains are distributed to the Company in the form of dividends, net investment income is recognized in the amount of the distribution and the previously unrealized net gains are reversed.
The amortized cost and fair value of bonds and common and preferred stocks for which fair value had declined and remained below cost at December 31, 2011 and 2010 were as follows:
December 31, 2011 | ||||||||||||||||||||||||
Decline For Less Than 12 Months | Decline For Greater Than 12 Months | |||||||||||||||||||||||
Amortized Cost |
Fair Value | Difference | Amortized Cost |
Fair Value | Difference | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Bonds | $ | 8,701 | $ | 8,198 | $ | (503 | ) | $ | 3,134 | $ | 2,501 | $ | (633 | ) | ||||||||||
Common and preferred stocks |
2,034 | 1,786 | (248 | ) | 408 | 303 | (105 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 10,735 | $ | 9,984 | $ | (751 | ) | $ | 3,542 | $ | 2,804 | $ | (738 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F - 20
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
December 31, 2010 | ||||||||||||||||||||||||
Decline For Less Than 12 Months | Decline For Greater Than 12 Months | |||||||||||||||||||||||
Amortized Cost |
Fair Value | Difference | Amortized Cost |
Fair Value | Difference | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Bonds | $ | 14,317 | $ | 13,750 | $ | (567 | ) | $ | 3,978 | $ | 3,202 | $ | (776 | ) | ||||||||||
Common and preferred stocks |
758 | 692 | (66 | ) | 714 | 549 | (165 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 15,075 | $ | 14,442 | $ | (633 | ) | $ | 4,692 | $ | 3,751 | $ | (941 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
During 2011, the aggregate amounts by which the fair value of individual bond investments had declined and remained below cost decreased, due primarily to a reduction in risk-free market interest rates and the general narrowing of credit spreads. All of these bonds are current on contractual interest and principal payments and are otherwise performing according to their contractual terms. Based on the results of the impairment review process described above, management considers these declines in fair value, as well as the declines in fair value of common and preferred stocks summarized above, to be temporary based on current facts and circumstances.
At December 31, 2011 and 2010, unrealized capital losses related to loan-backed and structured securities with durations of greater than 12 months were $369 million and $470 million, respectively, while unrealized capital losses with durations of less than 12 months were $23 million and $36 million, respectively.
Securities Lending
The Company participates in securities lending programs whereby general account investment securities are loaned to third parties, primarily major brokerage firms. These lending programs are intended to enhance the yield of the Companys investment portfolio.
The Company manages the lending of fixed income securities directly, while the lending of equity securities was administered by a lending agent and collateral investment manager until the Company discontinued its equity lending program during 2010. At December 31, 2011 and 2010, the aggregate statement value of loaned securities was $1.2 billion and $1.3 billion, respectively, while the aggregate fair value of these loaned securities was $1.3 billion and $1.3 billion, respectively. Of the securities on loan at December 31, 2011 and 2010, all were fixed income securities.
The Company manages counterparty and other risks associated with its securities lending program by adhering to guidelines that require counterparties to provide the Company with cash or other high-quality collateral of no less than 102% of the market value of the securities on loan plus accrued interest and that set conservative standards for the Companys reinvestment of cash collateral received. At each of December 31, 2011 and 2010, securities lending collateral held by the Company was $1.3 billion, which is reported at amortized cost and reported in the consolidated statement of financial position as described below. The offsetting liability of $1.3 billion, reflecting the obligation to return the collateral, is reported in other liabilities in the consolidated statement of financial position at each of December 31, 2011 and 2010.
F - 21
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table summarizes the terms of securities lending arrangements outstanding at December 31, 2011 and 2010:
December 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Open terms |
$ | 917 | $ | 948 | ||||
30 days or less |
80 | 400 | ||||||
31-60 days |
334 | - | ||||||
|
|
|
|
|||||
Total |
$ | 1,331 | $ | 1,348 | ||||
|
|
|
|
The amortized cost, fair value and remaining term to maturity of reinvested securities lending collateral held by the Company at December 31, 2011 and 2010 were as follows:
December 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(in millions) | ||||||||||||||||
30 days or less |
$ | 666 | $ | 666 | $ | 451 | $ | 452 | ||||||||
31-60 days |
2 | 2 | 33 | 33 | ||||||||||||
61-90 days |
67 | 67 | 59 | 60 | ||||||||||||
91-120 days |
115 | 115 | 10 | 10 | ||||||||||||
121-180 days |
61 | 61 | 72 | 72 | ||||||||||||
181-365 days |
126 | 127 | 79 | 79 | ||||||||||||
1-2 years |
176 | 175 | 419 | 419 | ||||||||||||
2-3 years |
107 | 102 | 111 | 111 | ||||||||||||
Greater than 3 years |
6 | 6 | 108 | 107 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,326 | $ | 1,321 | $ | 1,342 | $ | 1,343 | ||||||||
|
|
|
|
|
|
|
|
At December 31, 2011, the consolidated statement of financial position included $848 million in bonds and $478 million in cash and temporary investments related to the collateral assets summarized above. At December 31, 2010, the consolidated statement of financial position included $928 million in bonds and $414 million in cash and temporary investments related to these collateral assets.
During 2010, the Company had also entered into securities lending arrangements for separate account investment securities, utilizing similar procedures and collateral requirements as those for general account loaned securities. During 2011, the Company discontinued its securities lending program within the separate accounts. At December 31, 2011 there were no securities on loan within the separate accounts. At December 31, 2010, the aggregate statement value of loaned securities held by the separate accounts was $11 million.
Secured Funding Transaction
During 2009, the Company entered into a secured funding transaction, whereby certain mortgage-backed securities owned by the Company were deposited in a trust and pledged under an indenture as part of $600 million in borrowing from an unrelated third party. During the duration of the indenture, these assets were restricted from being sold, substituted or otherwise accessed by the Company. As part of the transaction, the Company entered into an unconditional agreement to
F - 22
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
repurchase the pledged securities from the trust at market value during December, 2011. This transaction was accounted for as a secured funding under Statement of Statutory Accounting Principles No. 91R, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SSAP 91R), and as such these securities continued to be reported at amortized cost and included in bonds in the consolidated statement of financial position.
The indenture required substantially all cash flows from the pledged securities to be used to pay interest and principal on the funded balance. Interest on the outstanding principal balance accrued at an annual rate of 1-month LIBOR + 1.75%. At December 31, 2010, the aggregate statement value of the pledged securities was $1.7 billion, while the aggregate fair value of those securities was $1.5 billion. At December 31, 2010, the outstanding borrowing related to this funding transaction had been reduced to $353 million, which is reported in other liabilities in the consolidated statement of financial position at that date.
On December 29, 2011, the Company repurchased the remaining pledged securities from the trust at a market value of $1.4 billion. The proceeds of this repurchase were used by the trust to repay the remaining funded liability balance of $130 million, with the remainder of the proceeds remitted to the Company as the residual interest holder of the trust. Interest expense related to this funding transaction was $5 million and $10 million for the years ended December 31, 2011 and 2010, respectively, and is reported as a reduction of net investment income in the consolidated statement of operations.
4. | Derivative Financial Instruments |
The Company enters into derivative transactions, generally to mitigate (or hedge) the risk to its assets, liabilities and surplus from fluctuations in interest rates, foreign currency exchange rates, credit conditions and other market risks. Derivatives that are designated as hedges for accounting purposes and meet the qualifications for statutory hedge accounting are reported on a basis consistent with the asset or liability being hedged (e.g., at amortized cost or fair value). Derivatives that are used to mitigate risk but are not designated as hedges for accounting purposes or otherwise do not meet the qualifications for statutory hedge accounting are reported at fair value.
To qualify for hedge accounting, the hedge relationship must be designated and formally documented at inception. This documentation details the risk management objective and strategy for the hedge, the derivative used in the hedge and the methodology for assessing hedge effectiveness. The hedge must also be highly effective, with an assessment of its effectiveness performed both at inception and on an ongoing basis over the life of the hedge.
In addition to hedging, the Company uses derivatives for the purpose of investment replication. A replication is a derivative transaction that, when entered into in conjunction with other cash market investments, replicates the risk and reward characteristics of otherwise permissible investment positions. Derivatives used as part of a replication are reported on a basis consistent with the investment position being replicated (e.g., at amortized cost or fair value).
The Company also uses derivatives for income generation purposes. These instruments are reported on a basis consistent with the accounting treatment that would be used for the covering asset or underlying interest to which the derivative relates (e.g., at amortized cost or fair value). The cash premium received by the Company at the inception of the contract is deferred for accounting purposes until maturity of the contract or its exercise by the counterparty (if the term of the derivative is less than one year) or amortized over the life of the contract (if the term of the derivative is greater than one year).
F - 23
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The fair value of derivative instruments is based on quoted market prices, when available. In the absence of quoted market prices, fair value is estimated using third-party or internally-developed pricing models.
Derivative transactions expose the Company to the risk that a counterparty may not be able to fulfill its obligations under the contract. The Company manages this risk by dealing only with counterparties that maintain a minimum credit rating, by performing ongoing review of counterparties credit standing and by adhering to established limits for credit exposure to any single counterparty. The Company also utilizes collateral support agreements that require the daily exchange of collateral assets if counterparty credit exposure exceeds certain limits. At December 31, 2011 and 2010, the Company held $243 million and $129 million, respectively, of collateral under these agreements. The collateral is reported as cash and temporary investments in the consolidated statement of financial position, with a corresponding liability reflecting the Companys obligation to return the collateral reported as other liabilities.
Hedging Designated as Hedging Instruments
The Company designates and accounts for the following derivative types as cash flow hedges, with the related derivative instrument reported at amortized cost (if any) in the consolidated statement of financial position. No component of these derivatives economic gain or loss was excluded from the assessment of hedge effectiveness. For the years ended December 31, 2011 and 2010, there were no gains or losses recorded with respect to derivatives that ceased to qualify for cash flow hedge accounting or for which the Company removed the cash flow hedge accounting designation.
Foreign currency covers are used to mitigate foreign exchange risk pending settlement of executed trades for investments denominated in foreign currencies. Foreign currency covers obligate the Company to pay to or receive from a counterparty a specified amount of a foreign currency at a specified exchange rate at a future date. Foreign exchange gains or losses on these contracts are reported as an adjustment to the cost basis of the hedged foreign investment.
Interest rate floors are used to mitigate the asset/liability management risk of a significant and sustained decrease in interest rates for certain of the Companys insurance products. Interest rate floors entitle the Company to receive payments from a counterparty if market interest rates decline below a specified level. Amounts received on these contracts are reported as net investment income.
Interest rate swaps are used to mitigate interest rate risk for investments in variable interest rate and fixed interest rate bonds. Interest rate swaps obligate the Company and a counterparty to exchange amounts based on the difference between a variable interest rate index and a specified fixed rate of interest applied to the notional amount of the contract. Amounts received or paid on these contracts are reported as net investment income.
Foreign currency swaps are used to mitigate the foreign exchange risk for investments in bonds denominated in foreign currencies. Foreign currency swaps obligate the Company and a counterparty to exchange the foreign currency-denominated interest and principal payments receivable on foreign bonds for U.S. dollar-denominated payments, based on currency exchange rates specified at trade inception. Foreign exchange gains or losses on these contracts are reported as a change in unrealized capital gains or losses until the maturity or termination of the contract, at which time a realized capital gain or loss is recognized.
F - 24
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Hedging - Not Designated as Hedging Instruments
The Company enters into other derivative transactions that mitigate economic risks but are not designated as a hedge for accounting purposes or otherwise do not qualify for statutory hedge accounting. These instruments are reported in the consolidated statement of financial position at fair value. Changes in the fair value of these instruments are reported as a change in unrealized capital gains or losses until the maturity or termination of the contract, at which time a realized capital gain or loss is recognized.
Swaptions are used to mitigate the asset/liability management risk of a significant and sustained increase in interest rates for certain of the Companys insurance products. Swaptions provide the Company an option to enter into an interest rate swap with a counterparty on specified terms.
Fixed income futures are used to mitigate interest rate risk for investments in portfolios of fixed income securities. Fixed income futures obligate the Company to sell to or buy from a counterparty a specified bond at a specified price at a future date.
Foreign currency forwards are used to mitigate the foreign exchange risk for investments in bonds denominated in foreign currencies or common stock or other equity investments in companies operating in foreign countries. Foreign currency forwards obligate the Company to pay to or receive from a counterparty a specified amount of a foreign currency at a future date.
Total return swaps are used to mitigate market risk for investments in portfolios of common stocks and other equity securities. Total return swaps obligate the Company and a counterparty to exchange amounts based on the difference between a variable equity index return and a specified fixed rate of return applied to the notional amount of the contract.
Equity index futures are used to mitigate market risk for investments in portfolios of common stock. Equity index futures obligate the Company to pay to or receive from a counterparty an amount based on a specified equity market index as of a future date applied to the notional amount of the contract.
Purchased credit default swaps are used to mitigate the credit risk for investments in bonds issued by specific debtors. Credit default swaps provide the Company an option to put a specific bond to a counterparty at par in the event of a credit event encountered by the bond issuer. A credit event is generally defined as a bankruptcy, failure to make required payments or acceleration of issuer obligations under the terms of the bond.
Investment Replications
Fixed income futures replications are used in conjunction with the purchase of cash market instruments to manage the duration of investment in portfolios of fixed income securities and to mitigate interest rate risk for such portfolios. Fixed income futures replications are reported at fair value, with changes in fair value reported as a change in unrealized capital gains or losses until the maturity or termination of the contract, at which time a realized capital gain or loss is recognized. The average fair value of open contracts was $9 million and $585 million during 2011 and 2010, respectively.
Fixed income replications are used to replicate a bond investment through the use of cash market instruments combined with interest rate swaps. Fixed income replications, including the derivative components, are reported at amortized cost. The average fair value of open contracts was $7 million and $6 million during 2011 and 2010, respectively.
Total return swap replications are used in conjunction with the purchase of cash market instruments to replicate investment in portfolios of common stocks and other equity securities. Total return swaps obligate the Company and a counterparty to exchange amounts based on the
F - 25
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
difference between a variable equity index return and a specified fixed rate of return applied to the notional amount of the contract. Total return swaps are reported at fair value, with changes in fair value reported as a change in unrealized capital gains or losses until the maturity or termination of the contract, at which time a realized capital gain or loss is recognized. The average fair value of open contracts was $(1) million and $2 million during 2011 and 2010, respectively.
Equity index futures replications are used in conjunction with the purchase of cash market instruments to replicate investment in portfolios of common stocks and other equity securities. Equity index futures replications are reported at fair value, with changes in fair value reported as a change in unrealized capital gains or losses until the maturity or termination of the contract, at which time a realized capital gain or loss is recognized. The average fair value of open contracts was $17 million and $14 million during 2011 and 2010, respectively.
Income Generation
Written equity call options (covered) are used to generate income in exchange for potential future gains on a specific common stock owned by the Company. The Company receives a cash premium at the inception of the contract, and the counterparty has the right (but not the obligation) to purchase the underlying security from the Company at a specified price at any time during the term of the contract. Written equity call options are reported at fair value, with changes in fair value reported as a change in unrealized capital gains or losses until the contracts mature or are exercised by the counterparty, at which time a realized capital gain or loss is recognized. The average fair value of open contracts was $(18) million and $(10) million during 2011 and 2010, respectively.
F - 26
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The effects of the Companys use of derivative instruments on the consolidated statement of financial position at December 31, 2011 and 2010 were as follows:
December 31, 2011 | ||||||||||||||||||||
Notional Amount |
Statement Value | Fair Value | ||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Interest rate floors |
$ | 1,025 | $ | 11 | $ | - | $ | 142 | $ | - | ||||||||||
Interest rate swaps |
52 | - | - | 15 | - | |||||||||||||||
Foreign exchange contracts: |
||||||||||||||||||||
Cross currency swaps |
937 | - | (56 | ) | - | (1 | ) | |||||||||||||
Foreign currency covers |
11 | - | - | - | - | |||||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Interest rate swaps |
- | - | - | - | - | |||||||||||||||
Swaptions |
2,354 | 81 | - | 81 | - | |||||||||||||||
Fixed futures |
2,880 | - | - | - | - | |||||||||||||||
Foreign exchange contracts: |
||||||||||||||||||||
Foreign currency forwards |
850 | 32 | - | 32 | - | |||||||||||||||
Equity contracts: |
||||||||||||||||||||
Equity total return swaps |
20 | - | - | - | - | |||||||||||||||
Equity futures |
- | - | - | - | - | |||||||||||||||
Credit contracts: |
||||||||||||||||||||
Credit default swaps |
201 | - | (2 | ) | - | (2 | ) | |||||||||||||
Investment Replications: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Interest rate swaps |
150 | - | - | 8 | - | |||||||||||||||
Fixed futures |
32 | - | - | - | - | |||||||||||||||
Equity contracts: |
||||||||||||||||||||
Equity total return swaps |
182 | 1 | - | 1 | - | |||||||||||||||
Equity futures |
- | - | - | - | - | |||||||||||||||
Income Generation: |
||||||||||||||||||||
Equity contracts: |
||||||||||||||||||||
Equity options |
3 | - | - | - | - | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives |
$ | 125 | $ | (58 | ) | $ | 279 | $ | (3 | ) | ||||||||||
|
|
|
|
|
|
|
|
F - 27
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
December 31, 2010 | ||||||||||||||||||||
Notional Amount |
Statement Value | Fair Value | ||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Interest rate floors |
$ | 1,025 | $ | 12 | $ | - | $ | 89 | $ | - | ||||||||||
Interest rate swaps |
52 | - | - | 13 | ||||||||||||||||
Foreign exchange contracts: |
||||||||||||||||||||
Cross currency swaps |
807 | - | (108 | ) | - | (58 | ) | |||||||||||||
Foreign currency covers |
- | - | - | - | - | |||||||||||||||
Credit contracts: |
||||||||||||||||||||
Credit default swaps |
52 | - | - | - | - | |||||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Interest rate swaps |
- | - | - | - | - | |||||||||||||||
Swaptions |
2,157 | 106 | - | 106 | - | |||||||||||||||
Fixed futures |
1,125 | - | - | - | - | |||||||||||||||
Foreign exchange contracts: |
||||||||||||||||||||
Foreign currency forwards |
1,217 | 2 | - | 2 | - | |||||||||||||||
Equity contracts: |
||||||||||||||||||||
Equity total return swaps |
39 | - | (8 | ) | - | (8 | ) | |||||||||||||
Equity futures |
274 | - | - | - | - | |||||||||||||||
Credit contracts: |
||||||||||||||||||||
Credit default swaps |
181 | - | (4 | ) | - | (4 | ) | |||||||||||||
Investment Replications: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Interest rate swaps |
150 | - | - | 5 | - | |||||||||||||||
Fixed futures |
1,756 | - | - | - | - | |||||||||||||||
Equity contracts: |
||||||||||||||||||||
Equity total return swaps |
173 | 27 | - | 27 | - | |||||||||||||||
Equity futures |
- | - | - | - | - | |||||||||||||||
Income Generation: |
||||||||||||||||||||
Equity contracts: |
||||||||||||||||||||
Equity options |
716 | - | (39 | ) | - | (39 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives |
$ | 147 | $ | (159 | ) | $ | 242 | $ | (109 | ) | ||||||||||
|
|
|
|
|
|
|
|
The notional amounts shown above are used to denominate the derivative contracts and do not represent amounts exchanged between the Company and the derivative counterparties. The statement value of derivatives is reported as other investments or other liabilities in the consolidated statement of financial position. Amounts included in the consolidated statement of financial position at December 31, 2011 and 2010 reflect counterparty netting adjustments of $10 million and $43 million, respectively.
F - 28
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The effects of the Companys use of derivative instruments on the consolidated statements of operations and changes in surplus for the years ended December 31, 2011, 2010 and 2009 were as follows:
For the year ended December 31, 2011 | ||||||||||||
Change in Net Unrealized Capital Gains (Losses) |
Net Realized Capital Gains (Losses) |
Net Investment Income |
||||||||||
(in millions) | ||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||
Interest rate contracts: |
||||||||||||
Interest rate floors |
$ | - | $ | - | $ | 29 | ||||||
Interest rate swaps |
- | - | 3 | |||||||||
Foreign exchange contracts: |
||||||||||||
Cross currency swaps |
51 | (28 | ) | - | ||||||||
Foreign currency covers |
- | - | - | |||||||||
Derivatives not designated as hedging instruments: |
||||||||||||
Interest rate contracts: |
||||||||||||
Interest rate swaps |
- | - | - | |||||||||
Swaptions |
(35 | ) | - | (7 | ) | |||||||
Fixed futures |
(72 | ) | (141 | ) | - | |||||||
Foreign exchange contracts: |
||||||||||||
Foreign currency forwards |
29 | (23 | ) | - | ||||||||
Equity contracts: |
||||||||||||
Equity total return swaps |
8 | (11 | ) | - | ||||||||
Equity futures |
2 | (10 | ) | - | ||||||||
Credit contracts: |
||||||||||||
Credit default swaps |
2 | - | (3 | ) | ||||||||
Investment Replications: |
||||||||||||
Interest rate contracts: |
||||||||||||
Interest rate swaps |
- | - | 4 | |||||||||
Fixed futures |
4 | 8 | - | |||||||||
Foreign exchange contracts: |
||||||||||||
Foreign currency futures |
- | - | - | |||||||||
Equity contracts: |
||||||||||||
Equity total return swaps |
(25 | ) | 15 | - | ||||||||
Equity futures |
- | 2 | - | |||||||||
Income Generation: |
||||||||||||
Equity contracts: |
||||||||||||
Equity options |
15 | (1 | ) | - | ||||||||
|
|
|
|
|
|
|||||||
Total derivatives |
$ | (21 | ) | $ | (189 | ) | $ | 26 | ||||
|
|
|
|
|
|
F - 29
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
For the year ended December 31, 2010 | ||||||||||||
Change in Net Unrealized Capital Gains (Losses) |
Net Realized Capital Gains (Losses) |
Net Investment Income |
||||||||||
(in millions) | ||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||
Interest rate contracts: |
||||||||||||
Interest rate floors |
$ | - | $ | - | $ | 27 | ||||||
Interest rate swaps |
- | - | 3 | |||||||||
Foreign exchange contracts: |
||||||||||||
Cross currency swaps |
(21 | ) | - | - | ||||||||
Foreign currency covers |
- | - | - | |||||||||
Derivatives not designated as hedging instruments: |
||||||||||||
Interest rate contracts: |
||||||||||||
Interest rate swaps |
- | - | - | |||||||||
Swaptions |
7 | - | (6 | ) | ||||||||
Fixed futures |
36 | (31 | ) | - | ||||||||
Foreign exchange contracts: |
||||||||||||
Foreign currency forwards |
(8 | ) | (12 | ) | - | |||||||
Equity contracts: |
||||||||||||
Equity total return swaps |
(7 | ) | (26 | ) | - | |||||||
Equity futures |
(2 | ) | (23 | ) | - | |||||||
Credit contracts: |
||||||||||||
Credit default swaps |
3 | - | (3 | ) | ||||||||
Investment Replications: |
||||||||||||
Interest rate contracts: |
||||||||||||
Interest rate swaps |
- | - | 4 | |||||||||
Fixed futures |
(3 | ) | 3 | - | ||||||||
Foreign exchange contracts: |
||||||||||||
Foreign currency futures |
- | - | - | |||||||||
Equity contracts: |
||||||||||||
Equity total return swaps |
25 | 4 | (1 | ) | ||||||||
Equity futures |
- | (2 | ) | - | ||||||||
Income Generation: |
||||||||||||
Equity contracts: |
||||||||||||
Equity options |
(15 | ) | - | - | ||||||||
|
|
|
|
|
|
|||||||
Total derivatives |
$ | 15 | $ | (87 | ) | $ | 24 | |||||
|
|
|
|
|
|
F - 30
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
For the year ended December 31, 2009 | ||||||||||||
Change in Net Unrealized Capital Gains (Losses) |
Net Realized Capital Gains (Losses) |
Net Investment Income |
||||||||||
(in millions) | ||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||
Interest rate contracts: |
||||||||||||
Interest rate floors |
$ | - | $ | - | $ | 21 | ||||||
Interest rate swaps |
- | - | 3 | |||||||||
Foreign exchange contracts: |
||||||||||||
Cross currency swaps |
(96 | ) | (3 | ) | 3 | |||||||
Foreign currency covers |
- | - | - | |||||||||
Derivatives not designated as hedging instruments: |
||||||||||||
Interest rate contracts: |
||||||||||||
Interest rate swaps |
- | - | - | |||||||||
Swaptions |
25 | - | (5 | ) | ||||||||
Fixed futures |
239 | (23 | ) | - | ||||||||
Foreign exchange contracts: |
||||||||||||
Foreign currency forwards |
19 | (9 | ) | - | ||||||||
Foreign currency futures |
72 | (171 | ) | - | ||||||||
Equity contracts: |
||||||||||||
Equity total return swaps |
8 | (21 | ) | (1 | ) | |||||||
Equity futures |
17 | (321 | ) | - | ||||||||
Credit contracts: |
||||||||||||
Credit default swaps |
(22 | ) | 10 | (3 | ) | |||||||
Investment Replications: |
||||||||||||
Interest rate contracts: |
||||||||||||
Interest rate swaps |
- | 11 | 1 | |||||||||
Fixed futures |
(97 | ) | 73 | - | ||||||||
Foreign exchange contracts: |
||||||||||||
Foreign currency futures |
- | - | - | |||||||||
Equity contracts: |
||||||||||||
Equity total return swaps |
- | 72 | - | |||||||||
Equity futures |
- | - | - | |||||||||
Income Generation: |
||||||||||||
Equity contracts: |
||||||||||||
Equity options |
- | (3 | ) | - | ||||||||
|
|
|
|
|
|
|||||||
Total derivatives |
$ | 165 | $ | (385 | ) | $ | 19 | |||||
|
|
|
|
|
|
F - 31
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
5. | Reserves for Policy Benefits |
General account reserves for policy benefits at December 31, 2011 and 2010 were as follows:
December 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Life insurance reserves |
$ | 125,983 | $ | 118,706 | ||||
Annuity reserves |
5,262 | 4,950 | ||||||
Disability and long-term care unpaid claims and claim reserves |
4,254 | 4,098 | ||||||
Disability and long-term care active life reserves |
3,009 | 2,750 | ||||||
Deposit funds |
2,409 | 2,562 | ||||||
|
|
|
|
|||||
Total reserves for policy benefits |
$ | 140,917 | $ | 133,066 | ||||
|
|
|
|
See Note 9 for more information regarding the Companys use of reinsurance and the related impact on policy benefit reserves.
Life Insurance Reserves
Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioners Reserve Valuation Method (CRVM) using the 1958, 1980 or 2001 CSO mortality tables with valuation interest rates ranging from 3.50% to 5.50%. Other life insurance reserves are based primarily on the net level premium method, using various mortality tables at interest rates ranging from 2.00% to 4.50%. As of December 31, 2011, the Company had $1.3 trillion of total life insurance in force, including $7.0 billion of life insurance in force for which gross premiums were less than net premiums according to the standard valuation methods and assumptions prescribed by the OCI. Gross premiums are calculated in pricing and use mortality tables that reflect both the Companys actual experience and the potential transfer of risk to reinsurers. Net premiums are determined in the calculation of statutory reserves, which must be based on industry-standard mortality tables.
As of January 1, 2010, the Company implemented the preferred mortality components of the 2001 CSO mortality table for the calculation of basic and deficiency reserves for term life insurance policies issued during 2006 and 2005. This change in reserve valuation basis resulted in a $131 million decrease in reserves that is reported as a direct increase to surplus in the consolidated statement of changes in surplus for the year ended December 31, 2010.
As of January 1, 2009, the Company changed the valuation basis for waiver reserves on life insurance. This change decreased the policy benefit reserve for waiver benefits by $67 million, which was reported as a direct increase to surplus in the consolidated statement of changes in surplus for the year ended December 31, 2009. As of January 1, 2009, the Company also implemented the preferred mortality components of the 2001 CSO mortality table for the calculation of deficiency reserves for term life insurance policies issued in 2008 and 2007. This change in reserve valuation basis resulted in an $8 million decrease in reserves that is reported as a direct increase to surplus in the consolidated statement of changes in surplus for the year ended December 31, 2009.
Tabular cost has been determined from the basic data for the calculation of policy reserves. Tabular cost less actual reserves released has been determined from the basic data for the
F - 32
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
calculation of reserves and reserves released. Tabular interest has been determined from the basic data for the calculation of policy reserves. Tabular interest on funds not involving life contingencies is calculated as the product of the valuation interest rate times the mean of the amount of funds subject to such rate held at the beginning and end of the year of valuation.
Additional premiums are charged for substandard lives on policies issued after January 1, 1956. Net level premium or CRVM mean reserves for these policies are based on multiples of mortality tables or one-half the net flat or other extra mortality charge. The Company waives deduction of fractional premiums upon death of an insured and returns any portion of the final premium beyond the date of death. Cash values are not promised in excess of the legally computed reserves.
Annuity Reserves
Deferred annuity reserves on policies issued since 1985 are based primarily on the Commissioners Annuity Reserve Valuation Method (CARVM) with valuation interest rates ranging from 3.50% to 6.25%. Other deferred annuity reserves are based on policy value, with additional reserves held to reflect guarantees under these contracts. Immediate annuity reserves are based on the present value of expected benefit payments with valuation interest rates ranging from 3.50% to 7.50%. Changes in future policy benefit reserves on supplementary contracts without life contingencies are deposit-type transactions and excluded from net additions to policy benefit reserves in the consolidated statement of operations.
At December 31, 2011 and 2010, the withdrawal characteristics of the Companys general account and separate account annuity reserves and deposit liabilities were as follows:
December 31, | ||||||||||||||||||||||||
General Account | Separate Accounts | Total | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Subject to discretionary withdrawal |
||||||||||||||||||||||||
- with market value adjustment |
$ | 914 | $ | 969 | $ | - | $ | - | $ | 914 | $ | 969 | ||||||||||||
- at book value less surrender charge of 5% or more |
575 | 502 | - | - | 575 | 502 | ||||||||||||||||||
- at fair value |
- | - | 10,808 | 10,641 | 10,808 | 10,641 | ||||||||||||||||||
- at book value without adjustment |
3,873 | 3,895 | - | - | 3,873 | 3,895 | ||||||||||||||||||
Not subject to discretionary withdrawal |
2,309 | 2,146 | 3,286 | 3,198 | 5,595 | 5,344 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 7,671 | $ | 7,512 | $ | 14,094 | $ | 13,839 | $ | 21,765 | $ | 21,351 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Disability and LTC Reserves
Unpaid claims and claim reserves for disability policies are based on the present value of expected benefit payments, primarily using the 1985 Commissioners Individual Disability Table A (CIDA), modified for Company experience, with valuation interest rates ranging from 3.00% to 5.50%. Unpaid claims and claim reserves for long-term care policies are based on the present value of expected benefit payments using industry-based morbidity experience with valuation interest rates ranging from 4.00% to 4.50%.
F - 33
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Reserves for unpaid claims, losses and loss adjustment expenses on disability and long-term care policies were $4.3 billion and $4.1 billion at December 31, 2011 and 2010, respectively. Changes in these reserves for the years ended December 31, 2011 and 2010 were as follows:
For the year ended December 31, |
||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Balance at January 1 |
$ | 4,098 | $ | 3,938 | ||||
Incurred related to: |
||||||||
Current year |
590 | 588 | ||||||
Prior years |
93 | 102 | ||||||
|
|
|
|
|||||
Total incurred |
683 | 690 | ||||||
Paid related to: |
||||||||
Current year |
(20 | ) | (21 | ) | ||||
Prior years |
(507 | ) | (509 | ) | ||||
|
|
|
|
|||||
Total paid |
(527 | ) | (530 | ) | ||||
|
|
|
|
|||||
Balance at December 31 |
$ | 4,254 | $ | 4,098 | ||||
|
|
|
|
Changes in reserves for incurred claims related to prior years are generally the result of differences between assumed claim experience at the time reserves were originally estimated and subsequent actual claim experience.
Active life reserves for disability policies issued since 1987 are based primarily on the two-year preliminary term method using the 1985 CIDA for morbidity with a 4.00% valuation interest rate. Active life reserves for prior disability policies are based on the net level premium method, using the 1964 Commissioners Disability Table for morbidity with valuation interest rates ranging from 3.00% to 4.00%.
Active life reserves for long-term care policies consist of mid-terminal reserves and unearned premiums. Mid-terminal reserves are based on the one-year preliminary term method and industry-based morbidity experience. For policies issued prior to March 2002, reserves are based on a 4.00% valuation interest rate and total terminations based on the 1983 Individual Annuitant Mortality table without lapses. For policies issued March 2002 and later, minimum reserves are based on valuation interest rates of 4.00% or 4.50% and total terminations based on either the 1983 Group Annuity Mortality table or the 1994 Group Annuity Mortality table with lapses. A separate calculation is performed using valuation interest rates ranging from 5.20% to 6.00% and assuming no lapses. Reserves from the separate calculation are compared in the aggregate to the minimum reserves as calculated above and the greater of the two is reported.
