Prospectus
May 1, 2013
Variable CompLife®
Issued by The Northwestern Mutual Life Insurance Company
and the Northwestern Mutual Variable Life Account
This prospectus describes an individual scheduled premium Variable Whole Life Insurance Policy that combines a minimum guaranteed death benefit with additional protection in an integrated policy design (the Policy). You may choose to invest your Net Premiums in up to ten 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 | Neuberger Berman Advisers Management Trust | |
VIP Mid Cap Portfolio | Socially Responsive Portfolio | |
VIP Contrafund® Portfolio | ||
Russell Investment Funds | Russell Investment Funds LifePoints® Variable Target Portfolio Series | |
Multi-Style Equity Fund | ||
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 Separate Account has requested approval from the Securities and Exchange Commission (the SEC) to remove the Commodities Return Strategy Portfolio as an investment option in the Policy. Following our receipt of the SECs approval we will set a date to automatically transfer any Invested Assets you have in the Division investing in the Commodities Return Strategy Portfolio to the Division investing in the Commodity Return Strategy Portfolio, a portfolio of Credit Suisse Trust (the Credit Suisse Commodity Portfolio). See Substitution of Fund Shares and Other Changes for more information. Once this date has been determined, we will provide you with written notice notifying you of the date. You will receive a prospectus or summary prospectus for the Credit Suisse Commodity Portfolio prior to the date of the Substitution. The Credit Suisse Commodity Portfolio is not currently available as an investment option in the Policy and will only be available as of the date of the Substitution following SEC approval. |
Please note that the Policy and the Portfolios are not guaranteed to achieve their goals and are not federally insured. The Policy 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.
This Policy is subject to the law of the state in which it is issued. Some of the terms of the Policy may differ from the terms of the 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 Policy. No person is authorized to make any representation in connection with the offering of the Policy other than those contained in these prospectuses.
The Securities and Exchange Commission (SEC) has not approved or disapproved the Policy or determined that this prospectus is accurate or complete. It is a criminal offense to state otherwise.
We no longer issue the Policy described in this prospectus.
The variable life insurance policies we presently offer are described in separate prospectuses.
Variable CompLife®
| Variable Whole Life Policy |
| Minimum Guaranteed Death Benefit with Additional Protection |
Variable CompLife® Prospectus | 1 |
The following tables describe the fees and expenses that are payable when a Policy is bought, owned, or surrendered. See Deductions and Charges for a more detailed description.
The first table describes the fees and expenses that are payable when you pay premiums, withdraw Excess Amount, surrender the Policy, make partial surrenders, or transfer amounts between the Divisions.
Charge | When Charge is Deducted | Current Charge | Maximum Guaranteed Charge | |||
State Premium Tax Charge | Upon each Premium Payment | 2.00% of premiums1 | 3.5% of the premium (includes both State Premium Tax Charge and Other Premium Expense Charge) | |||
Other Premium Expense Charge2 | Upon each Premium Payment | 1.00% of premiums1 | ||||
Sales Load | Upon each Premium Payment | 4.5% of the premium | 4.5% of the premium | |||
Administrative Charge for Withdrawals | Upon a withdrawal of Excess Amount | Currently waived | $25 | |||
Administrative Surrender Charge | Upon surrender, change to paid-up insurance, or partial surrender | $216 plus $1.08 per $1,000 of Minimum Guaranteed Death Benefit and Additional Protection for the first Policy Year, graded down linearly each year to zero at the beginning of the tenth Policy Year | Same as current charge |
2 | Variable CompLife® Prospectus |
Charge | When Charge is Deducted | Current Charge | Maximum Guaranteed Charge | |||
Premium Surrender Charge3 | Upon surrender, change to paid-up insurance, or partial surrender before payment of a scheduled premium that is due at the beginning of the fifteenth Policy Year | Up to 40% of the sum of an annual premium for the Minimum Guaranteed Death Benefit (exclusive of the Policy Fee and exclusive of any charge for extra mortality) plus a term insurance premium for the initial amount of Additional Protection
Minimum: $0.264 per $1000 of Minimum Guaranteed Death Benefit (for a female, Issue Age 1, after the year 14 Premium Payment)plus $0.0824 per $1000 of Additional Protection
Maximum: $38.16 per $1000 of Minimum Guaranteed Death Benefit plus $26.304 per $1000 of Additional Protection (for a male, Issue Age 75, Premier Tobacco or Preferred Tobacco, after 5-10 years of Premium Payments)
Representative: $5.052 per $1000 of Minimum Guaranteed Death Benefit plus $0.756 per $1000 of Additional Protection (for a male, Issue Age 35, Premier Non-Tobacco or Preferred Non-Tobacco, after 5-10 years of Premium Payments) |
Same as current charge | |||
Fee for Transfer of Assets | Upon transfer of assets among the Divisions | Currently waived | $25 | |||
Expedited Delivery Charge4 | 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 inflation5 | |||
Wire Transfer Fee4 | 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 inflation5 |
1 | See Information about the PolicyPremiums for more information. |
2 | This charge was previously referred to as the OBRA Expense Charge. Due to a 1990 federal tax law change under the Omnibus Budget Reconciliation Act of 1990 (OBRA), as amended, insurance companies are generally required to capitalize and amortize certain acquisition expenses rather than currently deduct such expenses. Due to this capitalization and amortization, the corporate income tax burden on insurance companies has been affected. To compensate us for corporate taxes, we make a charge of 1.25% of the premium for scheduled premiums due (or unscheduled premiums paid) prior to the Policy Anniversary in 2010 and 1.00% of subsequent premiums. |
3 | The premium surrender charge is a percentage of the surrender charge base, the amount of which will vary depending upon whether you suspended the payment of scheduled premiums at any time during the first five Policy Years. The premium surrender charge percentage varies by Issue Age and typically increases between Policy Years one through five, remains levels in Policy Years five through ten, and declines in Policy Years eleven through fifteen to zero. For more information on the calculation of the premium surrender charge, see Surrender Charges in this prospectus. |
4 | 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. |
5 | The Maximum Guaranteed Charges are subject to a consumer price index adjustment in order to accommodate future increases in the costs associated with these requests. The maximum charge will equal the Maximum Guaranteed 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)1
The next table describes the fees and expenses, other than operating expenses for the Portfolios, that you will pay periodically during the time that you own the Policy.
Charge | When Charge is Deducted | Current Charge | Maximum Guaranteed Charge | |||
Charge for Administrative Costs | At Policy Date and annually on the Policy Anniversary | $60 | $84 plus $0.12 per $1,000 of both the Minimum Guaranteed Death Benefit and the Additional Protection | |||
Charge for Issuance Expenses | At Policy Date and annually on the Policy Anniversary for each of the first ten Policy Years | $24 plus $0.12 per $1,000 of Minimum Guaranteed Death Benefit and Additional Protection | Same as current amount |
Variable CompLife® Prospectus | 3 |
Charge | When Charge is Deducted | Current Charge | Maximum Guaranteed Charge | |||
Charge for Guarantee of the Minimum Guaranteed Death Benefit | At Policy Date and annually on the Policy Anniversary | $0.12 per $1,000 of Minimum Guaranteed Death Benefit | Same as current amount | |||
Charge for Cost of InsuranceMaximum and Minimum2
Charge for Cost of InsuranceRepresentative2 |
At Policy Date and annually on the Policy Anniversary | Maximum: $1,000 per $1,000 of net amount at risk (at age 99)2
Minimum: $0.69 per $1,000 of net amount at risk (for a female Insured age 10)2
Representative: $3.88 per $1,000 of net amount at risk (for a male Insured age 47 in the Premier Non-Tobacco or Preferred Non-Tobacco underwriting classification)2 |
Same as current amount | |||
Charge for Mortality and Expense Risks | Daily | Annual rate of .45% of the assets of the Separate Account2 | Annual rate of .60% of the assets of the Separate Account2 | |||
Charge for Waiver of Premium Rider3 | At Policy Date and annually on the Policy Anniversary to age 65 | Maximum: 5.1% of premium (Issue Age 57)
Minimum: 1.3% of premium (Issue Age 0-9)
Representative: 2.5% of premium (Issue Age 35) |
Same as current amount | |||
Charge for Additional Purchase Benefit3 | At Policy Date and annually on the Policy Anniversary to age 40 | Maximum: $2.21 per $1,000 of the benefit (Issue Age 38)4
Minimum: $0.54 per $1,000 of the benefit (Issue Age 0)4
Representative: $0.54 per $1,000 of the benefit (the most common Issue Age is 0) |
Same as current amount | |||
Extra Premium for Insureds Who Qualify as Sub-Standard Risks3 | At Policy Date and annually on the Policy Anniversary and with each unscheduled premium | Up to $53.63 per $1,000 of Minimum Guaranteed Death Benefit and Additional Protection plus up to 37.2% of any (optional) additional premium5
Maximum: $53.63 per $1,000 of the Minimum Guaranteed Death Benefit and Additional Protection plus 10.3% of additional premium paid (for a male, Issue Age 75, Class 9 Non-Tobacco or Class 7 Tobacco, with additional premium paid at age 75)
Minimum: $0.66 per $1,000 of the Minimum Guaranteed Death Benefit and Additional Protection plus 5.6% of additional premium paid (for a female, Issue Ages 0-3, Class 1 Non-Tobacco, with additional premium paid at ages 0-15)
Representative: $3.76 per $1,000 of the Minimum Guaranteed Death Benefit and Additional Protection plus 10.1% of additional premium paid (for a male, Issue Age 35, Class 2 Non-Tobacco or Standard Plus Tobacco, with additional premium paid at age 44) |
Same as current amount | |||
Charge for Mortality and Expense Risks and Expenses for Loans6 | Daily | Annual rate of 0.90% of Policy Debt2 | Annual rate of 1.00% of Policy Debt |
1 | Some fees and expenses, such as fees applicable in Policy Years prior to your current Policy Year, may no longer apply because the Policy is no longer issued. |
2 | See Deductions and ChargesCharges Against the Policy Value for more information about how we determine cost of insurance rates. The amounts of these deductions may be effectively reduced by the dividends we may pay on in-force Policies. The dividends we currently pay are reflected in illustrations we provide. You may request an illustration from your Financial Representative. We do not guarantee future dividends. (See Annual Dividends). The cost of insurance is based on factors including but not limited to the Insureds Attained Age, underwriting classification, the 1980 CSO Mortality Table and the net insurance amount at risk. The cost of insurance rate shown in the table may not be representative of the charge that a particular Owner may pay. Generally, higher Issue Ages and/or worse underwriting classifications will result in higher cost of insurance rates, and men will pay higher rates than women. The net amount at risk is the projected Death Benefit, discounted at a net annual rate of 4%, less the sum of the Policy Value and the Cash Value of any paid-up |
4 | Variable CompLife® Prospectus |
insurance. The projected Death Benefit is the Death Benefit at the end of the Policy Year, assuming a 4% net annual growth rate. Request an illustration for personalized information from your Financial Representative. (See Illustrations). |
3 | The charges shown in the table may not be representative of the charge that a particular Owner may pay. The charges for Waiver of Premium Rider and Additional Purchase Benefit do not vary by sex. Generally, these charges increase for older Issue Ages except that the charge for Waiver of Premium rider does not increase after age 57. In addition, higher rates may apply to substandard underwriting classifications. |
4 | The maximum benefit amount is $100,000. |
5 | Varies by age and underwriting classification. |
6 | This charge is a loan interest spread; that is, the difference between the interest charged and the amount credited to the Policy. This amount is deducted from Invested Assets. (See Policy Loans and Automatic Premium LoanGeneral Loan Terms). |
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, 2012. 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 | % | 1.50 | % | ||||
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 2012. 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. |
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, 2012, 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 Company has not independently verified such information. The expenses shown are based on expenses incurred for the year ended December 31, 2012, 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 |
Other Expenses |
12b-1 Fees |
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) |
0.43% | 0.02 | % | 0.00 | % | 0.00 | % | 0.45 | % | 0.00 | % | 0.45 | % | |||||||||||||||
Focused Appreciation Portfolio(1)(3) |
0.76% | 0.03 | % | 0.00 | % | 0.00 | % | 0.79 | % | (0.06 | %) | 0.73 | % | |||||||||||||||
Large Cap Core Stock Portfolio(4) |
0.44% | 0.03 | % | 0.00 | % | 0.00 | % | 0.47 | % | 0.00 | % | 0.47 | % | |||||||||||||||
Large Cap Blend Portfolio(1) |
0.77% | 0.11 | % | 0.00 | % | 0.00 | % | 0.88 | % | (0.03 | %) | 0.85 | % | |||||||||||||||
Index 500 Stock Portfolio |
0.20% | 0.02 | % | 0.00 | % | 0.00 | % | 0.22 | % | 0.00 | % | 0.22 | % | |||||||||||||||
Large Company Value Portfolio(1) |
0.72% | 0.11 | % | 0.00 | % | 0.00 | % | 0.83 | % | (0.03 | %) | 0.80 | % | |||||||||||||||
Domestic Equity Portfolio(1) |
0.56% | 0.03 | % | 0.00 | % | 0.00 | % | 0.59 | % | 0.00 | % | 0.59 | % | |||||||||||||||
Equity Income Portfolio(1) |
0.65% | 0.03 | % | 0.00 | % | 0.00 | % | 0.68 | % | 0.00 | % | 0.68 | % | |||||||||||||||
Mid Cap Growth Stock Portfolio(5) |
0.53% | 0.02 | % | 0.00 | % | 0.00 | % | 0.55 | % | (0.02 | %) | 0.53 | % | |||||||||||||||
Index 400 Stock Portfolio(6) |
0.25% | 0.04 | % | 0.00 | % | 0.01 | % | 0.30 | % | 0.00 | % | 0.30 | % | |||||||||||||||
Mid Cap Value Portfolio(1)(7) |
0.85% | 0.09 | % | 0.00 | % | 0.01 | % | 0.95 | % | 0.00 | % | 0.95 | % | |||||||||||||||
Small Cap Growth Stock Portfolio(8) |
0.56% | 0.04 | % | 0.00 | % | 0.01 | % | 0.61 | % | 0.00 | % | 0.61 | % | |||||||||||||||
Index 600 Stock Portfolio(1) |
0.25% | 0.19 | % | 0.00 | % | 0.07 | % | 0.51 | % | (0.09 | %) | 0.42 | % | |||||||||||||||
Small Cap Value Portfolio(1)(9) |
0.85% | 0.04 | % | 0.00 | % | 0.20 | % | 1.09 | % | 0.00 | % | 1.09 | % | |||||||||||||||
International Growth Portfolio(1) |
0.67% | 0.13 | % | 0.00 | % | 0.00 | % | 0.80 | % | 0.00 | % | 0.80 | % | |||||||||||||||
Research International Core Portfolio(1) |
0.86% | 0.26 | % | 0.00 | % | 0.00 | % | 1.12 | % | 0.00 | % | 1.12 | % | |||||||||||||||
International Equity Portfolio(10) |
0.66% | 0.07 | % | 0.00 | % | 0.00 | % | 0.73 | % | (0.06 | %) | 0.67 | % | |||||||||||||||
Emerging Markets Equity Portfolio(1) |
1.14% | 0.36 | % | 0.00 | % | 0.00 | % | 1.50 | % | 0.00 | % | 1.50 | % |
Variable CompLife® Prospectus | 5 |
Portfolio |
Investment Advisory Fees |
Other Expenses |
12b-1 Fees |
Acquired Fund Fees and Expenses |
Total Operating Expenses |
Fee Waivers & Reimbursements |
Total Net Operating Expenses |
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Money Market Portfolio(11) |
0.30% | 0.02 | % | 0.00 | % | 0.00 | % | 0.32 | % | 0.00 | % | 0.32 | % | |||||||||||||||
Short-Term Bond Portfolio(1)(12) |
0.34% | 0.07 | % | 0.00 | % | 0.00 | % | 0.41 | % | 0.00 | % | 0.41 | % | |||||||||||||||
Select Bond Portfolio |
0.30% | 0.02 | % | 0.00 | % | 0.00 | % | 0.32 | % | 0.00 | % | 0.32 | % | |||||||||||||||
Long-Term U.S. Government Bond Portfolio(1) |
0.55% | 0.12 | % | 0.00 | % | 0.00 | % | 0.67 | % | 0.00 | % | 0.67 | % | |||||||||||||||
Inflation Protection Portfolio(1) |
0.56% | 0.07 | % | 0.00 | % | 0.00 | % | 0.63 | % | 0.00 | % | 0.63 | % | |||||||||||||||
High Yield Bond Portfolio(13) |
0.44% | 0.05 | % | 0.00 | % | 0.00 | % | 0.49 | % | 0.00 | % | 0.49 | % | |||||||||||||||
Multi-Sector Bond Portfolio(1) |
0.78% | 0.09 | % | 0.00 | % | 0.00 | % | 0.87 | % | 0.00 | % | 0.87 | % | |||||||||||||||
Commodities Return Strategy Portfolio(1)(14) |
0.80% | 0.16 | % | 0.00 | % | 0.07 | % | 1.03 | % | (0.08 | %) | 0.95 | % | |||||||||||||||
Balanced Portfolio(15) |
0.30% | 0.01 | % | 0.00 | % | 0.16 | % | 0.47 | % | (0.05 | %) | 0.42 | % | |||||||||||||||
Asset Allocation Portfolio(1)(16) |
0.54% | 0.11 | % | 0.00 | % | 0.22 | % | 0.87 | % | (0.19 | %) | 0.68 | % | |||||||||||||||
Fidelity® Variable Insurance Products |
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VIP Mid Cap Portfolio |
0.56% | 0.09 | % | 0.25 | % | 0.00 | % | 0.90 | % | 0.00 | % | 0.90 | % | |||||||||||||||
VIP Contrafund® Portfolio |
0.56% | 0.08 | % | 0.25 | % | 0.00 | % | 0.89 | % | 0.00 | % | 0.89 | % | |||||||||||||||
Neuberger Berman Advisers Management Trust |
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Socially Responsive Portfolio(17) |
0.85% | 0.19 | % | 0.00 | % | 0.00 | % | 1.04 | % | 0.00 | % | 1.04 | % | |||||||||||||||
Russell Investment Funds |
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Multi-Style Equity Fund |
0.73% | 0.13 | % | 0.00 | % | 0.00 | % | 0.86 | % | 0.00 | % | 0.86 | % | |||||||||||||||
Aggressive Equity Fund(18) |
0.90% | 0.18 | % | 0.00 | % | 0.00 | % | 1.08 | % | (0.05 | %) | 1.03 | % | |||||||||||||||
Global Real Estate Securities Fund |
0.80% | 0.15 | % | 0.00 | % | 0.00 | % | 0.95 | % | 0.00 | % | 0.95 | % | |||||||||||||||
Non-U.S. Fund(18) |
0.90% | 0.16 | % | 0.00 | % | 0.00 | % | 1.06 | % | (0.05 | %) | 1.01 | % | |||||||||||||||
Core Bond Fund(18) |
0.55% | 0.17 | % | 0.00 | % | 0.00 | % | 0.72 | % | (0.05 | %) | 0.67 | % | |||||||||||||||
Russell Investment Funds LifePoints® Variable Target Portfolio Series |
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Moderate Strategy Fund(19) |
0.20% | 0.16 | % | 0.00 | % | 0.78 | % | 1.14 | % | (0.26 | %) | 0.88 | % | |||||||||||||||
Balanced Strategy Fund(19) |
0.20% | 0.12 | % | 0.00 | % | 0.91 | % | 1.23 | % | (0.22 | %) | 1.01 | % | |||||||||||||||
Growth Strategy Fund(19) |
0.20% | 0.14 | % | 0.00 | % | 0.99 | % | 1.33 | % | (0.24 | %) | 1.09 | % | |||||||||||||||
Equity Growth Strategy Fund(19) |
0.20% | 0.24 | % | 0.00 | % | 1.05 | % | 1.49 | % | (0.34 | %) | 1.15 | % |
(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, 2014. |
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 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, 2014. |
(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, 2014. |
(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, 2014. |
6 | Variable CompLife® Prospectus |
(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, 2014. |
(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, 2014. |
(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, 2014. |
(8) | Small 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, 2014. |
(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, 2014. |
(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, 2014. |
(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, 2014. |
(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, 2014. |
(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. We have requested approval from the SEC to remove the Commodities Return Strategy Portfolio as an investment option in the Policy. Following our receipt of the SECs approval, we will set a date to automatically transfer any Invested Assets you have in the Division investing in the Commodities Return Strategy Portfolio to the Division investing in the Commodity Return Strategy Portfolio, a portfolio of Credit Suisse Trust (the Credit Suisse Commodity Portfolio). See Substitution of Fund Shares and Other Changes for more information. The Credit Suisse Commodity Portfolio is not currently available as an investment option in the Policy and will only be available as of the date of the Substitution following SEC approval. |
(15) | Balanced PortfolioMSA has agreed to waive a portion of its management fee such that its management fee on assets invested in the Large Cap Core, Mid Cap Growth, Small Cap Growth, International Growth, Research International Core Portfolio, International Equity Portfolio, and Emerging Markets Portfolio (Underlying Portfolios) is 0.05%. |
(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 Underlying Portfolios is 0.05%. MSA may terminate these fee waiver agreements at any time after April 30, 2014. |
(17) | Neuberger Berman Management LLC (NBM) has undertaken through December 31, 2016 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, 2014, 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, 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. |
Variable CompLife® Prospectus | 7 |
8 | Variable CompLife® Prospectus |
Northwestern Mutual Series Fund, Inc. (the Series Fund)
The principal investment adviser for the Portfolios of the 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 Series Fund. MSA employs a staff of investment professionals to manage the assets of the Series 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 a number of asset management firms 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 | Fiduciary Management, Inc. | ||
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 | Delaware Management Company, a series of Delaware Management Business Trust | ||
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 400® Stock Price Index | N/A | ||
Mid Cap Value Portfolio | Long-term capital growth; current income is a secondary objective | American Century Investment Management, Inc. | ||
Small Cap Growth Stock Portfolio | Long-term growth of capital | N/A |
Variable CompLife® Prospectus | 9 |
Portfolio | Investment Objective | Sub-adviser (if applicable) | ||
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(3) | 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. |
(3) | We have requested approval from the SEC to remove the Commodities Return Strategy Portfolio as an investment option in the Policy. Following our receipt of the SECs approval, we will set a date to automatically transfer any Invested Assets you have in the Division investing in the Commodities Return Strategy Portfolio to the Division investing in the Commodity Return Strategy Portfolio, a portfolio of Credit Suisse Trust (the Credit Suisse Commodity Portfolio). See Substitution of Fund Shares and Other Changes for more information. The Credit Suisse Commodity Portfolio is not currently available as an investment option in the Policy and will only be available as of the date of the Substitution following SEC approval. |
Fidelity® Variable Insurance Products
The Fidelity® VIP Mid Cap Portfolio and the Fidelity® VIP Contrafund® Portfolio are series of Variable Insurance Products Fund 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. |
10 | Variable CompLife® Prospectus |
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 | Neuberger Berman LLC |
Variable CompLife® Prospectus | 11 |
12 | Variable CompLife® Prospectus |
Annual Premium |
Periodic Premium | Annual Sum of Periodic Premiums |
Annual Sum of Periodic Premiums Minus the Annual Premium |
Annual Percentage Rate (APR) |
||||||||||||
|
MONTHLY PREMIUMS |
|
||||||||||||||
$ 1,000.00 |
$ | 86.80 | $ | 1,041.60 | $ | 41.60 | 9.00 | % | ||||||||
5,000.00 |
432.00 | 5,184.00 | 184.00 | 7.97 | % | |||||||||||
10,000.00 |
863.50 | 10,362.00 | 362.00 | 7.84 | % | |||||||||||
|
QUARTERLY PREMIUMS |
|
||||||||||||||
1,000.00 |
259.30 | 1,037.20 | 37.20 | 9.96 | % | |||||||||||
5,000.00 |
1,288.50 | 5,154.00 | 154.00 | 8.24 | % | |||||||||||
10,000.00 |
2,575.00 | 10,300.00 | 300.00 | 8.03 | % | |||||||||||
|
SEMIANNUAL PREMIUMS |
|
||||||||||||||
1,000.00 |
510.95 | 1,021.90 | 21.90 | 8.96 | % | |||||||||||
5,000.00 |
2,549.35 | 5,098.70 | 98.70 | 8.06 | % | |||||||||||
10,000.00 |
5,097.35 | 10,194.70 | 194.70 | 7.94 | % |
Variable CompLife® Prospectus | 13 |
Age at Issue |
Minimum Guaranteed Death Benefit |
Premium for Minimum Guaranteed Death Benefit |
Additional Protection |
Premium for Additional Protection |
Total Premium |
|||||||||||||||
|
SELECT or PREMIER NON-TOBACCO or PREFERRED NON-TOBACCO |
| ||||||||||||||||||
15 |
$ | 200,000 | $ | 1,292 | $ | 200,000 | $ | 588 | $ | 1,880 | ||||||||||
35 |
200,000 | 2,610 | 200,000 | 1,010 | 3,620 | |||||||||||||||
55 |
200,000 | 6,618 | 200,000 | 3,320 | 9,938 | |||||||||||||||
|
STANDARD PLUS or STANDARD PLUS NON-TOBACCO |
| ||||||||||||||||||
15 |
$ | 200,000 | $ | 1,406 | $ | 200,000 | $ | 608 | $ | 2,014 | ||||||||||
35 |
200,000 | 2,874 | 200,000 | 1,118 | 3,992 | |||||||||||||||
55 |
200,000 | 7,196 | 200,000 | 4,428 | 11,624 | |||||||||||||||
|
STANDARD or PREMIER TOBACCO or PREFERRED TOBACCO |
| ||||||||||||||||||
15 |
$ | 200,000 | $ | 1,612 | $ | 200,000 | $ | 740 | $ | 2,352 | ||||||||||
35 |
200,000 | 3,362 | 200,000 | 1,310 | 4,672 | |||||||||||||||
55 |
200,000 | 8,650 | 200,000 | 6,380 | 15,030 |
14 | Variable CompLife® Prospectus |
Variable CompLife® Prospectus | 15 |
16 | Variable CompLife® Prospectus |
Variable CompLife® Prospectus | 17 |
18 | Variable CompLife® Prospectus |
Variable CompLife® Prospectus | 19 |
20 | Variable CompLife® Prospectus |
Variable CompLife® Prospectus | 21 |
22 | Variable CompLife® Prospectus |
Variable CompLife® Prospectus | 23 |
24 | Variable CompLife® Prospectus |
Variable CompLife® Prospectus | 25 |
26 | Variable CompLife® Prospectus |
Variable CompLife® Prospectus | 27 |
28 | Variable CompLife® Prospectus |
Variable CompLife® Prospectus | 29 |
30 | Variable CompLife® Prospectus |
Variable CompLife® Prospectus | 31 |
32 | Variable CompLife® Prospectus |
Variable CompLife® Prospectus | 33 |
34 | Variable CompLife® 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 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 a Variable CompLife® Policy free of charge upon your request. The illustrations show how the Death Benefit, Invested Assets and Cash Value for a 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 CompLife® Prospectus | 35 |
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2013
VARIABLE COMPLIFE®
An individual scheduled premium Variable Whole Life Policy that combines a Minimum Guaranteed Death Benefit with Additional Protection in an integrated policy design (the Policy).
Issued by The Northwestern Mutual Life Insurance Company
and
Northwestern Mutual Variable Life Account
We no longer issue the Policy 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 Policy 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.
B-1
Page |
||||
B-3 | ||||
B-3 | ||||
F-1 | ||||
F-26 |
B-2
The Policy is 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 | |
2012 | $12,321,208 | |
2011 | $15,981,855 | |
2010 | $22,325,029 |
NMIS also provides certain services related to the administration of payment plans under the Policy 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, included in this Statement of Additional Information and the consolidated financial statements of Northwestern Mutual, and the related notes and report of PricewaterhouseCoopers LLP included in this Statement of Additional Information are so included in reliance on the reports of PricewaterhouseCoopers LLP, 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.
