485BPOS 1 d151819d485bpos.htm NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT (VJL) NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT (VJL)
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Registration No. 333-59103

Registration No. 811-03989

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-6

 

  REGISTRATION STATEMENT UNDER THE SECURITIES    
      ACT OF 1933   /      /  
        Pre-Effective Amendment No.        /      /  
        Post-Effective Amendment No.  28    / X /  
      and/or    
  REGISTRATION STATEMENT UNDER THE INVESTMENT    
            COMPANY ACT OF 1940   /      /  
          Amendment No.   71     / X /  

(Check appropriate box or boxes.)

NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT

 

(Exact Name of Registrant)

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY

 

(Name of Depositor)  

                                 720 East Wisconsin Avenue, Milwaukee, Wisconsin                            53202

 

                                     (Address of Depositor’s Principal Executive Offices)                        (Zip Code)

Depositor’s Telephone Number, including Area Code 414-271-1444

RAYMOND J. MANISTA, General Counsel and Secretary

The Northwestern Mutual Life Insurance Company

720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202

 

(Name and Address of Agent for Service)

Copy to:

Chad E. Fickett, Assistant General Counsel

The Northwestern Mutual Life Insurance Company

720 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

414-665-1209

Approximate Date of Proposed Public Offering                       Continuous                             

It is proposed that this filing will become effective (check appropriate space)

 

             immediately upon filing pursuant to paragraph (b) of Rule 485
   X       on May 1, 2016 pursuant to paragraph (b) of Rule 485
             60 days after filing pursuant to paragraph (a)(1) of Rule 485
             on pursuant to paragraph (a)(1) of Rule 485
             this post-effective amendment designates a new effective date for a
             previously filed post-effective amendment.

Title of Securities Being Registered: Interests in the Northwestern Mutual Variable Life Account under flexible premium variable joint life insurance policies.


Table of Contents

Prospectus

May 1, 2016

Variable Joint Life

Issued by The Northwestern Mutual Life Insurance Company

and the Northwestern Mutual Variable Life Account

 

 

This prospectus describes a flexible premium Variable Joint Life Insurance Policy with insurance payable on second death (the “Policy”). You may choose to invest your Net Premiums in up to 30 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

Focused Appreciation Portfolio

Large Cap Core Stock Portfolio

Large Cap Blend Portfolio

Index 500 Stock Portfolio

Large Company Value Portfolio

Domestic Equity Portfolio

Equity Income Portfolio

Mid Cap Growth Stock Portfolio

Index 400 Stock Portfolio

Mid Cap Value Portfolio

Small Cap Growth Stock Portfolio

Index 600 Stock Portfolio

Small Cap Value Portfolio

International Growth Portfolio

Research International Core Portfolio

International Equity Portfolio

Emerging Markets Equity Portfolio

Government Money Market Portfolio

Short-Term Bond Portfolio

Select Bond Portfolio

Long-Term U.S. Government Bond Portfolio

Inflation Protection Portfolio

High Yield Bond Portfolio

Multi-Sector Bond Portfolio

Balanced Portfolio

Asset Allocation Portfolio

Fidelity® Variable Insurance Products

VIP Mid Cap Portfolio

VIP Contrafund® Portfolio

Neuberger Berman Advisers Management Trust

Socially Responsive Portfolio

Russell Investment Funds

Multi-Style Equity Fund

Aggressive Equity Fund

Global Real Estate Securities Fund

Non-U.S. Fund

Core Bond Fund

Russell Investment Funds LifePoints®

Variable Target Portfolio Series

Moderate Strategy Fund

Balanced Strategy Fund

Growth Strategy Fund

Equity Growth Strategy Fund

Credit Suisse Trust

Commodity Return Strategy Portfolio

 

 

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.

 

 

 

LOGO


Table of Contents

Contents for this Prospectus

 

     Page  

SUMMARY OF BENEFITS AND RISKS

     1   

Benefits of the Policy

     1   

Death Benefit

     1   

Access to Your Values

     1   

Flexibility

     1   

Income Plan Options

     1   

Tax Benefits

     1   

Risks of the Policy

     1   

Investment Risk

     1   

Default Risk

     1   

Policy for Long-Term Protection

     1   

Policy Lapse

     1   

Policy Loan Risks

     1   

Limitations on Access to Your Values

     2   

Adverse Tax Consequences

     2   

Risk of an Increase in Current Fees and Expenses

     2   

FEE AND EXPENSE TABLES

     2   

Transaction Fees

     2   

Periodic Charges (Other than Portfolio Operating Expenses)

     3   

Annual Portfolio Operating Expenses

     5   

NORTHWESTERN MUTUAL

     5   

THE SEPARATE ACCOUNT

     5   

THE FUNDS

     6   

Northwestern Mutual Series Fund, Inc. (the “Series Fund”

     6   

Fidelity® Variable Insurance Products

     8   

Neuberger Berman Advisers Management Trust

     8   

Russell Investment Funds

     8   

Credit Suisse Trust

     9   

Payments We Receive

     9   

INFORMATION ABOUT THE POLICY

     9   

Availability Limitations

     9   

Premiums

     9   

Policy Value

     10   

Death Benefit

     10   

Death Benefit Options

     10   

Minimum Death Benefit

     11   

Death Benefit Changes

     11   

Allocating Premiums to the Separate Account

     12   

Transfer Between Divisions

     12   

Short-Term and Excessive Trading

     12   

Automatic Dollar-Cost Averaging

     14   

Portfolio Rebalancing

     14   

Allocation Models

     14   

Charges and Expenses

     14   

Premium Expense Charges

     14   
     Page  

Charges Against the Policy Value

     15   

Surrender Charge

     16   

Expenses of the Portfolios

     16   

Cash Value

     16   

Policy Loans

     16   

Surrenders and Withdrawals of Cash Value

     17   

Surrenders

     17   

Withdrawals

     17   

Termination and Reinstatement

     18   

Reinvestments After Surrender or Withdrawal

     18   

Right to Exchange for a Fixed Benefit Policy

     19   

Modifying the Policy

     19   

Other Policy Provisions

     19   

Owner

     19   

Beneficiary

     19   

Incontestability

     19   

Suicide

     20   

Misstatement of Age or Sex

     20   

Collateral Assignment

     20   

Deferral of Determination and Payment

     20   

Dividends

     20   

Voting Rights

     20   

Substitution of Portfolio Shares and Other Changes

     20   

Reports and Financial Statements

     20   

Householding

     21   

Abandoned Property Requirements

     21   

Cybersecurity

     21   

Legal Proceedings

     21   

Speculative Investing

     21   

Owner Inquiries

     21   

Illustrations

     22   

TAX CONSIDERATIONS

     22   

General

     22   

Life Insurance Qualification

     22   

Tax Treatment of Life Insurance

     22   

Modified Endowment Contracts (MEC)

     23   

Estate and Generation Skipping Taxes

     24   

Business-Owned Life Insurance

     24   

Policy Split Right

     25   

Split Dollar Arrangements

     25   

Valuation of Life Insurance

     25   

Other Tax Considerations

     26   

DISTRIBUTION OF THE POLICY

     26   

GLOSSARY OF TERMS

     27   

ADDITIONAL INFORMATION

     29   

APPENDIX A

     30   
 


Table of Contents

Variable Joint Life

 

    Flexible Premium Variable Joint Life Insurance Policy
    Insurance Payable on Second Death

Summary of Benefits and Risks

 

The following summary identifies some of the benefits and risks of the Policy. It omits important information which is included elsewhere in this prospectus, in the attached mutual fund prospectuses, and in the terms of the Policy. Unless clear from their context or otherwise appropriate, all of the capitalized terms used in this prospectus are defined herein or at the end of this prospectus in the Glossary of Terms.

Benefits of the Policy

Death Benefit    The primary benefit of your Policy is the life insurance protection that it provides. The Death Benefit is payable on the second death while the Policy is in force. The Policy offers a choice of three Death Benefit options:

Option A—Specified Amount;

Option B—Specified Amount plus Policy Value; or

Option C—Specified Amount plus Premiums Paid.

Under each of these options, you selected the Specified Amount when you purchased the Policy. In addition, we will increase the Death Benefit under any of the options if necessary to meet the definitional requirements for life insurance for federal income tax purposes.

Access to Your Values    The Policy provides access to Cash Value while at least one of the Insureds is alive. You may surrender your Policy for the Cash Value at any time during the lifetime of at least one of the Insured persons. You may make a withdrawal of Cash Value. You may borrow up to 90% of the Policy Value, after the surrender charge has been deducted (and less any existing Policy Debt at the time of the loan), using the Policy as security.

Flexibility    You selected the Death Benefit option and Specified Amount subject to our availability limits. You control the amount and timing of Premium Payments, within limits. You may change the Death Benefit option, or increase or decrease the Specified Amount, subject to our approval. You may direct the allocation of your premiums and apportion the Separate Account assets supporting your Policy among the various Divisions of the Separate Account. Subject to certain limits, you may transfer accumulated amounts from one Division to another.

Income Plan Options    There are several ways of receiving proceeds under the Death Benefit and surrender provisions of the Policy, other than in a lump sum. More detailed information concerning these options is included elsewhere in this prospectus.

Tax Benefits    You are generally not taxed on your Policy’s investment gains until you surrender the Policy or make a withdrawal.

Risks of the Policy

Investment Risk    Your Policy allows you to participate in the investment experience of the Divisions you select. You bear the corresponding investment risks. You will be subject to the risk that the investment performance of the Divisions will be unfavorable and that, due both to the unfavorable performance and the resulting higher insurance charges, the Policy Value will decrease. You could lose everything you invest. You may find a comprehensive discussion of these investment risks in the attached mutual fund prospectuses. You will also be subject to the risk that the investment performance of the Divisions you choose may be less favorable than that of other Divisions, and in order to keep the Policy in force, you may be required to pay more premiums than originally planned.

Default Risk    Because certain guarantees under the Policy are guaranteed by the Company’s General Account assets, the ability to make good on these guarantees depends on the financial strength and claims-paying ability of the Company. Therefore, guaranteed benefits in excess of Invested Assets in the Separate Account are subject to the risk of default to the extent the Company is unable to satisfy some or all of these guarantees.

Policy for Long-Term Protection    Your Policy is designed to serve your need for long-term life insurance protection. It is not suitable for short-term goals. We have not designed the Policies for frequent trading.

Policy Lapse    Your Policy will lapse if you do not pay sufficient premium to keep it in force. Favorable investment experience will reduce the amount of premium you need to pay to keep the Policy in force, but we do not guarantee investment experience. Policy loans or withdrawals of Cash Value may increase the premium needed to keep the Policy in force.

Policy Loan Risks    A loan, whether or not repaid, will affect your Policy Value over time because the amounts borrowed do not participate in the investment performance of the Divisions. The effect of a loan may be either favorable or unfavorable, depending on whether the earnings rate credited to the loan amount is higher or lower than the investment performance of the unborrowed amounts left in the Divisions; in addition, a charge is deducted from the Policy Value each month while there is Policy Debt. The Death Benefit is reduced by the amount of any Policy Debt outstanding. If you surrender the Policy or allow it to lapse while Policy Debt is outstanding, the amount of the loan, to the extent it has not previously been taxed, will be considered as an amount you received and taxed accordingly. Policy Debt reduces the Cash Value and increases the risk that your Policy will lapse.

 

 

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Limitations on Access to Your Values    A withdrawal of Cash Value may not reduce the loan value to less than any Policy Debt outstanding. The withdrawal amount may not reduce the Specified Amount to less than the minimum amount we would issue at the time of withdrawal. Following a withdrawal the remaining Cash Value must be at least three times the current monthly charges for the cost of insurance and other expenses. The minimum amount for a withdrawal is $250. A withdrawal of Cash Value will reduce the Death Benefit.

Adverse Tax Consequences    Our understanding of the principal tax considerations for the Policy under current tax law is set forth in this prospectus. There are areas of some uncertainty under current law, and we do not address the likelihood of future changes in the law or interpretations thereof. Among other risks, your Policy may become a modified endowment contract. A modified endowment contract (“MEC”) is a life insurance contract that is taxed less favorably on lifetime distributions than other life insurance

contracts because the contract is considered too investment oriented. Generally, a Policy may be classified as a MEC if cumulative premiums paid during a seven-pay period exceed a “seven-pay” limit defined in the Internal Revenue Code. Distributions, including loans, from a Policy classified as a MEC are taxable to the extent of the gain in the Policy and may be subject to a 10% premature withdrawal penalty if taken before the Owner attains 59 12. In addition, excessive Policy loans could cause a Policy to terminate with no value with which to pay the tax liability. Death Benefit proceeds may be subject to state and/or inheritance taxes. (See “Tax Considerations”).

Risk of an Increase in Current Fees and Expenses    Certain fees and expenses are currently assessed at less than their maximum levels. We may increase these current charges in the future up to the guaranteed maximum levels. If fees and expenses are increased, you may need to increase the amount of premiums to keep the Policy in force.

 

 

 

Fee and Expense Tables

The following tables describe the fees and expenses that are payable when a Policy is bought, owned, or surrendered. See “Charges and Expenses” for a more detailed description.

Transaction Fees

The first table describes the fees and expenses that are payable when you pay premiums, transfer amounts between Divisions, make a withdrawal, change the Specified Amount or change the Death Benefit option.

 

Charge   When Charge is Deducted   Current Charge   Maximum Guaranteed Charge
Premium Tax Charge   Upon each Premium Payment   2% of the premium1   3.6% of the premium (includes both “Premium Tax Charge” and “Federal Deferred Acquisition Cost Charge”)
Federal Deferred Acquisition Cost Charge2   Upon each Premium Payment   1% of the premium1  
Sales Load   Upon each Premium Payment   Up to 6.4% of Target Premium for the first 10 Policy Years; up to 2.4% thereafter3 and on all premiums in excess of Target Premium for all Policy Years   Same as current amount
Fee for Transfer of Assets, Withdrawals or Change of Specified Amount   When you make more than 12 transfers of assets among the Separate Account Divisions in a Policy Year, make withdrawals or change the Specified Amount more than once in a Policy Year   Currently waived   $25
Fee for Change in the Death Benefit Option   Upon a change in the Death Benefit option   Currently waived   $250
Surrender Charge   Upon surrender during the first ten Policy Years   50% of the premiums paid in the first Policy Year grading to zero at the end of the tenth Policy Year4   $50 per $1,000 of initial Specified Amount for any combination of Issue Age, sex, and underwriting classification

 

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Charge   When Charge is Deducted   Current Charge   Maximum Guaranteed Charge
Expedited Delivery Charge5   When express mail delivery is requested   $15 per delivery (up to $45 for next day, a.m. delivery)   $50 per delivery (up to $75 for next day, a.m. delivery) adjusted for inflation6
Wire Transfer Fee5   When a wire transfer is requested   $25 per transfer (up to $50 for international wires)   $50 per transfer (up to $100 for international wires) adjusted for inflation6

 

1  See “Information about the Policy—Premiums” for more information.
2  This charge was previously referred to as the “OBRA Expense Charge” or “Other Premium 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. We make a charge of 1% against each Premium Payment to compensate us for corporate taxes.
3  The sales load in Policy Years 1-10 is applied to the premiums paid up to the Target Premium. All other premiums are charged a 2.4% sales load. The Target Premium is a hypothetical annual premium, which varies based on factors including but not limited to the initial Specified Amount and the characteristics of the Insured persons, such as Issue Age, sex and underwriting classification. Please see “Target Premium” in the Glossary of Terms.
4  The surrender charge percentage is applied to the premiums actually paid during the first Policy Year or the Target Premium, whichever is less. The percentage remains level during Policy Year one, and declines monthly to zero during Policy Years two through ten. For more information on the surrender charge, see “Charges and Expenses – Surrender Charge” in this prospectus. The “Schedule of Maximum Charges” to your Policy will indicate the maximum surrender charges applicable to your Policy.
5  This fee may increase over time to cover our administrative or other costs but will not exceed the maximum charge. We may discontinue this service at any time, with or without notice.
6  The Maximum 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 table below 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
Monthly Policy Charge—Cost of Insurance Charge2,3
Maximum Charge4   Monthly, on each Monthly Processing Date   $1,000 per year per $1,000 of net amount at risk   Same as current amount
Minimum Charge5   Monthly, on each Monthly Processing Date   $0.001 per year per $1,000 of net amount at risk   Same as current amount
Charge for one male and one female Insured, Issue Ages 45, Select Non-Smoker underwriting classification in the sixteenth Policy Year (varies by Policy Year)6   Monthly, on each Monthly Processing Date   $0.08 per year per $1,000 of net amount at risk in the sixteenth Policy Year6   $2 per year per $1,000 of net amount at risk in the sixteenth Policy Year7
Monthly Policy Charge—Mortality and Expense Risk Charge
Monthly Policy Charge—Mortality and Expense Risk Charge—Invested Assets Component   Monthly, on each Monthly Processing Date   0.00% annually (monthly rate of 0.00000%) of the Policy Value less any Policy Debt   0.90% annually (monthly rate of 0.075%) of the Policy Value, less any Policy Debt
Monthly Policy Charge—Mortality and Expense Risk Charge—Specified Amount Component3   Monthly, on each Monthly Processing Date during the first ten Policy Years        

 

Variable Joint Life Prospectus      3   


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Charge   When Charge is Deducted   Current Charge   Maximum Guaranteed Charge
Maximum Charge8       Monthly rate of $0.14 per $1,000 of initial Specified Amount   Same as current amount
Minimum Charge9       Monthly rate of $0.003 per $1,000 of initial Specified Amount   Same as current amount
Charge for Insureds Issue Ages 45       Monthly rate of $0.03 per $1,000 of initial Specified Amount   Same as current amount
Monthly Policy Charge—Administrative Charge   Monthly, on each Monthly Processing Date   $7 (monthly)   $8 (monthly)
Monthly Policy Charge—Underwriting and Issue Charge3,10
Maximum Charge11   Monthly, on each Monthly Processing Date during the first ten Policy Years   Monthly rate of $0.04 per $1,000 of initial Specified Amount   Same as current amount
Minimum Charge12   Monthly, on each Monthly Processing Date during the first ten Policy Years   Monthly rate of $0.02 per $1,000 of initial Specified Amount   Same as current amount
Charge for Insureds Issue Ages 45, Select Non-Smoker underwriting classification   Monthly, on each Monthly Processing Date during the first ten Policy Years   Monthly rate of $0.02 per $1,000 of initial Specified Amount   Same as current amount
Monthly Policy Charge—Deferred Sales Charge   Monthly, on each Monthly Processing Date during the first ten Policy Years   7.5% annually (monthly rate of 0.625%) for the first ten Policy Years. (The charge for each Policy Year is applied to the cumulative amount of premiums paid during the first Policy Year, up to the Target Premium.)   Same as current amount
Monthly Policy Charge—Charge for Expenses and Taxes Associated with Any Policy Debt13   Monthly, on each Monthly Processing Date when there is Policy Debt  

When the younger Insured is (or would be, if alive) Attained Age 99 and below:

 

0.90% annually (monthly rate of 0.075%) of outstanding Policy Debt for the first ten Policy Years; 0.35% annually (monthly rate of 0.02917%) thereafter

 

When the younger Insured is (or would be, if alive) Attained Age 100 and above:

 

0.00% annually of Policy Debt

  2% annually (monthly rate of 0.16667%) of outstanding Policy Debt

 

1  The charges described in this table may vary based upon factors including but not limited to one or more of the following characteristics: Insureds’ Issue Ages, sex, and underwriting classifications; initial Specified Amount; Target Premium; Policy Date and Policy Year. All charges in the table expressed in dollars have been rounded to the nearest dollar, where appropriate. Amounts that would round to zero have been rounded to the nearest penny or less, as necessary.
2  The Cost of Insurance Charge is determined by multiplying the net amount at risk by the cost of insurance rate. The net amount at risk is the difference between the Death Benefit and the Policy Value. The cost of insurance rate reflects factors including but not limited to the Issue Age, sex and underwriting classification of the Insured persons, the Policy Date and Policy Year.
3  The charge varies based on individual characteristics. The rates shown in the table may not be representative of the charge a particular Owner may pay. For information about the rate for your particular situation, you may request a personalized illustration from your Financial Representative.
4  The maximum Cost of Insurance Charge assumes that the Insureds have the following characteristics: one male and one female, Attained Age 100 of the younger Insured, both substandard underwriting classification. The maximum Cost of Insurance Charge shown may also apply to other combinations of Policy Year and Insured characteristics.
5  The minimum Cost of Insurance Charge assumes that the Policy is in the first Policy Year, and that the Insureds have the following characteristics: both female, both Issue Age 20, both Premier Non-Tobacco classification. The minimum Cost of Insurance Charge shown may also apply to other combinations of Policy Year and Insured characteristics.
6  Generally, the cost of insurance rate will increase each Policy Year.
7  The maximum guaranteed cost of insurance rate will exceed the current rate in most Policy Years. Generally, the rate will increase each Policy Year.
8  The maximum Mortality and Expense Risk Charge—Specified Amount Component assumes that the Insureds have the following characteristics: one male and one female, Issue Ages 75 and older.
9  The minimum Mortality and Expense Risk Charge—Specified Amount Component assumes that the Insureds have the following characteristics: one male and one female, Issue Ages 25 and younger.
10  The charge may not exceed $900-$2,100 annually ($75-$175 monthly amount) based on the underwriting classification of the Insureds on the Date of Issue. This charge is based on the underwriting classification of the Insureds on the Date of Issue, subject to a maximum amount not to exceed $900-$2,100 ($75-$175 monthly amount), which is based on underwriting classification.

 

4   Variable Joint Life Prospectus


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11  The maximum Underwriting and Issue Charge assumes that the Insureds have the following characteristic: substandard underwriting classification.
12  The minimum Underwriting and Issue Charge assumes that the Insureds have the following characteristic: standard underwriting classification.
13  The charge is applied to the Policy Debt. It is in addition to the interest charged on any Policy Loan and is deducted from Invested Assets. We add unpaid interest to the amount of the loan. Interest on a Policy loan accrues and is payable on a daily basis at an annual effective rate of 5%. The amount of the Policy loan will be transferred from the Divisions to our General Account and credited on a daily basis with an annual earnings rate equal to the 5% Policy loan interest rate.

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, 2015. 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)

     0.21%         1.38%   

Range of Total Annual Portfolio Operating Expenses After Contractual Fee Waiver or Reimbursement*

     0.21%         1.32%   

 

* 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.

For more information about voluntary fee waivers that may be in place, see the “Charges and Expenses” section.

 

 

Northwestern Mutual

 

The Northwestern Mutual Life Insurance Company is a mutual life insurance company organized by a special act of the Wisconsin Legislature in 1857. It is licensed to conduct a conventional life insurance business in the District of Columbia and in all states of the United States. The total assets of Northwestern Mutual were over $238 billion as of December 31, 2015. The Home Office of Northwestern Mutual is located at 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.

“Northwestern Mutual,” “Company,” “we,” “us,” and “our” in this prospectus mean The Northwestern Mutual Life Insurance Company.

General Account assets are used to guarantee the payment of certain benefits under the Policy, including death benefits. To the extent that we are required to pay you amounts under these benefits that are in addition to Invested Assets in the Separate

Account, such amounts will come from General Account assets. Thus, Owners must look to the strength of the Company and its General Account with regard to guarantees under the Policy. The General Account is exposed to the risks normally associated with the operation of a life insurance company, including insurance pricing, asset liability management and interest rate risk, operational risks, and the investment risks of a portfolio of securities that consists largely, though not exclusively, of fixed-income securities. Some of the risks associated with such a portfolio include interest rate, option, liquidity, and credit risk. The financial statements contained in the Statement of Additional Information include a further discussion of risks inherent within the General Account investments. The assets in the General Account are subject to the claims of the Company’s general creditors.

 

 

 

The Separate Account

 

We established the Separate Account by action of our Trustees on November 23, 1983, in accordance with the provisions of Wisconsin insurance law. The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940 (the “1940 Act”). We own the assets in the Separate Account and we are obligated to pay all benefits under the Policies. We may use the Separate Account to support other variable life insurance policies we issue. We have divided the Separate Account into Divisions, each of which invests in shares of one Portfolio of the Funds.

Under Wisconsin law, Separate Account assets are held separate from our other assets and are not part of our General Account. Income, gains, and losses, whether or not realized, from assets allocated to the Separate Account will be credited to or charged against the Separate Account without regard to our other income, gains, or losses. Income, gains, and losses credited to, or charged against, a Division reflect that Division’s own investment performance and not the investment performance of our other assets. We may not use the Separate Account’s assets to pay any of our liabilities

 

 

Variable Joint Life Prospectus      5   


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other than those arising from the Policies and any other variable life insurance Policies funded by the Separate Account. We may, however, use all of our assets (except those held in certain other separate accounts) to satisfy our obligations under your Policy.

Where permitted by law and subject to any required regulatory approvals or votes by Owners, we reserve the right to:

 

    operate the Separate Account or a Division either as a unit investment trust or a management investment company under the 1940 Act, or in any other form permitted by law, if deemed by the Company to be in the best interest of Owners;

 

    invest current and future assets of a Division in securities of another Portfolio as a substitute for shares of a Portfolio already purchased or to be purchased;

 

    transfer cash from time to time between the General Account and the Separate Account as deemed necessary or appropriate and consistent with the terms of the Policy, including but not limited to transfers for the deduction of charges and in support of payment options;

 

    transfer assets of the Separate Account in excess of reserve requirements applicable to the Policies supported by the
   

Separate Account to the General Account (Invested Assets remaining in the Separate Account necessary to fulfill its obligations under the Policy are not subject to claims against or losses in the General Account);

 

    register or deregister the Separate Account under the 1940 Act or change its classification under that Act;

 

    create new separate accounts;

 

    add, delete or make substitutions for the securities and other assets held or purchased by the Separate Account;

 

    restrict or eliminate any voting rights of Owners or other persons having voting rights as to the Separate Account; and

 

    make any changes to the Separate Account to conform with, or required by any change in, federal tax law, the 1940 Act and regulations promulgated thereunder, or any other applicable federal or state laws.

In the event that we take any of these actions, we may make an appropriate endorsement of your Policy and take other actions necessary to comply with applicable law.

 

 

 

The Funds

 

A variety of investment options are offered under the Policy for the allocation of your premiums. However, the Company does not endorse or recommend a particular option, nor does it provide investment advice. You are responsible for choosing your investment options and should make your choices based on your individual situation and risk tolerances. After making your initial allocation decisions, you should monitor your allocations and periodically review the options you select and the amounts allocated to each to ensure your selections continue to be appropriate. The amounts you invest in a particular Division are not guaranteed and, because both principal and any return on the investment are subject to market risk, you can lose money.

The assets of each Division are invested in a corresponding Portfolio that is a series of one of the following mutual funds: Northwestern Mutual Series Fund, Inc.; Fidelity® Variable Insurance Products; Neuberger Berman Advisers Management Trust; Russell Investment Funds; and Credit Suisse Trust. The Separate Account buys shares of the Portfolios at their respective net asset values without sales charge. The Portfolios are available for investment only by separate accounts supporting variable insurance products and are not publicly traded. Their performance can differ substantially from publicly traded mutual funds with similar names. The specific Portfolios available under your Policy may change from time to time, and not all Portfolios in which assets of the Separate Account are invested may be available under your Policy. Your ability to invest in a Portfolio may be affected by the actions of such Portfolio, such as when a Portfolio closes.

The investment objectives of each Portfolio are set forth below. There is no assurance that any of the Portfolios will

achieve its stated objective(s). You can find more detailed information about the Portfolios, including a description of each Portfolio, in the attached Portfolio prospectuses. Read the prospectuses for the Portfolios carefully before investing. Please see the prospectuses for the Portfolios for a discussion of the potential risks and conflicts presented by the use of a Portfolio as an investment option under variable annuity contracts and variable life insurance policies offered by affiliated and non-affiliated life insurance companies. Note: If you received a summary prospectus for a Portfolio listed below, please follow the directions on the first page of the summary prospectus to obtain a copy of the full fund prospectus.

Northwestern Mutual Series Fund, Inc. (the 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 Series Fund for more information.

 

 

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Table of Contents
Portfolio   Investment Objective   Sub-adviser (if applicable)
Growth Stock Portfolio   Long-term growth of capital; current income is a secondary objective   The Boston Company Asset Management, LLC
Focused Appreciation Portfolio   Long-term growth of capital   Loomis, Sayles & Company, L.P.
Large Cap Core Stock Portfolio   Long-term growth of capital and income   Fayez Sarofim & Co.
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 & Poor’s 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 Investments Fund Advisers, 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   William Blair Investment Management, LLC
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   Wellington Management Company LLP
Index 600 Stock Portfolio   Investment results that approximate the performance of the Standard & Poor’s 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   FIAM LLC
Research International Core Portfolio   Capital appreciation   Massachusetts Financial Services Company
International Equity Portfolio   Long-term growth of capital; any income realized will be incidental   Templeton Investment Counsel, LLC
Emerging Markets Equity Portfolio   Capital appreciation   Massachusetts Financial Services Company
Government Money Market Portfolio(1)   Maximum current income to the extent consistent with liquidity and stability of capital   BlackRock Advisors, LLC
Short-Term Bond Portfolio   To provide as high a level of current income as is consistent with prudent investment risk   T. Rowe Price Associates, Inc.
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   Wells Capital Management, Inc.
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(2)   High current income and capital appreciation   Federated Investment Management Company
Multi-Sector Bond Portfolio   Maximum total return, consistent with prudent investment management   Pacific Investment Management Company LLC

 

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Portfolio   Investment Objective   Sub-adviser (if applicable)
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 Government Money Market Portfolio seeks to preserve its value at $1.00 per share, it is possible to lose money by investing in the Government Money Market Portfolio. An investment in a money market portfolio is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any government agency. During extended periods of low interest rates, the yield of a money market portfolio may also become extremely low and possibly negative.
(2)  High yield bonds are commonly referred to as junk bonds.

Fidelity® Variable Insurance Products

The Fidelity® VIP Mid Cap Portfolio and the Fidelity® VIP Contrafund® Portfolio are series of Variable Insurance Products 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.

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 Investment Advisers LLC.

 

Portfolio   Investment Objective
Socially Responsive Portfolio   Long-term growth of capital by investing primarily in securities of companies that meet the Portfolio’s financial criteria and social policy

Russell Investment Funds

The assets of each of the Portfolios comprising the Russell Investment Funds are invested by one or more investment management organizations researched and recommended by Frank Russell Company (“Russell”), and an affiliate of Russell, the Russell Investment Management Company (“RIMCo”). RIMCo is the investment adviser of the Russell Investment Funds.

 

Portfolio   Investment Objective
Multi-Style Equity Fund   Long-term growth of capital
Aggressive Equity Fund   Long-term growth of capital
Global Real Estate Securities Fund   Current income and long-term growth of capital
Non-U.S. Fund   Long-term growth of capital
Core Bond Fund   Current income and, as a secondary objective, capital appreciation
LifePoints® Variable Target Portfolio
Series Moderate Strategy Fund
  Current income and moderate long-term capital appreciation
LifePoints® Variable Target Portfolio
Series Balanced Strategy Fund
  Above-average long-term capital appreciation and a moderate level of current income
LifePoints® Variable Target Portfolio
Series Growth Strategy Fund
  High long-term capital appreciation; and as a secondary objective, current income
LifePoints® Variable Target Portfolio
Series Equity Growth Strategy Fund
  High long-term capital appreciation

 

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Credit Suisse Trust

The Commodity Return Strategy Portfolio is a series of Credit Suisse Trust. The Separate Account buys shares of the Portfolio, the investment adviser for which is Credit Suisse Asset Management, LLC.

 

Portfolio   Investment Objective
Commodity Return Strategy Portfolio   Total Return

Payments We Receive

 

We select the Portfolios offered through this Policy based on several criteria, including asset class coverage, the strength of the investment adviser’s or sub-adviser’s reputation and tenure, brand recognition, performance, and the capability and qualification of each investment firm. Another factor we consider during the selection process is whether the Portfolio’s investment adviser or an affiliate will make payments to us or our affiliates. We review the Portfolios periodically and may remove a Portfolio or limit its availability to new premiums and/or transfers of accumulated amounts if we determine that the Portfolio no longer meets one or more of the selection criteria, and/or if the Portfolio has not attracted significant allocations from Owners. The Series Fund has been included in part because it is managed by a subsidiary of the Company.

We do not provide any investment advice and do not recommend or endorse any particular Portfolio. You bear the risk of any decline in the Policy Value of your Policy resulting from the performance of the Portfolios you have chosen.

Owners, through their indirect investment in the Portfolios, bear the costs of the investment advisory or management fees that the Portfolios pay to their respective investment advisors (see the Portfolios’ prospectuses for more information). As described above, an investment adviser of a Portfolio, or its affiliates, may make payments to the Company and/or certain of our affiliates, which is generally a positive factor when selecting Portfolios. However, the amount of such payments is not determinative as to whether a Portfolio is offered through the Policy. These payments may be derived, in whole or in

part, from the advisory fee deducted from Portfolio assets. The amount of the compensation is based on a percentage of assets of the Portfolios attributable to the Policies and certain other variable insurance products that the Company issues. The percentages differ and some investment advisers (or other affiliates) may pay more than others. The percentages currently range up to 0.25%. These payments may be used for various purposes, including payment of expenses that the Company and/or its affiliates incur for services performed on behalf of the Policies and the Portfolios. The Company and its affiliates may profit from these payments.

Certain Portfolios have also adopted a Distribution (and/or Shareholder Servicing) Plan under Rule 12b-1 of the 1940 Act, which is described in more detail in the Portfolios’ prospectuses. These payments, which may be up to 0.25%, are deducted from assets of the Portfolios and are paid to our distributor, Northwestern Mutual Investment Services, LLC. These payments decrease the Portfolio’s investment return. We also consider the receipt of these payments generally to be a positive factor when selecting Portfolios.

Additionally, an investment adviser or sub-adviser of a Portfolio (or of an underlying fund in which a Portfolio invests) or its affiliate may provide the Company with wholesaling services that assist in the distribution of the Policies and may pay the Company and/or certain of our affiliates amounts to participate in sales meetings. These amounts may be significant and may provide the investment adviser or sub-adviser (or their affiliate) with increased access to persons involved in the distribution of the Policies.

 

 

 

Information About the Policy

 

We are no longer issuing this Policy.

This prospectus describes the material provisions of the Policy. You should consult your Policy for more information about its terms and conditions, and for any state specific variations that may apply to your Policy.

Availability Limitations

Generally, the Policy was available for Insureds between Issue Ages 20-85. A minimum Specified Amount of at least $1,000,000 was required if the older Insured’s Issue Age was 20-49 and $500,000 if the older Insured’s Issue Age was 50-85.

Premiums

The Policy permits you to pay premiums at any time before the Policy Anniversary that is nearest the 95th birthday of the younger Insured and in any amounts within the limits described in this section.

We used the Specified Amount you selected when you purchased the Policy to determine the minimum initial premium required to put your Policy in force. The minimum initial premium varies with factors including but not limited to the Issue Age, sex, and underwriting classification of the Insured persons.

 

 

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After a Policy is issued, there are no minimum premiums, except that we will not accept a premium of less than $25. The Policy will remain in force during the lifetime of at least one of the Insured persons so long as the Cash Value is sufficient to pay the Monthly Policy Charge. If there is Policy Debt, payments at our Home Office will be treated as payments to reduce Policy Debt unless designated as Premium Payments.

The Policy sets no maximum on premiums, but we will accept a premium that would increase the net amount at risk only if the insurance, as increased, will be within our issue limits, the Insureds meet our insurability requirements and we receive the premium prior to the Policy anniversary nearest the older Insured’s 85th birthday. If you have elected the Guideline Premium/Cash Value Corridor Test (see “Death Benefit—Minimum Death Benefit”), we will not accept a premium if it would disqualify the Policy as life insurance for federal income tax purposes. We will accept a premium, however, even if it would cause the Policy to be classified as a MEC. (See “Tax Considerations”).

You may send Premium Payments to our Home Office or to a payment center designated by us. All payments must be made in U.S. Dollars payable through a U.S. financial institution. We accept Premium Payments by check or electronic funds transfer (“EFT”). Net Premiums are placed in the Separate Account on the date we receive your Premium Payment in Good Order at our Home Office and are credited at the Unit Value determined as of the date of receipt. Premiums received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE on a Valuation Date are deemed to be received and credited on that Valuation Date. If received on or after the close of trading on a Valuation Date, or on a day other than a Valuation Date, they are deemed to be received and credited on the next Valuation Date. If your payment is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your payment to our then-current requirements. We generally will not accept cash, money orders, traveler’s checks or “starter” checks; however, in limited circumstances, we may accept some cash equivalents in accord with our anti-money laundering procedures. If you make a Premium Payment with a check or bank draft and, for whatever reason, it is later returned unpaid or uncollected, or if a Premium Payment by EFT is reversed, we reserve the right to reverse the transaction. We also reserve the right to recover any resulting losses incurred by us by withdrawing a sufficient amount of Policy Value. We have the right to limit or refund a Premium Payment or make distributions from the Policy as necessary to continue to qualify the Policy as life insurance under federal tax law, including the classification of your Policy as a modified endowment contract. If mandated under applicable law, we may be required to reject a Premium Payment. We may accept a premium at the direction of the Owner, however, even if it would cause the Policy to be classified as a modified endowment contract. If we receive a Premium Payment before its due date in circumstances where allocating such Premium to your Policy could result in your Policy failing to qualify as life insurance or being classified as a modified endowment contract, or where the Premium

Payment was intended to be applied as of its due date, depending on your or your Financial Representative’s instructions we may hold the Premium or partial Premium Payment in a non-interest bearing account until its due date, at which time we will allocate your payment to the Divisions. We may also be required to provide information about you and your account to government regulators.

Although we do not anticipate delays in our receipt and processing of premiums, we may experience such delays to the extent premiums are not received at our Home Office on a timely basis. Such delays could result in delays in the allocation of premiums. (See “Allocations to the Separate Account”).

Policy Value

The Policy Value is the cumulative amount invested, less withdrawals, adjusted for investment results and interest on Policy Debt, and reduced by the current monthly charges for the cost of insurance and other expenses. It is also equal to the sum of Invested Assets and Policy Debt.