Deposit Funds
Deposit funds primarily represent reserves for supplementary annuity contracts without life contingencies and amounts left on deposit with the Company by beneficiaries or policyowners. Beneficiaries of the Companys life insurance policies can choose to receive their death benefit in a single lump sum payment, through a payment plan consisting of a series of scheduled payments or by deposit of the proceeds (if $20,000 or more) into an interest-bearing retained asset account (Northwestern Access Fund). If the beneficiary does not affirmatively choose either the second or third option above, the proceeds are automatically paid to the beneficiary in a single lump sum. If the beneficiary chooses a Northwestern Access Fund account, the beneficiary receives
F - 34
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
negotiable drafts that they can use to access the balance in this account at their discretion. The total reserve liability for Northwestern Access Fund account balances held by the Company on behalf of beneficiaries was $0.9 billion and $1.2 billion at December 31, 2011 and 2010, respectively. Funds held on behalf of Northwestern Access Fund account holders are segmented in the Companys general account and are invested primarily in short-term, liquid investments.
Northwestern Access Fund accounts are credited with interest at short-term market rates, with certain accounts subject to guaranteed minimum crediting rates. Northwestern Access Fund accounts were credited with interest at annual rates ranging from 0.01% to 3.50% during 2011 and 0.02% to 3.50% during 2010. The Company does not charge beneficiaries any fee to establish or maintain a Northwestern Access Fund account. Fees may be assessed for special account services such as stop-payment requests, drafts returned for insufficient funds or wire transfers.
6. | Premium and Annuity Considerations Deferred and Uncollected |
Gross deferred and uncollected insurance premiums represent life insurance premiums due to be received from policyowners through the next respective policy anniversary dates. Net deferred and uncollected premiums represent only the portion of gross premiums related to mortality charges and interest and are reported as an asset in the consolidated statement of financial position.
Deferred and uncollected premiums at December 31, 2011 and 2010 were as follows:
December 31, 2011 | December 31, 2010 | |||||||||||||||
Gross | Net | Gross | Net | |||||||||||||
(in millions) | ||||||||||||||||
Ordinary new business |
$ | 212 | $ | 82 | $ | 202 | $ | 79 | ||||||||
Ordinary renewal |
2,026 | 1,666 | 1,932 | 1,601 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total deferred and uncollected premiums |
$ | 2,238 | $ | 1,748 | $ | 2,134 | $ | 1,680 | ||||||||
|
|
|
|
|
|
|
|
7. | Separate Accounts |
Following is a summary of separate account liabilities by withdrawal characteristic at December 31, 2011 and 2010:
Variable Life | Variable Annuities | Total | ||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Subject to discretionary withdrawal |
$ | 4,488 | $ | 4,700 | $ | 10,808 | $ | 10,641 | $ | 15,296 | $ | 15,341 | ||||||||||||
Not subject to discretionary withdrawal |
- | - | 3,286 | 3,198 | 3,286 | 3,198 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total separate account reserves |
4,488 | 4,700 | 14,094 | 13,839 | 18,582 | 18,539 | ||||||||||||||||||
|
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|
|
|
|
|
|
|||||||||||||||||
Non-policy liabilities |
115 | 124 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total separate account liabilities |
$ | 18,697 | $ | 18,663 | ||||||||||||||||||||
|
|
|
|
While separate account liability values are not guaranteed by the Company, variable annuity and variable life insurance products do include guaranteed minimum death benefits (GMDB) underwritten by the Company. The maximum potential cost of these guarantees at December 31, 2011 and 2010 was $188 million and $119 million, respectively, which represents the aggregate difference between guaranteed values and otherwise available values for all variable products for which the guaranteed value was greater at the respective reporting dates. Because these benefits are only available upon the death of the annuitant or insured, reserves for these benefits are based
F - 35
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
upon NAIC-prescribed actuarial methods that take into account, among other factors, the likelihood of death based on standard mortality tables. General account reserves for policy benefits included $19 million and $15 million attributable to GMDB at December 31, 2011 and 2010, respectively.
Premiums and other considerations received from variable annuity and variable life insurance policyowners were $1.8 billion, $1.7 billion and $1.2 billion for the years ended December 31, 2011, 2010 and 2009, respectively. These amounts are reported as premiums in the consolidated statement of operations. The subsequent transfer of these premiums to the separate accounts is reported as transfers to separate accounts in the consolidated statement of operations, net of amounts received from the separate accounts to provide for policy benefit payments to variable product policyowners.
Following are amounts reported as transfers to and from separate accounts in the summary of operations of the Companys NAIC Separate Account Annual Statement, which agree with the amounts reported as net transfers to separate accounts in the consolidated statement of operations for the years ended December 31, 2011, 2010 and 2009:
For the year ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
From Separate Account Annual Statement: |
||||||||||||
Transfers to separate accounts |
$ | 1,909 | $ | 1,819 | $ | 1,319 | ||||||
Transfers from separate accounts |
(1,428 | ) | (1,437 | ) | (1,359 | ) | ||||||
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|
|
|
|||||||
Net transfers to (from) separate accounts |
$ | 481 | $ | 382 | $ | (40 | ) | |||||
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|
|
8. | Employee and Financial Representative Benefit Plans |
The Company sponsors noncontributory defined benefit pension plans (plans) for all eligible employees and financial representatives. The Company also sponsors nonqualified plans, including plans that provide benefits to certain participants in excess of limits set by the Employee Retirement Income Security Act (ERISA) for the qualified plans. The Companys funding policy for the tax-qualified plans is to make annual contributions that are no less than the minimum amount needed to comply with the requirements of ERISA and no greater than the maximum amount deductible for federal income tax purposes. The Company contributed $145 million and $275 million to the qualified employee retirement plan during the years ended December 31, 2011 and 2010, respectively. The Company expects to make a contribution of $90 million during 2012.
In addition to defined pension benefits, the Company provides certain health care and life insurance benefits (postretirement benefits) to retired employees, retired financial representatives and their eligible dependents. The Company pays the entire cost of retiree life insurance coverage, while retirees contribute a portion of the cost of the health plan. Substantially all employees and financial representatives will become eligible for these benefits if they reach retirement age while working for the Company.
F - 36
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Aggregate plan assets and projected benefit obligations of the defined benefit pension plans and postretirement benefit plans at December 31, 2011 and 2010, and changes in assets and obligations for the years then ended, were as follows:
Defined Benefit Plans | Postretirement Benefit Plans | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions) | ||||||||||||||||
Fair value of plan assets at January 1 |
$ | 2,992 | $ | 2,418 | $ | 73 | $ | 69 | ||||||||
Changes in plan assets: |
||||||||||||||||
Actual return on plan assets |
20 | 367 | - | 11 | ||||||||||||
Company contributions |
145 | 275 | - | - | ||||||||||||
Actual plan benefits paid |
(73 | ) | (68 | ) | (6 | ) | (7 | ) | ||||||||
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|||||||||
Fair value of plan assets at December 31 |
$ | 3,084 | $ | 2,992 | $ | 67 | $ | 73 | ||||||||
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|
|||||||||
Projected benefit obligation at January 1 |
$ | 2,878 | $ | 2,544 | $ | 415 | $ | 290 | ||||||||
Changes in benefit obligation: |
||||||||||||||||
Service cost of benefits earned |
100 | 84 | 26 | 26 | ||||||||||||
Interest cost on projected obligations |
164 | 154 | 23 | 21 | ||||||||||||
Projected gross plan benefits paid |
(89 | ) | (82 | ) | (23 | ) | (22 | ) | ||||||||
Projected Medicare Part D reimbursement |
- | - | 2 | 1 | ||||||||||||
Experience losses |
667 | 177 | 55 | 99 | ||||||||||||
Plan amendments |
- | 1 | - | - | ||||||||||||
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|||||||||
Projected benefit obligation at December 31 |
$ | 3,720 | $ | 2,878 | $ | 498 | $ | 415 | ||||||||
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|
Plan assets consist of a share of a group annuity separate account (GASA) issued by the Company, which invests primarily in a diversified portfolio of public and private common stocks and corporate, government and mortgage-backed debt securities. The investment objective of the plans is to maximize long-term total rate of return, consistent with prudent investment risk management and in accordance with ERISA requirements. Plan investments are managed for the sole benefit of the plans participants.
While significant exposure to public equity securities is warranted by the long-term duration of expected benefit payments, diversification across asset classes is maintained to provide a risk/reward profile consistent with the objectives of the plans participants. Diversified equity investments are subject to an aggregate maximum exposure of 75% of total assets, with holdings in any one corporate issuer not to exceed 3% of total assets. Asset mix is rebalanced regularly to maintain holdings within target asset allocation ranges. The measurement date for plan assets is December 31, with the fair value of plan assets based primarily on quoted market values.
The target asset allocations and the actual allocation of the plans investments on a fair value basis at December 31, 2011 and 2010 were as follows:
Target Allocation |
Actual Allocation | |||||||
2011 | 2010 | 2011 | 2010 | |||||
Bonds |
34% | 34% | 35% | 32% | ||||
Equity securities |
65% | 65% | 63% | 66% | ||||
Other investments |
1% | 1% | 2% | 2% | ||||
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| |||||
Total assets |
100% | 100% | 100% | 100% | ||||
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|
F - 37
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The projected benefit obligation (PBO) represents the actuarial net present value of estimated future benefit obligations. For defined benefit plans, PBO includes assumptions for future salary increases for active employees. The accumulated benefit obligation (ABO) is similar to the PBO, but is based only on current salaries with no assumption of future salary increases. The aggregate ABO for the defined benefit plans was $3.2 billion and $2.5 billion at December 31, 2011 and 2010, respectively.
The PBO and ABO amounts above represent the estimated future benefit obligations due to vested participants only, as required by the statutory basis of accounting. The estimated present value of additional future obligations for participants that have not yet vested in the defined benefit plans and the postretirement benefit plans at December 31, 2011 and 2010 were as follows:
Defined Benefit Plans | Postretirement Benefit Plans | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||
(in millions)
|
||||||||||||||||||||
PBO |
$ | 87 | $ | 59 | $ | 302 | $ | 247 | ||||||||||||
ABO |
60 | 39 | - | - |
The assumptions used in estimating the projected benefit obligations and the net benefit cost at December 31, 2011, 2010 and 2009 and for the years then ended were as follows:
Defined Benefit Plans | Postretirement Benefit Plans | |||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||
Projected benefit obligation: |
||||||||||||
Discount rate |
4.50% | 5.75% | 6.25% | 4.50% | 5.75% | 6.25% | ||||||
Annual increase in compensation |
3.75% | 3.75% | 3.75% | 3.75% | 3.75% | 3.75% | ||||||
Net periodic benefit cost: |
||||||||||||
Discount rate |
5.75% | 6.25% | 6.25% | 5.75% | 6.25% | 6.25% | ||||||
Annual increase in compensation |
3.75% | 3.75% | 3.75% | 3.75% | 3.75% | 3.75% | ||||||
Long-term rate of return on plan assets |
7.50% | 8.00% | 8.00% | 7.50% | 8.00% | 8.00% |
The long-term rate of return on plan assets is estimated assuming a target allocation of plan investments among asset classes, with expected returns by asset class based on several factors including economic projections, third-party research and long-term historical returns. Risk is assessed by evaluating long-term historical standard deviations and correlations between asset classes.
The PBO for postretirement benefits at December 31, 2011 assumed an annual increase in future retiree medical costs of 7.5%, grading down to 5% over five years and remaining level thereafter. At December 31, 2010 the comparable assumption was for an annual increase in future retiree medical costs of 8.0% grading down to 5% over six years and remaining level thereafter. A greater increase in the assumed health care cost trend of 1% in each year would increase the accumulated postretirement benefit obligation at December 31, 2011 by $50 million and net periodic postretirement benefit expense for the year ended December 31, 2011 by $6 million. A decrease in the assumed health care cost trend of 1% in each year would reduce the accumulated postretirement benefit obligation as of December 31, 2011 and net periodic postretirement benefit expense for the year ended December 31, 2011 by the same amounts.
During 2010, the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010, which amended certain provisions of the PPACA, were
F - 38
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
signed into law. One of the provisions of the new laws created an excise tax beginning in 2018 on health plans that have an aggregate value greater than a threshold amount. The potential future impact on the Companys PBO for postretirement medical benefit from this new excise tax is estimated to be an increase of $43 million. A second provision of the new laws revoked the non-taxable status of the prescription drug subsidies offered to companies that maintain retiree health plans that are actuarially equivalent to the Medicare Part D benefit. The Company previously recorded deferred tax assets based on the expectation of this tax benefit. As a result of the law change, the related deferred tax assets of $11 million were eliminated as a direct reduction of surplus for the year ended December 31, 2010 to reflect the expected future income tax on the subsidy.
Following is an aggregate reconciliation of the funded status of the plans to the related financial statement liability reported by the Company at December 31, 2011 and 2010:
Defined Benefit Plans |
Postretirement Benefit Plans |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions) | ||||||||||||||||
Fair value of plan assets |
$ | 3,084 | $ | 2,992 | $ | 67 | $ | 73 | ||||||||
Projected benefit obligation |
3,720 | 2,878 | 498 | 415 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Funded status |
(636 | ) | 114 | (431 | ) | (342 | ) | |||||||||
Unrecognized net experience losses |
1,509 | 665 | 188 | 132 | ||||||||||||
Unrecognized prior service cost |
1 | 1 | (4 | ) | (4 | ) | ||||||||||
Unrecognized initial net asset |
(515 | ) | (515 | ) | - | - | ||||||||||
Additional minimum liability |
(37 | ) | (14 | ) | - | - | ||||||||||
Nonadmitted asset |
(851 | ) | (731 | ) | - | - | ||||||||||
|
|
|
|
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|
|||||||||
Net pension liability |
$ | (529 | ) | $ | (480 | ) | $ | (247 | ) | $ | (214 | ) | ||||
|
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|
|
|
|
The projected benefit obligation for defined benefit plans shown above included $584 million and $473 million related to nonqualified, unfunded plans at December 31, 2011 and 2010, respectively. In the aggregate, the fair value of qualified plan assets represented 98% and 124% of the projected benefit obligations of these qualified plans at December 31, 2011 and 2010, respectively.
Unrecognized net experience gains or losses represent cumulative amounts by which plan experience for return on plan assets or growth in projected benefit obligations have varied from related assumptions. These differences accumulate without recognition in the Companys financial statements unless they exceed 10% of plan assets or 10% of the projected benefit obligation, whichever is greater. If they exceed this limit, they are amortized into net periodic benefit cost over the remaining average years of service until retirement of the plan participants, which is currently fourteen years for employee plans and twelve years for financial representative plans. Unrecognized net experience losses primarily reflect the impact of reductions in the PBO discount rate since 2009, including $651 million of net experience losses related to the reduction in the discount rate to 4.50% during 2011.
Unrecognized initial net asset represents the amount by which the fair value of plan assets exceeded the projected benefit obligation for funded pension plans upon the adoption of new statutory accounting guidance for defined benefit plans at January 1, 2001. The Company has elected not to record a direct increase to surplus for this excess, electing instead to amortize this unrecognized initial net asset as a reduction of net periodic benefit cost until exhausted.
F - 39
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
An additional minimum liability is required if a plans ABO exceeds plan assets or accrued pension liabilities. This additional liability was $37 million, $14 million and $10 million at December 31, 2011, 2010 and 2009, respectively. Changes in the additional minimum liability are reported as a direct adjustment to surplus in the consolidated statement of changes in surplus.
Any net pension assets for funded plans are nonadmitted and are thereby excluded from assets and surplus in the consolidated statement of financial position.
The components of net periodic benefit cost for the years ended December 31, 2011, 2010 and 2009 were as follows:
Defined Benefit Plans | Postretirement Benefit Plans | |||||||||||||||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Components of net periodic benefit cost: |
||||||||||||||||||||||||
Service cost of benefits earned |
$ | 100 | $ | 84 | $ | 83 | $ | 26 | $ | 26 | $ | 25 | ||||||||||||
Interest cost on projected obligations |
164 | 154 | 147 | 23 | 21 | 16 | ||||||||||||||||||
Amortization of experience gains and losses |
28 | 33 | 61 | 4 | 3 | 2 | ||||||||||||||||||
Amortization of initial net asset |
- | (2 | ) | (28 | ) | - | - | - | ||||||||||||||||
Expected return on plan assets |
(222 | ) | (192 | ) | (160 | ) | (5 | ) | (5 | ) | (5 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net periodic benefit cost |
$ | 70 | $ | 77 | $ | 103 | $ | 48 | $ | 45 | $ | 38 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The expected benefit payments by the defined benefit plans and the postretirement benefit plans for the years 2012 through 2021 are as follows:
Defined Benefit Plans |
Postretirement Benefit Plans |
|||||||
(in millions)
|
||||||||
2012 | $ | 103 | $ | 22 | ||||
2013 | 113 | 25 | ||||||
2014 | 125 | 29 | ||||||
2015 | 139 | 32 | ||||||
2016 | 153 | 36 | ||||||
2017-2021 | 1,047 | 243 | ||||||
Total |
$ | 1,680 | $ | 387 |
The Company also sponsors a contributory 401(k) plan for eligible employees, for which the Company provides a matching contribution, and a noncontributory defined contribution plan for financial representatives. The Company also sponsors nonqualified plans that provide benefits to certain participants in excess of limits set by ERISA for qualified defined contribution plans. For the years ended December 31, 2011, 2010 and 2009, the Company expensed total contributions to these plans of $32 million, $31 million and $30 million, respectively.
9. | Reinsurance |
The Company limits its exposure to life insurance death benefits by ceding insurance coverage to various reinsurers. The Company retains a maximum of $35 million of individual life coverage and a maximum of $50 million of joint life coverage for any single mortality risk. The Company also participates in a life insurance catastrophic risk sharing pool.
The Company cedes 60% of the morbidity risk on group disability plans. The Company ceased reinsuring new individual disability policies in 1999 and new long-term care policies in 2002 but has maintained a portion of the reinsurance ceded on policies issued prior to those dates.
F - 40
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Amounts in the consolidated financial statements are reported net of the impact of reinsurance. Reserves for policy benefits at each of December 31, 2011 and 2010 were reported net of ceded reserves of $1.6 billion.
The effects of reinsurance on premium revenue and benefit expense for the years ended December 31, 2011, 2010 and 2009 were as follows:
For the year ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Direct premium revenue |
$ | 15,457 | $ | 14,984 | $ | 13,910 | ||||||
Premiums ceded |
(839 | ) | (732 | ) | (848 | ) | ||||||
|
|
|
|
|
|
|||||||
Net premium revenue |
$ | 14,618 | $ | 14,252 | $ | 13,062 | ||||||
|
|
|
|
|
|
|||||||
Direct benefit expense |
$ | 15,999 | $ | 15,583 | $ | 14,458 | ||||||
Benefits ceded |
(495 | ) | (375 | ) | (513 | ) | ||||||
|
|
|
|
|
|
|||||||
Net benefit expense |
$ | 15,504 | $ | 15,208 | $ | 13,945 | ||||||
|
|
|
|
|
|
In addition, the Company received $169 million, $146 million and $194 million in allowances from reinsurers for reimbursement of commissions and other expenses on ceded business for the years ended December 31, 2011, 2010 and 2009, respectively. These amounts are reported in other income in the consolidated statement of operations.
Reinsurance contracts do not relieve the Company from its obligations to policyowners. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company mitigates this counterparty risk by dealing only with reinsurers that meet its financial strength standards while adhering to concentration limits for counterparty exposure to any single reinsurer. Most significant reinsurance treaties contain financial protection provisions should a reinsurers credit rating fall below a prescribed level. There were no reinsurance recoverables at December 31, 2011 and 2010 that were considered by management to be uncollectible.
During 2010, the Company exercised its option to recapture previously ceded long-term care insurance business from two unaffiliated reinsurers. The effect on the Companys financial statements from these recapture transactions was to increase investments by $67 million and policy benefit reserves by $100 million at December 31, 2010, with a related decrease in net income and surplus of $33 million for the year then ended.
F - 41
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
10. | Income Taxes |
The Company files a consolidated federal income tax return including the following subsidiaries:
Northwestern Mutual Investment Services, LLC | Frank Russell Company and subsidiaries | |
NML Real Estate Holdings, LLC and subsidiaries | Bradford, Inc. | |
NML Securities Holdings, LLC and subsidiaries | Mason Street Advisors, LLC | |
Northwestern Mutual Capital, LLC | NML CBO, LLC | |
Northwestern Mutual Wealth Management Company | JYD Assets, LLC | |
NM Pebble Valley, LLC | NM GP Holdings, LLC | |
Northwestern Mutual Real Estate Investments, LLC | NM Investment Holdings, Inc. |
The Company collects from or refunds to these subsidiaries their share of consolidated federal income taxes determined pursuant to written tax-sharing agreements, which generally require that these subsidiaries determine their share of consolidated tax payments or refunds as if each subsidiary filed a separate federal income tax return on a stand-alone basis.
The major components of current income tax expense in the consolidated statement of operations for the years ended December 31, 2011, 2010 and 2009 were as follows:
For the year ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Tax payable on ordinary income |
$ | 99 | $ | (33 | ) | $ | 52 | |||||
Tax credits |
(116 | ) | (185 | ) | (43 | ) | ||||||
Increase (decrease) in contingent tax liabilities |
23 | (6 | ) | 33 | ||||||||
|
|
|
|
|
|
|||||||
Total current tax expense (benefit) |
$ | 6 | $ | (224 | ) | $ | 42 | |||||
|
|
|
|
|
|
In addition to the ordinary current tax expense amounts above, net realized capital gains and losses in the consolidated statement of operations for the years ended December 31, 2011, 2010 and 2009 were reported net of current capital gains tax expense (benefit) of $252 million, $34 million and $(316) million, respectively.
The Companys taxable income can vary significantly from pretax financial statement income as reported in the consolidated statement of operations due to temporary and permanent differences in revenue recognition and expense deduction between the tax and statutory financial statement bases of reporting. The Companys financial statement effective tax rates were 15%, 8% and 9% for the years ended December 31, 2011, 2010 and 2009, respectively.
The effective tax rate above is not the rate of tax applied to the Companys federal taxable income or loss by the Internal Revenue Service (IRS). It is a financial statement relationship that represents the ratio between the sum of total tax expense or benefit incurred, including current tax expense or benefit on realized capital gains and losses and changes in deferred taxes not related to unrealized gains and losses on investments, to the sum of gain from operations before taxes and pretax net realized capital gains or losses. These financial statement effective rates were different than the applicable federal income tax rate of 35% due primarily to net investment income eligible for dividends received deduction, changes in nonadmitted deferred tax assets, certain investment transactions, amortization of the IMR, leveraged leases, tax credits, pension contributions, tax losses of subsidiaries not eligible for refunds under intercompany tax-sharing agreements, interest accrued or released on contingent tax liabilities and adjustments to estimated current tax liabilities upon subsequent filing of tax returns.
F - 42
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The Company made payments to the IRS for federal income taxes of $460 million and $253 million during the years ended December 31, 2011 and 2010, respectively, and received federal tax refunds from the IRS of $454 million during the year ended December 31, 2009. Income taxes paid in 2011 and prior years of $1.4 billion are available at December 31, 2011 for refund claims in the event of future tax losses.
Federal income tax returns for 2007 and prior years are closed as to further assessment of tax. Income taxes payable in the consolidated statement of financial position represents an estimate of taxes recoverable or payable, including additional taxes that may become due with respect to tax years that remained open to examination by the IRS at the respective reporting date (contingent tax liabilities).
Changes in the amount of contingent tax liabilities for the year ended December 31, 2011 were as follows (in millions):
Balance at January 1, 2011 |
$ | 412 | ||
Additions based on tax positions related to the current year |
- | |||
Additions for tax positions of prior years |
24 | |||
Reductions for tax positions of prior years |
- | |||
|
|
|||
Balance at December 31, 2011 |
$ | 436 | ||
|
|
Included in the balance at December 31, 2011 are $394 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of the deductions. Because of the impact of deferred tax accounting for amounts other than interest, the timing of the ultimate deduction would not affect the effective tax rate in future periods.
The Company reports interest accrued or released related to contingent tax liabilities in current income tax expense (benefit). During the years ended December 31, 2011, 2010 and 2009, the Company recognized $16 million, $(28) million and $19 million, respectively, in interest-related expense (benefit). The Company had $43 million and $27 million of liability accrued for the payment of interest at December 31, 2011 and 2010, respectively.
F - 43
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The Company accounts for deferred tax assets and liabilities, which represent the financial statement impact of cumulative temporary differences between the tax and financial statement bases of assets and liabilities. The significant components of the net deferred tax asset at December 31, 2011 and 2010 were as follows:
December 31, | ||||||||||||
2011 | 2010 | Change | ||||||||||
(in millions) | ||||||||||||
Deferred tax assets: |
||||||||||||
Policy acquisition costs |
$ | 1,050 | $ | 1,014 | $ | 36 | ||||||
Investments |
371 | 155 | 216 | |||||||||
Policy benefit liabilities |
1,867 | 1,776 | 91 | |||||||||
Benefit plan obligations |
547 | 511 | 36 | |||||||||
Guaranty fund assessments |
11 | 11 | - | |||||||||
Net operating loss carry forwards |
- | 18 | (18 | ) | ||||||||
Other |
93 | 139 | (46 | ) | ||||||||
|
|
|
|
|
|
|||||||
Adjusted gross deferred tax assets |
3,939 | 3,624 | 315 | |||||||||
Nonadmitted deferred tax assets |
(38 | ) | (42 | ) | 4 | |||||||
|
|
|
|
|
|
|||||||
Admitted adjusted deferred tax assets |
3,901 | 3,582 | 319 | |||||||||
|
|
|
|
|
|
|||||||
Deferred tax liabilities: |
||||||||||||
Investments |
824 | 976 | (152 | ) | ||||||||
Other |
721 | 682 | 39 | |||||||||
|
|
|
|
|
|
|||||||
Gross deferred tax liabilities |
1,545 | 1,658 | (113 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net admitted adjusted deferred tax assets |
$ | 2,356 | $ | 1,924 | $ | 432 | ||||||
|
|
|
|
|
|
Adjusted gross deferred tax assets at December 31, 2011 and 2010 included $3.7 billion and $3.4 billion, respectively, related to temporary differences that were ordinary in nature and $0.2 billion and $0.2 billion, respectively, related to temporary differences that were capital in nature. Gross deferred tax liabilities at December 31, 2011 and 2010 included $0.9 billion and $0.9 billion, respectively, related to temporary differences that were ordinary in nature and $0.6 billion and $0.7 billion, respectively, related to temporary differences that were capital in nature.
Changes in deferred tax assets and liabilities related to unrealized gains and losses on investments are reported as changes in unrealized capital gains and losses in the consolidated statement of changes in surplus. Other net changes in deferred tax assets and liabilities are reported as direct adjustments to surplus in the consolidated statement of changes in surplus.
The statutory basis of accounting limits the amount of gross deferred tax assets that can be included in Company surplus. This limit is based on a calculation that takes into consideration available loss carryback and carryforward capacity, expected timing of reversal for existing temporary differences, gross deferred tax liabilities and the level of Company surplus.
During 2009, the NAIC adopted Statement of Statutory Accounting Principles No. 10R, Income Taxes- Revised, A Temporary Replacement of SSAP No. 10 (SSAP 10R), initially effective for the years ended December 31, 2009 and 2010. During 2010, the NAIC extended the required use of SSAP 10R through December 31, 2011. SSAP 10R changed the calculation of the limit for admission to surplus of deferred tax assets (DTA) compared to previous guidance. SSAP 10R
F - 44
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
extended the reversal period for temporary differences from one year to three years and increased the level-of-surplus limitation from 10% to 15%, provided the insurer meets a minimum risk-based capital (RBC) level of 250%. Insurers that do not meet that minimum RBC level must calculate their admitted DTA using the statutory guidance previously in effect. At both December 31, 2011 and 2010, the Company exceeded the minimum RBC level required to use the new DTA admissibility methodology under SSAP 10R.
If the Company had not qualified to use the SSAP 10R DTA admissibility calculation, its gross deferred tax assets at December 31, 2011 and 2010 would have exceeded the previous SSAP 10 limitation by $457 million and $97 million, respectively, which would have reduced surplus in the consolidated statement of financial position by the same amounts. Of these amounts, $457 million and $97 million were ordinary in nature at December 31, 2011 and 2010, respectively. The Company did not assume the benefit of future tax planning strategies in its valuation of gross DTA at either December 31, 2011 or 2010.
During 2011, the NAIC adopted Statement of Statutory Accounting Principles No. 101 Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10 (SSAP 101), which is first effective January 1, 2012. SSAP 101 includes the same calculation for limitation of DTA admissibility as SSAP 10R for insurers that maintain a minimum of 300% of their authorized control level RBC computed without net deferred tax assets. The Company exceeded this new 300% minimum RBC requirement at each of December 31, 2011 and 2010 and expects to exceed this minimum throughout 2012. SSAP 101 also changes the recognition and measurement criteria for contingent tax liabilities. Based on its current circumstances, management anticipates that the Companys adoption of SSAP 101 during 2012 will reduce surplus by less than $50 million and will have an immaterial impact on results of operations for 2012 and beyond.
F - 45
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Significant components of the calculation of admitted deferred tax assets under SSAP 10R at December 31, 2011 and 2010 were as follows:
December 31, 2011 | December 31, 2010 | Change | ||||||||||||||||||||||||||||||||||
Ordinary | Capital | Total | Ordinary | Capital | Total | Ordinary | Capital | Total | ||||||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
One year reversal and 10% surplus limit: |
||||||||||||||||||||||||||||||||||||
Federal taxes recoverable from taxes paid in prior years |
$ | 1,040 | $ | 83 | $ | 1,123 | $ | 696 | $ | 55 | $ | 751 | $ | 344 | $ | 28 | $ | 372 | ||||||||||||||||||
DTA expected to be realized within one year |
776 | 19 | 795 | 1,076 | - | 1,076 | (300 | ) | 19 | (281 | ) | |||||||||||||||||||||||||
Remaining DTA to be offset against DTL |
1,481 | 64 | 1,545 | 1,557 | 93 | 1,650 | (76 | ) | (29 | ) | (105 | ) | ||||||||||||||||||||||||
Three year reversal and 15% surplus limit: |
||||||||||||||||||||||||||||||||||||
Federal taxes recoverable from taxes paid in prior years |
1,062 | 61 | 1,123 | 650 | 101 | 751 | 412 | (40 | ) | 372 | ||||||||||||||||||||||||||
DTA expected to be realized within three years |
1,539 | - | 1,539 | 1,737 | - | 1,737 | (198 | ) | - | (198 | ) | |||||||||||||||||||||||||
Remaining DTA to be offset against DTL |
1,153 | 86 | 1,239 | 1,039 | 55 | 1,094 | 114 | 31 | 145 | |||||||||||||||||||||||||||
Stautory capital and surplus: |
||||||||||||||||||||||||||||||||||||
10 percent of statutory capital and surplus |
N/A | N/A | 1,229 | N/A | N/A | 1,179 | N/A | N/A | 50 | |||||||||||||||||||||||||||
15 percent of statutory capital and surplus |
N/A | N/A | 1,843 | N/A | N/A | 1,769 | N/A | N/A | 74 | |||||||||||||||||||||||||||
Risk-based capital levels: |
||||||||||||||||||||||||||||||||||||
Total adjusted capital |
N/A | N/A | 20,650 | N/A | N/A | 20,065 | N/A | N/A | 585 | |||||||||||||||||||||||||||
Authorized control level |
N/A | N/A | 2,094 | N/A | N/A | 2,142 | N/A | N/A | (48 | ) | ||||||||||||||||||||||||||
Admitted deferred tax assets |
3,273 | 146 | 3,419 | 3,329 | 156 | 3,485 | (56 | ) | (10 | ) | (66 | ) | ||||||||||||||||||||||||
Admitted assets |
N/A | N/A | 3,419 | N/A | N/A | 3,478 | N/A | N/A | (59 | ) | ||||||||||||||||||||||||||
Adjusted statutory surplus |
N/A | N/A | 12,293 | N/A | N/A | 11,788 | N/A | N/A | 505 | |||||||||||||||||||||||||||
Total adjusted capital from DTA |
N/A | N/A | 2,356 | N/A | N/A | 1,924 | N/A | N/A | 432 | |||||||||||||||||||||||||||
Increased amounts from use of three-year reversal and 15% surplus limit: |
||||||||||||||||||||||||||||||||||||
Admitted deferred tax assets |
457 | - | 457 | 97 | - | 97 | 360 | - | 360 | |||||||||||||||||||||||||||
Admitted assets |
N/A | N/A | 457 | N/A | N/A | 97 | N/A | N/A | 360 | |||||||||||||||||||||||||||
Adjusted statutory surplus |
N/A | N/A | 457 | N/A | N/A | 97 | N/A | N/A | 360 |
11. | Frank Russell Company |
The Company acquired Frank Russell Company (Russell) effective January 1, 1999. Russell provides investment products and services in over 35 countries. The initial purchase price of approximately $1.0 billion was funded with a combination of cash, senior notes issued by Russell and bank debt. The purchase agreement also called for additional contingent consideration to be paid to the former owners of Russell based upon its financial performance during the five-year period ended December 31, 2003.