B-3
Annual Report December 31, 2012
Northwestern Mutual Variable Life Account
F-1
Northwestern Mutual Variable Life Account Financial
Statements
Northwestern Mutual Variable Life Account |
||||
F-3 | ||||
F-9 | ||||
F-12 | ||||
F-19 | ||||
F-25 |
F-2
Statements of Assets and Liabilities
Northwestern Mutual Variable Life Account
December 31, 2012
(in thousands, except accumulation unit values)
Growth Stock Division |
Focused Appreciation Division |
Large Cap Core Stock Division |
Large Cap Blend Division |
Index 500 Stock Division |
Large Company |
|||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Investments, at value (1) |
||||||||||||||||||||||||
Northwestern Mutual Series Fund, Inc |
$ | 284,685 | $ | 96,087 | $ | 191,924 | $ | 3,615 | $ | 785,477 | $ | 3,112 | ||||||||||||
Fidelity Variable Insurance Products |
| | | | | | ||||||||||||||||||
Neuberger Berman Advisers Management Trust |
| | | | | | ||||||||||||||||||
Russell Investment Funds |
| | | | | | ||||||||||||||||||
Due from Northwestern Mutual Life Insurance Company |
| | | | 57 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
284,685 | 96,087 | 191,924 | 3,615 | 785,534 | 3,112 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities: |
||||||||||||||||||||||||
Due to Northwestern Mutual Life Insurance Company |
97 | | 21 | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Liabilities |
|
97 |
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Net Assets |
$ |
284,588 |
|
$ |
96,087 |
|
$ |
191,903 |
|
$ |
3,615 |
|
$ |
785,534 |
|
$ |
3,112 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net Assets: |
||||||||||||||||||||||||
Variable Life Policies Issued |
||||||||||||||||||||||||
Before October 11, 1995 |
||||||||||||||||||||||||
Policyowners Equity |
$ | 25,207 | $ | 6,890 | $ | 21,416 | $ | 146 | $ | 114,495 | $ | 520 | ||||||||||||
Northwestern Mutual Equity |
511 | 112 | 478 | 3 | 1,952 | 4 | ||||||||||||||||||
Variable CompLife Policies Issued Between |
||||||||||||||||||||||||
October 11, 1995 and December 31, 2008 (2) |
||||||||||||||||||||||||
Policyowners Equity |
239,806 | 78,836 | 155,523 | 3,141 | 607,057 | 2,487 | ||||||||||||||||||
Northwestern Mutual Equity |
9,225 | 3,429 | 6,061 | 102 | 23,146 | 90 | ||||||||||||||||||
Variable Executive Life Policies Issued Between |
||||||||||||||||||||||||
March 2, 1998 and December 31, 2008 (3) |
||||||||||||||||||||||||
Policyowners Equity |
4,416 | 3,227 | 4,232 | 204 | 16,817 | | ||||||||||||||||||
Variable Joint Life Policies Issued Between |
||||||||||||||||||||||||
December 10, 1998 and December 31, 2008 (4) |
||||||||||||||||||||||||
Policyowners Equity |
|
5,423 |
|
|
3,593 |
|
|
4,193 |
|
|
19 |
|
|
22,067 |
|
|
11 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Net Assets |
$ |
284,588 |
|
$ |
96,087 |
|
$ |
191,903 |
|
$ |
3,615 |
|
$ |
785,534 |
|
$ |
3,112 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(1) Investments, at cost |
$ | 230,751 | $ | 80,654 | $ | 162,689 | $ | 3,451 | $ | 725,318 | $ | 2,979 | ||||||||||||
Mutual Fund Shares Held |
121,349 | 45,932 | 143,440 | 4,361 | 276,674 | 3,709 | ||||||||||||||||||
(2) Accumulation Unit Value |
$ | 2.690097 | $ | 2.245328 | $ | 2.155410 | $ | 1.080633 | $ | 3.043500 | $ | 1.120811 | ||||||||||||
Units Outstanding |
92,573 | 36,639 | 74,967 | 3,001 | 207,065 | 2,299 | ||||||||||||||||||
(3) Accumulation Unit Value |
$ | 36.785012 | $ | 23.543734 | $ | 29.198468 | $ | 9.155103 | $ | 69.136117 | $ | 9.343226 | ||||||||||||
Units Outstanding |
120 | 137 | 145 | 22 | 243 | | ||||||||||||||||||
(4) Accumulation Unit Value |
$ | 36.785012 | $ | 23.543734 | $ | 29.198468 | $ | 9.155103 | $ | 69.136117 | $ | 9.343226 | ||||||||||||
Units Outstanding |
147 | 153 | 144 | 2 | 319 | 1 |
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Assets and Liabilities
F-3
Statements of Assets and Liabilities
Northwestern Mutual Variable Life Account
December 31, 2012
(in thousands, except accumulation unit values)
Domestic Equity Division |
Equity Income |
Mid Cap Growth Stock |
Index 400 Stock |
Mid Cap Value |
Small Cap Growth Stock Division |
|||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Investments, at value (1) |
||||||||||||||||||||||||
Northwestern Mutual Series Fund, Inc |
$ | 134,621 | $ | 90,309 | $ | 374,575 | $ | 213,742 | $ | 39,419 | $ | 185,205 | ||||||||||||
Fidelity Variable Insurance Products |
| | | | | | ||||||||||||||||||
Neuberger Berman Advisers Management Trust |
| | | | | | ||||||||||||||||||
Russell Investment Funds |
| | | | | | ||||||||||||||||||
Due from Northwestern Mutual Life Insurance Company |
7 | | 23 | 2 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
134,628 | 90,309 | 374,598 | 213,744 | 39,419 | 185,205 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities: |
||||||||||||||||||||||||
Due to Northwestern Mutual Life Insurance Company |
| 9 | | | 88 | 137 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Liabilities |
| 9 | | | 88 | 137 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Net Assets |
$ | 134,628 | $ | 90,300 | $ | 374,598 | $ | 213,744 | $ | 39,331 | $ | 185,068 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net Assets: |
||||||||||||||||||||||||
Variable Life Policies Issued |
||||||||||||||||||||||||
Before October 11, 1995 |
||||||||||||||||||||||||
Policyowners Equity |
$ | 12,283 | $ | 7,423 | $ | 53,782 | $ | 10,630 | $ | 2,543 | $ | 8,524 | ||||||||||||
Northwestern Mutual Equity |
231 | 133 | 1,093 | 162 | 45 | 153 | ||||||||||||||||||
Variable CompLife Policies Issued Between |
||||||||||||||||||||||||
October 11, 1995 and December 31, 2008 (2) |
||||||||||||||||||||||||
Policyowners Equity |
107,803 | 72,999 | 299,402 | 183,091 | 33,001 | 160,391 | ||||||||||||||||||
Northwestern Mutual Equity |
4,901 | 2,878 | 11,187 | 7,022 | 1,478 | 6,782 | ||||||||||||||||||
Variable Executive Life Policies Issued Between |
||||||||||||||||||||||||
March 2, 1998 and December 31, 2008 (3) |
||||||||||||||||||||||||
Policyowners Equity |
4,213 | 2,989 | 3,450 | 6,093 | 901 | 2,899 | ||||||||||||||||||
Variable Joint Life Policies Issued Between |
||||||||||||||||||||||||
December 10, 1998 and December 31, 2008 (4) |
||||||||||||||||||||||||
Policyowners Equity |
5,197 | 3,878 | 5,684 | 6,746 | 1,363 | 6,319 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Net Assets |
$ | 134,628 | $ | 90,300 | $ | 374,598 | $ | 213,744 | $ | 39,331 | $ | 185,068 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(1) Investments, at cost |
$ | 136,572 | $ | 82,577 | $ | 324,604 | $ | 192,260 | $ | 37,007 | $ | 184,662 | ||||||||||||
Mutual Fund Shares Held |
137,790 | 67,244 | 114,830 | 143,163 | 30,253 | 98,409 | ||||||||||||||||||
(2) Accumulation Unit Value |
$ | 1.419182 | $ | 1.864547 | $ | 2.733618 | $ | 2.643527 | $ | 2.019864 | $ | 2.434726 | ||||||||||||
Units Outstanding |
79,414 | 40,695 | 113,619 | 71,917 | 17,070 | 68,663 | ||||||||||||||||||
(3) Accumulation Unit Value |
$ | 15.037814 | $ | 19.550985 | $ | 75.402575 | $ | 29.923387 | $ | 21.179677 | $ | 31.582975 | ||||||||||||
Units Outstanding |
280 | 153 | 46 | 204 | 43 | 92 | ||||||||||||||||||
(4) Accumulation Unit Value |
$ | 15.037814 | $ | 19.550985 | $ | 75.402575 | $ | 29.923387 | $ | 21.179677 | $ | 31.582975 | ||||||||||||
Units Outstanding |
346 | 198 | 75 | 225 | 64 | 200 |
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Assets and Liabilities
F-4
Index 600 Stock Division |
Small Cap Value Division |
International Growth Division |
Research Core Division |
International Equity Division |
Emerging Equity Division |
Money Market Division |
Short-Term Division |
|||||||||||||||||||||||
$ | 6,205 | $ | 143,950 | $ | 82,923 | $ | 12,231 | $ | 504,516 | $ | 21,471 | $ | 170,040 | $ | 6,957 | |||||||||||||||
| | | | | | | | |||||||||||||||||||||||
| | | | | | | | |||||||||||||||||||||||
| | | | | | | | |||||||||||||||||||||||
1 | 23 | | 2 | | | | 3 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
6,206 | 143,973 | 82,923 | 12,233 | 504,516 | 21,471 | 170,040 | 6,960 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| | 82 | | 35 | 2 | 100 | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| | 82 | | 35 | 2 | 100 | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 6,206 | $ | 143,973 | $ | 82,841 | $ | 12,233 | $ | 504,481 | $ | 21,469 | $ | 169,940 | $ | 6,960 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 448 | $ | 10,954 | $ | 4,203 | $ | 880 | $ | 61,399 | $ | 1,209 | $ | 11,625 | $ | 296 | |||||||||||||||
6 | 182 | 77 | 23 | 1,159 | 23 | 233 | 5 | |||||||||||||||||||||||
5,062 | 118,419 | 68,559 | 9,639 | 399,391 | 17,639 | 123,358 | 5,690 | |||||||||||||||||||||||
202 | 5,036 | 3,218 | 347 | 15,749 | 637 | 6,663 | 197 | |||||||||||||||||||||||
470 | 3,540 | 3,551 | 1,018 | 13,496 | 1,198 | 10,415 | 535 | |||||||||||||||||||||||
18 | 5,842 | 3,233 | 326 | 13,287 | 763 | 17,646 | 237 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 6,206 | $ | 143,973 | $ | 82,841 | $ | 12,233 | $ | 504,481 | $ | 21,469 | $ | 169,940 | $ | 6,960 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 6,038 | $ | 120,119 | $ | 93,873 | $ | 11,283 | $ | 459,722 | $ | 19,701 | $ | 170,041 | $ | 6,979 | |||||||||||||||
6,162 | 76,123 | 68,644 | 14,718 | 281,224 | 20,294 | 170,041 | 6,780 | |||||||||||||||||||||||
$ | 1.081019 | $ | 2.438620 | $ | 1.616718 | $ | 0.975017 | $ | 2.943691 | $ | 0.963548 | $ | 1.549943 | $ | 1.009629 | |||||||||||||||
4,869 | 50,625 | 44,396 | 10,242 | 141,028 | 18,968 | 83,888 | 5,831 | |||||||||||||||||||||||
$ | 11.903891 | $ | 25.839588 | $ | 17.130842 | $ | 9.205651 | $ | 4.474566 | $ | 11.369632 | $ | 41.497953 | $ | 12.076410 | |||||||||||||||
39 | 137 | 207 | 111 | 3,016 | 105 | 251 | 44 | |||||||||||||||||||||||
$ | 11.903891 | $ | 25.839588 | $ | 17.130842 | $ | 9.205651 | $ | 4.474566 | $ | 11.369632 | $ | 41.497953 | $ | 12.076410 | |||||||||||||||
2 | 226 | 189 | 35 | 2,969 | 67 | 425 | 20 |
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Assets and Liabilities
F-5
Statements of Assets and Liabilities
Northwestern Mutual Variable Life Account
December 31, 2012
(in thousands, except accumulation unit values)
Select Bond Division |
Long-Term U.S. Government Bond Division |
Inflation Protection Division |
High Yield Bond Division |
Multi- Sector Bond Division |
Commodities Return Strategy Division |
|||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Investments, at value (1) |
||||||||||||||||||||||||
Northwestern Mutual Series Fund, Inc |
$ | 268,346 | $ | 7,933 | $ | 10,670 | $ | 106,436 | $ | 18,873 | $ | 10,797 | ||||||||||||
Fidelity Variable Insurance Products |
| | | | | | ||||||||||||||||||
Neuberger Berman Advisers Management Trust |
| | | | | | ||||||||||||||||||
Russell Investment Funds |
| | | | | | ||||||||||||||||||
Due from Northwestern Mutual Life Insurance Company |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
268,346 | 7,933 | 10,670 | 106,436 | 18,873 | 10,797 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities: |
||||||||||||||||||||||||
Due to Northwestern Mutual Life Insurance Company |
272 | | | 166 | 1 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Liabilities |
272 | | | 166 | 1 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Net Assets |
$ | 268,074 | $ | 7,933 | $ | 10,670 | $ | 106,270 | $ | 18,872 | $ | 10,797 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net Assets: |
||||||||||||||||||||||||
Variable Life Policies Issued |
||||||||||||||||||||||||
Before October 11, 1995 |
||||||||||||||||||||||||
Policyowners Equity |
$ | 25,647 | $ | 1,585 | $ | 597 | $ | 8,342 | $ | 887 | $ | 297 | ||||||||||||
Northwestern Mutual Equity |
449 | 12 | 9 | 128 | 14 | 6 | ||||||||||||||||||
Variable CompLife Policies Issued Between |
||||||||||||||||||||||||
October 11, 1995 and December 31, 2008 (2) |
||||||||||||||||||||||||
Policyowners Equity |
197,563 | 5,771 | 8,486 | 86,734 | 16,383 | 9,096 | ||||||||||||||||||
Northwestern Mutual Equity |
8,031 | 200 | 255 | 3,133 | 612 | 345 | ||||||||||||||||||
Variable Executive Life Policies Issued Between |
||||||||||||||||||||||||
March 2, 1998 and December 31, 2008 (3) |
||||||||||||||||||||||||
Policyowners Equity |
25,749 | 27 | 893 | 4,569 | 252 | 810 | ||||||||||||||||||
Variable Joint Life Policies Issued Between |
||||||||||||||||||||||||
December 10, 1998 and December 31, 2008 (4) |
||||||||||||||||||||||||
Policyowners Equity |
10,635 | 338 | 430 | 3,364 | 724 | 243 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Net Assets |
$ | 268,074 | $ | 7,933 | $ | 10,670 | $ | 106,270 | $ | 18,872 | $ | 10,797 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(1) Investments, at cost |
$ | 256,517 | $ | 8,521 | $ | 10,481 | $ | 96,059 | $ | 17,681 | $ | 11,288 | ||||||||||||
Mutual Fund Shares Held |
205,787 | 7,429 | 8,753 | 141,723 | 16,483 | 13,703 | ||||||||||||||||||
(2) Accumulation Unit Value |
$ | 2.609587 | $ | 1.289646 | $ | 1.136621 | $ | 3.143457 | $ | 1.161278 | $ | 8.629822 | ||||||||||||
Units Outstanding |
78,784 | 4,631 | 7,690 | 28,588 | 14,635 | 1,094 | ||||||||||||||||||
(3) Accumulation Unit Value |
$ | 204.702189 | $ | 17.875038 | $ | 14.701699 | $ | 41.068270 | $ | 15.698283 | $ | 7.880392 | ||||||||||||
Units Outstanding |
126 | 1 | 61 | 111 | 16 | 103 | ||||||||||||||||||
(4) Accumulation Unit Value |
$ | 204.702189 | $ | 17.875038 | $ | 14.701699 | $ | 41.068270 | $ | 15.698283 | $ | 7.880392 | ||||||||||||
Units Outstanding |
52 | 19 | 29 | 82 | 46 | 31 |
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Assets and Liabilities
F-6
Balanced Division |
Asset Allocation Division |
Fidelity VIP Mid Cap Division |
Fidelity VIP Contrafund |
Neuberger Berman AMT Socially Responsive Division |
Russell Multi-Style Equity Division |
Russell Aggressive Equity Division |
Russell Non-U.S. Division |
|||||||||||||||||||||||
$ | 331,282 | $ | 39,575 | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||||||||
| | 128,383 | 20,234 | | | | | |||||||||||||||||||||||
| | | | 1,683 | | | | |||||||||||||||||||||||
| | | | | 162,557 | 80,741 | 115,683 | |||||||||||||||||||||||
| | 1 | | | | | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
331,282 | 39,575 | 128,384 | 20,234 | 1,683 | 162,557 | 80,741 | 115,683 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
201 | 2 | | | | 476 | 3 | 16 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
201 | 2 | | | | 476 | 3 | 16 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 331,081 | $ | 39,573 | $ | 128,384 | $ | 20,234 | $ | 1,683 | $ | 162,081 | $ | 80,738 | $ | 115,667 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 150,065 | $ | 5,266 | $ | 11,161 | $ | 1,199 | $ | 71 | $ | 6,928 | $ | 4,608 | $ | 7,060 | |||||||||||||||
1,874 | 85 | 197 | 13 | 1 | 129 | 78 | 131 | |||||||||||||||||||||||
156,544 | 30,164 | 103,095 | 16,748 | 1,162 | 131,367 | 67,212 | 91,703 | |||||||||||||||||||||||
5,939 | 1,286 | 4,665 | 554 | 49 | 5,859 | 2,976 | 3,943 | |||||||||||||||||||||||
10,909 | 1,149 | 4,616 | 1,178 | 132 | 11,378 | 2,968 | 7,562 | |||||||||||||||||||||||
5,750 | 1,623 | 4,650 | 542 | 268 | 6,420 | 2,896 | 5,268 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 331,081 | $ | 39,573 | $ | 128,384 | $ | 20,234 | $ | 1,683 | $ | 162,081 | $ | 80,738 | $ | 115,667 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 334,006 | $ | 36,042 | $ | 125,681 | $ | 18,948 | $ | 1,577 | $ | 134,782 | $ | 77,194 | $ | 127,222 | |||||||||||||||
219,829 | 34,960 | 4,282 | 778 | 106 | 10,730 | 6,201 | 11,220 | |||||||||||||||||||||||
$ | 2.839508 | $ | 1.576122 | $ | 2.835677 | $ | 1.067828 | $ | 1.005443 | $ | 1.101694 | $ | 1.684569 | $ | 1.415380 | |||||||||||||||
57,222 | 19,954 | 38,001 | 16,203 | 1,204 | 124,556 | 41,666 | 67,577 | |||||||||||||||||||||||
$ | 153.677764 | $ | 16.700324 | $ | 29.733518 | $ | 11.458810 | $ | 10.715212 | $ | 12.171877 | $ | 19.088862 | $ | 15.277391 | |||||||||||||||
71 | 69 | 155 | 103 | 12 | 935 | 155 | 495 | |||||||||||||||||||||||
$ | 153.677764 | $ | 16.700324 | $ | 29.733518 | $ | 11.458810 | $ | 10.715212 | $ | 12.171877 | $ | 19.088862 | $ | 15.277391 | |||||||||||||||
37 | 97 | 156 | 47 | 25 | 527 | 152 | 345 |
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Assets and Liabilities
F-7
Statements of Assets and Liabilities
Northwestern Mutual Variable Life Account
December 31, 2012
(in thousands, except accumulation unit values)
Russell Core Bond Division |
Russell Global Real Estate |
Russell LifePoints Moderate Strategy Division |
Russell LifePoints Balanced Strategy Division |
Russell LifePoints Growth Strategy Division |
Russell LifePoints Equity Growth Strategy Division |
|||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Investments, at value (1) |
||||||||||||||||||||||||
Northwestern Mutual Series Fund, Inc |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Fidelity Variable Insurance Products |
| | | | | | ||||||||||||||||||
Neuberger Berman Advisers Management Trust |
| | | | | | ||||||||||||||||||
Russell Investment Funds |
100,186 | 152,730 | 2,140 | 9,674 | 11,342 | 5,373 | ||||||||||||||||||
Due from Northwestern Mutual Life Insurance Company |
| | | | 3 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
100,186 | 152,730 | 2,140 | 9,674 | 11,345 | 5,373 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities: |
||||||||||||||||||||||||
Due to Northwestern Mutual Life Insurance Company |
253 | 159 | 1 | 1 | | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Liabilities |
253 | 159 | 1 | 1 | | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Net Assets |
$ | 99,933 | $ | 152,571 | $ | 2,139 | $ | 9,673 | $ | 11,345 | $ | 5,371 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net Assets: |
||||||||||||||||||||||||
Variable Life Policies Issued |
||||||||||||||||||||||||
Before October 11, 1995 |
||||||||||||||||||||||||
Policyowners Equity |
$ | 6,526 | $ | 9,795 | $ | 207 | $ | 1,673 | $ | 1,729 | $ | 574 | ||||||||||||
Northwestern Mutual Equity |
143 | 150 | 5 | 25 | 28 | 11 | ||||||||||||||||||
Variable CompLife Policies Issued Between |
||||||||||||||||||||||||
October 11, 1995 and December 31, 2008 (2) |
||||||||||||||||||||||||
Policyowners Equity |
68,603 | 126,305 | 1,510 | 7,205 | 9,185 | 4,099 | ||||||||||||||||||
Northwestern Mutual Equity |
2,743 | 5,446 | 60 | 265 | 403 | 159 | ||||||||||||||||||
Variable Executive Life Policies Issued Between |
||||||||||||||||||||||||
March 2, 1998 and December 31, 2008 (3) |
||||||||||||||||||||||||
Policyowners Equity |
17,029 | 5,635 | | 35 | | | ||||||||||||||||||
Variable Joint Life Policies Issued Between |
||||||||||||||||||||||||
December 10, 1998 and December 31, 2008 (4) |
||||||||||||||||||||||||
Policyowners Equity |
4,889 | 5,240 | 357 | 470 | | 528 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Net Assets |
$ | 99,933 | $ | 152,571 | $ | 2,139 | $ | 9,673 | $ | 11,345 | $ | 5,371 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(1) Investments, at cost |
$ | 95,510 | $ | 147,413 | $ | 2,106 | $ | 9,131 | $ | 10,799 | $ | 5,122 | ||||||||||||
Mutual Fund Shares Held |
9,268 | 9,937 | 212 | 1,013 | 1,265 | 654 | ||||||||||||||||||
(2) Accumulation Unit Value |
$ | 2.116915 | $ | 3.553123 | $ | 1.062654 | $ | 1.048620 | $ | 1.030529 | $ | 1.023971 | ||||||||||||
Units Outstanding |
33,703 | 37,080 | 1,477 | 7,124 | 9,304 | 4,159 | ||||||||||||||||||
(3) Accumulation Unit Value |
$ | 22.402721 | $ | 37.550773 | $ | 12.706153 | $ | 11.789785 | $ | 10.802768 | $ | 9.799317 | ||||||||||||
Units Outstanding |
760 | 150 | | 3 | | | ||||||||||||||||||
(4) Accumulation Unit Value |
$ | 22.402721 | $ | 37.550773 | $ | 12.706153 | $ | 11.789785 | $ | 10.802768 | $ | 9.799317 | ||||||||||||
Units Outstanding |
218 | 140 | 28 | 40 | | 54 |
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Assets and Liabilities
F-8
Northwestern Mutual Variable Life Account
For the Year Ended December 31, 2012
(in thousands)
Growth Stock Division |
Focused Appreciation Division |
Large Cap Core Stock Division |
Large Cap Division |
Index 500 Division |
Large Value Division |
|||||||||||||||||||
Income: |
||||||||||||||||||||||||
Dividend income |
$ | 1,658 | $ | 261 | $ | 2,326 | $ | 34 | $ | 13,713 | $ | 56 | ||||||||||||
Expenses: |
||||||||||||||||||||||||
Mortality and expense risk charges |
1,273 | 399 | 841 | 16 | 3,340 | 14 | ||||||||||||||||||
Taxes |
13 | 3 | 11 | | 57 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net investment income (loss) |
372 | (141 | ) | 1,474 | 18 | 10,316 | 42 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Realized gain (loss) on investments: |
||||||||||||||||||||||||
Realized gain (loss) on sale of fund shares |
2,428 | 2,462 | 119 | 121 | (1,152 | ) | 310 | |||||||||||||||||
Realized gain distributions |
| | | 144 | 14,039 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Realized gains (losses) |
2,428 | 2,462 | 119 | 265 | 12,887 | 310 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Change in unrealized appreciation/ depreciation of investments during the period |
30,637 | 14,195 | 18,456 | 53 | 84,509 | (48 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in net assets resulting from operations |
$ | 33,437 | $ | 16,516 | $ | 20,049 | $ | 336 | $ | 107,712 | $ | 304 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Domestic Division |
Equity Income |
Mid Cap Stock Division |
Index 400 Division |
Mid Cap Division |
Small Cap Stock Division |
|||||||||||||||||||
Income: |
||||||||||||||||||||||||
Dividend income |
$ | 2,904 | $ | 1,312 | $ | 469 | $ | 1,917 | $ | 521 | $ | | ||||||||||||
Expenses: |
||||||||||||||||||||||||
Mortality and expense risk charges |
572 | 358 | 1,692 | 893 | 164 | 815 | ||||||||||||||||||
Taxes |
6 | 3 | 27 | 5 | 1 | 5 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net investment income (loss) |
2,326 | 951 | (1,250 | ) | 1,019 | 356 | (820 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Realized gain (loss) on investments: |
||||||||||||||||||||||||
Realized gain (loss) on sale of fund shares |
(3,094 | ) | (850 | ) | (2,650 | ) | 6,296 | (764 | ) | 2,533 | ||||||||||||||
Realized gain distributions |
| | | 9,136 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Realized gains (losses) |
(3,094 | ) | (850 | ) | (2,650 | ) | 15,432 | (764 | ) | 2,533 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Change in unrealized appreciation/ depreciation of investments during the period |
18,183 | 12,820 | 44,477 | 16,161 | 6,183 | 14,651 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in net assets resulting from operations |
$ | 17,415 | $ | 12,921 | $ | 40,577 | $ | 32,612 | $ | 5,775 | $ | 16,364 | ||||||||||||
|
|
|
|
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|
|
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Operations
F-9
Statements of Operations
Northwestern Mutual Variable Life Account
For the Year Ended December 31, 2012
(in thousands)
Index 600 Stock |
Small Cap Value Division |
International |
Division |
International Division |
Emerging Markets Equity Division |
|||||||||||||||||||
Income: |
||||||||||||||||||||||||
Dividend income |
$ | 148 | $ | 522 | $ | 1,054 | $ | 153 | $ | 12,106 | $ | 25 | ||||||||||||
Expenses: |
||||||||||||||||||||||||
Mortality and expense risk charges |
19 | 595 | 329 | 34 | 2,000 | 66 | ||||||||||||||||||
Taxes |
| 5 | 2 | | 29 | | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net investment income (loss) |
129 | (78 | ) | 723 | 119 | 10,077 | (41 | ) | ||||||||||||||||
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|
|
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|
|
|
|
|
|
|
|||||||||||||
Realized gain (loss) on investments: |
||||||||||||||||||||||||
Realized gain (loss) on sale of fund shares |
123 | 3,627 | (3,011 | ) | (34 | ) | 1,918 | (59 | ) | |||||||||||||||
Realized gain distributions |
138 | 1,605 | | | | 8 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Realized gains (losses) |
261 | 5,232 | (3,011 | ) | (34 | ) | 1,918 | (51 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Change in unrealized appreciation/ depreciation of investments during the period |
121 | 15,350 | 15,053 | 1,117 | 77,414 | 2,264 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in net assets resulting from operations |
$ | 511 | $ | 20,504 | $ | 12,765 | $ | 1,202 | $ | 89,409 | $ | 2,172 | ||||||||||||
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|
|||||||||||||
Balanced Division |
Asset Allocation Division |
Fidelity VIP Mid Cap |
Fidelity VIP Contrafund |
Neuberger Socially |
Russell Multi-Style Equity Division |
|||||||||||||||||||
Income: |
||||||||||||||||||||||||
Dividend income |
$ | 3,878 | $ | 91 | $ | 495 | $ | 221 | $ | 3 | $ | 1,847 | ||||||||||||
Expenses: |
||||||||||||||||||||||||
Mortality and expense risk charges |
1,496 | 167 | 536 | 58 | 5 | 663 | ||||||||||||||||||
Taxes |
75 | 3 | 6 | | | 4 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net investment income (loss) |
2,307 | (79 | ) | (47 | ) | 163 | (2 | ) | 1,180 | |||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Realized gain (loss) on investments: |
||||||||||||||||||||||||
Realized gain (loss) on sale of fund shares |
(4,873 | ) | (614 | ) | 55 | 42 | 25 | 7,889 | ||||||||||||||||
Realized gain distributions |
| | 10,252 | | | | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Realized gains (losses) |
(4,873 | ) | (614 | ) | 10,307 | 42 | 25 | 7,889 | ||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Change in unrealized appreciation/ depreciation of investments during the period |
31,524 | 4,672 | 6,397 | 1,292 | 89 | 14,317 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in net assets resulting from operations |
$ | 28,958 | $ | 3,979 | $ | 16,657 | $ | 1,497 | $ | 112 | $ | 23,386 | ||||||||||||
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|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Operations
F-10
Money Division |
Short-Term Bond Division |
Select Bond Division |
U.S. Government Bond Division |
Inflation Protection Division |
High Yield Bond Division |
Multi-Sector Bond Division |
Commodities Return Strategy Division |
|||||||||||||||||||||||
$ | 229 | $ | 87 | $ | 6,989 | $ | 150 | $ | 220 | $ | 6,414 | $ | 58 | $ | | |||||||||||||||
630 | 25 | 1,022 | 36 | 32 | 430 | 51 | 36 | |||||||||||||||||||||||
6 | | 13 | 1 | | 4 | | | |||||||||||||||||||||||
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(407 | ) | 62 | 5,954 | 113 | 188 | 5,980 | 7 | (36 | ) | |||||||||||||||||||||
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|||||||||||||||
| (10 | ) | 1,806 | (527 | ) | 76 | 593 | 40 | (215 | ) | ||||||||||||||||||||
| | 5,634 | 631 | 89 | | 50 | | |||||||||||||||||||||||
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|||||||||||||||
| (10 | ) | 7,440 | 104 | 165 | 593 | 90 | (215 | ) | |||||||||||||||||||||
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|||||||||||||||
| 34 | (1,974 | ) | (58 | ) | 128 | 6,185 | 1,414 | (104 | ) | ||||||||||||||||||||
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|||||||||||||||
$ | (407 | ) | $ | 86 | $ | 11,420 | $ | 159 | $ | 481 | $ | 12,758 | $ |
1,511 |
|
$ | (355 | ) | ||||||||||||
|
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|||||||||||||||
Russell Aggressive Equity Division |
Russell Non-U.S. Division |
Russell Core Bond Division |
Russell Global Real Estate Securities Division |
Russell LifePoints Moderate Strategy Division |
Russell LifePoints Balanced Strategy Division |
Russell LifePoints Growth Strategy Division |
Russell LifePoints Equity Growth Strategy Division |
|||||||||||||||||||||||
$ | 868 | $ | 1,962 | $ | 2,298 | $ | 7,083 | $ | 47 | $ | 195 | $ | 175 | $ | 78 | |||||||||||||||
341 | 445 | 350 | 590 | 5 | 32 | 34 | 17 | |||||||||||||||||||||||
2 | 3 | 3 | 4 | | 1 | 1 | | |||||||||||||||||||||||
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|||||||||||||||
525 | 1,514 | 1,945 | 6,489 | 42 | 162 | 140 | 61 | |||||||||||||||||||||||
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|||||||||||||||
(750 | ) | (1,834 | ) | 1,181 | (943 | ) | 24 | 61 | 35 | 79 | ||||||||||||||||||||
| | 2,455 | | 5 | | | | |||||||||||||||||||||||
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|||||||||||||||
(750 | ) | (1,834 | ) | 3,636 | (943 | ) | 29 | 61 | 35 | 79 | ||||||||||||||||||||
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|||||||||||||||
11,819 | 20,094 | 1,968 | 27,649 | 37 | 532 | 606 | 265 | |||||||||||||||||||||||
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|||||||||||||||
$ |
11,594 |
|
$ | 19,774 | $ | 7,549 | $ | 33,195 | $ | 108 | $ | 755 | $ | 781 | $ | 405 | ||||||||||||||
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Operations
F-11
Statements of Changes in Net Assets
Northwestern Mutual Variable Life Account
(in thousands)
Growth Stock Division |
Focused Appreciation Division |
|||||||||||||||
Year Ended December 31, 2012 |
Year Ended December 31, 2011 |
Year Ended December 31, 2012 |
Year Ended December 31, 2011 |
|||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | 372 | $ | 999 | $ | (141 | ) | $ | (220 | ) | ||||||
Net realized gains (losses) |
2,428 | 1,424 | 2,462 | 824 | ||||||||||||
Net change in unrealized appreciation/depreciation |
30,637 | (6,980 | ) | 14,195 | (6,641 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting |
33,437 | (4,557 | ) | 16,516 | (6,037 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Policy Transactions: |
||||||||||||||||
Policyowners net payments |
19,641 | 21,162 | 6,448 | 7,535 | ||||||||||||
Policy loans, surrenders and death benefits |
(23,795 | ) | (23,482 | ) | (7,950 | ) | (6,377 | ) | ||||||||
Mortality and other (net) |
(7,517 | ) | (7,489 | ) | (2,450 | ) | (2,392 | ) | ||||||||
Transfers from other divisions |
17,447 | 52,311 | 13,134 | 14,189 | ||||||||||||
Transfers to other divisions |
(23,930 | ) | (57,341 | ) | (15,549 | ) | (18,843 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting from |
(18,154 | ) | (14,839 | ) | (6,367 | ) | (5,888 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets |
15,283 | (19,396 | ) | 10,149 | (11,925 | ) | ||||||||||
Net Assets: |
||||||||||||||||
Beginning of period |
269,305 | 288,701 | 85,938 | 97,863 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 284,588 | $ | 269,305 | $ | 96,087 | $ | 85,938 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Units issued during the period |
11,669 | 15,047 | 6,960 | 8,098 | ||||||||||||
Units redeemed during the period |
(16,722 | ) | (19,141 | ) | (9,268 | ) | (10,082 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net units issued (redeemed) during period |
(5,053 | ) | (4,094 | ) | (2,308 | ) | (1,984 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Domestic
Equity Division |
Equity
Income Division |
|||||||||||||||
Year Ended |
Year Ended |
Year Ended |
Year Ended |
|||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | 2,326 | $ | 2,274 | $ | 951 | $ | 826 | ||||||||
Net realized gains (losses) |
(3,094 | ) | (2,543 | ) | (850 | ) | (1,190 | ) | ||||||||
Net change in unrealized appreciation/depreciation |
18,183 | 886 | 12,820 | (675 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting |
17,415 | 617 | 12,921 | (1,039 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Policy Transactions: |
||||||||||||||||
Policyowners net payments |
9,596 | 11,271 | 5,151 | 5,408 | ||||||||||||
Policy loans, surrenders and death benefits |
(9,944 | ) | (9,263 | ) | (5,788 | ) | (5,061 | ) | ||||||||
Mortality and other (net) |
(3,419 | ) | (3,477 | ) | (2,085 | ) | (1,885 | ) | ||||||||
Transfers from other divisions |
9,421 | 15,874 | 22,379 | 21,711 | ||||||||||||
Transfers to other divisions |
(19,571 | ) | (18,524 | ) | (19,131 | ) | (16,121 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting from |
(13,917 | ) | (4,119 | ) | 526 | 4,052 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets |
3,498 | (3,502 | ) | 13,447 | 3,013 | |||||||||||
Net Assets: |
||||||||||||||||
Beginning of period |
131,130 | 134,632 | 76,853 | 73,840 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 134,628 | $ | 131,130 | $ | 90,300 | $ | 76,853 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Units issued during the period |
11,427 | 17,257 | 10,303 | 11,385 | ||||||||||||
Units redeemed during the period |
(20,151 | ) | (18,848 | ) | (9,917 | ) | (9,705 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net units issued (redeemed) during period |
(8,724 | ) | (1,591 | ) | 386 | 1,680 | ||||||||||
|
|
|
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Changes in Net Assets
F-12
Large Cap Core Stock Division |
Large Cap Blend Division |
Index 500 Stock Division |
Large Company Value Division |
|||||||||||||||||||||||||||
Year Ended |
Year Ended |
Year Ended |
Period |
Year Ended |
Year Ended |
Year Ended |
Period |
|||||||||||||||||||||||
$ | 1,474 | $ | 1,351 | $ | 18 | $ | 20 | $ | 10,316 | $ | 9,066 | $ | 42 | $ | 39 | |||||||||||||||
119 | (1,127 | ) | 265 | (20 | ) | 12,887 | 12,042 | 310 | (5 | ) | ||||||||||||||||||||
18,456 | (3,230 | ) | 53 | 111 | 84,509 | (9,438 | ) | (48 | ) | 180 | ||||||||||||||||||||
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|||||||||||||||
20,049 | (3,006 | ) | 336 | 111 | 107,712 | 11,670 | 304 | 214 | ||||||||||||||||||||||
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|||||||||||||||
13,425 | 14,918 | 168 | 13 | 48,384 | 52,024 | 182 | 12 | |||||||||||||||||||||||
(16,361 | ) | (14,770 | ) | (52 | ) | (53 | ) | (57,081 | ) | (56,552 | ) | 108 | (4 | ) | ||||||||||||||||
(5,195 | ) | (5,030 | ) | (19 | ) | (10 | ) | (19,423 | ) | (18,584 | ) | (17 | ) | (10 | ) | |||||||||||||||
13,014 | 10,296 | 2,322 | 3,300 | 59,917 | 98,356 | 2,708 | 2,606 | |||||||||||||||||||||||
(15,634 | ) | (12,799 | ) | (2,253 | ) | (248 | ) | (67,775 | ) | (104,005 | ) | (2,766 | ) | (225 | ) | |||||||||||||||
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|
|||||||||||||||
(10,751 | ) | (7,385 | ) | 166 | 3,002 | (35,978 | ) | (28,761 | ) | 215 | 2,379 | |||||||||||||||||||
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|||||||||||||||
9,298 | (10,391 | ) | 502 | 3,113 | 71,734 | (17,091 | ) | 519 | 2,593 | |||||||||||||||||||||
182,605 | 192,996 | 3,113 | | 713,800 | 730,891 | 2,593 | | |||||||||||||||||||||||
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|||||||||||||||
$ | 191,903 | $ | 182,605 | $ | 3,615 | $ | 3,113 | $ | 785,534 | $ | 713,800 | $ | 3,112 | $ | 2,593 | |||||||||||||||
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|
|||||||||||||||
9,995 | 11,623 | 2,053 | 3,387 | 28,184 | 30,791 | 2,085 | 2,728 | |||||||||||||||||||||||
(13,292 | ) | (13,974 | ) | (2,232 | ) | (183 | ) | (34,908 | ) | (36,979 | ) | (2,407 | ) | (106 | ) | |||||||||||||||
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|
|||||||||||||||
(3,297 | ) | (2,351 | ) | (179 | ) | 3,204 | (6,724 | ) | (6,188 | ) | (322 | ) | 2,622 | |||||||||||||||||
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|
|||||||||||||||
Mid Cap
Growth Stock Division |
Index 400 Stock Division |
Mid Cap Value Division |
Small Cap Growth Stock Division |
|||||||||||||||||||||||||||
Year Ended December 31, 2012 |
Year Ended December 31, 2011 |
Year Ended December 31, 2012 |
Year Ended December 31, 2011 |
Year Ended December 31, 2012 |
Year Ended December 31, 2011 |
Year Ended December 31, 2012 |
Year Ended December 31, 2011 |
|||||||||||||||||||||||
$ | (1,250 | ) | $ | (842 | ) | $ | 1,019 | $ | 934 | $ | 356 | $ | 519 | $ | (820 | ) | $ | (146 | ) | |||||||||||
(2,650 | ) | (3,274 | ) | 15,432 | 16,212 | (764 | ) | (1,096 | ) | 2,533 | (591 | ) | ||||||||||||||||||
44,477 | (21,248 | ) | 16,161 | (21,657 | ) | 6,183 | 238 | 14,651 | (5,368 | ) | ||||||||||||||||||||
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|||||||||||||||
40,577 | (25,364 | ) | 32,612 | (4,511 | ) | 5,775 | (339 | ) | 16,364 | (6,105 | ) | |||||||||||||||||||
|
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|
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|
|
|||||||||||||||
24,276 | 26,627 | 11,950 | 13,583 | 2,788 | 3,025 | 12,935 | 14,969 | |||||||||||||||||||||||
(31,077 | ) | (30,326 | ) | (18,503 | ) | (16,422 | ) | (4,949 | ) | (4,695 | ) | (15,686 | ) | (17,477 | ) | |||||||||||||||
(9,553 | ) | (9,977 | ) | (4,793 | ) | (4,919 | ) | (1,057 | ) | (1,037 | ) | (4,652 | ) | (4,963 | ) | |||||||||||||||
11,029 | 12,173 | 24,530 | 25,722 | 10,431 | 35,955 | 14,520 | 37,633 | |||||||||||||||||||||||
(19,151 | ) | (18,710 | ) | (27,687 | ) | (26,339 | ) | (10,991 | ) | (35,414 | ) | (22,037 | ) | (41,545 | ) | |||||||||||||||
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|
|
|
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|
|
|||||||||||||||
(24,476 | ) | (20,213 | ) | (14,503 | ) | (8,375 | ) | (3,778 | ) | (2,166 | ) | (14,920 | ) | (11,383 | ) | |||||||||||||||
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|
|
|
|
|
|||||||||||||||
16,101 | (45,577 | ) | 18,109 | (12,886 | ) | 1,997 | (2,505 | ) | 1,444 | (17,488 | ) | |||||||||||||||||||
358,497 | 404,074 | 195,635 | 208,521 | 37,334 | 39,839 | 183,624 | 201,112 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 374,598 | $ | 358,497 | $ | 213,744 | $ | 195,635 | $ | 39,331 | $ | 37,334 | $ | 185,068 | $ | 183,624 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
12,303 | 14,362 | 9,747 | 12,107 | 3,749 | 5,869 | 9,232 | 12,966 | |||||||||||||||||||||||
(20,061 | ) | (20,678 | ) | (14,981 | ) | (15,191 | ) | (5,002 | ) | (6,457 | ) | (14,640 | ) | (16,931 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(7,758 | ) | (6,316 | ) | (5,234 | ) | (3,084 | ) | (1,253 | ) | (588 | ) | (5,408 | ) | (3,965 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Changes in Net Assets
F-13
Statements of Changes in Net Assets
Northwestern Mutual Variable Life Account
(in thousands)
Index 600 Stock Division |
Small Cap Value Division |
|||||||||||||||
Year Ended |
Period |
Year Ended |
Year Ended |
|||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | 129 | $ | 9 | $ | (78 | ) | $ | 257 | |||||||
Net realized gains (losses) |
261 | 27 | 5,232 | 2,993 | ||||||||||||
Net change in unrealized appreciation/depreciation |
121 | 46 | 15,350 | (5,814 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting from operations |
511 | 82 | 20,504 | (2,564 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Policy Transactions: |
||||||||||||||||
Policyowners net payments |
329 | 35 | 8,877 | 10,251 | ||||||||||||
Policy loans, surrenders and death benefits |
(147 | ) | (30 | ) | (10,350 | ) | (11,020 | ) | ||||||||
Mortality and other (net) |
(100 | ) | (14 | ) | (3,432 | ) | (3,602 | ) | ||||||||
Transfers from other divisions |
6,537 | 2,184 | 12,209 | 27,569 | ||||||||||||
Transfers to other divisions |
(2,643 | ) | (538 | ) | (18,815 | ) | (29,663 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting from policy transactions |
3,976 | 1,637 | (11,511 | ) | (6,465 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets |
4,487 | 1,719 | 8,993 | (9,029 | ) | |||||||||||
Net Assets: |
||||||||||||||||
Beginning of period |
1,719 | | 134,980 | 144,009 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 6,206 | $ | 1,719 | $ | 143,973 | $ | 134,980 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Units issued during the period |
4,990 | 1,613 | 7,572 | 10,510 | ||||||||||||
Units redeemed during the period |
(1,464 | ) | (229 | ) | (11,861 | ) | (12,882 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net units issued (redeemed) during period |
3,526 | 1,384 | (4,289 | ) | (2,372 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Money
Market Division |
Short-Term Bond Division |
|||||||||||||||
Year Ended |
Year Ended |
Year Ended |
Period |
|||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | (407 | ) | $ | (441 | ) | $ | 62 | $ | 44 | ||||||
Net realized gains (losses) |
| | (10 | ) | 1 | |||||||||||
Net change in unrealized appreciation/depreciation |
| | 34 | (56 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting from operations |
(407 | ) | (441 | ) | 86 | (11 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Policy Transactions: |
||||||||||||||||
Policyowners net payments |
70,588 | 87,004 | 156 | (92 | ) | |||||||||||
Policy loans, surrenders and death benefits |
(46,227 | ) | (46,782 | ) | (1,471 | ) | (60 | ) | ||||||||
Mortality and other (net) |
(5,835 | ) | (6,659 | ) | (110 | ) | (21 | ) | ||||||||
Transfers from other divisions |
121,247 | 155,964 | 6,676 | 4,315 | ||||||||||||
Transfers to other divisions |
(136,334 | ) | (191,294 | ) | (2,058 | ) | (450 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting from policy transactions |
3,439 | (1,767 | ) | 3,193 | 3,692 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets |
3,032 | (2,208 | ) | 3,279 | 3,681 | |||||||||||
Net Assets: |
||||||||||||||||
Beginning of period |
166,908 | 169,116 | 3,681 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 169,940 | $ | 166,908 | $ | 6,960 | $ | 3,681 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Units issued during the period |
91,022 | 101,014 | 6,193 | 3,774 | ||||||||||||
Units redeemed during the period |
(91,873 | ) | (102,533 | ) | (3,457 | ) | (615 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net units issued (redeemed) during period |
(851 | ) | (1,519 | ) | 2,736 | 3,159 | ||||||||||
|
|
|
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Changes in Net Assets
F-14
International Growth Division |
Research International Core Division |
International Equity Division |
Emerging Markets Equity Division |
|||||||||||||||||||||||||||
Year Ended |
Year Ended |
Year Ended |
Period |
Year Ended |
Year Ended |
Year Ended |
Period |
|||||||||||||||||||||||
$ | 723 | $ | 668 | $ | 119 | $ | 40 | $ | 10,077 | $ | 8,316 | $ | (41 | ) | $ | 48 | ||||||||||||||
(3,011 | ) | (2,274 | ) | (34 | ) | (33 | ) | 1,918 | (226 | ) | (51 | ) | (32 | ) | ||||||||||||||||
15,053 | (11,026 | ) | 1,117 | (170 | ) | 77,414 | (59,757 | ) | 2,264 | (493 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
12,765 | (12,632 | ) | 1,202 | (163 | ) | 89,409 | (51,667 | ) | 2,172 | (477 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
6,960 | 8,100 | 383 | (27 | ) | 32,343 | 35,844 | 950 | 16 | ||||||||||||||||||||||
(6,421 | ) | (8,991 | ) | (387 | ) | (68 | ) | (37,666 | ) | (37,992 | ) | (733 | ) | (98 | ) | |||||||||||||||
(1,975 | ) | (2,216 | ) | (171 | ) | (17 | ) | (11,103 | ) | (11,663 | ) | (309 | ) | (38 | ) | |||||||||||||||
11,369 | 55,545 | 11,221 | 4,491 | 50,411 | 105,190 | 18,438 | 8,736 | |||||||||||||||||||||||
(15,997 | ) | (58,640 | ) | (3,703 | ) | (528 | ) | (57,673 | ) | (109,675 | ) | (6,547 | ) | (641 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(6,064 | ) | (6,202 | ) | 7,343 | 3,851 | (23,688 | ) | (18,296 | ) | 11,799 | 7,975 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
6,701 | (18,834 | ) | 8,545 | 3,688 | 65,721 | (69,963 | ) | 13,971 | 7,498 | |||||||||||||||||||||
76,140 | 94,974 | 3,688 | | 438,760 | 508,723 | 7,498 | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 82,841 | $ | 76,140 | $ | 12,233 | $ | 3,688 | $ | 504,481 | $ | 438,760 | $ | 21,469 | $ | 7,498 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
8,966 | 13,075 | 9,163 | 4,002 | 30,666 | 43,234 | 16,977 | 8,626 | |||||||||||||||||||||||
(12,568 | ) | (14,443 | ) | (2,334 | ) | (443 | ) | (38,362 | ) | (48,456 | ) | (5,832 | ) | (631 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(3,602 | ) | (1,368 | ) | 6,829 | 3,559 | (7,696 | ) | (5,222 | ) | 11,145 | 7,995 | |||||||||||||||||||
|
|
|
|
|
|
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|
|
|
|
|
|
|
|||||||||||||||
Select
Bond Division |
Long-Term U.S. Government Bond Division |
Inflation
Protection Division |
High Yield Bond Division |
|||||||||||||||||||||||||||
Year Ended |
Year Ended |
Year Ended |
Period |
Year Ended December 31, 2012 |
Period |
Year Ended December 31, 2012 |
Year Ended December 31, 2011 |
|||||||||||||||||||||||
$ | 5,954 | $ | 7,160 | $ | 113 | $ | 116 | $ | 188 | $ | (4 | ) | $ | 5,980 | $ | 6,238 | ||||||||||||||
7,440 | 5,977 | 104 | 704 | 165 | 19 | 593 | 268 | |||||||||||||||||||||||
(1,974 | ) | 2,859 | (58 | ) | (529 | ) | 128 | 61 | 6,185 | (2,712 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
11,420 | 15,996 | 159 | 291 | 481 | 76 | 12,758 | 3,794 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
11,986 | 15,162 | 232 | 142 | 270 | 66 | 5,142 | 5,718 | |||||||||||||||||||||||
(18,396 | ) | (21,106 | ) | (561 | ) | (49 | ) | (601 | ) | (196 | ) | (6,662 | ) | (7,736 | ) | |||||||||||||||
(6,114 | ) | (5,987 | ) | (163 | ) | (31 | ) | (164 | ) | (26 | ) | (2,426 | ) | (2,327 | ) | |||||||||||||||
94,839 | 79,175 | 8,647 | 7,135 | 10,330 | 5,479 | 19,716 | 17,350 | |||||||||||||||||||||||
(77,079 | ) | (70,627 | ) | (7,157 | ) | (712 | ) | (4,461 | ) | (584 | ) | (16,986 | ) | (14,452 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
5,236 | (3,383 | ) | 998 | 6,485 | 5,374 | 4,739 | (1,216 | ) | (1,447 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
16,656 | 12,613 | 1,157 | 6,776 | 5,855 | 4,815 | 11,542 | 2,347 | |||||||||||||||||||||||
251,418 | 238,805 | 6,776 | | 4,815 | | 94,728 | 92,381 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 268,074 | $ | 251,418 | $ | 7,933 | $ | 6,776 | $ | 10,670 | $ | 4,815 | $ | 106,270 | $ | 94,728 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
18,767 | 17,708 | 5,621 | 3,822 | 6,376 | 4,139 | 5,763 | 6,259 | |||||||||||||||||||||||
(16,896 | ) | (18,781 | ) | (4,507 | ) | (285 | ) | (2,237 | ) | (498 | ) | (6,106 | ) | (6,610 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
1,871 | (1,073 | ) | 1,114 | 3,537 | 4,139 | 3,641 | (343 | ) | (351 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Changes in Net Assets
F-15
Statements of Changes in Net Assets
Northwestern Mutual Variable Life Account
(in thousands)
Multi-Sector Bond Division |
Commodities Return Strategy Division |
|||||||||||||||
Year Ended December 31, 2012 |
Period |
Year Ended December 31, 2012 |
Period |
|||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | 7 | $ | 228 | $ | (36 | ) | $ | (6 | ) | ||||||
Net realized gains (losses) |
90 | 55 | (215 | ) | (17 | ) | ||||||||||
Net change in unrealized appreciation/depreciation |
1,414 | (222 | ) | (104 | ) | (386 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting |
1,511 | 61 | (355 | ) | (409 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Policy Transactions: |
||||||||||||||||
Policyowners net payments |
677 | (23 | ) | 523 | 71 | |||||||||||
Policy loans, surrenders and death benefits |
(681 | ) | (157 | ) | (330 | ) | (134 | ) | ||||||||
Mortality and other (net) |
(272 | ) | (30 | ) | (175 | ) | (59 | ) | ||||||||
Transfers from other divisions |
15,795 | 5,418 | 10,264 | 6,229 | ||||||||||||
Transfers to other divisions |
(3,008 | ) | (419 | ) | (4,230 | ) | (598 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting from |
12,511 | 4,789 | 6,052 | 5,509 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets |
14,022 | 4,850 | 5,697 | 5,100 | ||||||||||||
Net Assets: |
||||||||||||||||
Beginning of period |
4,850 | | 5,100 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 18,872 | $ | 4,850 | $ | 10,797 | $ | 5,100 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Units issued during the period |
13,147 | 4,785 | 1,305 | 671 | ||||||||||||
Units redeemed during the period |
(2,600 | ) | (635 | ) | (634 | ) | (114 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net units issued (redeemed) during period |
10,547 | 4,150 | 671 | 557 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Neuberger Berman AMT Socially Responsive Division |
Russell Multi-Style Equity Division |
|||||||||||||||
Year Ended |
Period |
Year Ended |
Year Ended |
|||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | (2 | ) | $ | 1 | $ | 1,180 | $ | 973 | |||||||
Net realized gains (losses) |
25 | (5 | ) | 7,889 | 3,439 | |||||||||||
Net change in unrealized appreciation/depreciation |
89 | 16 | 14,317 | (7,328 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting |
112 | 12 | 23,386 | (2,916 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Policy Transactions: |
||||||||||||||||
Policyowners net payments |
114 | (20 | ) | 10,276 | 12,264 | |||||||||||
Policy loans, surrenders and death benefits |
(96 | ) | (26 | ) | (16,258 | ) | (16,304 | ) | ||||||||
Mortality and other (net) |
(30 | ) | (6 | ) | (4,068 | ) | (4,095 | ) | ||||||||
Transfers from other divisions |
1,551 | 790 | 9,464 | 14,425 | ||||||||||||
Transfers to other divisions |
(656 | ) | (62 | ) | (18,642 | ) | (18,959 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets resulting from |
883 | 676 | (19,228 | ) | (12,669 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in net assets |
995 | 688 | 4,158 | (15,585 | ) | |||||||||||
Net Assets: |
||||||||||||||||
Beginning of period |
688 | | 157,923 | 173,508 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 1,683 | $ | 688 | $ | 162,081 | $ | 157,923 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Units issued during the period |
1,107 | 701 | 16,127 | 21,757 | ||||||||||||
Units redeemed during the period |
(472 | ) | (95 | ) | (29,592 | ) | (28,058 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net units issued (redeemed) during period |
635 | 606 | (13,465 | ) | (6,301 | ) | ||||||||||
|
|
|
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Changes in Net Assets
F-16
Balanced Division |
Asset Allocation Division |
Fidelity VIP Mid Cap Division |
Fidelity VIP Contrafund Division |
|||||||||||||||||||||||||||
Year Ended |
Year Ended |
Year Ended |
Year Ended |
Year Ended |
Year Ended |
Year Ended |
Period |
|||||||||||||||||||||||
$ | 2,307 | $ | 7,395 | $ | (79 | ) | $ | 816 | $ | (47 | ) | $ | (537 | ) | $ | 163 | $ | 44 | ||||||||||||
(4,873 | ) | (4,806 | ) | (614 | ) | (388 | ) | 10,307 | 630 | 42 | 3 | |||||||||||||||||||
31,524 | 2,597 | 4,672 | (668 | ) | 6,397 | (15,640 | ) | 1,292 | (5 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
28,958 | 5,186 | 3,979 | (240 | ) | 16,657 | (15,547 | ) | 1,497 | 42 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
17,602 | 19,521 | 2,729 | 2,910 | 9,071 | 10,060 | 881 | (21 | ) | ||||||||||||||||||||||
(24,948 | ) | (22,410 | ) | (3,576 | ) | (2,372 | ) | (10,160 | ) | (11,123 | ) | (305 | ) | (30 | ) | |||||||||||||||
(8,578 | ) | (8,560 | ) | (1,098 | ) | (1,121 | ) | (3,221 | ) | (3,408 | ) | (295 | ) | (23 | ) | |||||||||||||||
31,553 | 28,307 | 2,761 | 3,498 | 19,297 | 49,251 | 16,799 | 7,127 | |||||||||||||||||||||||
(32,331 | ) | (26,468 | ) | (4,799 | ) | (3,958 | ) | (24,194 | ) | (48,965 | ) | (4,873 | ) | (565 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(16,702 | ) | (9,610 | ) | (3,983 | ) | (1,043 | ) | (9,207 | ) | (4,185 | ) | 12,207 | 6,488 | |||||||||||||||||
|
|
|
|
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|
|
|
|
|
|
|
|
|
|||||||||||||||
12,256 | (4,424 | ) | (4 | ) | (1,283 | ) | 7,450 | (19,732 | ) | 13,704 | 6,530 | |||||||||||||||||||
318,825 | 323,249 | 39,577 | 40,860 | 120,934 | 140,666 | 6,530 | | |||||||||||||||||||||||
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$ | 331,081 | $ | 318,825 | $ | 39,573 | $ | 39,577 | $ | 128,384 | $ | 120,934 | $ | 20,234 | $ | 6,530 | |||||||||||||||
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8,265 | 9,337 | 3,258 | 4,296 | 6,664 | 9,506 | 12,918 | 6,326 | |||||||||||||||||||||||
(12,391 | ) | (11,076 | ) | (5,579 | ) | (4,720 | ) | (9,008 | ) | (10,284 | ) | (2,487 | ) | (404 | ) | |||||||||||||||
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(4,126 | ) | (1,739 | ) | (2,321 | ) | (424 | ) | (2,344 | ) | (778 | ) | 10,431 | 5,922 | |||||||||||||||||
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Russell
Aggressive Equity Division |
Russell
Non-U.S. Division |
Russell Core
Bond Division |
Russell Global
Real Estate Securities Division |
|||||||||||||||||||||||||||
Year Ended |
Year Ended |
Year Ended |
Year Ended |
Year Ended December 31, 2012 |
Year Ended December 31, 2011 |
Year Ended December 31, 2012 |
Year Ended December 31, 2011 |
|||||||||||||||||||||||
$ | 525 | $ | 67 | $ | 1,514 | $ | 1,589 | $ | 1,945 | $ | 2,783 | $ | 6,489 | $ | 2,527 | |||||||||||||||
(750 | ) | (767 | ) | (1,834 | ) | (1,013 | ) | 3,636 | 2,475 | (943 | ) | (846 | ) | |||||||||||||||||
11,819 | (2,959 | ) | 20,094 | (17,209 | ) | 1,968 | (1,098 | ) | 27,649 | (11,857 | ) | |||||||||||||||||||
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11,594 | (3,659 | ) | 19,774 | (16,633 | ) | 7,549 | 4,160 | 33,195 | (10,176 | ) | ||||||||||||||||||||
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5,446 | 6,612 | 7,944 | 9,406 | 4,301 | 3,858 | 9,304 | 10,408 | |||||||||||||||||||||||
(6,655 | ) | (7,090 | ) | (9,121 | ) | (11,850 | ) | (9,603 | ) | (11,170 | ) | (11,957 | ) | (11,413 | ) | |||||||||||||||
(2,051 | ) | (2,096 | ) | (2,645 | ) | (2,905 | ) | (2,340 | ) | (2,336 | ) | (3,496 | ) | (3,374 | ) | |||||||||||||||
4,744 | 8,913 | 9,282 | 14,220 | 24,930 | 36,957 | 19,582 | 29,977 | |||||||||||||||||||||||
(10,225 | ) | (10,048 | ) | (16,617 | ) | (17,049 | ) | (21,824 | ) | (32,698 | ) | (18,918 | ) | (30,271 | ) | |||||||||||||||
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(8,741 | ) | (3,709 | ) | (11,157 | ) | (8,178 | ) | (4,536 | ) | (5,389 | ) | (5,485 | ) | (4,673 | ) | |||||||||||||||
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2,853 | (7,368 | ) | 8,617 | (24,811 | ) | 3,013 | (1,229 | ) | 27,710 | (14,849 | ) | |||||||||||||||||||
77,885 | 85,253 | 107,050 | 131,861 | 96,920 | 98,149 | 124,861 | 139,710 | |||||||||||||||||||||||
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$ | 80,738 | $ | 77,885 | $ | 115,667 | $ | 107,050 | $ | 99,933 | $ | 96,920 | $ | 152,571 | $ | 124,861 | |||||||||||||||
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5,358 | 8,306 | 10,327 | 13,814 | 8,333 | 10,383 | 6,642 | 7,879 | |||||||||||||||||||||||
(9,929 | ) | (9,853 | ) | (16,909 | ) | (16,807 | ) | (8,565 | ) | (10,082 | ) | (8,071 | ) | (8,777 | ) | |||||||||||||||
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(4,571 | ) | (1,547 | ) | (6,582 | ) | (2,993 | ) | (232 | ) | 301 | (1,429 | ) | (898 | ) | ||||||||||||||||
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The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Changes in Net Assets
F-17
Statements of Changes in Net Assets
Northwestern Mutual Variable Life Account
(in thousands)
Russell LifePoints Moderate Strategy Division |
Russell LifePoints Balanced Strategy Division |
|||||||||||||||
Year Ended December 31, 2012 |
Period |
Year Ended December 31, 2012 |
Period |
|||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | 42 | $ | 4 | $ | 162 | $ | 39 | ||||||||
Net realized gains (losses) |
29 | (6 | ) | 61 | (18 | ) | ||||||||||
Net change in unrealized appreciation/depreciation |
37 | (4 | ) | 532 | 12 | |||||||||||
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Net increase (decrease) in net assets resulting |
108 | (6 | ) | 755 | 33 | |||||||||||
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Policy Transactions: |
||||||||||||||||
Policyowners net payments |
79 | 22 | 394 | (28 | ) | |||||||||||
Policy loans, surrenders and death benefits |
161 | (1 | ) | (154 | ) | (186 | ) | |||||||||
Mortality and other (net) |
(26 | ) | (6 | ) | (156 | ) | (30 | ) | ||||||||
Transfers from other divisions |
2,126 | 432 | 5,895 | 4,348 | ||||||||||||
Transfers to other divisions |
(641 | ) | (109 | ) | (1,143 | ) | (55 | ) | ||||||||
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Net increase (decrease) in net assets resulting from |
1,699 | 338 | 4,836 | 4,049 | ||||||||||||
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|||||||||
Net increase (decrease) in net assets |
1,807 | 332 | 5,591 | 4,082 | ||||||||||||
Net Assets: |
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Beginning of period |
332 | | 4,082 | | ||||||||||||
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End of period |
$ | 2,139 | $ | 332 | $ | 9,673 | $ | 4,082 | ||||||||
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Units issued during the period |
1,644 | 440 | 4,953 | 3,685 | ||||||||||||
Units redeemed during the period |
(459 | ) | (120 | ) | (1,082 | ) | (389 | ) | ||||||||
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Net units issued (redeemed) during period |
1,185 | 320 | 3,871 | 3,296 | ||||||||||||
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Russell LifePoints Growth Strategy Division |
Russell LifePoints Equity Growth Strategy Division |
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Year Ended December 31, 2012 |
Period |
Year Ended December 31, 2012 |
Period |
|||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | 140 | $ | 29 | $ | 61 | $ | 12 | ||||||||
Net realized gains (losses) |
35 | (34 | ) | 79 | (10 | ) | ||||||||||
Net change in unrealized appreciation/depreciation |
606 | (62 | ) | 265 | (14 | ) | ||||||||||
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Net increase (decrease) in net assets resulting |
781 | (67 | ) | 405 | (12 | ) | ||||||||||
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Policy Transactions: |
||||||||||||||||
Policyowners net payments |
260 | (400 | ) | 355 | 30 | |||||||||||
Policy loans, surrenders and death benefits |
(309 | ) | (85 | ) | (510 | ) | 92 | |||||||||
Mortality and other (net) |
(165 | ) | (36 | ) | (90 | ) | (29 | ) | ||||||||
Transfers from other divisions |
8,049 | 3,676 | 4,123 | 1,431 | ||||||||||||
Transfers to other divisions |
(305 | ) | (54 | ) | (365 | ) | (59 | ) | ||||||||
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Net increase (decrease) in net assets resulting from |
7,530 | 3,101 | 3,513 | 1,465 | ||||||||||||
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Net increase (decrease) in net assets |
8,311 | 3,034 | 3,918 | 1,453 | ||||||||||||
Net Assets: |
||||||||||||||||
Beginning of period |
3,034 | | 1,453 | | ||||||||||||
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End of period |
$ | 11,345 | $ | 3,034 | $ | 5,371 | $ | 1,453 | ||||||||
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Units issued during the period |
8,263 | 2,341 | 3,870 | 1,145 | ||||||||||||
Units redeemed during the period |
(891 | ) | (409 | ) | (788 | ) | (14 | ) | ||||||||
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Net units issued (redeemed) during period |
7,372 | 1,932 | 3,082 | 1,131 | ||||||||||||
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The Accompanying Notes are an Integral Part of the Financial Statements.