Death Benefit

Death Benefit Options    The Death Benefit is payable on the second death while the Policy is in force. The Policy provides for three Death Benefit options:

 

    Specified Amount (Option A)
    Specified Amount plus Policy Value (Option B), (see “Policy Value” above)
    Specified Amount plus Premiums Paid (Option C)

The option you choose on your Application will generally depend on whether you prefer an increasing Death Benefit or a larger Policy Value, but in each case the Death Benefit will be at least the Minimum Death Benefit required for your Policy to qualify as life insurance under federal tax law. You selected the Specified Amount when you purchased the Policy and, subject to our approval, you may make changes upon written request.

The selected Death Benefit option will be in effect before the Policy Anniversary nearest the 100th birthday of the younger Insured (whether that Insured survived to age 100 or not), and the Death Benefit will be equal to the Policy Value on or after that Policy Anniversary. The investment performance of the Portfolios, as well as the charges and expenses under your Policy, may decrease your Policy Value and/or your Death Benefit.

The Death Benefit will be paid on the death of the second of the Insureds to die while the Policy is in force. The amount payable will be reduced by the amount of any Policy Debt and any Monthly Policy Charges due and unpaid if the second death occurs during a grace period. (See “Termination and Reinstatement”). Subject to the terms and conditions of the Policy, the proceeds will be paid to a beneficiary or other payee after proof of the deaths of both Insureds is received in our Home Office. The amount of proceeds will be determined as of the date of the second death. We will pay interest on the proceeds from that date until payment is made.

 

 

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If an Income Plan was not previously elected by the Owner and in lieu of a lump sum payment, the Company currently permits the Death Benefit, less any Policy Debt, to be paid under an Income Plan selected by your beneficiary after the death of the second of the Insureds to die. Available Income Plans include an interest income plan, installment income plans, and life income plans. The Company may offer additional Income Plans. Generally, (1) an interest income plan accrues interest on the Death Benefit, the interest may be received monthly, and any remaining proceeds or interest may be withdrawn at any time; (2) an installment income plan pays the Death Benefit in installments for a fixed period of time, and any remaining proceeds may be withdrawn at any time; and (3) a life income plan makes payments monthly for a chosen period and after that, for the life of the person on whose life the payments are based (or two persons if the joint option is selected). If available, any proceeds added to increase the amount payable under a monthly income plan may be subject to a 2.00% expense charge plus any applicable state premium tax. The choice of Income Plans will vary depending on financial situation and the amount of income desired monthly for a chosen time period. The Owner may elect the Income Plan while at least one of the Insureds is living or, if the second Insured to die is not the Owner, during the first 60 days after the second Insured’s date of death. An Income Plan that is elected by the Owner will take effect on the date of death of the second Insured to die if the notice of election is received in our Home Office while at least one of the Insureds is living. In all other cases, the Income Plan will take effect on the date of receipt of the notice of election. If no Income Plan is elected, the benefit is paid to the beneficiary with interest based on rates declared by the Company or as required by applicable state law on the date of death of the second Insured. Payments under these plans are from our General Account, and are subject to the claims of our creditors. Please see the “Northwestern Mutual” section for more information regarding our General Account and guarantees under your Policy.

Minimum Death Benefit    The Minimum Death Benefit is the amount required to maintain the Policy as life insurance for Federal income tax purposes. Under any of the Death Benefit options, or on or after the Policy Anniversary nearest the 100th birthday of the younger Insured, we will increase the Death Benefit if necessary to meet this requirement.

A Policy must satisfy one of two testing methods to qualify as life insurance for federal income tax purposes: the Guideline Premium/Cash Value Corridor Test or the Cash Value Accumulation Test. Both tests require the Policy to meet minimum ratios, or multiples, of Death Benefit to the Policy Value. The minimum multiple decreases as the age of the Insured persons advances. You made the choice of testing methods when you purchased the Policy and it may not be changed.

For the Guideline Premium/Cash Value Corridor Test the minimum multiples of Death Benefit to the Policy Value are shown in the following table. The Attained Age of the younger Insured is used even if the younger Insured is no longer living.

Guideline Premium/Cash Value Corridor Test Multiples Younger Insured Age

 

Attained Age

   Policy Value %     

Attained Age

   Policy Value %  

40 or under

     250      

61

     128   

41

     243      

62

     126   

42

     236      

63

     124   

43

     229      

64

     122   

44

     222      

65

     120   

45

     215      

66

     119   

46

     209      

67

     118   

47

     203      

68

     117   

48

     197      

69

     116   

49

     191      

70

     115   

50

     185      

71

     113   

51

     178      

72

     111   

52

     171      

73

     109   

53

     164      

74

     107   

54

     157      

75-90

     105   

55

     150      

91

     104   

56

     146      

92

     103   

57

     142      

93

     102   

58

     138      

94

     101   

59

     134      

95 or over

     100   

60

     130         

For the Cash Value Accumulation Test, the minimum multiples of Death Benefit to the Policy Value are calculated using net single premiums based on the Attained Age of both Insureds and the Policy’s underwriting classification, and using a 4% interest rate.

The Guideline Premium/Cash Value Corridor Test generally has lower minimum multiples than the Cash Value Accumulation Test, usually resulting in better Cash Value accumulation for a given amount of premium and Specified Amount. This is because the Guideline Premium/Cash Value Corridor Test generally requires a lower Death Benefit and therefore a lower cost of insurance charge. The Guideline Premium/Cash Value Corridor Test limits the amount of premium that may be paid in each Policy Year. The Cash Value Accumulation Test has no such annual limitation, and allows more premium to be paid during the early Policy Years.

Death Benefit Changes    You may change the Death Benefit option, or increase or decrease the Specified Amount, subject to our approval. Changes are subject to insurability requirements and issue limits. We will not permit a change if it results in a Specified Amount less than what we would issue on that date for similar policies. For additional requirements see “Modifying the Policy.”

If the written request is received in Good Order at our Home Office before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE on a Monthly Processing Date, a change in the Death Benefit option or an increase or decrease in the Specified Amount will be effective on that date. If the written request is not received on a Monthly Processing Date, or is received on or after the close of trading on a Monthly Processing Date, it will be effective on the next Monthly Processing Date. If your request is not in Good Order, either we or your Financial Representative may notify you in

 

 

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writing, by telephone or by email in an effort to conform your request to our then-current requirements.

Administrative charges of up to $250 for a change in the Death Benefit option, and up to $25 per change for more than one change in the Specified Amount in a Policy Year, may apply. We will deduct any such charges from the Policy Value. We are currently waiving these charges.

A change in the Death Benefit option, or an increase or decrease in the Specified Amount, may have important tax effects. (See “Tax Considerations”). The cost of insurance charge will increase if a change results in a larger net amount at risk. (See “Charges against the Policy Value”).

Allocating Premiums to the Separate Account

Net Premiums are allocated into the Divisions as you directed in the Application for your Policy or in subsequent requests to change your allocations. You may change the allocation for future Net Premiums at any time. The change will be effective on the Valuation Date on or next following the date we receive your request in Good Order at our Home Office. Requests received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE on a Valuation Date are deemed to be received and effective on that Valuation Date. If received on or after the close of trading on a Valuation Date, or a day other than a Valuation Date, requests are deemed to be received and effective on the next Valuation Date. If your request is not in Good Order, we will continue to credit Net Premiums to your Policy according to the allocation instructions then in effect and either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements.

In order to take full advantage of these features, you should carefully consider, on a continuing basis, which investment options are best suited to your long-term investment needs. Investment returns from amounts allocated to the Divisions will vary with the investment performance of the Divisions and will be reduced by Policy charges. You bear the entire investment risk for amounts you allocate to the Divisions. You should periodically review your allocation instructions in light of market conditions and your overall life insurance and financial objectives. Your Financial Representative may provide us with instructions on your behalf involving the allocation of accumulated amounts among available Divisions, subject to our rules and requirements, including the restrictions on short-term and excessive trading.

You may request allocation changes in writing (including via facsimile or, under limited circumstances, by email). You may also submit allocation instructions via the Internet at www.northwesternmutual.com (“Electronic Instructions”) in accordance with our then-current Internet procedures provided you have properly authorized us to accept Electronic Instructions in advance of your request. For more information see “Owner Inquiries.” Please note that we are not required to accept Electronic Instructions and we will not be responsible for losses resulting from transactions based on unauthorized

Electronic Instructions, provided we follow procedures reasonably designed to verify the authenticity of Electronic Instructions. We reserve the right to limit, modify, suspend or terminate the ability to make requests via Electronic Instructions. Currently we do not accept requests by telephone.

Transfer Between Divisions    Subject to the short-term and excessive trading limitations described below, you may transfer accumulated amounts from one Division to another so long as you are invested in no more than 30 Divisions at a time. Transfer requests will be effective on the Valuation Date on or next following the date we receive your request in Good Order at our Home Office. Requests received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE on a Valuation Date are deemed to be received and effective on that Valuation Date. If received on or after the close of trading on a Valuation Date, or a day other than a Valuation Date, requests are deemed to be received and effective on the next Valuation Date. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements.

In order to take full advantage of these features, you should carefully consider, on a continuing basis, which investment options are best suited to your long-term investment needs. Although no fee is currently charged, we reserve the right where allowed by state law to charge a transfer fee of $25. We would deduct this charge from each Division in proportion to the amounts in each Division after the transfer. See “Charges and Expenses” for more information. In addition, certain Portfolios in which the Divisions invest may impose redemption fees. These fees are described in the Portfolios’ prospectuses. Where allowed by state law, the Company reserves the right to impose a minimum and/or maximum size on transfer amounts. Your Financial Representative may provide us with instructions on your behalf involving the transfer of accumulated amounts among available Divisions, subject to our rules and requirements, including the restrictions on short-term and excessive trading discussed below.

You may request transfers in writing (including via facsimile or, under limited circumstances, by email). You may also submit transfer instructions via the Internet at www.northwesternmutual.com in accordance with our then-current Internet procedures provided you have properly authorized us to accept Electronic Instructions in advance of your request. For more information see “Owner Inquiries.” Please note that we are not required to accept Electronic Instructions and we will not be responsible for losses resulting from transactions based on unauthorized Electronic Instructions, provided we follow procedures reasonably designed to verify the authenticity of Electronic Instructions. We reserve the right to limit, modify, suspend or terminate the ability to make transfers via Electronic Instructions. Currently we do not accept requests by telephone.

Short-Term and Excessive Trading    Short-term and excessive trading (sometimes referred to as “market timing”)

 

 

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may present risks to a Portfolio’s long-term investors, such as Owners and other persons who may have material rights under the Policy (e.g., beneficiaries), because it can, among other things, disrupt Portfolio investment strategies, increase Portfolio transaction and administrative costs, require higher than normal levels of cash reserves to fund unusually large or unexpected redemptions, and adversely affect investment performance. These risks may be greater for Portfolios that invest in securities that may be more vulnerable to arbitrage trading including foreign securities and thinly traded securities, such as small cap stocks and non-investment grade bonds. These types of trading activities also may dilute the value of long-term investors’ interests in a Portfolio if it calculates its net asset value using closing prices that are no longer accurate. Accordingly, we discourage market timing activities.

To deter short-term and excessive trading, we have adopted and implemented policies and procedures which are designed to control abusive trading practices. We seek to apply these policies and procedures uniformly to all Owners. Any exceptions must be either expressly permitted by our policies and procedures or subject to an approval process described in them. We may also be prevented from uniformly applying these policies and procedures under applicable state or federal law or regulation. Because exceptions are permitted, it is possible that investors may be treated differently and, as a result, some may be allowed to engage in trading activity that might be viewed as market timing.

Among the steps we have taken to reduce the frequency and effect of these practices are monitoring trading activity and imposing trading restrictions, including the prohibition of more than twelve transfers among Divisions under a single Policy during a Policy Year. Multiple transfers with the same effective date made by the same Owner will be counted as a single transfer for purposes of applying the twelve transfer limitation. Further, an investor who is identified as having made a transfer in and out of the same Division, excluding the Government Money Market Division, (“round trip transfer”) in an amount in excess of $10,000 within fourteen calendar days will be restricted from making additional transfers after making two more such round trip transfers within any Policy Year, including the year in which the first such round trip transfer was made. The restriction will last until the next Policy Anniversary and the Policy Owner will be sent a letter informing him or her of the restriction. An Owner who is identified as having made one round trip transfer within thirty calendar days aggregating more than one percent (1%) of the total assets of the Portfolio underlying a Division, excluding the Government Money Market Division and the Divisions corresponding to the Portfolios of the Russell Investment Funds LifePoints® Variable Target Portfolio Series, will be restricted from making additional transfers after making one more such round trip transfer within any Policy Year, including the year in which the first such round trip transfer was made. The restriction will last until the next Policy Anniversary and the Policy Owner will be sent a letter informing him or her of the restriction. Unless we believe your trading behavior to be inconsistent with these short-term and excessive trading policies, these limitations will

not apply to automatic asset transfers, scheduled or systematic transactions involving portfolio rebalancing, dollar cost averaging, initial allocations or changes in future allocations, to the extent these features are available under your Policy. Once a Policy is restricted, we will allow one additional transfer into the Government Money Market Division until the next Policy Anniversary. Additionally, in accordance with our procedures, we may modify some of these limitations to allow for transfers that would not count against the total transfer limit but only as necessary to alleviate any potential hardships to Owners (e.g., in situations involving a substitution of an underlying fund).

Policies such as yours (or other Policies supported by the Separate Account) may be purchased by a corporation or other entity as a means to informally fund the liabilities created by the entity’s employee benefit or similar plan. These Policies may be aggregately managed to match liabilities under such plans. Policies sold under these circumstances may be subject to special transfer restrictions. Namely, transactions involving portfolio rebalancing programs may be exempt from the twelve transfers per Policy year limitation where: (1) the purpose of the portfolio rebalancing program is to match the Policy to the entity’s employee benefit or similar plan; (2) the portfolio rebalancing program adequately protects against short-term or excessive trading; and (3) the portfolio rebalancing program is managed by a third party administrator that meets our requirements. We reserve the right to monitor or limit transactions involving portfolio rebalancing programs where we believe such transactions may be potentially harmful to a Portfolio.

We may change these policies and procedures from time to time in our sole discretion without notice; provided, however, Owners will be given advance, written notice if the policies and procedures are revised to accommodate market timing. Additionally, the Funds may have their own policies and procedures described in their prospectuses that are designed to limit or restrict frequent trading. Such policies may be different from our policies and procedures, and may be more or less restrictive. As the Funds may accept purchase payments from other investors, including other insurance company separate accounts on behalf of their variable product customers and retirement plans, we cannot guarantee that the Funds will not be harmed by any abusive market timing activity relating to the retirement plans and/or other insurance companies that may invest in the Funds. The Funds’ policies and procedures may provide for the imposition of a redemption fee and, upon request from the Fund, require us to provide transaction information to the Fund (including an Owner’s tax identification number) and to restrict or prohibit transfers and other transactions that involve the purchase of shares of a Portfolio. In the event a Fund instructs us to restrict or prohibit transfers or other transactions involving shares of a Portfolio, you may not be able to make additional purchases in a Division until the restriction or prohibition ends. If you submit a request that includes a purchase or transfer into such a restricted Division, we will consider the request “not in Good Order” and it will not be processed. You may, however, submit a new transfer request.

 

 

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If we believe your trading activity is in violation of, or inconsistent with, our policies and procedures or otherwise is potentially disruptive to the interests of other investors, you may be asked to stop such activities, and future investments and allocations or transfers by you may be rejected without prior notice. Because we retain discretion to determine what action is appropriate in a given situation, investors may be treated differently and some may be allowed to engage in activities that might be viewed as market timing.

We intend to monitor events and the effectiveness of our policies and procedures in order to identify whether instances of potentially abusive trading practices are occurring. However, we may not be able to identify all instances of abusive trading practices, nor completely eliminate the possibility of such activities, and there may be technological limitations on our ability to impose restrictions on the trading practices of Owners.

Automatic Dollar-Cost Averaging

With Dollar-Cost Averaging, you can arrange to have a regular amount of money (either a fixed dollar amount or a fractional amount) automatically transferred monthly from the Government Money Market Division into the Division(s) you have chosen. Transfers will end either when the amount in the Government Money Market Division is depleted or when you submit the appropriate form to our Home Office to stop such transfers, whichever is earlier. There is no charge for the Dollar-Cost Averaging. We reserve the right to modify or terminate the Dollar-Cost Averaging Plan at any time.

Dollar-cost averaging does not ensure a profit or protect against loss in a declining market. Carefully consider your willingness to continue payments during periods of low prices.

Portfolio Rebalancing

Over time, portfolio rebalancing helps you maintain your allocations among the Divisions you have chosen. If you elect portfolio rebalancing, your Invested Assets are periodically rebalanced in accordance with our procedures to return your allocation to the percentages you specify. Portfolio rebalancing may reduce the amount of Policy Value allocated to better performing Divisions.

You may choose to rebalance monthly, quarterly, semi-annually or annually. We do not charge a transfer fee for portfolio rebalancing. You may have elected portfolio rebalancing in the Application. Subject to any limitations imposed by our short-term and excessive trading policies and procedures, you may also elect portfolio rebalancing and modify or terminate your election at any time by submitting a written request to our Home Office. If you make transfers through our website, your portfolio rebalancing will end and you will need to make a new election if you want portfolio rebalancing to continue. We may modify, limit, suspend or discontinue this feature at any time.

Allocation Models

Allocation Models    We currently make available allocation models at no extra charge. You can select only one model at a time. Each of the four models currently available is comprised of a combination of Portfolios representing various asset classes with various levels of risk tolerance ranging from moderately conservative to very aggressive. Please contact your financial representative for more information about available models. You may only select a model we currently make available. Any investment allocations outside of your original model must be made by you, and will not be made by the Company. We do not provide investment advice regarding whether a model should be revised or whether it remains appropriate to invest in accordance with any particular model due to performance, a change in your investment needs or for other reasons. If you wish to remove Portfolios from your model and/or change your allocations to a current model we make available, you may do so by notifying us in writing, contacting your financial representative or by calling Advanced Markets Operations at 1-866-464-3800. There will be no automatic rebalancing to these models unless you chose the automatic rebalancing option. Please note that investment in a model does not eliminate the risk of loss and it does not protect against losses in a declining market.

Available models may change from time to time. We reserve the right to modify, suspend, or terminate any asset allocation model at any time without affecting your current allocation, except in limited circumstances involving a Substitution or the elimination of a Portfolio as an investment option under your Policy (see “Substitution of Portfolio Shares and Other Changes” below for more information regarding the substitution of a Portfolio). Your allocations in a Portfolio within a model (Original Portfolio) will be transferred to a different Portfolio if the Original Portfolio becomes no longer available (e.g., a substitution, merger, liquidation or closure), in which case we will send you written notice in advance of such event. If you were invested in a model that is no longer offered and you initiated a change outside of your original model allocations you will not be able to select your original model (see “Transfers Between Divisions” above for more information about how to change your portfolio allocations).

Please note that investment according to an allocation model may result in an increase in assets allocated to Portfolios managed by an investment adviser affiliated with us, and therefore a corresponding increase in Portfolio management fees collected by such adviser and may present a conflict of interest.

Charges and Expenses

Premium Expense Charges    We deduct a charge from each premium for state premium taxes (Premium Tax Charge) and a portion of our federal corporate income taxes attributable to policy acquisition expenses. Premium taxes vary from state to state and currently range from 0.0% to 3.5% of life insurance premiums. Currently, we charge 2.00% regardless of the state in which you live. We reserve the right to deduct a higher or lower amount or percentage from Premium Payments in the future to cover theses taxes. The amount deducted may be more or less than the percentage charged by your state of residence.

 

 

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Due to a 1990 federal tax law change under the OBRA, as amended, insurance companies are generally required to capitalize and amortize certain acquisition expenses rather than currently deducting such expenses. Due to this capitalization and amortization, the corporate income tax burden on insurance companies has been affected. We make a charge of 1.00% against each Premium Payment to compensate us for corporate taxes (Federal Deferred Acquisition Cost Charge). We believe that this charge does not exceed a reasonable estimate of an increase in our federal income taxes resulting from a change in the Internal Revenue Code relating to deferred acquisition costs. The Premium Tax Charge and the Federal Deferred Acquisition Cost Charge may each vary in amount.

We deduct a sales load from each premium. We expect to recover our expenses of selling and advertising (“distribution expenses”) from this amount. The charge is 6.4% of the premiums up to the Target Premium paid for the first ten Policy Years, and 2.4% of all other premiums. The amounts we deduct for costs in a Policy Year are not specifically related to distribution expenses incurred in that year. To the extent that distribution expenses exceed the amounts deducted, we will pay the expenses from our other assets. These assets may include, among other things, any gain realized from the monthly charge against the Policy Value for the mortality and expense risks we have assumed, as described below. To the extent that the amounts deducted for distribution expenses exceed the amounts needed, we will realize a gain.

Charges Against the Policy Value    We deduct a Monthly Policy Charge from the Policy Value on each Monthly Processing Date. (See “Policy Value”). The Monthly Policy Charge includes (1) the Cost of Insurance Charge, (2) the Mortality and Expense Risk Charge—Invested Assets Component, (3) the Mortality and Expense Risk Charge—Specified Amount Component, (4) the Administrative Charge, (5) the Underwriting and Issue Charge, (6) the Deferred Sales Charge and (7) the charge for the expenses and taxes associated with any Policy Debt. These seven components of the Monthly Policy Charge are described in the following seven paragraphs.

As part of the Monthly Policy Charge, we deduct the Cost of Insurance Charge from the Policy Value on each Monthly Processing Date. We determine the amount by multiplying the net amount at risk by the cost of insurance rate. The net amount at risk is the difference between the Death Benefit and the Policy Value. The net amount at risk will be affected by investment performance, the amount and timing of premiums, and the charges and expenses for the Policy. The cost of insurance rate reflects the Policy Date, Policy Year, and factors including but not limited to the Issue Age, sex and underwriting classification of the Insured persons. All things being equal, higher Issue Ages and/or worse underwriting classifications will result in higher cost of insurance rates, and men will pay higher rates than women. In addition, cost of insurance rates will generally increase each Policy Year. The maximum cost of insurance rates are included in the Policy.

The Cost of Insurance Charge covers the cost of mortality and some expenses. We may realize gain from this charge to the extent the charge exceeds our costs attributable to the charge, in which case the gain may be used for any Company purpose.

As part of the Monthly Policy Charge, we also deduct from the Policy Value the Mortality and Expense Risk Charge-Invested Assets Component. The maximum amount of the Invested Assets component is equal to an annual rate of 0.90% (0.075% monthly rate) of the Policy Value, less any Policy Debt. The current charge is equal to an annual rate of 0.00% (0.00000% monthly rate) of the Policy Value, less any Policy Debt. The mortality risk is that Insureds may not live as long as we estimated. The expense risk includes the risk that expenses of issuing and administering the Policies may exceed the estimated costs, including other costs such as those related to marketing and distribution. We will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the Policies, in which case the gain may be used for any Company purpose.

As part of the Monthly Policy Charge, we deduct from the Policy Value the Mortality and Expense Risk Charge—Specified Amount Component. The Specified Amount component is based on the initial Specified Amount and the Issue Ages of the Insured persons, and applies only during the first 10 Policy Years. The range on a monthly basis is from $0.003 per $1,000 of initial Specified Amount if both Insured persons are Issue Age 25 or younger, up to $0.14 (monthly) per $1,000 of initial Specified Amount if both Insured persons are issue age 72 or older. A table of rates and an example are included in Appendix A. The mortality risk is that Insureds may not live as long as we estimated. The expense risk includes the risk that expenses of issuing and administering the Policies may exceed the estimated costs, including other costs such as those related to marketing and distribution. We will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the Policies, in which case the gain may be used for any Company purpose.

As part of the Monthly Policy Charge, we deduct the Administrative Charge of not more than $8 monthly. Currently this charge is $7 monthly. This charge is for administrative expenses, including costs of premium collection, processing claims, keeping records and communicating with Owners. We do not expect to profit from this charge.

As part of the Monthly Policy Charge, we deduct the Underwriting and Issue Charge based on the initial Specified Amount and the underwriting classification of the Insureds on the Date of Issue. This charge applies only during the first 10 Policy Years. The range is from $0.02 to $0.04 (monthly) per $1,000 of initial Specified Amount, with a maximum monthly charge of $75 to $175.

As part of the Monthly Policy Charge, we deduct the Deferred Sales Charge. This charge for sales expenses is deducted only during the first ten Policy Years. The charge is 7.5% (0.625% monthly rate) of cumulative premiums paid during the first

 

 

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Policy Year (up to the Target Premium). The charge applied during Policy Years 2-10 is equal to 0.625% per month times the cumulative premium paid in the first Policy Year (up to the Target Premium). This charge is for sales expenses.

As part of the Monthly Policy Charge, we deduct a charge for the expenses and taxes associated with the Policy Debt, if any. The aggregate charge when the younger Insured is (or would be if alive) Attained Age 99 and below is at the current annual rate of 0.90% (0.075% monthly rate) of the Policy Debt for the first 10 Policy Years and 0.35% (0.02917% monthly rate) thereafter. The aggregate charge when the younger Insured is (or would be, if alive) Attained Age 100 and above is at the current annual rate of 0.00% annually of the Policy Debt.

The Policy provides for transaction fees to be deducted from the Policy Value on the dates on which transactions take place. These charges are $25 per change for more than one change in the Specified Amount in a Policy Year, $25 per withdrawal, and $25 per transfer of assets among the Divisions if more than twelve transfers take place in a Policy Year. The fee for a change in the Death Benefit option is $250. Currently we are waiving all of these fees.

You may have the option of receiving funds via wire transfer or priority mail. Currently, a fee of $25 is charged for wire transfers (up to $50 for international transfers) and a $15 fee (up to $45 for next day, a.m. delivery) for priority mail. These fees are to cover our administrative costs or other expenses. We may discontinue the availability of these options at any time, with or without notice.

We will apportion deductions from the Policy Value among the Divisions in proportion to the amounts invested in the Divisions. For policies with the Monthly Charges From One Division Amendment, the Owner may elect in writing to have the Monthly Policy Charge deducted from one Division. We reserve the right to determine which Divisions to make available for this election. Currently, the Government Money Market Division is available for this election. If the amount in the specified Division is not sufficient to pay these charges, the remainder of these charges is deducted from each Division in proportion to the amounts invested in the Divisions.

All charges in this section expressed in dollars have been rounded to the nearest dollar, where appropriate. Amounts that would round to zero have been rounded to the nearest penny or less, as necessary.

Surrender Charge    A surrender charge will be deducted from the Policy proceeds during the first ten Policy Years if the Policy is surrendered. The surrender charge during the first Policy Year is 50% of the Premium Payments paid up to the Target Premium. Beginning with the second Policy Year, the surrender charge decreases by a consistent dollar amount month by month to zero at the end of the tenth Policy Year. The Target Premium, and therefore the maximum surrender charge, depends on factors including but not limited to the Issue Age, sex and underwriting classification of the Insured persons. For example, for a male and female, both in the best underwriting classification and both Issue Age 55, the maximum surrender charge, where the Target Premium or

more is paid and the Policy is surrendered during the first Policy Year, would be $9.29 per $1,000 of initial Specified Amount. The surrender charge will never exceed $50 per $1,000 of initial Specified Amount for any Issue Age, sex and underwriting classification combination. No surrender charge applies to a withdrawal of Cash Value.

Expenses of the Portfolios    The investment performance of each Division reflects all expenses borne by the corresponding Portfolio. For certain Portfolios, certain expenses were reimbursed or fees waived during 2015. 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 0.21% to a maximum of 1.38%. (See “Fee and Expense Tables—Annual Portfolio Operating Expenses” and the attached Fund prospectuses.)

Cash Value

You may surrender a Policy for the Cash Value at any time during the lifetime of at least one of the Insured persons. The Cash Value for the Policy will change daily in response to investment results. No minimum Cash Value is guaranteed. The Cash Value is equal to the Policy Value, reduced by the surrender charge and reduced by any Policy Debt outstanding.

We determine the Cash Value for a Policy at the end of each valuation period (typically, 4:00 p.m. Eastern Time each business day). Each business day, together with any non-business days before it, is a valuation period. A business day is any day on which the NYSE is open for trading. In accordance with the requirements of the 1940 Act, we may also determine the Cash Value for a Policy on any other day on which there is sufficient trading in securities to materially affect the value of the securities held by the Portfolios.

The Company currently permits surrender proceeds to be paid under an Income Plan requested by an Owner at the time of surrender. Available income plans include an interest income plan, installment income plans, and life income plans. The Company may offer additional Income Plans.

Policy Loans

Described below are certain terms and conditions that apply when you borrow amounts under the Policy. Policy loans are secured by your Policy Value. For information on the tax treatment of loans, see “Tax Considerations” and consult with your tax advisor.

You may borrow an amount that, when added to existing Policy Debt, is not more than the loan value. The loan value is 90% of the sum of the Cash Value and any existing Policy Debt on the date of the loan. If a Policy loan is already outstanding, the maximum amount for any new loan is reduced by the amount already borrowed. We normally pay the loan proceeds within seven days after we receive a proper loan request at our Home

 

 

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Office. We may postpone payments of loans under certain conditions described in the “Deferral of Determination and Payment” section of this prospectus. There is a charge for the expenses and taxes associated with Policy Debt. (See “Charges and Expenses—Charges Against the Policy Value”).

Written requests will be processed based on the date and time they are received in the Home Office. Requests will be effective on the Valuation Date on or next following the date we receive your request in Good Order at our Home Office. Requests received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE on a Valuation Date are deemed to be received and effective on that Valuation Date. If received on or after the close of trading on a Valuation Date, or a day other than a Valuation Date, requests are deemed to be received and effective on the next Valuation Date. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements. Based on our administrative procedures, you may have the option of receiving funds via wire transfer or priority mail, and we may charge a fee for this service to cover our administrative costs.

Interest on a Policy loan accrues on a daily basis at an annual effective, fixed rate of 5%. Interest is due and payable on each Policy Anniversary. We add unpaid interest to the amount of the loan at an annual effective, fixed rate of interest of 5%. If, on any Monthly Processing Date, the amount of the loan plus the surrender charge plus the monthly charges for the cost of insurance and other expenses exceeds the Policy Value, the Policy will enter the grace period. (See “Termination and Reinstatement”). We will send you a notice at least 61 days before the termination date. The notice will show how much you must pay to keep the Policy in force.

We will take the amount of a Policy loan from the Divisions in proportion to the amounts in the Divisions. We will transfer the amounts withdrawn to our General Account and credit them on a daily basis with your accrued loan interest (i.e., an annual earnings rate equal to the 5% Policy loan interest rate). A Policy loan, even if you repay it, will have a permanent effect on the Policy Value because the amounts borrowed will not participate in the Separate Account’s investment results while the loan is outstanding. The effect may be either favorable or unfavorable depending on whether the earnings rate credited to the loan amount is higher or lower than the investment performance of the unborrowed amounts left in the Divisions.

The Death Benefit will also be reduced by the amount of any Policy Debt outstanding. If you surrender or exchange the Policy or allow it to lapse while Policy Debt is outstanding, the amount of the loan, to the extent it has not previously been taxed, will be considered as an amount you received and taxed accordingly.

You may repay a Policy loan, and any accrued interest outstanding, in whole or in part, at any time during the lifetime of at least one of the Insured persons. If there is Policy Debt, payments received at our Home Office will be

treated as payments to reduce Policy Debt unless designated as Premium Payments. If we receive your payment before the close of trading on the NYSE, we will credit payments as of the date we receive them and we will transfer those amounts from our General Account to the Divisions, in proportion to the premium allocation in effect, as of the same date. If we receive your payment on or after the close of trading on the NYSE, we will process the order using the value of the units in the Divisions determined at the close of the next regular trading session of the NYSE. Loan repayments are not subject to transaction fees. A Policy loan or unpaid interest may have important tax consequences. (See “Tax Considerations”).

Surrenders and Withdrawals of Cash Value

Surrenders    You may surrender your Policy for the Cash Value at any time while the Insured is alive and the Policy is in force. The Cash Value will change daily in response to the investment performance of the Divisions in which you are invested. Written requests for surrender will be effective when received in Good Order at the Home Office. Requests received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE on a Valuation Date are deemed to be received and effective on that Valuation Date. If received on or after the close of trading on a Valuation Date, or a day other than a Valuation Date, requests are deemed to be received and effective on the next Valuation Date. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements.

We do not guarantee any minimum Cash Value. We may require you to return your Policy to our Home Office when you request a surrender of the Policy. We will pay surrender proceeds in a lump sum or under an Income Plan option you select. (See “Income Plan Options”). Surrendering your Policy may have tax consequences. (See “Tax Considerations”).

Withdrawals    You may make a withdrawal of Cash Value. A withdrawal may not reduce the loan value to less than any Policy Debt outstanding. The loan value is 90% of the sum of the Cash Value and any existing Policy Debt on the date of the loan. The withdrawal amount may not reduce the Specified Amount to less than the minimum amount we would issue at the time of withdrawal. Following a withdrawal the remaining Cash Value must be at least three times the current monthly charges for the cost of insurance and other expenses. The minimum amount for withdrawals is $250. We permit up to four withdrawals in a Policy Year. An administrative charge of up to $25 may apply, but we are currently waiving this charge.

Written requests for withdrawals will be effective when received in Good Order at the Home Office. Requests received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE on a Valuation Date are deemed to be received and effective on that Valuation Date. If received on or after the close of trading on a Valuation Date, or a day other than a Valuation Date, requests are deemed to be received and effective on the next Valuation Date. If your request is not in Good Order, either we or your Financial Representative may

 

 

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notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements.

A withdrawal of Cash Value decreases the Death Benefit, and may also decrease the Specified Amount. The decrease depends on the Death Benefit option and the size of any prior increases in Death Benefit required to meet the definitional requirements for life insurance for federal income tax purposes. In some situations the Death Benefit will decrease by more than the amount of the withdrawal.

We will take the amount withdrawn from Cash Value from the Divisions in proportion to the amounts in the Divisions. The Policy makes no provision for repayment of amounts withdrawn. A withdrawal of Cash Value may have important tax consequences. (See “Tax Considerations”).

Termination and Reinstatement

If the Cash Value is less than the monthly charges for the cost of insurance and other expenses on any Monthly Processing Date, we allow a grace period of 61 days for a premium payment to keep the Policy in force. The grace period begins on the date we send you a notice. The notice will state the minimum amount of premium required to keep the Policy in force and the date by which you must pay the premium. The Policy will terminate with no value unless you pay the required amount before the grace period expires. Payments to keep the Policy in force received in Good Order at our Home Office before the close of trading (generally, 4:00 p.m. Eastern Time) on the NYSE on a Valuation Date are deemed to be received and effective on that Valuation Date. If received on or after the close of trading on a Valuation Date, or a day other than a Valuation Date, payments are deemed to be received and effective on the next Valuation Date. If your payment is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your payment to our then-current requirements.

After a Policy has terminated, you may reinstate it within three years (or longer if required under state law) following the termination date, subject to our approval and satisfaction of our underwriting requirements. The Policy may not be reinstated if either of the Insureds died after the end of the grace period. To reinstate the Policy, you must make a payment equal to an amount that will cover all Monthly Policy Charges that were due and unpaid before the end of the grace period and three times the Monthly Policy Charge due on the effective date of the reinstatement. If we approve the Application for reinstatement, and the Application was received at our Home Office before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE on a Monthly Processing Date, the effective date of the reinstated Policy will be that date. If the Application is not received on a Monthly Processing Date, or was received on or after the close of trading on the NYSE on a Monthly Processing Date, the reinstated Policy will be effective on the next Monthly Processing Date. Applications must be received in Good Order to be processed. If your request is not in Good Order, either we or your Financial Representative may notify you in

writing, by telephone or by email in an effort to conform your request to our then-current requirements. Any Policy Debt that was outstanding when the Policy terminated will be reinstated.

Upon reinstatement, your Policy Date will not change. Therefore, fees and charges that vary by Policy year will take into account the period of time your Policy was terminated. The Policy Value when a Policy is reinstated is equal to the premium paid, less Premium Expense Charges, plus any Policy Debt, less the sum of all monthly charges for the cost of insurance and other expenses that were due and unpaid before the end of the grace period, less the monthly charges due on the effective date of the reinstatement. Please note that premium paid upon reinstatement will not include any interest from the date of the lapse. We will allocate the Policy Value, less any Policy Debt, among the Divisions based on the allocations for premiums currently in effect.

If a surrender charge was assessed at the time of termination, the Policy Value when a Policy is reinstated will include a credit for such surrender charge. The same surrender charge schedule in your Policy will apply upon reinstatement.

A reinstatement may have important tax consequences. If you contemplate any such transaction you should consult a qualified tax adviser.

Reinvestments After Surrender or Withdrawal

While Owners have no right to reinvestment after a surrender or withdrawal, we may, at our sole discretion, permit such reinvestments as described in this paragraph. In special limited circumstances, we may allow payments into the Policy in the form of returned surrender or withdrawal proceeds in connection with a request to void a surrender or withdrawal if the request is received by the Company within a reasonable time after the surrender or withdrawal proceeds are mailed. These payments may be processed with a refund of any surrender charge or withdrawal fee previously assessed at the time of surrender or withdrawal and without a sales load. The period for which we will accept requests for the return of surrender or withdrawal proceeds after a surrender or withdrawal may vary in accordance with our administrative procedures.

Returned withdrawal proceeds will be reinvested at the unit value for each Division next determined after our receipt of the reinvestment request in Good Order at our Home Office. Requests received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE on a Valuation Date are deemed to be received and effective on that Valuation Date. If received on or after the close of trading on a Valuation Date, or a day other than a Valuation Date, requests are deemed to be received and effective on the next Valuation Date. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements. Proceeds will be allocated to the Divisions from which the withdrawal was made in the same proportion as the withdrawal.