At the time of acquisition, the Company received permission from the OCI for a permitted practice regarding the valuation of its investment in Russell common stock, whereby all GAAP acquisition goodwill recorded by Russell, including any subsequent additions to goodwill resulting from payment of contingent purchase consideration, was charged off from the Companys statutory equity method basis in the acquisition as a direct reduction of Company surplus. During 2008, the Company received permission from the OCI to amend the original permitted practice to be more consistent with Statement of Statutory Accounting Principle No. 97, Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88 (SSAP 97), using the statutory equity method based on Russells audited GAAP book equity, exclusive of any adjustment for Russells GAAP goodwill as would otherwise be required by SSAP 97.
F - 46
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
At December 31, 2011 and 2010, the Company owned 93.4% and 93.5%, respectively, of the outstanding common stock of Russell. In accordance with the permitted accounting practice described above, the Companys investment in Russell common stock is valued at $418 million and $458 million at December 31, 2011 and 2010, respectively, and reported as common and preferred stocks in the consolidated statement of financial position. If the Company had not received permission for this alternative accounting treatment, surplus as reported in the consolidated statement of financial position would have been lower by $772 million and $759 million at December 31, 2011 and 2010, respectively, and net income as reported in the consolidated statement of operations would have been lower by $13 million, $14 million and $16 million for the years ended December 31, 2011, 2010 and 2009, respectively. The Company estimates the fair value of its Russell common stock ownership to be $1.4 billion and $1.7 billion at December 31, 2011 and 2010, respectively.
The Companys share of Russells operating results are accounted for under the statutory equity method, whereby the Companys share of Russells GAAP net income and other changes in Russells GAAP common equity are reported as a change in net unrealized capital gains (losses). If accumulated earnings are distributed to the Company in the form of dividends, net investment income is recognized in the amount of the distribution and the previously unrealized capital gains are reversed. The Company received common stock dividends from Russell in the amount of $23 million during each of the years ended December 31, 2011 and 2010, of which $8 million and $23 million, respectively, was reported as net investment income in the consolidated statement of operations. No common stock dividends were received from Russell during 2009.
During 2008, another subsidiary of the Company sold Russell common stock representing a 5% ownership interest in Russell to a third party, resulting in an after-tax gain that was reported as an unrealized capital gain pending distribution of the net proceeds to the Company by the subsidiary. Those proceeds were distributed to the Company during 2009 and were reported as net investment income in the consolidated statement of operations for the year ended December 31, 2009.
During 2008, the Company purchased, at par, $350 million of perpetual senior preferred stock issued by Russell. The senior preferred stock is callable under certain conditions and pays preferred dividends at a rate of 8.00%. The Company earned $28 million and $28 million and $27 million in dividends on Russell senior preferred stock for the years ended December 31, 2011 and 2010 and 2009, respectively.
During 2009 and 2010, the Company purchased, at par, a total of $621 million of junior preferred stock issued by Russell. The junior preferred stock includes detachable warrants, is callable under certain conditions and pays preferred dividends at a rate of 10.00%, payable semi-annually. During 2011 and 2010, Russell redeemed $0 and $560 million, respectively, of junior preferred stock and related warrants, leaving $44 million of junior preferred stock outstanding at each of December 31, 2011 and 2010. The Company earned $4 million, $32 million and $17 million in dividends on Russell junior preferred stock for the years ended December 31, 2011, 2010 and 2009, respectively.
During 2010, Russell sold its private equity business to an unaffiliated third party, resulting in an after-tax gain to Russell of $382 million, which is reported as an unrealized capital gain in the consolidated statement of changes in surplus for the year ended December 31, 2010. The after-tax proceeds of the sale were used by Russell to retire fixed income notes, junior preferred stock and warrants issued to the Company by Russell.
During 2011, the Company entered into an agreement to loan up to $50 million to Russell so that Russell could invest seed money in certain of its new investment products. The commitment to fund loans under this agreement expires on December 15, 2012. At December 31, 2011, $25
F - 47
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
million was outstanding and due to the Company and is reported as a bond in the consolidated statement of financial position. This initial loan bears interest at 4.79% and matures on March 23, 2014.
During 2011, Russell entered into a revolving line of credit of up to $250 million with an unaffiliated lender that was guaranteed by the Company. This line of credit replaced a similar agreement that had expired on April 30, 2011. The Company received payments of $2.5 million from Russell related to the guarantee of this credit facility during each of the years ended December 31, 2011 and 2010, which were reported as net investment income in the consolidated statement of operations. Russells borrowings under these facilities were $163 million and $215 million at December 31, 2011 and 2010, respectively. See Note 12 for more information regarding the financial statement impact of guarantees and other commitments made by the Company.
The statement value of the Companys various investments in securities issued by Russell at December 31, 2011 and 2010 were as follows:
December 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Common stock |
$ | 418 | $ | 458 | ||||
Fixed income notes |
25 | - | ||||||
Senior preferred stock |
350 | 350 | ||||||
Junior preferred stock |
42 | 42 | ||||||
Warrants |
2 | 2 | ||||||
|
|
|
|
|||||
Total |
$ | 837 | $ | 852 | ||||
|
|
|
|
12. | Contingencies and Guarantees |
In the normal course of business, the Company makes guarantees to third parties on behalf of affiliates (e.g., the guarantee of Russells line of credit) and financial representatives (e.g., the guarantee of office lease payments), or directly to financial representatives (e.g., future minimum compensation payments). If these affiliates or financial representatives are not able to meet their obligations or these minimum compensation thresholds are not otherwise met, the Company would be required to make payments to fulfill its guarantees. For certain of these guarantees, the Company has the right to recover payments made under the agreements. The terms of these guarantees range from less than one year to twenty-four years at December 31, 2011.
Effective December 31, 2011, the Company adopted Statement of Statutory Accounting Principles No. 5 Revised, Liabilities, Contingencies and Impairments of Assets (SSAP 5R). SSAP 5R requires the Company to recognize a financial statement liability for the estimated fair value of these guarantees. The adoption of SSAP 5R resulted in a $5 million direct reduction of surplus in the consolidated statement of changes in surplus for the year ended December 31, 2011. Previous statutory guidance only required the recognition of a financial statement liability in circumstances where it was considered likely that performance under the guarantee would be required.
F - 48
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Following is a summary of the guarantees provided by the Company that were outstanding at December 31, 2011, including both the maximum potential exposure under the guarantees and the financial statement liability reported based on estimated fair value of the guarantees:
Nature of guarantee |
Maximum potential amount of future payments |
Financial statement liability |
||||||
(in millions) | ||||||||
Guarantees of future minimum compensation - financial representatives | $ | 133 | $ | 2 | ||||
Guarantees of operating leases - financial representatives | 305 | 3 | ||||||
Guarantees of obligations of affiliates | 168 | 1 | ||||||
Guarantees issued on behalf of wholly- owned subsidiaries | 8 | - | ||||||
|
|
|
|
|||||
Totals | $ | 614 | $ | 6 | ||||
|
|
|
|
No payments have been required under these guarantees, and the Company believes the probability that it will be required to perform under these guarantees in the future is remote. Performance under these guarantees would require the Company to recognize additional operating expense (in the case of guarantees to or on behalf of financial representatives) or increase the amount of its equity investment in the affiliate or subsidiary on whose behalf the guarantee was made.
In the normal course of its investment activities, the Company makes commitments to fund private equity investments, real estate, mortgage loans or other investments. These commitments aggregated to $4.3 billion at December 31, 2011 and were extended at market rates and terms.
The Company is engaged in various legal actions in the normal course of its investment and insurance operations. The status of these legal actions is actively monitored by management. If management believed, based on available information, that an adverse outcome upon resolution of a given legal action was probable and the amount of that adverse outcome was reasonably estimable, a loss would be recognized and a related liability recorded. No such liabilities were recorded by the Company at December 31, 2011 and 2010. Legal actions are subject to inherent uncertainties, and future events could change managements assessment of the probability or estimated amount of potential losses from pending or threatened legal actions. Based on available information, it is the opinion of management that the ultimate resolution of pending or threatened legal actions, both individually and in the aggregate, will not result in losses having a material effect on the Companys financial position at December 31, 2011.
13. | Related Party Transactions |
During each of 2011 and 2010, the Company made capital contributions to unconsolidated subsidiaries through the transfer of certain investments from its general account. The aggregate statement value and fair value of investments transferred during 2011 was $161 million and $205 million, respectively. The aggregate statement value and fair value of investments transferred during 2010 was $449 million and $564 million, respectively. These transactions were accounted
F - 49
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
for at the lower of statement value or fair value at the time of the transfer, resulting in realized capital losses of $0 and $11 million for the years ended December 31, 2011 and 2010, respectively.
During 2006, the Company completed a reorganization transaction whereby the Mason Street Funds, a family of mutual funds sponsored and managed by a subsidiary of the Company, were combined with new or existing mutual funds sponsored by two unaffiliated third parties (successor funds). Under the terms of the reorganization transaction, the remaining Mason Street Fund shares owned by the Company and its subsidiaries, with an aggregate fair value of $970 million, were exchanged for mutual fund shares in the successor funds of equal fair value. In connection with the reorganization, the Company and its subsidiaries agreed not to redeem their investment in the successor funds for a period of up to three years after the reorganization transaction. During 2009, the Company and its subsidiaries redeemed all of the remaining mutual fund shares in the successor funds with realized capital losses of $83 million and unrealized capital losses of $100 million, respectively, reported by the Company on these redemptions.
14. | Surplus Notes |
On March 26, 2010, the Company issued Surplus Notes (Notes) with a principal balance of $1.75 billion, bearing interest at 6.063% and having a maturity date of March 30, 2040. The Notes were issued at par and distributed pursuant to Rule 144A under the Securities Act of 1933, as amended. Interest on the Notes is payable semi-annually on March 30 and September 30, subject to approval by the OCI. The statutory basis of accounting requires that the Company only recognize interest expense on the Notes when and to the extent that the OCI has approved the semi-annual interest payment. The Company recognized $106 million and $54 million in interest expense on the Notes for the years ended December 31, 2011 and 2010, respectively, which is reported as a reduction of net investment income in the consolidated statement of operations. Cumulative interest to date of $160 million has been paid on the Notes through December 31, 2011.
The Notes are unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of the Company. The Notes do not repay principal prior to maturity and principal payment at maturity is subject to the prior approval of the OCI. The Notes are not redeemable at the option of any note holder. The Notes are redeemable, in whole or in part, at the option of the Company at any time, subject to the prior approval of the OCI, at a make whole redemption price equal to the greater of the principal amount of the Notes to be redeemed or the sum of the present value of the remaining scheduled payments of principal and interest on the Notes to be redeemed, excluding accrued interest as of the date on which the Notes are to be redeemed, discounted on a semi-annual basis at the adjusted treasury rate plus 25 basis points.
No affiliates of the Company hold any portion of the Notes. The Notes are generally held of record at the Depositary Trust Company by bank custodians on behalf of investors. The largest holder of the Notes was Nippon Life Insurance Company of Japan, which held $250 million in principal at each of December 31, 2011 and 2010.
F - 50
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
15. | Fair Value of Financial Instruments |
The statement value and fair value of investment assets and certain policy liabilities at December 31, 2011 and 2010 were as follows:
December 31, 2011 | December 31, 2010 | |||||||||||||||
Statement Value |
Fair Value |
Statement Value |
Fair Value |
|||||||||||||
(in millions) | ||||||||||||||||
Investment assets: |
||||||||||||||||
Bonds |
$ | 103,753 | $ | 112,259 | $ | 96,829 | $ | 101,935 | ||||||||
Mortgage loans |
22,804 | 24,463 | 21,291 | 22,038 | ||||||||||||
Policy loans |
15,147 | 15,147 | 14,472 | 14,472 | ||||||||||||
Common and preferred stocks |
7,420 | 8,386 | 9,170 | 10,493 | ||||||||||||
Real estate |
1,632 | 2,250 | 1,619 | 1,964 | ||||||||||||
Other investments |
11,006 | 12,282 | 10,018 | 10,972 | ||||||||||||
Cash and temporary investments |
2,421 | 2,421 | 1,928 | 1,928 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total investment assets |
$ | 164,183 | $ | 177,208 | $ | 155,327 | $ | 163,802 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Investment-type insurance reserves |
$ | 5,276 | $ | 4,994 | $ | 5,353 | $ | 4,974 | ||||||||
Secured borrowing |
- | - | 353 | 349 | ||||||||||||
Liabilities for securities lending |
1,331 | 1,331 | 1,348 | 1,348 |
The statutory basis of accounting allows for the fair value disclosures for bonds and certain preferred stocks, as well as statement value for common stocks and certain preferred stocks, to be based on values published by the SVO, quoted market prices, independent pricing services or internally developed pricing models.
At December 31, 2011 and 2010, the fair value of bonds was generally based on independent pricing services or internally-developed pricing models based on observable market data. The fair value of public common and preferred stocks were generally based on quoted market prices, and the fair value of private equity securities were generally based on internally-developed pricing models utilizing inputs such as public company comparables, sponsor values and discounted cash flows. The fair value of the Companys investment in Russell common stock is estimated using a multiple, reflective of comparable public companies, of Russells earnings before interest, taxes, depreciation and amortization, adjusted for debt and the Companys holdings in Russell preferred stock. See Note 11 regarding the statement value of the Companys investment in Russell common stock. The fair value of mortgage loans is based on estimated future cash flows discounted using market interest rates for debt with comparable credit risk and maturities. The fair value of real estate is based primarily on estimated future cash flows discounted using market interest or capitalization rates. The fair value of policy loans is based on unpaid principal balance, which approximates fair value. Other investments include: real estate joint ventures, for which fair value is based on estimated future cash flows discounted using market interest rates; other joint ventures and partnerships, for which statement value approximates fair value; investments in low-income housing tax credits, for which fair value is based on estimated future tax benefits discounted using market interest rates, and derivatives, for which fair value is based on quoted market prices, where available, or third-party and internally-developed pricing models.
Investment-type insurance reserves only include individual fixed annuity policies, supplementary contracts without life contingencies and amounts left on deposit with the Company. The fair value of investment-type insurance reserves is based on estimated future cash flows discounted at market
F - 51
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
interest rates for similar instruments with comparable maturities. The Companys secured borrowing is backed by pledged securities with fair values in excess of the stated value of the loan. As such, the statement value of the borrowing approximates fair value. See Note 3 for more information related to the Companys secured borrowing. Liabilities held under the Companys securities lending program represent collateral assets held by the Company. See Note 3 for more information on the Companys securities lending program.
The statutory basis of accounting requires that certain bonds and preferred stocks, most common stocks, certain derivative instruments and most separate account assets be reported in the financial statements at fair value. The related estimates of fair value are categorized into three levels based on the nature of the inputs to the valuation estimates:
Level 1 Fair value is based on quoted prices for identical assets or liabilities in active markets. Markets are considered active if they have many transactions and current prices, have narrow bid/ask spreads with price quotes that do not vary substantially among market makers, and have information that is publicly available.
Level 2 Fair value is based on observable market data such as quoted prices for similar assets in active markets or quoted prices for identical or similar assets in non-active markets.
Level 3 Fair value is estimated by the Company using one or more significant unobservable inputs.
The Companys valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. A given asset or liabilitys designation within the fair value hierarchy summarized above is based on the highest numerical level of any input that is significant to the fair value measurement. There have been no material changes in the valuation methodologies used at December 31, 2011, 2010 and 2009.
F - 52
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Investments that are held at fair value at the end of one reporting period and are also measured at fair value at the end of the subsequent reporting period are considered to be measured at fair value on a recurring basis. The tables below present the common stocks, derivative instruments and separate account assets reported at fair value on a recurring basis in the consolidated statement of financial position at December 31, 2011 and 2010. Bonds rated 6 by the NAIC and preferred stocks rated 4, 5 and 6 by the NAIC, which are reported at the lower of amortized cost or fair value, are immaterial in the aggregate and are thereby not included below. Investments in unconsolidated subsidiaries are excluded from common stocks in the table below as they are reported in the financial statements using the equity method.
December 31, 2011 | ||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total | |||||||||||||
(in millions) | ||||||||||||||||
General account common stocks |
$ | 5,111 | $ | - | $ | 530 | $ | 5,641 | ||||||||
Derivative assets at fair value: |
||||||||||||||||
Equity total return swaps |
- | 1 | - | 1 | ||||||||||||
Swaptions |
- | 81 | - | 81 | ||||||||||||
Foreign currency forwards |
- | 32 | - | 32 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
- | 114 | - | 114 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities at fair value: |
||||||||||||||||
Credit default swaps |
- | (2 | ) | - | (2 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
- | (2 | ) | - | (2 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net derivatives at fair value |
- | 112 | - | 112 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Separate accounts: |
||||||||||||||||
Mutual fund investments |
15,510 | - | - | 15,510 | ||||||||||||
Other benefit plan assets |
26 | 8 | 2 | 36 | ||||||||||||
Pension and postretirement assets: |
||||||||||||||||
Bonds |
- | 993 | - | 993 | ||||||||||||
Common and preferred stock |
1,842 | 24 | 15 | 1,881 | ||||||||||||
Cash and short term securities |
1 | 64 | - | 65 | ||||||||||||
Other assets/liabilities |
(6 | ) | 5 | 213 | 212 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal pension and postretirement assets |
1,837 | 1,086 | 228 | 3,151 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 22,484 | $ | 1,206 | $ | 760 | $ | 24,450 | ||||||||
|
|
|
|
|
|
|
|
F - 53
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
December 31, 2010 | ||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total | |||||||||||||
(in millions) | ||||||||||||||||
General account common stocks |
$ | 6,981 | $ | - | $ | 571 | $ | 7,552 | ||||||||
Derivative assets at fair value: |
||||||||||||||||
Equity total return swaps |
- | 27 | - | 27 | ||||||||||||
Swaptions |
- | 106 | - | 106 | ||||||||||||
Foreign currency forwards |
- | 2 | - | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
- | 135 | - | 135 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities at fair value: |
||||||||||||||||
Equity options |
(15 | ) | (24 | ) | - | (39 | ) | |||||||||
Credit default swaps |
- | (4 | ) | - | (4 | ) | ||||||||||
Equity total return swaps |
- | (8 | ) | - | (8 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
(15 | ) | (36 | ) | - | (51 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net derivatives at fair value |
(15 | ) | 99 | - | 84 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Separate accounts: |
||||||||||||||||
Mutual fund investments |
15,574 | - | - | 15,574 | ||||||||||||
Other benefit plan assets |
16 | 7 | 1 | 24 | ||||||||||||
Pension and postretirement assets: |
||||||||||||||||
Bonds |
- | 997 | 7 | 1,004 | ||||||||||||
Common and preferred stock |
1,790 | 4 | 20 | 1,814 | ||||||||||||
Cash and short term securities |
52 | - | - | 52 | ||||||||||||
Other assets/liabilities |
1 | - | 194 | 195 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal pension and postretirement assets |
1,843 | 1,001 | 221 | 3,065 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 24,399 | $ | 1,107 | $ | 793 | $ | 26,299 | ||||||||
|
|
|
|
|
|
|
|
The Company reviews and validates fair value estimates and the related inputs at each reporting date, including information provided by independent pricing sources. The Company may transfer assets reported at fair value on a recurring basis between levels of the fair value hierarchy if appropriate based on changes in the quality of inputs available during a reporting period. There were no material asset transfers between Level 1 and Level 2 or between Level 2 and Level 3 during the years ended December 31, 2011 or 2010.
F - 54
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table summarizes the changes in fair value of assets utilizing Level 3 inputs for the years ended December 31, 2011 and 2010.
For the year ended December 31, 2011 | ||||||||||||||||||||||||
Fair value, beginning of period |
Realized investment gains/(losses) |
Unrealized gains/(losses) |
Purchases, sales & settlements |
Transfers into/out of Level 3 |
Fair value, end of period |
|||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
General account common stocks |
$ | 571 | $ | (3 | ) | $ | 1 | $ | (35 | ) | $ | (4 | ) | $ | 530 | |||||||||
Separate accounts: |
||||||||||||||||||||||||
Other benefit plan assets |
1 | - | - | 1 | - | 2 | ||||||||||||||||||
Pension and postretirement assets: |
||||||||||||||||||||||||
Bonds |
7 | 1 | (5 | ) | (3 | ) | - | - | ||||||||||||||||
Public and private equities |
14 | 2 | (1 | ) | (3 | ) | (1 | ) | 11 | |||||||||||||||
Preferred stock |
6 | - | - | 1 | (3 | ) | 4 | |||||||||||||||||
Other assets/liabilities |
194 | 17 | 5 | (3 | ) | - | 213 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal pension and postretirement assets |
221 | 20 | (1 | ) | (8 | ) | (4 | ) | 228 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 793 | $ | 17 | $ | - | $ | (42 | ) | $ | (8 | ) | $ | 760 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the year ended December 31, 2010 | ||||||||||||||||||||||||
Fair value, beginning of period |
Realized investment gains/(losses) |
Unrealized gains/(losses) |
Purchases, sales & settlements |
Transfers into/out of Level 3 |
Fair value, end of period |
|||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
General account common stocks |
$ | 664 | $ | 20 | $ | 33 | $ | (156 | ) | $ | 10 | $ | 571 | |||||||||||
Separate accounts: |
||||||||||||||||||||||||
Other benefit plan assets |
1 | - | - | - | - | 1 | ||||||||||||||||||
Pension and postretirement assets: |
||||||||||||||||||||||||
Bonds |
11 | 1 | (1 | ) | (3 | ) | (1 | ) | 7 | |||||||||||||||
Public and private equities |
13 | 1 | 5 | (5 | ) | - | 14 | |||||||||||||||||
Preferred stock |
2 | - | - | 4 | - | 6 | ||||||||||||||||||
Other assets/liabilities |
156 | 7 | 15 | 16 | - | 194 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal pension and postretirement assets |
182 | 9 | 19 | 12 | (1 | ) | 221 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 847 | $ | 29 | $ | 52 | $ | (144 | ) | $ | 9 | $ | 793 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F - 55
Report of Independent Auditors
To the Board of Trustees and Policyowners of
The Northwestern Mutual Life Insurance Company
We have audited the accompanying statutory consolidated statements of financial position of The Northwestern Mutual Life Insurance Company and its subsidiary (the Company) as of December 31, 2011 and 2010, and the related consolidated statutory statements of operations, of changes in surplus, and of cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company prepared these consolidated financial statements using accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin (statutory basis of accounting), which practices differ from accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2011 and 2010 or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2011.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, on the basis of accounting described in Note 1.
/s/ PricewaterhouseCoopers LLP
February 23, 2012
F - 56
PART C
OTHER INFORMATION
Item 26. Exhibits
Exhibit | Description | Filed Herewith/Incorporated Herein By Reference To | ||
(a)(1) |
Resolution of the Board of Trustees of The Northwestern Mutual Life Insurance Company amending Northwestern Mutual Variable Life Account Operating Authority | Exhibit (a)(1) to Form N-6 Post-Effective Amendment No. 30 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed February 21, 2006 | ||
(a)(2) |
Resolution of Board of Trustees of The Northwestern Mutual Life Insurance Company establishing the Account | Exhibit A(1) to Form S-6 Registration Statement for Northwestern Mutual Variable Life Account, File No. 333-36865, filed on October 1, 1997 | ||
(b) |
Not Applicable | |||
(c) |
Distribution Agreement Between The Northwestern Life Insurance Company and Northwestern Mutual Investment Services, LLC, dated May 1, 2006 | Exhibit (c) to Form N-6 Registration Statement for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed on July 28, 2006 | ||
(d)(1) |
Flexible Premium Variable Joint Life Insurance Policy (RP.VJL. 1298), with Policy Split Provision, including Policy amendment | Exhibits A(5)(a) and A(5)(b) to Form S-6 Post-Effective Amendment No. 4 for Northwestern Mutual Variable Life Account, File No. 333-59103, filed May 31, 2001 | ||
(d)(2) |
Variable Life Insurance Policy, RR.VJL, Flexible Premium Variable Joint Life policy, including Policy Split Provision (sex-neutral) | Exhibit A(5)(a) to Form S-6 Registration Statement for Northwestern Mutual Variable Life Account, File No. 333-59103, filed July 15, 1998 | ||
(d)(3) |
Variable Life Insurance Policy, RR.VJL, Flexible Premium Variable Joint Life policy, including Policy Split Provision (sex-distinct) | Exhibit A(5)(b) to Form S-6 Registration Statement for Northwestern Mutual Variable Life Account, File No. 333-59103, filed July 15, 1998 | ||
(e) |
Form of Life Insurance Application 90-1 JCL (0198) WISCONSIN and Application Supplement (1003) | Exhibit (e) to Form N-6 Post-Effective Amendment No. 9 for Northwestern Mutual Variable Life Account, File No. 333-59103, filed April 28, 2005 | ||
(f)(1) |
Restated Articles of Incorporation of The Northwestern Mutual Life Insurance Company (adopted July 26, 1972) | Exhibit A(6)(a) to Form S-6 Post-Effective Amendment No. 18 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed April 26, 1996 | ||
(f)(2) |
Amended By-Laws of The Northwestern Mutual Life Insurance Company dated December 4, 2002 | Exhibit (f) to Form N-6 Post-Effective Amendment No. 6 for Northwestern Mutual Variable Life Account, File No. 333-59103, filed February 28, 2003 | ||
(g) |
Form of Reinsurance Agreement | Exhibit (g) to Form N-6 Post-Effective Amendment No. 6 for Northwestern Mutual Variable Life Account, File No. 333-59103, filed February 28, 2003 | ||
(h)(a)(1) |
Participation Agreement dated March 16, 1999 Among Russell Insurance Funds, Russell Fund Distributors, Inc. and The Northwestern Mutual Life Insurance Company | Exhibit (b)(8)(a) to Form N-4 Post-Effective Amendment No. 66 for NML Variable Annuity Account B, File No. 2-29240, filed on April 28, 2005 | ||
(h)(a)(2) |
Amendment No. 1 dated August 7, 2000 to the Participation Agreement dated March 16, 1999 Among Russell Insurance Funds, Russell Fund Distributors, Inc. and The Northwestern Mutual Life Insurance Company | Exhibit (h)1(a)(2) to Form N-6 Registration Statement for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed on July 28, 2006 |
C-1
(h)(a)(3) |
Amendment No. 2 dated October 13, 2006 to Participation Agreements dated March 16, 1999 and August 7, 2000, respectively, by and among The Northwestern Mutual Life Insurance Company, Russell Investment Funds, f/k/a Russell Insurance Funds, and Russell Fund Distributors, Inc. | Exhibit (h)1(a)(3) to Form N-6 Pre-Effective Amendment No. 1, for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed December 13, 2006 | ||
(h)(b)(1) |
Participation Agreement dated May 1, 2003 among Variable Insurance Products Funds, Fidelity Distributors Corporation and The Northwestern Mutual Life Insurance Company | Exhibit (b)(8)(b) to Form N-4 Post-Effective Amendment No. 66 for NML Variable Annuity Account B, File No. 2-29240, filed on April 28, 2005 | ||
(h)(b)(2) |
Amendment No. 1 dated October 18, 2006 to Participation Agreement dated May 1, 2003, by and among The Northwestern Mutual Life Insurance Company, Fidelity Distributors Corporation, and each of Variable Insurance Products Fund, Variable Insurance Products Fund II, and Variable Insurance Products Fund III | Exhibit (h)1(b)(2) to Form N-6 Pre-Effective Amendment No. 1, for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed December 13, 2006 | ||
(h)(c)(1) |
Administrative Service Fee Agreement dated February 28, 1999 between The Northwestern Mutual Life Insurance Company and Frank Russell Company | Exhibit (b)(8)(c) to Form N-4 Post-Effective Amendment No. 66 for NML Variable Annuity Account B, File No. 2-29240, filed on April 28, 2005 | ||
(h)(c)(2) |
Form of Administrative Services Agreement | Filed herewith | ||
(h)(d)(1) |
Service Agreement dated May 1, 2003 between Fidelity Investments Institutional Operations Company, Inc. and The Northwestern Mutual Life Insurance Company | Exhibit (b)(8)(c)(2) to Form N-4 Pre-Effective Amendment No. 1 for NML Variable Annuity Account A, File No. 333-133380, filed on August 8, 2006 | ||
(h)(d)(2) |
Amendment dated August 1, 2004 to the Service Agreement dated May 1, 2003 between Fidelity Investments Institutional Operations Company, Inc. and The Northwestern Mutual Life Insurance Company | Exhibit (b)(8)(c)(3) to Form N-4 Pre-Effective Amendment No. 1 for NML Variable Annuity Account A, File No. 333-133380, filed on August 8, 2006 | ||
(h)(e) |
Participation Agreement dated April 30, 2007 among Neuberger Berman Advisers Management Trust, Neuberger Berman Management Inc., and The Northwestern Mutual Life Insurance Company | Filed herewith | ||
(i) |
Not Applicable | |||
(j)(a) |
Agreement entered into on February 13, 1984 among Northwestern Mutual Variable Life Account, The Northwestern Mutual Life Insurance Company and NML Equity Services, Inc. (n/k/a Northwestern Mutual Investment Services, LLC) | Exhibit A(8) to Form S-6 Registration Statement for Northwestern Mutual Variable Life Account, File No. 333-36865, filed October 1, 1997 | ||
(j)(b) |
Shareholder Information Agreement dated April 13, 2007 among Russell Investment Management Company on behalf of Russell Investment Funds and The Northwestern Mutual Life Insurance Company | Filed herewith | ||
(j)(c) |
Amendment No. 1 dated October 20, 2008 to Shareholder Information Agreement dated April 13, 2007 among Russell Fund Services Company on behalf of Russell Investment Funds and The Northwestern Mutual Life | Filed herewith |
C-2
Insurance Company | ||||
(j)(d) |
Shareholder Information Agreement dated April 13, 2007 among Fidelity Distributors Corporation on behalf of Fidelity® Variable Insurance Products Fund and The Northwestern Mutual Life Insurance Company | Filed herewith | ||
(j)(e) |
Shareholder Information Agreement dated April 16, 2007 among Northwestern Mutual Series Fund, Inc. and The Northwestern Mutual Life Insurance Company | Filed herewith | ||
(j)(f) |
Shareholder Information Agreement dated October 16, 2007 among Neuberger Berman Management Inc. and The Northwestern Mutual Life Insurance Company |
Filed herewith | ||
(j)(g) |
Power of Attorney | Filed herewith | ||
(j)(h) |
NMIS/NM Annuity Operations Admin Agreement | Exhibit (b)(8)(i) to Form N-4 Post-Effective Amendment No. 19 for NML Variable Annuity Account A, File No. 333-72913, filed on April 22, 2008 | ||
(k) |
Opinion and Consent of Raymond J. Manista, Esq. dated April 26, 2012 | Filed herewith | ||
(l) |
Not Applicable | |||
(m) |
Not Applicable | |||
(n) |
Consent of PricewaterhouseCoopers LLP dated April 25, 2012 |
Filed herewith | ||
(o) |
Not Applicable | |||
(p) |
Not Applicable | |||
(q) |
Memorandum describing Issuance, Transfer and Redemption Procedures for Variable Life Insurance Contracts Pursuant to Rule 6e-3(T)(b)(12)(iii) | Filed herewith |
Item 27. Directors and Officers of the Depositor
The following lists include all of the Trustees, executive officers and other officers of The Northwestern Mutual Life Insurance Company without regard to their activities relating to variable life insurance policies or their authority to act or their status as officers as that term is used for certain purposes of the federal securities laws and rules thereunder.