Statements of Changes in Net Assets
F-18
Northwestern Mutual Variable Life Account
December 31, 2012
Notes to Financial Statements
F-19
Notes to Financial Statements
5. Financial Highlights
(For a unit outstanding during the period)
As of the respective period end date: | For the respective period ended: | |||||||||||||||||||||||||||||||
Division | Units Outstanding (000s) |
Unit Value, Lowest to Highest |
Net Assets (000s) |
Dividend Income as a % of Average Net Assets |
Expense Ratio, Lowest to Highest |
Total Return Lowest to Highest (1) |
||||||||||||||||||||||||||
Growth Stock |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
92,840 | $ | 2.690097 to $36.785012 | $ | 284,588 | 0.57% | 0.10% to 0.60% | 12.32 | % | to | 12.94 | % | ||||||||||||||||||||
Year Ended 12/31/11 |
97,893 | 2.392591 to 32.569595 | 269,305 | 0.78 | 0.10 to 0.60 | (1.84 | ) | to | (1.30 | ) | ||||||||||||||||||||||
Year Ended 12/31/10 |
101,987 | 2.434967 to 32.998214 | 288,701 | 0.82 | 0.10 to 0.60 | 11.76 | to | 12.37 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
106,648 | 2.176678 to 29.365924 | 275,067 | 1.16 | 0.10 to 0.60 | 36.42 | to | 37.17 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
108,071 | 1.594004 to 21.408736 | 198,816 | 1.06 | 0.10 to 0.60 | (39.19 | ) | to | (38.86 | ) | ||||||||||||||||||||||
Focused Appreciation |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
36,929 | $ | 2.245328 to $23.543734 | $ | 96,087 | 0.27% | 0.10% to 0.60% | 19.48 | % | to | 20.14 | % | ||||||||||||||||||||
Year Ended 12/31/11 |
39,237 | 1.877354 to 19.596705 | 85,938 | 0.18 | 0.10 to 0.60 | (6.61 | ) | to | (6.10 | ) | ||||||||||||||||||||||
Year Ended 12/31/10 |
41,221 | 2.008299 to 20.869750 | 97,863 | 0.00 | 0.10 to 0.60 | 8.73 | to | 9.33 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
40,615 | 1.845162 to 19.088595 | 87,828 | 0.00 | 0.10 to 0.60 | 41.70 | to | 42.47 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
38,427 | 1.300904 to 13.397864 | 59,135 | 0.35 | 0.10 to 0.60 | (40.34 | ) | to | (40.01 | ) |
(1) | Total Return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year. |
Notes to Financial Statements
F-20
Notes to Financial Statements
As of the respective period end date: | For the respective period ended: | |||||||||||||||||||||||||||||||
Division | Units Outstanding (000s) |
Unit Value, Lowest to Highest |
Net Assets (000s) |
Dividend Income as a % of Average Net Assets |
Expense Ratio, Lowest to Highest |
Total Return Lowest to Highest (1) |
||||||||||||||||||||||||||
Large Cap Core Stock |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
75,256 | $ | 2.155410 to $29.198468 | $ | 191,903 | 1.20% | 0.10% to 0.60% | 11.02 | % | to | 11.63 | % | ||||||||||||||||||||
Year Ended 12/31/11 |
78,553 | 1.939589 to 26.156583 | 182,605 | 1.14 | 0.10 to 0.60 | (1.75 | ) | to | (1.21 | ) | ||||||||||||||||||||||
Year Ended 12/31/10 |
80,904 | 1.972165 to 26.477036 | 192,996 | 1.20 | 0.10 to 0.60 | 12.29 | to | 12.91 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
83,903 | 1.754516 to 23.449551 | 177,955 | 1.84 | 0.10 to 0.60 | 28.63 | to | 29.33 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
85,074 | 1.362693 to 18.131181 | 138,236 | 1.62 | 0.10 to 0.60 | (39.08 | ) | to | (38.74 | ) | ||||||||||||||||||||||
Large Cap Blend |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
3,025 | $ | 1.080633 to $ 9.155103 | $ | 3,615 | 0.92% | 0.10% to 0.60% | 14.57 | % | to | 15.20 | % | ||||||||||||||||||||
Period Ended 12/31/11 (3) |
3,204 | 0.942304 to 7.947227 | 3,113 | 2.05 | 0.10 to 0.60 | (5.82 | ) | to | (5.56 | ) | ||||||||||||||||||||||
Index 500 Stock |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
207,627 | $ | 3.043500 to $69.136117 | $ | 785,534 | 1.77% | 0.10% to 0.60% | 15.12 | % | to | 15.76 | % | ||||||||||||||||||||
Year Ended 12/31/11 |
214,351 | 2.641136 to 59.726031 | 713,800 | 1.66 | 0.10 to 0.60 | 1.39 | to | 1.95 | ||||||||||||||||||||||||
Year Ended 12/31/10 |
220,539 | 2.602259 to 58.583796 | 730,891 | 2.02 | 0.10 to 0.60 | 14.27 | to | 14.89 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
227,457 | 2.275083 to 50.989051 | 655,118 | 2.82 | 0.10 to 0.60 | 25.71 | to | 26.40 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
229,493 | 1.808068 to 40.340674 | 525,673 | 2.26 | 0.10 to 0.60 | (37.29 | ) | to | (36.94 | ) | ||||||||||||||||||||||
Large Company Value |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
2,300 | $ | 1.120811 to $ 9.343226 | $ | 3,112 | 1.90% | 0.10% to 0.60% | 15.83 | % | to | 16.47 | % | ||||||||||||||||||||
Period Ended 12/31/11 (3) |
2,622 | 0.966635 to 8.021755 | 2,593 | 4.57 | 0.10 to 0.60 | (3.38 | ) | to | (3.12 | ) | ||||||||||||||||||||||
Domestic Equity |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
80,040 | $ | 1.419182 to $15.037814 | $ | 134,628 | 2.16% | 0.10% to 0.60% | 13.72 | % | to | 14.35 | % | ||||||||||||||||||||
Year Ended 12/31/11 |
88,764 | 1.246743 to 13.151218 | 131,130 | 2.09 | 0.10 to 0.60 | 0.36 | to | 0.91 | ||||||||||||||||||||||||
Year Ended 12/31/10 |
90,355 | 1.241092 to 13.033112 | 134,632 | 2.28 | 0.10 to 0.60 | 13.99 | to | 14.62 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
90,798 | 1.087659 to 11.370681 | 119,939 | 3.49 | 0.10 to 0.60 | 28.81 | to | 29.52 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
88,942 | 0.843525 to 8.778981 | 91,308 | 2.91 | 0.10 to 0.60 | (38.83 | ) | to | (38.49 | ) | ||||||||||||||||||||||
Equity Income |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
41,046 | $ | 1.864547 to $19.550985 | $ | 90,300 | 1.53% | 0.10% to 0.60% | 16.59 | % | to | 17.23 | % | ||||||||||||||||||||
Year Ended 12/31/11 |
40,660 | 1.597678 to 16.677245 | 76,853 | 1.50 | 0.10 to 0.60 | (1.46 | ) | to | (0.92 | ) | ||||||||||||||||||||||
Year Ended 12/31/10 |
38,980 | 1.619759 to 16.832155 | 73,840 | 1.70 | 0.10 to 0.60 | 14.70 | to | 15.33 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
37,014 | 1.410806 to 14.595160 | 61,572 | 2.93 | 0.10 to 0.60 | 23.90 | to | 24.58 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
34,561 | 1.137525 to 11.715261 | 46,210 | 0.03 | 0.10 to 0.60 | (36.16 | ) | to | (35.81 | ) | ||||||||||||||||||||||
Mid Cap Growth Stock |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
113,740 | $ | 2.733618 to $75.402575 | $ | 374,598 | 0.12% | 0.10% to 0.60% | 11.35 | % | to | 11.97 | % | ||||||||||||||||||||
Year Ended 12/31/11 |
121,498 | 2.452507 to 67.344023 | 358,497 | 0.23 | 0.10 to 0.60 | (6.69 | ) | to | (6.18 | ) | ||||||||||||||||||||||
Year Ended 12/31/10 |
127,814 | 2.625759 to 71.778944 | 404,074 | 0.28 | 0.10 to 0.60 | 23.18 | to | 23.86 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
135,424 | 2.129518 to 57.953082 | 348,854 | 0.28 | 0.10 to 0.60 | 31.37 | to | 32.09 | (2) | |||||||||||||||||||||||
Year Ended 12/31/08 |
137,949 | 1.619377 to 43.872392 | 269,129 | 0.30 | 0.10 to 0.60 | (40.41 | ) | to | (40.08 | ) | ||||||||||||||||||||||
Index 400 Stock |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
72,346 | $ | 2.643527 to $29.923387 | $ | 213,744 | 0.91% | 0.10% to 0.60% | 17.00 | % | to | 17.64 | % | ||||||||||||||||||||
Year Ended 12/31/11 |
77,580 | 2.257202 to 25.435391 | 195,635 | 0.86 | 0.10 to 0.60 | (2.46 | ) | to | (1.92 | ) | ||||||||||||||||||||||
Year Ended 12/31/10 |
80,664 | 2.311836 to 25.934506 | 208,521 | 1.09 | 0.10 to 0.60 | 25.60 | to | 26.29 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
84,846 | 1.838809 to 20.535699 | 177,545 | 1.82 | 0.10 to 0.60 | 36.25 | to | 37.00 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
87,209 | 1.348229 to 14.989442 | 134,400 | 1.54 | 0.10 to 0.60 | (36.63 | ) | to | (36.28 | ) | ||||||||||||||||||||||
Mid Cap Value |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
17,177 | $ | 2.019864 to $21.179677 | $ | 39,331 | 1.34% | 0.10% to 0.60% | 15.93 | % | to | 16.57 | % | ||||||||||||||||||||
Year Ended 12/31/11 |
18,430 | 1.740555 to 18.168731 | 37,334 | 1.74 | 0.10 to 0.60 | (1.15 | ) | to | (0.61 | ) | ||||||||||||||||||||||
Year Ended 12/31/10 |
19,018 | 1.759035 to 18.279525 | 39,839 | 1.41 | 0.10 to 0.60 | 19.27 | to | 19.93 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
18,679 | 1.473346 to 15.242180 | 31,825 | 1.20 | 0.10 to 0.60 | 22.56 | to | 23.24 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
18,377 | 1.200893 to 12.367958 | 25,466 | 0.00 | 0.10 to 0.60 | (35.43) | to | (35.07 | ) |
(1) | Total Return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year. |
(2) | Total Return reflects the effect of a one-time class action settlement received on June 18, 2009. Absent the payment, the returns would have ranged from 31.27% to 31.99% for the Mid Cap Growth Stock Division, from 31.66% to 32.39% for the International Equity Division and from 0.06% to 0.61% for the Money Market Division. |
(3) | Divisions commenced operations on June 30, 2011. |
Notes to Financial Statements
F-21
Notes to Financial Statements
As of the respective period end date: | For the respective period ended: | |||||||||||||||||||||||||||||||
Division | Units Outstanding (000s) |
Unit Value, Lowest to Highest |
Net Assets (000s) |
Dividend Income as a % of Average Net Assets |
Expense Ratio, Lowest to Highest |
Total Return Lowest to Highest (1) |
||||||||||||||||||||||||||
Small Cap Growth Stock |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
68,955 | $ | 2.434726 to $31.582975 | $ | 185,068 | 0.00% | 0.10% to 0.60% | 8.88 | % | to | 9.48 | % | ||||||||||||||||||||
Year Ended 12/31/11 |
74,363 | 2.233915 to 28.847575 | 183,624 | 0.35 | 0.10 to 0.60 | (3.31 | ) | to | (2.78 | ) | ||||||||||||||||||||||
Year Ended 12/31/10 |
78,328 | 2.308077 to 29.671998 | 201,112 | 0.75 | 0.10 to 0.60 | 25.16 | to | 25.85 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
81,371 | 1.842237 to 23.577314 | 166,342 | 0.28 | 0.10 to 0.60 | 30.46 | to | 31.17 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
82,700 | 1.410759 to 17.974245 | 128,895 | 0.17 | 0.10 to 0.60 | (44.18 | ) | to | (43.87 | ) | ||||||||||||||||||||||
Index 600 Stock |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
4,910 | $ | 1.081019 to $11.903891 | $ | 6,206 | 3.11% | 0.10% to 0.60% | 15.16 | % | to | 15.80 | % | ||||||||||||||||||||
Period Ended 12/31/11 (3) |
1,384 | 0.937768 to 10.280016 | 1,719 | 2.07 | 0.10 to 0.60 | (6.27 | ) | to | (6.01 | ) | ||||||||||||||||||||||
Small Cap Value |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
50,988 | $2.438620 to $ 25.839588 | $ | 143,973 | 0.37% | 0.10% to 0.60% | 15.69 | % | to | 16.33 | % | |||||||||||||||||||||
Year Ended 12/31/11 |
55,277 | 2.105813 to 22.212770 | 134,980 | 0.60 | 0.10 to 0.60 | (1.90 | ) | to | (1.36 | ) | ||||||||||||||||||||||
Year Ended 12/31/10 |
57,649 | 2.144514 to 22.519799 | 144,009 | 1.09 | 0.10 to 0.60 | 21.28 | to | 21.95 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
58,899 | 1.766442 to 18.466637 | 122,050 | 0.85 | 0.10 to 0.60 | 27.48 | to | 28.18 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
59,740 | 1.384260 to 14.406429 | 97,357 | 0.34 | 0.10 to 0.60 | (28.53) | to | (28.13 | ) | |||||||||||||||||||||||
International Growth |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
44,792 | $1.616718 to $ 17.130842 | $ | 82,841 | 1.33% | 0.10% to 0.60% | 17.34 | % | to | 17.99 | % | |||||||||||||||||||||
Year Ended 12/31/11 |
48,394 | 1.376437 to 14.519220 | 76,140 | 1.13 | 0.10 to 0.60 | (13.64) | to | (13.17 | ) | |||||||||||||||||||||||
Year Ended 12/31/10 |
49,762 | 1.592294 to 16.720938 | 94,974 | 0.92 | 0.10 to 0.60 | 15.79 | to | 16.43 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
47,784 | 1.373759 to 14.361577 | 76,761 | 0.66 | 0.10 to 0.60 | 22.49 | to | 23.16 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
46,945 | 1.120404 to 11.660588 | 61,590 | 1.52 | 0.10 to 0.60 | (46.48) | to | (46.19 | ) | |||||||||||||||||||||||
Research International Core |
| |||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
10,388 | $0.975017 to $ 9.205651 | $ | 12,233 | 1.72% | 0.10% to 0.60% | 16.12 | % | to | 16.76 | % | |||||||||||||||||||||
Period Ended 12/31/11 (3) |
3,559 | 0.838851 to 7.884380 | 3,688 | 4.07 | 0.10 to 0.60 | (16.16) | to | (15.93 | ) | |||||||||||||||||||||||
International Equity |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
147,013 | $2.943691 to $ 4.474566 | $ | 504,481 | 2.59% | 0.10% to 0.60% | 20.85 | % | to | 21.52 | % | |||||||||||||||||||||
Year Ended 12/31/11 |
154,709 | 2.433405 to 3.682261 | 438,760 | 2.10 | 0.10 to 0.60 | (10.59) | to | (10.10 | ) | |||||||||||||||||||||||
Year Ended 12/31/10 |
159,931 | 2.718891 to 4.095847 | 508,723 | 3.01 | 0.10 to 0.60 | 7.08 | to | 7.67 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
164,503 | 2.536491 to 3.803991 | 489,245 | 4.66 | 0.10 to 0.60 | 32.38 | to | 33.11 | (2) | |||||||||||||||||||||||
Year Ended 12/31/08 |
163,327 | 1.914107 to 2.857743 | 368,042 | 2.67 | 0.10 to 0.60 | (44.09) | to | (43.78 | ) | |||||||||||||||||||||||
Emerging Markets Equity |
| |||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
19,140 | $0.963548 to $ 11.369632 | $ | 21,469 | 0.15% | 0.10% to 0.60% | 18.18 | % | to | 18.83 | % | |||||||||||||||||||||
Period Ended 12/31/11 (3) |
7,995 | 0.814525 to 9.567929 | 7,498 | 2.54 | 0.10 to 0.60 | (18.59) | to | (18.36) | ||||||||||||||||||||||||
Money Market |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
84,564 | $1.549943 to $ 41.497953 | $ | 169,940 | 0.14% | 0.10% to 0.60% | (0.41%) | to | 0.15 | % | ||||||||||||||||||||||
Year Ended 12/31/11 |
85,415 | 1.554696 to 41.437528 | 166,908 | 0.14 | 0.10 to 0.60 | (0.41) | to | 0.14 | ||||||||||||||||||||||||
Year Ended 12/31/10 |
86,934 | 1.559508 to 41.380226 | 169,116 | 0.29 | 0.10 to 0.60 | (0.25) | to | 0.29 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
96,331 | 1.561917 to 41.258586 | 188,748 | 0.75 | 0.10 to 0.60 | 0.21 | to | 0.76 | (2) | |||||||||||||||||||||||
Year Ended 12/31/08 |
94,558 | 1.557129 to 40.947848 | 177,934 | 2.65 | 0.10 to 0.60 | 2.20 | to | 2.76 | ||||||||||||||||||||||||
Short-Term Bond |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
5,895 | $1.009629 to $ 12.076410 | $ | 6,960 | 1.43% | 0.10% to 0.60% | 1.51 | % | to | 2.07 | % | |||||||||||||||||||||
Period Ended 12/31/11 (3) |
3,159 | 0.993622 to 11.832025 | 3,681 | 4.36 | 0.10 to 0.60 | (0.69) | to | (0.42) | ||||||||||||||||||||||||
Select Bond |
||||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
78,962 | $2.609587 to $204.702189 | $ | 268,074 | 2.69% | 0.10% to 0.60% | 4.39 | % | to | 4.96 | % | |||||||||||||||||||||
Year Ended 12/31/11 |
77,091 | 2.497424 to 195.021673 | 251,418 | 3.32 | 0.10 to 0.60 | 6.58 | to | 7.16 | ||||||||||||||||||||||||
Year Ended 12/31/10 |
78,164 | 2.341027 to 181.992325 | 238,805 | 3.75 | 0.10 to 0.60 | 6.00 | to | 6.59 | ||||||||||||||||||||||||
Year Ended 12/31/09 |
78,213 | 2.206231 to 170.745431 | 223,452 | 5.05 | 0.10 to 0.60 | 8.77 | to | 9.37 | ||||||||||||||||||||||||
Year Ended 12/31/08 |
72,690 | 2.026282 to 156.116892 | 191,100 | 4.60 | 0.10 to 0.60 | 2.69 | to | 3.26 | ||||||||||||||||||||||||
Long-Term U.S. Government Bond |
| |||||||||||||||||||||||||||||||
Year Ended 12/31/12 |
4,651 | $1.289646 to $ 17.875038 | $ | 7,933 | 1.85% | 0.10% to 0.60% | 3.18 | % | to | 3.75 | % | |||||||||||||||||||||
Period Ended 12/31/11 (3) |
3,537 | 1.248644 to 17.228764 | 6,776 | 8.82 | 0.10 to 0.60 | 24.80 | to | 25.15 |
(1) | Total Return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year. |
(2) | Total Return reflects the effect of a one-time class action settlement received on June 18, 2009. Absent the payment, the returns would have ranged from 31.27% to 31.99% for the Mid Cap Growth Stock Division, from 31.66% to 32.39% for the International Equity Division and from 0.06% to 0.61% for the Money Market Division. |
(3) | Divisions commenced operations on June 30, 2011. |
Notes to Financial Statements
F-22
Notes to Financial Statements
As of the respective period end date: | For the respective period ended: | |||||||||||||||||||||||
Division | Units Outstanding (000s) |
Unit Value, Lowest to Highest |
Net Assets |
Dividend Income as a % of Average Net Assets |
Expense Ratio, Lowest to Highest |
Total Return Lowest to Highest (1) |
||||||||||||||||||
Inflation Protection |
||||||||||||||||||||||||
Year Ended 12/31/12 |
7,780 | $ | 1.136621 to $ 14.701699 | $ | 10,670 | 2.68 | % | 0.10% to 0.60% | 6.76% to 7.35% | |||||||||||||||
Period Ended 12/31/11 (3) |
3,641 | 1.063572 to 13.694886 | 4,815 | 0.03 | 0.10 to 0.60 | 6.30 to 6.60 | ||||||||||||||||||
High Yield Bond |
||||||||||||||||||||||||
Year Ended 12/31/12 |
28,781 | $3.143457 to $ 41.068270 | $ | 106,270 | 6.24 | % | 0.10% to 0.60% | 13.26% to 13.89% | ||||||||||||||||
Year Ended 12/31/11 |
29,124 | 2.772582 to 36.059875 | 94,728 | 6.97 | 0.10 to 0.60 | 4.02 to 4.59 | ||||||||||||||||||
Year Ended 12/31/10 |
29,475 | 2.662698 to 34.475967 | 92,381 | 7.13 | 0.10 to 0.60 | 13.93 to 14.56 | ||||||||||||||||||
Year Ended 12/31/09 |
30,444 | 2.334783 to 30.094875 | 84,272 | 8.96 | 0.10 to 0.60 | 44.60 to 45.39 | ||||||||||||||||||
Year Ended 12/31/08 |
29,285 | 1.613065 to 20.699102 | 55,203 | 8.18 | 0.10 to 0.60 | (21.78) to (21.35) | ||||||||||||||||||
Multi-Sector Bond |
||||||||||||||||||||||||
Year Ended 12/31/12 |
14,697 | $ | 1.161278 to $ 15.698283 | $ | 18,872 | 0.46 | % | 0.10% to 0.60% | 14.31% to 14.94% | |||||||||||||||
Period Ended 12/31/11 (3) |
4,150 | 1.014872 to 13.657358 | 4,850 | 16.21 | 0.10 to 0.60 | 1.44 to 1.71 | ||||||||||||||||||
Commodities Return Strategy |
|
|||||||||||||||||||||||
Year Ended 12/31/12 |
1,228 | $ | 7.880392 to $ 8.629822 | $ | 10,797 | 0.00 | % | 0.10% to 0.60% | (2.89%) to (2.35%) | |||||||||||||||
Period Ended 12/31/11 (3) |
557 | 8.070260 to 8.877726 | 5,100 | 0.00 | 0.10 to 0.60 | (11.27) to (11.02) | ||||||||||||||||||
Balanced |
||||||||||||||||||||||||
Year Ended 12/31/12 |
57,330 | $ | 2.839508 to $153.677764 | $ | 331,081 | 1.17 | % | 0.10% to 0.60% | 9.09% to 9.69% | |||||||||||||||
Year Ended 12/31/11 |
61,456 | 2.600265 to 140.096515 | 318,825 | 2.75 | 0.10 to 0.60 | 1.55 to 2.11 | ||||||||||||||||||
Year Ended 12/31/10 |
63,195 | 2.557927 to 137.200077 | 323,249 | 2.12 | 0.10 to 0.60 | 11.34 to 11.96 | ||||||||||||||||||
Year Ended 12/31/09 |
65,258 | 2.295052 to 122.549243 | 299,014 | 4.56 | 0.10 to 0.60 | 20.77 to 21.43 | ||||||||||||||||||
Year Ended 12/31/08 |
67,009 | 1.898456 to 100.918470 | 254,821 | 1.30 | 0.10 to 0.60 | (23.15) to (22.72) | ||||||||||||||||||
Asset Allocation |
||||||||||||||||||||||||
Year Ended 12/31/12 |
20,120 | $ | 1.576122 to $ 16.700324 | $ | 39,573 | 0.23 | % | 0.10% to 0.60% | 10.41% to 11.02% | |||||||||||||||
Year Ended 12/31/11 |
22,441 | 1.426114 to 15.042893 | 39,577 | 2.41 | 0.10 to 0.60 | (0.62) to (0.08) | ||||||||||||||||||
Year Ended 12/31/10 |
22,865 | 1.433617 to 15.054442 | 40,860 | 2.92 | 0.10 to 0.60 | 12.39 to 13.01 | ||||||||||||||||||
Year Ended 12/31/09 |
23,519 | 1.274289 to 13.321541 | 37,345 | 3.04 | 0.10 to 0.60 | 26.40 to 27.09 | ||||||||||||||||||
Year Ended 12/31/08 |
23,518 | 1.007179 to 10.482012 | 28,949 | 2.95 | 0.10 to 0.60 | (30.51) to (30.13) | ||||||||||||||||||
Fidelity VIP Mid Cap |
||||||||||||||||||||||||
Year Ended 12/31/12 |
38,312 | $ | 2.835677 to $ 29.733518 | $ | 128,384 | 0.39 | % | 0.10% to 0.60% | 13.93% to 14.56% | |||||||||||||||
Year Ended 12/31/11 |
40,656 | 2.486413 to 25.953961 | 120,934 | 0.02 | 0.10 to 0.60 | (11.34) to (10.85) | ||||||||||||||||||
Year Ended 12/31/10 |
41,434 | 2.801620 to 29.113348 | 140,666 | 0.13 | 0.10 to 0.60 | 27.87 to 28.57 | ||||||||||||||||||
Year Ended 12/31/09 |
40,262 | 2.188843 to 22.643898 | 105,355 | 0.47 | 0.10 to 0.60 | 38.99 to 39.75 | ||||||||||||||||||
Year Ended 12/31/08 |
38,253 | 1.573285 to 16.202990 | 72,239 | 0.24 | 0.10 to 0.60 | (39.94) to (39.61) | ||||||||||||||||||
Fidelity VIP Contrafund |
|
|||||||||||||||||||||||
Year Ended 12/31/12 |
16,353 | $ | 1.067828 to $ 11.458810 | $ | 20,234 | 1.49 | % | 0.10% to 0.60% | 15.50% to 16.14% | |||||||||||||||
Period Ended 12/31/11 (3) |
5,922 | 0.923581 to 9.866342 | 6,530 | 2.81 | 0.10 to 0.60 | (7.69) to (7.43) | ||||||||||||||||||
Neuberger Berman AMT Socially Responsive |
|
|||||||||||||||||||||||
Year Ended 12/31/12 |
1,241 | $ | 1.005443 to $ 10.715212 | $ | 1,683 | 0.25 | % | 0.10% to 0.60% | 10.37% to 10.98% | |||||||||||||||
Period Ended 12/31/11 (3) |
606 | 0.910063 to 9.655117 | 688 | 0.90 | 0.10 to 0.60 | (9.04) to (8.79) | ||||||||||||||||||
Russell Multi-Style Equity |
||||||||||||||||||||||||
Year Ended 12/31/12 |
126,018 | $ | 1.101694 to $ 12.171877 | $ | 162,081 | 1.12 | % | 0.10% to 0.60% | 15.05% to 15.69% | |||||||||||||||
Year Ended 12/31/11 |
139,483 | 0.956587 to 10.521100 | 157,923 | 0.97 | 0.10 to 0.60 | (2.08) to (1.55) | ||||||||||||||||||