 

 

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We will reinvest surrender proceeds only after our receipt of the reinvestment request in Good Order at our Home Office. Requests received before the close of trading (typically, 4:00 p.m. Eastern Time) on the NYSE on a Monthly Processing Date are deemed to be received and effective on that date. If the request is not received on a Monthly Processing Date, or was received on or after the close of trading on the NYSE on a Monthly Processing Date, the reinvestment will be effective on the next Monthly Processing Date. If your request is not in Good Order, either we or your Financial Representative may notify you in writing, by telephone or by email in an effort to conform your request to our then-current requirements. We will allocate the returned surrender proceeds (plus applicable interest credited by the Company, if any) to the Divisions from which the surrender was made in the same proportion as the surrender.

Depending on the Insureds’ underwriting classification, we may not accept the reinvestment or we may accept the reinvestment with different charges and expenses under the Policy. We may refuse to process reinvestments where it is not administratively feasible. Decisions regarding requests for reinvestment will take into consideration differences in costs and services and will not be unfairly discriminatory. Policies with reinvested surrender or withdrawal proceeds will have the same Death Benefit, Policy Value and surrender charge schedule as if the proceeds had not been surrendered or withdrawn, except that values will reflect the fact that amounts were not invested in the Separate Account during the period of time the surrender or withdrawal proceeds were not in the Policy as well as any changes in charges and expenses due to a change in underwriting classification. We will make an adjustment for any Policy Debt or the debt may be reinstated.

Please note that our decision to permit a reinvestment does not reverse or eliminate any tax consequences and/or tax reporting resulting from the original surrender or withdrawal. Surrenders and withdrawals have tax consequences and we may be required to report them to the Internal Revenue Service and/or your state for income tax purposes. We may also be required to treat the reinvested proceeds as a new premium for purposes of determining whether your policy will become a MEC. (See “Tax Considerations”).

Right to Exchange for a Fixed Benefit Policy

You may exchange your Policy for a life insurance policy with benefits that do not vary with the investment experience of the Separate Account (“Fixed Benefit Policy”) if, at any time, a Fund changes its investment adviser, if there is a material change in the investment policies of a Portfolio, or the Portfolio is substituted for another portfolio (see “Substitution of Portfolio Shares and Other Changes”). You will be given notice of any such change and will have 60 days to make the exchange. We may require evidence of insurability and there may be a cost associated with the exchange. The Fixed Benefit Policy will be on the lives of the same Insureds and at the time of the exchange will have the same Policy Date and Issue Ages and a Death Benefit at least as great as the initial Death Benefit of your Policy (assuming no decrease in Specified Amount

prior to the exchange). The exchange may be subject to an equitable cash adjustment, which recognizes the investment performance of the Policy through the effective date of the exchange, and may have tax consequences. An exchange is effective when we receive a proper written request, as well as the Policy, and any amount due on the exchange.

Modifying the Policy

Any Policy change that you request is subject to our then current insurability and processing requirements. Processing requirements may include, for example, completion of certain forms and satisfying certain evidentiary requirements.

If the Policy is changed or modified, we may make appropriate endorsements to the Policy, and we may require you to send your Policy to our Home Office for endorsement. Any modification or waiver of our rights or requirements under the Policy must be in writing and signed by an officer of the Company. No agent or other person may bind us by waiving or changing any provision contained in the Policy.

Upon notice to you, we may modify the Policy:

 

    to conform the Policy, our operations, or the Separate Account’s operations to the requirements of any law (including any regulation issued by a government agency) to which the Policy, the Company, or the Separate Account is subject;

 

    to ensure continued qualification of the Policy as a life insurance contract under the federal tax laws; or

 

    to reflect a change in the Separate Account’s operation.

Other Policy Provisions

Owner    The Owner is identified in the Policy. The Owner may exercise all rights under the Policy while at least one of the Insured persons is living. Ownership may be transferred to another. We must receive a written proof of the transfer at our Home Office. “You” in this prospectus means the Owner or prospective purchaser of a Policy. Generally, only Owners are entitled to important information about the Policy. Other persons, such as beneficiaries or payors, are entitled to only limited information.

Beneficiary    The beneficiary is the person to whom the Death Benefit is payable. The beneficiary is named in the Application. You may change the beneficiary in accordance with the Policy provisions.

Incontestability    We will not contest a Policy after it has been in force during the lifetime of at least one Insured for two years from the Date of Issue or two years from the effective date of a reinstatement. We will not contest an increase in the amount of insurance that was subject to insurability requirements after the increased amount has been in force during the lifetime of at least one Insured for two years from the date of issuance of the increase. After the two year period, to the extent permitted by state law we may rescind the Policy if the application contains a fraudulent misstatement.

 

 

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Suicide    If either Insured dies by suicide within one year from the Date of Issue, the Policy will terminate and the amount payable under the Policy will be limited to the premiums paid, less the amount of any Policy Debt and withdrawals. If either Insured dies by suicide within one year of the date of an increase in the amount of insurance, which was subject to insurability requirements, the amount payable with respect to the increase will be limited to the Monthly Policy Charges attributable to the increase.

Misstatement of Age or Sex    If the age or sex of either of the Insureds has been misstated, the Death Benefit and Policy Value will be modified by recalculating all Monthly Policy Charges based on the correct age and sex of both Insured persons.

Collateral Assignment    You may assign a Policy as collateral security. We are not responsible for the validity or effect of a collateral assignment and will not be deemed to know of an assignment before receipt of the assignment in writing at our Home Office.

Deferral of Determination and Payment    We will ordinarily pay Policy benefits within seven days after we receive all required documents at our Home Office. However, we may defer determination and payment of benefits during any period when it is not reasonably practicable to value securities because the NYSE is closed, or the SEC, by order, either has determined that an emergency exists or permits deferral of the determination and payment of benefits for the protection of Owners. If, under SEC rules, the Government Money Market Portfolio suspends payments of redemption proceeds in connection with a liquidation of the Portfolio, we will delay payment of any transfer, partial surrender, surrender, death benefit from the Government Money Market Division until the Portfolio is liquidated.

If you have submitted a check or draft to our Home Office, we have the right to defer payment of surrender, withdrawal, Death Benefit or loan proceeds or Income Plan benefits until the check or draft has been honored.

If mandated under applicable law, we may be required to block an Owner’s account and thereby refuse to pay any requests for transfer, withdrawal, surrender, loans, or Death Benefits, until instructions are received from the appropriate regulator. We may also be required to provide additional information about an Owner and an Owner’s account to government regulators.

Dividends    This Policy is eligible to share in the divisible surplus, if any, of the Company. Each year we determine, in our sole discretion, the amount and appropriate allocation of divisible surplus. Divisible surplus allocated to your Policy is referred to as a “dividend.” The Policy’s share, if any, will be credited as a dividend on the Policy Anniversary. There is no guaranteed method or formula for the determination or allocation of divisible surplus. The Company’s approach is subject to change. There is no guarantee of a divisible surplus. Even if there is a divisible surplus, the payment of a dividend on the Policy is not guaranteed. It is not expected that any dividends will be payable on this Policy.

We will credit annual dividends, if any, in cash or you may use them to increase the Policy Value. If you do not provide direction as to the use of dividends, we will use them to increase the Policy Value. Dividends used to increase the Policy Value will be allocated to the Divisions of the Separate Account according to the allocation of Net Premiums then in effect.

Voting Rights

As long as the Separate Account continues to be registered as a unit investment trust under the 1940 Act, and as long as Separate Account assets of a particular Division are invested in shares of a given Portfolio, we will vote the shares of that Portfolio held in the Separate Account in accordance with instructions we receive from Owners. Periodic reports relating to the Portfolios, proxy material, and a form on which one can give instructions with respect to the proportion of shares of the Portfolio held in the Separate Account corresponding to the Owner’s Policy Value, will be made available to the Owner(s). We will vote shares for which no instructions have been received and shares held in our General Account in the same proportion as the shares for which instructions have been received from Owners. The effect of such proportional voting is that a small number of Owners may control the outcome of a particular vote.

Substitution of Portfolio Shares and Other Changes

If, in our judgment, one or more Portfolios become unsuitable for continued use with the Policy because of a change in investment objectives or restrictions, shares of another Portfolio or another mutual fund may be substituted for each such Portfolio. Any substitution of shares will be subject to any required approval of the SEC, the Wisconsin Commissioner of Insurance or other regulatory authority. We have also reserved the right, subject to applicable federal and state law, to operate the Separate Account or any of its Divisions as a management company under the 1940 Act, or in any other form permitted, or to terminate registration of the Separate Account if registration is no longer required, and to change the provisions of the Policies to comply with any applicable laws. Pursuant to an order of the Securities and Exchange Commission (“SEC”), effective November 15, 2013 the Commodity Return Strategy Portfolio was substituted for the Commodities Return Strategy Portfolio, a series of the Series Fund (the “Replaced Portfolio”). The Replaced Portfolio is no longer available as an investment option. In the event we take any action to substitute another Portfolio in the future, we may make an appropriate endorsement of your Policy and take other necessary actions.

Reports and Financial Statements

At least once each Policy Year you will receive a statement showing the Death Benefit, Cash Value, Policy Value and any Policy loan, including loan interest. We will also send you a confirmation statement when you transfer among Divisions, make a withdrawal, take a Policy loan, or surrender the Policy. These statements will show your apportioned amounts among the Divisions.

 

 

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Annually, we will send you a report containing financial statements of the Separate Account and, semi-annually, we will send you reports containing financial information and schedules of investments for the Portfolios underlying the Divisions to which your Invested Assets are allocated. The financial statements of Northwestern Mutual appear in the Statement of Additional Information. To receive a copy of the Annual Report, Semi-Annual Report and/or the Statement of Additional Information containing such financial statements, call 1-866-464-3800. Certain reports and other information can be obtained on our website at www.northwesternmutual.com.

Householding

To reduce costs, we may send only a single copy of the same disclosure document(s) (such as prospectuses, prospectus supplements, reports, announcements, proxy statements, notices, and information statements) to each consenting household (rather than sending copies to each Owner residing in a household). If you are or become a member of such a household, you can revoke your consent to “householding” at any time, and can begin receiving your own copy of such disclosure documents by calling Advanced Markets Operations at 1-866-464-3800.

Abandoned Property Requirements

Every state has unclaimed property laws which generally declare insurance contracts/policies to be abandoned after a period of inactivity of three to five years from the contract’s/policy’s maturity date, the date the death benefit is due and payable, or in some states, the date the insurer learns of the death of the insured. For example, if the payment of the death benefit has been triggered, but, if after a thorough search, we are still unable to locate the beneficiary, or if the beneficiary does not come forward to claim the death benefit proceeds in a timely manner, the death benefit proceeds will be paid to the abandoned property division or unclaimed property office of the state in which the beneficiary or you last resided, as shown on our books and records, or to our state of domicile. This “escheatment” is revocable, however, and the state is obligated to pay the death benefit proceeds (without interest) if your beneficiary steps forward to claim it with the proper documentation. To prevent such escheatment, it is important that you update your beneficiary designations, including addresses, if and as they change. Please contact your Financial Representative or call Advanced Markets Operations at 1-866-464-3800 for assistance in making such changes.

Cybersecurity

The Company has administrative, technical and physical safeguards with respect to information security, nevertheless, our variable product business is potentially susceptible to operational and information security risks resulting from a cyber-attack as it is highly dependent upon the effective operation of our computer systems and those of our business partners. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or

digitally, denial of service on websites and other operational disruption and unauthorized release of confidential customer information. Cyber-attacks affecting us, the Portfolios, intermediaries and other affiliated or third-party service providers may adversely affect us and your Policy Value. For instance, cyber-attacks may interfere with our processing of contract transactions (including the processing of orders through our website, if available, or with the Portfolios), impact our ability to calculate values, cause the release and possible destruction of confidential customer or business information, impede order processing, subject us and/or our service providers and intermediaries to regulatory fines and financial losses and/or cause reputational damage. Cybersecurity risks may also impact the issuers of securities in which the Portfolios invest, which may cause the Portfolios to lose value. There can be no assurance that we or the Portfolios or our service providers will avoid losses affecting your Policy due to cyber-attacks or information security breaches in the future.

Legal Proceedings

Northwestern Mutual, like other life insurance companies, is generally involved in litigation at any given time. Although the outcome of any litigation cannot be predicted with certainty, we believe that, as of the date of this prospectus, there are no pending or threatened lawsuits that will have a materially adverse impact on the ability of Northwestern Mutual to meet its obligations under the Policy, on the Separate Account, or on Northwestern Mutual Investment Services, LLC, the principal underwriter for the Separate Account, and its ability to perform its duties as underwriter for the Separate Account.

Speculative Investing

This Policy, or any of its riders, should not be used for any type of speculative collective investment scheme (including, for example, arbitrage). Your Policy is not intended to be traded on any stock exchange or secondary market, and attempts to engage in such trading may violate state and/or federal law.

Owner Inquiries

With your ID and password, you can visit our website www.northwesternmutual.com to access performance information, forms for routine service, and daily Policy and unit values for Policies you own. Eligible Owners may also set up certain electronic payments, transfer accumulated amounts among Divisions and change the allocation of future contributions online, subject to our administrative procedures. For enrollment information, please visit our website www.northwesternmutual.com. Please note that electronic devices may not always be available. Any electronic device, whether it is yours, your service provider’s, your agent’s or ours, can experience outages or slowdowns for a variety of reasons, which may delay or prevent our processing of your request or payment. Although we have taken precautions to limit these problems, we cannot promise complete reliability under all circumstances. If you are experiencing problems,

 

 

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you should make your request or payment in writing at our Home Office. Electronic requests or payments are deemed to be received by us upon receipt at the electronic location designated by us in our procedures. If you have questions about making a surrender, please call your Financial Representative or Advanced Markets Operations at 1-866-464-3800 between 7:30 a.m. and 5:00 p.m. Central Time Monday-Friday. To file a claim, please call your Financial Representative or Life Benefits at 1-800-635-8855.

Illustrations

Your Northwestern Mutual Financial Representative will provide you an illustration for your Policy upon your request. The illustrations show how the Death Benefit and Cash Value for a Policy would vary based on hypothetical investment results. The illustrations will be based on the information you give us about the Insured persons and will reflect such factors

as the Specified Amount, Death Benefit option and premium payments that you select. These should be based upon realistic expectations given your own individual situation.

Illustrations for variable life insurance policies do not project or predict investment results. The illustrated values assume that non-guaranteed elements such as policy charges and level investment returns will not change. Given the volatility of the securities markets over time, the illustrated scenario is unlikely to occur and the Policy’s actual Cash Value, Death Benefit, and certain expenses (which will vary with the investment performance of the Portfolios) will be more or less than those illustrated. In addition, the actual timing and amounts of payments, deductions, expenses and any values removed from the Policy will also impact product performance. Due to these variations, even a Portfolio that averaged the same return as illustrated will produce values which will be more or less than those which were illustrated.

 

 

 

Tax Considerations

 

General    The following discussion provides a general description of federal tax considerations relating to your Policy. The discussion is based on current provisions of the Internal Revenue Code (“Code”) as currently interpreted by the Treasury Department and the Internal Revenue Service (“IRS”). The discussion is not exhaustive, it does not address the likelihood of future changes in federal tax law or interpretations thereof, and it does not address state or local tax considerations which may be significant in the purchase and ownership of a Policy.

This tax discussion is intended to describe the tax consequences associated with your Policy. It does not constitute legal or tax advice, and is not intended to be used and cannot be used to avoid any penalties that may be imposed on a taxpayer. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.

Life Insurance Qualification    Section 7702 of the Code defines life insurance for federal income tax purposes. Under Section 7702, a Policy will generally be treated as life insurance for federal tax purposes if at all times it meets either a guideline premium test or a cash value accumulation test. We have designed your Policy to comply with only the cash value accumulation test. We may take any action that may be necessary for the Policy to qualify as life insurance for tax purposes.

The definitional tests under the Code are based on the Commissioner’s Standard Ordinary (CSO) mortality tables in effect when the Policies were issued. For Policies issued or materially changed after 2008, the tests must be based on the 2001 CSO mortality tables. Because Policies issued based on the 1980 CSO mortality tables may not satisfy the definitional tests using the 2001 CSO mortality tables, certain changes to those Policies will not be permitted (as defined by IRS Notices 2004-61 and 2006-95). Special safe harbor calculation rules apply to life insurance after the Insured attains age 100. See IRS Rev. Proc. 2010-28.

As provided by Section 817(h) of the Code, the Secretary of the Treasury has set standards for diversification of the investments underlying variable life insurance policies. Failure to meet the diversification requirements would disqualify your Policy as life insurance for purposes of Section 7702 of the Code. We believe that your Policy complies with the provisions of Sections 7702 and 817(h) of the Code, but the application of these rules is not entirely clear. We may make changes to your Policy if necessary for the Policy to qualify as life insurance for tax purposes.

IRS Rev. Ruls. 2003-91 and 2003-92 provide guidance on when an Owner’s control of Separate Account assets will cause the Owner, and not the life insurance company, to be treated as the owner of those assets. Important indicators of investor control are the ability of the Owner to select the investment advisor, the investment strategy or the particular investments of the Separate Account. If the Owner of a Policy were treated as the owner of the assets held in the Separate Account, the income and gains related to those assets would be included in the Owner’s gross income for federal income tax purposes. We believe that we own the assets of the Separate Account under current federal income tax law.

Tax Treatment of Life Insurance    While your Policy is in force, increases due to investment experience are not subject to federal income tax until there is a distribution as defined by the Code. The Death Benefit received by a beneficiary will generally not be subject to federal income tax.

So long as your Policy is not classified as a MEC (see “Modified Endowment Contract”), the proceeds from a surrender or withdrawal will generally be taxable only to the extent that the proceeds exceed the basis of the Policy. The basis of the Policy is generally equal to the premiums paid less any amounts previously received as tax-free distributions. Dividends paid in cash, if any, are generally taxed as withdrawals with a resulting reduction in basis. However,

 

 

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dividends used to increase Policy Value are generally not taxable. In certain circumstances, a withdrawal of Cash Value during the first 15 Policy Years may be taxable to the extent that the Cash Value exceeds the basis of the Policy. This means that the amount withdrawn may be taxable even if that amount is less than the basis of the Policy.

Unless the Policy is a MEC, a loan received under your Policy will not be treated as a distribution subject to current federal income tax. If the Policy remains in force until the death of the Insured or, in the case of joint life insurance, the second death, the Policy Debt will be repaid from the Death Benefit. However, if the Policy terminates by any method other than death, the Policy Debt will be repaid from the Cash Value of the Policy, and the total Cash Value, including the total amount of the Policy Debt, will be taxable to the extent it exceeds the basis of the Policy. If the extended term insurance nonforfeiture option is available in your Policy, and it lapses to extended term insurance, the Policy Debt will be repaid from Cash Value of the Policy and the Policy Debt repayment will be treated as income and taxable to the extent it exceeds Policy’s basis.

Caution must be used when taking cash out of a Policy through policy loans. If interest is not paid annually, it is added to the principal amount and the total Policy Debt will continue to increase for as long as the loan is maintained on the Policy. In extreme situations, Owners can face what is called the “surrender squeeze.” The surrender squeeze occurs if the Policy Debt becomes too large when compared to the unborrowed Cash Value remaining in the Policy, thereby causing the Policy to lapse. (See the “Policy Loans” section for more details). As described above, if your policy lapses with outstanding Policy Debt, you will have an income tax liability to the extent the Policy Debt exceeds the Policy basis. This means that you may have to pay income tax for a year in which you did not receive any cash from the policy.

Interest paid by individual Owners of a Policy will ordinarily not be deductible. You should consult a qualified tax advisor as to the deductibility of interest paid, or accrued, by business Owners of a Policy. (See “Business-Owned Life Insurance”).

Subject to the agreement of the Company, and the Owner meeting any conditions set by the Company, a Policy may be exchanged tax-free for another life insurance policy covering the same Insured (or, in the case of joint life insurance, covering the Insureds or a surviving Insured) or an annuity contract with the same owner (or, in the case of an annuity owned by a non-natural owner, if the annuitant is the same as the life insurance policy insured. The Code also allows certain policies to be exchanged for stand-alone and combination long-term care policies on a tax-free basis. Policies that are exchanged for life insurance policies after 2008 may only be exchanged for life insurance policies using 2001 CSO mortality tables. Any cash received or loan repaid in an exchange will be taxed to the extent of the gain in the Policy (i.e., on gain-first basis).

Ownership of a Policy may be transferred to a new owner. If the transfer is a sale, it is taxable to the extent the sales

proceeds exceed the basis of the Policy. In Rev. Rul. 2009-13, the IRS ruled that, when a life insurance policy is sold to a person with no insurable interest in the insured, the taxable gain is calculated by reducing the basis of the policy by the annual cost of the insurance protection provided by the policy. The death benefit of a policy that was previously sold or otherwise transferred for valuable consideration is taxable as ordinary income to the extent it exceeds the sum of the purchase price and subsequent premiums paid by the new owner. However, the death benefit will not be taxable if the new owner is the insured, a partner of the insured, a partnership in which the insured is a partner or a corporation in which the insured is a shareholder or officer or the basis of the Policy is carried over, in whole or in part, in the transfer. You should seek qualified tax advice if you plan a transfer of ownership.

Where the Policy cash value is distributed as periodic payments under a payment plan, part or all of the taxable payments may be subject to an additional 3.8% Medicare tax. The tax will be assessed on the Owner’s net investment income for the year to the extent that the Owner’s adjusted gross income (with slight modifications) exceeds $250,000 (married filing jointly or surviving spouse), $125,000 (married filing separately) or $200,000 (other filers) (not indexed). Under final regulations issued by the IRS, “net investment income” may include, among other things, the transfer of a life insurance policy that constitutes a sale, interest paid on the Death Benefit and taxable distributions from life insurance policies held in arrangements that constitute “passive activities”. You should seek qualified tax advice.

Modified Endowment Contracts (MEC)    A modified endowment contract (“MEC”) is a type of life insurance contract that is taxed less favorably on lifetime distributions than other life insurance contracts. A MEC has less favorable tax treatment because it is considered to be too investment oriented. Generally, a Policy may be classified as a MEC if the cumulative premiums paid during the first seven Policy Years after issue, or after a “material change” (described below), exceed the policy’s “seven-pay” limit. The seven-year time period is commonly referred to as the “seven-pay period”. Code Section 7702A defines the seven-pay limit as the sum of the premiums (net of expense and administrative charges) that would have to be paid in order for the Policy to be fully paid-up after seven level annual payments, based on defined interest and mortality assumptions. If premiums in excess of the seven-pay limit are paid during a seven-pay period, a Policy will be a MEC. However, a policy will not be a MEC if the excess premiums are refunded, with interest, within 60 days after the end of the Policy Year in which they are paid. For purposes of measuring this 60-day refund period, the term “Policy Year” refers to the year that starts on the date of a material change if that date is different than the Policy Date. If excess premium is refunded, all Policy values are recalculated as though the excess premium had never been paid.

A policy can also become a MEC if the benefits under the Policy are reduced during the seven-pay period or, in the case

 

 

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of joint life Policies, the lifetime of either Insured. If a reduction occurs during a seven-pay period, the seven-pay premium limit will be redetermined based on the reduced level of benefits. All premiums paid during the seven-pay period must be retroactively tested against the new, lower, seven-pay limit. If the premiums previously paid are greater than the recalculated seven-pay premium level limit, the Policy will become a MEC. This means that a reduction of Policy benefits can result in a MEC because of premiums paid in prior years even if those premiums did not exceed the policy’s seven-pay limit at the time they were paid. A reduction in benefits includes a decrease in the amount of coverage, the termination or reduction of certain riders, a withdrawal or any other action resulting in a surrender of Cash Value to you according to the terms of the Policy, an election of the paid-up option or, in some cases, a lapsing of the Policy where the Policy is not reinstated within 90 days. A life insurance policy which is received in exchange for a MEC will also be considered a MEC. In the case of joint life Policies, the reduction test must be applied during the lifetime of either Insured rather than only during seven-pay periods.

Whenever there is a “material change” under a Policy, it will generally be treated as a new contract for purposes of determining whether the Policy is a MEC. This means that a new seven-pay period begins with and a new seven-pay limit. The new seven-pay limit is determined by taking into account the value of the Policy at the time of such change. A material change could occur as a result of certain changes to the benefits or terms of the Policy, such as a change in a death benefit option or a change in the Insured(s), if allowable under your Policy. A material change could occur as a result of an increase in the death benefit, the addition of a benefit or the payment of a premium after the seven-pay period, which could be considered “unnecessary” under the Code.

If a Policy is a MEC, any distribution from the Policy will be treated as a distribution of gain first, subject to ordinary income taxation. Distributions for this purpose include a loan, a withdrawal of Cash Value, a surrender of the Policy, and dividends paid in cash. Distributions taken within the two-year period prior to the Policy becoming a MEC may also be taxed under the MEC tax rules. The Policy basis is increased to the extent a loan is a taxable distribution from a MEC. For these purposes, the term “loan”, includes an increase in Policy Debt due to accrued but unpaid loan interest, or an assignment or pledge of the policy to secure a loan. For purposes of determining the taxable portion of any distribution, all MECs issued by Northwestern Mutual to the same Owner (excluding certain qualified plans) during any calendar year are to be aggregated. The Secretary of the Treasury has authority to prescribe additional rules to prevent avoidance of gain-first taxation on distributions from MECs.

A 10% penalty tax will apply to the taxable portion of a distribution from a MEC. The penalty tax will not, however, apply to distributions (i) to taxpayers 59 12 years of age or older, (ii) in the case of a disability (as defined in the Code) or (iii) received as part of a series of substantially equal periodic annuity payments for the life (or life expectancy) of the

taxpayer or the joint lives (or joint life expectancies) of the taxpayer and the taxpayer’s beneficiaries. The exceptions generally do not apply to life insurance policies owned by corporations or other entities.

Estate and Generation Skipping Taxes    If the Insured owns, or has any incidents of ownership in, the Policy, the amount of the Death Benefit will generally be includible in the Insured’s estate for federal estate tax purposes and any applicable state inheritance tax. If a Policy is a joint life Policy, the Death Benefit will be includible in the estate of the second to die if that individual owned or had any incidents of ownership in, the policy at the time of death. In some circumstances, the Death Benefit of a policy may be included in an Insured’s estate even if not owned at the time of death. This may occur if the Insured transferred an ownership interest, or an incident of ownership, in a policy within three years of death. If the Owner dies, but an Insured is still alive, the fair market value of the Policy will be includible in the Owner’s estate. With appropriate estate planning, A unlimited marital deduction may permit deferral of federal estate and gift taxes until the death of the Owner’s surviving spouse.

If ownership of a Policy is transferred, either directly or in trust, to a person two or more generations younger than the Owner, the value of the Policy may be subject to a generation skipping transfer tax.

An exemption limit of $5 million (single)/$10 million (married) (with inflation indexing after 2011) and a maximum rate of 40% applies for purposes of the estate, gift and generation skipping transfer taxes. In addition, any unused estate exemption limit may be carried over to the surviving spouse.

Business-Owned Life Insurance    Business-owned life insurance may be subject to certain additional rules. Section 101(j) of the Code provides that a portion of the Death Benefit payable under business-owned life insurance in which the business is also the beneficiary will be taxable to the extent it exceeds the premiums or other consideration the business paid for the policy. This rule will not apply if (i) the Insured is an eligible employee and (ii) certain notice and consent requirements are satisfied before the policy is issued. Generally, an eligible employee is someone who was an employee at any time during the 12-month period before death, a director, a person who owns more than 5% of the business, an employee earning more than $120,000 annually (increased for cost of living), one of the highest 5 paid officers, or an employee who is among the highest paid 35% of employees. The law also imposes an annual reporting and record-keeping obligation on the employer. Increases in Policy or Cash Value may also be subject to tax under the corporation alternative minimum tax provisions.

Section 264(a)(1) of the Code generally disallows a deduction for premiums paid on Policies by anyone who is directly or indirectly a beneficiary under the Policy. Interest on debt that is related to or is incurred to purchase or carry life insurance might be deductible in certain, limited, circumstances set forth in Code Section 264. For example, interest paid or accrued for

 

 

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up to an aggregate of $50,000 of indebtedness with respect to life insurance covering a “key person” may be deductible. Generally, a key person is defined as an officer or a 20% owner. However, the number of key persons will be limited to the greater of (a) five individuals, or (b) the lesser of 5% of the total officers and employees of the taxpayer or 20 individuals. Deductible interest for these Policies will be subject to limits based on current market rates.

In addition, if a business owns life insurance with cash value, Section 264(f) of the Code may disallow a portion of a business’s non-life insurance related interest deduction. The disallowance is based on a ratio that compares the amount of unborrowed life insurance Cash Value to the adjusted basis of other business assets. Certain policies may be excluded the disallowance calculation. These include policies held by natural persons unless the business is a direct or indirect beneficiary under the policy and policies owned by a business and insuring an individual who at the time the policy is issued is an employee, director, officer or 20% owner (as well as joint policies insuring 20% owners and their spouses). The IRS has ruled that a policy received in a tax-free exchange is newly issued for this purpose.

The IRS has ruled privately that losses in business-owned life insurance could be deducted upon the surrender of the policy if there was no reasonable prospect of recovery, but that the losses would be calculated by reducing the basis of the policy by the annual cost of the insurance protection provided by the policy. Private rulings apply only to the taxpayer who receives the ruling but may be indicative of the IRS’s thinking on an issue.

Special rules under the Code govern how life insurance companies calculate income tax deductions. Under these rules the annual increase in the cash value of life insurance policies owned by life insurance companies may limit the company’s deductions, resulting in an overall increase in its taxable income. In Revenue Procedure 2007-61, the IRS provided a safe harbor under which the annual increase in cash value of life insurance policies covering no more than 35% of the company’s employees, directors, officers and 20% owners will not limit the life insurance company’s deductions. Additionally, the Revenue Procedure included language that the tax-deferred nature of such contracts remains subject to challenge by the IRS under other provisions of the tax law, including judicial doctrines such as the business purpose doctrine.

Policy Split Right    If your Policy is a joint life Policy, your Policy permits the Owner to exchange the Policy for two policies, one on the life of each Insured, without evidence of insurability, if a change in the federal estate tax law results in either the repeal of the unlimited marital deduction or a 50% or greater reduction in the maximum estate tax rate set forth in the law. The exchange must be made while both Insureds are alive (and neither Insured is classified as a Joint Insurable). The request for exchange must be received no later than 180 days after the earlier of the enactment of the law repealing the unlimited marital deduction or the enactment of the law reducing the estate tax rate by at least 50%.

The IRS has ruled with respect to one taxpayer that such a transaction would be treated as a non-taxable exchange. If not so treated, such a split of the Policy could result in the recognition of taxable income.

Split Dollar Arrangements    Life insurance purchased under a split dollar arrangement is subject to special tax rules. Treasury regulations regarding the taxation of split dollar arrangements apply only to arrangements entered into or materially changed after September 17, 2003. The regulations provide that such split dollar arrangements must be taxed under one of two mutually exclusive tax regimes depending on the ownership of the underlying life insurance policy. Collateral assignment split dollar arrangements, in which the employee owns the policy, must be taxed under a loan regime. Where such an arrangement imposes a below market interest rate or no interest rate, the employee is taxed on the imputed interest under Section 7872 of the Code. Endorsement split dollar arrangements, in which the employer owns the policy, must be taxed under an economic benefit regime. Under this regime, the employee is taxed each year on (i) the value of the current life insurance protection provided to the employee, (ii) the increase in the amount of policy Cash Value to which the employee has current access, and (iii) the value of any other economic benefits provided to the employee during the taxable year.

Under the Sarbanes-Oxley Act of 2002, it is a criminal offense for an employer with publicly traded stock to extend or arrange a personal loan to a director or executive officer after July 30, 2002. One issue that has not been clarified is whether each premium paid by such an employer under a split dollar arrangement with a director or executive officer is a personal loan subject to the new law.

Section 409A of the Code imposes requirements for nonqualified deferred compensation plans with regard to the timing of deferrals, distribution triggers, funding mechanisms and reporting requirements. Nonqualified deferred compensation plans that fail to meet these conditions are taxed currently on all compensation previously deferred and interest earned thereon and assessed an additional 20% penalty. The law does not limit the use of life insurance as an informal funding mechanism for nonqualified deferred compensation plans, but IRS Notice 2007-34 treats certain split dollar arrangements as nonqualified deferred compensation plans that must comply with the new rules. The effective date of these rules was December 31, 2008. Congress has also considered limiting an individual’s annual aggregate deferrals to a nonqualified deferred compensation plan to $1,000,000.

Valuation of Life Insurance    Special valuation rules apply to life insurance contracts distributed from a qualified plan to a participant or transferred by an employer to an employee. IRS Rev. Proc. 2005-25 provides safe harbor formulas for valuing variable and non-variable life insurance policies. Generally, the safe harbor value is the greater of (i) the sum of the interpolated terminal reserve, any unearned premiums, and a pro rata portion of the estimated dividends for the Policy Year; or (ii) the cash value without reduction for any

 

 

Variable Joint Life Prospectus      25   


Table of Contents

surrender charges (but adjusted by a surrender factor for policies distributed from qualified plans) multiplied by a factor specified in Rev. Proc. 2005-25. These rules do not apply to split dollar arrangements entered into on or before September 17, 2003 and not materially modified thereafter.

Other Tax Considerations    Under Code Section 6011, taxpayers are required to annually report all “reportable transactions”. Regulations under Code Section 6011 provide a list of several types of reportable transactions, some of which may involve life insurance policies. For example, in some circumstances a reportable transaction might exist if life insurance is owned by a welfare benefit plan. “Reportable

transactions” also include transactions that create significant differences between the amount of any item for purposes of determining income, gain, expense or loss for tax purposes differs by more than $10 million, on a gross basis, from the amount of the item for purposes for book purposes. However, Rev. Proc. 2004-67 held that the purchase of life insurance policies that creates such a difference does not, by itself, constitute a “reportable transaction.” The rules related to reportable transactions are complicated and you should consult a qualified tax advisor before purchasing any insurance policy as part of a transaction.

 

 

 

Distribution of the Policy

 

We sell the Policy through our Financial Representatives who also are registered representatives of Northwestern Mutual Investment Services, LLC (“NMIS”). NMIS, our wholly-owned company, was organized under Wisconsin law in 1998 and is located at 611 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. NMIS is a registered broker-dealer under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority. NMIS is the principal underwriter and distributor of the Policy and has entered into a Distribution Agreement with us.

Northwestern Mutual variable insurance and annuity products are available exclusively through NMIS and its registered representatives and cannot be held with or transferred to an unaffiliated broker-dealer. Except in limited circumstances, NMIS registered representatives are required to offer Northwestern Mutual variable insurance and annuity products. The amount and timing of sales compensation paid by insurance companies varies. The commissions, benefits, and other sales compensation that NMIS and its registered representatives receive for the sale of a Northwestern Mutual variable insurance or annuity product might be more or less than that received for the sale of a comparable product from another company.

The maximum commission payable to the registered representative who sold the Policy is 40% of Premium Payments up to the Target Premium and 2.75% of Premium Payments in excess of that amount during the first Policy Year; 6% of Premium Payments up to Target Premium and 2.75% of Premium Payments in excess of that amount paid in Policy Years 2-10; and 2.75% of Premium Payments thereafter. In addition, a commission of 0.10% of Policy Value less Policy Debt is paid at the end of Policy Years 6 and later. Registered representatives may receive less than the maximum commission or no commission in certain circumstances according to pre-established guidelines. We

may also pay new registered representatives differently during a training period. The entire amount of sales commissions paid to registered representatives is passed through NMIS to the registered representative who sold the Policy and to his or her managers. The Company pays compensation and bonuses for the management team of NMIS, and other expenses of distributing the Policies.

Because registered representatives of NMIS are also our appointed agents, they may be eligible for various cash benefits, such as bonuses, insurance benefits, retirement benefits, and non-cash compensation programs that we offer, such as conferences, achievement recognition, prizes, and awards. In addition, registered representatives of NMIS who meet certain productivity, persistency, and length of service standards and/or their managers may be eligible for additional compensation. For example, registered representatives who meet certain annual sales production requirements with respect to their sales of Northwestern Mutual insurance and annuity products may qualify to receive additional cash compensation for their other sales of investment products and services. Sales of the Policies may help registered representatives and/or their managers qualify for such compensation and benefits. Certain registered representatives of NMIS may receive other payments from us for the recruitment, training, development, and supervision of financial representatives, production of promotional literature and similar services.

Commissions and other incentives and payments described above are not charged directly to Owners or to the Separate Account. We intend to recoup commissions and other sales expenses through fees and charges deducted under the Policy. NMIS registered representatives receive ongoing servicing compensation related to the Policies, but may be ineligible to receive ongoing servicing compensation paid by issuers of other investment products for certain smaller accounts.

 

 

26   Variable Joint Life Prospectus


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Glossary of Terms

 

APPLICATION

The form completed by the applicant when applying for coverage under the Policy. This includes any:

  1.   amendments or endorsements;
  2.   supplemental Applications;
  3.   reinstatement Applications; and
  4.   Policy change Applications.

ATTAINED AGE

The Insured’s Issue Age listed in the Policy, plus the number of complete Policy Years that have elapsed since the Policy Date.

CASH VALUE

The amount available in cash if the Policy is surrendered.

DATE OF ISSUE

The date on which insurance coverage takes effect as shown in the Policy.

DEATH BENEFIT

The gross amount payable to the beneficiary upon the death of second Insured, before the deduction of Policy Debt and other adjustments.

DIVISION

A subdivision of the Separate Account. We invest each Division’s assets exclusively in shares of one Portfolio.

FINANCIAL REPRESENTATIVE

An individual who is authorized to sell you the Policy and who is both licensed as a Northwestern Mutual insurance agent and registered as a representative of our affiliate, Northwestern Mutual Investment Services, LLC, the principal underwriter of the Policy.

FUND

Each Fund is registered under the 1940 Act as an open-end management investment company or as a unit investment trust, or is not required to be registered under the Act. Each Portfolio of the Funds is available as an investment option under the Policy. The assets of each of the Divisions of the Separate Account are used to purchase shares of the corresponding Portfolio of a Fund.

GENERAL ACCOUNT

All assets of the Company, other than those held in the Separate Account or in other separate accounts that have been or may be established by the Company.

GOOD ORDER

Your request or payment meets all the current requirements necessary for us to process it. For certain requests this may include, as applicable, the return of proceeds, evidence of insurability, underwriting, MEC-limit (or insurance qualification) requirements, any premium payments due, instructions as to payment due dates, or proper completion of certain Northwestern Mutual forms.