TRUSTEES As of April 1, 2012
Name | Address | |||
John N. Balboni |
Senior Vice President & CIO International Paper 6400 Poplar Avenue Memphis, TN 38197 |
|||
David J. Drury |
Owner and CEO Poblocki Sign Company LLC 922 South 70th Street Milwaukee, WI 53214 |
|||
Connie K. Duckworth |
President and Chairman of the Board Arzu 77 Stone Gate Lane Lake Forest, IL 60045 |
|||
David A. Erne |
Of Counsel Reinhart Boerner Van Deuren, sc 9590 North Upper River Road River Hills, WI 53217 |
|||
James P. Hackett |
President and CEO Steelcase, Inc. 901 - 44th Street Grand Rapids, MI 49508 |
|||
P. Russell Hardin |
President Robert W. Woodruff Foundation 191 Peachtree Street NE, Suite 3540 Atlanta, GA 30303 |
|||
Hans Helmerich |
President & CEO Helmerich & Payne, Inc. 1437 S. Boulder Avenue Tulsa, OK 74119-3609 |
|||
Dale E. Jones |
Vice Chairman Heidrick & Struggles 2001 Pennsylvania Avenue, NW Suite 800 Washington, DC 20006 |
C-3
Margery Kraus |
President & CEO APCO Worldwide 700 12th Street, NW Suite 800 Washington, DC 20005 | |
David J. Lubar |
President & CEO Lubar & Co. 700 N. Water Street Suite 1200 Milwaukee, WI 53202 | |
Ulice Payne, Jr. |
President & CEO Addison-Clifton, LLC 13555 Bishops Court Suite 245 Brookfield, WI 53005 | |
Gary A. Poliner |
President and Chief Risk Officer Northwestern Mutual 720 E. Wisconsin Avenue Milwaukee, WI 53202 | |
John E. Schlifske |
Chairman and CEO Northwestern Mutual 720 E. Wisconsin Avenue Milwaukee, WI 53202 | |
Peter M. Sommerhauser |
Attorney Godfrey & Kahn, SC 780 North Water Street Milwaukee, WI 53202-3590 | |
Mary Ellen Stanek |
Managing Director & Chief Investment Officer Baird Advisors Robert W. Baird & Co. President-Baird Funds Inc. 777 E. Wisconsin Avenue 21st Floor Milwaukee, WI 53202 | |
Timothy W. Sullivan |
5270 N. Lake Drive Whitefish Bay, WI 53217 | |
S. Scott Voynich |
Managing Partner Robinson, Grimes & Company, PC 5637 Whitesville Road (31904) P. O. Box 4299 (31914) Columbus, GA | |
Ralph A. Weber |
Founding Member Gass, Weber, Mullins, LLC 309 North Water Street Suite 700 Milwaukee, WI 53202 |
C-4
Barry L. Williams |
Retired Managing General Partner Williams Pacific Ventures, Inc. 4 Embarcadero Center, Suite 3700 San Francisco, CA 94111 | |
Benjamin F. Wilson |
Managing Principal Beveridge & Diamond, P.C. 1350 I Street, NW Suite 700 Washington, DC 20005 | |
Edward J. Zore |
Retired Chairman Northwestern Mutual 777 E. Wisconsin Suite 3005 Milwaukee, WI 53202 |
EXECUTIVE OFFICERS As of April 1, 2012
John E. Schlifske |
Chairman and Chief Executive Officer | |
Sandra L. Botcher |
Vice President (Disability Income) | |
Michael G. Carter |
Senior Vice President and Chief Financial Officer | |
Eric P. Christophersen |
Vice President (Wealth Management) | |
Jefferson V. DeAngelis |
Senior Vice President (Public Markets) | |
Mark G. Doll |
Executive Vice President & Chief Investment Officer | |
Christina H. Fiasca |
Senior Vice President (Agency Services) | |
Timothy J. Gerend |
Vice President (Compliance/Best Practices) | |
John M. Grogan |
Senior Vice President (Financial Planning & Product Delivery) | |
Thomas C. Guay |
Vice President (New Business) | |
Gary M. Hewitt |
Vice President (Investment Risk Management) | |
J. Chris Kelly |
Vice President and Controller | |
Jean M. Maier |
Executive Vice President (Enterprise Operations and Technology) | |
Raymond J. Manista |
Senior Vice President, General Counsel & Secretary | |
Gregory C. Oberland |
Executive Vice President (Insurance and Investment Products) | |
Kathleen A. Oman |
Vice President (IT Relationship Management) | |
Gary A. Poliner |
President and Chief Risk Officer | |
Steven M. Radke |
Vice President (Government Relations) | |
David R. Remstad |
Vice President and Chief Actuary | |
Marcia Rimai |
Executive Vice President and Chief Administrative Officer | |
Tammy Roou |
Vice President (Enterprise Risk Assurance) | |
Calvin R. Schmidt |
Vice President (Integrated Customer Operations) | |
Todd M. Schoon |
Executive Vice President (Agencies) | |
David W. Simbro |
Senior Vice President (Life & Annuity Products) | |
Steve P. Sperka |
Vice President (Long Term Care) | |
Paul J. Steffen |
Vice President (Agencies) | |
Conrad C. York |
Vice President (Marketing) | |
Todd O. Zinkgraf |
Vice President (Enterprise Solutions) |
OTHER OFFICERS As of December 1, 2011
Employee | Title | |
Gregory A. Gurlik |
Senior Actuary | |
Donald C. Kiefer |
VP-Actuary | |
James Lodermeier |
Senior Actuary | |
Robert G. Meilander |
VP-Corporate Actuary | |
Ted A. Matchulat |
Director Product Compliance | |
|
C-5
Employee | Title | |
Arthur V. Panighetti |
VP-Actuary | |
Deborah A. Schultz |
Senior Actuary | |
Chris G. Trost |
Senior Actuary | |
P. Andrew Ware |
VP-Actuary | |
|
||
Mark S. Bishop |
Regional VP-Field Supervision | |
|
||
Somayajulu Durvasula |
Regional VP-Field Supervision | |
Mark J. Gmach |
Regional VP-Field Supervision | |
Laila V. Hick |
VP-Agency Development | |
David D. Kiecker |
Regional VP-Field Supervision | |
Steven C. Mannebach |
VP-Agency Development | |
Daniel J. OMeara |
VP-Agency Development | |
Charles J. Pendley |
VP-Agency Development | |
Michael E. Pritzl |
VP-Leadership Development | |
|
||
Gregory A. Jaeck |
Director-Annuity & Income Market | |
Jeffrey J. Niehaus |
Director-Business Retirement Markets | |
David G. Stoeffel |
VP-Annuity & Investment Products | |
Kellen A. Thiel |
Director-Managed Products | |
|
||
Robert J. Wright |
Director-IPS Strategic Partnerships Product Support | |
|
||
Anne A. Frigo |
Director-Insurance Product Compliance | |
Diane B. Horn |
NMIS AML Officer | |
Robert J. Johnson |
Director-Compliance | |
James K. Kuznacic |
Director-Systems | |
Gregory S. Leslie |
Director-Variable Product Compliance | |
|
||
Timothy Nelson |
Director-Compliance | |
|
||
Kevin J. Abitz |
Director-Corporate Reporting | |
Jason T. Anderson |
Asst. Director-Tax | |
|
||
Barbara E. Courtney |
Director-Mutual Fund Accounting | |
Walter M. Givler |
VP-Accounting Policy | |
Michelle A. Hinze |
Director-Accounting Operations | |
Todd C. Kuzminski |
Director-Investment Accounting | |
David K. Nunley |
VP-Tax | |
|
||
David E. Willert |
Asst. Director-Tax | |
|
||
Rick T. Zehner |
VP-Special Projects | |
|
||
|
||
Mark McNulty |
Director-Field Distribution Policies & Administration | |
Daniel A. Riedl |
VP-Field Distribution Policies & Administration | |
|
||
Jeffrey P. Scholemer |
Director-Field Supervision | |
|
||
Robyn S. Cornelius |
Director-Distribution Planning | |
Richard P. Snyder |
Director-Field Compensation | |
|
||
Pency P. Byhardt |
VP-Field Services & Support | |
Karla D. Hill |
Asst. Director-CL&R Operations |
C-6
Employee | Title | |
Joanne M. Migliaccio |
Director-Field Services & Support | |
Lisa A. Myklebust |
Director-Network Office Operations | |
Matthew T. Sauer |
Director-Field Technology | |
|
||
Thomas R. Anderson |
Director-Financial Security | |
Rebekah B. Barsch |
VP-Market Strategy & Training | |
Barbara A. Bombaci |
Director-Advanced Planning | |
Kenneth P. Elbert |
Director-Advanced Planning | |
Daniel R. Finn |
Director-Advanced Planning | |
Stephen J. Frankel |
Director-Regional Sales | |
William F. Grady, IV |
Director-Advanced Planning | |
Debra L. Hagan |
Director-Administration/Operations FSP | |
Laura J. Hauschild |
Director-Retirement Markets | |
Patrick J. Horning |
Director-Advanced Planning | |
Meg E. Jansky |
Director-Financial Planning & Product Delivery | |
Shawn P. Mauser |
Director-Regional Sales | |
Mac McAuliffe |
Director-Financial Planning & Product Delivery | |
John E. Muth |
Director-Advanced Planning | |
John K. OMeara |
Director-Advanced Planning | |
Brent A. Ritchey |
Director-Advanced Planning | |
William H. Taylor |
VP-Advanced Financial Security Planning | |
Brian D. Wilson |
Director-Regional Sales | |
John K. Wilson |
Director-Regional Sales | |
Stanford A. Wynn |
Director-Advanced Planning | |
|
||
Don P. Gehrke |
Director-ICS Investment Operations | |
David Harley |
Director-IPS Operations | |
Patricia J. Hillmann |
Director-Annuity Customer Service | |
Todd M. Jones |
Director-IPS Finance | |
Kevin J. Konopa |
Director-Business Systems Team | |
Sarah R. Schneider |
Director-Annuity Operations | |
Jeffrey B. Williams |
NMIS and WMC Chief Compliance Officer | |
|
||
Michael S. Bula |
Asst. General Counsel & Asst. Secretary | |
Thomas B. Christenson |
Asst. General Counsel & Asst. Secretary | |
Mark S. Diestelmeier |
Asst. General Counsel & Asst. Secretary | |
John E. Dunn |
VP & Investment Products & Services Counsel | |
James R. Eben |
Asst. General Counsel & Asst. Secretary | |
Bradley L. Eull |
Asst. General Counsel & Asst. Secretary | |
Chad E. Fickett |
Asst. General Counsel & Asst. Secretary | |
Gerald E. Fradin |
Asst. General Counsel & Asst. Secretary | |
James C. Frasher |
Asst. General Counsel & Asst. Secretary | |
Sheila M. Gavin |
Asst. General Counsel & Asst. Secretary | |
Chris K. Gawart |
Asst. General Counsel & Asst. Secretary | |
Kevin M. Gleason |
Asst. General Counsel & Asst. Secretary | |
Gregory Johnson |
Asst. General Counsel & Asst. Secretary | |
James A. Koelbl |
Asst. General Counsel & Asst. Secretary | |
Steven J. LaFore |
Asst. General Counsel & Asst. Secretary | |
Michael J. Mazza |
Asst. General Counsel & Asst. Secretary | |
Lesli H. McLinden |
Asst. General Counsel & Asst. Secretary | |
Richard E. Meyers |
Asst. General Counsel & Asst. Secretary | |
Jennifer W. Murphy |
Asst. General Counsel & Asst. Secretary | |
David K. Nelson |
Asst. General Counsel & Asst. Secretary | |
Michelle Nelson |
Asst. General Counsel & Asst. Secretary | |
Randy M. Pavlick |
Asst. General Counsel & Asst. Secretary |
C-7
Employee | Title | |
William C. Pickering |
Asst. General Counsel & Asst. Secretary | |
Nora M. Platt |
Asst. General Counsel & Asst. Secretary | |
|
||
Zhibin Ren |
Asst. General Counsel & Asst. Secretary | |
Peter K. Richardson |
Asst. General Counsel & Asst. Secretary | |
Tammy M. Roou |
VP & Insurance & Distribution Counsel | |
Kathleen H. Schluter |
VP & Tax Counsel | |
Mark W. Smith |
Assoc. General Counsel & Asst. Secretary | |
John M. Thompson |
Asst. General Counsel & Asst. Secretary | |
John W. Warren |
Asst. General Counsel & Asst. Secretary | |
|
||
Terry R. Young |
Asst. General Counsel & Asst. Secretary | |
|
||
Jason R. Handal |
VP-Advanced Markets | |
Todd L. Laszewski |
Director-Life Product Development | |
William Brian Henning |
Director-Competitive Intelligence | |
Jane Ann Schiltz |
VP-Business Markets | |
|
||
Carrie L. Bleck |
Director-Policyowner Services | |
Travis T. Piotrowski |
Director-Policyowner Services | |
Sandra K. Scott-Tyus |
Director-Life Benefits | |
|
||
Natalie J. Versnik |
Director-Policyowner Services | |
Michael D. Zelinski |
Director Policyowner Services | |
|
||
Karla J. Adams |
Director-Investment Risk Management | |
James A. Brewer |
Director-Investment Planning | |
David A. Escamilla |
Director-Investment Information | |
Donald Forecki |
Director-Investment Operations, Asst. Secretary | |
Karen A. Molloy |
Director-Banking & Cash Management, Asst. Treasurer | |
Michael S. Treptow |
Director-Investment Performance Management | |
|
||
Shanklin B. Cannon |
Medical Director | |
Kurt P. Carbon |
Director-Life Lay Standards | |
Wayne F. Heidenreich |
Medical Director | |
Paul W. Skalecki |
VP-Underwriting Standards | |
|
||
Mark J. McLennon |
VP-Investment Advisory Services |
The business addresses for all of the executive officers and other officers is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
Item 28. Persons Controlled By or Under Common Control with the Depositor or Registrant
The subsidiaries of The Northwestern Mutual Life Insurance Company (Northwestern Mutual), as of March 31, 2012 are shown below. In addition to the subsidiaries shown below, the following separate investment accounts (which include the Registrant) may be deemed to be either controlled by, or under common control with, Northwestern Mutual:
1. | NML Variable Annuity Account A |
2. | NML Variable Annuity Account B |
3. | NML Variable Annuity Account C |
4. | Northwestern Mutual Variable Life Account |
5. | Northwestern Mutual Variable Life Account II |
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Northwestern Mutual Series Fund, Inc. and Russell Investment Funds (the Funds), shown below as subsidiaries of Northwestern Mutual, are investment companies, registered under the Investment Company Act of 1940, offering their shares to the separate accounts identified above; and the shares of the Funds held in connection with certain of the accounts are voted by Northwestern Mutual in accordance with voting instructions obtained from the persons who own, or are receiving payments under, variable annuity contracts or variable life insurance policies issued in connection with the separate accounts, or in the same proportions as the shares which are so voted.
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NORTHWESTERN MUTUAL CORPORATE STRUCTURE(1)
(as of March 31, 2012)
Legal Entity Name | Domestic Jurisdiction | Owner % | ||
Operating Subsidiaries |
||||
Northwestern Mutual Capital, LLC(2) |
Delaware | 100.00 | ||
Northwestern Mutual Capital Limited(2) |
United Kingdom | 100.00 | ||
Mason Street Advisors, LLC(2) |
Delaware | 100.00 | ||
Northwestern Long Term Care Insurance Company(2) |
Wisconsin | 100.00 | ||
Northwestern Mutual Investment Services, LLC(2) |
Wisconsin | 100.00 | ||
Northwestern Mutual Real Estate Investments, LLC(2) |
Delaware | 100.00 | ||
Northwestern Mutual Wealth Management Company(2) |
United States | 100.00 | ||
Frank Russell Company(3) |
Washington | 93.54 | ||
|
||||
All Other Subsidiaries |
||||
100 East Wisconsin Avenue Joint Venture(2) |
Wisconsin | 100.00 | ||
31 Ogden, LLC(2) |
Delaware | 100.00 | ||
3412 Exchange, LLC(2) |
Delaware | 100.00 | ||
AFE Brentwood Park, LLC(2) |
Delaware | 100.00 | ||
Amber, LLC(2) |
Delaware | 100.00 | ||
Arbor Lake Village Apartments Limited Liability Company(2) |
Delaware | 100.00 | ||
Arbor Oaks Ltd.(2) |
Florida | 100.00 | ||
Baraboo, Inc.(2) |
Delaware | 100.00 | ||
Bayridge, LLC(2) |
Delaware | 100.00 | ||
Bishop Square, LLC(2) |
Delaware | 100.00 | ||
Bradford I SPE, LLC(2) |
Delaware | 100.00 | ||
Bradford II SPE, LLC(2) |
Delaware | 100.00 | ||
Bradford, Inc.(2) |
Delaware | 100.00 | ||
Brendan International Sales, Inc.(2) |
U.S. Virgin Islands | 100.00 | ||
Brookarbor Joint Venture(2) |
Illinois | 100.00 | ||
Burgundy, LLC(2) |
Delaware | 100.00 | ||
C Land Fund, LLC(2) |
Delaware | 100.00 | ||
Chateau, LLC(2) |
Delaware | 100.00 | ||
Coral, Inc.(2) |
Delaware | 100.00 | ||
Cortona Holdings, LLC(2) |
Delaware | 100.00 | ||
Crosland Bradford, LLC(2) |
North Carolina | 100.00 | ||
Crosland Denver Highway 16, LLC(2) |
North Carolina | 100.00 | ||
Crosland Greens, LLC(2) |
North Carolina | 100.00 | ||
Fairfield West Deer Park LLC(2) |
Delaware | 100.00 | ||
Hazel, Inc.(2) |
Delaware | 100.00 | ||
Higgins, Inc.(2) |
Delaware | 100.00 | ||
Highbrook International Sales, Inc.(2) |
U.S. Virgin Islands | 100.00 | ||
Hobby, Inc.(2) |
Delaware | 100.00 | ||
Hollenberg 1, Inc.(2) |
Delaware | 100.00 | ||
Jacksonville Concourse II, LLC(2) |
Delaware | 100.00 | ||
Jacksonville Concourse III, LLC(2) |
Delaware | 100.00 | ||
Jacksonville Concourse, LLC(2) |
Delaware | 100.00 | ||
Juleen, LLC(2) |
Delaware | 100.00 | ||
Justin International FSC, Inc.(2) |
U.S. Virgin Islands | 100.00 | ||
Klode, Inc.(2) |
Delaware | 100.00 | ||
Kristiana International Sales, Inc.(2) |
U.S. Virgin Islands | 100.00 |
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Logan, Inc.(2) |
Delaware | 100.00 | ||
Lydell, Inc.(2) |
Delaware | 100.00 | ||
Maroon, Inc.(2) |
Delaware | 100.00 | ||
Mason & Marshall, Inc.(2) |
Delaware | 100.00 | ||
Millbrook Apartments Associates L.L.C.(2) |
Virginia | 100.00 | ||
Mitchell, Inc.(2) |
Delaware | 100.00 | ||
Model Portfolios, LLC(2) |
Delaware | 100.00 | ||
N.M. Albuquerque, Inc.(2) |
New Mexico | 100.00 | ||
New Arcade, LLC(2) |
Wisconsin | 100.00 | ||
Nicolet, Inc.(2) |
Delaware | 100.00 | ||
NM BSA, LLC(2) |
Delaware | 100.00 | ||
NM Cancer Center GP, LLC(2) |
Delaware | 100.00 | ||
NM DFW Lewisville, LLC(2) |
Delaware | 100.00 | ||
NM F/X, LLC(2) |
Delaware | 100.00 | ||
NM GP Holdings, LLC(2) |
Delaware | 100.00 | ||
NM Harrisburg, Inc.(2) |
Pennsylvania | 100.00 | ||
NM Imperial, LLC(2) |
Delaware | 100.00 | ||
NM Investment Holdings, Inc.(2) |
Delaware | 100.00 | ||
NM Lion, LLC(2) |
Delaware | 100.00 | ||
NM Majestic Holdings, LLC(2) |
Delaware | 100.00 | ||
NM Pebble Valley LLC(2) |
Delaware | 100.00 | ||
NM RE Funds, LLC(2) |
Delaware | 100.00 | ||
NM Regal, LLC(2) |
Delaware | 100.00 | ||
NM Twin Creeks GP, LLC(2) |
Delaware | 100.00 | ||
NML Clubs Associated, Inc.(2) |
Wisconsin | 100.00 | ||
NML Development Corporation(2) |
Delaware | 100.00 | ||
NML Real Estate Holdings, LLC(2) |
Wisconsin | 100.00 | ||
NML Securities Holdings, LLC(2) |
Wisconsin | 100.00 | ||
NML-CBO, LLC(2) |
Delaware | 100.00 | ||
NMRM Holdings, LLC(2) |
Delaware | 100.00 | ||
North Charlotte Avenue Holdings, LLC(2) |
Tennessee | 100.00 | ||
North Van Buren, Inc.(2) |
Delaware | 100.00 | ||
Northwestern Ellis Company(2) |
Nova Scotia | 100.00 | ||
Northwestern Mutual Capital GP II, LLC(2) |
Delaware | 100.00 | ||
Northwestern Mutual Capital GP, LLC(2) |
Delaware | 100.00 | ||
Northwestern Mutual Capital Mezzanine Fund II, LP(2) |
Delaware | 100.00 | ||
Northwestern Mutual Capital Strategic Equity Fund II, LP(2) |
Delaware | 100.00 | ||
Northwestern Mutual MU TLD Registry, LLC(2) |
Delaware | 100.00 | ||
Northwestern Mutual Registry, LLC(2) |
Delaware | 100.00 | ||
Northwestern Mutual Series Fund, Inc.(4) |
Maryland | 100.00 | ||
NW Pipeline, Inc.(2) |
Texas | 100.00 | ||
Olive, Inc.(2) |
Delaware | 100.00 | ||
Osprey Links Golf Course, LLC(2) |
Delaware | 100.00 | ||
Osprey Links, LLC(2) |
Delaware | 100.00 | ||
Park Ridge Corporate Center, LLC(2) |
Delaware | 100.00 | ||
Piedmont Center, 1-4 LLC(2) |
Delaware | 100.00 | ||
Piedmont Center, 15 LLC(2) |
Delaware | 100.00 | ||
RE Corp.(2) |
Delaware | 100.00 | ||
Regina International Sales, Inc.(2) |
U.S. Virgin Islands | 100.00 | ||
Russet, Inc.(2) |
Delaware | 100.00 | ||
Scotty, LLC(2) |
Delaware | 100.00 | ||
Solar Resources, Inc.(2) |
Wisconsin | 100.00 |
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Stadium and Arena Management, Inc.(2) |
Delaware | 100.00 | ||
Travers International Sales, Inc.(2) |
U.S. Virgin Islands | 100.00 | ||
Tupelo, Inc.(2) |
Delaware | 100.00 | ||
Two Con Holdings, LLC(2) |
Delaware | 100.00 | ||
Two Con SPE, LLC(2) |
Delaware | 100.00 | ||
Two Con, LLC(2) |
Delaware | 100.00 | ||
Villas of St. Johns L.L.C.(2) |
Florida | 100.00 | ||
Walden OC, LLC(2) |
Delaware | 100.00 | ||
Warren Corporate Center, LLC(2) |
Delaware | 100.00 | ||
West Huron Joint Venture(2) |
Washington | 100.00 | ||
White Oaks, Inc.(2) |
Delaware | 100.00 | ||
Windwood Drive Ann Arbor, LLC(2) |
Delaware | 100.00 |
(1) | Certain subsidiaries are omitted on the basis that, considered in the aggregate at year end 2011, they did not constitute a significant subsidiary as defined by Regulation S-X. Certain investment partnerships and limited liability companies that hold real estate assets of The Northwestern Mutual Life Insurance Company are not represented. Excluded is the entire corporate structure under Frank Russell Company, which includes registered investment advisers and registered investment companies. |
(2) | Subsidiary included in the consolidated financial statements. |
(3) | Subsidiary files separate financial statements. |
(4) | Growth Stock Portfolio, Focused Appreciation Portfolio, Large Cap Core Stock Portfolio, Large Cap Blend Portfolio, Index 500 Stock Portfolio, Large Company Value Portfolio, Domestic Equity Portfolio, Equity Income Portfolio, Mid Cap Growth Stock Portfolio, Index 400 Stock Portfolio, Mid Cap Value Portfolio, Small Cap Growth Stock Portfolio, Index 600 Stock Portfolio, Small Cap Value Portfolio, International Growth Portfolio, Research International Core Portfolio, International Equity Portfolio, Emerging Markets Equity Portfolio, Money Market Portfolio, Short-Term Bond Portfolio, Select Bond Portfolio, Long-Term U.S. Government Bond Portfolio, Inflation Protection Portfolio, High Yield Bond Portfolio, Multi-Sector Bond Portfolio, Commodities Return Strategy Portfolio, Balanced Portfolio, Asset Allocation Portfolio. |
Item 29. Indemnification
(a) That portion of the By-laws of the Depositor, Northwestern Mutual, relating to indemnification of Trustees and officers is set forth in full in Article VII of the By-laws of Northwestern Mutual, amended by resolution and previously filed as Exhibit A(6)(b) to the registration statement of Northwestern Mutual Variable Life Account (File No. 333-59103) on July 15, 1998.
(b) Section 10 of the Distribution Agreement dated May 1, 2006 between Northwestern Mutual and Northwestern Mutual Investment Services, LLC (NMIS) provides substantially as follows:
B. Indemnification by Company. The Company agrees to indemnify, defend and hold harmless NMIS, its successors and assigns, and their respective officers, directors, and employees (together referred to as NMIS Related Persons), from any and all joint or several losses, claims, damages or liabilities (including any reasonable investigative, legal and other expenses incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted), to which NMIS and/or any NMIS Related Persons may become subject, under any law, regulation or NASD rule, at common law or otherwise, that arises out of or are based upon (i) any breach of this Agreement by the Company and (ii) any untrue statement of or omission to state a material fact (except for information supplied by or on behalf of NMIS or for which NMIS is responsible) contained in any Registration Statement, Contract prospectus, SAI or supplement thereto or in any Marketing Material.
This indemnification shall be in addition to any liability that the Company may otherwise have; provided, however, that no person shall be entitled to indemnification pursuant to
C-12
this provision for any loss, claim, damage or liability due to the willful misfeasance, bad faith or gross negligence or reckless disregard of duty by the person seeking indemnification.
C. Indemnification by NMIS. NMIS agrees to indemnify, defend and hold harmless the Company, its successors and assigns, and their respective officers, trustees or directors, and employees (together referred to as Company Related Persons), from any and all joint or several losses, claims, damages or liabilities (including any reasonable investigative, legal and other expenses incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted), to which the Company and/or any Company Related Persons may become subject, under any law, regulation or NASD rule, at common law or otherwise, that arises out of or are based upon (i) any breach of this Agreement by NMIS and (ii) any untrue statement of or omission to state a material fact (except for information supplied by or on behalf of the Company or for which the Company is responsible) contained in any Registration Statement, Contract prospectus, SAI or supplement thereto or in any Marketing Material, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon information furnished in writing by NMIS to the Company specifically for use in the preparation of the aforesaid material.
This indemnification shall be in addition to any liability that NMIS may otherwise have; provided however, that no person shall be entitled to indemnification pursuant to this provision for any loss, claim, damage or liability due to the willful misfeasance, bad faith or gross negligence or reckless disregard of duty by the person seeking indemnification.
D. Indemnification Generally. Any person seeking indemnification under this section shall promptly notify the indemnifying party in writing after receiving notice of the commencement of any action as to which a claim for indemnification will be made; provided, however, that failure to so notify the indemnifying party shall not relieve such party from any liability which it may have to such person otherwise than on account of this section.
The indemnifying party shall be entitled to participate in the defense of the indemnified person but such participation will not relieve such indemnifying party of the obligation to reimburse the indemnified party for reasonable legal and other expenses incurred by such party in defending himself, herself or itself.
Item 30. Principal Underwriters
(a) NMIS is the principal underwriter of the securities of the Registrant. NMIS is also the principal underwriter for the NML Variable Annuity Account A (811-21887), the NML Variable Annuity Account B (811-1668), the NML Variable Annuity Account C (811-21886), and the Northwestern Mutual Variable Life Account II (811-21933).
(b) As of April 1, 2012, the directors and officers of NMIS are as follows:
Name |
Position | |
Jason T. Anderson |
Assistant Treasurer | |
Mark S. Bishop |
Regional Vice President, Field Supervision | |
Pency P. Byhardt |
Vice President, Field Services and Support | |
Michael G. Carter |
Director | |
Robyn C. Cornelius |
Director, Distribution Planning | |
Linda C. Donahue |
NMIS Anti-Money Laundering (AML) Officer | |
Somayajulu V. Durvasula |
Regional Vice President, Field Supervision | |
Michael S. Ertz |
Vice President, Financial Planning and Product Development | |
Bradley L. Eull |
Assistant Secretary, NMIS | |
David A. Eurich |
Director, Field Training | |
Christina H. Fiasca |
Senior Vice President, Agency Services | |
Anne A. Frigo |
Director, Insurance Products Compliance | |
Don P. Gehrke |
Director, Retail Investment Operations | |
Timothy J. Gerend |
Vice President, Compliance/Best Practices | |
Mark J. Gmach |
Regional Vice President, Field Supervision |
C-13
John M. Grogan |
Director, Senior Vice President, Financial Planning and Product Delivery | |
Thomas C. Guay |
Vice President, Variable Life Underwriting and Issue | |
Jason R. Handal |
Vice President, Advanced Markets | |
David P. Harley |
Director, Retail Investment Operations | |
Patricia J. Hillman |
Director, Annuity Customer Services | |
Gregory A. Jaeck |
Director, Annuity Products | |
Robert J. Johnson |
Director, Compliance/Best Practices | |
Todd M. Jones |
Treasurer, Financial and Operations Principal | |
David D. Kiecker |
Regional Vice President, Field Supervision | |
Kevin J. Konopa |
Director, IPS Business Systems | |
Steven J. LaFore |
Secretary, NMIS | |
Brady J. Flugaur |
Assistant Director, Retail Investment Services; Registered Options and Securities Futures Principal (ROSFP); Municipal Securities Principal (MSP); Municipal Securities Rulemaking Board (MSRB) Primary Contact | |
Todd L. Laszewski |
Director, Life Product Development | |
Steven C. Mannebach |
Vice President, Field Growth and Development | |
Mac McAuliffe |
National Sales Director | |
Mark E. McNulty |
Director, NMIS Field Administration | |
Joanne M. Migliaccio |
Director, Contract, License and Registration | |
Timothy D. Nelson |
Director, Compliance/Best Practices | |
Jeffrey J. Niehaus |
Director, Business Markets | |
Jennifer OLeary |
Assistant Treasurer | |
Gregory C. Oberland |
Director | |
Travis T. Piotrowski |
Vice President, Variable Life Servicing | |
Daniel A. Riedl |
Vice President, Chief Operating Officer | |
Jeffrey P. Schloemer |
Director, Field Supervision Standards | |
Calvin R. Schmidt |
Director, President and CEO, NMIS | |
Sarah R. Schneider |
Director, Annuity Operations | |
Todd M. Schoon |
Director, Executive Vice President, Agencies | |
Adam D. Seiden |
Director, Field Growth and Development | |
David W. Simbro |
Senior Vice President, Life and Annuity Products | |
Todd W. Smasal |
Director, Human Resources | |
Richard P. Snyder |
Director, Field Compensation and Accounting Services | |
Paul J. Steffen |
Vice President, Agencies | |
Steven H. Steidinger |
Director, Variable Life Products | |
David G. Stoeffel |
Vice President, Financial Planning and Product Delivery | |
William H. Taylor |
Vice President, Financial Planning and Sales Support | |
Kellen A. Thiel |
Director, Personal Investment Markets | |
Jeffrey B. Williams |
Vice President and Chief Compliance Officer, NMIS Compliance, FINRA Executive Representative | |
Robert J. Wright |
Director, Strategic Partnerships and Product Support |
The address for each director and officer of NMIS is 611 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
(c) NMIS, the principal underwriter, received $15,981,855 of commissions and other compensation, directly or indirectly, from Registrant during the last fiscal year.
Item 31. Location of Accounts and Records
All accounts, books or other documents required to be maintained in connection with the Registrants operations are maintained in the physical possession of Northwestern Mutual at 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
Item 32. Management Services
There are no management-related service contracts, other than those referred to in Part A or Part B of this Registration Statement, under which management-related services are provided to the Registrant and pursuant to which total payments of $5,000 or more were made during any of the last three fiscal years.
C-14
Item 33. Fee Representation
The Northwestern Mutual Life Insurance Company hereby represents that the fees and charges deducted under the variable life insurance policies which are the subject of this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company under the policies.
C-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the Investment Company Act of 1940, the Registrant, Northwestern Mutual Variable Life Account, certifies that it meets all of the requirements for effectiveness of this Amended Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amended Registration Statement to be signed on its behalf, in the City of Milwaukee, and State of Wisconsin, on the 30th day of April, 2012.