Year Ended 12/31/10 |
145,784 | 0.975990 to 10.686543 | 173,508 | 0.91 | 0.10 to 0.60 | 15.82 to 16.46 | ||||||||||||||||||
Year Ended 12/31/09 |
155,703 | 0.841815 to 9.176223 | 161,462 | 1.34 | 0.10 to 0.60 | 30.68 to 31.40 | ||||||||||||||||||
Year Ended 12/31/08 |
158,057 | 0.643528 to 6.983334 | 128,007 | 1.44 | 0.10 to 0.60 | (40.89) to (40.56) | ||||||||||||||||||
Russell Aggressive Equity |
||||||||||||||||||||||||
Year Ended 12/31/12 |
41,973 | $ | 1.684569 to $ 19.088862 | $ | 80,738 | 1.07 | % | 0.10% to 0.60% | 15.20% to 15.84% | |||||||||||||||
Year Ended 12/31/11 |
46,544 | 1.460862 to 16.479338 | 77,885 | 0.49 | 0.10 to 0.60 | (4.72) to (4.20) | ||||||||||||||||||
Year Ended 12/31/10 |
48,091 | 1.531783 to 17.202203 | 85,253 | 0.47 | 0.10 to 0.60 | 24.20 to 24.88 | ||||||||||||||||||
Year Ended 12/31/09 |
49,083 | 1.232123 to 13.775086 | 71,135 | 0.53 | 0.10 to 0.60 | 30.68 to 31.39 | ||||||||||||||||||
Year Ended 12/31/08 |
49,040 | 0.941939 to 10.483725 | 54,462 | 0.87 | 0.10 to 0.60 | (43.23) to (42.92) |
(1) | Total Return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year. |
(3) | Divisions commenced operations on June 30, 2011. |
Notes to Financial Statements
F-23
Notes to Financial Statements
As of the respective period end date: | For the respective period ended: | |||||||||||||||||||||||
Division | Units Outstanding (000s) |
Unit Value, Lowest to Highest |
Net Assets (000s) |
Dividend Income as a % of Average Net Assets |
Expense Ratio, Lowest to Highest |
Total Return Lowest to Highest (1) |
||||||||||||||||||
Russell Non-U.S. |
||||||||||||||||||||||||
Year Ended 12/31/12 |
68,417 | $ | 1.415380 to $ 15.277391 | $ | 115,667 | 1.77 | % | 0.10% to 0.60% | 19.16% to 19.81% | |||||||||||||||
Year Ended 12/31/11 |
74,999 | 1.186647 to 12.750860 | 107,050 | 1.66 | 0.10 to 0.60 | (13.36) to (12.88) | ||||||||||||||||||
Year Ended 12/31/10 |
77,992 | 1.368210 to 14.635995 | 131,861 | 0.93 | 0.10 to 0.60 | 10.81 to 11.42 | ||||||||||||||||||
Year Ended 12/31/09 |
80,748 | 1.233456 to 13.135524 | 124,379 | 2.86 | 0.10 to 0.60 | 25.80 to 26.49 | ||||||||||||||||||
Year Ended 12/31/08 |
82,308 | 0.979547 to 10.384851 | 103,094 | 0.00 | 0.10 to 0.60 | (42.73) to (42.41) | ||||||||||||||||||
Russell Core Bond |
|
|||||||||||||||||||||||
Year Ended 12/31/12 |
34,681 | $2.116915 to $22.402721 | $ | 99,933 | 2.33% | 0.10% to 0.60% | 7.78% to 8.38% | |||||||||||||||||
Year Ended 12/31/11 |
34,913 | 1.962151 to 20.671320 | 96,920 | 3.19 | 0.10 to 0.60 | 4.11 to 4.68 | ||||||||||||||||||
Year Ended 12/31/10 |
34,612 | 1.882787 to 19.746605 | 98,149 | 3.79 | 0.10 to 0.60 | 9.42 to 10.02 | ||||||||||||||||||
Year Ended 12/31/09 |
33,064 | 1.719005 to 17.948158 | 86,412 | 4.70 | 0.10 to 0.60 | 15.18 to 15.81 | ||||||||||||||||||
Year Ended 12/31/08 |
31,488 | 1.490991 to 15.497865 | 64,747 | 4.06 | 0.10 to 0.60 | (4.09) to (3.57) | ||||||||||||||||||
Russell Global Real Estate Securities |
|
|||||||||||||||||||||||
Year Ended 12/31/12 |
37,370 | $3.553123 to $37.550773 | $ | 152,571 | 5.00% | 0.10% to 0.60% | 26.86% to 27.56% | |||||||||||||||||
Year Ended 12/31/11 |
38,799 | 2.798128 to 29.438654 | 124,861 | 2.25 | 0.10 to 0.60 | (7.56) to (7.05) | ||||||||||||||||||
Year Ended 12/31/10 |
39,697 | 3.023867 to 31.671345 | 139,710 | 2.23 | 0.10 to 0.60 | 22.25 to 22.92 | ||||||||||||||||||
Year Ended 12/31/09 |
39,114 | 2.471078 to 25.765834 | 113,878 | 4.65 | 0.10 to 0.60 | 28.24 to 28.94 | ||||||||||||||||||
Year Ended 12/31/08 |
37,643 | 1.925035 to 19.982226 | 85,950 | 1.92 | 0.10 to 0.60 | (37.03) to (36.68) | ||||||||||||||||||
Russell LifePoints Moderate Strategy |
|
|||||||||||||||||||||||
Year Ended 12/31/12 |
1,505 | $1.062654 to $12.706153 | $ | 2,139 | 3.29% | 0.10% to 0.60% | 10.46% to 11.07% | |||||||||||||||||
Period Ended 12/31/11 (3) |
320 | 0.961095 to 11.440046 | 332 | 3.14 | 0.10 to 0.60 | (3.94) to (3.67) | ||||||||||||||||||
Russell LifePoints Balanced Strategy |
|
|||||||||||||||||||||||
Year Ended 12/31/12 |
7,167 | $1.048620 to $11.789785 | $ | 9,673 | 2.60% | 0.10% to 0.60% | 12.34% to 12.96% | |||||||||||||||||
Period Ended 12/31/11 (3) |
3,296 | 0.932549 to 10.437591 | 4,082 | 3.47 | 0.10 to 0.60 | (6.79) to (6.53) | ||||||||||||||||||
Russell LifePoints Growth Strategy |
|
|||||||||||||||||||||||
Year Ended 12/31/12 |
9,304 | $1.030529 to $10.802768 | $ | 11,345 | 2.26% | 0.10% to 0.60% | 13.59% to 14.22% | |||||||||||||||||
Period Ended 12/31/11 (3) |
1,932 | 0.906329 to 9.458077 | 3,034 | 3.58 | 0.10 to 0.60 | (9.41) to (9.16) | ||||||||||||||||||
Russell LifePoints Equity Growth Strategy |
|
|||||||||||||||||||||||
Year Ended 12/31/12 |
4,213 | $1.023971 to $ 9.799317 | $ | 5,371 | 1.87% | 0.10% to 0.60% | 15.04% to 15.68% | |||||||||||||||||
Period Ended 12/31/11 (3) |
1,131 | 0.889198 to 8.471141 | 1,453 | 3.08 | 0.10 to 0.60 | (11.12) to (10.88) |
(1) | Total Return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges. Returns are not annualized for periods less than one year. |
(3) | Divisions commenced operations on June 30, 2011. |
6. Subsequent Event Northwestern Mutual is in the process of filing an application with the Securities and Exchange Commission (the SEC) seeking approval to substitute an unaffiliated mutual fund for the Commodities Return Strategy Portfolio (the Commodities Portfolio) as an investment option under the variable life insurance contracts issued by Northwestern Mutual (the Substitution). The date for completing the Substitution is subject to SEC approval which has not yet been received. The Commodities Portfolio is expected to dissolve immediately following the date of the Substitution. Northwestern Mutual or its affiliates will bear all expenses incurred in connection with the Substitution.
Notes to Financial Statements
F-24
Report of Independent Registered Public Accounting Firm
To The Northwestern Mutual Life Insurance Company Board of Trustees and
Policyowners of the Northwestern Mutual Variable Life Account
In our opinion, the accompanying statements of assets and liabilities and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of the Northwestern Mutual Variable Life Account and its Growth Stock Division, Focused Appreciation Division, Large Cap Core Stock Division, Large Cap Blend Division, Index 500 Stock Division, Large Company Value Division, Domestic Equity Division, Equity Income Division, Mid Cap Growth Stock Division, Index 400 Stock Division, Mid Cap Value Division, Small Cap Growth Stock Division, Index 600 Stock Division, Small Cap Value Division, International Growth Division, Research International Core Division, International Equity Division, Emerging Markets Equity Division, Money Market Division, Short-Term Bond Division, Select Bond Division, Long-Term U.S. Government Bond Division, Inflation Protection Division, High Yield Bond Division, Multi-Sector Bond Division, Commodities Return Strategy Division, Balanced Division, Asset Allocation Division, Fidelity VIP Mid Cap Division, Fidelity VIP Contrafund Division, Neuberger Berman AMT Socially Responsive Division, Russell Multi-Style Equity Division, Russell Aggressive Equity Division, Russell Non-US Division, Russell Core Bond Division, Russell Global Real Estate Securities Division, Russell LifePoints Moderate Strategy Division, Russell LifePoints Balanced Strategy Division, Russell LifePoints Growth Strategy Division, Russell LifePoints Equity Growth Strategy Division at December 31, 2012, and the results of each of their operations for the year then ended and the changes in each of their net assets for the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of The Northwestern Mutual Life Insurance Companys management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at December 31, 2012 by correspondence with Northwestern Mutual Series Fund, Inc., Neuberger Berman Advisers Management Trust, Fidelity Variable Insurance Products and the Russell Investment Funds, provide a reasonable basis for our opinion.
February 28, 2013
Report of Independent Registered Public Accounting Firm
F-25
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 Contract.
The Northwestern Mutual Life Insurance Company
Consolidated Financial Statements
December 31, 2012, 2011 and 2010
F-26
CONSOLIDATED FINANCIAL STATEMENTS OF NORTHWESTERN MUTUAL
December 31, | ||||||||
2012 | 2011 | |||||||
Assets: |
||||||||
Bonds |
$ | 114,524 | $ | 103,753 | ||||
Mortgage loans |
24,346 | 22,804 | ||||||
Policy loans |
15,789 | 15,147 | ||||||
Common and preferred stocks |
4,266 | 7,420 | ||||||
Real estate |
1,304 | 1,632 | ||||||
Other investments |
11,356 | 11,047 | ||||||
Cash and temporary investments |
2,393 | 2,421 | ||||||
|
|
|
|
|||||
Total investments |
173,978 | 164,224 | ||||||
Due and accrued investment income |
1,819 | 1,806 | ||||||
Net deferred tax assets |
2,556 | 2,356 | ||||||
Deferred premium and other assets |
2,721 | 2,603 | ||||||
Separate account assets |
21,376 | 18,697 | ||||||
|
|
|
|
|||||
Total assets |
$ | 202,450 | $ | 189,686 | ||||
|
|
|
|
|||||
Liabilities and surplus: |
||||||||
Reserves for policy benefits |
$ | 149,599 | $ | 140,917 | ||||
Policyowner dividends payable |
5,041 | 4,976 | ||||||
Interest maintenance reserve |
1,224 | 1,112 | ||||||
Asset valuation reserve |
3,216 | 3,349 | ||||||
Income taxes payable |
507 | 605 | ||||||
Other liabilities |
5,311 | 5,217 | ||||||
Separate account liabilities |
21,376 | 18,697 | ||||||
|
|
|
|
|||||
Total liabilities |
186,274 | 174,873 | ||||||
Surplus: |
||||||||
Surplus notes |
1,750 | 1,750 | ||||||
Unassigned surplus
|
|
14,426
|
|
|
13,063
|
| ||
|
|
|
|
|||||
Total surplus |
16,176 | 14,813 | ||||||
|
|
|
|
|||||
Total liabilities and surplus |
$ | 202,450 | $ | 189,686 | ||||
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
F-27
The Northwestern Mutual Life Insurance Company
Consolidated Statements of Changes in Surplus
(in millions)
For the year ended December 31, | |||||||||||||||
2012 | 2011 | 2010 | |||||||||||||
Revenue: |
|||||||||||||||
Premiums |
$ | 15,394 | $ | 14,618 | $ | 14,252 | |||||||||
Net investment income |
8,677 | 8,439 | 8,306 | ||||||||||||
Other income |
550 | 538 | 551 | ||||||||||||
|
|
|
|
|
|
||||||||||
Total revenue |
24,621 | 23,595 | 23,109 | ||||||||||||
|
|
|
|
|
|
||||||||||
Benefits and expenses: |
|||||||||||||||
Benefit payments to policyowners and beneficiaries |
7,302 | 7,074 | 6,876 | ||||||||||||
Net additions to policy benefit reserves |
8,561 | 7,949 | 7,950 | ||||||||||||
Net transfers to separate accounts |
492 | 481 | 382 | ||||||||||||
|
|
|
|
|
|
||||||||||
Total benefits |
16,355 | 15,504 | 15,208 | ||||||||||||
Commissions and operating expenses |
2,609 | 2,437 | 2,320 | ||||||||||||
|
|
|
|
|
|
||||||||||
Total benefits and expenses |
18,964 | 17,941 | 17,528 | ||||||||||||
|
|
|
|
|
|
||||||||||
Gain from operations before dividends and taxes |
5,657 | 5,654 | 5,581 | ||||||||||||
Policyowner dividends |
5,045 | 4,973 | 4,861 | ||||||||||||
|
|
|
|
|
|
||||||||||
Gain from operations before taxes |
612 | 681 | 720 | ||||||||||||
Income tax expense (benefit) |
37 | 6 | (224 | ) | |||||||||||
|
|
|
|
|
|
||||||||||
Net gain from operations |
575 | 675 | 944 | ||||||||||||
Net realized capital gains (losses) |
208 | (30 | ) | (188 | ) | ||||||||||
|
|
|
|
|
|
||||||||||
Net income |
$ | 783 | $ | 645 | $ | 756 | |||||||||
|
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
F-28
The Northwestern Mutual Life Insurance Company
Consolidated Statements of Cash Flows
(in millions)
For the year ended December 31, | |||||||||||||||
2012 | 2011 | 2010 | |||||||||||||
Beginning of year balance |
$ | 14,813 | $ | 14,385 | $ | 12,403 | |||||||||
Net income |
783 | 645 | 756 | ||||||||||||
Change in net unrealized capital gains (losses) |
379 | (213 | ) | 1,278 | |||||||||||
Change in net deferred tax assets |
315 | 242 | (119 | ) | |||||||||||
Change in nonadmitted assets and other |
(173 | ) | (142 | ) | (407 | ) | |||||||||
Change in asset valuation reserve |
133 | (99 | ) | (1,407 | ) | ||||||||||
Change in reserve valuation basis |
(59 | ) | - | 131 | |||||||||||
Surplus note issuance |
- | - | 1,750 | ||||||||||||
Change in accounting principle |
(15 | ) | (5 | ) | - | ||||||||||
|
|
|
|
|
|
||||||||||
Net increase in surplus |
1,363 | 428 | 1,982 | ||||||||||||
|
|
|
|
|
|
||||||||||
End of year balance |
$ | 16,176 | $ | 14,813 | $ | 14,385 | |||||||||
|
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
F-29
The Northwestern Mutual Life Insurance Company
Consolidated Statements of Cash Flows
(in millions)
For the year ended December 31, | |||||||||||||||
2012 | 2011 | 2010 | |||||||||||||
Cash flows from operating activities: |
|||||||||||||||
Premiums and other income received |
$ | 11,211 | $ | 10,529 | $ | 10,169 | |||||||||
Investment income received |
8,901 | 8,537 | 8,309 | ||||||||||||
Benefit payments to policyowners and beneficiaries |
(7,702 | ) | (7,336 | ) | (7,206 | ) | |||||||||
Net transfers to separate accounts |
(474 | ) | (459 | ) | (355 | ) | |||||||||
Commissions, expenses and taxes paid |
(3,118 | ) | (2,607 | ) | (1,988 | ) | |||||||||
|
|
|
|
|
|
||||||||||
Net cash provided by operating activities |
8,818 | 8,664 | 8,929 | ||||||||||||
|
|
|
|
|
|
||||||||||
Cash flows from investing activities: |
|||||||||||||||
Proceeds from investments sold or matured: |
|||||||||||||||
Bonds |
52,715 | 44,677 | 37,109 | ||||||||||||
Common and preferred stocks |
7,360 | 8,618 | 7,301 | ||||||||||||
Mortgage loans |
3,581 | 2,974 | 3,190 | ||||||||||||
Real estate |
785 | 151 | 138 | ||||||||||||
Other investments |
1,733 | 1,725 | 1,453 | ||||||||||||
|
|
|
|
|
|
||||||||||
66,174 | 58,145 | 49,191 | |||||||||||||
|
|
|
|
|
|
||||||||||
Cost of investments acquired: |
|||||||||||||||
Bonds |
63,083 | 51,051 | 42,791 | ||||||||||||
Common and preferred stocks |
3,801 | 7,040 | 8,970 | ||||||||||||
Mortgage loans |
5,129 | 4,485 | 3,488 | ||||||||||||
Real estate |
192 | 233 | 247 | ||||||||||||
Other investments |
1,731 | 2,127 | 2,350 | ||||||||||||
|
|
|
|
|
|
||||||||||
73,936 | 64,936 | 57,846 | |||||||||||||
|
|
|
|
|
|
||||||||||
Disbursement of policy loans, net of repayments |
642 | 674 | 755 | ||||||||||||
|
|
|
|
|
|
||||||||||
Net cash applied to investing activities |
(8,404 | ) | (7,465 | ) | (9,410 | ) | |||||||||
|
|
|
|
|
|
||||||||||
Cash flows from financing and miscellaneous sources: |
|||||||||||||||
Surplus notes issuance |
- | - | 1,750 | ||||||||||||
Net inflows (outflows) on deposit-type contracts |
113 | (154 | ) | 56 | |||||||||||
Other cash applied |
(555 | ) | (552 | ) | (2,007 | ) | |||||||||
|
|
|
|
|
|
||||||||||
Net cash applied to financing and miscellaneous sources |
(442 | ) | (706 | ) | (201 | ) | |||||||||
|
|
|
|
|
|
||||||||||
Net increase (decrease) in cash and temporary investments |
(28 | ) | 493 | (682 | ) | ||||||||||
Cash and temporary investments, beginning of year |
2,421 | 1,928 | 2,610 | ||||||||||||
|
|
|
|
|
|
||||||||||
Cash and temporary investments, end of year |
$ | 2,393 | $ | 2,421 | $ | 1,928 | |||||||||
|
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Financial Statements.
F-30
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 statements 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.
F-31
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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. 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 set an interest rate below that specified by the policy. Annual interest rates on policy loans ranged from 4.60% to 8.00% for loans outstanding at December 31, 2012. 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. Variable product policyowners bear the investment performance risk associated with these 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 and Note 15 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 and Note 15 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
F-32
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
insurance benefits are reported as premiums in the consolidated statements of operations but are not included in premiums received or benefit payments in the consolidated statements 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 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 statements 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 statements 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
F-33
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 statements 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.
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 $35 million and $30 million at December 31, 2012 and 2011, respectively, are included in other assets in the consolidated statements of financial position and are net of accumulated depreciation of $233 million and $219 million, respectively. Non-operating software costs, net of accumulated depreciation, are nonadmitted assets and thereby excluded from assets and surplus in the consolidated statements of financial position. Depreciation expense for IT equipment and software totaled $67 million, $71 million and $80 million for the years ended December 31, 2012, 2011 and 2010, 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 statements of financial position. Depreciation expense for furniture, fixtures and equipment totaled $7 million for each of the years ended December 31, 2012, 2011 and 2010.
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 statements 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 include currency translation adjustments or foreign-denominated bonds and changes in the fair value of common stocks and other equity investments and are reported net of any related changes in deferred taxes. Other 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. Changes in unrealized capital gains and losses are reported in the consolidated statements of changes in surplus. 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
F-34
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
representatives, furniture, fixtures, equipment and non-operating software (net of accumulated depreciation), deferred tax assets in excess of statutory limits and certain equity-method investments for which audits are not performed are excluded from assets and surplus in the consolidated statements of financial position. Changes in nonadmitted assets are reported as a direct adjustment to surplus in the consolidated statements 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. Investments 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 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, 2012 through February 27, 2013, 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, 2012 have occurred that are material to the Companys financial position at that date or the results of its operations for the periods then ended. On January 23, 2013 the Company announced prospective amendments to its employee defined benefit and employee postretirement benefit plans that will have material effects on its accounting for these plans beginning in 2013. See Note 8 for more information regarding these plan amendments.
Reclassifications
Certain amounts in prior year financial statements balances and 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 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
F-35
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
bonds.
Statement value and fair value of bonds at December 31, 2012 and 2011, summarized by asset categories required in the NAIC Annual Statement, were as follows:
December 31, 2012 |
Reconciliation to Fair Value | |||||||||||||||
Statement Value |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
(in millions) | ||||||||||||||||
U.S. Government |
$ | 7,203 | $ | 1,393 | $ | (1 | ) | $ | 8,595 | |||||||
States, territories and possessions |
677 | 135 | - | 812 | ||||||||||||
Special revenue and assessments |
24,183 | 1,375 | (10 | ) | 25,548 | |||||||||||
All foreign governments |
326 | 66 | - | 392 | ||||||||||||
Hybrid securities |
450 | 35 | (36 | ) | 449 | |||||||||||
Industrial and miscellaneous |
81,685 | 9,009 | (212 | ) | 90,482 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total bonds |
$ | 114,524 | $ | 12,013 | $ | (259 | ) | $ | 126,278 | |||||||
|
|
|
|
|
|
|
|
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 | |||||||||||
|
|
|
|
|
|
|
|
Bonds classified by the NAIC as special revenue and assessments consist primarily of government agency-issued residential mortgage-backed securities and municipal bonds issued by political subdivisions to finance specific public projects. Bonds classified as industrial and miscellaneous bond category consists primarily of notes issued by corporate entities, private utilities and structured securities not issued by government agencies.