HOME OFFICE

Our office at 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-4797.

INCOME PLAN

An optional method of receiving the Death Benefit, maturity benefit, surrender proceeds or withdrawal proceeds of an insurance policy or annuity contract through a series of periodic payments. An Income Plan may also be known as a “payment plan.”

INSUREDS

The persons named as the Insureds on the Application and in the Policy.

INVESTED ASSETS

The sum of all amounts in the Divisions of the Separate Account.

ISSUE AGE

An Insured’s age on his or her birthday nearest the Policy Date.

MEC

Modified endowment contract as described in Section 7702A of the Internal Revenue Code. A modified endowment contract is a life insurance contract that is considered too investment oriented and is taxed less favorably on lifetime distributions than other life insurance contracts. See the “Tax Considerations” section for more detailed information.

MONTHLY PROCESSING DATE

The first Monthly Processing Date is the Policy Date; thereafter, the Monthly Processing Date is the same day of each month as the Policy Date. If the Monthly Processing Date would otherwise fall on the 29th, 30th, or 31st of the month, monthly processing will occur on that day or on the last day of the month if the month does not have that day.

NET PREMIUM

The amount of Premium Payment remaining after Premium charges have been deducted.

NYSE

New York Stock Exchange

OWNER (You, Your)

The person named in the Application as the Owner, or the person who becomes Owner of a Policy by transfer or succession.

POLICY ANNIVERSARY

The same day and month as the Policy Date in each year following the first Policy Year.

POLICY DATE

The date shown on the Policy from which the following are computed, among other things:

  1.   Policy Year;
  2.   Policy Anniversary;
  3.   the Issue Age of each Insured; and
  4.   the Attained Age of each Insured.

POLICY DEBT

The total amount of all outstanding Policy loans, including both principal and accrued interest.

 

 

Variable Joint Life Prospectus      27   


Table of Contents

POLICY VALUE

The cumulative amount invested, less withdrawals, adjusted for investment results and interest on Policy Debt, and reduced by the monthly charges for the cost of insurance and other expenses. It is also equal to the sum of Invested Assets and Policy Debt.

POLICY YEAR

A year that starts on the Policy Date or on a Policy Anniversary.

PORTFOLIO

A series of a Fund available for investment under the Policy which corresponds to a particular Division of the Separate Account.

PREMIUM PAYMENTS

All payments you make under the Policy other than loan repayments and transaction charges.

SEPARATE ACCOUNT

Northwestern Mutual Variable Life Account.

SPECIFIED AMOUNT

The amount you select, subject to minimums and underwriting requirements we establish, used in determining the insurance coverage on the Insureds’ lives.

TARGET PREMIUM

An amount based on the initial Specified Amount and characteristics of the Insured persons, such as Issue Age, sex and underwriting classification, used to compute the sales load, commissions, surrender charge and other expense charges during the first 10 Policy Years.

UNIT

An accounting unit of measure representing the value in one or more Divisions of the Separate Account.

UNIT VALUE

The value of a particular Unit at a particular time. Unit Value is analogous, but not the same as, the share price of a Portfolio in which a Division invests. It may fluctuate from one Valuation Period to the next.

 

 

28   Variable Joint Life Prospectus


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Additional Information

More information about the Separate Account is included in a Statement of Additional Information (“SAI”), which is dated the same day as this prospectus, is incorporated by reference into this prospectus, and is available free of charge from the Company. To request a free copy of the Separate Account’s SAI, or current annual report, call us toll-free at 1-866-464-3800. Under certain circumstances you or your financial representative may be able to obtain these documents online at www.northwesternmutual.com. 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 SEC’s 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 Joint Life Policy free of charge upon your request. The illustrations show how the Death Benefit, Policy Value 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 Advanced Markets Operations at 1-866-464-3800.

Investment Company Act File No. 811-3989

 

Variable Joint Life Prospectus      29   


Table of Contents

Appendix A

Monthly Policy Charge—Mortality and Expense Risk Charge—Specified Amount Component

Table of Annual Charges Per $1,000 of Initial Specified Amount

 

Issue Age*

   Annual
Charge
    

Issue Age*

   Annual
Charge
 

20-25

   $ 0.04      

51

   $ 0.60   

26

     0.05      

52

     0.63   

27

     0.06      

53

     0.66   

28

     0.07      

54

     0.69   

29

     0.08      

55

     0.72   

30

     0.09      

56

     0.77   

31

     0.10      

57

     0.83   

32

     0.11      

58

     0.88   

33

     0.12      

59

     0.94   

34

     0.13      

60

     0.99   

35

     0.14      

61

     1.04   

36

     0.17      

62

     1.10   

37

     0.19      

63

     1.15   

38

     0.22      

64

     1.21   

39

     0.25      

65

     1.26   

40

     0.28      

66

     1.31   

41

     0.30      

67

     1.35   

42

     0.33      

68

     1.40   

43

     0.36      

69

     1.44   

44

     0.38      

70

     1.49   

45

     0.41      

71

     1.54   

46

     0.44      

72

     1.58   

47

     0.47      

73

     1.63   

48

     0.50      

74

     1.67   

49

     0.53      

75-85

     1.72   

50

     0.57         

 

* The Issue Age used in this calculation equals the younger Insured Issue Age plus an age adjustment. The age adjustment is based on the age difference (older Issue Age minus younger Issue Age) and this schedule:

 

Age Difference

(years)

   Age Adjustment
(years)
    

Age Difference

(years)

   Age Adjustment
(years)
 

0-1

     0      

25-34

     5   

2-4

     1      

35-44

     6   

5-8

     2      

45-54

     7   

9-14

     3      

55-65

     8   

15-24

     4         

Example: For a Policy at Issue Ages 65 and 60 and a Specified Amount of $1,000,000, the age adjustment is 2 and the Issue Age is 62. The annual charge per $1,000 of Specified Amount is $1.10. The Monthly Policy Charge—Mortality and Expense Risk Charge—Specified Amount component will be $1,100.04 annually, or $91.67 monthly, for this Policy.

Note: In no event will the sum of the Monthly Policy Charge—Mortality and Expense Risk Charge—Specified Amount component annual charge and the Monthly Policy Charge—Underwriting and Issue Charge annual charge exceed $1.90 per $1,000 of initial Specified Amount. The Monthly Policy Charge—Underwriting and Issue Charge will be reduced to meet this constraint if necessary.

 

30   Variable Joint Life Prospectus


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STATEMENT OF ADDITIONAL INFORMATION

May 1, 2016

VARIABLE JOINT LIFE

A Flexible Premium Variable Joint Life Policy with Insurance Payable on Second Death (the “Policy”).

Issued by The Northwestern Mutual Life Insurance Company

and

Northwestern Mutual Variable Life Account

(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, 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or by calling telephone number 1-866-464-3800.

 

 

 

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TABLE OF CONTENTS

 

     Page  

DISTRIBUTION OF THE POLICY

     B-3   

EXPERTS

     B-3   

FINANCIAL STATEMENTS OF THE ACCOUNT

     F-1   

FINANCIAL STATEMENTS OF NORTHWESTERN MUTUAL

     NM-1   

 

B-2


Table of Contents

DISTRIBUTION OF THE POLICY

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  

2015

   $ 4,059,098   

2014

   $ 5,607,850   

2013

   $ 9,032,836   

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.

EXPERTS

The consolidated financial statements of Northwestern Mutual as of December 31, 2015 and 2014 and for each of the three years in the period ended December 31, 2015, and the financial statements of Northwestern Mutual Variable Life Account as of December 31, 2015 and for the periods indicated, included in this Statement of Additional Information constituting part of this Registration Statement, have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. The address of PricewaterhouseCoopers LLP is 100 East Wisconsin Avenue, Suite 1800, Milwaukee, Wisconsin 53202.

 

B-3


Table of Contents

 

 

 

Annual Report December 31, 2015

Northwestern Mutual Variable Life Account

Financial Statements

 

 

 

 

 


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Assets and Liabilities

December 31, 2015

(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

 
  

 

 

 

Assets:

              

Investments, at value (1)

              

Northwestern Mutual Series Fund, Inc

   $ 392,700       $ 138,712       $ 228,565       $ 8,935       $ 1,113,208   

Fidelity Variable Insurance Products

     -         -         -         -         -   

Neuberger Berman Advisers Management Trust

     -         -         -         -         -   

Russell Investment Funds

     -         -         -         -         -   

Credit Suisse Trust

     -         -         -         -         -   

Due from Northwestern Mutual Life Insurance Company

     2         -         -         -         3   
  

 

 

 

Total Assets

     392,702         138,712         228,565         8,935         1,113,211   
  

 

 

 

Liabilities:

              

Due to Northwestern Mutual Life Insurance Company

     -         52         71         1         -   
  

 

 

 

Total Liabilities

     -         52         71         1         -   
  

 

 

 

Total Net Assets

   $ 392,702       $ 138,660       $ 228,494       $ 8,934       $ 1,113,211   
  

 

 

 

Net Assets:

              

Variable Life Policies Issued

              

Before October 11, 1995

              

Policyowners’ Equity

   $ 35,197       $ 8,977       $ 25,478       $ 278       $ 152,836   

Northwestern Mutual Equity

     436         85         404         4         1,674   

Variable CompLife Policies Issued Between October 11, 1995 and December 31, 2008 (2)

              

Policyowners’ Equity

     335,511         117,739         187,933         8,073         881,030   

Northwestern Mutual Equity

     7,668         3,114         4,499         176         19,656   

Variable Executive Life Policies Issued Between March 2, 1998 and December 31, 2008 (3)

              

Policyowners’ Equity

     6,558         4,319         5,603         286         21,213   

Variable Joint Life Policies Issued Between December 10, 1998 and December 31, 2008 (4)

              

Policyowners’ Equity

     7,332         4,426         4,577         117         36,802   
  

 

 

 

Total Net Assets

   $ 392,702       $ 138,660       $ 228,494       $ 8,934       $ 1,113,211   
  

 

 

 

(1) Investments, at cost

   $ 296,285       $ 105,378       $ 179,337       $ 8,947       $ 792,866   

  Mutual Fund Shares Held

     139,950         51,797         148,226         8,684         286,835   

(2) Accumulation Unit Value

   $ 4.167790       $ 3.554167       $ 2.877770       $ 1.532727       $ 4.551560   

  Units Outstanding

     82,341         34,003         66,868         5,383         197,885   

(3) Accumulation Unit Value

   $ 57.763945       $ 37.773111       $ 39.512372       $ 13.161232       $ 104.794845   

  Units Outstanding

     114         114         142         22         202   

(4) Accumulation Unit Value

   $ 57.763945       $ 37.773111       $ 39.512372       $ 13.161232       $ 104.794845   

  Units Outstanding

     127         117         116         9         351   

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-1


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Assets and Liabilities

December 31, 2015

(in thousands, except accumulation unit values)

 

 

     Large
Company
Value
Division
     Domestic
Equity
Division
     Equity
Income
Division
     Mid Cap
Growth Stock
Division
    

Index 400
Stock

Division

 
  

 

 

 

Assets:

              

Investments, at value (1)

              

Northwestern Mutual Series Fund, Inc

   $ 10,524       $ 183,671       $ 109,243       $ 450,994       $ 275,394   

Fidelity Variable Insurance Products

     -         -         -         -         -   

Neuberger Berman Advisers Management Trust

     -         -         -         -         -   

Russell Investment Funds

     -         -         -         -         -   

Credit Suisse Trust

     -         -         -         -         -   

Due from Northwestern Mutual Life Insurance Company

     1         -         -         -         23   
  

 

 

 

Total Assets

     10,525         183,671         109,243         450,994         275,417   
  

 

 

 

Liabilities:

              

Due to Northwestern Mutual Life Insurance Company

     -         7         35         58         -   
  

 

 

 

Total Liabilities

     -         7         35         58         -   
  

 

 

 

Total Net Assets

   $ 10,525       $ 183,664       $ 109,208       $ 450,936       $ 275,417   
  

 

 

 

Net Assets:

              

Variable Life Policies Issued

              

Before October 11, 1995

              

Policyowners’ Equity

   $ 746       $ 16,252       $ 8,915       $ 63,601       $ 14,051   

Northwestern Mutual Equity

     7         186         117         894         155   

Variable CompLife Policies Issued Between October 11, 1995 and December 31, 2008 (2)

              

Policyowners’ Equity

     9,018         152,841         90,339         367,248         239,810   

Northwestern Mutual Equity

     189         4,090         2,283         8,470         5,559   

Variable Executive Life Policies Issued Between March 2, 1998 and December 31, 2008 (3)

              

Policyowners’ Equity

     95         4,190         3,674         4,084         6,958   

Variable Joint Life Policies Issued Between December 10, 1998 and December 31, 2008 (4)

              

Policyowners’ Equity

     470         6,105         3,880         6,639         8,884   
  

 

 

 

Total Net Assets

   $ 10,525       $ 183,664       $ 109,208       $ 450,936       $ 275,417   
  

 

 

 

(1) Investments, at cost

   $ 11,428       $ 131,559       $ 90,750       $ 429,652       $ 230,583   

  Mutual Fund Shares Held

     10,673         129,894         70,117         145,201         155,326   

(2) Accumulation Unit Value

   $ 1.577867       $ 2.135000       $ 2.394831       $ 3.699378       $ 3.709654   

  Units Outstanding

     5,835         73,504         38,676         101,563         66,143   

(3) Accumulation Unit Value

   $ 13.331635       $ 22.929503       $ 25.451821       $ 103.425002       $ 42.560713   

  Units Outstanding

     7         183         144         39         163   

(4) Accumulation Unit Value

   $ 13.331635       $ 22.929503       $ 25.451821       $ 103.425002       $ 42.560713   

  Units Outstanding

     35         266         152         64         209   

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-2


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Assets and Liabilities

December 31, 2015

(in thousands, except accumulation unit values)

 

 

     Mid Cap
Value
Division
     Small Cap
Growth Stock
Division
     Index 600
Stock
Division
     Small Cap
Value
Division
     International
Growth
Division
 
  

 

 

 

Assets:

              

Investments, at value (1)

              

Northwestern Mutual Series Fund, Inc

   $ 57,460       $ 246,234       $ 20,836       $ 156,858       $ 88,928   

Fidelity Variable Insurance Products

     -         -         -         -         -   

Neuberger Berman Advisers Management Trust

     -         -         -         -         -   

Russell Investment Funds

     -         -         -         -         -   

Credit Suisse Trust

     -         -         -         -         -   

Due from Northwestern Mutual Life Insurance Company

     3         12         -         23         -   
  

 

 

 

Total Assets

     57,463         246,246         20,836         156,881         88,928   
  

 

 

 

Liabilities:

              

Due to Northwestern Mutual Life Insurance Company

     -         -         5         -         21   
  

 

 

 

Total Liabilities

     -         -         5         -         21   
  

 

 

 

Total Net Assets

   $ 57,463       $ 246,246       $ 20,831       $ 156,881       $ 88,907   
  

 

 

 

Net Assets:

              

Variable Life Policies Issued

              

Before October 11, 1995

              

Policyowners’ Equity

   $ 3,797       $ 11,174       $ 1,995       $ 11,893       $ 4,075   

Northwestern Mutual Equity

     43         128         23         146         60   

Variable CompLife Policies Issued Between October 11, 1995 and December 31, 2008 (2)

              

Policyowners’ Equity

     49,454         218,055         17,474         132,086         75,878   

Northwestern Mutual Equity

     1,313         5,455         380         3,528         2,108   

Variable Executive Life Policies Issued Between March 2, 1998 and December 31, 2008 (3)

              

Policyowners’ Equity

     1,019         4,157         596         2,832         3,494   

Variable Joint Life Policies Issued Between December 10, 1998 and December 31, 2008 (4)

              

Policyowners’ Equity

     1,837         7,277         363         6,396         3,292   
  

 

 

 

Total Net Assets

   $ 57,463       $ 246,246       $ 20,831       $ 156,881       $ 88,907   
  

 

 

 

(1) Investments, at cost

   $ 49,808       $ 209,373       $ 22,422       $ 128,583       $ 92,032   

  Mutual Fund Shares Held

     37,336         103,765         18,374         74,552         68,459   

(2) Accumulation Unit Value

   $ 2.988550       $ 3.628992       $ 1.543293       $ 3.004079       $ 1.793138   

  Units Outstanding

     16,987         61,590         11,569         45,143         43,492   

(3) Accumulation Unit Value

   $ 31.761925       $ 47.712811       $ 17.224563       $ 32.262868       $ 19.257803   

  Units Outstanding

     32         87         35         88         181   

(4) Accumulation Unit Value

   $ 31.761925       $ 47.712811       $ 17.224563       $ 32.262868       $ 19.257803   

  Units Outstanding

     58         153         21         198         171   

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-3


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Assets and Liabilities

December 31, 2015

(in thousands, except accumulation unit values)

 

 

     Research
International
Core
Division
     International
Equity
Division
     Emerging
Markets
Equity
Division
     Money
Market
Division
    

Short-Term

Bond
Division

 
  

 

 

 

Assets:

              

Investments, at value (1)

              

Northwestern Mutual Series Fund, Inc

   $ 24,495       $ 502,650       $ 34,728       $ 171,143       $ 15,739   

Fidelity Variable Insurance Products

     -         -         -         -         -   

Neuberger Berman Advisers Management Trust

     -         -         -         -         -   

Russell Investment Funds

     -         -         -         -         -   

Credit Suisse Trust

     -         -         -         -         -   

Due from Northwestern Mutual Life Insurance Company

     9         -         28         5         3   
  

 

 

 

Total Assets

     24,504         502,650         34,756         171,148         15,742   
  

 

 

 

Liabilities:

              

Due to Northwestern Mutual Life Insurance Company

     -         4         -         -         -   
  

 

 

 

Total Liabilities

     -         4         -         -         -   
  

 

 

 

Total Net Assets

   $ 24,504       $ 502,646       $ 34,756       $ 171,148       $ 15,742   
  

 

 

 

Net Assets:

              

Variable Life Policies Issued

              

Before October 11, 1995

              

Policyowners’ Equity

   $ 1,422       $ 59,124       $ 1,735       $ 13,796       $ 1,672   

Northwestern Mutual Equity

     33         941         30         232         17   

Variable CompLife Policies Issued Between October 11, 1995 and December 31, 2008 (2)

              

Policyowners’ Equity

     20,844         406,375         28,604         116,500         12,297   

Northwestern Mutual Equity

     485         10,232         644         4,227         278   

Variable Executive Life Policies Issued Between March 2, 1998 and December 31, 2008 (3)

              

Policyowners’ Equity

     1,067         11,925         2,346         15,028         577   

Variable Joint Life Policies Issued Between December 10, 1998 and December 31, 2008 (4)

              

Policyowners’ Equity

     653         14,049         1,397         21,365         901   
  

 

 

 

Total Net Assets

   $ 24,504       $ 502,646       $ 34,756       $ 171,148       $ 15,742   
  

 

 

 

(1) Investments, at cost

   $ 25,299       $ 532,665       $ 42,323       $ 171,143       $ 15,784   

  Mutual Fund Shares Held

     28,682         311,818         43,140         171,143         15,311   

(2) Accumulation Unit Value

   $ 1.055308       $ 3.143590       $ 0.741823       $ 1.531914       $ 1.012734   

  Units Outstanding

     20,212         132,526         39,426         78,808         12,418   

(3) Accumulation Unit Value

   $ 10.098885       $ 4.843231       $ 8.872116       $ 41.572750       $ 12.275717   

  Units Outstanding

     106         2,462         264         361         47   

(4) Accumulation Unit Value

   $ 10.098885       $ 4.843231       $ 8.872116       $ 41.572750       $ 12.275717   

  Units Outstanding

     65         2,901         157         514         73   

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-4


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Assets and Liabilities

December 31, 2015

(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
 
  

 

 

 

Assets:

              

Investments, at value (1)

              

Northwestern Mutual Series Fund, Inc

   $ 243,321       $ 8,137       $ 7,974       $ 100,912       $ 27,617   

Fidelity Variable Insurance Products

     -         -         -         -         -   

Neuberger Berman Advisers Management Trust

     -         -         -         -         -   

Russell Investment Funds

     -         -         -         -         -   

Credit Suisse Trust

     -         -         -         -         -   

Due from Northwestern Mutual Life Insurance Company

     -         -         1         2         -   
  

 

 

 

Total Assets

     243,321         8,137         7,975         100,914         27,617   
  

 

 

 

Liabilities:

              

Due to Northwestern Mutual Life Insurance Company

     124         36         -         -         71   
  

 

 

 

Total Liabilities

     124         36         -         -         71   
  

 

 

 

Total Net Assets

   $ 243,197       $ 8,101       $ 7,975       $ 100,914       $ 27,546   
  

 

 

 

Net Assets:

              

Variable Life Policies Issued

              

Before October 11, 1995

              

Policyowners’ Equity

   $ 22,702       $ 447       $ 366       $ 7,014       $ 1,571   

Northwestern Mutual Equity

     357         8         5         97         20   

Variable CompLife Policies Issued Between October 11, 1995 and December 31, 2008 (2)

              

Policyowners’ Equity

     183,392         7,441         6,380         84,375         23,914   

Northwestern Mutual Equity

     4,913         186         145         2,082         599   

Variable Executive Life Policies Issued Between March 2, 1998 and December 31, 2008 (3)

              

Policyowners’ Equity

     21,408         19         365         4,801         360   

Variable Joint Life Policies Issued Between December 10, 1998 and December 31, 2008 (4)

              

Policyowners’ Equity

     10,425         -         714         2,545         1,082   
  

 

 

 

Total Net Assets

   $ 243,197       $ 8,101       $ 7,975       $ 100,914       $ 27,546   
  

 

 

 

(1) Investments, at cost

   $ 245,724       $ 8,212       $ 8,618       $ 102,951       $ 30,691   

  Mutual Fund Shares Held

     194,812         7,534         7,594         148,619         27,981   

(2) Accumulation Unit Value

   $ 2.673382       $ 1.345254       $ 1.036853       $ 3.275752       $ 1.138400   

  Units Outstanding

     70,437         5,670         6,292         26,393         21,532   

(3) Accumulation Unit Value

   $ 212.549665       $ 18.898765       $ 13.593038       $ 43.377037       $ 15.597729   

  Units Outstanding

     101         1         27         111         23   

(4) Accumulation Unit Value

   $ 212.549665       $ 18.898765       $ 13.593038       $ 43.377037       $ 15.597729   

  Units Outstanding

     49         -         53         59         69   

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-5


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Assets and Liabilities

December 31, 2015

(in thousands, except accumulation unit values)

 

     Balanced
Division
     Asset
Allocation
Division
     Fidelity VIP
Mid Cap
Division
     Fidelity VIP
Contrafund
Division
     Neuberger
Berman AMT
Socially
Responsive
Division
 
  

 

 

 

Assets:

              

Investments, at value (1)

              

Northwestern Mutual Series Fund, Inc

   $ 345,393       $ 44,285       $ -       $ -       $ -   

Fidelity Variable Insurance Products

     -         -         162,689         39,554         -   

Neuberger Berman Advisers Management Trust

     -         -         -         -         4,514   

Russell Investment Funds

     -         -         -         -         -   

Credit Suisse Trust

     -         -         -         -         -   

Due from Northwestern Mutual Life Insurance Company

     -         6         11         3         -   
  

 

 

 

Total Assets

     345,393         44,291         162,700         39,557         4,514   
  

 

 

 

Liabilities:

              

Due to Northwestern Mutual Life Insurance Company

     358         -         -         -         -   
  

 

 

 

Total Liabilities

     358         -         -         -         -   
  

 

 

 

Total Net Assets

   $ 345,035       $ 44,291       $ 162,700       $ 39,557       $ 4,514   
  

 

 

 

Net Assets:

              

Variable Life Policies Issued

              

Before October 11, 1995

              

Policyowners’ Equity

   $ 155,177       $ 6,015       $ 14,039       $ 2,417       $ 227   

Northwestern Mutual Equity

     1,593         78         156         26         3   

Variable CompLife Policies Issued Between October 11, 1995 and December 31, 2008 (2)

              

Policyowners’ Equity

     171,954         33,855         133,732         33,701         3,468   

Northwestern Mutual Equity

     4,302         950         3,626         766         84   

Variable Executive Life Policies Issued Between March 2, 1998 and December 31, 2008 (3)

              

Policyowners’ Equity

     5,950         1,073         5,219         1,461         208   

Variable Joint Life Policies Issued Between December 10, 1998 and December 31, 2008 (4)

              

Policyowners’ Equity

     6,059         2,320         5,928         1,186         524   
  

 

 

 

Total Net Assets

   $ 345,035       $ 44,291       $ 162,700       $ 39,557       $ 4,514   
  

 

 

 

(1) Investments, at cost

   $ 366,514       $ 42,996       $ 155,508       $ 36,271       $ 4,283   

  Mutual Fund Shares Held

     250,103         40,040         5,111         1,189         210   

(2) Accumulation Unit Value

   $ 3.310708       $ 1.899554       $ 3.964922       $ 1.546836       $ 1.499733   

  Units Outstanding

     53,238         18,322         34,643         22,283         2,368   

(3) Accumulation Unit Value

   $ 181.609174       $ 20.400265       $ 42.137819       $ 16.824006       $ 16.199640   

  Units Outstanding

     33         53         124         87         13   

(4) Accumulation Unit Value

   $ 181.609174       $ 20.400265       $ 42.137819       $ 16.824006       $ 16.199640   

  Units Outstanding

     33         114         141         71         32   

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-6


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Assets and Liabilities

December 31, 2015

(in thousands, except accumulation unit values)

 

     Russell
Multi-Style
Equity
Division
     Russell
Aggressive
Equity
Division
     Russell
Non-U.S.
Division
     Russell Core
Bond
Division
     Russell
Global Real
Estate
Securities
Division
 
  

 

 

 

Assets:

              

Investments, at value (1)

              

Northwestern Mutual Series Fund, Inc

   $ -       $ -       $ -       $ -       $ -   

Fidelity Variable Insurance Products

     -         -         -         -         -   

Neuberger Berman Advisers Management Trust

     -         -         -         -         -   

Russell Investment Funds

     203,119         91,737         117,678         85,645         172,180   

Credit Suisse Trust

     -         -         -         -         -   

Due from Northwestern Mutual Life Insurance Company

     -         2         -         -         -   
  

 

 

 

Total Assets

     203,119         91,739         117,678         85,645         172,180   
  

 

 

 

Liabilities:

              

Due to Northwestern Mutual Life Insurance Company

     21         -         8         69         20   
  

 

 

 

Total Liabilities

     21         -         8         69         20   
  

 

 

 

Total Net Assets

   $ 203,098       $ 91,739       $ 117,670       $ 85,576       $ 172,160   
  

 

 

 

Net Assets:

              

Variable Life Policies Issued

              

Before October 11, 1995

              

Policyowners’ Equity

   $ 9,274       $ 5,780       $ 7,209       $ 5,633       $ 9,554   

Northwestern Mutual Equity

     110         68         106         107         112   

Variable CompLife Policies Issued Between October 11, 1995 and December 31, 2008 (2)

              

Policyowners’ Equity

     170,709         77,751         97,275         61,660         147,189   

Northwestern Mutual Equity

     4,511         2,113         2,585         1,707         3,945   

Variable Executive Life Policies Issued Between March 2, 1998 and December 31, 2008 (3)

              

Policyowners’ Equity

     10,151         3,224         6,489         12,881         5,527   

Variable Joint Life Policies Issued Between December 10, 1998 and December 31, 2008 (4)

              

Policyowners’ Equity

     8,343         2,803         4,006         3,588         5,833   
  

 

 

 

Total Net Assets

   $ 203,098       $ 91,739       $ 117,670       $ 85,576       $ 172,160   
  

 

 

 

(1) Investments, at cost

   $ 179,120       $ 94,135       $ 120,255       $ 87,383       $ 176,220   

  Mutual Fund Shares Held

     12,207         7,095         10,451         8,339         11,705   

(2) Accumulation Unit Value

   $ 1.631656       $ 2.193357       $ 1.605290       $ 2.167486       $ 4.179747   

  Units Outstanding

     107,389         36,411         62,206         29,235         36,159   

(3) Accumulation Unit Value

   $ 18.271298       $ 25.191084       $ 17.562157       $ 23.248775       $ 44.771967   

  Units Outstanding

     556         128         369         554         123   

(4) Accumulation Unit Value

   $ 18.271298       $ 25.191084       $ 17.562157       $ 23.248775       $ 44.771967   

  Units Outstanding

     457         111         228         154         130   

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-7


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Assets and Liabilities

December 31, 2015

(in thousands, except accumulation unit values)

 

     Russell
LifePoints
Moderate
Strategy
Division
     Russell
LifePoints
Balanced
Strategy
Division
     Russell
LifePoints
Growth
Strategy
Division
     Russell
LifePoints
Equity Growth
Strategy
Division
     Credit Suisse
Trust
Commodity
Return
Strategy
Division
 
  

 

 

 

Assets:

              

Investments, at value (1)

              

Northwestern Mutual Series Fund, Inc

   $ -       $ -       $ -       $ -       $ -   

Fidelity Variable Insurance Products

     -         -         -         -         -   

Neuberger Berman Advisers Management Trust

     -         -         -         -         -   

Russell Investment Funds

     3,256         17,503         19,036         8,826         -   

Credit Suisse Trust

     -         -         -         -         14,876   

Due from Northwestern Mutual Life Insurance Company

     -         3         -         -         6   
  

 

 

 

Total Assets

     3,256         17,506         19,036         8,826         14,882   
  

 

 

 

Liabilities:

              

Due to Northwestern Mutual Life Insurance Company

     -         -         -         2         -   
  

 

 

 

Total Liabilities

     -         -         -         2         -   
  

 

 

 

Total Net Assets

   $ 3,256       $ 17,506       $ 19,036       $ 8,824       $ 14,882   
  

 

 

 

Net Assets:

              

Variable Life Policies Issued

              

Before October 11, 1995

              

Policyowners’ Equity

   $ 713       $ 3,488       $ 3,010       $ 967       $ 431   

Northwestern Mutual Equity

     6         49         43         15         8   

Variable CompLife Policies Issued Between October 11, 1995 and December 31, 2008 (2)

              

Policyowners’ Equity

     2,442         13,289         15,299         6,980         12,378   

Northwestern Mutual Equity

     66         367         452         173         326   

Variable Executive Life Policies Issued Between March 2, 1998 and December 31, 2008 (3)

              

Policyowners’ Equity

     29         25         1         16         1,065   

Variable Joint Life Policies Issued Between December 10, 1998 and December 31, 2008 (4)

              

Policyowners’ Equity

     -         288         231         673         674   
  

 

 

 

Total Net Assets

   $ 3,256       $ 17,506       $ 19,036       $ 8,824       $ 14,882   
  

 

 

 

(1) Investments, at cost

   $ 3,488       $ 18,901       $ 20,197       $ 9,175       $ 22,191   

  Mutual Fund Shares Held

     333         1,866         2,129         1,066         3,805   

(2) Accumulation Unit Value

   $ 1.153913       $ 1.188804       $ 1.188862       $ 1.204105       $ 4.767003   

  Units Outstanding

     2,173         11,488         13,249         5,941         2,665   

(3) Accumulation Unit Value

   $ 13.984420       $ 13.546956       $ 12.631574       $ 11.679451       $ 4.412123   

  Units Outstanding

     2         2         -         1         241   

(4) Accumulation Unit Value

   $ 13.984420       $ 13.546956       $ 12.631574       $ 11.679451       $ 4.412123   

  Units Outstanding

     -         21         18         58         153   

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-8


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Operations

For the Year Ended December 31, 2015

(in thousands)

 

     Growth Stock
Division
    Focused
Appreciation
Division
    Large Cap
Core Stock
Division
    Large Cap
Blend
Division
    Index 500
Stock
Division
 
  

 

 

 

Income:

          

Dividend income

   $ 2,888      $ -      $ 5,037      $ 84      $ 18,993   

Expenses:

          

Mortality and expense risk charges

     1,714        562        1,028        39        4,855   

Taxes

     18        4        13        -        79   
  

 

 

 

Total expenses

     1,732        566        1,041        39        4,934   

Less waived fees

     -        -        -        -        -   
  

 

 

 

Net expenses

     1,732        566        1,041        39        4,934   
  

 

 

 

Net investment income (loss)

     1,156        (566     3,996        45        14,059   
  

 

 

 

Realized gain (loss) on investments:

          

Realized gain (loss) on sale of fund shares

     7,159        3,403        3,518        429        14,053   

Realized gain distribution

     28,026        14,107        3,559        513        19,937   
  

 

 

 

Realized gains (losses)

     35,185        17,510        7,077        942        33,990   
  

 

 

 

Change in unrealized appreciation/(depreciation) of investments during the period

     (15,204     (1,126     (19,376     (1,289     (39,564
  

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ 21,137      $ 15,818      $ (8,303   $ (302   $ 8,485   
  

 

 

 
     Large
Company
Value
Division
    Domestic
Equity
Division
    Equity
Income
Division
    Mid Cap
Growth Stock
Division
    Index 400
Stock
Division
 
  

 

 

 

Income:

          

Dividend income

   $ 187      $ 3,409      $ 1,972      $ 192      $ 3,144   

Expenses:

          

Mortality and expense risk charges

     50        807        495        2,101        1,244   

Taxes

     -        9        5        34        8   
  

 

 

 

Total expenses

     50        816        500        2,135        1,252   

Less waived fees

     -        -        -        -        -   
  

 

 

 

Net expenses

     50        816        500        2,135        1,252   
  

 

 

 

Net investment income (loss)

     137        2,593        1,472        (1,943     1,892   
  

 

 

 

Realized gain (loss) on investments:

          

Realized gain (loss) on sale of fund shares

     526        2,778        1,410        5,045        5,364   

Realized gain distribution

     1,028        -        4,552        43,199        17,956   
  

 

 

 

Realized gains (losses)

     1,554        2,778        5,962        48,244        23,320   
  

 

 

 

Change in unrealized appreciation/(depreciation) of investments during the period

     (2,190     (6,299     (16,053     (44,630     (32,917
  

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ (499   $ (928   $ (8,619   $ 1,671      $ (7,705
  

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-9


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Operations

For the Year Ended December 31, 2015

(in thousands)

 

     Mid Cap Value
Division
    Small Cap
Growth
Stock
Division
    Index 600
Stock
Division
    Small Cap
Value
Division
    International
Growth
Division
 
  

 

 

 

Income:

          

Dividend income

   $ 979      $ 276      $ -      $ 1,137      $ 1,552   

Expenses:

          

Mortality and expense risk charges

     258        1,120        90        714        386   

Taxes

     2        6        1        6        2   
  

 

 

 

Total expenses

     260        1,126        91        720        388   

Less waived fees

     -        -        -        -        -   
  

 

 

 

Net expenses

     260        1,126        91        720        388   
  

 

 

 

Net investment income (loss)

     719        (850     (91     417        1,164   
  

 

 

 

Realized gain (loss) on investments:

          

Realized gain (loss) on sale of fund shares

     1,034        4,383        314        4,273        (285

Realized gain distribution

     5,994        13,233        65        9,818        -   
  

 

 

 

Realized gains (losses)

     7,028        17,616        379        14,091        (285
  

 

 

 

Change in unrealized appreciation/(depreciation) of investments during the period

     (8,752     (16,791     (841     (24,363     (2,835
  

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ (1,005   $ (25   $ (553   $ (9,855   $ (1,956
  

 

 

 
     Research
International
Core Division
    International
Equity
Division
    Emerging
Markets
Equity
Division
    Money
Market
Division
    Short-Term
Bond Division
 
  

 

 

 

Income:

          

Dividend income

   $ 495      $ 15,935      $ 315      $ 12      $ 100   

Expenses:

          

Mortality and expense risk charges

     100        2,340        145        607        58   

Taxes

     1        33        1        6        1   
  

 

 

 

Total expenses

     101        2,373        146        613        59   

Less waived fees

     -        -        -        -        -   
  

 

 

 

Net expenses

     101        2,373        146        613        59   
  

 

 

 

Net investment income (loss)

     394        13,562        169        (601     41   
  

 

 

 

Realized gain (loss) on investments:

          

Realized gain (loss) on sale of fund shares

     487        6,293        (160     -        6   

Realized gain distribution

     515        21,480        -        5        -   
  

 

 

 

Realized gains (losses)

     1,002        27,773        (160     5        6   
  

 

 

 

Change in unrealized appreciation/(depreciation) of investments during the period

     (1,884     (54,665     (4,779     -        (15
  

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ (488   $ (13,330   $ (4,770   $ (596   $ 32   
  

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-10


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Operations

For the Year Ended December 31, 2015

(in thousands)

 

     Select Bond
Division
    Long-Term
U.S.
Government
Bond
Division
    Inflation
Protection
Division
    High Yield
Bond
Division
    Multi-Sector
Bond Division
 
  

 

 

 

Income:

          

Dividend income

   $ 3,714      $ 174      $ 203      $ 4,818      $ 1,528   

Expenses:

          

Mortality and expense risk charges

     970        36        34        445        117   

Taxes

     12        -        -        4        1   
  

 

 

 

Total expenses

     982        36        34        449        118   

Less waived fees

     -        -        -        -        -   
  

 

 

 

Net expenses

     982        36        34        449        118   
  

 

 

 

Net investment income (loss)

     2,732        138        169        4,369        1,410   
  

 

 

 

Realized gain (loss) on investments:

          

Realized gain (loss) on sale of fund shares

     540        223        (236     45        (21

Realized gain distribution

     1,122        -        -        -        401   
  

 

 

 

Realized gains (losses)

     1,662        223        (236     45        380   
  

 

 

 

Change in unrealized appreciation/(depreciation) of investments during the period

     (4,036     (616     (162     (6,187     (2,540
  

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ 358      $ (255   $ (229   $ (1,773   $ (750
  

 

 

 
     Balanced
Division
    Asset
Allocation
Division
    Fidelity VIP
Mid Cap
Division
    Fidelity VIP
Contrafund
Division
    Neuberger
Berman AMT
Socially
Responsive
Division
 
  

 

 

 

Income:

          