NORTHWESTERN MUTUAL VARIABLE LIFE |
By |
THE NORTHWESTERN MUTUAL LIFE | |
INSURANCE COMPANY (Depositor) |
Attest: |
/s/ RAYMOND J. MANISTA |
By: | /s/ JOHN E. SCHLIFSKE | |||||
Raymond J. Manista, |
John E. Schlifske, | |||||||
General Counsel and Secretary |
Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this Amended Registration Statement has been signed by the Depositor on the 30th day of April, 2012.
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (Depositor) | ||||||||
Attest: |
/s/ RAYMOND J. MANISTA |
By: | /s/ JOHN E. SCHLIFSKE | |||||
Raymond J. Manista, |
John E. Schlifske, | |||||||
General Counsel and Secretary |
Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this Amended Registration Statement has been signed below by the following persons in the capacities with the Depositor and on the dates indicated:
Signature |
Title | |
Chairman, Trustee and | ||
/s/ JOHN E. SCHLIFSKE |
Chief Executive Officer; | |
John E. Schlifske |
Principal Executive Officer | |
/s/ MICHAEL G. CARTER |
Chief Financial Officer and | |
Michael G. Carter |
Principal Financial Officer | |
/s/ JOHN C. KELLY |
Vice President and Controller; | |
John C. Kelly |
Principal Accounting Officer |
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/s/ John N. Balboni* |
Trustee | |
John N. Balboni |
||
/s/ David J. Drury* |
Trustee | |
David J. Drury |
||
/s/ Connie K. Duckworth* |
Trustee | |
Connie K. Duckworth |
||
/s/ David A. Erne* |
Trustee | |
David A. Erne |
||
/s/ James P. Hackett* |
Trustee | |
James P. Hackett |
||
/s/ P. Russell Harden* |
Trustee | |
P. Russell Harden |
||
/s/ Hans Helmerich* |
Trustee | |
Hans Helmerich |
||
/s/ Dale E. Jones* |
Trustee | |
Dale E. Jones |
||
/s/ Margery Kraus* |
Trustee | |
Margery Kraus |
||
/s/ David J. Lubar* |
Trustee | |
David J. Lubar |
||
/s/ Ulice Payne, Jr.* |
Trustee | |
Ulice Payne, Jr. |
||
/s/ Gary A. Poliner* |
Trustee | |
Gary A. Poliner |
||
/s/ John E. Schlifske* |
Trustee | |
John E. Schlifske |
||
/s/ Peter M. Sommerhauser* |
Trustee | |
Peter M. Sommerhauser |
||
/s/ Mary Ellen Stanek* |
Trustee | |
Mary Ellen Stanek |
||
/s/ Timothy W. Sullivan* |
Trustee | |
Timothy W. Sullivan |
||
/s/ S. Scott Voynich* |
Trustee | |
S. Scott Voynich |
||
/s/ Ralph A. Weber* |
Trustee | |
Ralph A. Weber |
||
/s/ Barry L. Williams* |
Trustee | |
Barry L. Williams |
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/s/ Benjamin F. Wilson* |
Trustee | |
Benjamin F. Wilson |
||
/s/ Edward J. Zore* |
Trustee | |
Edward J. Zore |
*By: |
/s/ JOHN E. SCHLIFSKE | |
John E. Schlifske, Attorney in fact, | ||
pursuant to the Power of Attorney filed herewith |
Each of the signatures is affixed as of April 30, 2012
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EXHIBIT INDEX
EXHIBITS FILED WITH FORM N-6
POST-EFFECTIVE AMENDMENT NO. 39 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FOR
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Exhibit |
Description | |||||||
(h)(c)(2) |
Form of Administrative Services Agreement | Filed herewith | ||||||
(h)(e) |
Participation Agreement dated April 30, 2007 | Filed herewith | ||||||
(j)(b) |
Shareholder Information Agreement dated April 13, 2007 | Filed herewith | ||||||
(j)(c) |
Amendment to Shareholder Information Agreement dated October 20, 2008 | Filed herewith | ||||||
(j)(d) |
Shareholder Information Agreement dated April 13, 2007 | Filed herewith | ||||||
(j)(e) |
Shareholder Information Agreement dated April 16, 2007 | Filed herewith | ||||||
(j)(f) |
Shareholder Information Agreement dated October 16, 2007 | Filed herewith | ||||||
(j)(g) |
Power of Attorney | Filed herewith | ||||||
(k) |
Opinion and Consent of Raymond J. Manista, Esq. dated April 26, 2012 | Filed herewith | ||||||
(n) |
Consent of PricewaterhouseCoopers LLP dated April 25, 2012 | Filed herewith | ||||||
(q) |
Memorandum describing Issuance, Transfer and Redemption Procedures for Variable Life Insurance Contracts Pursuant to Rule 6e-2(b)(12)(ii) | Filed herewith |
C-19
Exhibit (h)(c)(2)
ADMINISTRATIVE SERVICES AGREEMENT
[LETTERHEAD OF FUND COMPANYS ADVISER]
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
[DATE]
Re: | Administrative Services Agreement |
To Whom It May Concern:
This is an Administrative Services Agreement (Agreement) between [FUND COMPANYS ADVISER] and the Northwestern Mutual Life Insurance Company (the Company), effective as of [DATE]. The Company is a life insurance company (the Insurer) that acts as the sponsor for variable annuity and/or variable life insurance contracts issued by Insurer.
The Insurer, [FUND COMPANYS ADVISER], and [FUND] (the Trust) have entered into a Participation Agreement, dated [DATE], as may be amended from time to time (the Participation Agreement), pursuant to which the Insurer, on behalf of certain of its separate accounts (the Separate Accounts), purchases shares, including [SHARE CLASS] of certain Portfolios of the Trust (Portfolios) to serve as investment vehicles under certain variable annuity and/or variable life insurance contracts (Variable Contracts) offered by the Insurer, which Portfolios may be one of several investment options available under the Variable Contracts.
[FUND COMPANYS ADVISER] recognizes that in the course of servicing owners of the Variable Contracts, the Company, and the agents of the Company who are registered representatives of the principal underwriter for the Variable Contracts and who provide information about the Trust and its Portfolios from time to time, answer questions concerning the Trust and its Portfolios, including questions respecting Variable Contract owners interests in one or more Portfolios, and that the Company provides services respecting investments in the Portfolios.
[FUND COMPANYS ADVISER] desires to promote these efforts to provide written and oral information and services regarding the Trust to current and prospective Variable Contract owners. Accordingly, the following represents the collective intention and understanding of [FUND COMPANYS ADVISER] and the Company under this Agreement.
The Company agrees that it or its affiliates shall provide administrative services to owners of Variable Contracts including, but not limited to, the following:
| Providing and administering Variable Contract features for the benefit of Variable Contract owners participating in the Trust including fund transfers, dollar cost averaging, asset allocation, portfolio rebalancing, earnings sweeps, and pre-authorized deposits and withdrawals; and provision of other services as may be agreed upon from time to time; |
| Providing telephone servicing support in connection with the Portfolios; |
| Maintaining Variable Contract records reflecting Shares purchased and redeemed and Share balances, computing the number of fund shares for each class that must be purchased or redeemed each day to support such transactions, and forwarding each days net purchase and redemption orders to the Trust, its transfer agent, or [FUND COMPANYS ADVISER] as may be reasonably requested; |
| Preparing, printing, and distributing confirmation and quarterly and/or periodic account statements to owners of Variable Contracts; |
| Providing support services including providing information about the Trust and its Portfolios and answering questions concerning the Trust and its Portfolios, including questions respecting Variable Contract owners interests in one or more Portfolios; |
| Relieving the Trust, its sponsor, or transfer agent of other incidental account maintenance, record keeping, or administrative services generally provided by mutual funds (or their transfer agents) to their shareholders by providing the same to Variable Contract owners; |
| Delivering and responding to inquiries respecting Portfolio Prospectuses and/or Statements of Additional Information, reports, notices, proxies and proxy statements and other information respecting the Portfolios (but not including services paid for by the Trust such as printing and mailing); |
| Coordinating the printing and delivery processes of all information respecting the Portfolios to Variable Contract owners, including the negotiation of contracts for related services; |
| Forwarding proxy materials and facilitating the tabulation of resulting Variable Contract owners votes; |
| Periodically reporting information to the Trust (e.g., to comply with mixed and shared funding relief and to allow the Trust to file Form 24F-2); |
| Processing dividend and capital gains distributions from the Trust; |
| Making available records of daily transactions in separate account units to the extent necessary for the Trust to comply with Rule 22c-2 under the 1940 Act and its policies on frequent trading; |
| Assisting in complying with Section 314(b) of the USA Patriot Act by implementing policies and procedures reasonably designed to identify owners or prospective owners of Variable Contracts suspected of possible terrorist or money-laundering activities and prevent the same from indirectly investing in the Trust; and |
| Preparing and providing reports to third-party reporting services. |
In consideration of these administrative services, [FUND COMPANYS ADVISER] agrees to pay to the Company or a person designated by the Company a service fee at an annual rate equal to (i) [FEE]. For purposes of computing the payments under this paragraph, the respective average daily value of Shares held in Separate Accounts over a monthly period shall be computed by totaling such Separate Accounts aggregate investment (Share net asset value multiplied by total number of Shares held by such Separate Accounts) on each business day during the calendar month, and dividing by the total number of business days during such month. The payments under this paragraph shall be calculated by [FUND COMPANYS ADVISER] at the end of each calendar month and will be paid within sixty (60) days thereafter. FUND COMPANYS ADVISER] shall send all payments and statements for Company to the attention of:
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The Northwestern Mutual Life Insurance Company
720 E. Wisconsin Ave.
Milwaukee, WI 53202
Attn: [Controllers Dept., Assistant Director - Product Line Reporting]
This Agreement shall remain in full force and effect for an initial term of one year, and shall automatically renew for successive one year periods. This Agreement may be terminated by either the Company or [FUND COMPANYS ADVISER] upon 60 days written notice to the other, and shall terminate automatically upon redemption of all Shares held in Separate Accounts, upon termination of the Participation Agreement, or upon assignment of the Participation Agreement by either the Company or [FUND COMPANYS ADVISER], or if required by law.
Nothing in the Agreement shall amend, modify or supersede any contractual terms, obligations or covenants among or between any of the Company, FUND COMPANYS ADVISER or the Trust previously or currently in effect, including those contractual terms, obligations or covenants contained in the Participation Agreement.
If this Agreement is consistent with your understanding of the Companys provision of the Services, please sign below, whereupon this letter shall constitute a binding agreement between us.
Very truly yours, | ||
[FUND COMPANYS ADVISER] | ||
By: |
| |
Name: |
||
Title: |
Agreed to and accepted:
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By: |
| |
Name: |
||
Title: |
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Exhibit (h)(e)
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT, made as of the 30th day of April, 2007, by and between NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST (TRUST), NEUBERGER BERMAN MANAGEMENT INC. (NB MANAGEMENT), a New York corporation, and THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (LIFE COMPANY), a life insurance company organized under the laws of the State of Wisconsin.
WHEREAS, TRUST is registered with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940, as amended (40 Act) as an open-end, diversified management investment company; and
WHEREAS, TRUST is organized as a series fund comprised of several portfolios (Portfolios), the currently available of which are listed on Appendix A hereto; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain variable life insurance and/or variable annuity contracts offered by life insurance companies through separate accounts of such life insurance companies (Participating Insurance Companies) and also offers its shares to certain qualified pension and retirement plans; and
WHEREAS, TRUST has received an order from the SEC, dated May 5, 1995 (File No. 812-9164), granting Participating Insurance Companies and their separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 40 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Portfolios of the TRUST to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies and certain qualified pension and retirement plans (the Order); and
WHEREAS, LIFE COMPANY has established or will establish one or more separate accounts (Separate Accounts) to offer variable contracts (Variable Contracts) and is desirous of having TRUST as one of the underlying funding vehicles for such Variable Contracts; and
WHEREAS, NB MANAGEMENT is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940 and as a broker-dealer under the Securities Exchange Act of 1934, as amended; and
WHEREAS, NB MANAGEMENT is the investment manager and administrator of the Portfolios of the Trust and distributor of the shares of each Portfolio of TRUST; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the aforementioned Variable Contracts and TRUST is authorized to sell such shares to LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY, TRUST, and NB MANAGEMENT agree as follows:
Article I. SALE OF TRUST SHARES
1.1 TRUST agrees to make available for purchase by the LIFE COMPANY to fund its Separate Accounts, shares of the Portfolios as listed in Appendix B, which Appendix B may be amended by mutual agreement of the parties, at the net asset value next computed after receipt by the TRUST or its designee of the order for the shares.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily basis at the net asset value next computed after receipt by TRUST or its designee of the order for the shares of TRUST. For purposes of this Section 1.2, LIFE COMPANY shall be the designee of TRUST for receipt of such orders from LIFE COMPANY and receipt by such designee shall constitute receipt by TRUST; provided that TRUST receives notice of such order by 10:00 a.m. New York Time on the next following Business Day. Business Day shall mean any day on which the New York Stock Exchange is open for trading and on which TRUST calculates its net asset value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem for cash, on LIFE COMPANYs request, any full or fractional shares of TRUST held by LIFE COMPANY, executing such requests on a daily basis at the net asset value next computed after receipt by TRUST or its designee of the request for redemption. For purposes of this Section 1.3, LIFE COMPANY shall be the designee of TRUST for receipt of requests for redemption from LIFE COMPANY and receipt by such designee shall constitute receipt by TRUST; provided that TRUST receives notice of such request for redemption by 10:00 a.m. New York time on the next following Business Day.
1.4 TRUST shall furnish, on or before the ex-dividend date, notice to LIFE COMPANY of any income dividends or capital gain distributions payable on the shares of any Portfolio of TRUST. LIFE COMPANY hereby elects to receive all such income dividends and capital gain distributions as are payable on a Portfolios shares in additional shares of the Portfolio. TRUST shall notify LIFE COMPANY of the number of shares so issued as payment of such dividends and distributions. LIFE COMPANY reserves the right to revoke this election by written notice to the Trust.
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1.5 TRUST shall make the net asset value per share for the selected Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably practicable after the net asset value per share is calculated but shall use its best efforts to make such net asset value available by 6:00 p.m. New York time. If TRUST is unable to meet the 6:00 p.m. time stated herein, it shall provide additional time for the LIFE COMPANY to make any applicable purchase payments; If TRUST provides LIFE COMPANY with materially incorrect share net asset value information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the Separate Accounts, shall be entitled to an adjustment to the number of shares purchased or redeemed to reflect the correct share net asset value. Any material error (determined in accordance with SEC guidelines) in the calculation of net asset value per share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. In the event that such material error is the result of the TRUSTs (or its designated agents) negligence, TRUST and NB Management shall also be responsible for any of LIFE COMPANYs administrative or other costs or losses incurred in correcting Variable Contract Owner accounts.
1.6 At the end of each Business Day, LIFE COMPANY shall use the information described in Section 1.5 to calculate Separate Account unit values for the day. Using these unit values, LIFE COMPANY shall process each such Business Days Separate Account transactions, based on requests and premiums received by it as of the time at which the TRUST calculates its share prices as disclosed in the prospectus for the TRUST, to determine the net dollar amount of TRUST shares which shall be purchased or redeemed at that days closing net asset values per share. The net share purchase or redemption orders so determined shall be transmitted to TRUST by LIFE COMPANY by 10:00 a.m. New York Time on the Business Day next following LIFE COMPANYs receipt of such requests and premiums in accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANYs order requests the net purchase of TRUST shares, LIFE COMPANY shall pay for such purchase by wiring federal funds to TRUST or its designated custodial account on the day the order is actually transmitted by LIFE COMPANY by 3:00 p.m. New York Time. If LIFE COMPANYs order requests a net redemption resulting in a payment of redemption proceeds to LIFE COMPANY, TRUST shall wire the redemption proceeds to LIFE COMPANY on the day the order is actually received by TRUST by 3:00 p.m. New York Time unless doing so would require TRUST to dispose of portfolio securities or otherwise incur additional costs, but in such event, proceeds shall be wired to LIFE COMPANY within five days of LIFE COMPANYs order to enable LIFE COMPANY to pay redemption proceeds within the time specified in Section 22(e) of the 40 Act. In the event of such delay, TRUST shall notify the person designated in writing by LIFE COMPANY as the recipient for such notice of such delay by 3:00 p.m. New York Time the same Business Day that LIFE COMPANY transmits the redemption order
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to TRUST. If LIFE COMPANYs order requests the application of redemption proceeds from the redemption of shares to the purchase of shares of another Portfolio or fund administered or distributed by NB MANAGEMENT, TRUST shall so apply such proceeds on the same Business Day that LIFE COMPANY transmits such order to TRUST.
1.8 Notwithstanding Section 1.7, TRUST reserves the right to suspend the right of redemption or postpone the date of payment or satisfaction upon redemption consistent with Section 22(e) of the 40 Act and any rules thereunder.
1.9 TRUST agrees that all shares of the Portfolios of TRUST will be sold only to Participating Insurance Companies which have agreed to participate in TRUST to fund their Separate Accounts and/or to certain qualified pension and other retirement plans, all in accordance with the requirements of Section 817(h) of the Internal Revenue Code of 1986, as amended (Code) and Treasury Regulation 1.817-5, and which have entered into an agreement containing provisions substantially the same as in this Agreement. Shares of the Portfolios of TRUST will not be sold directly to the general public.
1.10 Nothwithstanding the foregoing provisions of this Agreement, TRUST may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of the shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board of Trustees of TRUST, acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, deemed necessary and in the best interests of the shareholders of such Portfolios (it being understood for this purpose that shareholders refers to Variable Contract owners). Any suspension or termination pursuant to this provision shall become effective 10 Business Days after LIFE COMPANYs receipt of written notice in order to give LIFE COMPANY sufficient time to take appropriate steps.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company duly organized and in good standing under the laws of Wisconsin and that it has legally and validly established each Separate Account as a segregated asset account under applicable laws, and that Northwestern Mutual Investment Services, LLC, the principal underwriter for the Variable Contracts, is registered as a broker-dealer under the Securities Exchange Act of 1934.
2.2 LIFE COMPANY represents and warrants that it has registered or, prior to any issuance or sale of the Variable Contracts, will register each Separate Account as a unit investment trust (VIT) in accordance with the provisions of the 40 Act and cause each Separate Account to
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remain so registered to serve as a segregated asset account for the Variable Contracts, unless an exemption from registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will be registered under the Securities Act of 1933 (the 33 Act) unless an exemption from registration is available prior to any issuance or sale of the Variable Contracts and that the Variable Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are currently treated as life insurance, endowment or annuity contracts under applicable provisions of the Code, that it will make every effort to maintain such treatment and that it will notify TRUST immediately upon having a reasonable basis for believing that the Variable Contracts have ceased to be so treated or that they might not be so treated in the future.
2.5 TRUST represents and warrants that the Portfolio shares offered and sold pursuant to this Agreement will be registered under the 33 Act, authorized for issuance, and sold in accordance with all applicable federal and state laws, and TRUST shall be registered under the 40 Act prior to and at the time of any issuance or sale of such shares. TRUST shall amend its registration statement under the 33 Act and the 40 Act from time to time as required in order to effect the continuous offering of its shares. TRUST shall register and qualify its shares for sale in accordance with the laws of the various states to the extent necessary to perform its obligations under this Agreement.
2.6 TRUST represents and warrants that each Portfolio currently complies, and will continue to comply with the diversification requirements set forth in Section 817(h) of the Code, and the rules and regulations thereunder, including without limitation Treasury Regulation 1.817-5 (and./or any successor or similar provisions), and will notify LIFE COMPANY immediately upon having a reasonable basis for believing any Portfolio has ceased to comply or might not so comply and will immediately take all reasonable steps to adequately diversify the Portfolio to achieve compliance within the grace period afforded by Regulation 1.817-5.
2.7 TRUST represents and warrants that each Portfolio invested in by the Separate Account is currently qualified as a regulated investment company (or RIC) under Subchapter M of the Code, that it will maintain such qualification under Subchapter M (or any successor or similar provisions) and will notify LIFE COMPANY immediately upon having a reasonable basis for believing any Portfolio has ceased to so qualify or might not so qualify in the future. In the event any Portfolios status as an RIC under Subchapter M and/or Section 817(h) changes, TRUST will pursue those efforts required to requalify for RIC treatment under those provisions, including cooperating in good faith with LIFE COMPANY. If TRUST does not cure such noncompliance,
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TRUST will cooperate in good faith with LIFE COMPANYs efforts to obtain a ruling and closing agreement, as provided in Revenue Procedure 92-25 issued by the Internal Revenue Service (or any subsequently issued applicable ruling or procedure), that the Portfolio satisfies the requirements of Subchapter M and/or compliance with Section 817(h) for the period or periods of noncompliance.
2.8 LIFE COMPANY hereby consents to the use by TRUST of the name and telephone number of LIFE COMPANY and to the reference by TRUST to the relationship between LIFE COMPANY and TRUST as part of an informational page on TRUSTS site on the World Wide Web portion of the Internet, provided that TRUST furnishes a copy of the proposed informational page to LIFE COMPANY at least fifteen (15) Business Days prior to its intended use, and LIFE COMPANY does not object to the form or content of the informational page within fifteen (15) Business Days after receipt. The LIFE COMPANY hereby further consents to TRUSTS establishing a link between TRUSTS site and LIFE COMPANYs site from the same place that LIFE COMPANY is listed on TRUSTS site as described in the preceding sentence.
2.9 TRUST represents that to the extent that it decides to finance distribution expenses pursuant to Rule 12b-l under the 1940 Act, it will have a board of trustees, a majority of whom are not interested persons of the TRUST, formulate and approve any plan under Rule 12b-l to finance distribution expenses.
2.10 TRUST represents that TRUSTs investment policies, fees and expenses are and shall at all times remain in compliance with the laws of the State of Delaware, and the TRUST represents that its respective operations are and shall at all times remain in material compliance with the laws of the State of Delaware to the extent required to perform this Agreement.
2.11 TRUST represents that it is lawfully organized and validly existing under the laws of the State of Delaware and that it does and will comply in all material respects with the 1940 Act.
2.12 NB MANAGEMENT represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC and any applicable state securities laws. NB MANAGEMENT further represents that it will sell and distribute the TRUSTs shares in accordance with the laws of the State of Delaware and any applicable state and federal securities law.
2.13 TRUST and NB MANAGEMENT represent and warrant that their directors, officers, investment advisers, and other individuals/entities dealing with the money and/or securities of the TRUST are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of TRUST in an amount not less than the minimum coverage as required by Rule 17g-(l) under the 1940 Act or related provisions as may be promulgated from time to time.
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The aforesaid blanket fidelity bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. TRUST and NB MANAGEMENT agree to notify LIFE COMPANY in the event that the blanket fidelity bond or similar coverage is terminated.
2.14 NB MANAGEMENT represents and warrants that it is registered as an investment adviser and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for TRUST in compliance with the laws of the State of Delaware and any applicable state and federal securities laws.
2.15 Each party represents and warrants that the execution and delivery of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by all necessary corporate, partnership or trust action, as applicable, by such party, and, when so executed and delivered, this Agreement will be the valid and binding obligation of such party enforceable in accordance with its terms.
2.16 LIFE COMPANY represents and warrants that all orders for the purchase and sale of TRUST shares submitted to the TRUST (or counted by LIFE COMPANY in submitting a net order under Section 1.6 of the Agreement) for execution at a price based on the net asset value per share (NAV) of the TRUSTs Portfolios next computed after receipt by LIFE COMPANY on a particular Business day, will have been received in good order by LIFE COMPANY prior to the time as of which the TRUST calculates its NAV on that Business Day, as disclosed in the prospectus for the pertinent Portfolio in effect on the date of this Agreement (the trading deadline), in accordance with Rule 22c-l under the 1940 Act (subject only to exceptions as permitted under Rule 22c-l (c) under the 1940 Act, respecting initial purchase payments on variable annuity contracts, and to the established administrative procedures of LIFE COMPANY as described under Rule 6e-3(T), paragraph (b)(12)(iii) under the 1940 Act respecting premium processing for variable life insurance contracts).
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 TRUST shall prepare and be responsible for filing with the SEC and any state regulators requiring such filing all shareholder reports, notices, proxy materials (or similar materials such as voting instruction solicitation materials), prospectuses and statements of additional information of TRUST. TRUST shall bear the costs of registration and qualification of shares of the Portfolios, preparation and filing of the documents listed in this Section 3.1 and all taxes to which an issuer is subject on the issuance and transfer of its shares.
3.2 TRUST will bear the printing costs (or duplicating costs with respect to the statement of additional information) and mailing costs associated with the delivery of the following
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TRUST (or individual Portfolio) documents, and any supplements thereto, to existing Variable Contract owners of LIFE COMPANY (regardless of whether such documents are printed together with, or separate from, the documents for other trusts and funds in the Variable Contracts):
(i) | prospectuses and statements of additional information; |
(ii) | annual and semi-annual reports; and |
(iii) | proxy materials (including, but not limited to, the proxy cards, notice and statement, as well as the costs associated with tabulating votes). |
LIFE COMPANY will deliver such prospectuses, statements of additional information, proxy statements and periodic reports of the Trust as required to be delivered under applicable federal or state law in connection with the offer, sale or acquisition of the Variable Contracts.
LIFE COMPANY will submit any bills for printing, duplicating, mailing costs and/or costs associated with electronic delivery, relating to the TRUST documents described above, to TRUST for reimbursement by TRUST. LIFE COMPANY shall monitor such costs and shall use its best efforts to control these costs. LIFE COMPANY will provide TRUST on a semi-annual basis, or more frequently as reasonably requested by TRUST, with a current tabulation of the number of existing Variable Contract owners of LIFE COMPANY whose Variable Contract values are invested in TRUST. This tabulation will be sent to TRUST in the form of a letter signed by a duly authorized officer of LIFE COMPANY attesting to the accuracy of the information contained in the letter. If requested by LIFE COMPANY, the TRUST shall provide such documentation (including a final copy of the TRUSTs prospectus as set in type or in camera-ready copy) and other assistance as is reasonably necessary in order for LIFE COMPANY to print together in one document the current prospectus for the Variable Contracts issued by LIFE COMPANY and the current prospectus for the TRUST. Should LIFE COMPANY wish to print any of these documents in a format different from that provided by TRUST, LIFE COMPANY shall provide Trust with sixty (60) days prior written notice and LIFE COMPANY shall bear the cost associated with any format change.
3.3 TRUST will provide, at its expense, LIFE COMPANY with the following TRUST (or individual Portfolio) documents, and any supplements thereto, with respect to prospective Variable Contract owners of LIFE COMPANY:
(i) | camera-ready copy of the current prospectus for printing by the LIFE COMPANY; |
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(ii) | a copy of the statement of additional information suitable for duplication; |
(iii) | camera-ready copy of proxy material suitable for printing; and |
(iv) | camera-ready copy of the annual and semi-annual reports for printing by the LIFE COMPANY. |
3.4 TRUST will provide LIFE COMPANY with at least one complete copy of all prospectuses, statements of additional information, annual and semi-annual reports, proxy statements, exemptive applications and all amendments or supplements to any of the above that relate to the Portfolios promptly after the filing of each such document with the SEC or other regulatory authority. LIFE COMPANY will provide TRUST with at least one complete copy of all prospectuses, statements of additional information, annual and semi-annual reports, proxy statements, exemptive applications and all amendments or supplements to any of the above that relate to a Separate Account that invests in the Portfolios promptly after the filing of each such document with the SEC or other regulatory authority.
3.5 LIFE COMPANY agrees that it will cooperate with NB MANAGEMENT and the TRUST by providing to NB MANAGEMENT and the TRUST, within thirty (30) days prior to any deadline imposed by applicable laws, rules or regulations, information regarding shares sold and redeemed and whether the Separate Accounts are registered or unregistered under the 40 Act and any other information pertinent to enabling NB MANAGEMENT and the TRUST to pay registration or other fees with respect to the TRUST shares sold during the fiscal year in accordance with Rule 24f-2 or to register and qualify TRUST shares under any applicable laws, rules or regulations in a timely manner.
3.6 Nothwithstanding Section 3.4 of this Agreement, TRUST shall furnish to LIFE COMPANY at least ten (10) Business Days prior to its first submission to the SEC or its staff, any request or filing for no-action assurance or exemptive relief naming, pertaining to, or affecting LIFE COMPANY, the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY. Nothwithstanding Section 3.4 of this Agreement, LIFE COMPANY shall furnish to TRUST at least ten (10) Business Days prior to its first submission to the SEC or its staff, any request or filing for no-action assurance or exemptive relief naming, pertaining to, or affecting TRUST.
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Article IV. SALES MATERIALS; PRIVACY
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST and NB MANAGEMENT, each piece of sales literature or other promotional material in which TRUST or NB MANAGEMENT is named, at least fifteen (IS) Business Days prior to its intended use. No such material will be used if TRUST or NB MANAGEMENT reasonably objects to its use in writing within fifteen (15) Business Days after receipt of such material. LIFE COMPANY will discontinue its use of such materials within twenty (20) Business Days after TRUST or NB MANAGEMENT reasonably objects to such continued use in writing.
4.2 TRUST and NB MANAGEMENT will furnish, or will cause to be furnished, to LIFE COMPANY, each piece of sales literature or other promotional material in which LIFE COMPANY or its Separate Accounts are named, at least fifteen (15) Business Days prior to its intended use. No such material will be used if LIFE COMPANY reasonably objects to its use in writing within fifteen (15) Business Days after receipt of such material. TRUST and NB MANAGEMENT will discontinue their use of such materials within twenty (20) Business Days after LIFE COMPANY reasonably objects to such continued use in writing.
4.3 TRUST and its affiliates and agents shall not give any information or make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY, the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other than the information or representations contained in a registration statement or prospectus for such Variable Contracts, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports of the Separate Accounts or reports prepared by LIFE COMPANY for distribution to owners of such Variable Contracts, or in sales literature or other promotional material approved by LIFE COMPANY or its designee, except with the written permission of LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any information or make any representations on behalf of TRUST or concerning TRUST other than the information or representations contained in a registration statement or prospectus for TRUST, as such registration statement and prospectus may be amended or supplemented from time to time, or in sales literature or other promotional material approved by TRUST or its designee, except with the written permission of TRUST.
4.5 For purposes of this Agreement, the phrase sales literature or other promotional material or words of similar import include, without limitation, advertisements (such as material published, or designed for use, in a newspaper, magazine or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, electronic communications, telephone directories (other than routine listings) or other public media), sales
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literature (such as any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, performance reports or summaries, form letters, telemarketing scripts, seminar texts, or reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports and proxy materials, and any other material constituting sales literature or advertising under National Association of Securities Dealers, Inc. rules, the 40 Act or the 33 Act.
4.6 Subject to law and regulatory authority, each party hereto shall treat as confidential, and maintain a secure system to handle, all information pertaining to the owners of the Variable Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party. In the event a party is directed by valid court order or other judicial or administrative process to disclose such information, that party shall promptly notify all other parties so that they may seek a protective order or other remedy. In the event such information is improperly disclosed, disseminated or utilized, prompt notice shall be provided to the other parties. Each party hereto shall be solely responsible for the compliance of their officers, directors, employees, agents, independent contractors, and any affiliated and non-affiliated third parties with all applicable privacy-related laws and regulations including but not limited to the Gramm-Leach-Bliley Act and Regulation S-P. The provisions of this Section 4.6 shall survive the termination of this Agreement.
Article V. POTENTIAL CONFLICTS
5.1 The Board of Trustees of TRUST (the Board) will monitor TRUST for the existence of any material irreconcilable conflict between the interests of the Variable Contract owners of Participating Insurance Company Separate Accounts investing in the TRUST. A material irreconcilable conflict may arise for a variety of reasons, including: (a) state insurance regulatory authority action; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of the TRUST are being managed; (e) a difference in voting instructions given by variable annuity and variable life insurance contract owners or by contract owners of different Participating Insurance Companies; or (f) a decision by a Participating Insurance Company to disregard voting instructions of Variable Contract owners.
5.2 LIFE COMPANY will report any potential or existing conflicts of which it becomes aware to the Board. LIFE COMPANY will be responsible for assisting the Board in carrying out its
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responsibilities under the Conditions set forth in the notice issued by the SEC for the TRUST on April 12, 1995 (the Notice) (Investment Company Act Release No. 21003), by providing the Board with all information reasonably necessary for it to consider any issues raised. This responsibility includes, but is not limited to, an obligation by LIFE COMPANY to inform the Board whenever Variable Contract owner voting instructions are disregarded by LIFE COMPANY. These responsibilities will be carried out with a view only to the interests of the Variable Contract owners.