F-36
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Statement value of bonds by NAIC rating category at December 31, 2012 and 2011 was as follows:
December 31, 2012 |
NAIC Rating | ||||||||||||||||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | Total | |||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
U.S. Government |
$ | 7,203 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 7,203 | |||||||||||||||||||||
States, territories and possessions |
677 | - | - | - | - | - | 677 | ||||||||||||||||||||||||||||
Special revenue and assessments |
24,080 | 28 | 31 | 44 | - | - | 24,183 | ||||||||||||||||||||||||||||
All foreign governments |
300 | 26 | - | - | - | - | 326 | ||||||||||||||||||||||||||||
Hybrid securities |
144 | 208 | 42 | 56 | - | - | 450 | ||||||||||||||||||||||||||||
Industrial and miscellaneous |
36,839 | 34,676 | 5,015 | 3,628 | 1,370 | 157 | 81,685 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total bonds |
$ | 69,243 | $ | 34,938 | $ | 5,088 | $ | 3,728 | $ | 1,370 | $ | 157 | $ | 114,524 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on statement value, 91% of the Companys bond portfolio was rated either 1 or 2 (i.e., was rated as investment grade) by the NAIC at each of December 31, 2012 and 2011.
F-37
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Statement value and fair value of bonds by contractual maturity at December 31, 2012 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 |
$ | 2,454 | $ | 2,510 | ||||||
Due after one year through five years |
26,466 | 28,460 | ||||||||
Due after five years through ten years |
35,269 | 39,335 | ||||||||
Due after ten years |
19,192 | 23,194 | ||||||||
|
|
|
|
|||||||
83,381 | 93,499 | |||||||||
Structured securities |
31,143 | 32,779 | ||||||||
|
|
|
|
|||||||
Total bonds |
$ | 114,524 | $ | 126,278 | ||||||
|
|
|
|
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, 2012 and 2011, aggregated by investment grade or below investment grade (i.e., rated 3, 4, 5 or 6 by the NAIC), were as follows:
December 31, 2012 |
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 |
$ | 22,738 | $ | 23,783 | $ | - | $ | - | $ | 22,738 | $ | 23,783 | ||||||||||||||||||
Other prime |
289 | 304 | 9 | 8 | 298 | 312 | ||||||||||||||||||||||||
Other below-prime |
163 | 167 | 41 | 42 | 204 | 209 | ||||||||||||||||||||||||
Commercial mortgage-backed: |
||||||||||||||||||||||||||||||
Government agencies |
414 | 454 | - | - | 414 | 454 | ||||||||||||||||||||||||
Conduit |
1,902 | 2,003 | 136 | 97 | 2,038 | 2,100 | ||||||||||||||||||||||||
Re-REMIC |
514 | 561 | 31 | 32 | 545 | 593 | ||||||||||||||||||||||||
Collateralized debt obligations |
21 | 18 | 19 | 12 | 40 | 30 | ||||||||||||||||||||||||
Other commercial mortgage-backed |
61 | 70 | 9 | 8 | 70 | 78 | ||||||||||||||||||||||||
Other asset-backed |
4,594 | 5,015 | 202 | 205 | 4,796 | 5,220 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total structured securities |
$ | 30,696 | $ | 32,375 | $ | 447 | $ | 404 | $ | 31,143 | $ | 32,779 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-38
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Based on statement value, 99% and 97% of the Companys structured securities portfolio was rated as investment grade at December 31, 2012 and 2011, 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 statement value of mortgage loans by collateral property type and U.S. geographic location at December 31, 2012 and 2011 was as follows:
December 31, 2012 |
East | Midwest | South | West | Total | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||
Apartment |
$ | 2,092 | $ | 372 | $ | 1,556 | $ | 2,760 | $ | 6,780 | |||||||||||||||
Office |
2,292 | 416 | 1,599 | 3,057 | 7,364 | ||||||||||||||||||||
Retail |
2,368 | 649 | 2,110 | 1,892 | 7,019 | ||||||||||||||||||||
Warehouse/Industrial |
468 | 231 | 493 | 1,083 | 2,275 | ||||||||||||||||||||
Other |
205 | 143 | 299 | 261 | 908 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total |
$ | 7,425 | $ | 1,811 | $ | 6,057 | $ | 9,053 | $ | 24,346 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
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 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-39
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
The statement value of mortgage loans by contractual maturity at December 31, 2012 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 | |||||
(in millions) | |||||
Due in one year or less |
$ | 1,606 | |||
Due after one year through two years |
1,262 | ||||
Due after two years through five years |
6,304 | ||||
Due after five years through eight years |
6,134 | ||||
Due after eight years |
9,040 | ||||
|
|
||||
$ | 24,346 | ||||
|
|
The maximum and minimum interest rates for mortgage loans originated during 2012 were 6.00% and 3.50%, respectively, while these rates during 2011 were 8.50% and 3.83%, respectively. The aggregate weighted-average ratio of amounts loaned to the fair value of collateral (loan-to-value ratio) for mortgage loans originated or refinanced during 2012 and 2011 was 60% and 59%, respectively, with a maximum of 100% for any single loan during each of 2012 and 2011. Mortgage loans that were refinanced at market rates to existing borrowers represented $1.1 billion and $0.8 billion of new loan originations for the years ended December 31, 2012 and 2011, respectively. Loans with a 100% loan-to-value (LTV) ratio at origination are made on a very limited basis and generally represent construction loans on build-to-suit properties. These loans are expected to be refinanced with conventional mortgage loans having a LTV ratio between 50% and 70% upon completion of construction. At December 31, 2012 and 2011, the aggregate weighted-average LTV ratio for the mortgage loan portfolio was 57% and 59%, respectively.
The statement value of mortgage loans by collateral property type and LTV ratio at December 31, 2012 and 2011 was as follows:
December 31, 2012 |
< 50% | 51%-70% | 71%-90% | > 90% | Total | |||||||||||||||
(in millions) | ||||||||||||||||||||
Apartment |
$ | 1,476 | $ | 4,485 | $ | 562 | $ | 257 | $ | 6,780 | ||||||||||
Office |
2,175 | 4,513 | 626 | 50 | 7,364 | |||||||||||||||
Retail |
1,607 | 4,876 | 497 | 39 | 7,019 | |||||||||||||||
Warehouse/Industrial |
464 | 1,017 | 728 | 66 | 2,275 | |||||||||||||||
Other |
127 | 635 | 74 | 72 | 908 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 5,849 | $ | 15,526 | $ | 2,487 | $ | 484 | $ | 24,346 | ||||||||||
|
|
|
|
|
|
|
|
|
|
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 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-40
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
The aggregate statement value of mortgage loans with LTV ratios in excess of 100% was$104 million and $242 million at December 31, 2012 and 2011, 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 the normal course of business, the Company may refinance or otherwise 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 currently being offered to new borrowers under similar circumstances in an arms-length transaction, a realized capital loss is reported for the estimated amount of the economic concessions made and the reported value of the mortgage loan is reduced. The Company reported $9 million, $0 and $2 million of realized capital losses related to troubled debt restructuring of mortgage loans for the years ended December 31, 2012, 2011 and 2010, respectively. At December 31, 2012 and 2011, the Company had $68 million and $34 million, respectively, of principal outstanding on mortgage loans that were considered restructured.
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 statements 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, 2012 or 2011.
Common and Preferred Stocks
Common stocks are generally reported at fair value, with$3.6 billion and $6.6 billion of common stock included in the consolidated statements of financial position at December 31, 2012 and 2011, 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 fair value for publicly-traded 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) or internally-developed pricing models. The equity method is generally used to report investments in common stock of unconsolidated non-insurance subsidiaries. Common and preferred stocks as reported in the
F-41
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
consolidated statements of financial position do not include $7 million and $8 million of equity in unconsolidated subsidiaries that was nonadmitted at December 31, 2012 and 2011, respectively. 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, 2 or 3 by the SVO are reported at amortized cost. Preferred stocks rated 4, 5 or 6 by the SVO are reported at the lower of amortized cost or fair value. At December 31, 2012 and 2011, the consolidated statements of financial position included $657 million and $785 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 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, 2012 and 2011 was as follows:
December 31, 2012 |
East | Midwest | South | West | Total | |||||||||||||||
(in millions) | ||||||||||||||||||||
Apartment |
$ | 182 | $ | 28 | $ | 35 | $ | 235 | $ | 480 | ||||||||||
Office |
67 | 358 | 145 | 22 | 592 | |||||||||||||||
Warehouse/Industrial |
11 | - | - | 164 | 175 | |||||||||||||||
Other |
52 | - | 5 | - | 57 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 312 | $ | 386 | $ | 185 | $ | 421 | $ | 1,304 | ||||||||||
|
|
|
|
|
|
|
|
|
|
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 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The Companys home office properties are included in the tables above (Office/Midwest) and had an aggregate statement value of $247 million and $255 million at December 31, 2012 and 2011, respectively.
F-42
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Other Investments
Other investments primarily represent investments that are made through ownership interests in partnerships, joint ventures (JVs) and limited liability companies (LLCs). In some cases, these ownership interests are held directly by the Company, while in other cases these investments are held indirectly through a wholly-owned non-insurance investment holding company organized as a limited liability company. The statement value of other investments held directly or indirectly by the Company at December 31, 2012 and 2011 was as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Securities partnerships and LLCs |
$ | 4,362 | $ | 4,273 | ||||
Bonds |
2,129 | 1,123 | ||||||
Real estate JVs, partnerships and LLCs |
1,876 | 1,780 | ||||||
Real estate |
905 | 1,043 | ||||||
Common and preferred stocks |
604 | 996 | ||||||
Low income housing tax credit properties |
412 | 405 | ||||||
Leveraged leases |
276 | 276 | ||||||
Cash and temporary investments |
168 | 735 | ||||||
Derivative instruments |
106 | 156 | ||||||
Oil and gas investments |
34 | 44 | ||||||
Other assets, net |
484 | 216 | ||||||
|
|
|
|
|||||
Total |
$ | 11,356 | $ | 11,047 | ||||
|
|
|
|
The aggregate statement value of other investments held indirectly through non-insurance investment holding companies was$5.9 billion at each of December 31, 2012 and 2011. Whether held directly by the Company or indirectly through its investment holding companies, securities or real estate partnerships, JVs, and LLCs are reported in the consolidated statements of financial position using the equity method based on the Companys share of the underlying entities audited GAAP-basis equity. Other investments as reported in the consolidated statements of financial position does not include $79 million and $55 million of equity in unconsolidated subsidiaries that was nonadmitted at December 31, 2012 and 2011, respectively. For securities partnerships and LLCs, bonds, common and preferred stocks, cash and temporary investments and derivative instruments, the underlying entity generally reports these investments at fair value. For real estate-related investments (including JVs, partnerships and LLCs), tax credit properties and leveraged leases, the underlying entity generally reports these investments at cost, reduced where appropriate by depreciation or amortization.
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-43
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Net Investment Income
The sources of net investment income for the years ended December 31, 2012, 2011 and 2010 were as follows:
For the year ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Bonds |
$ | 5,398 | $ | 5,382 | $ | 5,366 | ||||||
Mortgage loans |
1,453 | 1,336 | 1,317 | |||||||||
Policy loans |
1,056 | 1,068 | 1,017 | |||||||||
Common and preferred stocks |
226 | 246 | 227 | |||||||||
Real estate |
195 | 235 | 210 | |||||||||
Derivative instruments |
29 | 26 | 24 | |||||||||
Other investments |
653 | 545 | 571 | |||||||||
Amortization of IMR |
189 | 119 | 37 | |||||||||
|
|
|
|
|
|
|||||||
Gross investment income |
9,199 | 8,957 | 8,769 | |||||||||
Less: investment expenses |
522 | 518 | 463 | |||||||||
|
|
|
|
|
|
|||||||
Net investment income |
$ | 8,677 | $ | 8,439 | $ | 8,306 | ||||||
|
|
|
|
|
|
Accrued investment income more than ninety days past due is a nonadmitted asset and reported as a direct reduction of surplus in the consolidated statements 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, 2012, 2011 and 2010 were as follows:
For the year ended December 31, 2012 |
For the year ended December 31, 2011 |
For the year ended December 31, 2010 |
||||||||||||||||||||||||||||||||||
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 |
$ | 786 | $ | (397 | ) | $ | 389 | $ | 988 | $ | (277 | ) | $ | 711 | $ | 766 | $ | (711 | ) | $ | 55 | |||||||||||||||
Common and preferred stocks |
756 | (361 | ) | 395 | 884 | (514 | ) | 370 | 581 | (285 | ) | 296 | ||||||||||||||||||||||||
Mortgage loans |
- | (9 | ) | (9 | ) | 2 | (1 | ) | 1 | - | (32 | ) | (32 | ) | ||||||||||||||||||||||
Real estate |
375 | (69 | ) | 306 | 66 | (4 | ) | 62 | 54 | (9 | ) | 45 | ||||||||||||||||||||||||
Other investments |
237 | (315 | ) | (78 | ) | 318 | (595 | ) | (277 | ) | 413 | (535 | ) | (122 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal |
$ | 2,154 | $ | (1,151 | ) | 1,003 | $ | 2,258 | $ | (1,391 | ) | 867 | $ | 1,814 | $ | (1,572 | ) | 242 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Less: IMR gains (before taxes) |
463 | 645 | 396 | |||||||||||||||||||||||||||||||||
Less: Capital gains tax |
332 | 252 | 34 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Net realized capital gains (losses) |
$ | 208 | $ | (30 | ) | $ | (188 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
F-44
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Realized capital gains and losses are generally the result of normal investment trading activity. Realized capital gains from real estate investments for the year ended December 31, 2012 included a $297 million pretax gain from the sale of a single commercial office property in Seattle, Washington. Proceeds from the sale of bonds totaled $41 billion, $34 billion and $24 billion for the years ended December 31, 2012, 2011 and 2010, 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 in the foreseeable future. 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.
For real estate and other investments that represent ownership interests in partnerships, JVs and LLCs, the review focuses on the likelihood that the Company will ultimately recover its initial investment, adjusted for its share of subsequent net earnings and/or distributions. The review of securities partnerships will generally defer to GAAP-basis impairment reviews performed by the general partner absent compelling evidence of a permanent impairment of the Companys partnership interest.
F-45
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012, 2011 and 2010 were as follows:
For the years ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Bonds, common and preferred stocks: |
||||||||||||
Structured securities |
$ | (36 | ) | $ | (37 | ) | $ | (259 | ) | |||
Financial services |
(42 | ) | (38 | ) | (65 | ) | ||||||
Consumer discretionary |
(26 | ) | (23 | ) | (39 | ) | ||||||
Industrials |
(35 | ) | (7 | ) | (24 | ) | ||||||
Energy |
(30 | ) | (22 | ) | (4 | ) | ||||||
Other |
(30 | ) | (13 | ) | (1 | ) | ||||||
|
|
|
|
|
|
|||||||
Subtotal |
(199 | ) | (140 | ) | (392 | ) | ||||||
Other investments: |
||||||||||||
Real estate and RE funds |
(59 | ) | (49 | ) | (67 | ) | ||||||
Mortgage loans |
(9 | ) | - | (32 | ) | |||||||
Securities partnerships |
- | - | (5 | ) | ||||||||
Energy and transportation |
- | (30 | ) | - | ||||||||
|
|
|
|
|
|
|||||||
Subtotal |
(68 | ) | (79 | ) | (104 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | (267 | ) | $ | (219 | ) | $ | (496 | ) | |||
|
|
|
|
|
|
In addition to the realized capital losses above, $42 million, $30 million and $23 million of other-than-temporary valuation adjustments were recorded by the Companys unconsolidated non-insurance subsidiaries for the years ended December 31, 2012, 2011 and 2010, respectively. The decline in the Companys equity in these subsidiaries resulting from these valuation adjustments is included in changes in net unrealized capital gains and losses in the consolidated statements of changes in surplus.
Other-than-temporary valuation adjustments on structured securities for the years ended December 31, 2012, 2011 and 2010, including the circumstances of the adjustment, were as follows:
For the year ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Intent to sell |
$ | - | $ | - | $ | (45 | ) | |||||
Present value of cash flows expected to be collected is less than amortized cost basis |
(36 | ) | (37 | ) | (214 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | (36 | ) | $ | (37 | ) | $ | (259 | ) | ||||
|
|
|
|
|
|
At December 31, 2012, the Company continued to hold structured securities with aggregate statement values and fair values of $103 million and $108 million, respectively, for which other-than-temporary valuation adjustments totaling$243 million had been recognized since the adoption of Statement of Statutory Accounting Principle No. 43R, Loan-backed and Structured Securities (SSAP 43R) during 2009. These valuation adjustments were necessary because the present value of expected cash flows was less than the amortized cost of the security.
F-46
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Unrealized Capital Gains and Losses
Changes in net unrealized capital gains and losses for the years ended December 31, 2012, 2011 and 2010 were as follows:
For the years ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Bonds |
$ | 165 | $ | (89 | ) | $ | (16 | ) | ||||
Common and preferred stocks |
10 | (550 | ) | 1,286 | ||||||||
Other investments |
279 | 248 | 359 | |||||||||
|
|
|
|
|
|
|||||||
454 | (391 | ) | 1,629 | |||||||||
Change in deferred taxes |
(75 | ) | 178 | (351 | ) | |||||||
|
|
|
|
|
|
|||||||
Change in net unrealized capital gains (losses) |
$ | 379 | $ | (213 | ) | $ | 1,278 | |||||
|
|
|
|
|
|
Unrealized capital gains and losses include currency translation adjustments on foreign-denominated bonds and changes in the fair value of common stocks and other investments. Other changes in the Companys equity-method share of the undistributed earnings of partnerships, JVs, LLCs 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, 2012, 2011 and 2010 included $(323) million, $(204) million and $(265) million, respectively, related to distributions of accumulated net earnings 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 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 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, 2012 and 2011 were as follows:
December 31, 2012 | ||||||||||||||||||||||||
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 |
$ | 5,388 | $ | 5,296 | $ | (92 | ) | $ | 1,513 | $ | 1,198 | $ | (315 | ) | ||||||||||
Common and preferred stocks |
326 | 303 | (23 | ) | 380 | 315 | (65 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 5,714 | $ | 5,599 | $ | (115 | ) | $ | 1,893 | $ | 1,513 | $ | (380 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-47
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
During 2012, the aggregate amount by which the fair value of bonds summarized above was below cost decreased, due primarily to a reduction in risk-free market interest rates and narrowing of market credit spreads. The vast majority of these bonds are current on contractual interest and principal payments and are otherwise performing according to their contractual terms at December 31, 2012. The decrease in the aggregate amount by which the fair value of common and preferred stocks was below cost was due primarily to market appreciation during 2012. Based on the results of the impairment review process described above, management considers these declines in fair value to be temporary based on current facts and circumstances.
At December 31, 2012 and 2011, the statement value of structured securities in an unrealized capital loss position for greater than 12 months were $219 million and $369 million, respectively, while structured securities in an unrealized capital loss position for less than 12 months were $10 million and $23 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.
At December 31, 2012 and 2011, the aggregate statement value of loaned securities was$0.8 billion and $1.2 billion, respectively, while the aggregate fair value of these loaned securities was$0.8 billion and $1.3 billion, respectively. All of the securities on loan at December 31, 2012 and 2011 were bonds.
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 by setting conservative standards for the Companys reinvestment of cash collateral received. At December 31, 2012 and 2011, securities lending collateral held by the Company was$0.8 billion and $1.3 billion, respectively, which is reported at amortized cost as described below. The offsetting liability of $0.8 billion and $1.3 billion, reflecting the obligation to return the collateral, is reported in other liabilities in the consolidated statements of financial position at December 31, 2012 and 2011, respectively.
F-48
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
The following table summarizes the terms of securities lending arrangements outstanding at December 31, 2012 and 2011.
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Open terms |
$ | 816 | $ | 917 | ||||
30 days or less |
- | 80 | ||||||
31-60 days |
- | 334 | ||||||
|
|
|
|
|||||
Total |
$ | 816 | $ | 1,331 | ||||
|
|
|
|
The amortized cost, fair value and remaining term to maturity of reinvested securities lending collateral held by the Company at December 31, 2012 and 2011 were as follows:
December 31, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(in millions) | ||||||||||||||||
30 days or less |
$ | 286 | $ | 286 | $ | 666 | $ | 666 | ||||||||
31-60 days |
18 | 18 | 2 | 2 | ||||||||||||
61-90 days |
60 | 60 | 67 | 67 | ||||||||||||
91-120 days |
14 | 14 | 115 | 115 | ||||||||||||
121-180 days |
110 | 110 | 61 | 61 | ||||||||||||
181-365 days |
4 | 4 | 126 | 127 | ||||||||||||
1-2 years |
244 | 246 | 176 | 175 | ||||||||||||
2-3 years |
25 | 25 | 107 | 102 | ||||||||||||
Greater than 3 years |
56 | 56 | 6 | 6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 817 | $ | 819 | $ | 1,326 | $ | 1,321 | ||||||||
|
|
|
|
|
|
|
|
At December 31, 2012, the consolidated statements of financial position included $365 million in bonds and $452 million in cash and temporary investments related to the collateral assets summarized above. At December 31, 2011, the consolidated statements of financial position included $848 million in bonds and $478 million in cash and temporary investments related to these collateral assets.
There were no securities on loan within the separate accounts at either December 31, 2012 or 2011.
F-49
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 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).
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, 2012 and 2011, the Company held $164 million and $243 million, respectively, of collateral under these agreements. The collateral is reported as cash and temporary investments in the consolidated statements of financial position, with a corresponding liability reflecting the Companys obligation to return the collateral reported as other liabilities.
The Company has no embedded credit derivatives that expose it to the possibility of being required to make future payments.
F-50
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 statements 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, 2012, 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 over a period of up to five years. 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 over a period of up to thirteen years. 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.
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 statements 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.
F-51
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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.
Foreign currency futures are used to mitigate the foreign exchange risk of investments in portfolios of foreign securities. Foreign currency futures obligate the Company to exchange a specified amount of a foreign currency at a specified rate on a future date.
Equity total return swaps are used to mitigate market risk for investments in portfolios of common stocks and other equity securities. Equity 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$0 and $9 million during 2012 and 2011, respectively.
Interest rate swap replications are used to replicate a bond investment through the use of cash market instruments combined with interest rate swaps. Interest rate swap replications, including the derivative components, are reported at amortized cost. The average fair value of open contracts was$3 million and $7 million during 2012 and 2011, respectively.
Equity 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. Equity 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 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$4 million and $(1) million during 2012 and 2011, 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.
F-52
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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$0 and $17 million during 2012 and 2011, 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$0 and $(18) million during 2012 and 2011, respectively.
The effects of the Companys use of derivative instruments on the consolidated statements of financial position at December 31, 2012 and 2011 were as follows:
December 31, 2012 | ||||||||||||||||||||
Notional Amount |
Statement Value | Fair Value | ||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Interest rate floors |
$ | 950 | $ | 10 | $ | - | $ | 137 | $ | - | ||||||||||
Interest rate swaps |
52 | - | - | 14 | - | |||||||||||||||
Foreign exchange contracts: |
||||||||||||||||||||
Foreign currency swaps |
999 | 20 | (100 | ) | 22 | (61 | ) | |||||||||||||
Foreign currency covers |
- | - | - | - | - | |||||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Swaptions |
2,441 | 67 | - | 67 | - | |||||||||||||||
Fixed income futures |
811 | 5 | - | 5 | - | |||||||||||||||
Foreign exchange contracts: |
||||||||||||||||||||
Foreign currency forwards |
871 | 1 | (20 | ) | 1 | (20 | ) | |||||||||||||
Foreign currency futures |
3 | - | - | - | - | |||||||||||||||
Equity contracts: |
||||||||||||||||||||
Equity total return swaps |
101 | - | (1 | ) | - | (1 | ) | |||||||||||||
Equity index futures |
- | - | - | - | - | |||||||||||||||
Credit contracts: |
||||||||||||||||||||
Purchased credit default swaps |
138 | - | (2 | ) | - | (2 | ) | |||||||||||||
Investment Replications: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Interest rate swaps |
- | - | - | - | - | |||||||||||||||
Equity contracts: |
||||||||||||||||||||
Equity total return swaps |
167 | 3 | - | 3 | - | |||||||||||||||
Income Generation: |
||||||||||||||||||||
Equity contracts: |
||||||||||||||||||||
Written equity call options (covered) |
- | - | - | - | - | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives |
$ | 106 | $ | (123 | ) | $ | 249 | $ | (84 | ) | ||||||||||
|
|
|
|
|
|
|
|
F-53
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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: |
||||||||||||||||||||
Foreign currency swaps |
937 | 23 | (79 | ) | 40 | (41 | ) | |||||||||||||
Foreign currency covers |
11 | - | - | - | - | |||||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Swaptions |
2,354 | 81 | - | 81 | - | |||||||||||||||
Fixed income futures |
2,880 | - | - | - | - | |||||||||||||||
Foreign exchange contracts: |
||||||||||||||||||||
Foreign currency forwards |
1,496 | 38 | (7 | ) | 38 | (7 | ) | |||||||||||||
Equity contracts: |
||||||||||||||||||||
Equity total return swaps |
20 | - | - | - | - | |||||||||||||||
Equity index futures |
- | - | - | - | - | |||||||||||||||
Credit contracts: |
||||||||||||||||||||
Purchased credit default swaps |
201 | 1 | (3 | ) | 1 | (3 | ) | |||||||||||||
Investment Replications: |
||||||||||||||||||||
Interest rate contracts: |
||||||||||||||||||||
Interest rate swaps |
150 | - | - | 8 | - | |||||||||||||||
Fixed income futures |
32 | - | - | - | - | |||||||||||||||
Equity contracts: |
||||||||||||||||||||
Equity total return swaps |
182 | 2 | - | 2 | - | |||||||||||||||
Equity index futures |
- | - | - | - | - | |||||||||||||||
Income Generation: |
||||||||||||||||||||
Equity contracts: |
||||||||||||||||||||
Written equity call options (covered) |
3 | - | - | - | - | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives |
$ | 156 | $ | (89 | ) | $ | 327 | $ | (51 | ) | ||||||||||
|
|
|
|
|
|
|
|
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. Prior to 2012, the Company offset the statement values for derivatives executed with the same counterparty under the same master netting agreement. As of December 31, 2012, the Company began reporting statement value on a gross basis (i.e., as other investments and other liabilities) in the consolidated statements of financial position. Derivative investments reported as other investments and other liabilities at December 31, 2011 include a $41 million reclassification to conform with the new gross basis of reporting.