Dividend income

   $ 7,029      $ 886      $ 433      $ 327      $ 26   

Expenses:

          

Mortality and expense risk charges

     1,628        195        734        168        17   

Taxes

     82        3        8        1        -   
  

 

 

 

Total expenses

     1,710        198        742        169        17   

Less waived fees

     -        -        -        -        -   
  

 

 

 

Net expenses

     1,710        198        742        169        17   
  

 

 

 

Net investment income (loss)

     5,319        688        (309     158        9   
  

 

 

 

Realized gain (loss) on investments:

          

Realized gain (loss) on sale of fund shares

     (4,242     666        984        1,342        216   

Realized gain distribution

     16,393        2,289        20,950        3,492        410   
  

 

 

 

Realized gains (losses)

     12,151        2,955        21,934        4,834        626   
  

 

 

 

Change in unrealized appreciation/(depreciation) of investments during the period

     (19,365     (3,931     (24,866     (5,033     (679
  

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ (1,895   $ (288   $ (3,241   $ (41   $ (44
  

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-11


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Operations

For the Year Ended December 31, 2015

(in thousands)

 

     Russell
Multi-Style
Equity
Division
    Russell
Aggressive
Equity
Division
    Russell
Non-U.S.
Division
    Russell
Core Bond
Division
    Russell
Global Real
Estate
Securities
Division
 
  

 

 

 

Income:

          

Dividend income

   $ 1,716      $ 670      $ 1,415      $ 2,057      $ 2,873   

Expenses:

          

Mortality and expense risk charges

     862        429        513        315        744   

Taxes

     5        3        4        3        5   
  

 

 

 

Total expenses

     867        432        517        318        749   

Less waived fees

     -        -        -        -        -   
  

 

 

 

Net expenses

     867        432        517        318        749   
  

 

 

 

Net investment income (loss)

     849        238        898        1,739        2,124   
  

 

 

 

Realized gain (loss) on investments:

          

Realized gain (loss) on sale of fund shares

     5,897        869        688        469        507   

Realized gain distribution

     17,456        9,015        -        1,005        7,950   
  

 

 

 

Realized gains (losses)

     23,353        9,884        688        1,474        8,457   
  

 

 

 

Change in unrealized appreciation/(depreciation) of investments during the period

     (22,709     (17,635     (3,565     (3,624     (10,912
  

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ 1,493      $ (7,513   $ (1,979   $ (411   $ (331
  

 

 

 
     Russell
LifePoints
Moderate
Strategy
Division
    Russell
LifePoints
Balanced
Strategy
Division
    Russell
LifePoints
Growth
Strategy
Division
    Russell
LifePoints
Equity
Growth
Strategy
Division
    Credit Suisse
Trust
Commodity
Return
Strategy
Division
 
  

 

 

 

Income:

          

Dividend income

   $ 82      $ 378      $ 366      $ 140      $ -   

Expenses:

          

Mortality and expense risk charges

     15        77        92        38        64   

Taxes

     -        2        2        -        -   
  

 

 

 

Total expenses

     15        79        94        38        64   

Less waived fees

     -        -        -        -        (14
  

 

 

 

Net expenses

     15        79        94        38        50   
  

 

 

 

Net investment income (loss)

     67        299        272        102        (50
  

 

 

 

Realized gain (loss) on investments:

          

Realized gain (loss) on sale of fund shares

     1        378        270        140        (412

Realized gain distribution

     78        998        1,301        691        -   
  

 

 

 

Realized gains (losses)

     79        1,376        1,571        831        (412
  

 

 

 

Change in unrealized appreciation/(depreciation) of investments during the period

     (214     (2,159     (2,631     (1,325     (4,167
  

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ (68   $ (484   $ (788   $ (392   $ (4,629
  

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-12


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Changes in Net Assets

(in thousands)

 

     Growth Stock Division     Focused Appreciation
Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 1,156      $ 567      $ (566   $ (468

Net realized gains (losses)

     35,185        42,479        17,510        14,946   

Net change in unrealized appreciation/(depreciation)

     (15,204     (12,180     (1,126     (4,410
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      21,137        30,866        15,818        10,068   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     16,403        16,464        5,461        5,808   

Policy loans, surrenders and death benefits

     (19,376     (19,999     (6,070     (5,800

Mortality and other (net)

     (7,916     (7,770     (2,737     (2,453

Transfers from other divisions or sponsor

     42,591        35,723        18,610        11,837   

Transfers to other divisions or sponsor

     (47,062     (36,524     (15,217     (13,051
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (15,360     (12,106     47        (3,659
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     5,777        18,760        15,865        6,409   

Net Assets:

    

Beginning of period

     386,925        368,165        122,795        116,386   
  

 

 

   

 

 

 

End of period

   $ 392,702      $ 386,925      $ 138,660      $ 122,795   
  

 

 

   

 

 

 

Units issued during the period

     6,955        7,930        5,061        4,304   

Units redeemed during the period

     (10,111     (11,049     (5,218     (5,205
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (3,156     (3,119     (157     (901
  

 

 

   

 

 

 
     Large Cap Core Stock Division     Large Cap Blend Division  
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 3,996      $ 2,529      $ 45      $ (28

Net realized gains (losses)

     7,077        26,012        942        581   

Net change in unrealized appreciation/(depreciation)

     (19,376     (9,983     (1,289     284   
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (8,303     18,558        (302     837   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     10,997        11,922        401        300   

Policy loans, surrenders and death benefits

     (11,354     (13,603     (407     (125

Mortality and other (net)

     (5,092     (5,313     (158     (132

Transfers from other divisions or sponsor

     22,302        19,392        3,306        2,725   

Transfers to other divisions or sponsor

     (24,099     (20,795     (2,098     (1,570
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (7,246     (8,397     1,044        1,198   
  

 

 

   

 

 

 
Net increase (decrease) in net assets      (15,549     10,161        742        2,035   

Net Assets:

    

Beginning of period

     244,043        233,882        8,192        6,157   
  

 

 

   

 

 

 

End of period

   $ 228,494      $ 244,043      $ 8,934      $ 8,192   
  

 

 

   

 

 

 

Units issued during the period

     6,178        7,017        2,066        1,722   

Units redeemed during the period

     (8,346     (9,376     (1,332     (919
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (2,168     (2,359     734        803   
  

 

 

   

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-13


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Changes in Net Assets

(in thousands)

 

     Index 500 Stock Division     Large Company Value
Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 14,059      $ 12,362      $ 137      $ (37

Net realized gains (losses)

     33,990        25,911        1,554        790   

Net change in unrealized appreciation/(depreciation)

     (39,564     91,365        (2,190     284   
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      8,485        129,638        (499     1,037   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     43,263        45,360        46        320   

Policy loans, surrenders and death benefits

     (49,812     (52,593     (476     (50

Mortality and other (net)

     (22,011     (21,250     (195     (161

Transfers from other divisions or sponsor

     123,814        113,171        2,935        4,781   

Transfers to other divisions or sponsor

     (112,923     (100,733     (2,752     (2,046
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (17,669     (16,045     (442     2,844   
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     (9,184     113,593        (941     3,881   

Net Assets:

    

Beginning of period

     1,122,395        1,008,802        11,466        7,585   
  

 

 

   

 

 

 

End of period

   $ 1,113,211      $ 1,122,395      $ 10,525      $ 11,466   
  

 

 

   

 

 

 

Units issued during the period

     19,619        21,063        1,833        2,862   

Units redeemed during the period

     (22,012     (23,844     (2,125     (937
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (2,393     (2,781     (292     1,925   
  

 

 

   

 

 

 
     Domestic Equity Division     Equity Income Division  
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 2,593      $ 2,319      $ 1,472      $ 978   

Net realized gains (losses)

     2,778        2,166        5,962        5,434   

Net change in unrealized appreciation/(depreciation)

     (6,299     18,290        (16,053     1,702   
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (928     22,775        (8,619     8,114   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     7,510        8,391        4,769        5,464   

Policy loans, surrenders and death benefits

     (8,549     (8,458     (5,561     (5,448

Mortality and other (net)

     (3,748     (3,777     (2,279     (2,389

Transfers from other divisions or sponsor

     17,928        14,632        40,408        36,104   

Transfers to other divisions or sponsor

     (19,323     (15,246     (42,659     (36,775
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (6,182     (4,458     (5,322     (3,044
  

 

 

   

 

 

 
Net increase (decrease) in net assets      (7,110     18,317        (13,941     5,070   

Net Assets:

    

Beginning of period

     190,774        172,457        123,149        118,079   
  

 

 

   

 

 

 

End of period

   $ 183,664      $ 190,774      $ 109,208      $ 123,149   
  

 

 

   

 

 

 

Units issued during the period

     8,001        8,598        5,806        6,746   

Units redeemed during the period

     (10,092     (10,287     (7,530     (7,617
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (2,091     (1,689     (1,724     (871
  

 

 

   

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-14


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Changes in Net Assets

(in thousands)

 

     Mid Cap Growth
Stock Division
    Index 400 Stock Division  
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ (1,943   $ (421   $ 1,892      $ 1,595   

Net realized gains (losses)

     48,244        93,060        23,320        20,702   

Net change in unrealized appreciation/(depreciation)

     (44,630     (57,841     (32,917     2,033   
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      1,671        34,798        (7,705     24,330   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     19,386        21,515        10,074        11,385   

Policy loans, surrenders and death benefits

     (23,943     (25,248     (14,035     (16,132

Mortality and other (net)

     (9,632     (9,424     (5,285     (5,305

Transfers from other divisions or sponsor

     17,798        20,093        53,620        62,611   

Transfers to other divisions or sponsor

     (19,650     (25,349     (51,848     (65,706
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (16,041     (18,413     (7,474     (13,147
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     (14,370     16,385        (15,179     11,183   

Net Assets:

    

Beginning of period

     465,306        448,921        290,596        279,413   
  

 

 

   

 

 

 

End of period

   $ 450,936      $ 465,306      $ 275,417      $ 290,596   
  

 

 

   

 

 

 

Units issued during the period

     8,343        9,212        7,129        7,642   

Units redeemed during the period

     (11,368     (13,457     (8,818     (10,817
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (3,025     (4,245     (1,689     (3,175
  

 

 

   

 

 

 
     Mid Cap Value Division     Small Cap Growth
Stock Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 

Operations:

    

Net investment income (loss)

   $ 719      $ 309      $ (850   $ (1,050

Net realized gains (losses)

     7,028        5,040        17,616        31,938   

Net change in unrealized appreciation/(depreciation)

     (8,752     2,912        (16,791     (11,529
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (1,005     8,261        (25     19,359   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     2,595        2,735        9,377        11,123   

Policy loans, surrenders and death benefits

     (3,019     (2,854     (13,265     (14,024

Mortality and other (net)

     (1,195     (1,152     (4,931     (4,833

Transfers from other divisions or sponsor

     8,739        9,848        35,798        30,350   

Transfers to other divisions or sponsor

     (9,002     (7,824     (36,111     (33,208
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (1,882     753        (9,132     (10,592
  

 

 

   

 

 

 
Net increase (decrease) in net assets      (2,887     9,014        (9,157     8,767   

Net Assets:

    

Beginning of period

     60,350        51,336        255,403        246,636   
  

 

 

   

 

 

 

End of period

   $ 57,463      $ 60,350      $ 246,246      $ 255,403   
  

 

 

   

 

 

 

Units issued during the period

     2,758        3,304        6,429        6,914   

Units redeemed during the period

     (3,135     (3,043     (8,434     (9,629
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (377     261        (2,005     (2,715
  

 

 

   

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-15


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Changes in Net Assets

(in thousands)

 

     Index 600 Stock Division     Small Cap Value Division  
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ (91   $ 204      $ 417      $ (131

Net realized gains (losses)

     379        3,843        14,091        9,511   

Net change in unrealized appreciation/(depreciation)

     (841     (3,135     (24,363     (9,904
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (553     912        (9,855     (524
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     914        863        7,067        8,132   

Policy loans, surrenders and death benefits

     (1,019     (587     (7,296     (9,054

Mortality and other (net)

     (417     (339     (3,157     (3,385

Transfers from other divisions or sponsor

     6,503        8,942        14,221        14,172   

Transfers to other divisions or sponsor

     (4,845     (6,362     (18,652     (19,575
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      1,136        2,517        (7,817     (9,710
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     583        3,429        (17,672     (10,234

Net Assets:

    

Beginning of period

     20,248        16,819        174,553        184,787   
  

 

 

   

 

 

 

End of period

   $ 20,831      $ 20,248      $ 156,881      $ 174,553   
  

 

 

   

 

 

 

Units issued during the period

     3,326        4,295        4,699        5,119   

Units redeemed during the period

     (2,477     (2,892     (6,788     (7,567
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     849        1,403        (2,089     (2,448
  

 

 

   

 

 

 
     International Growth Division     Research International Core
Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 

Operations:

    

Net investment income (loss)

   $ 1,164      $ 858      $ 394      $ 215   

Net realized gains (losses)

     (285     (636     1,002        559   

Net change in unrealized appreciation/(depreciation)

     (2,835     (4,954     (1,884     (2,302
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (1,956     (4,732     (488     (1,528
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     5,611        5,660        1,225        905   

Policy loans, surrenders and death benefits

     (4,436     (4,599     (1,266     (1,050

Mortality and other (net)

     (1,893     (1,984     (453     (390

Transfers from other divisions or sponsor

     18,435        17,644        11,213        9,476   

Transfers to other divisions or sponsor

     (17,657     (19,217     (6,587     (5,722
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      60        (2,496     4,132        3,219   
  

 

 

   

 

 

 
Net increase (decrease) in net assets      (1,896     (7,228     3,644        1,691   

Net Assets:

    

Beginning of period

     90,803        98,031        20,860        19,169   
  

 

 

   

 

 

 

End of period

   $ 88,907      $ 90,803      $ 24,504      $ 20,860   
  

 

 

   

 

 

 

Units issued during the period

     6,706        7,159        7,169        5,563   

Units redeemed during the period

     (6,501     (8,179     (3,315     (3,140
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     205        (1,020     3,854        2,423   
  

 

 

   

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-16


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Changes in Net Assets

(in thousands)

 

     International Equity
Division
    Emerging Markets Equity
Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 13,562      $ 8,444      $ 169      $ 76   

Net realized gains (losses)

     27,773        46,611        (160     205   

Net change in unrealized appreciation/(depreciation)

     (54,665     (108,669     (4,779     (2,705
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (13,330     (53,614     (4,770     (2,424
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     26,324        27,749        1,962        1,734   

Policy loans, surrenders and death benefits

     (25,768     (28,999     (1,542     (1,721

Mortality and other (net)

     (10,778     (11,126     (511     (568

Transfers from other divisions or sponsor

     77,759        79,349        23,591        16,865   

Transfers to other divisions or sponsor

     (76,679     (81,497     (18,817     (9,497
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (9,142     (14,524     4,683        6,813   
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     (22,472     (68,138     (87     4,389   

Net Assets:

    

Beginning of period

     525,118        593,256        34,843        30,454   
  

 

 

   

 

 

 

End of period

   $ 502,646      $ 525,118      $ 34,756      $ 34,843   
  

 

 

   

 

 

 

Units issued during the period

     27,401        26,270        13,290        12,600   

Units redeemed during the period

     (29,331     (29,614     (8,367     (6,703
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (1,930     (3,344     4,923        5,897   
  

 

 

   

 

 

 
     Money Market Division     Short-Term Bond Division  
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 

Operations:

    

Net investment income (loss)

   $ (601   $ (516   $ 41      $ 22   

Net realized gains (losses)

     5        -        6        9   

Net change in unrealized appreciation/(depreciation)

     -        -        (15     (46
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (596     (516     32        (15
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     60,267        52,008        625        562   

Policy loans, surrenders and death benefits

     (24,108     (25,101     (1,395     (876

Mortality and other (net)

     (5,023     (5,089     (272     (239

Transfers from other divisions or sponsor

     176,151        147,165        7,831        6,927   

Transfers to other divisions or sponsor

     (201,367     (172,809     (4,471     (3,549
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      5,920        (3,826     2,318        2,825   
  

 

 

   

 

 

 
Net increase (decrease) in net assets      5,324        (4,342     2,350        2,810   

Net Assets:

    

Beginning of period

     165,824        170,166        13,392        10,582   
  

 

 

   

 

 

 

End of period

   $ 171,148      $ 165,824      $ 15,742      $ 13,392   
  

 

 

   

 

 

 

Units issued during the period

     72,351        80,985        5,052        5,788   

Units redeemed during the period

     (72,474     (83,425     (3,669     (3,709
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (123     (2,440     1,383        2,079   
  

 

 

   

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-17


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Changes in Net Assets

(in thousands)

 

     Select Bond Division     Long-Term U.S. Government
Bond Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 2,732      $ 4,002      $ 138      $ 88   

Net realized gains (losses)

     1,662        1,331        223        (267

Net change in unrealized appreciation/(depreciation)

     (4,036     7,009        (616     1,340   
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      358        12,342        (255     1,161   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     12,283        13,249        480        169   

Policy loans, surrenders and death benefits

     (15,876     (15,378     (459     (561

Mortality and other (net)

     (5,017     (5,015     (176     (118

Transfers from other divisions or sponsor

     152,965        141,385        5,718        4,423   

Transfers to other divisions or sponsor

     (150,131     (142,710     (4,151     (3,006
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (5,776     (8,469     1,412        907   
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     (5,418     3,873        1,157        2,068   

Net Assets:

    

Beginning of period

     248,615        244,742        6,944        4,876   
  

 

 

   

 

 

 

End of period

   $ 243,197      $ 248,615      $ 8,101      $ 6,944   
  

 

 

   

 

 

 

Units issued during the period

     10,393        11,439        3,694        3,636   

Units redeemed during the period

     (10,605     (14,176     (2,745     (2,891
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (212     (2,737     949        745   
  

 

 

   

 

 

 
     Inflation Protection Division     High Yield Bond Division  
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 

Operations:

    

Net investment income (loss)

   $ 169      $ 12      $ 4,369      $ 5,045   

Net realized gains (losses)

     (236     (190     45        839   

Net change in unrealized appreciation/(depreciation)

     (162     415        (6,187     (5,047
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (229     237        (1,773     837   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     208        331        4,941        5,119   

Policy loans, surrenders and death benefits

     (599     (554     (4,917     (5,438

Mortality and other (net)

     (174     (168     (2,157     (2,233

Transfers from other divisions or sponsor

     3,888        4,580        21,009        22,054   

Transfers to other divisions or sponsor

     (3,678     (4,455     (22,343     (21,223
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (355     (266     (3,467     (1,721
  

 

 

   

 

 

 
Net increase (decrease) in net assets      (584     (29     (5,240     (884

Net Assets:

    

Beginning of period

     8,559        8,588        106,154        107,038   
  

 

 

   

 

 

 

End of period

   $ 7,975      $ 8,559      $ 100,914      $ 106,154   
  

 

 

   

 

 

 

Units issued during the period

     1,866        2,743        3,268        4,029   

Units redeemed during the period

     (1,830     (3,104     (3,935     (4,473
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     36        (361     (667     (444
  

 

 

   

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-18


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Changes in Net Assets

(in thousands)

 

     Multi-Sector Bond Division     Balanced Division  
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 1,410      $ 554      $ 5,319      $ 6,595   

Net realized gains (losses)

     380        141        12,151        25,723   

Net change in unrealized appreciation/(depreciation)

     (2,540     (116     (19,365     (14,678
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (750     579        (1,895     17,640   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     1,593        1,133        14,683        15,639   

Policy loans, surrenders and death benefits

     (2,129     (1,196     (21,178     (18,704

Mortality and other (net)

     (538     (490     (8,616     (8,527

Transfers from other divisions or sponsor

     7,719        7,315        73,175        96,430   

Transfers to other divisions or sponsor

     (4,693     (2,915     (71,368     (96,270
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      1,952        3,847        (13,304     (11,432
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     1,202        4,426        (15,199     6,208   

Net Assets:

    

Beginning of period

     26,344        21,918        360,234        354,026   
  

 

 

   

 

 

 

End of period

   $ 27,546      $ 26,344      $ 345,035      $ 360,234   
  

 

 

   

 

 

 

Units issued during the period

     5,904        6,278        6,049        6,850   

Units redeemed during the period

     (4,361     (3,523     (7,489     (7,513
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     1,543        2,755        (1,440     (663
  

 

 

   

 

 

 
     Asset Allocation Division     Fidelity VIP Mid Cap Division  
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 

Operations:

    

Net investment income (loss)

   $ 688      $ 819      $ (309   $ (697

Net realized gains (losses)

     2,955        4,634        21,934        5,502   

Net change in unrealized appreciation/(depreciation)

     (3,931     (3,302     (24,866     4,538   
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (288     2,151        (3,241     9,343   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     2,280        2,317        7,440        8,187   

Policy loans, surrenders and death benefits

     (4,065     (3,446     (8,788     (8,634

Mortality and other (net)

     (1,100     (1,076     (3,404     (3,449

Transfers from other divisions or sponsor

     4,243        5,593        23,074        23,763   

Transfers to other divisions or sponsor

     (4,118     (3,034     (27,695     (23,345
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (2,760     354        (9,373     (3,478
  

 

 

   

 

 

 
Net increase (decrease) in net assets      (3,048     2,505        (12,614     5,865   

Net Assets:

    

Beginning of period

     47,339        44,834        175,314        169,449   
  

 

 

   

 

 

 

End of period

   $ 44,291      $ 47,339      $ 162,700      $ 175,314   
  

 

 

   

 

 

 

Units issued during the period

     2,342        3,856        4,032        4,874   

Units redeemed during the period

     (3,786     (3,257     (5,789     (5,743
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (1,444     599        (1,757     (869
  

 

 

   

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-19


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Changes in Net Assets

(in thousands)

 

     Fidelity VIP Contrafund Division     Neuberger Berman AMT
Socially Responsive
Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 158      $ 126      $ 9      $ (1

Net realized gains (losses)

     4,834        2,383        626        351   

Net change in unrealized appreciation/(depreciation)

     (5,033     1,090        (679     66   
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (41     3,599        (44     416   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     1,656        1,314        206        212   

Policy loans, surrenders and death benefits

     (1,679     (1,620     (107     (260

Mortality and other (net)

     (722     (623     (78     (83

Transfers from other divisions or sponsor

     13,698        14,008        1,389        1,721   

Transfers to other divisions or sponsor

     (11,112     (10,466     (1,442     (2,064
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      1,841        2,613        (32     (474
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     1,800        6,212        (76     (58

Net Assets:

    

Beginning of period

     37,757        31,545        4,590        4,648   
  

 

 

   

 

 

 

End of period

   $ 39,557      $ 37,757      $ 4,514      $ 4,590   
  

 

 

   

 

 

 

Units issued during the period

     5,751        6,279        533        721   

Units redeemed during the period

     (4,331     (4,977     (515     (729
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     1,420        1,302        18        (8
  

 

 

   

 

 

 
     Russell Multi-Style Equity
Division
    Russell Aggressive Equity
Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 849      $ 1,556      $ 238      $ (180

Net realized gains (losses)

     23,353        34,288        9,884        11,795   

Net change in unrealized appreciation/(depreciation)

     (22,709     (13,926     (17,635     (10,588
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      1,493        21,918        (7,513     1,027   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     8,097        8,630        4,308        4,861   

Policy loans, surrenders and death benefits

     (12,001     (12,629     (4,312     (5,309

Mortality and other (net)

     (4,032     (4,081     (1,972     (2,109

Transfers from other divisions or sponsor

     11,818        11,926        11,034        10,675   

Transfers to other divisions or sponsor

     (15,639     (13,990     (14,511     (13,697
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (11,757     (10,144     (5,453     (5,579
  

 

 

   

 

 

 
Net increase (decrease) in net assets      (10,264     11,774        (12,966     (4,552

Net Assets:

    

Beginning of period

     213,362        201,588        104,705        109,257   
  

 

 

   

 

 

 

End of period

   $ 203,098      $ 213,362      $ 91,739      $ 104,705   
  

 

 

   

 

 

 

Units issued during the period

     8,880        10,643        3,775        4,270   

Units redeemed during the period

     (14,785     (15,679     (5,722     (6,216
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (5,905     (5,036     (1,947     (1,946
  

 

 

   

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-20


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Changes in Net Assets

(in thousands)

 

     Russell Non-U.S. Division     Russell Core Bond Division  
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 898      $ 2,000      $ 1,739      $ 998   

Net realized gains (losses)

     688        966        1,474        1,994   

Net change in unrealized appreciation/(depreciation)

     (3,565     (9,202     (3,624     1,207   
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (1,979     (6,236     (411     4,199   
  

 

 

   

 

 

 

Contract Transactions:

        

Contract owners’ net payments

     6,294        6,830        4,469        4,153   

Policy loans, surrenders and death benefits

     (6,014     (7,968     (5,359     (6,576

Mortality and other (net)

     (2,492     (2,611     (1,848     (1,855

Transfers from other divisions or sponsor

     16,745        13,509        46,501        27,291   

Transfers to other divisions or sponsor

     (16,360     (16,209     (44,667     (26,330
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (1,827     (6,449     (904     (3,317
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     (3,806     (12,685     (1,315     882   

Net Assets:

    

Beginning of period

     121,476        134,161        86,891        86,009   
  

 

 

   

 

 

 

End of period

   $ 117,670      $ 121,476      $ 85,576      $ 86,891   
  

 

 

   

 

 

 

Units issued during the period

     8,262        7,389        6,643        5,632   

Units redeemed during the period

     (9,113     (9,611     (6,812     (6,927
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (851     (2,222     (169     (1,295
  

 

 

   

 

 

 
     Russell Global Real Estate
Securities Division
    Russell LifePoints Moderate
Strategy Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 2,124      $ 4,784      $ 67      $ 74   

Net realized gains (losses)

     8,457        8,745        79        99   

Net change in unrealized appreciation/(depreciation)

     (10,912     8,524        (214     (60
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (331     22,053        (68     113   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     8,210        8,395        84        130   

Policy loans, surrenders and death benefits

     (7,815     (9,064     (33     (344

Mortality and other (net)

     (3,496     (3,414     (67     (61

Transfers from other divisions or sponsor

     27,002        26,051        668        2,416   

Transfers to other divisions or sponsor

     (26,784     (25,918     (655     (1,078
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      (2,883     (3,950     (3     1,063   
  

 

 

   

 

 

 
Net increase (decrease) in net assets      (3,214     18,103        (71     1,176   

Net Assets:

    

Beginning of period

     175,374        157,271        3,327        2,151   
  

 

 

   

 

 

 

End of period

   $ 172,160      $ 175,374      $ 3,256      $ 3,327   
  

 

 

   

 

 

 

Units issued during the period

     4,691        5,216        598        1,288   

Units redeemed during the period

     (4,994     (5,822     (352     (875
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (303     (606     246        413   
  

 

 

   

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-21


Table of Contents

Northwestern Mutual Variable Life Account

Statements of Changes in Net Assets

(in thousands)

 

     Russell LifePoints Balanced
Strategy Division
    Russell LifePoints Growth
Strategy Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 299      $ 412      $ 272      $ 495   

Net realized gains (losses)

     1,376        677        1,571        727   

Net change in unrealized appreciation/(depreciation)

     (2,159     (489     (2,631     (624
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (484     600        (788     598   
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     265        606        636        945   

Policy loans, surrenders and death benefits

     (1,079     (551     (1,478     (520

Mortality and other (net)

     (390     (327     (449     (416

Transfers from other divisions or sponsor

     3,829        3,729        1,557        3,850   

Transfers to other divisions or sponsor

     (1,752     (1,666     (568     (1,067
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      873        1,791        (302     2,792   
  

 

 

   

 

 

 

Net increase (decrease) in net assets

     389        2,391        (1,090     3,390   

Net Assets:

    

Beginning of period

     17,117        14,726        20,126        16,736   
  

 

 

   

 

 

 

End of period

   $ 17,506      $ 17,117      $ 19,036      $ 20,126   
  

 

 

   

 

 

 

Units issued during the period

     2,777        3,484        1,846        3,362   

Units redeemed during the period

     (2,921     (1,773     (2,104     (1,578
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     (144     1,711        (258     1,784   
  

 

 

   

 

 

 
     Russell LifePoints Equity
Growth Strategy Division
    Credit Suisse Trust
Commodity Return Strategy
Division
 
     Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
 
  

 

 

   

 

 

 

Operations:

    

Net investment income (loss)

   $ 102      $ 247      $ (50   $ (55

Net realized gains (losses)

     831        238        (412     73   

Net change in unrealized appreciation/(depreciation)

     (1,325     (229     (4,167     (3,407
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from operations      (392     256        (4,629     (3,389
  

 

 

   

 

 

 

Contract Transactions:

    

Contract owners’ net payments

     510        504        1,175        1,235   

Policy loans, surrenders and death benefits

     (337     (337     (737     (858

Mortality and other (net)

     (155     (153     (225     (322

Transfers from other divisions or sponsor

     858        320        8,879        10,338   

Transfers to other divisions or sponsor

     (422     (52     (5,515     (6,635
  

 

 

   

 

 

 
Net increase (decrease) in net assets resulting from contract transactions      454        282        3,577        3,758   
  

 

 

   

 

 

 
Net increase (decrease) in net assets      62        538        (1,052     369   

Net Assets:

    

Beginning of period

     8,762        8,224        15,934        15,565   
  

 

 

   

 

 

 

End of period

   $ 8,824      $ 8,762      $ 14,882      $ 15,934   
  

 

 

   

 

 

 

Units issued during the period

     1,034        631        1,907        1,557   

Units redeemed during the period

     (870     (423     (1,296     (1,072
  

 

 

   

 

 

 

Net units issued (redeemed) during period

     164        208        611        485   
  

 

 

   

 

 

 

 

The Accompanying Notes are an Integral Part of these Financial Statements.

 

F-22


Table of Contents

Northwestern Mutual Variable Life Account

Notes to Financial Statements

December 31, 2015

 

1. Organization

Northwestern Mutual Variable Life Account (“the Account”) is registered as a unit investment trust under the Investment Company Act of 1940 and is a segregated asset account of The Northwestern Mutual Life Insurance Company (“Northwestern Mutual”) used to fund variable life insurance policies (“the Policies”).

All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc., Fidelity Variable Insurance Products, Neuberger Berman Advisers Management Trust, Russell Investment Funds and Credit Suisse Trust (collectively known as “the Funds”). The Funds are open-end investment companies registered under the Investment Company Act of 1940. The financial statements for the Portfolios should be read in conjunction with the financial statements and footnotes of the Divisions. Each Division of the account indirectly bears exposure to the market credit and liquidity risks of the Portfolio in which it invests.

New sales of the Policies which invest in the Account were discontinued for Variable CompLife, Variable Executive Life, and Variable Joint Life policies in 2008, Variable Life was discontinued in 1995. However, premium payments made by policyowners existing at that date will continue to be recorded by the Account.

 

2. Significant Accounting Policies

 

  A. Use of Estimates – The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets for use in estimates. Actual results could differ from those estimates.

 

  B. Investment Valuation – The shares are valued at the Funds’ offering and redemption prices per share. As of December 31, 2015, all of the Account’s investments are identified as Level 1 securities for valuation purposes under the Fair Value Measurement Topic of the FASB Accounting Standards Codification. Level 1 securities are valued at fair value as determined by quoted prices in active markets for identical securities. All changes in fair value are recorded as change in unrealized appreciation/(depreciation) of investments during the period in the statements of operations of the applicable Division.

 

  C. Investment Income, Securities Transactions and Policy Dividends – Transactions in the Funds’ shares are accounted for on the trade date. The basis for determining cost on sale of the Funds’ shares is identified cost. Dividend income and distributions of net realized gains from the Funds are recorded on the ex–date of the dividends. Dividends and distributions received are reinvested in additional shares of the respective portfolios of the Funds. The Policies are eligible to receive policy dividends from Northwestern Mutual. Any dividends reinvested in the Account are reflected in Policyowners’ net payments in the accompanying financial statements.

 

  D. Due to Participants – Upon notification of death of the policyowner, a liability is recorded and is included in Due to Participants in the accompanying financial statements. This liability is identified as Level 1 for valuation purposes under the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification.

 

F-23


Table of Contents

Northwestern Mutual Variable Life Account

Notes to Financial Statements

December 31, 2015

 

2. Significant Accounting Policies (continued)

 

  E. Taxes – Northwestern Mutual is taxed as a “life insurance company” under the Internal Revenue Code. The Policies, which are funded in the Account, are taxed as part of the operations of Northwestern Mutual. The Policies provide that a charge for taxes may be made against the assets of the Account. Currently, for Variable Life policies issued before October 11, 1995, Northwestern Mutual charges the Account at an annual rate of 0.05% of the Account’s net assets and reserves the right to increase, decrease or eliminate the charge for taxes in the future. Currently, for Variable CompLife policies issued on or after October 11, 1995, Variable Executive Life policies issued on or after March 2, 1998, and Variable Joint Life policies issued on or after December 10, 1998, there is no charge being made against the assets of the Account for federal income taxes, but Northwestern Mutual reserves the right to charge for taxes in the future.

 

  E. Premium Payments – For Variable Life and Variable CompLife policies, the Account is credited for the policyowners’ net annual premiums at the respective policy anniversary dates regardless of when policyowners actually pay their premiums. Northwestern Mutual’s equity represents any unpaid portion of net annual premiums.

 

3. Purchases and Sales of Investments

Purchases and sales of the Funds’ shares for the year ended December 31, 2015 were as follows: (in thousands)

 

Division

   Purchases      Sales  

Growth Stock

   $ 45,750       $ 31,884   

Focused Appreciation

     28,399         14,767   

Large Cap Core Stock

     18,829         18,477   

Large Cap Blend

     3,871         2,269   

Index 500 Stock

     98,136         81,867   

Large Company Value

     4,113         3,368   

Domestic Equity

     14,046         17,616   

Equity Income

     14,171         13,420   

Mid Cap Growth Stock

     62,489         37,244   

Index 400 Stock

     36,821         24,440   

Mid Cap Value

     13,037         8,204   

Small Cap Growth Stock

     28,080         24,871   

Index 600 Stock

     4,633         3,517   

Small Cap Value

     18,791         16,419   

International Growth

     9,551         8,308   

Research International Core

     8,319         3,274   

International Equity

     68,948         42,964   

Emerging Markets Equity

     8,629         3,780   

Money Market

     62,930         58,248   

Short-Term Bond

     6,054         3,695   

Select Bond

     27,081         28,860   

Long-Term U.S. Government Bond

     5,403         3,809   

Inflation Protection

     1,893         2,081   

High Yield Bond

     11,161         10,254   

Multi-Sector Bond

     7,930         4,096   

Balanced

     40,018         31,249   

 

F-24


Table of Contents

Northwestern Mutual Variable Life Account

Notes to Financial Statements

December 31, 2015

 

3. Purchases and Sales of Investments (continued)

 

Division

   Purchases      Sales  

Asset Allocation

   $ 6,934       $ 6,724   

Fidelity VIP Mid Cap

     30,525         19,231   

Fidelity VIP Contrafund

     11,248         5,761   

Neuberger Berman AMT Socially Responsive

     1,179         793   

Russell Multi-Style Equity

     27,680         21,105   

Russell Aggressive Equity

     15,335         11,544   

Russell Non-U.S.

     11,226         12,133   

Russell Core Bond

     13,188         11,288   

Russell Global Real Estate Securities

     22,791         15,598   

Russell LifePoints Moderate Strategy

     905         764   

Russell LifePoints Balanced Strategy

     5,944         3,773   

Russell LifePoints Growth Strategy

     3,999         2,768   

Russell LifePoints Equity Growth Strategy

     2,314         1,068   

Credit Suisse Trust Commodity Return Strategy

     5,486         1,956   

 

4. Expenses and Related Party Transactions

A deduction for mortality and expense risks is paid to Northwestern Mutual. Mortality risk is the risk that insureds may not live as long as estimated. Expense risk is the risk that expenses of issuing and administering the Policies may exceed the estimated costs.

For Variable Life and Variable CompLife policies, the deduction is determined daily at an annual rate of 0.50% and 0.45%, respectively, of the net assets of the Account. These charges are reflected as a reduction in invested assets and are included in Mortality and expense risk charges in the accompanying financial statements.

A deduction for the mortality and expense risks for Variable Executive Life policies is determined monthly at an annual rate of 0.48% of the amount invested in the Account for the Policy for the first ten Policy years, and 0.05% thereafter for policies with the Cash Value Amendment, or 0.03% thereafter for the policies without the Cash Value Amendment. A deduction for the mortality and expense risks for Variable Joint Life policies is determined monthly at an annual rate of 0.00% of the amount invested in the Account. Additional Variable Joint Life mortality and expense risks deductions are determined annually and are paid to Northwestern Mutual for the first ten Policy years based on the age of the insured individuals at the time the policy was issued.

Additional mortality costs are deducted from the Policies annually for Variable Life and Variable CompLife policies, and monthly for Variable Executive Life and Variable Joint Life policies, and are paid to Northwestern Mutual to cover the cost of providing insurance protection. For Variable Life and Variable CompLife policies, this cost is actuarially calculated based upon the insured’s age, the 1980 Commissioners Standard Ordinary Mortality Table and the amount of insurance provided under the policy. For Variable Executive Life and Variable Joint Life policies, the cost reflects expected mortality costs based upon actual experience.

Certain deductions are also made from the annual, single or other premiums before amounts are allocated to the Account. These deductions are for sales load, administrative expenses, taxes and a risk charge for the guaranteed minimum death benefit among other charges which are detailed in the Prospectus.

 

F-25


Table of Contents

Northwestern Mutual Variable Life Account

Notes to Financial Statements

December 31, 2015

 

4. Expenses and Related Party Transactions (continued)

Mortality and expense risks deductions for Variable Executive Life and Variable Joint Life policies, as well as the noted additional mortality costs and other deductions for each of the products are reflected as a reduction in units and are included in Mortality and other in the accompanying financial statements.