5.3 If a majority of the Board or a majority of its disinterested trustees determines that a material irreconcilable conflict exists, affecting the LIFE COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable (as determined by a majority of disinterested trustees), will take any steps necessary to remedy or eliminate the irreconcilable material conflict, including: (a) withdrawing the assets allocable to some or all of the Separate Accounts from the TRUST or any Portfolio thereof and reinvesting those assets in a different investment medium, which may include another Portfolio of TRUST or another investment company or submitting the question as to whether such segregation should be implemented to a vote of all affected Variable Contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., Variable Contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected Variable Contract owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. If a material irreconcilable conflict arises because of LIFE COMPANYs decision to disregard Variable Contract owner voting instructions, and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at the election of the TRUST, to withdraw its Separate Accounts investment in the TRUST, and no charge or penalty will be imposed as a result of such withdrawal. The responsibility to take such remedial action shall be carried out with a view only to the interests of the Variable Contract owners.
For the purposes of this Section 5.3, a majority of the disinterested members of the Board shall determine whether or not any proposed action adequately remedies any material irreconcilable conflict, but in no event will the TRUST or NB MANAGEMENT (or any other investment adviser of the TRUST) be required to establish a new funding medium for any Variable Contract. Further, LIFE COMPANY shall not be required by this Section 5.3 to establish a new funding medium for any Variable Contract if any offer to do so has been declined by a vote of a majority of Variable Contract owners materially affected by the irreconcilable material conflict.
5.4 The Boards determination of the existence of a material irreconcilable conflict and its implications shall be made known promptly and in writing to LIFE COMPANY.
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5.5 No less than annually. LIFE COMPANY shall submit to the Board such reports. materials or data as the Board may reasonably request so that the Board may fully carry out the obligations imposed upon it by these Conditions. Such reports, materials. and data shall be submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all Variable Contract owners so long as the SEC continues to interpret the 40 Act as requiring pass-through voting privileges for Variable Contract owners. Accordingly, LIFE COMPANY, where applicable. will vote shares of TRUST held by its Separate Accounts in a manner consistent with voting instructions timely received from its Variable Contract owners. LIFE COMPANY shall vote shares for which it has not received timely voting instructions, as well as shares it owns, in the same proportion as it votes those shares for which it has received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted. to provide exemptive relief from any provision of the 40 Act or the rules thereunder with respect to mixed and shared funding on terms and conditions materially different from any exemptions granted in the Order, then TRUST and/or LIFE COMPANY, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(n, as amended, and Rule 6e-3, as adopted. to the extent such Rules are applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and hold harmless TRUST and NB MANAGEMENT and each of their Trustees, directors, officers, employees and agents and each person, if any. who controls TRUST or NB MANAGEMENT within the meaning of Section 15 of the 33 Act (excluding any Participating Insurance Company) (collectively, the Indemnified Parties for purposes of Sections 7.1, 7.2, 7.3 and 7.4 below) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY, which consent shall not be unreasonably withheld) or litigation (including legal fees and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of, or investments in, TRUSTs shares or the Variable Contracts issued by LIFE COMPANY and:
(a) | arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the Registration Statement, |
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prospectus, offering memorandum, or sales literature for the Variable Contracts or contained in the Variable Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY by or on behalf of TRUST for use in the registration statement, prospectus, offering memorandum or sales literature for the Variable Contracts or in the Variable Contracts (or any amendment or supplement) or otherwise for use in connection with the sale of the Variable Contracts or TRUST shares; or |
(b) | arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature of TRUST not supplied by LIFE COMPANY, or persons under its control) or wrongful conduct of LIFE COMPANY or any of its directors, officers, employees or agents, with respect to the sale or distribution of the Variable Contracts or TRUST shares; or |
(c) | arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature of TRUST or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to TRUST for inclusion therein by or on behalf of LIFE COMPANY; or |
(d) | arise as a result of any material failure by LIFE COMPANY to provide the services and furnish the materials under the terms of this Agreement; or |
(e) | arise out of or result from any material breach of any representation and/or warranty made by LIFE COMPANY in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY. |
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7.2 LIFE COMPANY shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Partys willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Partys duties or by reason of such Indemnified Partys reckless disregard of obligations or duties under this Agreement or to TRUST, whichever is applicable.
7.3 LIFE COMPANY shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified LIFE COMPANY in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify LIFE COMPANY of any such claim shall not relieve LIFE COMPANY from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against an Indemnified Party, LIFE COMPANY shall be entitled to participate at its own expense in the defense of such action. LIFE COMPANY also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in the action. After notice from LIFE COMPANY to such party of LIFE COMPANYs election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and LIFE COMPANY will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation.
7.4 The Indemnified Parties shall promptly notify LIFE COMPANY of the commencement of any litigation or proceedings against them in connection with the issuance or sale of TRUST shares, the Variable Contracts, or the operation of the TRUST. The Indemnified Parties also shall promptly notify LIFE COMPANY of the receipt of any written threats of litigation or written grievances relating to the LIFE COMPANY or the Variable Contracts.
7.5 Indemnification by NB MANAGEMENT. NB MANAGEMENT agrees to indemnify and hold harmless LIFE COMPANY and each of its directors, officers, employees, and agents and each person, if any, who controls LIFE COMPANY within the meaning of Section 15 of the 33 Act (collectively, the Indemnified Parties for the purposes of Sections 7.5, 7.6, 7.7 and 7.8 below) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of NB MANAGEMENT which consent shall not be unreasonably withheld) or litigation (including legal fees and other expenses) to which the Indemnified Parties may become subject under any statute, or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are
15
related to the sale or acquisition of, or investments in, TRUSTs shares or the Variable Contracts issued by LIFE COMPANY and:
(a) | arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus or sales literature of TRUST (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to NB MANAGEMENT or TRUST by or on behalf of LIFE COMPANY for use in the registration statement or prospectus for TRUST or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Variable Contracts or TRUST shares; or |
(b) | arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, offering memorandum, prospectus or sales literature for the Variable Contracts not supplied by NB MANAGEMENT or persons under its control) or wrongful conduct of TRUST or NB MANAGEMENT or persons under their control, with respect to the sale or distribution of the Variable Contracts or TRUST shares; or |
(c) | arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, sales literature, or other promotional material covering the Variable Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY for inclusion therein by or on behalf of TRUST or NB MANAGEMENT; or |
(d) | arise as a result of (i) a material failure by TRUST or NB MANAGEMENT to provide the services and furnish the materials under the terms of this Agreement; or (ii) a failure by a Portfolio(s) invested in by the Separate Account to comply with the diversification requirements of Section 817(h) |
16
of the Code; or (iii) a failure by a Portfolio(s) invested in by the Separate Account to qualify as a regulated investment company under Subchapter M of the Code; or |
(e) | arise out of or result from any material breach of any representation and/or warranty made by NB MANAGEMENT or TRUST in this Agreement or arise out of or result from any other material breach of this Agreement by NB MANAGEMENT or TRUST; or |
(f) | arise as a result of TRUSTs or NB MANAGEMENTs (or their designated agents) (i) incorrect calculation of share net asset value, income dividends or capital gain distributions of any Portfolio; (ii) incorrect reporting of the share net asset value, income dividends or capital gain distributions of any Portfolio; or (iii) untimely reporting of share net asset value, income dividend or capital gain distributions of any Portfolio. |
7.6 NB MANAGEMENT shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Partys willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Partys duties or by reason of such Indemnified Partys reckless disregard of obligations and duties under this Agreement or to LIFE COMPANY.
7.7 NB MANAGEMENT shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified NB MANAGEMENT in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify NB MANAGEMENT of any such claim shall not relieve NB MANAGEMENT from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, NB MANAGEMENT shall be entitled to participate at its own expense in the defense thereof. NB MANAGEMENT also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in the action and to settle the claim at its own expense; provided, however, that no such settlement shall include any factual stipulation referring to the Indemnified Parties or their conduct without the Indemnified Parties written consent. After notice from NB MANAGEMENT to such party of NB MANAGEMENTs election to assume the defense thereof, the Indemnified Party shall bear the. fees and expenses of any additional counsel retained by it, and NB MANAGEMENT will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such
17
party independently in connection with the defense thereof other than reasonable costs of investigation.
7.8 The Indemnified Parties shall promptly notify NB MANAGEMENT of the commencement of any litigation or proceedings against them in connection with the issuance or sale of TRUST shares, the issuance or sale of the Variable Contracts, or the operation of the TRUST.
7.9 The provision of this Article VII shall survive the termination of this Agreement.
Article VIII. TERM: TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following provisions:
(a) | At the option of LIFE COMPANY or TRUST, with respect to some or all of the Portfolios, at any time from the date hereof upon 60 days advance written notice to the other parties, unless a shorter time is agreed to by the parties; |
(b) | At the option of LIFE COMPANY, if Portfolio shares are not reasonably available to meet the requirements of the Variable Contracts as determined by LIFE COMPANY; provided that such termination shall apply only to the Portfolio whose shares are not reasonably available; |
(c) | At the option of LIFE COMPANY, if LIFE COMPANY shall determine, in its sole judgment exercised in good faith, that either TRUST or NB MANAGEMENT has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement, or is subject to material adverse publicity. Prompt written notice of election to terminate shall be furnished by LIFE COMPANY with said termination to be effective upon receipt of written notice; |
(d) | At the option of LIFE COMPANY, upon the institution of formal proceedings against TRUST or NB MANAGEMENT by the SEC, the National Association of Securities Dealers, Inc., or any other regulatory body, the expected or anticipated ruling, judgment or outcome of which |
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would, in LIFE COMPANYs reasonable judgment, materially impair TRUSTs or NB MANAGEMENTs ability to meet and perform their respective obligations and duties hereunder. Prompt written notice of election to terminate shall be furnished by LIFE COMPANY with said termination to be effective upon receipt of written notice; |
(e) | At the option of TRUST, if TRUST shall determine, in its sole judgment exercised in good faith, that LIFE COMPANY has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement, or is subject to material adverse publicity. Prompt written notice of election to terminate shall be furnished by TRUST with said termination to be effective upon receipt of written notice; |
(f) | At the option of TRUST, upon the institution of formal proceedings against LIFE COMPANY by the SEC, the National Association of Securities Dealers, Inc., or any other regulatory body, the expected or anticipated ruling, judgment or outcome of which would, in TRUSTs reasonable judgment, materially impair LIFE COMPANYs ability to meet and perform its obligations and duties hereunder. Prompt written notice of election to terminate shall be furnished by TRUST with said termination to be effective upon receipt of written notice; |
(g) | At the option of LIFE COMPANY, in the event TRUSTs shares are not registered, issued or sold in accordance with applicable state or federal law, or such law precludes the use of such shares as the underlying investment medium of Variable Contracts issued or to be issued by LIFE COMPANY. Termination shall be effective immediately upon written notice to TRUST; |
(h) | At the option of TRUST if the Variable Contracts cease to qualify as annuity contracts or life insurance contracts, as applicable, under the Code, or if TRUST reasonably believes that the Variable Contracts will fail to so qualify, where such failure to qualify is not attributable to any action or absence of action on the part of TRUST or NB MANAGEMENT. Termination shall be effective upon receipt of notice by LIFE COMPANY; |
(i) | At the option of LIFE COMPANY, upon TRUSTs breach of any material provision of this Agreement, which breach has not been cured to the satisfaction of LIFE COMPANY within ten days after written notice of such breach is delivered to TRUST; |
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(j) | At the option of TRUST, upon LIFE COMPANYs breach of any material provision of this Agreement, which breach has not been cured to the satisfaction of TRUST within ten days after written notice of such breach is delivered to LIFE COMPANY; |
(k) | At the option of TRUST, if the Variable Contracts are not registered, issued or sold in accordance with applicable federal and/or state law. Termination shall be effective immediately upon such occurrence without notice to LIFE COMPANY; |
(l) | At the option of LIFE COMPANY in the event that any Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M of the Code or under any successor or similar provision, or if LIFE COMPANY reasonably believes that any Portfolio may fail to so qualify. Termination shall be effective immediately upon notice to the TRUST; |
(m) | At the option of LIFE COMPANY in the event that any Portfolio fails to meet the diversification requirements specified in Article IT hereof or if LIFE COMPANY reasonably believes that any Portfolio may fail to meet such diversification requirements. Termination shall be effective immediately upon notice to the TRUST; |
(n) | In the event this Agreement is assigned without the prior written consent of LIFE COMPANY, TRUST, and NB MANAGEMENT, termination shall be effective immediately upon such occurrence without notice, unless the party whose rights were not assigned elects to continue the Agreement. |
8.3 Notwithstanding any termination of this Agreement pursuant to Section 8.2 hereof, TRUST shall, at the option of the LIFE COMPANY, continue to make available additional TRUST shares, as provided below, for so long as LIFE COMPANY desires pursuant to the terms and conditions of this Agreement, for all Variable Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as Existing Contracts). Specifically, without limitation, if LIFE COMPANY so elects to make additional TRUST shares available, the owners of the Existing Contracts or LIFE COMPANY, whichever shall have legal authority to do so, shall be permitted to reallocate investments in TRUST, redeem investments in TRUST and/or invest in TRUST upon the payment of additional premiums under the Existing Contracts. In the event of a termination of this Agreement pursuant to Section 8.2 hereof, LIFE COMPANY, as promptly as is practicable under the circumstances, shall notify TRUST and NB MANAGEMENT
20
whether LIFE COMPANY elects to continue to make TRUST shares available after such termination. If TRUST shares continue to be made available after such termination, all applicable provisions of this Agreement shall remain in effect until such time as the LIFE COMPANY elects to discontinue the availability of TRUST shares under the Variable Contracts.
8.4 Except as necessary to implement Variable Contract owner initiated transactions or other transactions described in the prospectus or offering memorandum for the Variable Contracts, or as required by state insurance laws or regulations, or other applicable legal precedent, or as necessary to effect a substitution (including but not limited to, a substitution permitted by the SEC pursuant to Section 26(c) of the 40 Act), LIFE COMPANY shall not redeem the shares attributable to the Variable Contracts (as opposed to the shares attributable to LIFE COMPANYs assets held in the Separate Accounts or invested directly), and LIFE COMPANY shall not prevent Variable Contract owners from allocating payments to a Portfolio that was otherwise available under the Variable Contracts, until thirty (30) days after the LIFE COMPANY shall have notified TRUST of its intention to do so.
8.5 In the event that the Agreement is terminated pursuant to Section 8.2(b), 8.2(c), 8.2(d), 8.2(g), 8.2(i), 8.2(1), or 8.2(m) or TRUST chooses to liquidate or liquidate a Portfolio, TRUST shall reimburse LIFE COMPANY for all expenses that LIFE COMPANY reasonably incurs in connection with the substitution of shares of another investment company or companies for the shares of the Portfolio(s) as to which the Agreement has been terminated.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return receipt requested, or overnight mail through a nationally-recognized delivery service, to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party.
If to TRUST or NB MANAGEMENT:
Neuberger Berman Management Inc.
605 Third Avenue
New York, NY 10158-0006
Attention: President
If to LIFE COMPANY:
Northwestern Mutual Life Insurance Company
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720 East Wisconsin Avenue
Milwaukee, WI 53202-4797
Attention: Vice President IPS Products & Sales
and
Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202-4797
Attention: General Counsel
Notice shall be deemed given on the date of receipt by the addressee as evidenced by the return receipt or by the overnight delivery service.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. It shall also be subject to the provisions of the federal securities laws and the rules and regulations thereunder and to any orders of the SEC granting exemptive relief therefrom and the conditions of such orders.
10.5 The parties agree that the assets and liabilities of each Portfolio are separate and distinct from the assets and liabilities of each other Portfolio. No Portfolio shall be liable or shall be charged for any debt, obligation or liability of any other Portfolio. No Trustee, officer or agent of TRUST shall be personally liable for such debt, obligation or liability of any Portfolio, except in the case of such persons willful misfeasance, bad faith, or gross negligence in the performance of duties or obligations under this Agreement. No Trustee, officer or agent of LIFE COMPANY shall be personally liable for such debt, obligation or liability of any Separate
22
Account, except in the case of such persons willful misfeasance, bad faith, or gross negligence in the performance of duties or obligations under this Agreement.
10.6 Each party shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the National Association of Securities Dealers, Inc. and state insurance regulators) and, to the extent practicable, shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby, except where a partys respective interests are adverse to or in conflict with another partys interests.
10.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws.
10.8 All prior negotiations, understandings and agreements between the parties with respect to the subject matter of this Agreement are merged into this Agreement. No provision of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by TRUST, NB MANAGEMENT and the LIFE COMPANY.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Fund Participation Agreement as of the date and year first above written.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST |
NEUBERGER BERMAN MANAGEMENT INC. | |||||||
By: | /s/ Peter E. Sundman |
By: | /s/ Peter E. Sundman | |||||
Name: | Peter E. Sundman | Name | : Peter E. Sundman | |||||
Title: | Chairman | Title | : President | |||||
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY |
||||||||
By: | /s/ DON TYLER |
|||||||
Name: | DON TYLER | |||||||
Title: | VICE PRESIDENT, IPS PRODUCTS & SALES THE NORTHWESTERN LIFE INSURANCE COMPANY |
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Appendix A
The currently available Portfolios of the TRUST are:
AMT Fasciano Portfolio - S Class Shares
AMT Focus Portfolio - S Class Shares
AMT Growth Portfolio
AMT Guardian Portfolio - I Class Shares
AMT Guardian Portfolio - S Class Shares
AMT International Portfolio - S Class Shares
AMT Mid-Cap Growth Portfolio - I Class Shares
AMT Mid-Cap Growth Portfolio - S Class Shares
AMT Partners Portfolio
AMT Regency Portfolio - I Class Shares
AMT Regency Portfolio - S Class Shares
AMT Socially Responsive Portfolio
AMT Balanced Portfolio
AMT Limited Maturity Bond Portfolio
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Appendix B
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Exhibit (j)(b)
RUSSELL INVESTMENT MANAGEMENT COMPANY
SHAREHOLDER INFORMATION AGREEMENT REGARDING COMPLIANCE
WITH RULE 22C-2 UNDER THE INVESTMENT COMPANY ACT OF 1940
SHAREHOLDER INFORMATION AGREEMENT entered into as of April 13, 2007, by and between Russell Investment Management Company (the Transfer Agent), a Washington corporation, on behalf of Russell Investment Funds (the Fund), and The Northwestern Mutual Life Insurance Company (the Company), a life insurance company organized under the laws of the State of Wisconsin, on behalf of its separate accounts listed in Schedule A hereto as may he amended from time to time, with an effective date of October 16, 2007.
As used in this Agreement, the following terms shall have the following meanings, unless a different meaning is clearly required by the contexts:
The term good cause means an instance where the Fund has detected activity by one or more Shareholders that bears additional scrutiny to determine if the activity is inconsistent with the then current policies of the Fund and that the Fund reasonably believes that additional Shareholder information is necessary to make a determination if such activity actually violates the policy.
The term Shares means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the Investment Company Act of 1940 that are held by separate accounts of the Company listed in Schedule A.
The term Shareholder means the holder of interests in a variable annuity or variable life insurance contract issued by the Company (Contract), or a participant in an employee benefit plan with a beneficial interest in a Contract.
The term Shareholder-Initiated Transfer Purchase means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract to a portfolio of the Fund, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollment such as a transfer of assets within a Contract to a portfolio as a result of dollar cost averaging programs, insurance company approved asset allocation programs, or automatic rebalancing programs; (ii) pursuant to a Contract death benefit; (iii) step-up in Contract value pursuant to a Contract death benefit; (iv) allocation of assets to a portfolio through a Contract as a result of payments such as loan repayments, scheduled contributions, retirement plan salary reduction contributions, or planned premium payments to the Contract; or (v) pre-arranged transfers at the conclusion of a required free look period.
The term Shareholder-Initiated Transfer Redemption means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract out of a portfolio of the Fund, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollments such as transfers of assets within a Contract out of a portfolio as a result of annuity payouts,
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systematic withdrawal programs, insurance company approved asset allocation programs and automatic rebalancing programs; (ii) as a result of any deduction of charges or fees under a Contract; (iii) within a Contract out of a portfolio as a result of withdrawals or surrenders from a Contract; (iv) as a result of payment of a death benefit from a Contract; or (v) loans.
The tenn written includes electronic writings (e.g., e-mail) and facsimile transmissions.
WHEREAS, the Company currently maintains separate accounts which hold Shares for the benefit of Shareholders; and
WHEREAS, the Company and the Transfer Agent, on behalf of the Fund, desire to enter into a shareholder information agreement to comply with the provisions of Rule 22c-2 under the Investment Company Act of 1940 and for other purposes;
WHEREAS, this Agreement shall inure to the benefit of and shall be binding upon the undersigned;
NOW, THEREFORE, the Transfer Agent, on behalf of the Fund, and the Company hereby agree as follows:
1. Shareholder Information
1.1. Agreement to Provide Information. The Company agrees to provide the Fund or its designee, upon written request, the taxpayer identification number (TIN), the Individual/International Taxpayer Identification Number (ITIN), or other government-issued identifier (GII) and the Contract owner number or participant account number associated with the Shareholder, if known, of any or all Shareholder(s) of the account, and the amount, date and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by the Company during the period covered by the request. Unless otherwise specifically requested, the Company shall only be required to provide information relating to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions. The Fund agrees to only request information on trades other than Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions as it deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund.
1.2 Period Covered by Request. Requests must set forth a specific period, not to exceed 90 days from the date of the request, for which transaction information is sought. The Fund agrees to not request transaction information older than 90 calendar days from the date of the request unless the Fund deems it necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund.
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1.3 Timing of Requests. The Fund agrees to make requests for Shareholder information no more frequently than quarterly, unless the fund deems it has Good Cause to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund.
1.4 Monitoring Requirement. Nothing herein, nor any action by the Company, shall be construed as, or infer that the Company has, undertaken any duty or obligation, whether express or implied, at law or in equity, to detect trading activities inconsistent with or in violation of the Funds policies and/or procedures on limiting the dilution of the value of the outstanding securities issued by the Fund.
1.5 Form and Timing of Response. (a) The Company agrees to provide, promptly upon request of the Fund or its designee, the requested information specified in 1.1. If requested by the Fund or its designee, the Company agrees to use best efforts to determine promptly whether any specific person about whom it has received the identification and transaction information specified in 1.1 is itself a financial intermediary (indirect intermediary) and, upon further request of the Fund or its designee, promptly either (i) provide (or arrange to have provided) the information set forth in 1.1 for those shareholders who hold an account with an indirect intermediary or (ii) upon the Funds request, restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by the Fund.
(b) Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the Fund or its designee and the Company; and
(c) To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the NSCC Standardized Data Reporting Format.
1.6 Limitations on Use of Information. (a) The Fund agrees not to use the information received pursuant to this Agreement for any purpose other than as necessary to comply with the provisions of Rule 22c-2 or to fulfill other regulatory or legal requirements subject to the privacy provisions of Title V of the Gramm-Leach-Bliley Act (Public Law 106-102) and comparable state laws, unless otherwise agreed to by the Company. If a party to this Agreement becomes aware of any disclosure to an unauthorized third party of any non-public personal financial information of a consumer provided or received by the Fund in response to a request for information pursuant to the terms of this Agreement and determines that there is a reasonable likelihood of harm resulting from such disclosure, such party promptly shall, at its expense: (i) notify the other party; (ii) investigate the circumstances relating to such actual or suspected unauthorized access, use or disclosure; (iii) take commercially reasonable steps to mitigate the effects of such unauthorized access, use or disclosure and to prevent any reoccurrence; (iv) provide to the other party such information regarding such unauthorized access, use or disclosure as is reasonably required for the other party to evaluate the likely consequences and any
-3-
regulatory or legal requirements arising out of such unauthorized access, use or disclosure; and (v) cooperate with the other party to further comply with all relevant laws, rules and regulations.
(b) The Fund agrees to indemnify and hold harmless the Company from any and all liability, claim, loss, demand, damages, costs and expenses (including reasonable attorneys fees) directly resulting from a third party claim or action brought against the Company in which an independent determination that unauthorized disclosure by the Funds of a Shareholders TIN, ITIN, or GII provided to the Fund in response to the Funds request for information pursuant to the terms of this Agreement caused a loss to the Company.
2. Agreement to Restrict Trading. The Company agrees to execute written instructions from the Fund to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by the Fund as having engaged in transactions of the Funds Shares (directly or indirectly through the Companys account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund. Any such restrictions or prohibitions shall only apply to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions that are effected directly or indirectly through the Company. Instructions must be received by us at the following address, or such other address that the Company may communicate to you in writing from time to time, including, if applicable, an e-mail and/or facsimile telephone number:
The Northwestern Mutual Life Insurance Company
IPS Investment Client Services
Attention: Judy Shelton
611 East Wisconsin Avenue
Milwaukee, WI 53202
2.1 Form of Instructions. Instructions must include the TIN, ITIN, or GII and the specific individual Contract owner number or participant account number associated with the Shareholder, if known, and the specific restriction(s) to be executed, including how long the restriction(s) is(are) to remain in place. If the TIN, ITIN, GII or the specific individual Contract owner number or participant account number associated with the Shareholder is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates. Upon request of the Company, Fund agrees to provide to the Company, along with any written instructions to prohibit further purchases or exchanges of Shares by Shareholder, information regarding those trades of the Contract owner that violated the Funds policies relating to eliminating or reducing any dilution of the value of the Funds outstanding Shares.
2.2 Timing of Response. The Company agrees to execute instructions as soon as reasonably practicable, but not later than ten business days after receipt of the instructions by the Company, provided the instructions are reasonable and in accordance with standard practice. The Fund agrees to work with the Company to develop and implement
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acceptable alternative means of restricting shareholder activity where necessary to maintain compliance policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund, while protecting the Company from potential violation of its contractual obligations to Shareholders. Such alternative methods may include placing a Shareholder on alternative trading methodologies such as regular US Mail to preclude the Shareholder from taking advantage of potential inefficiencies in Fund pricing.
2.3 Confirmation by the Company. The Company must provide written confirmation to the Fund that instructions have been executed. The Company agrees to provide confirmation as soon as reasonably practicable, but not later than ten business days after the instructions have been executed.
2.4 Force Majeure. Either party is excused from performance and shall not be liable for any delay in performance or non-performance, in whole or in part, caused by the occurrence of any event or contingency beyond the control of the parties including, but not limited to, work stoppages, fires, volcanic eruptions, civil disobedience, riots, rebellions, natural disasters, acts of God, acts of war or terrorism, actions or decrees of governmental bodies, and similar occurrences. The party who has been so affected shall promptly give written notice to the other party and shall use its best efforts to resume performance. Upon receipt of such notice, all obligations under this Agreement shall be immediately suspended for the duration of such Force Majeure Event; provided, however, that the requirements of Rule 22c-2 shall continue to apply notwithstanding the occurrence of any of the forgoing events.
3. Construction of the Agreement; Fund Participation Agreement. The parties have entered into a Fund Participation Agreement between or among them for the purchase and redemption of shares of the Fund by separate accounts maintained by the Company in connection with the Contracts. This Agreement supplements the Fund Participation Agreement. To the extent the terms of this Agreement conflicts with the terms of the Fund Participation Agreement, the terms of this Agreement shall control.
4. Termination. This Agreement will terminate upon the termination of the Fund Participation Agreement.
5. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin, without giving effect to principles of conflicts of laws.
6. Successors. This Agreement shall be binding upon the parties hereto, but not upon their transferees, successors and assigns.
7. Assignment. No party to this Agreement may assign the Agreement, or any of the rights, obligations, or liabilities under the Agreement, without the written consent of all parties hereto.
8. Counterparts and Delivery. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute
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one instrument. A signed copy of this Agreement delivered by facsimile or by emailing a copy in .pdf form shall be treated as an original and shall bind both parties just as would the exchange of originally signed copies.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed as of the date first above written.
RUSSELL INVESTMENT MANAGEMENT COMPANY
(On behalf of Russell Investment Funds)
By: | /s/ David Rainville | |
Name: | David Rainville | |
Title: | Director, USD Operations |
Russell Investment Management Company
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
(On behalf of the separate accounts listed in Schedule A)
By: | /s/ Don Tyler | |
Name: | Don Tyler | |
Title: | Vice President, IPS Products and Sales |
The Northwestern Mutual Life Insurance Company
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SCHEDULE A
1. | NML Variable Annuity Account A |
2. | NML Variable Annuity Account B |
3. | NML Variable Annuity Account C |
4. | Northwestern Mutual Variable Life Account |
5. | Northwestern Mutual Variable Life Account II |
Exhibit (j)(c)
AMENDMENT NO. 1
TO
SHAREHOLDER INFORMATION AGREEMENT
This Amendment (the Amendment) is made this 30th day of October, 2008 to the Shareholder Information Agreement (the Agreement), dated April 13, 2007, by and between The Northwestern Mutual Life Insurance Company (the Company) and Russell Fund Services Company, on behalf of Russell Investment Funds (the Fund).
WHEREAS, the parties wish to amend the Agreement to revise Section 1.6 regarding limits on the use of information provided by the Company to the Fund or its designee and to revise indemnification language to include the Funds designee.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:
Section 1.6 of the Agreement is hereby amended and restated in its entirety to read as follows:
1.6 | Limitations on Use of Information. |
(a) | The Fund agrees not to use the information received pursuant to this Agreement for any purpose other than as necessary to comply with the provisions of Rule 22c-2 or to fulfill other regulatory or legal requirements subject to the privacy provisions of Title V of the Gramm-Leach Bliley Act (Public Law 106-102) and comparable state laws, unless otherwise agreed to by the Company. If a party to this Agreement becomes aware of any unauthorized access, use or disclosure to an unauthorized third party of any non-public personal financial information of a consumer provided or received by the Fund in response to a request for information pursuant to the terms of this Agreement and determines that there is a reasonable likelihood of harm resulting from such disclosure, such party promptly shall, at its expense: (i) notify the other party; (ii) investigate the circumstances relating to such actual or suspected unauthorized access, use or disclosure; (iii) take commercially reasonable steps to mitigate the effects of such unauthorized access, use or disclosure and to prevent any reoccurrence; (iv) provide to the other party such information regarding such unauthorized access, use or disclosure as is reasonably required for the other party to evaluate the likely consequences and any regulatory or legal requirements arising out of such unauthorized access, use or disclosure; and (v) cooperate with the other party to further comply will all relevant laws, rules and regulations. |
1
(b) | Russell Fund Services Company, as transfer agent for the fund, has a written agreement in place with any designee under this agreement which includes provisions substantially similar to 1.6(a) and which obligates such designee to undertake the same responsibilities as the Fund with respect to the Company and any information provided by the Company. The Fund will promptly notify the Company if it fails to maintain such an agreement with its designee. |
(c) | The Fund agrees to indemnify and hold harmless the Company from any and all liability, claim, loss, demand, damages, costs and expenses (including reasonable attorneys fees) directly resulting from RCN 11-7-08 a third party claim or action brought against the Company m which an independent determination that unauthorized disclosure by the Fund (or its designee) of a Shareholders TIN, ITIN, or GII provided to the Fund (or its designee) in response to the Funds request for information pursuant to the terms of this Agreement caused a loss to the Company. |
IN WITNESS WHEREOF, each party hereto has caused this Amendment to be executed in its name and on its behalf by its duly authorized representative as of the date set for the above.
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By: | /s/ Ronald C. Nelson | |
Ronald C. Nelson | ||
Title: | Director | |
11-7-08 |
RUSSELL FUND SERVICES COMPANY
(On behalf of Russell Investment Funds)
By: | /s/ Damon B. Joyner | |
Damon B. Joyner | ||
Title: | Controller | |
10-30-08 |
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Exhibit (j)(d)
FIDELITY DISTRIBUTORS CORPORATION
CONTRACT OWNER INFORMATION AGREEMENT REGARDING
COMPLIANCE WITH RULE 22C-2 UNDER THE INVESTMENT COMPANY
ACT OF 1940
CONTRACT OWNER INFORMATION AGREEMENT entered into as of April 13, 2007, by and between Fidelity Distributors Corporation a Massachusetts corporation, on behalf of Fidelity® Variable Insurance Products Funds, (the Underwriter), and The Northwestern Mutual Life Insurance Company (the Company), a life insurance company organized under the laws of the State of Wisconsin, with an effective date of October 16, 2007.
As used in this Agreement, the following terms shall have the following meanings, unless a different meaning is clearly required by the contexts:
The term Fund includes the Funds principal underwriter, transfer agent or other designated affiliates. The term does not include any excepted funds as defined in SEC Rule 22c-2(b) under the Investment Company Act of 1940.1
The term Shares means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the Investment Company Act of 1940 that are held by separate accounts of the Company.
The term Shareholder means the holder of interests in a variable annuity or variable life insurance contract issued by the Company (Contract), or a participant in an employee benefit plan with a beneficial interest in a Contract.