F-54
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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, 2012, 2011 and 2010 were as follows:
For the year ended December 31, 2012 | ||||||||||||||||
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 |
$ | - | $ | - | $ | 30 | ||||||||||
Interest rate swaps |
- | - | - | |||||||||||||
Foreign exchange contracts: |
||||||||||||||||
Foreign currency swaps |
(22 | ) | - | 4 | ||||||||||||
Foreign currency covers |
- | - | - | |||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Interest rate contracts: |
||||||||||||||||
Swaptions |
(25 | ) | - | (7 | ) | |||||||||||
Fixed income futures |
45 | (131 | ) | - | ||||||||||||
Foreign exchange contracts: |
||||||||||||||||
Foreign currency forwards |
(50 | ) | 24 | - | ||||||||||||
Foreign currency futures |
- | - | - | |||||||||||||
Equity contracts: |
||||||||||||||||
Equity total return swaps |
(1 | ) | (11 | ) | - | |||||||||||
Equity index futures |
- | (5 | ) | - | ||||||||||||
Credit contracts: |
||||||||||||||||
Purchased credit default swaps |
(1 | ) | - | (2 | ) | |||||||||||
Investment Replications: | ||||||||||||||||
Interest rate contracts: |
||||||||||||||||
Interest rate swaps |
- | 7 | 4 | |||||||||||||
Equity contracts: |
||||||||||||||||
Equity total return swaps |
2 | 33 | - | |||||||||||||
Income Generation: | ||||||||||||||||
Equity contracts: |
||||||||||||||||
Written equity call options (covered) |
- | - | - | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total derivatives |
$ | (52 | ) | $ | (83 | ) | $ | 29 | ||||||||
|
|
|
|
|
|
F-55
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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: |
||||||||||||||||
Foreign currency swaps |
51 | (28 | ) | - | ||||||||||||
Foreign currency covers |
- | - | - | |||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Interest rate contracts: |
||||||||||||||||
Swaptions |
(35 | ) | - | (7 | ) | |||||||||||
Fixed income futures |
(72 | ) | (141 | ) | - | |||||||||||
Foreign exchange contracts: |
||||||||||||||||
Foreign currency forwards |
29 | (23 | ) | - | ||||||||||||
Equity contracts: |
||||||||||||||||
Equity total return swaps |
8 | (11 | ) | - | ||||||||||||
Equity index futures |
2 | (10 | ) | - | ||||||||||||
Credit contracts: |
||||||||||||||||
Purchased credit default swaps |
2 | - | (3 | ) | ||||||||||||
Investment Replications: |
||||||||||||||||
Interest rate contracts: |
||||||||||||||||
Interest rate swaps |
- | - | 4 | |||||||||||||
Fixed income futures |
4 | 8 | - | |||||||||||||
Equity contracts: |
||||||||||||||||
Equity total return swaps |
(25 | ) | 15 | - | ||||||||||||
Equity index futures |
- | 2 | - | |||||||||||||
Income Generation: | ||||||||||||||||
Equity contracts: |
||||||||||||||||
Written equity call options (covered) |
15 | (1 | ) | - | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total derivatives |
$ | (21 | ) | $ | (189 | ) | $ | 26 | ||||||||
|
|
|
|
|
|
F-56
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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: |
||||||||||||||||
Foreign currency swaps |
(21 | ) | - | - | ||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||
Interest rate contracts: |
||||||||||||||||
Swaptions |
7 | - | (6 | ) | ||||||||||||
Fixed income futures |
36 | (31 | ) | - | ||||||||||||
Foreign exchange contracts: |
||||||||||||||||
Foreign currency forwards |
(8 | ) | (12 | ) | - | |||||||||||
Equity contracts: |
||||||||||||||||
Equity total return swaps |
(7 | ) | (26 | ) | - | |||||||||||
Equity index futures |
(2 | ) | (23 | ) | - | |||||||||||
Credit contracts: |
||||||||||||||||
Purchased credit default swaps |
3 | - | (3 | ) | ||||||||||||
Investment Replications: |
||||||||||||||||
Interest rate contracts: |
||||||||||||||||
Interest rate swaps |
- | - | 4 | |||||||||||||
Fixed income futures |
(3 | ) | 3 | - | ||||||||||||
Equity contracts: |
||||||||||||||||
Equity total return swaps |
25 | 4 | (1 | ) | ||||||||||||
Equity index futures |
- | (2 | ) | - | ||||||||||||
Income Generation: | ||||||||||||||||
Equity contracts: |
||||||||||||||||
Written equity call options (covered) |
(15 | ) | - | - | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total derivatives |
$ | 15 | $ | (87 | ) | $ | 24 | |||||||||
|
|
|
|
|
|
F-57
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
5. | Reserves for Policy Benefits |
General account reserves for policy benefits at December 31, 2012 and 2011 were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Life insurance reserves |
$ | 133,545 | $ | 125,983 | ||||
Annuity reserves |
5,572 | 5,262 | ||||||
Disability and long-term care unpaid claims and claim reserves |
4,422 | 4,254 | ||||||
Disability and long-term care active life reserves |
3,538 | 3,009 | ||||||
Deposit funds |
2,522 | 2,409 | ||||||
|
|
|
|
|||||
Total reserves for policy benefits |
$ | 149,599 | $ | 140,917 | ||||
|
|
|
|
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, 2012, the Company had $1.4 trillion of total life insurance in force, including$9.0 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 statements of changes in surplus for the year ended December 31, 2010.
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 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
F-58
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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.
Each year, the Company must perform asset adequacy testing to demonstrate that reserves make adequate provision for the anticipated cash flows required by contractual obligations and related expenses, in light of assets held for the reserves. Asset adequacy testing is performed in accordance with presently accepted actuarial standards and must include assumptions necessary to determine the adequacy of reserves under moderately adverse conditions. This testing resulted in an additional increase in certain life insurance reserves of $1 million, $1 million and $0 for the years ended December 31, 2012, 2011 and 2010, respectively. These reserve increases were reported as an increase in reserves in the consolidated statements of operations.
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 statements of operations.
At December 31, 2012 and 2011, 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 | ||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Subject to discretionary withdrawal |
||||||||||||||||||||||||
- with market value adjustment |
$ | 839 | $ | 914 | $ | - | $ | - | $ | 839 | $ | 914 | ||||||||||||
- at book value less surrender charge of 5% or more |
577 | 575 | - | - | 577 | 575 | ||||||||||||||||||
- at fair value |
- | - | 12,548 | 10,808 | 12,548 | 10,808 | ||||||||||||||||||
- at book value without adjustment |
4,123 | 3,873 | - | - | 4,123 | 3,873 | ||||||||||||||||||
Not subject to discretionary withdrawal |
2,555 | 2,309 | 3,771 | 3,286 | 6,326 | 5,595 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total annuity reserves and deposit liabilities |
$ | 8,094 | $ | 7,671 | $ | 16,319 | $ | 14,094 | $ | 24,413 | $ | 21,765 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Asset adequacy testing resulted in an additional increase in annuity reserves of $13 million, $33 million and $10 million for the years ended December 31, 2012, 2011 and 2010, respectively. These reserve increases were reported as an increase in reserves in the consolidated statements of operations.
F-59
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Disability and Long-Term Care 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%.
Reserves for unpaid claims, losses and loss adjustment expenses on disability and long-term care policies were $4.4 billion and $4.3 billion at December 31, 2012 and 2011, respectively. Changes in these reserves for the years ended December 31, 2012 and 2011 were as follows:
For the year ended December 31, | ||||||||||
2012 | 2011 | |||||||||
(in millions) | ||||||||||
Balance at January 1 |
$ | 4,254 | $ | 4,098 | ||||||
Incurred related to: |
||||||||||
Current year |
647 | 590 | ||||||||
Prior years |
76 | 93 | ||||||||
|
|
|
|
|||||||
Total incurred |
723 | 683 | ||||||||
Paid related to: |
||||||||||
Current year |
(22 | ) | (20 | ) | ||||||
Prior years |
(533 | ) | (507 | ) | ||||||
|
|
|
|
|||||||
Total paid |
(555 | ) | (527 | ) | ||||||
|
|
|
|
|||||||
Balance at December 31 |
$ | 4,422 | $ | 4,254 | ||||||
|
|
|
|
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 from March 2002 through September 2010, minimum reserves are based on valuation interest rates of 4.00% or 4.50% and total terminations based on the 1994 Group Annuity Mortality table with lapses. For policies issued after September 2010, reserves are based on a 4.00% valuation interest rate and total terminations based on the 1994 Group Annuity Mortality table with lapses. A separate calculation is performed using valuation interest rates ranging from 4.87% to 5.60% and assuming no lapses. Reserves from the
F-60
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
separate calculation are compared in the aggregate to the minimum reserves as calculated above and the greater of the two is reported.
For valuations prior to 2012, the Company utilized the 1983 Individual Annuity Mortality table, the 1983 Group Annuity Mortality table, or the 1994 Group Annuity Mortality table for the calculation of minimum reserves for policies. At January 1, 2012, use of the 1983 Group Annuity Mortality table to calculate minimum reserves for policies issued from March 2002 through 2004 was replaced with a calculation using only the 1994 Group Annuity Mortality table and assumptions regarding interest rates and claim costs were adjusted to reflect current expectations. These changes in reserve valuation bases resulted in a $59 million increase in reserves that is reported as a direct decrease to surplus in the consolidated statements of changes in surplus for the year ended December 31, 2012.
Asset adequacy testing resulted in an additional increase in long-term care reserves of $165 million for the year ended December 31, 2012. The reserve increase was reported as an increase in reserves in the consolidated statements of operations. There were no additions to long-term care reserves related to asset adequacy testing for either of the years ended December 31, 2011 or 2010.
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 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$0.8 billion and $0.9 billion at December 31, 2012 and 2011, 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 0.02% to 3.50% during 2012 and 0.01% to 3.50% during 2011. 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 statements of financial position.
F-61
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Deferred and uncollected premiums at December 31, 2012 and 2011 were as follows:
December 31, 2012 | December 31, 2011 | |||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Ordinary new business |
$ | 221 | $ | 84 | $ | 212 | $ | 82 | ||||||||||||
Ordinary renewal |
2,112 | 1,727 | 2,026 | 1,666 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total deferred and uncollected premiums |
$ | 2,333 | $ | 1,811 | $ | 2,238 | $ | 1,748 | ||||||||||||
|
|
|
|
|
|
|
|
7. | Separate Accounts |
Separate account liabilities by withdrawal characteristic at December 31, 2012 and 2011were as follows:
Variable Life | Variable Annuities | Total | ||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||
Subject to discretionary withdrawal |
$ | 4,969 | $ | 4,488 | $ | 12,548 | $ | 10,808 | $ | 17,517 | $ | 15,296 | ||||||||||||||||||
Not subject to discretionary withdrawal |
- | - | 3,771 | 3,286 | 3,771 | 3,286 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total separate account reserves |
$ | 4,969 | $ | 4,488 | $ | 16,319 | $ | 14,094 | 21,288 | 18,582 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Non-policy liabilities |
88 | 115 | ||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||
Total separate account liabilities |
$ | 21,376 | $ | 18,697 | ||||||||||||||||||||||||||
|
|
|
|
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, 2012 and 2011 was$62 million and $188 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 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 $20 million and $19 million attributable to GMDB at December 31, 2012 and 2011, respectively.
Premiums and other considerations received from variable annuity and variable life insurance policyowners were $1.8 billion, $1.8 billion and $1.7 billion for the years ended December 31, 2012, 2011 and 2010, respectively. These amounts are reported as premiums in the consolidated statements of operations. The subsequent transfer of these premiums to the separate accounts is reported as transfers to separate accounts in the consolidated statements of operations, net of
F-62
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 statements of operations for the years ended December 31, 2012, 2011 and 2010.
For the year ended December 31, | |||||||||||||||
2012 | 2011 | 2010 | |||||||||||||
(in millions) | |||||||||||||||
From Separate Account Annual Statement: |
|||||||||||||||
Transfers to separate accounts |
$ | 1,982 | $ | 1,909 | $ | 1,819 | |||||||||
Transfers from separate accounts |
(1,490 | ) | (1,428 | ) | (1,437 | ) | |||||||||
|
|
|
|
|
|
||||||||||
Net transfers to separate accounts |
$ | 492 | $ | 481 | $ | 382 | |||||||||
|
|
|
|
|
|
8. | Employee and Financial Representative Benefit Plans |
The Company provides defined pension benefits for all eligible employees and financial representatives. This includes sponsorship of noncontributory defined benefit pension plans that are qualified under the terms of the Employee Retirement Income Security Act (ERISA), as well as nonqualified plans that provide benefits to certain participants in excess of limits set by ERISA for the qualified plans. The Companys funding policy for the 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 $130 million and $145 million to the qualified employee retirement plan during the years ended December 31, 2012 and 2011, respectively.
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 may pay premiums to offset a portion of the cost of the health plan.
F-63
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Aggregate plan assets and projected benefit obligations of the defined benefit pension plans and postretirement benefit plans at December 31, 2012 and 2011, and changes in assets and obligations for the years then ended, were as follows:
Defined Benefit Plans | Postretirement Benefit Plans | |||||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Fair value of plan assets at January 1 |
$ | 3,084 | $ | 2,992 | $ | 67 | $ | 73 | ||||||||||||
Changes in plan assets: |
||||||||||||||||||||
Actual return on plan assets |
411 | 20 | 9 | - | ||||||||||||||||
Company contributions |
130 | 145 | - | - | ||||||||||||||||
Actual plan benefits paid |
(80 | ) | (73 | ) | (6 | ) | (6 | ) | ||||||||||||
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|
|
|
|
|||||||||||||
Fair value of plan assets at December 31 |
$ | 3,545 | $ | 3,084 | $ | 70 | $ | 67 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||||||
Projected benefit obligation at January 1 |
$ | 3,720 | $ | 2,878 | $ | 498 | $ | 415 | ||||||||||||
Changes in benefit obligation: |
||||||||||||||||||||
Service cost of benefits earned |
131 | 100 | 38 | 26 | ||||||||||||||||
Interest cost on projected obligations |
166 | 164 | 21 | 23 | ||||||||||||||||
Projected gross plan benefits paid |
(97 | ) | (89 | ) | (24 | ) | (23 | ) | ||||||||||||
Projected Medicare Part D reimbursement |
- | - | 2 | 2 | ||||||||||||||||
Experience losses |
375 | 667 | 2 | 55 | ||||||||||||||||
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|
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Projected benefit obligation at December 31 |
$ | 4,295 | $ | 3,720 | $ | 537 | $ | 498 | ||||||||||||
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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 standards for investment and asset/liability 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 issuer not to exceed 1% 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 prices.
The target asset allocations and the actual allocation of the plans investments on a fair value basis at December 31, 2012 and 2011 were as follows:
2012 | 2011 | |||||||||||||||||||
Target Allocation |
Actual Allocation |
Target Allocation |
Actual Allocation | |||||||||||||||||
Bonds |
34 | % | 33 | % | 34 | % | 35 | % | ||||||||||||
Equity securities |
65 | % | 60 | % | 65 | % | 63 | % | ||||||||||||
Other investments |
1 | % | 7 | % | 1 | % | 2 | % | ||||||||||||
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|||||||||||||
Total assets |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
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F-64
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
At each of December 31, 2012 and 2011, other investments are comprised of cash and temporary investments.
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$3.7 billion and $3.2 billion at December 31, 2012 and 2011, 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 as of December 31, 2012. 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, 2012 and 2011 were as follows:
Defined Benefit Plans | Postretirement Benefit Plans | |||||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||||
(in millions) | ||||||||||||||||||||
PBO |
$ | 73 | $ | 87 | $ | 301 | $ | 302 | ||||||||||||
ABO |
61 | 60 | - | - |
The assumptions used in estimating the projected benefit obligations at December 31, 2012, 2011 and 2010 and the net benefit cost for the years then ended were as follows:
Defined Benefit Plans | Postretirement Benefit Plans | |||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||||||||
Projected benefit obligation: |
||||||||||||||||||||||||||||||
Discount rate |
4.00 | % | 4.50 | % | 5.75 | % | 4.00 | % | 4.50 | % | 5.75 | % | ||||||||||||||||||
Annual increase in compensation |
3.75 | % | 3.75 | % | 3.75 | % | 3.75 | % | 3.75 | % | 3.75 | % | ||||||||||||||||||
Net periodic benefit cost: |
||||||||||||||||||||||||||||||
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 | % | ||||||||||||||||||
Long-term rate of return on plan assets |
7.50 | % | 7.50 | % | 8.00 | % | 7.50 | % | 7.50 | % | 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, long-term historical returns and correlations among asset classes. The Company currently anticipates that a long-term rate of return assumption of 6.75% will be used in the calculation of net periodic benefit cost beginning in 2013.
The PBO for postretirement benefits at December 31, 2012 assumed an annual increase in future retiree medical costs of 7.0%, grading down to 5.0% over four years and remaining level thereafter. At December 31, 2011, the comparable assumption was for an annual increase in future retiree medical costs of 7.5% grading down to 5.0% over five years and remaining level thereafter. A greater increase in the assumed health care cost trend of 1.0% in each year would
F-65
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
increase the accumulated postretirement benefit obligation at December 31, 2012 by $63 million and net periodic postretirement benefit expense for the year ended December 31, 2012 by $8 million. A decrease in the assumed health care cost trend of 1.0% in each year would reduce the accumulated postretirement benefit obligation as of December 31, 2012 and net periodic postretirement benefit expense for the year ended December 31, 2012 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 enacted. The new laws created an excise tax beginning in 2018 on health plans that have an aggregate value to the participants greater than a threshold amount. Absent any prospective changes to benefits under the plan, the potential future impact on the Companys PBO for postretirement medical benefit of this new excise tax is estimated to be an increase of $47 million. The new laws also 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, 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 liabilities reported by the Company at December 31, 2012 and 2011:
Defined Benefit Plans |
Postretirement Benefit Plans |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(in millions) | ||||||||||||||||
Fair value of plan assets |
$ | 3,545 | $ | 3,084 | $ | 70 | $ | 67 | ||||||||
Projected benefit obligation |
4,295 | 3,720 | 537 | 498 | ||||||||||||
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|
|||||||||
Funded status |
(750 | ) | (636 | ) | (467 | ) | (431 | ) | ||||||||
Unrecognized net experience losses |
1,620 | 1,509 | 180 | 188 | ||||||||||||
Unrecognized prior service cost |
1 | 1 | (4 | ) | (4 | ) | ||||||||||
Unrecognized initial net asset |
(475 | ) | (515 | ) | - | - | ||||||||||
Additional minimum liability |
(73 | ) | (37 | ) | - | - | ||||||||||
Nonadmitted asset |
(920 | ) | (851 | ) | - | - | ||||||||||
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Financial statement liability |
$ | (597 | ) | $ | (529 | ) | $ | (291 | ) | $ | (247 | ) | ||||
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The projected benefit obligation for defined benefit plans shown above included $685 million and $584 million related to nonqualified, unfunded plans at December 31, 2012 and 2011, respectively. In the aggregate, the fair value of qualified defined benefit plan assets represented 98% of the projected benefit obligations of these qualified plans at each of December 31, 2012 and 2011.
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
F-66
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
plans. Unrecognized net experience losses primarily reflect the impact of reductions in the PBO discount rate, including a total of $1.2 billion of net experience losses related to reductions in the discount rate from 5.75% at December 31, 2010 to 4.00% at December 31, 2012.
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 on a discretionary basis as a reduction of net periodic benefit cost until exhausted.
An additional minimum liability is required if a plans ABO exceeds plan assets or related financial statement liabilities. This additional liability was$73 million, $37 million and $14 million at December 31, 2012, 2011 and 2010, respectively. Changes in the additional minimum liability are reported as a direct adjustment to surplus in the consolidated statements of changes in surplus.
Any net pension assets for funded plans are nonadmitted and are thereby excluded from assets and surplus in the consolidated statements of financial position.
The components of net periodic benefit cost for the years ended December 31, 2012, 2011 and 2010 were as follows:
Defined Benefit Plans | Postretirement Benefit Plans | |||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Components of net periodic benefit cost: |
||||||||||||||||||||||||
Service cost of benefits earned |
$ | 131 | $ | 100 | $ | 84 | $ | 38 | $ | 26 | $ | 26 | ||||||||||||
Interest cost on projected obligations |
166 | 164 | 154 | 21 | 23 | 21 | ||||||||||||||||||
Amortization of experience gains and losses |
88 | 28 | 33 | 6 | 4 | 3 | ||||||||||||||||||
Amortization of initial net asset |
(40 | ) | - | (2 | ) | - | - | - | ||||||||||||||||
Expected return on plan assets |
(230 | ) | (222 | ) | (192 | ) | (5 | ) | (5 | ) | (5 | ) | ||||||||||||
|
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|||||||||||||
Net periodic benefit cost |
$ | 115 | $ | 70 | $ | 77 | $ | 60 | $ | 48 | $ | 45 | ||||||||||||
|
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|
The expected benefit payments by the defined benefit plans and the postretirement benefit plans for the years 2013 through 2022 are as follows:
Defined Benefit Plans |
Postretirement Benefit Plans |
|||||||
(in millions) | ||||||||
2013 |
$ | 113 | $ | 23 | ||||
2014 |
124 | 26 | ||||||
2015 |
137 | 29 | ||||||
2016 |
152 | 32 | ||||||
2017 |
168 | 35 | ||||||
2018-2022 |
1,147 | 233 | ||||||
|
|
|
|
|||||
Total |
$ | 1,841 | $ | 378 | ||||
|
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|
F-67
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Effective January 1, 2013, the Company will adopt Statement of Statutory Accounting Principle No. 92, Accounting for Postretirement Benefits Other Than Pensions, A Replacement of SSAP No. 14 (SSAP 92) and Statement of Statutory Accounting Principle No. 102, Accounting for Pensions, A Replacement of SSAP No. 89 (SSAP 102). These new statutory accounting standards will require that estimates of PBO and ABO include future benefit obligations due to non-vested participants. They will also require that the Companys surplus as reported in the consolidated statements of financial position fully reflect any net liability related to the plans projected benefit obligations, reduced by the fair value of any plan assets, including unrecognized net experience losses and prior service costs. Based on the funded status of the plans at December 31, 2012, the Company estimates that the new standards will reduce surplus by approximately $742 million once fully implemented. The new standards permit the Company an election to recognize this surplus reduction over a period of up to ten years, an election that the Company expects to make. The decrease in surplus during 2013 is estimated to be approximately $124 million, with additional annual reductions in surplus ranging from $94 million to $55 million during 2014-2022.
On January 23, 2013, the Companys Board of Trustees approved certain prospective amendments to defined pension benefits and postretirement benefits to be provided to employees for service beginning on January 1, 2014. These changes include an amendment of the benefit formula for the qualified employee defined benefit pension plan (and a related nonqualified employee defined benefit pension plan) to a hybrid cash balance formula. The accrued benefits for each participant under the current final average pay formula as of December 31, 2013 will be frozen and available to participants upon retirement. In addition, eligible participants will receive cash-balance credits to an account using the new formula beginning in 2014 based on age and years of service, as well as annual investment-related credits based on market interest rates and subject to a guaranteed minimum crediting rate. In addition, a second nonqualified employee defined benefit pension plan will be terminated, with accrued benefits as of January 1, 2014 also available to eligible participants upon retirement. The aggregate impact of these changes on the PBO for defined benefit plans as of January 31, 2013 is estimated to be approximately $355 million, which will be recorded as a direct increase in surplus during 2013. The Company does not expect to make a contribution to the defined benefit pension plan during 2013.
These Board-approved amendments also include an amendment of benefits provided to most participants of the employee postretirement medical plan that will limit the Companys exposure to the annual medical inflation rate for benefits to 3%. Any annual increase in medical costs in excess of 3% will be passed on to these participants in the form of increased plan premiums beginning January 1, 2019. This amendment to the postretirement medical plan will not impact any current plan participant age 65 or older on January 1, 2014. The impact of this amendment on the PBO for postretirement benefit plans as of January 31, 2013 is estimated to be approximately $150 million, which will be recorded as a direct increase in surplus during 2013.
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. In addition, the Company 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, 2012, 2011 and 2010, the Company expensed total contributions to these plans of $33 million, $32 million and $31 million, respectively.
F-68
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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.
Amounts in the consolidated financial statements are reported net of the impact of reinsurance. Reserves for policy benefits at each of December 31, 2012 and 2011 was 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, 2012, 2011 and 2010 were as follows:
For the year ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Direct premium revenue |
$ | 16,258 | $ | 15,457 | $ | 14,984 | ||||||
Premiums ceded |
(864 | ) | (839 | ) | (732 | ) | ||||||
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Net premium revenue |
$ | 15,394 | $ | 14,618 | $ | 14,252 | ||||||
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Direct benefit expense |
$ | 16,958 | $ | 15,999 | $ | 15,583 | ||||||
Benefits ceded |
(603 | ) | (495 | ) | (375 | ) | ||||||
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Net benefit expense |
$ | 16,355 | $ | 15,504 | $ | 15,208 | ||||||
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In addition, the Company received $166 million, $169 million and $146 million in allowances from reinsurers for reimbursement of commissions and other expenses on ceded business for the years ended December 31, 2012, 2011 and 2010, respectively. These amounts are reported in other income in the consolidated statements 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 that take effect if a reinsurers credit rating falls below a prescribed level. There were no reinsurance recoverables at December 31, 2012 and 2011 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-69
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
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 |
NM GP Holdings, LLC | |
NM Pebble Valley, LLC |
NM Investment Holdings, Inc. | |
Northwestern Mutual Real Estate Investments, LLC |
Northwestern Mutual Registry, LLC | |
Northwestern Mutual MU TLD Registry, LLC |
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 components of current income tax expense (benefit) in the consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010 related to ordinary taxable income or loss were as follows:
For the year ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Tax payable on ordinary income |
$ | 162 | $ | 99 | $ | (33 | ) | |||||
Tax credits |
(116 | ) | (116 | ) | (185 | ) | ||||||
Increase (decrease) in contingent tax liabilities |
(9 | ) | 23 | (6 | ) | |||||||
|
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|||||||
Total current tax expense (benefit) |
$ | 37 | $ | 6 | $ | (224 | ) | |||||
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In addition to current income tax expense (benefit) related to ordinary taxable income or loss as summarized above, the Company is subject to federal income tax on capital gains and losses that generally result from investment transactions. Investment capital gains and losses resulting from changes in market interest rates or credit spreads are deferred to the IMR net of any related tax expense or benefit. Current tax expense of $171 million, $226 million and $139 million was included in net IMR deferrals for the years ended December 31, 2012, 2011 and 2010, respectively. In addition, net realized capital gains and losses as reported in the consolidated statements of operations included current tax expense of $332 million, $252 million and $34 million for the years ended December 31, 2012, 2011 and 2010, respectively.
The Companys taxable income can vary significantly from pretax income as reported in the consolidated statements 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 14%, 15% and 8% for the years ended December 31, 2012, 2011 and 2010, 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
F-70
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
current tax expense or benefit on realized capital gains and losses and changes in deferred taxes not related to unrealized capital 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 deferred tax assets related to nonadmitted assets, certain investment transactions, amortization of the IMR, leveraged leases, tax credits, pension contributions, tax losses of subsidiaries not eligible for refunds for prior year losses under intercompany tax-sharing agreements, interest accrued or released on contingent tax liabilities and changes in contingent tax liabilities for permanent items upon subsequent filing of tax returns.
The Company made payments to the IRS for federal income taxes of $840 million, $460 million and $253 million during the years ended December 31, 2012, 2011 and 2010, respectively. Total federal income taxes paid (including refunds or overpayments applied) for tax years 2012, 2011 and 2010 of $993 million, $615 million and $298 million, respectively, are available as of December 31, 2012 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 statements 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 (contingent tax liabilities), at the respective reporting date.
Changes in contingent tax liabilities for the years ended December 31, 2012 and 2011 were as follows:
2012 | 2011 | |||||||
(in millions) | ||||||||
Balance at beginning of year |
$ | 436 | $ | 412 | ||||
Change in accounting principle |
7 | - | ||||||
Additions for tax positions of prior years |
7 | 24 | ||||||
Reductions for tax positions of prior years |
(16 | ) | - | |||||
|
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|
|||||
Balance at end of year |
$ | 434 | $ | 436 | ||||
|
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|
Included in contingent tax liabilities at December 31, 2012 and 2011 were $392 million and $394 million, respectively, 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. Also included in the December 31, 2012 balance are $12 million of tax positions for which the ultimate deductibility is not certain. The ultimate resolution of these tax positions could have an impact on the effective tax rate in future periods.
A more likely than not standard is applied for financial statement recognition of contingent tax liabilities, whereby a liability is only recorded if the Company believes that there is a greater than 50 percent likelihood that the related tax position will not be sustained upon examination. In cases where liability recognition is appropriate, a best estimate of the ultimate tax liability is made. If this estimate represents 50 percent or less of the total amount of the tax contingency, the best estimate is established as a liability. If this best estimate represents more than 50 percent of the total tax contingency, the total amount is established as a liability. Except for changes in
F-71
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
accounting principle, changes in contingent tax liabilities are included in tax expense (benefit) in the year that such determination is made by management.
The Company reports interest accrued or released related to contingent tax liabilities in current income tax expense (benefit). During the years ended December 31, 2012, 2011 and 2010, the Company recognized $(16) million, $16 million and $(28) million, respectively, in such interest-related tax expense (benefit). Contingent tax liabilities included $29 million and $43 million for the payment of interest at December 31, 2012 and 2011, respectively.
Deferred tax assets and liabilities represent the future tax recoveries or obligations associated with the accumulation of temporary differences between the tax and financial statement bases of the Companys assets and liabilities. The statutory basis of accounting limits the amount of gross deferred tax assets that can be admitted to surplus to those for which ultimate recoverability can be demonstrated. This limit is based on a calculation that considers available tax loss carryback and carryforward capacity, the expected timing of reversal for accumulated temporary differences, gross deferred tax liabilities and the level of Company surplus. The components of net deferred tax assets reported in the consolidated statements of financial position at December 31, 2012 and 2011 were as follows:
December 31, | ||||||||||||
2012 | 2011 | Change | ||||||||||
(in millions) | ||||||||||||
Deferred tax assets: |
||||||||||||
Policy acquisition costs |
$ | 1,094 | $ | 1,050 | $ | 44 | ||||||
Investments |
404 | 371 | 33 | |||||||||
Policy benefit liabilities |
1,947 | 1,867 | 80 | |||||||||
Benefit plan obligations |
598 | 547 | 51 | |||||||||
Guaranty fund assessments |
11 | 11 | - | |||||||||
Other |
95 | 93 | 2 | |||||||||
Valuation adjustment |
- | - | - | |||||||||
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|
|
|
|||||||
Gross deferred tax assets |
4,149 | 3,939 | 210 | |||||||||
Nonadmitted deferred tax assets |
(78 | ) | (38 | ) | (40 | ) | ||||||
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|||||||
Gross admitted deferred tax assets |
4,071 | 3,901 | 170 | |||||||||
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|||||||
Deferred tax liabilities: |
||||||||||||
Investments |
780 | 824 | (44 | ) | ||||||||
Other |
735 | 721 | 14 | |||||||||
|
|
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|
|
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|||||||
Gross deferred tax liabilities |
1,515 | 1,545 | (30 | ) | ||||||||
|
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|||||||
Net deferred tax assets |
$ | 2,556 | $ | 2,356 | $ | 200 | ||||||
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F-72
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Changes in deferred tax assets and liabilities related to unrealized capital gains and losses on investments are included in changes in unrealized capital gains and losses in the consolidated statements of changes in surplus. Other net changes in deferred tax assets and liabilities are reported as direct adjustments to surplus in the consolidated statements of changes in surplus.