On September 18, 2013, the Securities Exchange Commission approved an application from Northwestern Mutual on behalf of the Account permitting Northwestern Mutual to automatically transfer all remaining contract values in the Northwestern Mutual Commodities Return Strategy Division to the Credit Suisse Trust Commodity Return Strategy Division. The transfer was executed on November 15, 2013. The net operating expenses of the Credit Suisse Trust Commodity Return Strategy Portfolio were limited to 1.05% of average net assets through November 15, 2015 by Credit Suisse Trust and Credit Suisse Asset Management, LLC. Pursuant to the substitution order of the Securities and Exchange Commission, effective November 15, 2013 through November 15, 2015, Northwestern Mutual reimbursed contract owners to the extent the net operating expenses of the Credit Suisse Trust Commodity Return Strategy Portfolio exceeded that of the fee waiver agreement of 0.95% of the Northwestern Mutual Commodities Return Strategy Portfolio which was in place at the time of the substitution. The final expense reimbursement was executed effective November 15, 2015.

 

5. Subsequent Events

Effective on or about May 1, 2016, the Money Market Division will be renamed the Government Money Market Division.

 

F-26


Table of Contents

Northwestern Mutual Variable Life Account

Notes to Financial Statements

December 31, 2015

 

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
(000’s)
   

Unit Value,

Lowest to Highest

    Net Assets
(000’s)
         Dividend
Income
as a % of
Average
Net
Assets
   

Expense Ratio,
Lowest to
Highest(1)

   

Total Return,
Lowest to Highest(1)

 

Growth Stock

                         

Year Ended 12/31/15

    82,582      $ 4.167790        to      $ 57.763945      $ 392,702          0.74     0.00     to        0.55     5.43     to        6.01

Year Ended 12/31/14

    85,738        3.949121        to        54.488126        386,925          0.59        0.00        to        0.55        8.43        to        9.02   

Year Ended 12/31/13

    88,857        3.638539        to        49.977915        368,165          0.68        0.00        to        0.55        35.12        to        35.86   

Year Ended 12/31/12

    92,840        2.690097        to        36.785012        284,588          0.57        0.00        to        0.55        12.32        to        12.94   

Year Ended 12/31/11

    97,893        2.392591        to        32.569595        269,305            0.78        0.00        to        0.55        (1.84     to        (1.30

Focused Appreciation

                         

Year Ended 12/31/15

    34,234      $ 3.554167        to      $ 37.773111      $ 138,660          0.00     0.00     to        0.55     13.02     to        13.64

Year Ended 12/31/14

    34,391        3.141534        to        33.238141        122,795          0.02        0.00        to        0.55        8.84        to        9.43   

Year Ended 12/31/13

    35,292        2.883615        to        30.372615        116,386          0.48        0.00        to        0.55        28.30        to        29.01   

Year Ended 12/31/12

    36,929        2.245328        to        23.543734        96,087          0.27        0.00        to        0.55        19.48        to        20.14   

Year Ended 12/31/11

    39,237        1.877354        to        19.596705        85,938            0.18        0.00        to        0.55        (6.61     to        (6.10

Large Cap Core Stock

                         

Year Ended 12/31/15

    67,126      $ 2.877770        to      $ 39.512372      $ 228,494          2.14     0.00     to        0.55     (3.59 )%      to        (3.06 )% 

Year Ended 12/31/14

    69,294        2.981972        to        40.759702        244,043          1.49        0.00        to        0.55        7.97        to        8.56   

Year Ended 12/31/13

    71,653        2.759081        to        37.544148        233,882          1.15        0.00        to        0.55        27.88        to        28.58   

Year Ended 12/31/12

    75,256        2.155410        to        29.198468        191,903          1.20        0.00        to        0.55        11.02        to        11.63   

Year Ended 12/31/11

    78,553        1.939589        to        26.156583        182,605            1.14        0.00        to        0.55        (1.75     to        (1.21

Large Cap Blend

                         

Year Ended 12/31/15

    5,414      $ 1.532727        to      $ 13.161232      $ 8,934          0.93     0.00     to        0.55     (2.95 )%      to        (2.42 )% 

Year Ended 12/31/14

    4,680        1.577743        to        13.487127        8,192          0.04        0.00        to        0.55        11.96        to        12.58   

Year Ended 12/31/13

    3,877        1.407785        to        11.980322        6,157          0.99        0.00        to        0.55        30.14        to        30.86   

Year Ended 12/31/12

    3,025        1.080633        to        9.155103        3,615          0.92        0.00        to        0.55        14.57        to        15.20   

Period Ended 12/31/11 (2)

    3,204        0.942304        to        7.947227        3,113            2.05        0.00        to        0.55        (5.82     to        (5.56

Index 500 Stock

                         

Year Ended 12/31/15

    198,438      $ 4.551560        to      $ 104.794845      $ 1,113,211          1.70     0.00     to        0.55     0.62     to        1.17

Year Ended 12/31/14

    200,831        4.519180        to        103.583087        1,122,395          1.60        0.00        to        0.55        12.84        to        13.46   

Year Ended 12/31/13

    203,612        4.001083        to        91.297175        1,008,802          1.82        0.00        to        0.55        31.33        to        32.05   

Year Ended 12/31/12

    207,627        3.043500        to        69.136117        785,534          1.77        0.00        to        0.55        15.12        to        15.76   

Year Ended 12/31/11

    214,351        2.641136        to        59.726031        713,800            1.66        0.00        to        0.55        1.39        to        1.95   

Large Company Value

                         

Year Ended 12/31/15

    5,877      $ 1.577867        to      $ 13.331635      $ 10,525          1.62     0.00     to        0.55     (4.37 )%      to        (3.85 )% 

Year Ended 12/31/14

    6,169        1.648404        to        13.865219        11,466          0.00        0.00        to        0.55        12.41        to        13.03   

Year Ended 12/31/13

    4,244        1.464939        to        12.266796        7,585          1.75        0.00        to        0.55        30.57        to        31.29   

Year Ended 12/31/12

    2,300        1.120811        to        9.343226        3,112          1.90        0.00        to        0.55        15.83        to        16.47   

Period Ended 12/31/11 (2)

    2,622        0.966635        to        8.021755        2,593            4.57        0.00        to        0.55        (3.38     to        (3.12

Domestic Equity

                         

Year Ended 12/31/15

    73,953      $ 2.135000        to      $ 22.929503      $ 183,664          1.82     0.00     to        0.55     (0.64 )%      to        (0.09 )% 

Year Ended 12/31/14

    76,044        2.146602        to        22.950784        190,774          1.70        0.00        to        0.55        13.25        to        13.87   

Year Ended 12/31/13

    77,733        1.893569        to        20.154766        172,457          1.68        0.00        to        0.55        33.29        to        34.03   

Year Ended 12/31/12

    80,040        1.419182        to        15.037814        134,628          2.16        0.00        to        0.55        13.72        to        14.35   

Year Ended 12/31/11

    88,764        1.246743        to        13.151218        131,130            2.09        0.00        to        0.55        0.36        to        0.91   

Equity Income

                         

Year Ended 12/31/15

    38,972      $ 2.394831        to      $ 25.451821      $ 109,208          1.69     0.00     to        0.55     (7.25 )%      to        (6.74 )% 

Year Ended 12/31/14

    40,696        2.579506        to        27.291728        123,149          1.23        0.00        to        0.55        6.84        to        7.43   

Year Ended 12/31/13

    41,567        2.411872        to        25.403806        118,079          1.36        0.00        to        0.55        29.23        to        29.94   

Year Ended 12/31/12

    41,046        1.864547        to        19.550985        90,300          1.53        0.00        to        0.55        16.59        to        17.23   

Year Ended 12/31/11

    40,660        1.597678        to        16.677245        76,853            1.50        0.00        to        0.55        (1.46     to        (0.92

 

(1) Total return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges, which are a reduction in units. The expense ratios further reflect only those expenses which impact total return. For additional information regarding all expenses assessed, refer to the accompanying notes. Returns are not annualized for periods less than one year.
(2) Division commenced operations on June 30, 2011.

 

F-27


Table of Contents

Northwestern Mutual Variable Life Account

Notes to Financial Statements

December 31, 2015

 

    As of the respective period end date:             For the respective period ended:  
Division   Units
Outstanding
(000’s)
   

Unit Value,

Lowest to Highest

    Net Assets
(000’s)
              Dividend
Income
as a % of
Average
Net
Assets
   

Expense Ratio,
Lowest to
Highest(1)

   

Total Return,
Lowest to Highest(1)

 

Mid Cap Growth Stock

                           

Year Ended 12/31/15

    101,666      $ 3.699378        to      $ 103.425002      $ 450,936            0.04     0.00     to        0.55     0.16     to        0.71

Year Ended 12/31/14

    104,691        3.689747        to        102.693582        465,306            0.36        0.00        to        0.55        7.90        to        8.49   

Year Ended 12/31/13

    108,936        3.416219        to        94.654719        448,921            0.31        0.00        to        0.55        24.85        to        25.53   

Year Ended 12/31/12

    113,740        2.733618        to        75.402575        374,598            0.12        0.00        to        0.55        11.35        to        11.97   

Year Ended 12/31/11

    121,498        2.452507        to        67.344023        358,497                0.23        0.00        to        0.55        (6.69     to        (6.18

Index 400 Stock

                           

Year Ended 12/31/15

    66,515      $ 3.709654        to      $ 42.560713      $ 275,417            1.08     0.00     to        0.55     (2.92 )%      to        (2.38 )% 

Year Ended 12/31/14

    68,204        3.817251        to        43.598907        290,596            0.98        0.00        to        0.55        8.82        to        9.42   

Year Ended 12/31/13

    71,379        3.504450        to        39.846886        279,413            1.06        0.00        to        0.55        32.44        to        33.16   

Year Ended 12/31/12

    72,346        2.643527        to        29.923387        213,744            0.91        0.00        to        0.55        17.00        to        17.64   

Year Ended 12/31/11

    77,580        2.257202        to        25.435391        195,635                0.86        0.00        to        0.55        (2.46     to        (1.92

Mid Cap Value

                           

Year Ended 12/31/15

    17,077      $ 2.988550        to      $ 31.761925      $ 57,463            1.64     0.00     to        0.55     (1.87 )%      to        (1.33 )% 

Year Ended 12/31/14

    17,454        3.042400        to        32.189353        60,350            0.99        0.00        to        0.55        16.05        to        16.69   

Year Ended 12/31/13

    17,193        2.618947        to        27.585004        51,336            0.96        0.00        to        0.55        29.53        to        30.24   

Year Ended 12/31/12

    17,177        2.019864        to        21.179677        39,331            1.34        0.00        to        0.55        15.93        to        16.57   

Year Ended 12/31/11

    18,430        1.740555        to        18.168731        37,334                1.74        0.00        to        0.55        (1.15     to        (0.61

Small Cap Growth Stock

                           

Year Ended 12/31/15

    61,830      $ 3.628992        to      $ 47.712811      $ 246,246            0.11     0.00     to        0.55     (0.23 )%      to        0.32

Year Ended 12/31/14

    63,835        3.633783        to        47.561777        255,403            0.00        0.00        to        0.55        8.06        to        8.66   

Year Ended 12/31/13

    66,550        3.359376        to        43.773190        246,636            0.49        0.00        to        0.55        37.84        to        38.60   

Year Ended 12/31/12

    68,955        2.434726        to        31.582975        185,068            0.00        0.00        to        0.55        8.88        to        9.48   

Year Ended 12/31/11

    74,363        2.233915        to        28.847575        183,624                0.35        0.00        to        0.55        (3.31     to        (2.78

Index 600 Stock

                           

Year Ended 12/31/15

    11,625      $ 1.543293        to      $ 17.224563      $ 20,831            0.00     0.00     to        0.55     (2.88 )%      to        (2.35 )% 

Year Ended 12/31/14

    10,776        1.587514        to        17.638780        20,248            1.53        0.00        to        0.55        4.76        to        5.34   

Year Ended 12/31/13

    9,373        1.513818        to        16.744685        16,819            4.29        0.00        to        0.55        39.90        to        40.67   

Year Ended 12/31/12

    4,910        1.081019        to        11.903891        6,206            3.11        0.00        to        0.55        15.16        to        15.80   

Period Ended 12/31/11 (2)

    1,384        0.937768        to        10.280016        1,719                2.07        0.00        to        0.55        (6.27     to        (6.01

Small Cap Value

                           

Year Ended 12/31/15

    45,429      $ 3.004079        to      $ 32.262868      $ 156,881            0.68     0.00     to        0.55     (5.97 )%      to        (5.45 )% 

Year Ended 12/31/14

    47,518        3.191481        to        34.121874        174,553            0.36        0.00        to        0.55        (0.33     to        0.22   

Year Ended 12/31/13

    49,966        3.198795        to        34.046809        184,787            1.14        0.00        to        0.55        31.04        to        31.76   

Year Ended 12/31/12

    50,988        2.438620        to        25.839588        143,973            0.37        0.00        to        0.55        15.69        to        16.33   

Year Ended 12/31/11

    55,277        2.105813        to        22.212770        134,980                0.60        0.00        to        0.55        (1.90     to        (1.36

International Growth

                           

Year Ended 12/31/15

    43,844      $ 1.793138        to      $ 19.257803      $ 88,907            1.68     0.00     to        0.55     (2.26 )%      to        (1.73 )% 

Year Ended 12/31/14

    43,639        1.832844        to        19.596007        90,803            1.30        0.00        to        0.55        (5.04     to        (4.52

Year Ended 12/31/13

    44,659        1.928280        to        20.524033        98,031            1.40        0.00        to        0.55        19.15        to        19.81   

Year Ended 12/31/12

    44,792        1.616718        to        17.130842        82,841            1.33        0.00        to        0.55        17.34        to        17.99   

Year Ended 12/31/11

    48,394        1.376437        to        14.519220        76,140                1.13        0.00        to        0.55        (13.64     to        (13.17

Research International Core

  

Year Ended 12/31/15

    20,383      $ 1.055308        to      $ 10.098885      $ 24,504            2.05     0.00     to        0.55     (1.65 )%      to        (1.11 )% 

Year Ended 12/31/14

    16,529        1.071981        to        10.212438        20,860            1.45        0.00        to        0.55        (7.22     to        (6.71

Year Ended 12/31/13

    14,106        1.154295        to        10.947312        19,169            0.13        0.00        to        0.55        18.27        to        18.92   

Year Ended 12/31/12

    10,388        0.975017        to        9.205651        12,233            1.72        0.00        to        0.55        16.12        to        16.76   

Period Ended 12/31/11 (2)

    3,559        0.838851        to        7.884380        3,688                4.07        0.00        to        0.55        (16.16     to        (15.93

 

(1) Total return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges, which are a reduction in units. The expense ratios further reflect only those expenses which impact total return. For additional information regarding all expenses assessed, refer to the accompanying notes. Returns are not annualized for periods less than one year.
(2) Division commenced operations on June 30, 2011.

 

F-28


Table of Contents

Northwestern Mutual Variable Life Account

Notes to Financial Statements

December 31, 2015

 

    As of the respective period end date:         For the respective period ended:  
Division   Units
Outstanding
(000’s)
   

Unit Value,

Lowest to Highest

    Net Assets
(000’s)
         Dividend
Income
as a % of
Average
Net
Assets
    Expense Ratio,
Lowest to
Highest(1)
    Total Return,
Lowest to Highest(1)
 

International Equity

                         

Year Ended 12/31/15

    137,889      $ 3.143590        to        4.843231      $ 502,646          2.95     0.00     to        0.55     (2.75 )%      to        (2.21 )% 

Year Ended 12/31/14

    139,819        3.229216        to        4.952849        525,118          1.91        0.00        to        0.55        (9.30     to        (8.80

Year Ended 12/31/13

    143,163        3.556947        to        5.431053        593,256          2.19        0.00        to        0.55        20.71        to        21.38   

Year Ended 12/31/12

    147,013        2.943691        to        4.474566        504,481          2.59        0.00        to        0.55        20.85        to        21.52   

Year Ended 12/31/11

    154,709        2.433405        to        3.682261        438,760            2.10        0.00        to        0.55        (10.59     to        (10.10

Emerging Markets Equity

                         

Year Ended 12/31/15

    39,847      $ 0.741823        to        8.872116      $ 34,756          0.88     0.00     to        0.55     (12.72 )%      to        (12.24 )% 

Year Ended 12/31/14

    34,924        0.849119        to        10.109813        34,843          0.63        0.00        to        0.55        (6.76     to        (6.25

Year Ended 12/31/13

    29,027        0.909813        to        10.783888        30,454          0.75        0.00        to        0.55        (5.67     to        (5.15

Year Ended 12/31/12

    19,140        0.963548        to        11.369632        21,469          0.15        0.00        to        0.55        18.18        to        18.83   

Period Ended 12/31/11 (2)

    7,995        0.814525        to        9.567929        7,498            2.54        0.00        to        0.55        (18.59     to        (18.36

Money Market

                         

Year Ended 12/31/15

    79,683      $ 1.531914        to      $ 41.572750      $ 171,148          0.01     0.00     to        0.55     (0.54 )%      to        0.01

Year Ended 12/31/14

    79,806        1.538686        to        41.568533        165,824          0.07        0.00        to        0.55        (0.48     to        0.07   

Year Ended 12/31/13

    82,246        1.544536        to        41.539003        170,166          0.10        0.00        to        0.55        (0.45     to        0.10   

Year Ended 12/31/12

    84,564        1.549943        to        41.497953        169,940          0.14        0.00        to        0.55        (0.41     to        0.15   

Year Ended 12/31/11

    85,415        1.554696        to        41.437528        166,908            0.14        0.00        to        0.55        (0.41     to        0.14   

Short-Term Bond

                         

Year Ended 12/31/15

    12,538      $ 1.012734        to      $ 12.275717      $ 15,742          0.71     0.00     to        0.55     0.17     to        0.72

Year Ended 12/31/14

    11,155        1.010036        to        12.188479        13,392          0.60        0.00        to        0.55        (0.17     to        0.38   

Year Ended 12/31/13

    9,076        1.010673        to        12.142453        10,582          0.17        0.00        to        0.55        0.00(4     to        0.55   

Year Ended 12/31/12

    5,895        1.009629        to        12.076410        6,960          1.43        0.00        to        0.55        1.51        to        2.07   

Period Ended 12/31/11 (2)

    3,159        0.993622        to        11.832025        3,681            4.36        0.00        to        0.55        (0.69     to        (0.42

Select Bond

                         

Year Ended 12/31/15

    70,587      $ 2.673382        to      $ 212.549665      $ 243,197          1.50     0.00     to        0.55     (0.02 )%      to        0.53

Year Ended 12/31/14

    70,799        2.671248        to        211.428447        248,615          2.02        0.00        to        0.55        4.99        to        5.56   

Year Ended 12/31/13

    73,536        2.541856        to        200.286369        244,742          2.31        0.00        to        0.55        (2.69     to        (2.16

Year Ended 12/31/12

    78,962        2.609587        to        204.702189        268,074          2.69        0.00        to        0.55        4.39        to        4.96   

Year Ended 12/31/11

    77,091        2.497424        to        195.021673        251,418            3.32        0.00        to        0.55        6.58        to        7.16   

Long-Term U.S. Government Bond

  

Year Ended 12/31/15

    5,671      $ 1.345254        to      $ 18.898765      $ 8,101          2.11     0.00     to        0.55     (2.01 )%      to        (1.47 )% 

Year Ended 12/31/14

    4,722        1.371509        to        19.181310        6,944          2.01        0.00        to        0.55        23.05        to        23.73   

Year Ended 12/31/13

    3,977        1.113443        to        15.502339        4,876          0.02        0.00        to        0.55        (13.75     to        (13.27

Year Ended 12/31/12

    4,651        1.289646        to        17.875038        7,933          1.85        0.00        to        0.55        3.18        to        3.75   

Period Ended 12/31/11 (2)

    3,537        1.248644        to        17.228764        6,776            8.82        0.00        to        0.55        24.80        to        25.15   

Inflation Protection

                         

Year Ended 12/31/15

    6,372      $ 1.036853        to      $ 13.593038      $ 7,975          2.34     0.00     to        0.55     (2.74 )%      to        (2.20 )% 

Year Ended 12/31/14

    6,336        1.065002        to        13.899486        8,559          0.52        0.00        to        0.55        2.57        to        3.14   

Year Ended 12/31/13

    6,697        1.037245        to        13.476716        8,588          1.08        0.00        to        0.55        (8.83     to        (8.33

Year Ended 12/31/12

    7,780        1.136621        to        14.701699        10,670          2.68        0.00        to        0.55        6.76        to        7.35   

Period Ended 12/31/11 (2)

    3,641        1.063572        to        13.694886        4,815            0.03        0.00        to        0.55        6.30        to        6.60   

High Yield Bond

                         

Year Ended 12/31/15

    26,563      $ 3.275752        to      $ 43.377037      $ 100,914          4.53     0.00     to        0.55     (1.90 )%      to        (1.36 )% 

Year Ended 12/31/14

    27,230        3.335950        to        43.976216        106,154          5.04        0.00        to        0.55        0.62        to        1.18   

Year Ended 12/31/13

    27,674        3.312039        to        43.465300        107,038          5.57        0.00        to        0.55        5.26        to        5.84   

Year Ended 12/31/12

    28,781        3.143457        to        41.068270        106,270          6.24        0.00        to        0.55        13.26        to        13.89   

Year Ended 12/31/11

    29,124        2.772582        to        36.059875        94,728            6.97        0.00        to        0.55        4.02        to        4.59   

 

(1) Total return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges, which are a reduction in units. The expense ratios further reflect only those expenses which impact total return. For additional information regarding all expenses assessed, refer to the accompanying notes. Returns are not annualized for periods less than one year.
(2) Division commenced operations on June 30, 2011.
(4) Ratio is less than 0.005%.

 

F-29


Table of Contents

Northwestern Mutual Variable Life Account

Notes to Financial Statements

December 31, 2015

 

     As of the respective period end date:      For the respective period ended:  
Division    Units
Outstanding
(000’s)
    

Unit Value,

Lowest to Highest

     Net Assets
(000’s)
     Dividend
Income
as a % of
Average
Net
Assets
    Expense Ratio,
Lowest to
Highest(1)
    Total Return
Lowest to Highest(1)
 

Multi-Sector Bond

  

             

Year Ended 12/31/15

     21,624       $ 1.138400        to       $ 15.597729       $ 27,546         5.58     0.00     to         0.55     (2.76 )%      to         (2.22 )% 

Year Ended 12/31/14

     20,081         1.169486        to         15.951947         26,344         2.65        0.00        to         0.55        2.68        to         3.25   

Year Ended 12/31/13

     17,326         1.137785        to         15.449941         21,918         3.56        0.00        to         0.55        (2.12     to         (1.58

Year Ended 12/31/12

     14,697         1.161278        to         15.698283         18,872         0.46        0.00        to         0.55        14.31        to         14.94   

Period Ended 12/31/11 (2)

     4,150         1.014872        to         13.657358         4,850         16.21        0.00        to         0.55        1.44        to         1.71   

Balanced

  

             

Year Ended 12/31/15

     53,304       $ 3.310708        to       $ 181.609174       $ 345,035         1.97     0.00     to         0.55     (0.67 )%      to         (0.12 )% 

Year Ended 12/31/14

     54,744         3.329658        to         181.830315         360,234         2.31        0.00        to         0.55        4.99        to         5.56   

Year Ended 12/31/13

     55,407         3.168393        to         172.248875         354,026         3.38        0.00        to         0.55        11.47        to         12.08   

Year Ended 12/31/12

     57,330         2.839508        to         153.677764         331,081         0.23        0.00        to         0.55        9.09        to         9.69   

Year Ended 12/31/11

     61,456         2.600265        to         140.096515         318,825         2.75        0.00        to         0.55        1.55        to         2.11   

Asset Allocation

  

             

Year Ended 12/31/15

     18,489       $ 1.899554        to       $ 20.400265       $ 44,291         1.92     0.00     to         0.55     (0.97 )%      to         (0.43 )% 

Year Ended 12/31/14

     19,933         1.916252        to         20.487411         47,339         2.15        0.00        to         0.55        4.57        to         5.15   

Year Ended 12/31/13

     19,334         1.830603        to         19.484028         44,834         3.32        0.00        to         0.55        16.03        to         16.67   

Year Ended 12/31/12

     20,120         1.576122        to         16.700324         39,573         0.23        0.00        to         0.55        10.41        to         11.02   

Year Ended 12/31/11

     22,441         1.426114        to         15.042893         39,577         2.41        0.00        to         0.55        (0.62     to         (0.08

Fidelity VIP Mid Cap

  

             

Year Ended 12/31/15

     34,908       $ 3.964922        to       $ 42.137819       $ 162,700         0.25     0.00     to         0.55     (2.17 )%      to         (1.63 )% 

Year Ended 12/31/14

     36,665         4.048702        to         42.835362         175,314         0.02        0.00        to         0.55        5.45        to         6.03   

Year Ended 12/31/13

     37,534         3.835558        to         40.398542         169,449         0.28        0.00        to         0.55        35.13        to         35.87   

Year Ended 12/31/12

     38,312         2.835677        to         29.733518         128,384         0.39        0.00        to         0.55        13.93        to         14.56   

Year Ended 12/31/11

     40,656         2.486413        to         25.953961         120,934         0.02        0.00        to         0.55        (11.34     to         (10.85

Fidelity VIP Contrafund

  

             

Year Ended 12/31/15

     22,441       $ 1.546836        to       $ 16.824006       $ 39,557         0.82     0.00     to         0.55     (0.13 )%      to         0.42

Year Ended 12/31/14

     21,021         1.547371        to         16.754369         37,757         0.78        0.00        to         0.55        11.04        to         11.65   

Year Ended 12/31/13

     19,719         1.392090        to         15.005573         31,545         0.90        0.00        to         0.55        30.24        to         30.95   

Year Ended 12/31/12

     16,353         1.067828        to         11.458810         20,234         1.49        0.00        to         0.55        15.50        to         16.14   

Period Ended 12/31/11 (2)

     5,922         0.923581        to         9.866342         6,530         2.81        0.00        to         0.55        (7.69     to         (7.43

Neuberger Berman AMT Socially Responsive

  

             

Year Ended 12/31/15

     2,413       $ 1.499733        to       $ 16.199640       $ 4,514         0.57     0.00     to         0.55     (1.01 )%      to         (0.46 )% 

Year Ended 12/31/14

     2,395         1.513495        to         16.275087         4,590         0.37        0.00        to         0.55        9.78        to         10.38   

Year Ended 12/31/13

     2,403         1.377320        to         14.744385         4,648         0.79        0.00        to         0.55        36.85        to         37.60   

Year Ended 12/31/12

     1,241         1.005443        to         10.715212         1,683         0.25        0.00        to         0.55        10.37        to         10.98   

Period Ended 12/31/11 (2)

     606         0.910063        to         9.655117         688         0.90        0.00        to         0.55        (9.04     to         (8.79

Russell Multi-Style Equity

  

             

Year Ended 12/31/15

     108,402       $ 1.631656        to       $ 18.271298       $ 203,098         0.82     0.00     to         0.55     0.55     to         1.11

Year Ended 12/31/14

     114,307         1.621079        to         18.071559         213,362         1.16        0.00        to         0.55        11.09        to         11.70   

Year Ended 12/31/13

     119,343         1.457823        to         16.178812         201,588         1.21        0.00        to         0.55        32.19        to         32.92   

Year Ended 12/31/12

     126,018         1.101694        to         12.171877         162,081         1.12        0.00        to         0.55        15.05        to         15.69   

Year Ended 12/31/11

     139,483         0.956587        to         10.521100         157,923         0.97        0.00        to         0.55        (2.08     to         (1.55

Russell Aggressive Equity

  

             

Year Ended 12/31/15

     36,650       $ 2.193357        to       $ 25.191084       $ 91,739         0.67     0.00     to         0.55     (7.69 )%      to         (7.19 )% 

Year Ended 12/31/14

     38,597         2.373801        to         27.141282         104,705         0.25        0.00        to         0.55        1.00        to         1.56   

Year Ended 12/31/13

     40,543         2.347887        to         26.724835         109,257         0.43        0.00        to         0.55        39.24        to         40.00   

Year Ended 12/31/12

     41,973         1.684569        to         19.088862         80,738         1.07        0.00        to         0.55        15.20        to         15.84   

Year Ended 12/31/11

     46,544         1.460862        to         16.479338         77,885         0.49        0.00        to         0.55        (4.72     to         (4.20

 

(1) Total return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges, which are a reduction in units. The expense ratios further reflect only those expenses which impact total return. For additional information regarding all expenses assessed, refer to the accompanying notes. Returns are not annualized for periods less than one year.
(2) Division commenced operations on June 30, 2011.

 

F-30


Table of Contents

Northwestern Mutual Variable Life Account

Notes to Financial Statements

December 31, 2015

 

     As of the respective period end date:      For the respective period ended:  
Division    Units
Outstanding
(000’s)
    

Unit Value,

Lowest to Highest

     Net Assets
(000’s)
     Dividend
Income
as a % of
Average
Net
Assets
    Expense Ratio,
Lowest to
Highest(1)
    Total Return
Lowest to Highest(1)
 

Russell Non-U.S.

  

             

Year Ended 12/31/15

     62,803       $ 1.605290        to       $ 17.562157       $ 117,670         1.15     0.00     to         0.55     (1.85 )%      to         (1.31 )% 

Year Ended 12/31/14

     63,654         1.633987        to         17.795979         121,476         1.95        0.00        to         0.55        (4.97     to         (4.45

Year Ended 12/31/13

     65,876         1.717753        to         18.624500         134,161         2.00        0.00        to         0.55        21.24        to         21.91   

Year Ended 12/31/12

     68,417         1.415380        to         15.277391         115,667         1.77        0.00        to         0.55        19.16        to         19.81   

Year Ended 12/31/11

     74,999         1.186647        to         12.750860         107,050         1.66        0.00        to         0.55        (13.36     to         (12.88

Russell Core Bond

  

             

Year Ended 12/31/15

     29,943       $ 2.167486        to       $ 23.248775       $ 85,576         2.39     0.00     to         0.55     (0.69 )%      to         (0.14 )% 

Year Ended 12/31/14

     30,112         2.180310        to         23.281628         86,877         1.55        0.00        to         0.55        4.88        to         5.45   

Year Ended 12/31/13

     31,407         2.076847        to         22.077570         86,009         1.44        0.00        to         0.55        (1.99     to         (1.45

Year Ended 12/31/12

     34,681         2.116915        to         22.402721         99,933         2.33        0.00        to         0.55        7.78        to         8.38   

Year Ended 12/31/11

     34,913         1.962151        to         20.671320         96,920         3.19        0.00        to         0.55        4.11        to         4.68   

Russell Global Real Estate Securities

  

             

Year Ended 12/31/15

     36,412       $ 4.179747        to       $ 44.771967       $ 172,160         1.64     0.00     to         0.55     (0.30 )%      to         0.25

Year Ended 12/31/14

     36,715         4.188148        to         44.660949         175,388         3.26        0.00        to         0.55        14.12        to         14.75   

Year Ended 12/31/13

     37,321         3.666253        to         38.920595         157,271         4.00        0.00        to         0.55        3.08        to         3.65   

Year Ended 12/31/12

     37,370         3.553123        to         37.550773         152,571         5.00        0.00        to         0.55        26.86        to         27.56   

Year Ended 12/31/11

     38,799         2.798128        to         29.438654         124,861         2.25        0.00        to         0.55        (7.56     to         (7.05

Russell LifePoints Moderate Strategy

  

             

Year Ended 12/31/15

     2,175       $ 1.153913        to       $ 13.984420       $ 3,256         2.55     0.00     to         0.55     (2.24 )%      to         (1.71 )% 

Year Ended 12/31/14

     1,929         1.179226        to         14.227181         3,327         3.33        0.00        to         0.55        4.28        to         4.85   

Year Ended 12/31/13

     1,516         1.129701        to         13.568584         2,151         1.69        0.00        to         0.55        6.20        to         6.79   

Year Ended 12/31/12

     1,505         1.062654        to         12.706153         2,139         3.29        0.00        to         0.55        10.46        to         11.07   

Period Ended 12/31/11 (2)

     320         0.961095        to         11.440046         332         3.14        0.00        to         0.55        (3.94     to         (3.67

Russell LifePoints Balanced Strategy

  

             

Year Ended 12/31/15

     11,511       $ 1.188804        to       $ 13.546956       $ 17,506         2.20     0.00     to         0.55     (2.84 )%      to         (2.30 )% 

Year Ended 12/31/14

     11,655         1.222287        to         13.866173         17,117         2.98        0.00        to         0.55        4.04        to         4.61   

Year Ended 12/31/13

     9,944         1.173673        to         13.255096         14,726         2.18        0.00        to         0.55        11.81        to         12.43   

Year Ended 12/31/12

     7,167         1.048620        to         11.789785         9,673         2.60        0.00        to         0.55        12.34        to         12.96   

Period Ended 12/31/11 (2)

     3,296         0.932549        to         10.437591         4,082         3.47        0.00        to         0.55        (6.79     to         (6.53

Russell LifePoints Growth Strategy

  

             

Year Ended 12/31/15

     13,267       $ 1.188862        to       $ 12.631574       $ 19,036         1.81     0.00     to         0.55     (3.84 )%      to         (3.31 )% 

Year Ended 12/31/14

     13,525         1.235139        to         13.064429         20,126         3.03        0.00        to         0.55        3.19        to         3.76   

Year Ended 12/31/13

     11,741         1.195791        to         12.591524         16,736         2.32        0.00        to         0.55        15.92        to         16.56   

Year Ended 12/31/12

     9,304         1.030529        to         10.802768         11,345         2.26        0.00        to         0.55        13.59        to         14.22   

Period Ended 12/31/11 (2)

     1,932         0.906329        to         9.458077         3,034         3.58        0.00        to         0.55        (9.41     to         (9.16

Russell LifePoints Equity Growth Strategy

  

             

Year Ended 12/31/15

     6,000       $ 1.204105        to       $ 11.679451       $ 8,824         1.53     0.00     to         0.55     (4.40 )%      to         (3.87 )% 

Year Ended 12/31/14

     5,836         1.258221        to         12.149681         8,762         3.29        0.00        to         0.55        2.92        to         3.48   

Year Ended 12/31/13

     5,628         1.221337        to         11.740704         8,224         2.59        0.00        to         0.55        19.16        to         19.81   

Year Ended 12/31/12

     4,213         1.023971        to         9.799317         5,371         1.87        0.00        to         0.55        15.04        to         15.68   

Period Ended 12/31/11 (2)

     1,131         0.889198        to         8.471141         1,453         3.08        0.00        to         0.55        (11.12     to         (10.88

Credit Suisse Trust Commodity Return Strategy

  

             

Year Ended 12/31/15

     3,059       $ 4.412123        to       $ 4.767003       $ 14,882         0.00     0.00     to         0.55     (25.44 )%      to         (25.03 )% 

Year Ended 12/31/14

     2,448         5.885213        to         6.387246         15,934         0.00        0.00        to         0.55        (17.39     to         (16.94

Period Ended 12/31/13 (3)

     1,964         7.085099        to         7.724122         15,565         0.00        0.00        to         0.55        1.72        to         1.79   

 

(1) Total return includes deductions for management and other expenses; it excludes deductions for sales loads and other charges, which are a reduction in units. The expense ratios further reflect only those expenses which impact total return. For additional information regarding all expenses assessed, refer to the accompanying notes. Returns are not annualized for periods less than one year.
(2) Division commenced operations on June 30, 2011.
(3) Division commenced operations on November 15, 2013.

 

F-31


Table of Contents

Report of Independent Registered Public Accounting Firm

To The Northwestern Mutual Life Insurance Company Board of Trustees and

Contract Owners of 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 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, 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-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 and, Credit Suisse Trust Commodity Return Strategy Division, at December 31, 2015, the results of their operations for the year then ended, and the changes in their net assets for each of the two years in the period then ended, 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 Company’s 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 investments owned at December 31, 2015 by correspondence with Northwestern Mutual Series Fund, Inc., Fidelity Variable Insurance Products, Neuberger Berman Advisers Management Trust, the Russell Investment Funds and Credit Suisse Trust, provide a reasonable basis for our opinion.

Milwaukee, Wisconsin

April 25, 2016

 

F-32


Table of Contents

The Northwestern Mutual

Life Insurance Company

Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

NM-1


Table of Contents

LOGO

Independent Auditor’s Report

To the Board of Trustees 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 wholly-owned subsidiary, Northwestern Long Term Care Insurance Company (together, the “Company), which are comprised of the consolidated statutory statements of financial position as of December 31, 2015 and 2014, 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, 2015.

Management’s 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.

Auditor’s 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 Company’s 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 Company’s 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.

 

 

LOGO

PricewaterhouseCoopers LLP, 100 E. Wisconsin Ave., Ste. 1800, Milwaukee, WI 53202

T: (414) 212 1600, F: (414) 212 1880, www.pwc.com/us

 

NM-2


Table of Contents

LOGO

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.

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, 2015 and 2014, or the results of their operations or their cash flows for each of the three years then ended.

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, 2015 and 2014, and the results of their operations and their cash flows for each of the three years then ended, 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.