The term Shareholder-Initiated Transfer Purchase means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract to a Fund, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollment such as a transfer of assets within a Contract to a Fund as a result of dollar cost averaging programs, insurance company approved asset allocation programs, or automatic rebalancing programs; (ii) pursuant to a Contract death benefit; (iii) step-up in Contract value pursuant to a Contract death benefit; (iv) allocation of assets to a Fund through a Contract as a result of payments such as loan repayments, scheduled contributions, retirement plan salary reduction contributions, or planned premium payments to the Contract; or (v) pre-arranged transfers at the conclusion of a required free look period.
The term Shareholder-Initiated Transfer Redemption means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract out of a Fund, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollments such as transfers of assets
1 As defined in SEC Rule 22c-2(b), term excepted fund means any: (l) money market fund; (2) fund that issues securities that are listed on a national exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund.
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within a Contract out of a portfolio as a result of annuity payouts, systematic withdrawal programs, insurance company approved asset allocation programs and automatic rebalancing programs; (ii) as a result of any deduction of charges or fees under a Contract; (iii) within a Contract out of a portfolio as a result of scheduled withdrawals or surrenders from a Contract; (iv) as a result of payment of a death benefit from a Contract; or (v) loans.
The term written includes electronic writings and facsimile transmissions.
WHEREAS, the Company currently maintains separate accounts which hold Shares for the benefit of Contract Owners; and
WHEREAS, the Company and the Underwriter, on behalf of the Fund, desire to enter into a shareholder information agreement to comply with the provisions of Rule 22c-2 under the Investment Company Act of 1940 and for other purposes;
WHEREAS, this Agreement shall inure to the benefit of and shall be binding upon the undersigned;
NOW, THEREFORE, the Underwriter, on behalf of the Fund, and the Company hereby agree as follows:
1. | Contract Owner Information |
1.1. | Agreement to Provide Information. The Company agrees to provide the Fund or its designee, upon written request, the taxpayer identification number (TIN), the Individual/International Taxpayer Identification Number (ITIN), or other government-issued identifier (GII) and the Contract owner number or participant account number associated with the Contract Owner, if known, of any or all Contract Owner(s) of the account, and the amount, date and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by the Company during the period covered by the request. The Company shall only be required to provide information relating to Contract Owner-Initiated Transfer Purchases or Contract Owner-Initiated Transfer Redemptions. |
Upon further request by the Fund or its designee, the Company agrees to provide an identifier (i.e., initials, a numeric symbol, etc) of any investment professionals (if known) associated with any Contract Owner(s) account which has been identified by the Fund as having violated policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund.
1.2. | Period Covered by Request. Requests must set forth a specific period, not to exceed 90 days from the date of the request, for which transaction information is sought. The Fund may request transaction information older than 90 calendar |
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days from the date of the request as it deems it necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund. |
1.3. | Timing of Requests. Fund requests for Contract Owner information shall be made no more frequently than monthly, except as the Fund deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund. |
1.4. | Agreement to Comply with Policies. Company represents and warrants that it will comply with its policies and procedures designed to prevent excessive trading as approved by the Fund, or will comply with the Funds policies and procedures regarding excessive trading as set forth in the Funds prospectus, by providing data pursuant to Section 1.1. |
1.5. | Form and Timing of Response. (a) The Company agrees to provide, promptly upon request of the Fund or its designee, but in any event not later than 10 business days after receipt of request, the requested information specified in 1.1.If requested by the Fund or its designee, the Company agrees to use best efforts to determine promptly whether any specific person about whom it has received the identification and transaction information specified in 1. 1 is itself a financial intermediary (indirect intermediary) and, upon further request of the Fund or its designee, promptly either (i) provide (or arrange to have provided) the information set forth in 1. 1 for those shareholders who hold an account with an indirect intermediary or (ii) restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by the Fund. The Company additionally agrees to inform the Fund whether it plans to perform (i) or (ii). |
(a) | Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the Fund or its designee and the Company; and |
(b) | To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the NSCC Standardized Data Reporting Format. |
1.6. | Limitations on Use of Information. (a) The Fund agrees not to use the information received pursuant to this Agreement for any purpose other than as necessary to comply with the provisions of Rule 22c-2 or to fulfill other regulatory or legal requirements subject to the privacy provisions of Title V of the Gramm-Leach-Bliley Act (public Law 106-102) and comparable state laws, unless otherwise agreed to by the Company. If a party to this Agreement becomes aware of any disclosure to an unauthorized third party of any non-public personal financial information of a consumer provided or received by the Fund in response to a request for information pursuant to the terms of this Agreement and |
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determines that there is a reasonable likelihood of harm resulting from such disclosure, such party promptly shall, at its expense: (i) notify the other party; (ii) investigate the circumstances relating to such actual or suspected unauthorized access, use or disclosure; (iii) take commercially reasonable steps to mitigate the effects of such unauthorized access, use or disclosure and to prevent any reoccurrence; (iv) provide to the other party such information regarding such unauthorized access, use or disclosure as is reasonably required for the other party to evaluate the likely consequences and any regulatory or legal requirements arising out of such unauthorized access, use or disclosure; and (v) cooperate with the other party to further comply with all relevant laws, rules and regulations. |
(a) | The Underwriter agrees to indemnify and hold harmless the Company from any and all liability, claim, loss, demand, damages, costs and expenses (including reasonable attorneys fees) arising in connection with a third party claim or action brought against the Company as a result of any unauthorized disclosure of a Contract Owners TIN, ITIN, or GII provided to the Fund in response to a request for information pursuant to the terms of this Agreement. |
2. | Agreement to Restrict Trading. The Company agrees to execute written instructions from the Fund to restrict or prohibit further purchases or exchanges of Shares by a Contract Owner that has been identified by the Fund as having engaged in transactions of the Funds Shares (directly or indirectly through the Companys account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund. Any such restrictions or prohibitions shall only apply to Contract Owner-Initiated Transfer Purchases or Contract Owner-Initiated Transfer Redemptions that are effected directly or indirectly through the Company. At the time of execution of this Agreement, instructions must be received by us in writing and sent to Company at the following address: |
The Northwestern Mutual Life Insurance Company
IPS Investment Client Services
Attention: Judy Shelton
611 East Wisconsin Avenue
Milwaukee, WI 53202
At the time of execution of this Agreement, the Company agrees to provide the above contact information to the Funds operations group and any updates to the above information, (including, if applicable, an e-mail and/or facsimile telephone number) will be made through the Funds operations group and not by amending this Agreement.
2.1. | Form of Instructions. Instructions must include the TIN, ITIN, or GII and the specific individual Contract owner number or participant account number associated with the Contract Owner, if known, and the specific restriction(s) to be executed, including how long the restriction(s) is(are) to remain in place. If the TIN, ITIN, GII or the specific individual Contract owner number or participant |
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account number associated with the Contract Owner is not known, the instructions must include an equivalent identifying number of the Contract Owner(s) or account(s) or other agreed upon information to which the instruction relates. Upon request of the Company, Fund agrees to provide to the Company, along with any written instructions to prohibit further purchases or exchanges of Shares by Contract Owner, information regarding those trades of the Contract owner that violated the Funds policies. |
2.2. | Timing of Response. The Company agrees to execute instructions as soon as reasonably practicable, but not later than five business days after receipt of the instructions by the Company. |
2.3. | Supporting Documentation: Upon the Companys request, Underwriter agrees to provide to the Company, in writing, (i) information regarding those trades of a Shareholder that violated the Funds Fund Trading Policies; and (ii) reasonable assistance in communicating to/with any Shareholder whose trading has been restricted pursuant to this Section regarding the trade restrictions and/or prohibitions implemented hereunder. The Company will share such information with the affected Shareholder and such activity shall not be a breach of this Agreement. |
2.4. | Confirmation by the Company. The Company must provide written confirmation to the Fund that instructions have been executed. The Company agrees to provide confirmation as soon as reasonably practicable, but not later than ten business days after the instructions have been executed. |
2.5. | Force Majeure. Either party is excused from performance and shall not be liable for any delay in performance or non-performance, in whole or in part, caused by the occurrence of any event or contingency beyond the control of the parties including, but not limited to, work stoppages, fires, civil disobedience, riots, rebellions, natural disasters, acts of God, acts of war or terrorism, actions or decrees of governmental bodies, and similar occurrences. The party who has been so affected shall promptly give written notice to the other party and shall use its best efforts to resume performance as soon as reasonably possible. Upon receipt of such notice, all obligations under this Agreement shall be immediately suspended for the duration of such Force Majeure Event. |
3. | Construction of the Agreement; Fund Participation Agreement. The parties have entered into a Fund Participation Agreement between or among them for the purchase and redemption of shares of the Fund by separate accounts maintained by the Company in connection with the Contracts. This Agreement supplements the Fund Participation Agreement. To the extent the terms of this Agreement conflicts with the terms of the Fund Participation Agreement, the terms of this Agreement shall control. |
4. | Termination. This Agreement will terminate upon the termination of the Fund Participation Agreement. |
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5. | Counterparts and Delivery. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one instrument. A signed copy of this Agreement delivered by facsimile or by emailing a copy in .pdf form shall be treated as an original and shall bind both parties just as would the exchange of originally signed copies. |
6. | Fidelity agrees to reimburse the Company for reasonable costs associated with complying with written requests for data that has already been previously requested by Fidelity in any one year period and data requested by Fidelity that is older than one year. |
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
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IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed as of the date first above written.
FIDELITY DISTRIBUTORS CORPORATION
(On behalf of Fidelity Variable Insurance Products Funds)
By: | /s/ William F. Loehning | |
Name: | William F. Loehning | |
Title: | Executive Vice President |
Fidelity Distributors Corporation
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By: | /s/ Don Tyler | |
Name: | Don Tyler | |
Title: | Vice President, IPS Products and Sales |
The Northwestern Mutual Life Insurance Company
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Exhibit (j)(e)
NORTHWESTERN MUTUAL SERIES FUND, INC
SHAREHOLDER INFORMATION AGREEMENT PURSUANT
TO RULE 22C-2 UNDER THE INVESTMENT COMPANY ACT OF 1940
SHAREHOLDER INFORMATION AGREEMENT entered into as of April 16, 2007, by and between Northwestern Mutual Series Fund, Inc. (the Fund), and The Northwestern Mutual Life Insurance Company (the Company), a life insurance company organized under the laws of the State of Wisconsin, on behalf of its separate accounts listed in Schedule A hereto as may be amended from time to time, with an effective date of October 16, 2007.
As used in this Agreement, the following terms shall have the following meanings, unless a different meaning is clearly required by the contexts:
The term good cause means an instance where (i) the Fund has experienced unusual levels or patterns of purchase or redemption activity and reasonably believes such activity is an indication that trading activity in an account is inconsistent with the policies and procedures set forth in the Funds currently effective prospectus with respect to short term and excessive trading (the Market Timing Policies), thereby requiring additional Shareholder information to investigate compliance with the Market Timing Policies; or (ii) the Fund reasonably believes that additional Shareholder information is necessary for the purpose of a periodic compliance review or audit.
The term Shares means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the Investment Company Act of 1940 that are held by separate accounts of the Company listed in Schedule A.
The term Shareholder means the holder of interests in a variable annuity or variable life insurance contract issued by the Company (Contract), or a participant in an employee benefit plan with a beneficial interest in a Contract.
The term Shareholder-Initiated Transfer Purchase means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract to a portfolio of the Fund, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollment such as a transfer of assets within a Contract to a portfolio as a result of dollar cost averaging programs, insurance company approved asset allocation programs, or automatic rebalancing programs; (ii) pursuant to a Contract death benefit; (iii) step-up in Contract value pursuant to a Contract death benefit; (iv) allocation of assets to a portfolio through a Contract as a result of payments such as loan repayments, scheduled contributions, retirement plan salary reduction contributions, or planned premium payments to the Contract; or (v) pre-arranged transfers at the conclusion of a required free look period.
The term Shareholder-Initiated Transfer Redemption means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract out of a portfolio of the Fund, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollments such as
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transfers of assets within a Contract out of a portfolio as a result of annuity payouts, systematic withdrawal programs, insurance company approved asset allocation programs and automatic rebalancing programs; (ii) as a result of any deduction of charges or fees under a Contract; (iii) within a Contract out of a portfolio as a result of withdrawals or surrenders from a Contract; (iv) as a result of payment of a death benefit from a Contract; or (v) loans.
The term written includes electronic writings and facsimile transmissions.
WHEREAS, the Company currently maintains separate accounts which hold Shares for the benefit of Shareholders; and
WHEREAS, the Company and the Fund, desire to enter into a shareholder information agreement to comply with the provisions of Rule 22c-2 under the Investment Company Act of 1940 and for other purposes;
WHEREAS, this Agreement shall inure to the benefit of and shall be binding upon the undersigned;
NOW, THEREFORE, the Fund and the Company hereby agree as follows:
1. | Shareholder Information |
1.1. Agreement to Provide Information. The Company agrees to provide the Fund or its designee, upon written request, the taxpayer identification number (TIN), the Individual/International Taxpayer Identification Number (ITIN), or other government-issued identifier (GII) and the Contract owner number or participant account number associated with the Shareholder, if known of any or all Shareholder(s) of the account, and the amount, date and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by the Company during the period covered by the request. The Company shall only be required to provide information relating to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions.
1.2 Period Covered by Request. Requests must set forth a specific period, not to exceed 90 days from the date of the request, for which transaction information is sought. The Fund will not request transaction information older than 90 calendar days from the date of the request unless the Fund deems it necessary to investigate compliance with the Market Timing Policies.
1.3 Timing of Requests. Fund requests for Shareholder information shall be made no more frequently than quarterly, unless good cause justification is demonstrated by the Fund that a more frequent request is necessary to enforce the Market Timing Policies.
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1.4 Form and Timing of Response. (a) The Company agrees to provide, promptly upon request of the Fund or its designee, the requested information specified in 1.1. If requested by the Fund or its designee, the Company agrees to use best efforts to determine promptly whether any specific person about whom it has received the identification and transaction information specified in 1.1 is itself a financial intermediary (indirect intermediary) and, upon further request of the Fund or its designee, promptly either (i) provide (or arrange to have provided) the information set forth in 1.1 for those shareholders who hold an account with an indirect intermediary or (ii) restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by the Fund. The Company additionally agrees to inform the Fund whether it plans to perform (i) or (ii).
(b) Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the Fund or its designee and the Company; and
(c) To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the NSCC Standardized Data Reporting Format.
1.5 Limitations on Use of Information. The Fund agrees not to use the information received pursuant to this Agreement for any purpose other than as necessary to comply with the provisions of Rule 22c-2 or to fulfill other regulatory or legal requirements subject to the privacy provisions of Title V of the Gramm-Leach-Bliley Act (Public Law 106-102) and comparable state laws, unless otherwise agreed to by the Company. If a party to this Agreement becomes aware of any disclosure to an unauthorized third party of any non-public personal financial information of a consumer provided or received by the Fund in response to a request for information pursuant to the terms of this Agreement and determines that there is a reasonable likelihood of harm resulting from such disclosure, such party promptly shall, at its expense: (i) notify the other party; (ii) investigate the circumstances relating to such actual or suspected unauthorized access, use or disclosure; (iii) take commercially reasonable steps to mitigate the effects of such unauthorized access, use or disclosure and to prevent any reoccurrence; (iv) provide to the other party such information regarding such unauthorized access, use or disclosure as is reasonably required for the other party to evaluate the likely consequences and any regulatory or legal requirements arising out of such unauthorized access, use or disclosure; and (v) cooperate with the other party to further comply with all relevant laws, rules and regulations.
2. Agreement to Restrict Trading. The Company agrees to execute written instructions from the Fund to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by the Fund as having engaged in transactions of the Funds Shares (directly or indirectly through the Companys account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund. Any such restrictions or prohibitions shall only apply to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated
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Transfer Redemptions that are effected directly or indirectly through the Company. Instructions must be received by us at a mutually agreed upon address.
2.1 Form of Instructions. Instructions must include the TIN, ITIN, or GII and the specific individual Contract owner number or participant account number associated with the Shareholder, if known, and the specific restriction(s) to be executed, including how long the restriction(s) is(are) to remain in place. If the TIN, ITIN, GII or the specific individual Contract owner number or participant account number associated with the Shareholder is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates. Upon request of the Company, Fund agrees to provide to the Company, along with any written instructions to prohibit further purchases or exchanges of Shares by Shareholder, information regarding those trades of the Contract owner that violated the Market Timing Policies.
2.2 Timing of Response. The Company agrees to execute instructions as soon as reasonably practicable, but not later than five business days after receipt of the instructions by the Company, provided the instructions are reasonable and in accordance with standard practice. The foregoing notwithstanding, the Company shall have no obligation to execute written instructions from the Fund if such actions could, in the Companys reasonable opinion, violate, or be deemed likely to violate (i) any trading privileges described in the applicable Contracts or registration statements; (ii) any formal or informal contract, settlement or arrangement with a Shareholder(s) as may be described in the applicable Contract registration statements; or (iii) any applicable law, regulation, decision or any official interpretation of the same. Provided further, the Company shall not be obligated to honor any instructions which are otherwise illegal or expose the Company to regulatory investigation or enforcement action, or otherwise causes or results in the Company having to bring, or defend against, a civil action involving an aggrieved Shareholder with respect to the enforcement of any abusive transfer restrictions.
2.3 Confirmation by the Company. The Company must provide written confirmation to the Fund that instructions have been executed. The Company agrees to provide confirmation as soon as reasonably practicable, but not later than ten business days after the instructions have been executed.
2.4 Force Majeure. Either party is excused from performance and shall not be liable for any delay in performance or non-performance, in whole or in part, caused by the occurrence of any event or contingency beyond the control of the parties including, but not limited to, work stoppages, fires, civil disobedience, riots, rebellions, natural disasters, acts of God, acts of war or terrorism, actions or decrees of governmental bodies, and similar occurrences. The party who has been so affected shall promptly give written notice to the other party and shall use its best efforts to resume performance. Upon receipt of such notice, all obligations under this Agreement shall be immediately suspended for the duration of such Force Majeure Event.
3. Construction of the Agreement; Fund Participation Agreement. The parties intend to enter into a Fund Participation Agreement between them for the purchase and
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redemption of shares of the Fund by separate accounts maintained by the Company in connection with the Contracts. This Agreement shall supplement the Fund Participation Agreement, when executed. To the extent the terms of this Agreement conflict with the terms of the Fund Participation Agreement, when executed, the terms of this Agreement shall control.
4. Termination. This Agreement will terminate upon the later of the following to occur: (i) the date on which the Company is no longer a financial intermediary, as that term is defined in Rule 22c-2 under the Investment Company Act of 1940, with respect the Fund; or (ii) the termination of the Fund Participation Agreement, when executed.
5. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws (If the State of Wisconsin, without giving effect to principles of conflicts of laws.
6. Successors. This Agreement shall be binding upon the parties hereto, but not upon their transferees, successors and assigns.
7. Assignment. No party to this Agreement may assign the Agreement, or any of the rights, obligations, or liabilities under the Agreement, without the written consent of all parties hereto.
8. Counterparts and Delivery. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one instrument. A signed copy of this Agreement delivered by facsimile or by emailing a copy in .pdf form shall be treated as an original and shall bind both parties just as would the exchange of originally signed copies.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed as of the date first above written.
NORTHWESTERN MUTUAL SERIES FUND, INC.
By: | /s/ Kate M. Fleming | |
Name: | Kate M. Fleming | |
Title: | Vice President Operations |
Northwestern Mutual Series Fund, Inc.
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
(On behalf of the separate accounts listed in Schedule A)
By: | /s/ Don Tyler | |
Name: | Don Tyler | |
Title: | Vice President |
The Northwestern Mutual Life Insurance Company
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SCHEDULE A
1. | NML Variable Annuity Account A |
2. | NML Variable Annuity Account B |
3. | NML Variable Annuity Account C |
4. | Northwestern Mutual Variable Life Account |
5. | Northwestern Mutual Variable Life Account II |
Exhibit (j)(f)
RULE 22c-2 SHAREHOLDER INFORMATION ACCESS AGREEMENT
(NEUBERGER BERMAN FAMILY OF FUNDS)
This Agreement is effective as of October 16, 2007, (the Effective Date) by and between Neuberger Berman Management Inc. (NBMI) and The Northwestern Mutual Life Insurance Company on behalf of each of its separate accounts (Intermediary).
WHEREAS, NBMI is the principal underwriter and adviser of registered investment companies and their separately designated series (each such series or series hereinafter established referred to herein as the Fund) the term does not include any excepted funds as defined in SEC Rule 22c-2(b) under the Investment Company Act of 1940, as amended (the 1940 Act)1;
WHEREAS, Intermediary is an insurance company that currently maintains separate accounts which hold securities of record issued by the Fund (Fund shares) for the benefit of holders in variable annuity or variable life insurance contracts (a Variable Contract) issued by Intermediary (Shareholders);
WHEREAS, the term Shareholder-Initiated Transfer Purchase means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Variable Contract to a Fund, but does not include, by way of example, transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollment such as a transfer of assets within Variable Contract to a Fund as a result of dollar cost averaging programs, insurance company approved asset allocation programs, or automatic rebalancing programs; (ii) pursuant to a Variable Contract death benefit; (iii) step-up in Variable Contract value pursuant to a Variable Contract death benefit; (iv) allocation of assets to a Fund through a Variable Contract as a result of payments such as loan repayments, scheduled contributions, retirement plan salary reduction contributions, or planned premium payments to the Variable Contract; or (v) pre-arranged transfers at the conclusion of a required free look period.
WHEREAS, the term Shareholder-Initiated Transfer Redemption means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Variable Contract out of a Fund, but does not include, by way of example, transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollments such as transfers of assets within a Variable Contract out of a Fund as a result of annuity payouts, loans, systematic withdrawal programs, insurance company approved asset allocation programs and automatic rebalancing programs; (ii) as a result of any deduction of charges or fees under a Variable Contract; (iii) within a Variable Contract out of a Fund as a result of scheduled or full withdrawals or surrenders from a Variable Contract; or (iv) as a result of payment of a death benefit from a Variable Contract.
WHEREAS, the term good cause means an instance where the Fund reasonably believes purchase or redemption activity is an indication that trading activity in an account is inconsistent with
1 As defined in SEC Rule 22c-2(b), the term excepted Fund means any: (1) money market or cash management Fund; (2) Fund that issues securities that are listed on a national exchange; and (3) Fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the Fund permits short-term trading of its securities and that such trading may result in additional costs for the Fund.
NBMIs or a Funds policies (Trading Policies) established for the purpose of eliminating or reducing any dilution of the value of Fund shares, including restrictions on frequent trading of Fund shares that NBMI otherwise may deem disruptive to the Fund and any policy to ensure appropriate administration of a redemption fee, if any, established by the Fund.
WHEREAS, the term written includes electronic writings and facsimile transmissions.
WHEREAS, NBMI and Intermediary have entered into a fund participation agreement (the Services Agreement), pursuant to which Intermediary has agreed to solicit orders for Fund shares and/or provide services with respect to the Fund;
WHEREAS, Intermediary is a financial intermediary within the meaning of Rule 22c-2 of the 1940 Act, and directly submits orders on behalf of investors in one or more Funds to purchase or redeem Fund shares;
WHEREAS, pursuant to Rule 22c-2 under the 1940 Act (Rule 22c-2.), the parties wish to enter into an agreement under which Intermediary agrees to provide NBMI and the Fund with Shareholder identification and transaction information in order to identify and preclude activity that may violate the Trading Policies;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, which consideration is full and complete, and intending to be legally bound hereby, NBMI and Intermediary hereby agree as follows:
1. | Shareholder Information |
1.1 | Agreement to Provide Information. Intermediary agrees to cooperate with the Funds and NBMIs efforts to identify Shareholder transaction activity that may violate the Trading Policies. To that end, as of the Effective Date, Intermediary agrees to respond promptly to NBMIs written requests regarding Shareholder transaction activity in an account held by or through the Intermediary. In response to such requests, Intermediary shall provide the taxpayer identification number (TIN), the Individual Taxpayer Identification (ITIN), or other government-issued identifier (GII), if known, of any or all Shareholder(s) of the account and the amount, date, and the transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer or exchange of Fund shares held through an account maintained by the Intermediary during the period covered by the request. If Fund Shares may be purchased through investment professionals not affiliated with Intermediary, then Intermediary shall also provide in response to requests from NBMIs written requests the name or other identifier of any investment professional(s) associated with the Shareholder(s) or account if readily available on Intermediarys systems. With respect to information pertaining to Variable Contracts, the Intermediary shall only be required to provide information relating to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions. |
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1.2 | Period Covered by Request. In each request, NBMI shall set forth a specific period, not to exceed 180 days from the date of the request, for which it seeks transaction information. NBMI may request transaction information older than 180 days from the date of the request as it deems necessary to investigate compliance with the Trading Policies. |
1.3. | Timing of Requests. Requests for Shareholder information shall be made no more frequently than quarterly unless good cause justification is present. |
1.4 | Form and Timing of Response. Intermediary agrees to transmit all requested information that is on its books and records to NBMI, the Fund or their designee promptly, but in any event not later than ten (10) business days, after receipt of a request. If requested by NBMI, Intermediary agrees to use best efforts to determine promptly whether any specific Shareholder about whom it has received the Shareholder information specified in 1.1 is itself a financial intermediary (indirect intermediary) and, upon further request of NBMI: (i) provide or arrange to provide to NBMI or the Fund the requested information with respect to Shareholders who hold an account with an indirect intermediary; or (ii) if directed by NBMI, prohibit further purchases of Fund shares from such indirect intermediary. In such instance, Intermediary agrees to inform NBMI whether it plans to perform (i) or (ii). |
Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the parties. To the extent practicable, the format for any transaction information provided to NBMI and the Fund should be consistent with the NSCC Standardized Data Reporting Format. For purposes of this provision, an indirect intermediary has the same meaning as in Rule 22c-2(c)(5)(iii) under the 1940 Act or as indirect intermediary is subsequently defined in any amendment to Rule 22c-2.
1.5 | Monitoring Requirement. Nothing herein, nor any action by the Intermediary, shall be construed as, or infer that the Intermediary has undertaken any duty or obligation, whether express or implied, at law or in equity, to detect trading activities inconsistent with or in violation of the Trading Policies. |
1.6 | Limitations on Use of Information. NBMI agrees not to use the information received pursuant to this Agreement for any purpose other than as necessary to comply with the provisions of Rule 22c-2, or for any other purpose not permitted under the privacy provisions of Title V of the Gramm-Leach-Bliley Act and comparable state laws, including, but not limited to marketing or any other similar purpose without the prior written consent of Intermediary. If NBMI becomes aware of any disclosure to an unauthorized third party of any non-public personal information of a consumer provided or received in response to a request for information pursuant to the terms of this Agreement and determines that there is a reasonable likelihood of harm resulting from such disclosure, NBMI promptly shall, at its expense, follow its usual and customary procedures to notify Intermediary, mitigate the effects of such unauthorized disclosure and cooperate with Intermediary to further comply with all relevant laws, rules and regulations. NBMI represents and warrants that it has commercially reasonable |
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procedures in place to handle unauthorized disclosure of non-public personal information. |
2. | Restricting Trading. |
2.1 | Agreement to Restrict Trading. Intermediary agrees to use reasonable efforts to execute written instructions from NBMI to restrict or prohibit further purchases or exchanges of or into Fund shares by a Shareholder that has been identified by NBMI as having engaged in transactions of Fund shares (directly or indirectly through Intermediarys (or indirect intermediarys) account) that violate the Trading Policies. Any such restrictions or prohibitions shall only apply to Shareholder Initiated Transfer Purchases or Shareholder Initiated Transfer Redemptions that are effected directly or indirectly through the Intermediary. |
Instructions must be received at the following address, or such other address that the Intermediary may communicate in writing from time to time, including, if applicable, an e-mail and/or facsimile telephone number:
The Northwestern Mutual Life Insurance Company
IPS Investment Client Services
Attention: Judy Shelton
611 East Wisconsin Avenue
Milwaukee, WI 53202
2.2 | Form of Instructions. In the instructions, NBMI shall include the Shareholders TIN, ITIN, or GII and the specific individual Contract owner number or participant number associated with the Shareholder, if known, and the specific restriction(s) to be executed, including how long the restriction(s) is(are) to remain in place. If the TIN, ITIN, GII or specific individual Contract owner number or participant account number associated with the Shareholder is not known, NBMI shall include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates. Upon request of the Intermediary, NBMI agrees to provide, along with any written instructions to prohibit further purchases or exchanges of Fund shares by Shareholder, information regarding those trades that violated the Trading Policies. |
2.3 | Timing of Response. Intermediary agrees to execute instructions as soon as reasonably practicable, but not later than five (5) business days after receipt of the instructions by Intermediary, provided instructions are reasonable and in accordance with standard practice. |
2.4 | Confirmation by Intermediary. Intermediary must provide written confirmation to NBMI that instructions have been executed. Intermediary agrees to provide confirmation as soon as reasonably practicable, but not later than ten (l0) business days after the instructions have been executed. |
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3. | Notices. All notices required or permitted under this Agreement shall be in writing and shall be sent by personal delivery or registered or certified mail, postage prepaid, or by telecopier confirmed in writing within three (3) business days, unless otherwise indicated herein, as follows: |
(a) If to NBMI or the Fund: Neuberger Berman Management Inc. Neuberger Berman Funds 605 Third Avenue 2nd Floor New York, NY 10158-0180 | ||
Attention: |
Peter Sundman, President, NBMI | |
Chairman and Chief Executive Officer, | ||
Neuberger Berman Funds | ||
cc: |
Margo Rappoport | |
telephone: |
(646) 497-4671 | |
telecopier: |
(212) 476-5781 | |
email: |
mrappoport@nb.com |
(b) If to Intermediary, to the address set forth next to its signature line at the end of this Agreement.
Such addresses may be changed from time to time by any party by providing written notice in the manner set forth above. All notices shall be effective upon delivery or when deposited in the mail addressed as set forth above.
4. | Applicability to Affiliates. The Intermediary acknowledges and agrees that the Intermediary has identified and/or will identify to NBMI all persons affiliated with the Intermediary and known to the Intermediary who meet the definition of Applicable Intermediary as set forth in Section 4 herein. The term Applicable Intermediary shall mean an affiliate of Intermediary that is (i) any broker, dealer, bank or other entity that holds securities of record issued by a Fund in nominee name; and (ii) in the case of a participant-directed employee benefit plan that owns securities issued by a Fund, (1) a retirement plan administrator under the Employee Retirement Income Security Act of 1974, or (2) any entity that maintains the plans participant records. In the event that any such person is not so identified, such person shall be deemed to be subject to the terms and conditions of this Agreement until such person has entered into a separate agreement with NBMI. |
5. | Amendments. NBMI may unilaterally modify this Agreement at any time by written notice to Intermediary only to comport with any amendments to Rule 22c-2, so long as within 30 days after receipt of written notice, Intermediary does not object to such amendment. If Intermediary does not object to such amendment, the first order placed by Intermediary subsequent to 30 days after the receipt of such notice shall be deemed acceptance by Intermediary of the modification to the Agreement described in such notice. Except as set forth in this Section 5, this Agreement may not be amended without written consent by the parties hereto. |
6. | Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of laws. |
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7. | Assignment. Neither party may assign the Agreement, or any of the rights, obligations, or liabilities under the Agreement, without the written consent of the other party. Notwithstanding the foregoing, this Agreement shall be deemed assigned to the extent the Services Agreement is deemed assigned. |
8. | Services Agreement. To the extent that the provisions of this Agreement and the provisions of the Services Agreement are in conflict, the provisions of this Agreement shall control with respect to the subject matter of this Agreement. Termination of this Agreement by either party shall not automatically result in a termination of the Services Agreement. This Agreement shall terminate upon termination of the Services Agreement. |
9. | Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but both of which shall together constitute one and the same instrument. |
10. | Third-Party Beneficiaries. As permitted by Rule 22c-2, NBMI is entering into this Agreement on the Funds behalf. Any requests from NBMI for information or instructions from NBMI to restrict or prohibit further purchases or exchanges of Fund shares are made by NBMI on Funds behalf. |
11. | Force Majeure. Either the Fund or the Intermediary is excused from performance and shall not be liable for any delay in performance or non-performance, in whole or in part, caused by the occurrence of any event or contingency beyond the control of the parties including, but not limited to, work stoppages, fires, civil disobedience, riots, rebellions, natural disasters, acts of God, acts of war or terrorism, actions or decrees of governmental bodies, and similar occurrences. The party who has been so affected shall, if physically possible, promptly give written notice to the other party and shall use its best efforts to resume performance. Upon receipt of such notice, all obligations under this Agreement shall be immediately suspended for the duration of such event or contingency. |
12. | Right to Suspend Trading by Intermediary. The Fund may, in its discretion, suspend or cease offering Fund shares for purchase through the Intermediary if the Intermediary fails to satisfy its obligations under this Agreement. |
13. | Indemnification. Each party (Indemnifying Party) shall indemnify and hold harmless the other party and their respective directors, officers, employees, affiliates and agents (Indemnified Party) from and against any and all losses, claims, liabilities and expenses (including reasonable attorneys fees and expenses) (Losses) incurred by the Indemnified Party arising out of (i) any breach by Indemnifying Party of any representation, warranty or agreement contained in this Agreement, (ii) any willful misconduct or negligence by the Indemnifying Party in the performance of, or failure to perform, its obligations under this Agreement, including but not limited to, the Intermediarys failure to timely provide information that is accurate and in proper form, as required under Section 1 of this Agreement, or to timely restrict trading in accordance with Section 2 of this Agreement, as well as any unauthorized disclosure of a Shareholders information provided to the Fund or NBMI pursuant to the terms of this Agreement. This Section shall survive termination of this Agreement. |
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first above written.