Gross deferred tax assets at December 31, 2012 and 2011 included $3.7 billion and $3.8 billion, respectively, related to temporary differences that were ordinary in nature and $0.4 billion and $0.2 billion, respectively, related to temporary differences that were capital in nature. Gross deferred tax liabilities at December 31, 2012 and 2011 included $0.7 billion and $0.9 billion, respectively, related to temporary differences that were ordinary in nature and $0.8 billion and $0.6 billion, respectively, related to temporary differences that were capital in nature. All gross deferred tax liabilities have been recognized at December 31, 2012 and 2011. The Company did not assume any benefit from future tax planning strategies in its valuation of gross deferred tax assets at either December 31, 2012 or 2011.
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 gross deferred tax assets that can be admitted to surplus compared to previous guidance. SSAP 10R 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%. At December 31, 2011, the Company exceeded the minimum RBC level required to use the new calculation under SSAP 10R.
If the Company had not qualified to use the new calculation, its gross deferred tax assets would have exceeded the previous limitation by $457 million at December 31, 2011, which would have reduced surplus in the consolidated statements of financial position at that date. Of this amount, $457 million was ordinary in nature.
Effective January 1, 2012, the Company adopted Statement of Statutory Accounting Principles No. 101 Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10 (SSAP 101). SSAP 101 included a similar calculation for limitation of gross deferred tax assets 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 the 300% minimum RBC requirement at December 31, 2012 and expects to exceed this minimum during 2013. SSAP 101 also changed the recognition and measurement criteria for contingent tax liabilities. The adoption of SSAP 101 was reported as a change in accounting principle that resulted in a direct reduction in surplus of $15 million in the consolidated statements of changes in surplus for the year ended December 31, 2012. The adoption of SSAP 101 did not have a material impact on results of operations for the year ended December 31, 2012 compared to the years ended December 31, 2011 and 2010.
F-73
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Significant components of the calculation of net deferred tax assets at December 31, 2012 and 2011 were as follows (in millions):
December 31, 2012 | December 31, 2011 | Change | ||||||||||||||||||||||||||||||||||
Ordinary | Capital | Total | Ordinary | Capital | Total | Ordinary | Capital | Total | ||||||||||||||||||||||||||||
Gross deferred tax assets | $ | 3,745 | $ | 404 | $ | 4,149 | $ | 3,765 | $ | 174 | $ | ,939 | $ | (20 | ) | $ | 230 | $ | 210 | |||||||||||||||||
Statutory valuation allowance adjustment | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
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Adjusted gross deferred tax assets | 3,745 | 404 | 4,149 | 3,765 | 174 | 3,939 | (20 | ) | 230 | 210 | ||||||||||||||||||||||||||
Deferred tax assets nonadmitted | 78 | - | 78 | 11 | 27 | 38 | 67 | (27 | ) | 40 | ||||||||||||||||||||||||||
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Subtotal net admitted deferred tax asset | 3,667 | 404 | 4,071 | 3,754 | 147 | 3,901 | (87 | ) | 257 | 170 | ||||||||||||||||||||||||||
Deferred tax liabilities | 735 | 780 | 1,515 | 925 | 620 | 1,545 | (190 | ) | 160 | (30 | ) | |||||||||||||||||||||||||
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Net admitted deferred tax asset/liability | $ | 2,932 | $ | (376 | ) | $ | 2,556 | $ | 2,829 | $ | (473 | ) | $ | 2,356 | $ | 103 | $ | 97 | $ | 200 | ||||||||||||||||
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December 31, 2012 | December 31, 2011 | Change | ||||||||||||||||||||||||||||||||||
Ordinary | Capital | Total | Ordinary | Capital | Total | Ordinary | Capital | Total | ||||||||||||||||||||||||||||
Federal income taxes paid in prior years recoverable through loss carrybacks | $ | 1,933 | $ | 235 | $ | 2,168 | $ | 1,062 | $ | 60 | $ | 1,122 | $ | 871 | $ | 175 | $ | 1,046 | ||||||||||||||||||
Adjusted gross deferred tax assets expected to be realized (excluding the amount of deferred tax assets above) after application of the threshold limitation (lesser of a. or b. below) | 737 | - | 737 | 1,539 | - | 1,539 | (802 | ) | - | (802 | ) | |||||||||||||||||||||||||
Adjusted gross deferred tax assets (excluding the amount of deferred tax assets offset by gross deferred tax liabilities | 997 | 169 | 1,166 | 1,154 | 86 | 1,240 | (157 | ) | 83 | (74 | ) | |||||||||||||||||||||||||
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Total deferred tax assets admitted as the result of application of SSAP No. 101 | $ | 3,667 | $ | 404 | $ | 4,071 | $ | 3,755 | $ | 146 | $ | 3,901 | $ | (88 | ) | $ | 258 | $ | 170 | |||||||||||||||||
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a. Adjusted gross deferred tax assets expected to be realized following the balance sheet date | $ | 737 | $ | 1,539 | $ | (802 | ) | |||||||||||||||||||||||||||||
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b. Adjusted gross deferred tax assets allowed per limitation threshold | $ | 2,032 | $ | 1,846 | $ | 186 | ||||||||||||||||||||||||||||||
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Ratio percentage used to determine recovery period and threshold limitation amount | 1022 | % | 874 | % | ||||||||||||||||||||||||||||||||
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Amount of adjusted capital and surplus used to determine recovery period and threshold limitation | $ | 13,546 | $ | 12,309 | ||||||||||||||||||||||||||||||||
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11. | Frank Russell Company |
The Company is the majority shareholder in Frank Russell Company (Russell), which provides investment products and services through 24 offices worldwide. At December 31, 2012 and 2011, the Company owned 92.6% and 93.4%, respectively, of the outstanding common stock of
F-74
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Russell, which was reported at$402 million and $418 million, respectively, in the consolidated statements of financial position.
The Companys investment in Russell common stock is valued using a practice permitted by the OCI, based on the Companys share of Russells audited GAAP-basis equity exclusive of any adjustment for unamortized acquisition goodwill in Russells GAAP-basis financial statements. Under Statement of Statutory Accounting Principle No. 97, Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88 (SSAP 97), the Companys statutory equity method valuation of its investment in Russell would be required to be reduced by its share of Russells GAAP goodwill. If the Company had not received permission for this alternative accounting treatment, surplus as reported in the consolidated statements of financial position would have been lower by $785 million and $772 million at December 31, 2012 and 2011, respectively, and net income as reported in the consolidated statements of operations would have been lower by $12 million, $13 million and $14 million for the years ended December 31, 2012, 2011 and 2010, respectively. The Company estimates the fair value of its Russell common stock ownership to be $1.5 billion and $1.4 billion at December 31, 2012 and 2011, 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 and 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, 2012, 2011 and 2010, of which $2 million, $8 million and $23 million, respectively, was reported as net investment income in the consolidated statements of operations.
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 in dividends on Russell senior preferred stock for each of the years ended December 31, 2012, 2011 and 2010.
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, including detachable warrants, is callable under certain conditions and pays preferred dividends at a rate of 10.00%, payable semi-annually. Of this amount, $44 million of junior preferred stock remained outstanding at each of December 31, 2012 and 2011. The Company earned $4 million, $4 million and $32 million in dividends on Russell junior preferred stock for the years ended December 31, 2012, 2011 and 2010, 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 was reported as an unrealized capital gain in the consolidated statements 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 purchase up to $50 million of fixed-income notes issued by Russell. At December 31, 2012 and 2011, $0 and $25 million, respectively, of fixed-income notes were outstanding and included in bonds in the consolidated statements of financial position. The notes bear interest at 4.79% and were fully repaid during
F-75
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
2012. The remaining unfunded commitment of $25 million was extended during 2012 and will expire on December 15, 2013.
During 2011, Russell entered into a revolving line of credit for 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. During 2012, this revolving line of credit was extended to December 1, 2013. The Company recorded revenue of $2.4 million and $1.7 million from Russell related to the guarantee of this credit facility during the years ended December 31, 2012 and 2011, respectively, which was included in net investment income in the consolidated statements of operations. Russells borrowings under these facilities were $170 million and $163 million at December 31, 2012 and 2011, 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, 2012 and 2011 were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Common stock |
$ | 402 | $ | 418 | ||||
Fixed income notes |
- | 25 | ||||||
Senior preferred stock |
350 | 350 | ||||||
Junior preferred stock |
42 | 42 | ||||||
Warrants |
2 | 2 | ||||||
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Total |
$ | 796 | $ | 837 | ||||
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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 pursue recovery of payments made under the agreements. The terms of these guarantees range from less than one year to twenty-three years at December 31, 2012.
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 was reported as a change in accounting principle and resulted in a $5 million direct reduction of surplus in the consolidated statements of changes in surplus for the year ended December 31, 2011. Prior to the adoption of SSAP 5R, the recognition of a financial statement liability was only required in circumstances where it was considered likely that performance under the guarantee would be required.
F-76
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Following is a summary of the guarantees provided by the Company that were outstanding at December 31, 2012 and 2011, including both the maximum potential exposure under the guarantees and the financial statement liability reported based on estimated fair value of the guarantees:
December 31, 2012 |
December 31, 2011 |
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Nature of guarantee |
Maximum potential amount of future payments |
Financial statement liability |
Maximum potential amount of future payments |
Financial statement liability |
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(in millions) | (in millions) | |||||||||||||||
Guarantees of future minimum compensation - financial representatives |
$ | 206 | $ | 3 | $ | 133 | $ | 2 | ||||||||
Guarantees of operating leases - financial representatives |
381 | 4 | 305 | 3 | ||||||||||||
Guarantees of obligations of affiliates |
175 | - | 168 | 1 | ||||||||||||
Guarantees issued on behalf of wholly-owned subsidiaries |
8 | - | 8 | - | ||||||||||||
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Total contingencies and guarantees |
$ | 770 | $ | 7 | $ | 614 | $ | 6 | ||||||||
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No payments have been required under these guarantees to date, 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 behalf of which 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 $3.5 billion at December 31, 2012 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, 2012 and 2011. 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 that would have a material effect on the Companys financial position at December 31, 2012.
F-77
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
13. | Related Party Transactions |
During 2011, 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 was$161 million and $205 million, respectively. These transactions were accounted for at the lower of statement value or fair value at the time of the transfer and did not have a material impact on the Companys financial statements for the year ended December 31, 2011. No such transfers were made to unconsolidated subsidiaries during 2012.
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 in interest expense on the notes for each of the years ended December 31, 2012 and 2011, which is reported as a reduction of net investment income in the consolidated statements of operations. Cumulative interest of $266 million has been paid on the notes through December 31, 2012.
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 a defined U.S. Treasury rate plus 0.25%.
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 face amount of notes at each of December 31, 2012 and 2011.
F-78
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
15. | Fair Value of Financial Instruments |
Certain of the Companys assets and liabilities are considered financial instruments as defined by Statement of Statutory Principles No. 100, Fair Value Measurements (SSAP 100). For financial instruments included in the scope of SSAP 100, the statement value and fair value at December 31, 2012 and 2011 were as follows:
December 31, 2012 | ||||||||||||||||||||
Statement Value |
Fair Value |
Quoted prices in active markets for identical assets (level 1) |
Significant observable inputs (level 2) |
Significant unobservable inputs (level 3) |
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(in millions) | ||||||||||||||||||||
General account investment assets: |
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Bonds |
$ | 114,524 | $ | 126,278 | $ | 5,624 | $ | 118,636 | $ | 2,018 | ||||||||||
Mortgage loans |
24,346 | 26,589 | - | - | 26,589 | |||||||||||||||
Policy loans |
15,789 | 15,789 | - | - | 15,789 | |||||||||||||||
Common and preferred stocks |
3,431 | 3,464 | 2,175 | 229 | 1,060 | |||||||||||||||
Derivative assets |
106 | 249 | 5 | 244 | - | |||||||||||||||
Surplus note investments |
127 | 175 | - | 175 | - | |||||||||||||||
Collateral loans |
42 | 42 | - | - | 42 | |||||||||||||||
Cash and temporary investments |
2,393 | 2,393 | 274 | 2,119 | - | |||||||||||||||
Separate account assets |
21,376 | 21,376 | 19,731 | 1,352 | 293 | |||||||||||||||
General account liabilities: |
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Investment-type insurance reserves |
$ | 5,481 | $ | 5,256 | $ | - | $ | - | $ | 5,256 | ||||||||||
Liabilities for securities lending |
816 | 816 | - | 816 | - | |||||||||||||||
Derivative liabilities |
123 | 84 | - | 84 | - | |||||||||||||||
Separate account liabilities |
21,376 | 21,376 | 19,731 | 1,352 | 293 |
F-79
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
December 31, 2011 | |||||||||||||||||||||||||
Statement Value |
Fair Value |
Quoted prices in active markets for identical assets (level 1) |
Significant observable inputs (level 2) |
Significant unobservable inputs (level 3) | |||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||
General account investment assets: |
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Bonds |
$ | 103,753 | $ | 112,259 | $ | 5,598 | $ | 104,552 | $ | 2,109 | |||||||||||||||
Mortgage loans |
22,804 | 24,463 | - | - | 24,463 | ||||||||||||||||||||
Policy loans |
15,147 | 15,147 | - | - | 15,147 | ||||||||||||||||||||
Common and preferred stocks |
6,429 | 6,460 | 5,107 | 274 | 1,079 | ||||||||||||||||||||
Derivative assets |
156 | 327 | - | 327 | - | ||||||||||||||||||||
Surplus note investments |
127 | 157 | - | 157 | - | ||||||||||||||||||||
Collateral loans |
43 | 43 | - | - | 43 | ||||||||||||||||||||
Cash and temporary investments |
2,421 | 2,421 | 1,994 | 1,227 | - | ||||||||||||||||||||
Separate account assets |
18,697 | 18,697 | 17,449 | 1,018 | 230 | ||||||||||||||||||||
General account liabilities: |
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Investment-type insurance reserves |
$ | 5,321 | $ | 5,039 | $ | - | $ | - | $ | 5,039 | |||||||||||||||
Liabilities for securities lending |
1,331 | 1,331 | - | 1,331 | - | ||||||||||||||||||||
Derivative liabilities |
89 | 51 | - | 51 | - | ||||||||||||||||||||
Separate account liabilities |
18,697 | 18,697 | 17,449 | 1,018 | 230 |
The Companys estimation of fair value for financial instruments uses a hierarchy that, where possible, makes use of quoted market prices from active and transparent markets for assets that are identical to those being valued, typically obtained from independent pricing services (level 1). In absence of quoted market prices for identical assets, fair value is estimated by these pricing services using relevant and observable market-based inputs for substantially similar securities (level 2). Financial instruments for which no quoted market prices or observable inputs are available are generally valued by Company personnel based on internally-developed pricing models or indicative (i.e., non-binding) quotes from independent securities brokers (level 3).
The Company performs active quality control over fair value estimates received from independent pricing services at each financial reporting date, including analysis of valuation changes for individual securities compared to overall market trends and validation on an exception basis with internally-developed pricing models. The Company also performs periodic reviews of the information sources, inputs and methods used by its independent pricing services, including an evaluation of their control processes. Where necessary, the Company will challenge these third-party valuations or methods and require more observable inputs or different methodologies.
Bonds
Bonds classified as level 1 financial instruments are generally limited to U.S. Treasury securities. Most bonds, including U.S. and foreign public and private corporate bonds, municipal bonds and
F-80
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
structured securities, are classified as level 2 financial instruments and are valued based on prices obtained from independent pricing services or internally-developed pricing models using observable inputs. Typical market-observable inputs include benchmark yields, reported trades, issuer spreads, bids, offers, benchmark securities, estimated cash flows and prepayment speeds. Level 3 bonds are typically privately-placed and relatively illiquid, with fair value based on non-binding broker quotes or internally-developed pricing models utilizing unobservable inputs. See Note 3 for more information regarding the Companys investments in bonds.
Mortgage Loans
Mortgage loans consist solely of commercial mortgage loans underwritten and originated by the Company. Fair value of these loans is estimated by Company personnel using a discounted cash flow approach based on market interest rates for commercial mortgage debt with comparable credit risk and maturity. See Note 3 more information regarding the Companys investments in mortgage loans.
Policy Loans
See Note 2 for information regarding policy loans, for which the Company considers the unpaid principal balance to approximate fair value.
Common and Preferred Stock
Common and preferred stocks classified as level 1 financial instruments are limited to those actively traded on a U.S. or foreign stock exchange. Level 2 securities are stocks for which market quotes are available but which are not considered to be actively traded. Common and preferred stocks classified as level 3 are generally privately-placed with fair value based on internally-developed pricing models utilizing unobservable inputs. See Note 3 for more information regarding the Companys investments in common and preferred stocks.
Derivative Instruments
Except for exchange-traded futures contracts classified as level 1 financial instruments, the Companys derivative assets and liabilities generally represent those traded in over-the-counter (OTC) markets for which fair value is estimated by Company personnel using industry-standard models with market-observable inputs such as swap yield curves, London Interbank Offered Rate (LIBOR) basis curves, foreign currency spot rates, foreign currency basis curves, option volatilities and credit spreads.
Cash and Temporary Investments
Cash and temporary investments include cash deposit balances, money market funds, short-term commercial paper and other highly-liquid debt instruments, for which the Company considers amortized cost to approximate fair value.
Separate Account Assets and Liabilities
See Note 2 and Note 7 for information regarding the Companys separate accounts, for which fair value is based primarily on quoted market prices for the related common stocks, preferred stocks, bonds, derivative instruments and other investments. Separate account assets classified as level 3 financial instruments are primarily securities partnership investments that are valued based on the Companys underlying equity in the partnerships which the Company considers to approximate fair value.
General Account Insurance Reserves
The Companys general account insurance liabilities defined as financial instruments under SSAP 100 are limited to investment-type products such as fixed-rate annuity policies, supplementary
F-81
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
contracts without life contingencies and amounts left on deposit. The fair value of investment-type insurance reserves is estimated by Company personnel based on future cash flows discounted at market interest rates for similar instruments with comparable maturities.
Securities Lending Liabilities
See Note 3 for information regarding securities lending activity, for which the Company considers the amortized cost basis of the liability to return collateral to approximate fair value.
Assets and liabilities that are reported at fair value at the end of one reporting period and are also reported at fair value at the end of the subsequent reporting period are considered to be measured at fair value on a recurring basis under SSAP 100. The following tables summarize assets and liabilities measured at fair value on a recurring basis in the consolidated statements of financial position at December 31, 2012 and 2011.
December 31, 2012 | ||||||||||||||||
Quoted prices in active markets for identical assets (level 1) |
Significant observable inputs (level 2) |
Significant unobservable inputs (level 3) |
Total | |||||||||||||
General account common and preferred stocks |
$ | 2,175 | $ | 53 | $ | 609 | $ | 2,837 | ||||||||
General account bonds |
- | 141 | 67 | 208 | ||||||||||||
Derivative assets at fair value: |
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Equity total return swaps (investment replication) |
- | 3 | - | 3 | ||||||||||||
Fixed income futures |
5 | - | - | 5 | ||||||||||||
Foreign currency forwards |
- | 1 | - | 1 | ||||||||||||
Swaptions |
- | 67 | - | 67 | ||||||||||||
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Total derivative assets at fair value |
5 | 71 | - | 76 | ||||||||||||
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Derivative liabilities at fair value: |
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Purchased credit default swaps |
- | (2 | ) | - | (2 | ) | ||||||||||
Foreign currency forwards |
- | (20 | ) | - | (20 | ) | ||||||||||
Equity total return swaps |
- | (1 | ) | - | (1 | ) | ||||||||||
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Total derivative liabilities at fair value |
- | (23 | ) | - | (23 | ) | ||||||||||
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Net derivatives at fair value |
5 | 48 | - | 53 | ||||||||||||
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Separate accounts: |
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Mutual fund investments |
17,727 | - | - | 17,727 | ||||||||||||
Other benefit plan assets/liabilities |
21 | 10 | 3 | 34 | ||||||||||||
Pension and postretirement assets: |
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Bonds |
100 | 1,049 | 28 | 1,177 | ||||||||||||
Common and preferred stock |
1,873 | 12 | 16 | 1,901 | ||||||||||||
Cash and short term securities |
15 | 271 | - | 286 | ||||||||||||
Other assets/liabilities |
(5 | ) | 10 | 246 | 251 | |||||||||||
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|
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Subtotal pension and postretirement assets |
1,983 | 1,342 | 290 | 3,615 | ||||||||||||
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Total separate accounts |
$ | 19,731 | $ | 1,352 | $ | 293 | $ | 21,376 | ||||||||
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F-82
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
December 31, 2011 | ||||||||||||||||
Quoted prices in active markets for identical assets (level 1) |
Significant observable inputs (level 2) |
Significant unobservable inputs (level 3) |
Total | |||||||||||||
(in millions) | ||||||||||||||||
General account common and preferred stocks |
$ | 5,107 | $ | 49 | $ | 602 | $ | 5,758 | ||||||||
General account bonds |
- | 260 | 71 | 331 | ||||||||||||
Derivative assets at fair value: |
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Purchased credit default swaps |
- | 1 | - | 1 | ||||||||||||
Swaptions |
- | 81 | - | 81 | ||||||||||||
Foreign currency forwards |
- | 38 | - | 38 | ||||||||||||
Equity total return swaps |
- | 2 | - | 2 | ||||||||||||
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Total derivative assets at fair value |
- | 122 | - | 122 | ||||||||||||
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Derivative liabilities at fair value: |
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Purchased credit default swaps |
- | (3 | ) | - | (3 | ) | ||||||||||
Foreign currency forwards |
- | (7 | ) | - | (7 | ) | ||||||||||
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Total derivative liabilities at fair value |
- | (10 | ) | - | (10 | ) | ||||||||||
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Net derivatives at fair value |
- | 112 | - | 112 | ||||||||||||
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Separate accounts: |
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Mutual fund investments |
15,510 | - | - | 15,510 | ||||||||||||
Other benefit plan assets |
26 | 8 | 2 | 36 | ||||||||||||
Pension and postretirement assets: |
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Bonds |
122 | 927 | - | 1,049 | ||||||||||||
Common and preferred stock |
1,796 | 14 | 15 | 1,825 | ||||||||||||
Cash and short term securities |
1 | 64 | - | 65 | ||||||||||||
Other assets/liabilities |
(6 | ) | 5 | 213 | 212 | |||||||||||
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|
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Subtotal pension and postretirement assets |
1,913 | 1,010 | 228 | 3,151 | ||||||||||||
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Total separate accounts |
$ | 17,449 | $ | 1,018 | $ | 230 | $ | 18,697 | ||||||||
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The Company may reclassify assets reported at fair value on a recurring basis between levels of the SSAP 100 fair value hierarchy if appropriate based on changes in the quality of valuation 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, 2012 or 2011.
F-83
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
The following tables summarize the changes in fair value of level 3 financial instruments for the years ended December 31, 2012 and 2011.
Separate account pension and postretirement | ||||||||||||||||||||||||||||
For the year ended December 31, 2012 |
General account common and preferred stock |
General account bonds |
Separate account other benefit plan assets |
Bonds | Common and preferred stock |
Other assets/liabilities |
Total | |||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Fair value, beginning of period |
$ | 602 | $ | 71 | $ | 2 | $ | - | $ | 15 | $ | 213 | $ | 903 | ||||||||||||||
Realized gains/(losses) |
16 | (48 | ) | - | - | - | 18 | (14 | ) | |||||||||||||||||||
Unrealized gains/(losses) |
46 | 54 | 1 | 4 | 2 | 15 | 122 | |||||||||||||||||||||
Issuances |
- | - | - | - | - | - | - | |||||||||||||||||||||
Purchases |
33 | - | - | 8 | 2 | 53 | 96 | |||||||||||||||||||||
Sales |
(53 | ) | - | - | - | (1 | ) | (53 | ) | (107 | ) | |||||||||||||||||
Settlements |
(7 | ) | (2 | ) | - | - | (1 | ) | - | (10 | ) | |||||||||||||||||
Net discount/premium |
- | - | - | - | - | - | - | |||||||||||||||||||||
Transfers into Level 3 |
4 | 1 | - | 16 | - | - | 21 | |||||||||||||||||||||
Transfers out of Level 3 |
(32 | ) | (9 | ) | - | - | (1 | ) | - | (42 | ) | |||||||||||||||||
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Fair value, end of period |
$ | 609 | $ | 67 | $ | 3 | $ | 28 | $ | 16 | $ | 246 | $ | 969 | ||||||||||||||
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F-84
The Northwestern Mutual Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
Separate account pension and postretirement | |||||||||||||||||||||||||||||||||||
For the year ended December 31, 2011 |
General account common and preferred stock |
General account bonds |
Separate account other benefit plan assets |
Bonds | Common and preferred stock |
Other assets/liabilities |
Total | ||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
Fair value, beginning of period |
$ | 635 | $ | 189 | $ | 1 | $ | 7 | $ | 20 | $ | 194 | $ | 1,046 | |||||||||||||||||||||
Realized gains/(losses) |
(5 | ) | (2 | ) | - | 1 | 2 | 17 | 13 | ||||||||||||||||||||||||||
Unrealized gains/(losses) |
(14 | ) | (9 | ) | - | (5 | ) | (1 | ) | 5 | (24 | ) | |||||||||||||||||||||||
Issuances |
- | - | - | - | - | 10 | 10 | ||||||||||||||||||||||||||||
Purchases |
102 | 33 | 1 | 4 | 7 | 27 | 174 | ||||||||||||||||||||||||||||
Sales |
(118 | ) | (184 | ) | - | (6 | ) | (6 | ) | (1 | ) | (315 | ) | ||||||||||||||||||||||
Settlements |
- | - | - | (1 | ) | (3 | ) | (39 | ) | (43 | ) | ||||||||||||||||||||||||
Net discount/premium |
- | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Transfers into Level 3 |
6 | 66 | - | - | - | - | 72 | ||||||||||||||||||||||||||||
Transfers out of Level 3 |
(4 | ) | (22 | ) | - | - | (4 | ) | - | (30 | ) | ||||||||||||||||||||||||
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Fair value, end of period |
$ | 602 | $ | 71 | $ | 2 | $ | - | $ | 15 | $ | 213 | $ | 903 | |||||||||||||||||||||
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The following table presents certain quantitative information about the unobservable inputs used to estimate fair value measurement for general account bonds, privately-placed equity and convertible securities classified as level 3 financial instruments at December 31, 2012.
Fair Value (in millions) |
Valuation Techniques |
Significant Inputs |
Range | Weighted Average | |||||||||||||||
General account bonds |
$ | 67 | Broker quotes | Quoted prices | 6.75 - 70.00 | 62.43 | |||||||||||||
General account common and preferred stocks |
$ | 609 | Sponsor valuations | EBITDA multiples | 5.60 - 11.50 | 8.21 | |||||||||||||
Market comparables | EBITDA multiples | 5.20 - 12.20 | 8.77 | ||||||||||||||||
Market comparables | Book Value multiples | 1.20 - 1.31 | 1.26 |
F-85
Independent Auditors Report
To the Board of Trustees and Policyowners of
The Northwestern Mutual Life Insurance Company
We have audited the accompanying consolidated statutory financial statements of The Northwestern Mutual Life Insurance Company and its subsidiary (the Company), which are comprised of the consolidated statutory statements of financial position as of December 31, 2012 and 2011, and the related consolidated statutory statements of operations, and of changes in surplus, and of cash flows for each of the three years ended December 31, 2012.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the consolidated 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 consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Companys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Basis for Adverse Opinion on U.S.Generally Accepted Accounting Principles
As described in Note 1 to the consolidated financial statements, the consolidated financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the Office of the Commissioner of Insurance of the State of Wisconsin, which is a basis of accounting other than accounting principles generally accepted in the United States of America.
The effects on the consolidated financial statements of the variances between the statutory basis of accounting described in Note 1 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.
F-86
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles paragraph, the consolidated financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2012 and 2011, or the results of their operations or their cash flows for each of the three years ended December 31, 2012.
Opinion on Statutory Basis of Accounting
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years ended December 31, 2012, in accordance with the accounting practices prescribed or permitted by the Office of the Insurance Commissioner of the State of Wisconsin described in Note 1.
February 27, 2013
F-87
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