 

 

LOGO

February 24, 2016

 

NM-3


Table of Contents

The Northwestern Mutual Life Insurance Company

Consolidated Statements of Financial Position

(in millions)

 

 

     December 31,  
         2015              2014      

Assets:

     

Bonds

   $   133,449       $   128,126   

Mortgage loans

     32,236         29,341   

Policy loans

     17,146         16,756   

Common and preferred stocks

     3,886         3,713   

Real estate

     1,999         1,610   

Other investments

     13,292         12,827   

Cash and short-term investments

     1,460         2,588   
  

 

 

    

 

 

 

Total investments

     203,468         194,961   

Due and accrued investment income

     1,906         1,902   

Net deferred tax assets

     3,288         3,055   

Deferred premium and other assets

     3,079         2,959   

Separate account assets

     26,731         27,056   
  

 

 

    

 

 

 

Total assets

   $ 238,472       $ 229,933   
  

 

 

    

 

 

 

Liabilities and surplus:

     

Reserves for policy benefits

   $ 176,928       $ 167,508   

Policyowner dividends payable

     5,610         5,510   

Interest maintenance reserve

     664         1,043   

Asset valuation reserve

     3,564         3,544   

Income taxes payable

     101         322   

Other liabilities

     5,218         5,896   

Separate account liabilities

     26,731         27,056   
  

 

 

    

 

 

 

Total liabilities

     218,816         210,879   

Surplus:

     

Surplus notes

     1,750         1,750   

Unassigned surplus

     17,906         17,304   
  

 

 

    

 

 

 

Total surplus

     19,656         19,054   
  

 

 

    

 

 

 

Total liabilities and surplus

   $ 238,472       $ 229,933   
  

 

 

    

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

NM-4


Table of Contents

The Northwestern Mutual Life Insurance Company

Consolidated Statements of Operations

(in millions)

 

 

     For the years ended  
     December 31,  
     2015     2014      2013  

Revenue:

       

Premiums

   $ 17,788      $ 17,001       $ 16,599   

Net investment income

     9,467        9,104         8,693   

Other income

     625        602         566   
  

 

 

   

 

 

    

 

 

 

Total revenue

     27,880        26,707         25,858   
  

 

 

   

 

 

    

 

 

 

Benefits and expenses:

       

Benefit payments to policyowners and beneficiaries

     9,043        8,396         7,898   

Net additions to policy benefit reserves

     9,352        8,910         9,018   

Net transfers to separate accounts

     150        501         542   
  

 

 

   

 

 

    

 

 

 

Total benefits

     18,545        17,807         17,458   

Commissions and operating expenses

     2,932        2,831         2,680   
  

 

 

   

 

 

    

 

 

 

Total benefits and expenses

     21,477        20,638         20,138   
  

 

 

   

 

 

    

 

 

 

Gain from operations before dividends and taxes

     6,403        6,069         5,720   

Policyowner dividends

     5,609        5,511         5,212   
  

 

 

   

 

 

    

 

 

 

Gain from operations before taxes

     794        558         508   

Income tax expense (benefit)

     (53     22         (18
  

 

 

   

 

 

    

 

 

 

Net gain from operations

     847        536         526   

Net realized capital gains (losses)

     (32     143         276   
  

 

 

   

 

 

    

 

 

 

Net income

   $ 815      $ 679       $ 802   
  

 

 

   

 

 

    

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

NM-5


Table of Contents

The Northwestern Mutual Life Insurance Company

Consolidated Statements of Changes in Surplus

(in millions)

 

 

     For the years ended  
     December 31,  
     2015     2014     2013  

Beginning of year balance

   $ 19,054      $ 17,199      $ 16,176   

Net income

     815        679        802   

Change in net unrealized capital gains

     (248     1,246        346   

Change in net deferred tax assets

     86        271        237   

Change in nonadmitted assets and other

     (31     (155     (58

Change in asset valuation reserve

     (20     (186     (142

Change in accounting principle

     -        -        (162
  

 

 

   

 

 

   

 

 

 

Net increase in surplus

     602        1,855        1,023   
  

 

 

   

 

 

   

 

 

 

End of year balance

   $ 19,656      $ 19,054      $ 17,199   
  

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

NM-6


Table of Contents

The Northwestern Mutual Life Insurance Company

Consolidated Statements of Cash Flows

(in millions)

 

 

     For the years ended  
     December 31,  
     2015     2014     2013  

Cash flows from operating activities:

      

Premiums and other income received

   $ 12,658      $ 12,700      $ 12,243   

Investment income received

     8,670        9,014        8,827   

Benefit and dividend payments to policyowners and beneficiaries

     (8,164     (8,742     (8,215

Net transfers to separate accounts

     (152     (492     (527

Commissions, expenses and taxes paid

     (2,834     (3,247     (2,802
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     10,178        9,233        9,526   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Proceeds from investments sold or matured:

      

Bonds

     37,276        33,516        36,567   

Common and preferred stocks

     2,084        2,898        4,305   

Mortgage loans

     1,924        1,501        2,169   

Real estate

     209        76        83   

Other investments

     1,893        1,676        1,268   
  

 

 

   

 

 

   

 

 

 

Subtotal proceeds from investments

     43,386        39,667        44,392   
  

 

 

   

 

 

   

 

 

 

Cost of investments acquired:

      

Bonds

     (42,801     (38,857     (43,758

Common and preferred stocks

     (2,478     (3,394     (3,018

Mortgage loans

     (5,031     (4,008     (4,670

Real estate

     (356     (187     (290

Other investments

     (3,465     (2,002     (1,856
  

 

 

   

 

 

   

 

 

 

Subtotal cost of investments acquired

     (54,131     (48,448     (53,592
  

 

 

   

 

 

   

 

 

 

Disbursement of policy loans, net of repayments

     3        (450     (517
  

 

 

   

 

 

   

 

 

 

Net cash applied to investing activities

     (10,742     (9,231     (9,717
  

 

 

   

 

 

   

 

 

 

Cash flows from financing and miscellaneous sources:

      

Net inflows (outflows) on deposit-type contracts

     (297     56        93   

Other cash provided (applied)

     (267     268        (33
  

 

 

   

 

 

   

 

 

 

Net cash provided by (applied to) financing and miscellaneous sources

     (564     324        60   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and short-term investments

     (1,128     326        (131

Cash and short-term investments, beginning of year

     2,588        2,262        2,393   
  

 

 

   

 

 

   

 

 

 

Cash and short-term investments, end of year

   $ 1,460      $ 2,588      $ 2,262   
  

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

NM-7


Table of Contents

The Northwestern Mutual Life Insurance Company

Consolidated Statements of Cash Flows (supplemental)

(in millions)

 

 

     For the years ended
December 31,
 
     2015      2014      2013  
     (in millions)  

Supplemental disclosures of cash flow information

        
Non-cash operating, investing and financing and miscellaneous sources not included in the consolidated statements of cash flows:         

Operating:1

        

Dividends used to pay premiums and loans

   $ 5,305       $ -       $ -   

Capitalized interest and payment in-kind investment income

     845         -         -   

Other policyowner contract activity

     167         -         -   

Employee benefit and compensation plan expenses

     154         -         -   

Investing:

        

Bond forward commitments

     6,225         12,590         17,482   

Bond refinancings and exchanges

     1,757         1,713         2,156   

Mortgage loan refinancings and transfers

     914         889         831   

Asset transfers with affiliated entities

     365         344         911   

Net policy loan activity 1

     355         -         -   

Common stock exchanges

     171         61         81   

Net premium loan activity 1

     140         -         -   

Other invested asset exchanges

     131         37         -   

Financing and Miscellaneous:

        

Deposit-type contract deposits and interest credited 1

     389         -         -   

 

  1  Revisions to Statement of Statutory Accounting Principle No. 69, Statement of Cash Flows require additional reporting and disclosure of non-cash activity related to operations for the year ended December 31, 2015.

 

The accompanying notes are an integral part of these consolidated financial statements.

NM-8


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

1.

Basis of Presentation

The accompanying consolidated statutory financial statements include the accounts of The Northwestern Mutual Life Insurance Company (“NM”) 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.

These 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, (7) no deferral of realized investment gains and losses is permitted and (8) “nonadmitted” assets are excluded from surplus. See Note 2 for more information regarding on admitted assets. The effects on the Company’s financial statements attributable to the differences between the statutory basis of accounting and GAAP are material.

Reclassifications

Certain amounts in prior year financial statement balances and footnote disclosures have been reclassified to conform to the current year presentation.

 

2.

Summary of Significant Accounting Policies

The preparation of financial statements in accordance with the statutory basis of accounting requires the Company 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 14 regarding the statement value and fair value of the Company’s investments in bonds, mortgage loans, common and preferred stocks, real estate and other investments, including derivative instruments.

Policy Loans

Policy loans represent amounts borrowed from the Company by life insurance and annuity policyowners, secured by the cash value of the related policies, and are reported at the unpaid principal balance. Policy loans earn interest at either a fixed rate or at a variable rate based on an election that is made by the policyowner when applying for their policy. If a variable rate is elected, the rate will be reset annually. Some policies with a fixed rate loan provision permit the Company, at its discretion, to set the interest rate below that specified by the policy. Annual interest rates on policy loans ranged from 3.60% to 8.00% for loans outstanding at December 31, 2015. Policy loans have no stated maturity date, with repayment of principal and interest during

 

NM-9


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

the insured’s life made at the discretion of the policyowner. If the policyowner doesn’t make loan repayments, the unpaid interest will capitalize and the loan balance will be repaid either 1) from the death benefit; or 2) from the cash value if the policy lapses or is surrendered before the insured’s death. 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. The Company considers the unpaid principal balance of policy loans to approximate fair value.

Cash and Short-term Investments

Short-term investments include 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 Company’s employee and financial representative benefit plan obligations. All separate account assets are legally insulated from claims by the Company’s 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 Company’s general account. Separate account assets are generally reported at fair value primarily based on quoted market prices for the underlying investment securities. See Note 7 and Note 14 for more information regarding the Company’s separate accounts and Note 8 for more information regarding the Company’s 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 Office of the Commissioner of Insurance of the State of Wisconsin (“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 14 for more information regarding the Company’s 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 Company’s 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, use them to repay policy loans or leave them on deposit with the Company to accumulate interest. Dividends used by policyowners to purchase additional insurance benefits or pay renewal premiums are reported as premiums in the consolidated statements of operations but are not included in premiums received or benefit and dividend payments to policyowners and beneficiaries in the consolidated statements of cash flows. The Company’s 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.

 

NM-10


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

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 net 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 Company’s 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 are 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 Company’s use of reinsurance.

Net Investment Income

Net investment income primarily represents interest, dividends and prepayment fees 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. Net investment income is reduced by investment management expenses, real estate depreciation, interest costs associated with securities lending and interest expense related to the Company’s surplus notes. See Note 3 for more information regarding net investment income and securities lending and Note 13 for more information regarding the Company’s surplus notes.

Other Income

Other income primarily represents ceded reinsurance expense allowances and various insurance policy charges. Ceded reinsurance expense allowance is recognized as revenue when due. See Note 9 for more information regarding the Company’s use of reinsurance.

Benefit Payments to Policyowners and Beneficiaries

Benefit payments to policyowners and beneficiaries include death, surrender, disability and long-term care benefits, as well as matured endowments and payments on supplementary annuity contracts that include life contingencies. Benefit payments on supplementary annuity contracts without life contingencies are deposit-type transactions and excluded from benefits in the consolidated statements of operations. Benefit payments are reported net of ceded reinsurance recoveries. See Note 9 for more information regarding the Company’s use of reinsurance.

 

NM-11


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

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 $34 million and $29 million at December 31, 2015 and 2014, respectively, are included in other assets in the consolidated statements of financial position and are net of accumulated depreciation of $303 million and $280 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. These amounts were $175 million and $151 million at December 31, 2015 and 2014, respectively. Depreciation expense for IT equipment and software totaled $80 million, $74 million and $70 million for the years ended December 31, 2015, 2014 and 2013, 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. 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. These amounts were $65 million and $74 million at December 31, 2015 and 2014, respectively. Depreciation expense for furniture, fixtures and equipment totaled $8 million, $8 million and $7 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Investment Capital Gains and Losses

Realized capital gains and losses are recognized based upon specific identification of investments 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 the Company 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 changes in the fair value of common and preferred stocks and other equity investments and currency translation adjustments on foreign-denominated bonds and are reported net of any related changes in deferred taxes. Other changes in the Company’s 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 defined benefit pension funding, amounts advanced to or due from the Company’s financial 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.

 

NM-12


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Foreign Currency Translation

All of the Company’s insurance operations are conducted in the United States of America on a U.S. dollar-denominated basis. The Company does make bond, mortgage loan, 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 currency 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 Company’s use of derivatives to mitigate exposure to fluctuations in foreign currency exchange rates.

Subsequent Events

The Company has evaluated events subsequent to December 31, 2015 through February 24, 2016, the date these consolidated financial statements were available to be issued. Based on this evaluation, it is the Company’s opinion that no events subsequent to December 31, 2015 have occurred that are material to the Company’s financial position at that date or the results of its operations for the year then ended. On February 11, 2016, the Company announced a prospective amendment to its employee postretirement benefit plan that is expected to have a significant impact on the plan’s projected benefit obligation (“PBO”) during 2016. See Note 8 for more information regarding this plan amendment.

 

3.

Investments

Bonds

The Securities Valuation Office (“SVO”) of the NAIC Investment Analysis Office evaluates the credit quality of the Company’s 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. 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 disclosure of fair value for bonds is primarily based on independent pricing services or internally-developed pricing models utilizing observable market data. See Note 14 for more information regarding the fair value of the Company’s investments in bonds.

 

NM-13


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Statement value and fair value of bonds at December 31, 2015 and 2014, summarized by asset categories required in the NAIC Annual Statement, were as follows:

 

December 31, 2015

   Reconciliation to Fair Value  
            Gross      Gross        
     Statement      Unrealized      Unrealized     Fair  
     Value      Gains      Losses     Value  
     (in millions)   

U.S. Government

   $ 4,237       $ 584       $ (14   $ 4,807   

States, territories and possessions

     689         108         (2     795   

Special revenue and assessments

     30,578         902         (190     31,290   

All foreign governments

     586         39         (14     611   

Hybrid securities

     403         20         (30     393   

Industrial and miscellaneous

     96,956         3,272         (2,587     97,641   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total bonds

   $ 133,449       $ 4,925       $ (2,837   $ 135,537   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

December 31, 2014

   Reconciliation to Fair Value  
            Gross      Gross        
     Statement      Unrealized      Unrealized     Fair  
     Value      Gains      Losses     Value  
     (in millions)   

U.S. Government

   $ 4,493       $ 785       $ (1   $ 5,277   

States, territories and possessions

     694         137         (1     830   

Special revenue and assessments

     29,145         1,275         (109     30,311   

All foreign governments

     522         65         (5     582   

Hybrid securities

     323         33         (25     331   

Industrial and miscellaneous

     92,949         5,809         (842     97,916   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total bonds

   $ 128,126       $ 8,104       $ (983   $ 135,247   
  

 

 

    

 

 

    

 

 

   

 

 

 

Bonds classified by the NAIC as special revenue and assessments primarily consist 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 consist primarily of notes issued by public and private corporate entities and structured securities not issued by government agencies.

 

NM-14


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Statement value of bonds by SVO rating category at December 31, 2015 and 2014 was as follows:

 

December 31, 2015

   SVO Rating  
     1      2      3      4      5      6      Total  
     (in millions)   

U.S. Government

   $ 4,237       $ -       $ -       $ -       $ -       $ -       $ 4,237   

States, territories and possessions

     602         87         -         -         -         -         689   

Special revenue and assessments

     30,528         50         -         -         -         -         30,578   

All foreign governments

     274         299         13         -         -         -         586   

Hybrid securities

     190         61         152         -         -         -         403   

Industrial and miscellaneous

     42,567         40,923         6,281         5,591         1,577         17         96,956   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds

   $   78,398       $   41,420       $   6,446       $   5,591       $   1,577       $     17       $   133,449   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

December 31, 2014

   SVO Rating  
     1      2      3      4      5      6      Total  
     (in millions)   

U.S. Government

   $ 4,493       $ -       $ -       $ -       $ -       $ -       $ 4,493   

States, territories and possessions

     694         -         -         -         -         -         694   

Special revenue and assessments

     29,104         23         -         -         18         -         29,145   

All foreign governments

     250         259         13         -         -         -         522   

Hybrid securities

     138         143         42         -         -         -         323   

Industrial and miscellaneous

     40,763         38,988         6,507         4,924         1,754         13         92,949   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds

   $   75,442       $   39,413       $   6,562       $   4,924       $   1,772       $     13       $   128,126   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Based on statement value, 90% of the Company’s bond portfolio was rated either 1 or 2 (i.e., rated as Investment grade) by the SVO at each of December 31, 2015 and 2014.

The Company’s investments in structured securities include a significant concentration in residential mortgage-backed securities issued by government agencies. Statement value and fair value of structured securities at December 31, 2015 and 2014, aggregated by investment grade or below investment grade (i.e., rated 3, 4, 5 or 6 by the SVO), were as follows:

 

December 31, 2015

   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

   $ 28,220       $ 28,580       $ -       $ -       $ 28,220       $ 28,580   

Other prime

     549         551         1         1         550         552   

Other below-prime

     73         74         13         15         86         89   

Commercial mortgage-backed:

                 

Government agencies

     239         254         -         -         239         254   

Conduit

     2,026         2,030         15         14         2,041         2,044   

Re-REMIC

     326         333         2         4         328         337   

Other commercial mortgage-backed

     49         53         1         1         50         54   

Other asset-backed

     5,402         5,492         142         142         5,544         5,634   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total structured securities

   $ 36,884       $ 37,367       $ 174       $ 177       $ 37,058       $ 37,544   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

NM-15


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

December 31, 2014    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

   $ 26,894       $ 27,616       $ -       $ -       $ 26,894       $ 27,616   

Other prime

     503         509         1         1         504         510   

Other below-prime

     39         42         16         19         55         61   

Commercial mortgage-backed:

                 

Government agencies

     277         297         -         -         277         297   

Conduit

     1,964         2,011         39         33         2,003         2,044   

Re-REMIC

     377         394         3         6         380         400   

Other commercial mortgage-backed

     60         65         4         5         64         70   

Other asset-backed

     5,105         5,311         49         54         5,154         5,365   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total structured securities

   $ 35,219       $ 36,245       $ 112       $ 118       $ 35,331       $ 36,363   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Based on statement value, 99% of the Company’s structured securities portfolio was rated as investment grade at each of December 31, 2015 and 2014.

The Company’s bond portfolio includes securities that are classified as structured notes, as defined by the Purposes and Procedures Manual of the NAIC Investment Analysis Office. At December 31, 2015, the Company’s structured note investments included a treasury inflation protected (“TIP”) security and fifteen securities with adjustable rate coupon provisions. At December 31, 2015, the TIP security had a statement value and fair value of $89 million and $121 million, respectively, while the securities with adjustable rate provisions had aggregate statement values and fair values of $173 million and $165 million, respectively. At December 31, 2014, structured note investments included a TIP security with a statement value and fair value of $89 million and $127 million, respectively, and nine securities with step -up coupon provisions that had aggregate statement values and fair values of $30 million and $23 million, respectively. None of these securities have provisions linked to real estate prices, indices or asset values.

Statement value and fair value of bonds by contractual maturity at December 31, 2015 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 fees.

 

     Statement
Value
     Fair
Value
 
     (in millions)  

Due in one year or less

   $ 3,921       $ 3,980   

Due after one year through five years

     29,186         30,133   

Due after five years through ten years

     39,134         38,558   

Due after ten years

     24,150         25,322   
  

 

 

    

 

 

 

Subtotal

     96,391         97,993   

Structured securities

     37,058         37,544   
  

 

 

    

 

 

 

Total bonds

   $ 133,449       $ 135,537   
  

 

 

    

 

 

 

 

NM-16


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

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 geographic location at December 31, 2015 and 2014 was as follows:

 

December 31, 2015    United States of America                
     East      Midwest      South      West      Canada      Total  
     (in millions)  

Apartment

   $ 3,175       $ 598       $ 2,150       $ 4,104       $ -       $ 10,027   

Office

     3,282         1,038         1,815         3,816         -         9,951   

Retail

     3,246         779         2,177         2,035         -         8,237   

Warehouse/Industrial

     427         301         570         1,107         204         2,609   

Other

     389         186         533         304         -         1,412   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 10,519       $ 2,902       $ 7,245       $ 11,366       $ 204       $ 32,236   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
December 31, 2014    United States of America                
     East      Midwest      South      West      Canada      Total  
     (in millions)  

Apartment

   $ 2,708       $ 452       $ 1,918       $ 3,438       $ -       $ 8,516   

Office

     2,950         792         1,575         3,559         -         8,876   

Retail

     3,008         780         2,337         2,253         -         8,378   

Warehouse/Industrial

     473         190         437         1,047         255         2,402   

Other

     317         145         450         257         -         1,169   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,456       $ 2,359       $ 6,717       $ 10,554       $ 255       $ 29,341   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The statement value of mortgage loans by contractual maturity at December 31, 2015 is summarized below. Actual maturities may differ from contractual maturities because certain borrowers have the right to prepay obligations with or without prepayment fees.

 

     Statement
Value
 
     (in millions)  

Due in one year or less

   $ 1,982   

Due after one year through two years

     1,534   

Due after two years through five years

     6,410   

Due after five years through eight years

     9,259   

Due after eight years

     13,051   
  

 

 

 

Total

   $ 32,236   
  

 

 

 

 

NM-17


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

All mortgage loans were current on contractual interest and principal payments at each of December 31, 2015 and 2014. The maximum and minimum interest rates for mortgage loans originated during 2015 were 6.70% and 2.65%, respectively, while these rates during 2014 were 6.10% and 2.58%, 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 2015 and 2014 was 60% and 61%, respectively, with a maximum of 100% for any single loan during each of 2015 and 2014. 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, 2015 and 2014, the aggregate weighted-average LTV ratio for the mortgage loan portfolio was 53% and 54%, respectively.

LTV ratios are commonly used to assess the credit quality of commercial mortgage loans. A lower LTV ratio generally indicates a higher quality loan. The statement value of mortgage loans by collateral property type and LTV ratio at December 31, 2015 and 2014 was as follows:

 

December 31, 2015

   < 51%      51%-70%      71%-90%      > 90%      Total  
     (in millions)  

Apartment

   $ 4,322       $ 5,499       $ 205       $ 1       $ 10,027   

Office

     4,143         5,329         304         175         9,951   

Retail

     4,232         3,767         224         14         8,237   

Warehouse/Industrial

     938         1,251         312         108         2,609   

Other

     232         1,003         108         69         1,412   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $   13,867       $   16,849       $   1,153       $   367       $   32,236   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

December 31, 2014

   < 51%      51%-70%      71%-90%      > 90%      Total  
     (in millions)  

Apartment

   $ 3,398       $ 4,944       $ 110       $ 64       $ 8,516   

Office

     2,854         5,524         280         218         8,876   

Retail

     3,933         4,050         343         52         8,378   

Warehouse/Industrial

     561         1,557         190         94         2,402   

Other

     218         847         32         72         1,169   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $   10,964       $   16,922       $   955       $   500       $   29,341   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The aggregate statement value of mortgage loans with LTV ratios in excess of 100% was $60 million and $56 million at December 31, 2015 and 2014, respectively.

The fair value of the collateral securing each commercial mortgage loan is updated at least annually by the Company. More frequent updates are performed if deemed necessary due to 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 14 for more information regarding the fair value of the Company’s investments in mortgage loans.

 

NM-18


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

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 recognized no capital losses related to troubled debt restructuring of mortgage loans for the years ended December 31, 2015, 2014 and 2013, respectively. At December 31, 2015 and 2014, the Company had $28 million and $30 million, respectively, of principal outstanding on mortgage loans that were considered “restructured.”

In circumstances where the Company has deemed it probable that it 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 the Company 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 allowance at each of December 31, 2015 and 2014.

Common and Preferred Stocks

Common stocks are generally reported at fair value, with $3.7 billion and $3.5 billion included in the consolidated statements of financial position at December 31, 2015 and 2014, respectively. The fair value for publicly-traded common stocks is primarily based on quoted market prices. For private common stocks without quoted market prices, fair value is based upon internally-developed pricing models and external pricing sources. The equity method is generally used to report investments in common stock of unconsolidated non-insurance subsidiaries. See Note 14 for more information regarding the fair value of the Company’s 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, 2015 and 2014, the consolidated statements of financial position included $181 million and $175 million, respectively, of preferred stocks. The fair value for preferred stocks is primarily based on internally-developed pricing models. See Note 14 for more information regarding the fair value of the Company’s investments in preferred stock.

Real Estate

Real estate investments are reported at cost, less any 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 primarily based on the capitalization of stabilized net operating income.

 

NM-19


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

The statement value of real estate investments by property type and U.S. geographic location at December 31, 2015 and 2014 was as follows:

 

December 31, 2015

     East        Midwest        South        West        Total  
       (in millions)  

Apartment

     $ 313         $ 26         $ 235         $ 319         $ 893   

Office

       64           536           153           40           793   

Warehouse/Industrial

       38           30           -           188           256   

Other

       27           -           -           30           57   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

     $     442         $     592         $     388         $     577         $     1,999   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

December 31, 2014

     East        Midwest        South        West        Total  
       (in millions)  

Apartment

     $ 300         $ 27         $ 92         $ 253         $ 672   

Office

       65           441           108           39           653   

Warehouse/Industrial

       40           30           -           171           241   

Other

       12           -           -           32           44   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

     $     417         $     498         $     200         $     495         $     1,610   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The Company’s home office properties are included above (Office/Midwest) and had an aggregate statement value of $441 million and $331 million at December 31, 2015 and 2014, respectively. These amounts include $162 million and $32 million at December 31, 2015 and 2014, respectively, related to a new office tower in Milwaukee, Wisconsin, that is scheduled for completion in 2017. The Company’s other investments in real estate are held for the production of income.

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 wholly-owned non-insurance investment holding companies organized as LLCs. The aggregate statement value of other investments held indirectly through non-insurance investment holding companies was $7.5 billion and $7.4 billion at December 31, 2015 and 2014, respectively. 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 of accounting based on the Company’s share of the underlying entities’ audited GAAP-basis equity.

 

NM-20


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

The statement value of other investments held directly or indirectly by the Company at December 31, 2015 and 2014 was as follows:

 

     December 31,  
     2015      2014  
     (in millions)  

Securities partnerships and LLCs

   $ 4,299       $ 4,281   

Bonds

     3,914         3,421   

Real estate JVs, partnerships and LLCs

     1,675         1,661   

Common and preferred stocks

     1,024         869   

Real estate

     747         769   

Low income housing tax credit properties

     485         474   

Derivative instruments

     469         330   

Cash and short-term investments

     215         559   

Leveraged leases

     162         230   

Other assets, net

     302         233   
  

 

 

    

 

 

 

Total

   $     13,292       $     12,827   
  

 

 

    

 

 

 

For securities partnerships and LLCs, bonds, common and preferred stocks, cash and short-term 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. Tax credit properties had 13 years and 14 years of unexpired credits at December 31, 2015 and 2014, respectively. The required holding period for tax credit properties is 15 years. See Note 10 for more information regarding the Company’s use of tax credits.

At December 31, 2015 and 2014, oil and gas investments were recorded using the equity method of accounting. However, the statement value of these investments was nonadmitted from assets and surplus in the consolidated statements of financial position as audits were not performed for these investments. During 2013, the Company discontinued the use of a permitted practice related to the valuation of oil and gas investments and reported a $38 million decrease in the statement value of these investments in the consolidated statements of changes in surplus for the year ended December 31, 2013 as a change in accounting principle.

See Note 4 for more information regarding the Company’s use of derivatives.

 

NM-21


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Investments in Subsidiaries, Controlled and Affiliated Entities

The Company’s investments in subsidiaries, controlled and affiliated entities (“SCAs”) are reported in the consolidated statements of financial position using the equity method of accounting based on the Company’s share of the underlying entities’ audited GAAP-basis equity. At December 31, 2015, the value of SCA investments was as follows:

 

     December 31, 2015  
     Investment in
SCA
     Nonadmitted
Asset
     Statement
Value
 
     (in millions)  

NM Wealth Management Company

   $ 133       $ -       $ 133   

NM Capital, Limited

     3         3         -   
  

 

 

    

 

 

    

 

 

 

Total common stock SCAs 1

     136         3         133   

Various real estate SCAs 2

     203         -         203   

NML Securities Holdings, LLC

     4,186         -         4,186   

NM Investment Holdings, LLC

     1,643         -         1,643   

NML Real Estate Holdings, LLC

     1,113         -         1,113   

NM Planning, LLC

     260         -         260   

NM Pebble Valley, LLC

     211         -         211   

NM Investment Services, LLC

     85         -         85   

NM GP Holdings, LLC

     48         2         46   

NM Investment Management Company, LLC

     27         27         -   

Mason Street Advisors, LLC

     24         24         -   

Various other joint venture affiliates

     326         -         326   
  

 

 

    

 

 

    

 

 

 

Total other investment SCAs 3

     7,923         53         7,870   
  

 

 

    

 

 

    

 

 

 

Total investments in SCAs

   $ 8,262       $ 56       $ 8,206   
  

 

 

    

 

 

    

 

 

 

1 Reported in common and preferred stocks in the consolidated statements of financial position.

2 Reported in real estate in the consolidated statements of financial position.

3 Reported in other investments in the consolidated statements of financial position.

Investment filings for all common stock SCAs were submitted to the NAIC during 2015. In all cases, the NAIC accepted the statement value.

 

NM-22


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Net Investment Income

The sources of net investment income for the years ended December 31, 2015, 2014 and 2013 were as follows:

 

         For the years ended December 31,      
     2015      2014      2013  
     (in millions)  

Bonds

   $ 5,760       $ 5,641       $ 5,500   

Mortgage loans

     1,535         1,471         1,412   

Policy loans

     1,155         1,121         1,089   

Common and preferred stocks

     133         128         178   

Real estate

     230         196         176   

Other investments

     1,063         847         647   

Amortization of IMR

     211         275         262   
  

 

 

    

 

 

    

 

 

 

Gross investment income

     10,087         9,679         9,264   

Less: investment expenses

     620         575         571   
  

 

 

    

 

 

    

 

 

 

Net investment income

   $ 9,467       $ 9,104       $ 8,693   
  

 

 

    

 

 

    

 

 

 

Accrued investment income more than ninety days past due is a nonadmitted asset. Changes in the nonadmitted amount are reported as direct adjustments to 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, 2015, 2014 and 2013 were as follows:

 

     For the year ended
December 31, 2015
     For the year ended
December 31, 2014
     For the year ended
December 31, 2013
 
     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

   $ 560       $ (870    $ (310    $ 735       $ (326    $ 409       $ 772       $ (463    $ 309   

Common and preferred stocks

     229         (273      (44      391         (98      293         583         (64      519   

Mortgage loans

     -         (2      (2      9         (3      6         -         -         -   

Real estate

     123         (1      122         23         (1      22         35         -         35   

Other investments

     579         (523      56         220         (492      (272      178         (230      (52
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

   $ 1,491       $ (1,669      (178    $ 1,378       $ (920      458       $ 1,568       $ (757      811   
  

 

 

    

 

 

       

 

 

    

 

 

       

 

 

    

 

 

    

Less: IMR net gains/(losses) before taxes

  

     (258            192               356   

Less: Capital gains tax

           112               123               179   
        

 

 

          

 

 

          

 

 

 

Net realized capital gains/(losses)

  

   $ (32          $ 143             $ 276   
        

 

 

          

 

 

          

 

 

 

 

NM-23


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Realized capital gains and losses are generally the result of normal investment trading activity. Proceeds from the sale of bonds totaled $25 billion, $24 billion, and $24 billion for the years ended December 31, 2015, 2014 and 2013, 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 investments that have experienced a decline in fair value that is considered to be other-than-temporary. Factors considered include the duration and extent to which fair value was less than cost, the financial condition and near-term financial prospects of the issuer and the Company’s 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 investment’s 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 issuer’s ability to remit all contractual interest and principal payments and the Company’s ability and intent to hold the investment until the earlier of a recovery in value or maturity. The Company’s 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 sector credit exposures. Mortgage loans considered to have experienced an other-than-temporary decline in value are written down to net realizable value based on the appraised value 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 Company’s 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 Company’s partnership interest.

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, 2015, 2014 and 2013 were as follows:

 

     For the years ended December 31,  
     2015      2014      2013  

Bonds, common and preferred stocks:

     (in millions)   

Structured securities

   $ -       $ (1    $ (14

Financial services

     (4      (4      (3

Consumer discretionary

     (36      (51      (9

Industrials

     (7      (1      (14

Energy

     (48      -         -   

Other

     (1      (3      (11
  

 

 

    

 

 

    

 

 

 

Subtotal

     (96      (60      (51

Other investments:

        

Real estate and RE funds

     (12      (40      (9

Securities partnerships

     (40      -         (6
  

 

 

    

 

 

    

 

 

 

Subtotal

     (52      (40      (15
  

 

 

    

 

 

    

 

 

 

Total

   $ (148    $ (100    $ (66
  

 

 

    

 

 

    

 

 

 

 

NM-24


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

In addition to the realized capital losses above, $16 million, $41 million and $45 million of other-than-temporary valuation adjustments were recorded by the Company’s unconsolidated non-insurance subsidiaries for the years ended December 31, 2015, 2014 and 2013, respectively. The decline in the Company’s equity in these subsidiaries resulting from these valuation adjustments is reported in changes in net unrealized capital gains and losses in the consolidated statements of changes in surplus.

At December 31, 2015, the Company continued to hold structured securities with aggregate statement values and fair values of $9 million and $20 million, respectively, for which other-than-temporary valuation adjustments had been recognized. Other-than-temporary valuation adjustments on structured securities for the years ended December 31, 2015, 2014 and 2013, including the circumstances of the adjustment, were as follows:

 

     For the years ended December 31,  
     2015      2014      2013  
     (in millions)  

Intent to sell

   $     -       $     -       $         -   

Present value of cash flows expected to be collected is less than amortized cost basis

     (1      (1      (14
  

 

 

    

 

 

    

 

 

 

Total

   $ (1    $ (1    $ (14
  

 

 

    

 

 

    

 

 

 

Unrealized Capital Gains and Losses

Changes in net unrealized capital gains and losses for the years ended December 31, 2015, 2014 and 2013 were as follows:

 

     For the years ended December 31,  
     2015      2014      2013  
     (in millions)  

Bonds

   $ (173    $ (194    $ 61   

Common and preferred stocks

     (181      (84      52   

Mortgage loans

     (38      (13      (3

Other investments

     -         1,507         334   
  

 

 

    

 

 

    

 

 

 

Subtotal

     (392          1,216             444   

Change in deferred taxes

         144         30         (98
  

 

 

    

 

 

    

 

 

 

Change in net unrealized capital gains and losses

   $ (248    $ 1,246       $ 346   
  

 

 

    

 

 

    

 

 

 

Unrealized capital gains and losses include changes in the fair value of common and preferred stocks and other investments and currency translation adjustments on foreign-denominated bonds and mortgage loans. Other changes in the Company’s 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. Unrealized capital gains and losses reported from other investments for the year ended December 31, 2014 included an after tax gain of $1.1 billion from the sale of its investment in Frank Russell Company (“Russell”) as the Company’s common stock investment in Russell was held by a subsidiary at the time of the sale. See Note 11 for more information regarding the sale of Russell. Change in net unrealized capital gains (losses) for the years ended December 31, 2015, 2014 and 2013 included net losses of $(371) million, $(312) million and $(292) million, respectively, related to distributions of accumulated net earnings made to the Company from unconsolidated non-insurance subsidiaries. The Company’s

 

NM-25


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

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 capital gains are reversed.

The amortized cost and fair value of bonds and common and preferred stocks for which fair value declined and remained below cost at December 31, 2015 and 2014 were as follows:

 

     December 31, 2015  
     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

   $ 51,486       $ 49,279       $ (2,207   $ 7,946       $ 7,008       $ (938

Common and preferred stocks

     1,309         1,090         (219     186         145         (41
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 52,795       $   50,369       $ (2,426   $ 8,132       $ 7,153       $ (979
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     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

   $ 17,254       $ 16,523       $ (731   $ 11,387       $ 10,984       $ (403

Common and preferred stocks

     845         748         (97     27         19         (8
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 18,099       $ 17,271       $ (828   $ 11,414       $ 11,003       $ (411
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

During 2015, an increase in risk-free market interest rates and a widening of credit spreads led to an increase in the number of bonds for which amortized cost exceeded fair value, while the amount of unrealized loss on these bonds increased from 4% of amortized cost at December 31, 2014 to 5% of amortized cost at December 31, 2015. All of these bonds were current on contractual interest and principal payments at December 31, 2015. Based on the results of the impairment review process described above, the Company considers these declines in fair value to be temporary based on current facts and circumstances.

At December 31, 2015 and 2014, unrealized capital losses on structured securities in a loss position for greater than 12 months was $127 million and $149 million, respectively, while unrealized capital losses on structured securities in a loss position for less than 12 months was $151 million and $7 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 Company’s investment portfolio.

At December 31, 2015 and 2014, the aggregate statement value of general account loaned securities was $1,035 million and $845 million, respectively, while the aggregate fair value of these loaned securities was $1,024 million and $932 million, respectively. All of the securities on loan at December 31, 2015 and 2014 were bonds and were loaned with open terms. The offsetting

 

NM-26


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

liability of $1,047 million and $954 million, reflecting the obligation to return the collateral, is reported in other liabilities in the consolidated statements of financial position at December 31, 2015 and 2014, respectively. There were no securities on loan within the separate accounts at either December 31, 2015 or 2014.

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 Company’s reinvestment of cash collateral received. At December 31, 2015 and 2014, reinvested securities lending collateral held by the Company was $1,056 million and $962 million, respectively, which is reported at amortized cost.

The amortized cost, fair value and remaining term to maturity of reinvested securities lending collateral held by the Company at December 31, 2015 and 2014 were as follows:

 

     December 31,  
     2015      2014  
     Amortized Cost      Fair Value      Amortized Cost      Fair Value  
     (in millions)  

30 days or less

   $ 455       $ 455       $ 401       $ 401   

31-60 days

     56         56         132         132   

61-90 days

     42         42         77         77   

91-120 days

     33         33         20         20   

121-180 days

     120         120         164         164   

181-365 days

     93         93         90         90   

1-2 years

     257         257         78         78   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,056       $ 1,056       $ 962       $ 962   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2015, the consolidated statements of financial position included $603 million in bonds and $453 million in cash and short-term investments related to the collateral assets summarized above. At December 31, 2014, the consolidated statements of financial position included $430 million in bonds and $532 million in cash and short-term investments related to these collateral assets.

Restricted Assets

Certain of the Company’s investments are either pledged as collateral or are otherwise held beyond the exclusive control of the Company (“restricted assets”). These restrictions are generally the result of collateral support agreements with counterparties in connection with securities lending and derivative transactions or cash held by a qualified intermediary (“QI”) to facilitate potential purchases of replacement real estate properties in tax-free exchange transactions.

At December 31, 2015 and 2014, collateral held by counterparties was primarily in the form of cash, short-term investments and bonds, including U.S. Government securities. See Note 4 for more information regarding the Company’s derivative portfolio.