NEUBERGER BERMAN MANAGEMENT INC. |
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (On behalf of its separate accounts) | |||||||
By: | /s/ Robert Conti | By: | /s/ Don Tyler | |||||
Name: | Robert Conti | Name: | Don Tyler | |||||
Title: | Senior Vice President | Title: | Vice President, IPS Products & Services | |||||
Address: | 720 East Wisconsin Avenue | |||||||
Milwaukee, WI 43202-4797 | ||||||||
Attention: | General Counsel |
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Exhibit (j)(g)
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
TRUSTEES
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each of the undersigned Trustees of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, organized by a special act of the Wisconsin Legislature (the Company), by his or her execution hereof, or an identical counterpart hereof, does hereby constitute and appoint John E. Schlifske and Gary A. Poliner, as his or her attorneys-in-fact and agents, and in his or her name, place and stead, to execute and sign any registration statement, including any pre-effective or post-effective amendments thereto, together with all exhibits and schedules thereto and other documents and instruments associated therewith to be filed on either Form N-4 or Form N-6 (or on any other applicable form) with the Securities and Exchange Commission (the SEC) under the Securities Act of 1933 and/or the Investment Company Act of 1940 in connection with variable contracts issued through separate accounts that are established by the Company, including the following:
(a) | NML Variable Annuity Account A (333-72913); |
(b) | NML Variable Annuity Account A (Fee-Based) (333-133380); |
(c) | NML Variable Annuity Account B (2-29240); |
(d) | NML Variable Annuity Account B (Fee-Based) (333-33232); |
(e) | NML Variable Annuity Account C (2-89905-01); |
(f) | NML Variable Annuity Account C (Network Edition) (333-133381); |
(g) | Northwestern Mutual Variable Life Account (2-89972); |
(h) | Northwestern Mutual Variable CompLife (33-89188); |
(i) | Northwestern Mutual Variable Executive Life (333-36865); |
(j) | Northwestern Mutual Variable Joint Life (333-59103); |
(k) | Northwestern Mutual Custom Variable Universal Life (333-136124); |
(l) | Northwestern Mutual Executive Variable Universal Life (333-136305); and |
(m) | Northwestern Mutual Survivorship Variable Universal Life (333-136308). |
Each of the undersigned does hereby further authorize said attorneys-in-fact and agents to make said filings with the SEC and with any federal or state securities or insurance regulatory authority as they determine to be required or necessary. Each of the undersigned hereby ratifies and confirms all acts of each and either of said attorneys-in-fact and agents which they may lawfully do or cause to be done by virtue hereof. As used herein, variable contracts means any contracts providing for benefits or values which may vary according to the investment experience of the separate account associated therewith, including variable annuity contracts and variable life insurance policies.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand this 27th day of July, 2011.
Trustee | ||
Facundo L. Bacardi | ||
/s/ John N. Balboni | Trustee | |
John N. Balboni | ||
/s/ David J. Drury | Trustee | |
David J. Drury |
/s/ Connie K. Duckworth | Trustee | |
Connie K. Duckworth | ||
/s/ David A. Erne | Trustee | |
David A. Erne | ||
/s/ James P. Hackett | Trustee | |
James P. Hackett | ||
/s/ P. Russell Hardin | Trustee | |
P. Russell Hardin | ||
/s/ Hand Helmerich | Trustee | |
Hans Helmerich | ||
/s/ Dale E. Jones | Trustee | |
Dale E. Jones | ||
/s/ Margery Kraus | Trustee | |
Margery Kraus | ||
/s/ David J. Lubar | Trustee | |
David J. Lubar | ||
/s/ Ulice Payne, Jr. | Trustee | |
Ulice Payne, Jr. | ||
/s/ Gary A. Poliner | Trustee | |
Gary A. Poliner | ||
/s/ John E. Schlifske | Trustee | |
John E. Schlifske | ||
/s/ Peter M. Sommerhauser | Trustee | |
Peter M. Sommerhauser | ||
/s/ Mary Ellen Stanek | Trustee | |
Mary Ellen Stanek | ||
/s/ Timothy W. Sullivan | Trustee | |
Timothy W. Sullivan |
/s/ S. Scott Voynich | Trustee | |
S. Scott Voynich | ||
/s/ Ralph A. Weber | Trustee | |
Ralph A. Weber | ||
/s/ Barry L. Williams | Trustee | |
Barry L. Williams | ||
/s/ Benjamin F. Wilson | Trustee | |
Benjamin F. Wilson | ||
/s/ Edward J. Zore | Trustee | |
Edward J. Zore |
Exhibit (k)
April 26, 2012
The Board of Trustees
The Northwestern Mutual Life Insurance Company
720 E. Wisconsin Avenue
Milwaukee, WI 53202
To The Board of Trustees:
In my capacity as General Counsel of The Northwestern Mutual Life Insurance Company (the Company), I have reviewed the establishment of The Northwestern Mutual Variable Life Account (the Account), on November 23, 1983, by the Companys Board of Trustees, as a separate account for assets applicable to certain variable life insurance policies, pursuant to the provisions of Section 206.385 of the Wisconsin Statutes of 1965, as amended.
Company attorneys under my general supervision have prepared the Post-Effective Amendment No. 39 to the Registration Statement on Form N-6 (1933 Act File No. 2-89972) filed by the Company and the Account with the Securities & Exchange Commission under the Securities Act of 1933 for the registration of certain variable life insurance policies issued with respect to the Account.
I have made such examination of the law and examined such corporate records and such of the documents as in my judgment are necessary and appropriate to enable me to render the following opinion that:
(1) The Company has been duly organized under the laws in the State of Wisconsin and is a validly existing mutual life insurance company.
(2) The Account has been duly created and is validly existing as a separate account pursuant to the aforesaid provisions of Wisconsin law.
(3) The assets held in the Account equal to the reserves and other contract liabilities with respect to the Account will not be chargeable with liabilities arising out of any other business the Company may conduct.
The Board of Trustees
April 26, 2012
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(4) The variable life insurance policies, when issued in accordance with the prospectus contained in the aforesaid registration statement and upon compliance with applicable local law, will be legal and binding obligations of The Northwestern Mutual Life Insurance Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours, |
/s/ RAYMOND J. MANISTA |
Raymond J. Manista |
General Counsel |
Exhibit (n)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in the Statement of Additional Information constituting part of this Post-Effective Amendment No. 39 to the registration statement on Form N-6 (the Registration Statement) of our report dated February 23, 2012, relating to the consolidated financial statements and financial highlights of The Northwestern Mutual Life Insurance Company, and of our report dated February 20, 2012, relating to the financial statements of Northwestern Mutual Variable Life Account, which appear in such Statement of Additional Information, and to the incorporation by reference of such reports into the Prospectus which constitutes part of this Registration Statement. We also consent to the references to us under the headings Experts and Financial Statements of the Account in such Statement of Additional Information.
/s/ PRICEWATERHOUSECOOPERS LLP |
Milwaukee, Wisconsin |
April 25, 2012 |
Exhibit (q)
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
(Whole Life, Extra Ordinary Life & Single Premium Life)
Description of Issuance, Transfer and Redemption Procedures for Variable Life Insurance Contracts Pursuant to Rule 6e-2(b)(12)(ii).
INTRODUCTION
1. Rule 6e-2(b)(12) under the Investment Company Act provides exemption from Sections 22(d), 22(e) and 27(c)(1) of the Act and Rule 22c-1 thereunder for variable life insurance policies which meet the conditions of the Rule. (Rule 6e-2 has not been amended to reflect the addition of Section 27(i)).
2. Rule 6c-3 provides exemptions for a registered variable life insurance separate account which registers under Section 8 of the Act, except for exemption from the registration requirements, under the same terms and conditions as a separate account claiming exemption under Rule 6e-2. Therefore a separate account which registers as contemplated by Rule 6c-3 may be required to include the materials referred to in Rule 6e-2(b)(12)(ii) as an exhibit to its registration statement filed under the Act. The purpose of this memorandum is to fulfill this requirement with respect to the variable life insurance policies (Policies) previously offered in connection with Northwestern Mutual Variable Life Account (Separate Account), a separate investment account of The Northwestern Mutual Life Insurance Company (Northwestern Mutual).
3. Assets held in the Separate Account consist entirely of interest in shares of various series (each a Portfolio, together the Portfolios) of the Northwestern Mutual Series Fund, Inc., the Russell Investment Funds (including series comprising the Russell Life Points® Variable Target Portfolio Series), the Fidelity® VIP Mid Cap Portfolio and Fidelity® VIP Contrafund® Portfolio, each a series of Fidelity Variable Insurance Products III and Fidelity
Variable Insurance Products II, respectively, the Neuberger Berman Advisers Management Trust Socially Responsive Portfolio, as well as any interest in shares of any other fund Northwestern Mutual may make available from time to time (collectively, the Funds). Shares of each series are valued daily as of the close of trading on the NYSE.
The defined terms used herein are the same as the defined terms in the Policies or prospectus, unless otherwise defined herein.
RULE 6e-2(b)(12)(ii)
4. Rule 6e-2(b)(12)(ii) provides exemptions from the sections and rule cited above to the extent necessary for compliance with . . . Rule 6e-2 or with insurance laws and regulations and established administrative procedures of the life insurer with respect to issuance, transfer and redemption procedures for variable life insurance contracts funded by the separate account including, but not limited to, premium rate structure and premium processing, insurance underwriting standards, and the particular benefit afforded by the contract. . . . The Rule thus recognizes that the established procedures of the insurance company itself, founded on the requirements of state insurance law, have a principal role in defining the requirements which apply for variable life insurance offered by the same company.
ISSUANCE PROCEDURES
A. Premium Rate Structure and Insurance Underwriting Standards
5. Premiums for the Policies, like premiums for Northwestern Mutuals established series of conventional, fixed benefit life insurance policies, will depend on the age, sex and insurance risk classification of the proposed insured, as well as the amount of insurance being purchased. Thus the price of the insurance will differ, reflecting established insurance procedures and state law, in order to fairly take into account the differences in risks. The premiums for a Policy will be set forth in the Policy itself. Premiums for Policies at illustrative ages and amounts are included in the prospectus. The prospectus illustrations, like those in the
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prospectuses for variable life insurance policies offered by Northwestern Mutuals competitors, are based on premium rates for standard risks.
6. The premiums for the Policies are based on the 1980 Commissioners Standard Ordinary Mortality Table, notwithstanding the reference to the 1958 Commissioners Standard Ordinary Mortality Table in the definition of sales load in Rule 6e-2(c)(4). The cost of insurance is lower under the 1980 CSO Table reflecting improvements in longevity since the earlier table was developed. Northwestern Mutual has recently filed other policies for other product lines, based on the 1980 CSO Table, with the Commissioner of Insurance of Wisconsin, Northwestern Mutuals domiciliary state. The Wisconsin Commissioner has taken the position that an insurance company which updates one product line to the new table must thereafter use the 1980 CSO Table for all subsequent filings. Accordingly, Northwestern is required by state law to use the 1980 CSO Table for determining premiums for the Policies.
7. As a mutual life insurance company organized in Wisconsin, Northwestern Mutual is also required to offer its insurance contracts as participating policies which share equitably in Northwestern Mutuals divisible surplus. The Policies accordingly have been designed on a participating basis and may pay dividends. Dividends provide the mechanism whereby the insurance companys policyholders share in the companys experience. Since the pricing assumptions which underlie life insurance policies are quite conservative, actual experience as it emerges tends to be significantly more favorable than what was assumed. The greater part of the dividends paid under Northwestern Mutuals fixed benefit policies arises from investment rates of return which are greater than the assumed rates of 2% to 5.5% on the policies presently outstanding. This investment aspect of dividends does not relate to the Policies because the design of a variable life insurance policy provides a direct mechanism for reflection of investment results. The other factors for dividends, including the dividends for fixed benefit policies, are the mortality and expense results. While these provide less than one half of the dividend amounts for fixed benefit policies, they will be the entire source of the dividends paid on the Policies.
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8. Notwithstanding the documented differences between male and female mortality rates, a 1983 decision of the U.S. Supreme Court1 has created legal liability issues for employers who purchase, or are otherwise involved in the purchase of, insurance products which are priced so as to reflect these differences. The Policies will accordingly be offered on a unisex pricing basis for use as required in such situations.
B. Procedures for Placing a Policy in Effect
9. Northwestern Mutual no longer issues the Policies.
C. Premium Processing for Existing Policies
10. The Policies are structured as annual premium contracts, even though semiannual, quarterly and monthly premium frequencies will be available. The net annual premium, after the deductions described in the prospectus, will be placed in the Separate Account on the Policy anniversary each year. The Policy anniversary will be the anniversary of the Policy Date. The Death Benefit will be adjusted to reflect investment experience on the Policy anniversary and only on the Policy anniversary, so long as the Policy remains in force on a premium-paying basis. The amount of any dividend will be paid annually as of the Policy anniversary, and applied to purchase additional variable life insurance on that date, unless the Policy owner has elected to use the dividend in one of the other ways permitted by the Policy.
11. Because the net annual premium is placed in the Account on each Policy anniversary, regardless of the premium frequency elected and regardless of the timeliness of premium payments, so long as the Policy does not lapse, the actual date on which a premium is received will not affect the Policys investment experience. Northwestern Mutual will transfer the net annual premium amount from its General Account to the Separate Account on each Policy anniversary. Receipt of a premium by Northwestern Mutual represents a transaction between the Policy owner and the General Account.
1 | Arizona Governing Committee, Etc. v. Norris, 103 S. Ct. 3492 (1983). |
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12. Transactions between the Separate Account and the General Account will be effected as of the dates determined in accordance with the terms of the Policies, but the transactions will not in all cases be physically processed on those dates. For example, as described below, the death of an insured will mark the date on which the Policy ceases to participate in the Separate Account, with interest being paid on Policy proceeds from that date until the Policy is settled, but several days may elapse before Northwestern Mutual receives notification. Because of the timing discrepancies the total assets of the Separate Account will not always exactly match the sum of the interests in the Separate Account represented by all of the Policies outstanding. An accounting routine has been established to reconcile these amounts at least once each year, as of December 31, and the amount of assets in the Separate Account will be adjusted as required.
13. Premiums paid more frequently than annually are increased to reflect (1) the additional administrative costs of processing more premiums and (2) the time value of money at 12% interest. In some instances, in order to ascertain Owner instructions, Northwestern Mutual may hold Premium amounts under established procedures if transaction instructions are not in good order, which may include MEC review.
14. Northwestern Mutual will monitor Policies and will attempt to notify an Owner on a timely basis if the Owners Policy is in jeopardy of becoming a Modified Endowment Contract (MEC) under the Internal Revenue Code. Depending on the instructions received, excess Premium may be reversed from the Policy and returned with interest within 60 days after the end of the Policy year in which they are paid. If excess Premium is reversed, all Policy values are recalculated as though the excess Premium had never been paid. If so instructed by the Owner in writing, Northwestern Mutual may hold Premium amounts for longer than established procedures. Owner may include an authorized representative of the Owner, if allowable under applicable law. If the Owner wants the excess payment applied and the policy to become a MEC, the date they agree to making the policy a MEC is used as the effective date of the excess amount (the date Northwestern Mutual gets the instructions and the payment). The money up to the limit is applied as of the original effective date, and the balance of the money is applied as of the receipt date of the instructions.
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TRANSFER PROCEDURES
A. Transfers
15. The Separate Account currently consists of 40 Divisions. All assets of each Division are invested in shares of the corresponding Portfolio. The Policy Owner may direct that accumulated amounts under the Policy be transferred from one Division to another, provided accumulated amounts remain in no more than six Divisions at any one time. Where allowed by state law, the Policy reserves the right to charge an administrative fee for transfers. The amount of the fee will not exceed the corresponding expenses. No fee is presently contemplated. Transfer requests must be in whole percentages and in amounts in greater than 1% of Invested Assets. When a transfer is made from any Division, the resulting allocation of Invested Assets must be in whole percentages in all Divisions that have any Invested Assets as a result of the transfer. Transfers received by Northwestern Mutual at its Home Office before the close of trading on the NYSE will receive same-day pricing. Transfers received by Northwestern Mutual at its Home Office after the close of trading will be priced on the next regular trading day. If the effective date does not match the date the transfer instructions are due to be forwarded to the Home Office according to our procedures, the Home Office will contact NMIS to resolve any discrepancies.
B. Short Term and Excessive Trading
16. To deter short term and excessive trading, Northwestern Mutual has adopted and implemented policies and procedures which are designed to control abusive trading practices and seeks to apply these policies and procedures uniformly to all Policy Owners. Any exceptions must be either expressly permitted by these policies and procedures or subject to an approval process described in them. Northwestern Mutual may also be prevented from uniformly applying these policies and procedures under applicable state or federal law or regulation.
Among the steps Northwestern Mutual has taken to reduce the frequency and effect of these practices are monitoring trading activity and imposing trading restrictions, including (with
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certain exceptions as identified in the prospectus) the prohibition of more than twelve transfers (or multiple transfers on the same effective date) among Divisions under a single Policy during a Policy year. Further, an investor who is identified as having made a transfer in and out of the same Division (round trip transfer) in an amount in excess of $10,000 within fourteen calendar days will be restricted from making additional transfers after making two more such round trip transfers within any Policy year, including the year in which the first such round trip transfer was made. The restriction will last until the next Policy Anniversary and the investor will be sent a letter informing him or her of the restriction. An investor who is identified as having made one or more round trip transfers within thirty calendar days aggregating more than one percent (1%) of the total assets of the Portfolio underlying a Division excluding the Money Market Division and the Divisions corresponding to the Portfolios of the Russell Investment Fund LifePoints® Variable Target Portfolio Series will be restricted from making additional transfers after making one or more such round trip transfers within any Policy year, including the year in which the first such round trip transfer was made. The restriction will last until the next Policy Anniversary and the investor will be sent a letter informing him or her of the restriction. These limitations do not apply to automatic asset transfers, scheduled or systematic transactions involving portfolio rebalancing, dollar cost averaging, and interest sweeps, or to initial allocations, the use of asset allocation models or changes in future allocations. Once a Policy is restricted, Northwestern Mutual allows one additional transfer into the Money Market Division until the next Policy Anniversary Date. Limitations may be modified in accordance with our procedures to modify some of these limitations to allow for transfers that would not count against the total transfer limit as necessary to alleviate potential hardships to investors, such as transfers required as a result of a fund substitution, liquidation or merger.
These policies and procedures may change from time to time in Northwestern Mutuals sole discretion without notice; provided, however, Policy Owners would be given advance, written notice if the policies and procedures were revised to accommodate market timing. Additionally, the Funds may have their own policies and procedures described in their prospectuses that are designed to limit or restrict frequent trading. Such policies and procedures may provide for the imposition of a redemption fee and may require Northwestern Mutual to provide transaction information to the Fund.
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Northwestern Mutual intends to monitor events and the effectiveness of its policies and procedures in order to identify whether instances of potentially abusive trading practices are occurring. However, Northwestern Mutual may not be able to identify all instances of abusive trading practices, nor completely eliminate the possibility of such activities, and there may be technological limitations on its ability to impose restrictions on the trading practices of Policy Owners.
REDEMPTION PROCEDURES
A. Surrender for Cash Value
17. The Policy Owner may surrender a Policy for the cash value of the Policy at any time upon written request during the lifetime of the Insured. Northwestern Mutual will determine the cash value for a surrender request on the same day it receives the request if the request is received at the Home Office before the close of trading on the NYSE. Cash values for surrender requests received by Northwestern Mutual at its Home Office after the close of trading will be determined on the next regular trading day.
18. Northwestern Mutual will generally pay surrender proceeds within seven days of receipt of the Owners written request, except under the circumstances described below in the Deferral of Determination and Payment section. At the election of the Owner and in lieu of direct payment, surrender proceeds may be paid under a payment plan. The Policies set forth the terms and limitations for each plan, defines the persons who are entitled to make the selections and receive benefits, and refers to procedural rules.
19. When a surrender of a Policy is effected, Northwestern Mutual will pay the cash value out of the assets held in the General Account. An amount equal to the Invested Assets will be transferred from the Separate Account to the General Account as of the effective date of the surrender.
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B. Payment of Death Benefit
20. Northwestern Mutual will pay the Death Benefit to the beneficiary or other payee in accordance with the terms of the Policy following receipt at its Home Office of proof of the death of the insured. The amount of the Death Benefit paid will be determined as of the date of death. Northwestern Mutual may transfer Invested Assets into the money market division of the Separate Account upon notification of death of the Insured until the Death Benefit is paid in order to minimize breakage. Payment of the Death Benefit is subject to the incontestability provisions of the Policy and any applicable state law requirements. Payment will be made promptly and in any case within seven days after the last of the conditions is met, except under circumstances described below in the Deferral of Determination and Payment section.
21. The Death Benefit for a Policy on any date when premiums have been timely paid will be equal to the sum of (1) the minimum guaranteed face amount of the Policy, (2) any positive variable life insurance amount determined as of the preceding anniversary, (3) any variable benefit paid-up additions purchased with dividends, and (4) the amount of any dividend accumulations and any dividend at death, less (1) the amount of any Policy loan outstanding and (2) in the case of an insured who did not meet standard or select underwriting criteria, an adjustment to take into account the particular risk classification assigned. The Death Benefit is adjusted to reflect any prepaid premium, or any premium due if the insured dies during the grace period. The death benefit will not be less than the amount of insurance calculated by applying the Policys cash value (less any dividend accumulations and dividend at death) as a net single premium at the insureds attained age plus any dividend accumulations and dividend at death, less the amount of any Policy loan outstanding.
22. Northwestern Mutual will pay the Death Benefit for a Policy out of assets held in its General Account. The beneficiary may receive the Death Benefit as a cash settlement either by electing to receive a lump sum check or by electing an interest-bearing account, if the settlement amount meets our criteria for size. If an interest-bearing account is not selected, the beneficiary will receive the Death Benefit as a lump sum check. If the interest-bearing account is selected, account information, along with a book of drafts, will be sent to the beneficiary. The
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amount payable will include interest from the date of death. An amount equal to the interest of the Policy in the Account as of the date of death will be transferred from the Separate Account to the General Account.
C. Lapse and Reinstatement
23. The periodic premium Policy provides a grace period of 31 days2 for payment of any premium not paid when due. If the premium is paid during the grace period, the policy values will not be affected by the delay in paying the premium. If the insured dies during the grace period, the death proceeds will be reduced by the amount of the unpaid premium as described in the description of the death benefit above.
24. Other than with respect to a single premium Policy, if a premium is not paid within the grace period, the policy will lapse unless the Owner has the automatic premium loan provision in effect and there is sufficient value to pay the premium due where the premium is less than the maximum amount allowable. Northwestern Mutual will process premiums on the same day it receives the payment if the payment is received at the Home Office before the close of trading on the NYSE. Payments received by Northwestern Mutual at its Home Office after the close of trading will be determined on the next regular trading day. The lapsed policy will continue in force as fixed benefit extended term insurance in the same amount as was in force just prior to the due date of the unpaid premium and as of the due date. The length of the term for this coverage will be determined by applying the amount of cash value, determined as of the last day of the grace period, as a net single premium at the attained age of the insured. If the insured was not in the standard risk classification or better, term insurance will not be available
2 | In administering the Policies Northwestern Mutual intends to use a 66-day period, instead of 31 days, before the lapse routine is implemented. The longer period is used simply to reduce the volume of lapse and reinstatement transactions occasioned by miscalculation when Policy Owners attempt to pay the overdue premium on the last day of the grace period. The 66-day period is used for Northwestern Mutuals fixed benefit insurance policies and will be administered consistently. It does not appear in the prospectus for the Policies because its purpose would be defeated if Policy Owners knew that the extra time would be allowed. When the 66 days have transpired and the Policy lapses, the values will be computed as though the Policy had lapsed after the grace period of 31 days. Notwithstanding the postponement of internal procedures to reflect the fact of a lapse, the Policy does lapse upon the expiration of the grace period and the death benefit is determined accordingly if the insured dies thereafter regardless of whether the internal procedures have been implemented prior to the date of death. |
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and a reduced amount of paid-up insurance will be provided instead as described in the next paragraph below.
25. In lieu of fixed benefit extended term insurance the owner of a lapsed Policy may elect a reduced amount of paid-up insurance. The election must be made within three months after the due date of the first unpaid premium. Either fixed benefit or variable benefit paid-up insurance may be selected, except that variable benefit paid-up insurance is available only if the Policy has a cash value of at least $1,000. The amount of insurance is determined by applying the cash value plus the amount of any Policy loan outstanding as a net single premium, based on the premium table in the Policy, at the attained age of the insured. The Policy loan then remains outstanding.
26. When a Policy lapses and extended term insurance or fixed benefit paid-up insurance goes into effect, the Policy ceases to have any interest in the Separate Account. An amount equal to the interest of the Policy in the Separate Account, determined as of the last day of the grace period, will be transferred from the Separate Account to the General Account as of the due date of the unpaid premium.
27. A lapsed Policy may be reinstated within five years after the premium due date. Reinstatement is conditional upon evidence of insurability and payment of the greater of (1) all unpaid premiums plus interest at 6% or (2) 110% of the increase in cash value which results from reinstatement plus unpaid premiums, with interest at 6%, for any optional riders attached to the Policy. Any premium or other payment due, including any applicable interest, will also be required. Northwestern Mutual may waive the requirement to provide satisfactory evidence of insurability if the reinstatement is applied for, and any premium or other payment due is paid, within 90 days after the premium due date and while the insured is alive. Reinstatement will be effected as of the date when the request is received or any future date requested, and investment experience in the Account will continue from that date. Northwestern Mutual will calculate the cash amount required upon request. Following reinstatement, the Policy will have the cash value, death benefit and loan value which it would have had if the Policy had not lapsed. The cash amount required to reinstate a Policy will be paid into the General Account and the amount
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required for the Separate Account reserve will be placed in the Separate Account as of the reinstatement date. Any Policy loan outstanding, with interest thereon, must be either repaid or reinstated.
D. Reinvestment after Surrender
28. While Owners have no right to reinvestment after a surrender, Northwestern Mutual may permit such reinvestments in its sole discretion as described in prospectus. Owners may make payments in the form of returned surrender proceeds in connection with a request to void a surrender if the request is received by Northwestern Mutual within a reasonable time after the surrender proceeds are mailed. The returned surrender proceeds will be reinvested at the unit value next determined for each Division after our receipt of the reinvestment request in good order at the Home Office, including, among other things, (1) the return of surrender proceeds, (2) satisfactory evidence of insurability and any (3) Premium Payments due. Proceeds will be applied to the same Divisions from which the surrender was made. Depending on the underwriting classification of the Insured, Northwestern Mutual may not accept the reinvestment or may accept the reinvestment with different charges and expenses under the Policy. Northwestern Mutual may refuse to process reinvestments where it is not administratively feasible.
E. Right to Exchange for a Fixed-Benefit Policy
29. Northwestern Mutual currently allows Owners to exchange their Policies for a life insurance policy that does not vary with the investment experience of the Separate Account for any reason for a certain period of time after the Date of Issue according to our procedures or as required by state law. Owners may also exchange for a fixed-benefit Policy at any time under certain circumstances if a Fund changes its investment adviser or makes a material change to the investment policies of a Portfolio.
F. Policy Loans and Loan Repayments
30. The Policies provide that the Owner may borrow from Northwestern Mutual
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using the Policy as collateral security. The maximum loan value is 90% of the cash value of the Policy. If a Policy loan is already outstanding, these limitations are applied to the amount of cash value which the Policy would have if there were no loan.
31. The Policy provides that loans will be made upon written request, or, in certain circumstances, by telephone. If Northwestern Mutual receives a request for a loan at the Home Office on or before the close of trading on the NYSE, the loan will be effective as of the close of trading that day. If the request is received after the close of trading, the loan will be effective on the next day. The date of the loan will be the date on which the check for the loan proceeds is issued. The maximum loan value of the Policy will be determined by reference to computations at the close of business the preceding day after the request for the loan was submitted but before processing took place and interest will accrue on the loan from the date of the check.
32. Owners may elect an automatic premium loan feature whereby the loan value of the Policy will be available to pay any overdue premium. The feature may be elected or revoked at any time by written request.
33. Interest on a Policy loan accrues and is payable on a daily basis. Unpaid interest is added to the principal. The Policy will terminate if the cash value of the Policy falls to zero, but written notice will be mailed to the owner of the Policy at least 31 days before the termination date. The notice will state the amount which must be repaid to keep the Policy in force.
34. The owner of the Policy may choose between two Policy loan interest rates. One is a fixed rate of 8% and the other is a variable rate based on a corporate bond index with an annual adjustment and minimum of 5%. The choice of rates is made on the application form and may be changed as of January 1 any year upon written request.
35. When a Policy loan is affected, the loan amount is taken from the Divisions of the Separate Account in proportion to the amounts in the Divisions. The amounts withdrawn from the Separate Account are credited with an earnings rate equal to the Policy loan interest rate in
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effect less an amount for expenses, including taxes. The amount deducted for expenses is disclosed in the prospectus. This earnings rate is in lieu of the investment experience of the Separate Account.
36. Loan repayments (and accrued interest) may be repaid, in whole or in part, at any time while the Insured is alive. If payment is received without specific instructions, it is applied to any premium due, with any remaining amount being applied to any outstanding loans. Payments in excess of outstanding debt and premiums due will be returned unless such amounts are deemed to be de minimis (currently ten or less days of interest due). Except as described below, if payments are received before the close of trading on the NYSE, Northwestern Mutual will credit payments as of the date received and transfer them from the General Account to the Divisions, in proportion to the amounts in the Divisions as of the same date. If payments are received on or after the close of trading on the NYSE, Northwestern Mutual will credit payments as of the close of the next regular trading session of the NYSE and transfer them from the General Account to the Divisions, in proportion to the amounts in the Divisions, as of the date Northwestern Mutual credits the payment. Policy loan payments received within 34 days after the loan interest billing date will be credited as of the loan interest billing date. Automatic premium loans are effective as of the premium due date unless a loan payment is received between the premium due date and the date the automatic premium loan is made. Automatic premium loan payments received up to 66 days after the loan interest billing date will be credited as of the Policy Anniversary, depending on an Owners premium payment schedule.
If there is Policy Debt, payments received at the Home Office will be treated as payments to reduce Policy Debt unless designated otherwise.
G. Deferral of Determination and Payment
37. Northwestern Mutual will ordinarily pay Policy benefits within seven days after all required documents are received at its Home Office. However, we may defer determination and payment of benefits if:
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| the NYSE is closed, other than customary weekend and holiday closings, or trading on the NYSE is restricted as determined by the SEC; or |
| the SEC permits, by an order, the postponement of any payment for the protection of Owners; |
| the SEC determines that an emergency exists that would make the disposal of securities held in the Separate Account or the determination of their value not reasonably practicable; or |
| under SEC rules, the Money Market Portfolio suspends payments of redemption proceeds in connection with a liquidation of the Portfolio, we will delay the Portfolios portion of the payment of any transfer, partial surrender, surrender, or death benefit until the Portfolio is liquidated. |
38. When the Policy is in force as Fixed Paid-Up insurance or extended term insurance, Northwestern Mutual may defer paying the Cash Value for up to six months from the date of surrender. If payment is deferred for 30 days or more, interest will be paid on the Cash Value at an annual effective rate of 4%. Northwestern Mutual may also defer payment of a Policy loan for up to six months.
39. If an Owner submits a check or draft to our Home Office, Northwestern Mutual has the right to defer payment of the Death Benefit, surrender, loans, or payment plan proceeds until the check or draft has been honored.
40. To the extent it is disclosed in the prospectus, Northwestern Mutual may defer payment of the Death Benefit if it legitimately needs time to determine the proper beneficiaries.
41. If mandated under applicable law, Northwestern Mutual may be required to freeze an Owners Policy Value and thereby refuse to pay any requests for transfer, surrender, loans, or the Death Benefit, until instructions are received from the appropriate regulatory or other lawful authority. Northwestern Mutual may also be required to provide additional information about an Owner, the Owners Policy, and the Owners trading activities to government regulators.
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