 

NM-27


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

The statement value of restricted assets at December 31, 2015 and 2014, summarized by type of restriction, was as follows:

 

     December 31,  
     2015      2014  
     (in millions)  

Securities lending

   $ 1,035       $   845   

Cash on deposit with QI

     129         -   

Derivative transactions

     71         74   

Securities on deposit with states

     7         7   

Reverse repurchase agreement

     -         25   
  

 

 

    

 

 

 

Total restricted assets

   $   1,242       $ 951   
  

 

 

    

 

 

 

 

4.

Derivative Financial Instruments

The Company enters into derivative transactions, generally to mitigate the risk to its assets, liabilities and surplus from fluctuations in interest rates, foreign currency exchange rates, credit conditions and other market risks. Derivatives may be exchange traded, cleared, or contracted in the over-the-counter market. A majority of the Company’s over-the-counter derivatives are bilateral contracts between two counterparties. The Company’s remaining over-the-counter derivatives are cleared and settled through central clearing exchanges.

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 (i.e., 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 may use 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 (i.e., at amortized cost or fair value).

The Company may also use 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 (i.e., at amortized cost or fair value). The premium received by the Company at the inception of the contract is deferred until the contract matures or is exercised by the counterparty 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 industry-standard models utilizing market observable inputs.

 

NM-28


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

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 arrangements that require the daily exchange of collateral assets if counterparty credit exposure exceeds certain limits. The Company does not offset the statement values for derivatives executed with the same counterparty, even if a master netting arrangement is in place. The Company also does not offset the right to claim collateral against the obligation to return such collateral.

The Company held $270 million and $368 million of cash collateral under its derivative collateral support arrangements at December 31, 2015 and 2014, respectively, including $11 million and $26 million, respectively, of derivative collateral related to the separate accounts. The collateral held in the general account is reported as cash and short-term investments in the consolidated statements of financial position, while the Company’s obligation to return the collateral is reported as other liabilities. The collateral asset and related liability for collateral held by the separate accounts is reported in the separate account assets and liabilities, respectively in the consolidated statements of financial position. The Company also held bond collateral with a fair value of $252 million and $5 at December 31, 2015 and 2014, respectively. Bonds held as collateral are not reported in the consolidated statements of financial position.

The Company posted $41 million and $60 million of bond collateral under futures agreements at December 31, 2015 and 2014, respectively. The Company also posted $23 million and $8 million of bond collateral and $7 million and $6 million of cash collateral related to cleared derivative contracts at December 31, 2015 and 2014, respectively. Bonds posted as collateral are reported as bonds and cash posted as collateral is reported as other investments in the consolidated statements of financial position.

The Company has no embedded credit derivatives that expose it to the possibility of being required to make future payments.

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 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, 2015, 2014 and 2013, no derivatives ceased to qualify for cash flow hedge accounting.

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 Company’s 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 twelve 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 and mortgage loans denominated in foreign currencies over a period of up to thirty years. Foreign currency swaps obligate the Company and a counterparty to exchange the foreign currency-

 

NM-29


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

denominated interest and principal payments receivable on foreign bonds and mortgage loans 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. Amounts received or paid on these contracts are reported as net investment income.

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.

Interest rate caps and floors are used to mitigate the asset/liability management risk of a significant and sustained increase or decrease in interest rates for certain of the Company’s insurance products. Interest rate caps and floors entitle the Company to receive payments from a counterparty if market interest rates rise above or 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 twelve 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.

Swaptions are used to mitigate the asset/liability management risk of a significant and sustained increase in interest rates for certain of the Company’s 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 number of contracts at a specified price at a future date.

Fixed income forwards are used to gain exposure to the investment risk and return of mortgage-backed securities by utilizing “to-be-announced” (“TBA”) forward contracts. The Company also uses TBA forward contracts to hedge interest rate risk and participate in the mortgage-backed securities market in an efficient and cost effective way. Additionally, pursuant to the Company’s mortgage dollar roll program, TBAs or mortgage-backed securities are transferred to counterparties with a corresponding agreement to repurchase them at a future date. These transactions do not qualify as secured borrowings and are accounted for as derivatives.

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.

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.

 

NM-30


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

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 bond issuers. 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

Equity total return swap replications are used in conjunction with the purchase of cash market instruments to replicate 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 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 $0 and $2 million during 2015 and 2014, respectively.

The effects of the Company’s use of derivative instruments on the consolidated statements of financial position at December 31, 2015 and 2014 were as follows:

 

       December 31, 2015  
       Notional        Statement Value        Fair Value  
       Amount        Assets        Liabilities        Assets        Liabilities  
       (in millions)  

Derivatives designated as hedging instruments:

                        

Interest rate contracts:

                        

Interest rate floors

     $ 775         $ 6         $ -         $ 67         $ -   

Interest rate swaps

       77           -           -           5           -   

Foreign exchange contracts:

                        

Foreign currency swaps

       3,070           360           (1        377           (3

Derivatives not designated as hedging instruments:

                        

Interest rate contracts:

                        

Interest rate caps

       330           7           -           7           -   

Interest rate floors

       200           17           -           17           -   

Interest rate swaps

       800           -           (7        -           (7

Swaptions

       3,146           67           -           67           -   

Fixed income futures

       1,900           -           -           -           -   

Fixed income forwards

       129           -           -           -           -   

Foreign exchange contracts:

                        

Foreign currency forwards

       793           10           (7        10           (7

Equity contracts:

                        

Equity total return swaps

       658           2           (11        2           (11

Equity index futures

       187           -           -           -           -   

Credit contracts:

                        

Purchased credit default swaps

       103           -           -           -           -   

Investment replications:

                        

Equity contracts:

                        

Equity total return swaps

       -           -           -           -           -   
         

 

 

      

 

 

      

 

 

      

 

 

 

Total derivatives

          $ 469         $ (26      $ 552         $ (28
         

 

 

      

 

 

      

 

 

      

 

 

 

 

NM-31


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

       December 31, 2014  
       Notional        Statement Value        Fair Value  
       Amount        Assets        Liabilities        Assets        Liabilities  
       (in millions)  

Derivatives designated as hedging instruments:

                        

Interest rate contracts:

                        

Interest rate floors

     $ 950         $ 7         $ -         $ 78         $ -   

Interest rate swaps

       52           -           -           7           -   

Foreign exchange contracts:

                        

Foreign currency swaps

       2,231           164           (15        144           (11

Derivatives not designated as hedging instruments:

                        

Interest rate contracts:

                        

Interest rate caps

       -           -           -           -           -   

Interest rate floors

       200           16           -           16           -   

Interest rate swaps

       291           -           (5        -           (5

Swaptions

       2,870           69           -           69           -   

Fixed income futures

       2,490           -           -           -           -   

Fixed income forwards

       -           -           -           -           -   

Foreign exchange contracts:

                        

Foreign currency forwards

       1,591           72           (4        72           (4

Equity contracts:

                        

Equity total return swaps

       455           2           (2        2           (2

Equity index futures

       165           -           -           -           -   

Credit contracts:

                        

Purchased credit default swaps

       103           -           (1        -           (1

Investment replications:

                        

Equity contracts:

                        

Equity total return swaps

       -           -           -           -           -   
         

 

 

      

 

 

      

 

 

      

 

 

 

Total derivatives

          $ 330         $ (27      $ 388         $ (23
         

 

 

      

 

 

      

 

 

      

 

 

 

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. Derivative instruments are reported as other investments or other liabilities in the consolidated statements of financial position.

 

NM-32


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

The effects of the Company’s use of derivative instruments on the consolidated statements of operations and changes in surplus for the years ended December 31, 2015, 2014 and 2013 were as follows:

 

       For the year ended December 31, 2015  
       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

     $ -         $ -         $ 23   

Interest rate swaps

       -           -           4   

Foreign exchange contracts:

              

Foreign currency swaps

       209           2           31   

Derivatives not designated as hedging instruments:

              

Interest rate contracts:

              

Interest rate caps

       (1        -           (1

Interest rate floors

       1           -           -   

Interest rate swaps

       (2        (10        (5

Swaptions

       (9        -           (9

Fixed income futures

       54           (8        -   

Fixed income forwards

       -           2           -   

Foreign exchange contracts:

              

Foreign currency forwards

       (66        126           -   

Equity contracts:

              

Equity total return swaps

       (8        5           -   

Equity index futures

       2           4           -   

Credit contracts:

              

Purchased credit default swaps

       1           -           (1

Investment replications:

              

Equity contracts:

              

Equity total return swaps

       -           -           -   
    

 

 

      

 

 

      

 

 

 

Total derivatives

     $ 181         $ 121         $ 42   
    

 

 

      

 

 

      

 

 

 

 

NM-33


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

       For the year ended December 31, 2014  
       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

       200           (13        12   

Derivatives not designated as hedging instruments:

              

Interest rate contracts:

              

Interest rate caps

       -           -           -   

Interest rate floors

       10           -           -   

Interest rate swaps

       (5        -           (1

Swaptions

       (67        -           (8

Fixed income futures

       (56        (220        -   

Fixed income forwards

       -           -           -   

Foreign exchange contracts:

              

Foreign currency forwards

       90           13           -   

Equity contracts:

              

Equity total return swaps

       (2        (14        -   

Equity index futures

       (2        4           -   

Credit contracts:

              

Purchased credit default swaps

       -           -           (1

Investment replications:

              

Equity contracts:

              

Equity total return swaps

       1           13           -   
    

 

 

      

 

 

      

 

 

 

Total derivatives

     $ 169         $ (217      $ 32   
    

 

 

      

 

 

      

 

 

 

 

NM-34


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

       For the year ended December 31, 2013  
       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

     $ -         $ -         $ 28   

Interest rate swaps

       -           -           3   

Foreign exchange contracts:

              

Foreign currency swaps

       28           (9        8   

Derivatives not designated as hedging instruments:

              

Interest rate contracts:

              

Interest rate caps

       -           -           -   

Interest rate floors

       -           -           -   

Interest rate swaps

       -           -           -   

Swaptions

       46           -           (7

Fixed income futures

       (5        21           -   

Fixed income forwards

       -           -           -   

Foreign exchange contracts:

              

Foreign currency forwards

       (3        (1        -   

Equity contracts:

              

Equity total return swaps

       (1        (31        -   

Equity index futures

       -           (2        -   

Credit contracts:

              

Purchased credit default swaps

       1           -           (2

Investment replications:

              

Equity contracts:

              

Equity total return swaps

       (1        51           -   
    

 

 

      

 

 

      

 

 

 

Total derivatives

     $ 65         $ 29         $ 30   
    

 

 

      

 

 

      

 

 

 

 

NM-35


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

5.

Reserves for Policy Benefits

General account reserves for policy benefits at December 31, 2015 and 2014 were as follows:

 

     December 31,  
     2015      2014  
     (in millions)  

Life insurance reserves

   $ 156,888       $ 148,897   

Annuity reserves

     7,604         6,767   

Disability and long-term care unpaid claims and claim reserves

     4,668         4,667   

Disability and long-term care active life reserves

     5,004         4,506   

Deposit funds

     2,764         2,671   
  

 

 

    

 

 

 

Total reserves for policy benefits

   $     176,928       $     167,508   
  

 

 

    

 

 

 

See Note 9 for more information regarding the Company’s 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 Commissioner’s 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 primarily based on the net level premium method, using various mortality tables at interest rates ranging from 2.00% to 4.50%. As of December 31, 2015, the Company had $1.6 trillion of total life insurance in force, including $12.9 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 using mortality tables that reflect both the Company’s 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.

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 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 (“AAT”) 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 no increases in life insurance reserves for the years ended December 31, 2015, 2014 and 2013.

 

NM-36


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Annuity Reserves

Deferred annuity reserves on policies issued since 1985 are primarily based on the Commissioner’s Annuity Reserve Valuation Method (“CARVM”) using the Annuity 2000 or 2012 Individual Annuity Reserve mortality tables 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 on policies issued since 1985 are based on the present value of expected benefit payments using either the 1983 Individual Annuity “a”, Annuity 2000 or 2012 Individual Annuity Reserve mortality tables 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 are excluded from net additions to policy benefit reserves in the consolidated statements of operations.

At December 31, 2015 and 2014, the withdrawal characteristics of the Company’s general account and separate account annuity reserves and deposit funds were as follows:

 

       December 31,  
       General Account        Separate Accounts        Total  
       2015        2014        2015        2014        2015        2014  
       (in millions)  

Subject to discretionary withdrawal

                             

- with market value adjustment

     $ 449         $ 497         $ -         $ -         $ 449         $ 497   

- at book value less surrender charge of 5% or more

       218           362           -           -           218           362   

- at fair value

       -           -           16,058           16,161           16,058           16,161   

- at book value without adjustment

       4,634           4,444           -           -           4,634           4,444   

Not subject to discretionary withdrawal

       5,067           4,135           4,440           4,549           9,507           8,684   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total annuity reserves and deposit funds

     $   10,368         $   9,438         $   20,498         $   20,710         $   30,866         $   30,148   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Asset adequacy testing resulted in a decrease in annuity reserves of $10 million for the year ended December 31, 2015 and increases in annuity reserves of $54 million and $0 for the years ended December 31, 2014 and 2013, respectively. These reserve increases were reported as net additions to policy benefit reserves in the consolidated statements of operations. The annuity AAT reserve was $100 million and $110 million at December 31, 2015 and 2014, respectively.

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 Commissioner’s 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 3.50% to 4.50%.

 

NM-37


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Reserves for unpaid claims, losses and loss adjustment expenses on disability and long-term care policies were $4.7 billion at each of the years ended December 31, 2015 and 2014. Changes in these reserves for the years ended December 31, 2015 and 2014 were as follows:

 

     For the years ended
December 31,
 
     2015      2014  
     (in millions)  

Balance at January 1

   $ 4,667       $ 4,544   

Incurred related to:

     

Current year

     703         707   

Prior years

     (82      3   
  

 

 

    

 

 

 

Total incurred

     621         710   
  

 

 

    

 

 

 

Paid related to:

     

Current year

     (30      (23

Prior years

     (590      (564
  

 

 

    

 

 

 

Total paid

     (620      (587
  

 

 

    

 

 

 

Balance at December 31

   $ 4,668       $ 4,667   
  

 

 

    

 

 

 

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 prior to 1987 are based on the net level premium method, using the 1964 Commissioner’s Disability Table for morbidity with valuation interest rates ranging from 3.00% to 4.00%. Active life reserves for disability policies issued since 1987 are primarily based on the two-year preliminary term method using the 1985 CIDA for morbidity. Policies issued between 1987 and 2012 are based on a valuation interest rate of 4.00% while those issued after 2012 are based on a valuation interest rate of 3.50%. Active life reserves are mean reserves for disability policies issued through 2000 and mid-terminal plus unearned premium reserves for policies issued after 2000.

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 Annuity Mortality table without lapses. For policies issued since March 2002, minimum reserves are based on valuation interest rates ranging from 3.50% to 4.50% and total terminations based on the 1994 Group Annuity Mortality table with lapses. For policies issued from March 2002 through September 2010, a separate calculation is performed using valuation interest rates ranging from 4.87% to 5.60% and assuming no lapses. Reserves from the separate calculation are compared in the aggregate to the minimum reserves as calculated above and the greater of the two is reported.

For long-term care reserve 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 more recent expectations.

 

NM-38


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Asset adequacy testing resulted in no increases in long-term care reserves for the years ended December 31, 2015 and 2014, respectively, and a reserve increase of $100 million for the year ended December 31, 2013. The reserve increase in 2013 was reported as a net addition to policy benefit reserves in the consolidated statements of operations. The long-term care AAT reserve was $265 million at both December 31, 2015 and 2014.

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 Company’s life insurance policies can choose to receive their death benefit in a single lump sum payment or through a payment plan consisting of a series of scheduled payments. Prior to November 1, 2013, beneficiaries also could choose to receive their death benefit by deposit of the proceeds (if $20,000 or more) into an interest-bearing retained asset account (“Northwestern Access Fund”). As of that date, the Northwestern Access Fund was eliminated as an option for receiving death benefits. If the beneficiary does not affirmatively choose a payment plan, the proceeds are automatically paid to the beneficiary in a single lump sum. If the beneficiary chose a Northwestern Access Fund account prior to November 1, 2013, the beneficiary received 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 $449 million and $530 million at December 31, 2015 and 2014, respectively. Funds held on behalf of Northwestern Access Fund account holders are segmented in the Company’s general account and are invested primarily in short-term, liquid investments and high quality corporate bonds.

Northwestern Access Fund accounts are credited with interest at short-term market rates, with certain accounts subject to guaranteed minimum crediting rates. Northwestern Access Fund accounts were credited with interest at annual rates ranging from 0.01% to 3.50% during both 2015 and 2014. The Company does not charge beneficiaries any fees to 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 in deferred premium and other assets in the consolidated statements of financial position.

Deferred and uncollected premiums at December 31, 2015 and 2014 were as follows:

 

       December 31, 2015      December 31, 2014  
       Gross        Net      Gross        Net  
       (in millions)  

Ordinary new business

     $ 237         $ 88       $ 223         $ 84   

Ordinary renewal

       2,450           1,998         2,366           1,931   
    

 

 

      

 

 

    

 

 

      

 

 

 

Total deferred and uncollected premiums

     $ 2,687         $ 2,086       $ 2,589         $ 2,015   
    

 

 

      

 

 

    

 

 

      

 

 

 

 

NM-39


Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

7.

Separate Accounts

Separate account liabilities by withdrawal characteristic at December 31, 2015 and 2014 were as follows:

 

     Variable Life      Variable Annuities      Total  
     December 31,  
     2015      2014      2015      2014      2015      2014  
     (in millions)  

Subject to discretionary withdrawal

   $ 6,123       $ 6,252       $ 16,058       $ 16,161       $ 22,181       $ 22,413   

Not subject to discretionary withdrawal

     -         -         4,440         4,549         4,440         4,549   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total separate account reserves

   $   6,123       $   6,252       $ 20,498       $ 20,710         26,621         26,962   
  

 

 

    

 

 

    

 

 

    

 

 

       

Non-policy liabilities

                 110         94   
              

 

 

    

 

 

 

Total separate account liabilities

               $   26,731       $   27,056   
              

 

 

    

 

 

 

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, 2015 and 2014 was $162 million and $86 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. These benefits are only available upon the death of the annuitant or insured, and 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 $14 million and $12 million attributable to GMDB at December 31, 2015 and 2014, respectively.

Premiums and other considerations received from variable annuity and variable life insurance policyowners were $1.9 billion, $2.0 billion and $2.0 billion for the years ended December 31, 2015, 2014 and 2013, respectively. These amounts are reported as premiums in the consolidated statements of operations. The subsequent transfer of these premiums to the separate accounts, net of amounts received from the separate accounts to provide for policy benefit payments to variable product policyowners, is reported as net transfers to separate accounts in the consolidated statements of operations.

Following are amounts reported as transfers to and from separate accounts in the summary of operations of the Company’s 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, 2015, 2014 and 2013.

 

     For the years ended December 31,  
     2015      2014      2013  
     (in millions)  

From Separate Account Annual Statement:

        

Transfers to separate accounts

   $ 1,946       $ 2,176      $ 2,120   

Transfers from separate accounts

     (1,796      (1,675 )      (1,578
  

 

 

    

 

 

    

 

 

 

Net transfers to separate accounts

   $ 150       $ 501      $ 542   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

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”) and the Internal Revenue Code (“Code”), as well as “nonqualified” plans that provide benefits to certain participants in excess of limits set by ERISA and the Code for the qualified plans. The Company’s 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 made no contributions to the qualified retirement plans during either of the years ended December 31, 2015 and 2014 and does not expect to make a contribution to the plans during 2016.

The Company’s qualified defined benefit pension plan for employees contains two different benefit formulas – a formula based on the final average pay of the participant that was discontinued as of December 31, 2013 and a formula that awards cash balance credits based on each participant’s age and years of service that became effective on January 1, 2014. Benefits accrued under the final average pay formula were frozen as of December 31, 2013 and remain available to participants upon retirement. Accumulated cash balance credits earn interest based on market rates and are subject to a minimum crediting rate.

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 pay premiums to offset a portion of the cost of the health care plan. Participants are eligible for retirement health care coverage if they meet eligibility requirements for age and length of service and were either active or retired as of December, 31, 2013. Employees or financial representatives hired or contracted after that date are not eligible for coverage under the retiree plans. The plan limits the Company’s exposure to medical inflation to a maximum annual increase of 3% with any annual increase in excess of that rate passed on to the plan’s participants in the form of increased premiums beginning January 1, 2019. The maximum annual increase of 3% will not apply to retirees who obtained age 65 prior to January 1, 2014.

Benefit Plan Accounting Changes

Effective January 1, 2013, the Company adopted 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 standards required that estimates of projected benefit obligation (“PBO”) and accumulated benefit obligation (“ABO”) include future benefit obligations for non-vested participants. The new standards also required that the Company’s surplus, as reported in the consolidated statements of financial position, fully reflect any net liability related to the plans’ PBO, reduced by the fair value of any plan assets, including previously unrecognized net experience losses, prior service costs and initial net assets (“unrecognized items”).

On January 1, 2013, the recognition of benefits for non-vested participants and unrecognized items created additional net defined benefit pension and postretirement plan liabilities of $1.2 billion and $0.5 billion, respectively. However, SSAPs 92 and 102 permitted the Company to recognize these liabilities and the corresponding decrease in surplus over a period of up to ten years, subject to minimum recognition requirements. The Company elected to utilize this deferral option as of January 1, 2013, at which time the related “transition liability” was $618 million. For the years ended December 31, 2015 and 2014, transition liabilities of $58 million and $134 million,

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

respectively, were reported as direct reductions to surplus in the consolidated statements of changes in surplus. The remaining unamortized transition liability was $19 million and $77 million at December 31, 2015 and 2014, respectively, and represents the total of all remaining unrecognized items. The remaining transition liability at December 31, 2015 is expected to be amortized as annual direct reductions to surplus during 2016.

The table below summarizes the net surplus impact related to the adoption of these new accounting standards on January 1, 2013, excluding any deferred tax impact.

 

    Defined
Benefit Plans
    Postretirement
Benefit Plans
    Total  
    (in millions)  

Minimum surplus reduction recognized:

     

10% of calculated surplus impact

  $ 149      $ 48      $ 197   

Annual amortization of unrecognized items

    797        -        797   

Difference between unfunded ABO and accrued benefit cost

    84        -        84   
 

 

 

   

 

 

   

 

 

 

Surplus reduction recognized at adoption

    1,030        48        1,078   

Reversal of:

     

Additional minimum liability

    (73     -        (73

Nonadmitted asset relating to funded plans

    (881     -        (881
 

 

 

   

 

 

   

 

 

 

Net reduction to surplus at adoption

  $ 76      $ 48      $ 124   
 

 

 

   

 

 

   

 

 

 

Prior to the adoption of SSAPs 92 and 102, an additional minimum liability (“AML”) was required if a plan’s ABO exceeded plan assets or related financial statement liabilities. The AML is no longer required under the new accounting standards. The impact of the elimination of the AML was reported as a direct increase to surplus in the consolidated statements of changes in surplus for the year ended December 31, 2013. Any net pension assets for funded plans are nonadmitted and are thereby excluded from assets and surplus in the consolidated statements of financial position. Pension assets that were nonadmitted prior to the adoption of SSAPs 92 and 102 were included in the initial surplus impact upon adoption. At December 31, 2013, the net reduction to surplus of $124 million was reported as a change in accounting principle in the consolidated statements of changes in surplus.

Benefit Plan Assets

Aggregate plan assets of the defined benefit pension plans and postretirement benefit plans at December 31, 2015 and 2014, and changes in these assets for the years then ended, were as follows:

 

     Defined Benefit Plans     Postretirement Benefit Plans  
     2015      2014     2015      2014  
     (in millions)  

Fair value of plan assets at January 1

   $ 4,251       $ 3,913      $ 77       $ 74   

Changes in plan assets:

          

Actual return on plan assets

     (4      433        -         8   

Company contributions

     -         -        -         -   

Actual plan benefits paid

     (103      (95     (5      (5
  

 

 

    

 

 

   

 

 

    

 

 

 

Fair value of plan assets at December 31

   $ 4,144       $ 4,251      $ 72       $ 77   
  

 

 

    

 

 

   

 

 

    

 

 

 

Plan assets consist of group annuity contracts issued by the Company that are funded by a Group Annuity Separate Account (“GASA”), which primarily invests in a diversified portfolio of public

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

and private common stocks and corporate, government and mortgage-backed debt securities. The overall 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 with a long-term perspective and for the sole benefit of the plans’ participants.

Plan asset allocations are rebalanced regularly to maintain holdings within desired asset allocation ranges and to reposition the portfolio based upon perceived market opportunities and risks. Diversification, both by and within asset classes, is a primary risk management consideration. Assets are invested across various asset classes, sectors, industries and geographies. The measurement date for plan assets was December 31 of the respective period with the fair value of plan assets primarily based on quoted market prices.

The target asset allocations and the actual allocation of the plans’ investments based on fair value at December 31, 2015 and 2014 were as follows:

 

       Target               Actual  
       Allocation               Allocation  
       2015        2014               2015        2014  

Bonds

       49%           49%                48%           50%   

Equity investments

       50%           50%                49%           46%   

Other investments

       1%           1%                3%           4%   
    

 

 

      

 

 

           

 

 

      

 

 

 

Total assets

       100%           100%                100%           100%   
    

 

 

      

 

 

           

 

 

      

 

 

 

At each of December 31, 2015 and 2014, other investments are comprised of cash and short-term investments.

Benefit Plan Obligations

Aggregate PBOs of the defined benefit pension plans and postretirement benefit plans at December 31, 2015 and 2014 and changes in these obligations for the years then ended were as follows:

 

       Defined Benefit Plans            Postretirement Benefit Plans  
       2015        2014            2015        2014  
       (in millions)  

Projected benefit obligation at January 1

     $ 4,609         $ 3,663           $ 825         $ 687   

Changes in benefit obligation:

                     

Service cost of benefits earned

       117           93             25           19   

Interest cost on projected obligations

       181           180             30           31   

Projected gross plan benefits paid

       (117        (111          (26        (26

Projected Medicare Part D reimbursement

       -           -             2           2   

Experience (gains)/losses

       (202        784             (45        112   
    

 

 

      

 

 

        

 

 

      

 

 

 

Projected benefit obligation at December 31

     $ 4,588         $ 4,609           $ 811         $ 825   
    

 

 

      

 

 

        

 

 

      

 

 

 

The PBO represents the estimated net present value of estimated future benefit obligations. For defined benefit plans, PBO includes assumptions for future compensation increases for active participants. The ABO is similar to the PBO, but is based only on current compensation with no assumption of future compensation increases. The aggregate ABO for the defined benefit plans

 

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

was $4.3 billion for each of the years ended December 31, 2015 and 2014. Experience (gains)/losses for the years ended December 31, 2015 and 2014 primarily reflect the impact of changes in the PBO discount rate and adjustments to mortality assumptions.

Benefit Plan Assumptions

The assumptions used in estimating the projected benefit obligations at December 31, 2015, 2014 and 2013 and the net periodic benefit cost for the years then ended were as follows:

 

       Defined Benefit Plans        Postretirement Benefit Plans  
       2015        2014        2013        2015        2014        2013  

Projected benefit obligation:

                             

Discount rate

       4.30%           4.00%           5.00%           4.30%           4.00%           5.00%   

Annual increase in compensation

       3.75%           3.75%           3.75%           3.75%           3.75%           3.75%   

Net periodic benefit cost:

                             

Discount rate

       4.00%           5.00%           4.00%           4.00%           5.00%           4.00%   

Annual increase in compensation

       3.75%           3.75%           3.75%           3.75%           3.75%           3.75%   

Long-term rate of return on plan assets

       6.50%           6.50%           6.75%           6.50%           6.50%           6.75%   

The expected long-term rate of return on plan assets is estimated in consideration of historical financial market performance, third-party capital market expectations and the long-term target asset allocation.

The PBO for postretirement benefits at December 31, 2015 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, 2014, 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 increase the accumulated postretirement benefit obligation at December 31, 2015 by $47 million and net periodic postretirement benefit expense for the year ended December 31, 2015 by $2 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, 2015 and net periodic postretirement benefit expense for the year ended December 31, 2015 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. These laws created an excise tax beginning in 2018, the effective date of which was delayed until 2020 by new legislation passed in 2015, on health care plans that have an aggregate value to the participants greater than a threshold amount. Recent changes to the Company’s postretirement health care plans are expected to keep the aggregate value of the plans below the excise tax threshold. 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.

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Benefit Plan Funded Status

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, 2015 and 2014.

 

       Defined
Benefit Plans
       Postretirement
Benefit Plans
 
       2015        2014        2015        2014  
       (in millions)  

Fair value of plan assets

     $ 4,144         $ 4,251         $ 72         $ 77   

Projected benefit obligation

       4,588           4,609           811           825   
    

 

 

      

 

 

      

 

 

      

 

 

 

Funded status

       (444        (358        (739        (748

Unrecognized net experience losses

       -           -           -           1   

Unrecognized prior service costs/(credits)

       -           -           19           76   

Nonadmitted asset

       (415        (459        -           -   
    

 

 

      

 

 

      

 

 

      

 

 

 

Financial statement liability

     $ (859      $ (817      $ (720      $ (671
    

 

 

      

 

 

      

 

 

      

 

 

 

The PBO for defined benefit plans above included $859 million and $817 million related to nonqualified, unfunded plans at December 31, 2015 and 2014, respectively. In the aggregate, the fair value of qualified defined benefit plan assets represented 111% and 112% of the projected benefit obligations of these plans at December 31, 2015 and 2014, respectively.

Net experience gains or losses represent cumulative amounts by which actual plan experience for return on plan assets or growth in PBO have varied from related assumptions. These accumulated gains or losses are amortized into net periodic benefit cost only when they exceed certain limits.

Prior service costs/(credits) represent the value of benefits granted or rescinded based on services rendered in prior periods. These costs/(credits) are recognized as components of net periodic benefit cost on a straight line basis over the anticipated future service period of the participants.

Statutory accounting guidance requires that changes in plan funded status be recognized immediately as a direct adjustment to surplus, subject to limitations such as admissibility of net pension assets. These adjustments are included in changes in nonadmitted assets and other in the consolidated statements of changes in surplus. Apart from the initial adoption impacts of SSAPs 92 and 102, aggregate defined benefit pension and postretirement plan surplus impacts were as follows for the years ended December 31, 2015 and 2014:

 

     Defined      Postretirement                       
     Benefit Plans        Benefit Plans      Total  
     2015      2014      2015      2014      2015      2014  
     (in millions)  

Changes in plan assets and benefit obligations recognized in surplus

                 

Net experience gains/(losses)

   $ (87    $ (639    $ 40       $ (181    $ (47    $ (820

Prior service (costs)/credits

     (1      (4      (56      (30      (57      (34

Initial net asset

     -         -         -         -         -         -   

Amounts amortized from surplus into net periodic benefit cost:

                 

Net experience losses

   $ 64       $ 25       $ 3       $ 1       $       67       $       26   

Prior service costs/(credits)

     (14      (14      12               12         (2      (2

Initial net asset

     (40      (17      -         -         (40      (17

 

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Net experience gains/(losses) primarily reflect the impacts of any changes to plan assumptions (e.g., discount rate and mortality assumptions) that are applied to the calculation of PBO estimates. Total defined benefit pension and postretirement plan net experience gains/(losses) recognized in surplus but not yet amortized into net periodic benefit cost were $(1.4) billion and $(0.1) billion at December 31, 2015, respectively, and $(1.4) billion and $(0.2) billion at December 31, 2014, respectively.

Total defined benefit and postretirement plan prior service (costs)/credits recognized in surplus but not yet amortized into net periodic benefit cost were $277 million and $(154) million at December 31, 2015, respectively, and $293 million and $109 million at December 31, 2014, respectively. The total initial net asset recognized in surplus but not yet amortized into net periodic benefit cost was $347 million and $387 million at December 31, 2015 and 2014, respectively.

Benefit Plan Costs

The components of net periodic benefit cost for the years ended December 31, 2015, 2014 and 2013 were as follows:

 

       Defined Benefit Plans      Postretirement Benefit Plans  
       2015        2014        2013      2015        2014        2013  
       (in millions)  

Components of net periodic benefit cost:

                           

Service cost of benefits earned

     $ 117         $ 93         $ 166       $ 25         $ 19         $ 27   

Interest cost on projected obligations

       181           180           161         30           31           30   

Amortization of experience losses

       64           25           92         3           1           5   

Amortization of prior service costs/(credits)

       (14        (14        (11      12           12           13   

Amortization of initial net asset

       (40        (17        (71      -           -           -   

Curtailment and other

       -           -           11         -           -           -   

Expected return on plan assets

       (273        (251        (239      (5        (5        (4
    

 

 

      

 

 

      

 

 

    

 

 

      

 

 

      

 

 

 

Net periodic benefit cost

     $ 35         $ 16         $ 109       $ 65         $ 58         $ 71   
    

 

 

      

 

 

      

 

 

    

 

 

      

 

 

      

 

 

 

The Company expects to increase/(decrease) periodic benefit costs through the amortization of $68 million, $(25) million and $(21) million of defined benefit plan net experience losses, prior service credits and initial assets, respectively, into net periodic benefit cost during 2016. Amortization of postretirement plan net experience losses of $4 million and prior service costs of $2 million are also expected to increase net periodic benefit cost during 2016.

The expected benefit payments by the defined benefit plans and the postretirement benefit plans for the years 2016 through 2025 are as follows:

 

    Defined
Benefit Plans
    Postretirement
Benefit Plans
 
    (in millions)  

2016

  $ 129      $ 24   

2017

    147        28   

2018

    160        31   

2019

    169        33   

2020

    178        36   

2021-2025

    1,021        217   
 

 

 

   

 

 

 

Total

  $ 1,804      $ 369   
 

 

 

   

 

 

 

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

The Company 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 related benefits to certain participants in excess of limits set by ERISA for qualified defined contribution plans. For the years ended December 31, 2015, 2014 and 2013, the Company expensed total contributions to these plans of $45 million, $43 million and $35 million, respectively.

Benefit Plan Amendment

On February 11, 2016, the Company announced a prospective amendment to employee postretirement benefits to be provided to certain retirees beginning on July 1, 2016. This change replaces health care coverage under the plan for many retirees aged 65 and older with a subsidy towards the purchase of individual insurance through an approved third-party private exchange as well as guidance with choosing the appropriate coverage. Retirees aged 64 and under will continue to participate in the Company’s postretirement health insurance plan until they attain the age of 65.

The aggregate impact of this change on the PBO for the employee postretirement benefit plan as of February 11, 2016 is estimated to be approximately $85 million, which will be recorded as a direct increase to surplus in the consolidated statements of changes in surplus during 2016.

 

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 $40 million of individual life coverage and a maximum of $60 million of joint life coverage for any single mortality risk. The Company discontinued its participation in a life insurance catastrophic risk sharing pool during 2014.

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, 2015 and 2014 were reported net of ceded reserves of $1.7 billion. The Company has reinsured all risks disclosed in the consolidated financial statements under Actuarial Guideline 48.

The effects of reinsurance on premium revenue and total benefits for the years ended December 31, 2015, 2014 and 2013 were as follows:

 

     For the years ended December 31,  
     2015      2014      2013  
     (in millions)  

Direct premium revenue

   $ 18,704       $ 17,894       $ 17,481   

Premiums ceded

     (916      (893      (882
  

 

 

    

 

 

    

 

 

 

Premium revenue

   $ 17,788       $ 17,001       $ 16,599   
  

 

 

    

 

 

    

 

 

 

Direct benefit expense

   $ 19,205       $ 18,425       $ 18,125   

Benefits ceded

     (660      (618      (667
  

 

 

    

 

 

    

 

 

 

Total benefits

   $     18,545       $     17,807       $     17,458   
  

 

 

    

 

 

    

 

 

 

 

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

In addition, the Company received $160 million, $161 million and $164 million in allowances from reinsurers for reimbursement of commissions and other expenses on ceded business for the years ended December 31, 2015, 2014 and 2013, 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 reinsurer’s credit rating falls below a prescribed level. There were no reinsurance recoverables at December 31, 2015 and 2014 that were considered by the Company to be uncollectible.

Effective October 1, 2014, The Northwestern Mutual Life Insurance Company and Northwestern Long Term Care Insurance Company entered into an affiliated reinsurance agreement. Under this agreement, Northwestern Long Term Care Insurance Company ceded 100% of the net risks associated with its in-force long-term care policies and future issuances of long-term care policies to The Northwestern Mutual Life Insurance Company. All financial statement impacts of this transaction were eliminated upon consolidation of the two entities.

 

10.

Income Taxes

The Company files a consolidated federal income tax return including the following subsidiaries:

 

Northwestern Mutual Investment Services, LLC

  

Bradford, Inc. and subsidiaries

NML Real Estate Holdings, LLC and subsidiaries

  

Mason Street Advisors, LLC

NML Securities Holdings, LLC and subsidiaries

  

NM GP Holdings, LLC and subsidiaries

Northwestern Mutual MU TLD Registry, LLC

  

NM Pebble Valley, LLC

Northwestern Mutual Wealth Management Company

  

Northwestern Mutual Registry, LLC

NM Investment Holdings, LLC

  

NM Planning, LLC and subsidiaries

NM Investment Management Company, 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 in the consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013 related to “ordinary” taxable income or loss were as follows:

 

     For the years ended December 31,  
     2015      2014      2013  
     (in millions)  

Tax payable on ordinary income

   $ 69       $ 200       $ 80   

Low income housing tax credits

     (111      (107      (101

Other tax credits

     (21      (35      (30

Increase (decrease) in contingent tax liabilities

     10         (36      33   
  

 

 

    

 

 

    

 

 

 

Total current tax expense (benefit)

   $ (53    $ 22       $ (18
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

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 (benefit) of $(90) million, $86 million and $124 million was included in net IMR deferrals for the years ended December 31, 2015, 2014 and 2013, respectively. In addition, net realized capital gains and losses as reported in the consolidated statements of operations included current tax expense of $112 million, $123 million and $179 million for the years ended December 31, 2015, 2014 and 2013, respectively.

The Company’s effective tax rates for the years ended December 31, 2015, 2014, and 2013 were lower than the statutory rate of 35% due to temporary and permanent differences in revenue recognition and expense deduction between the tax and statutory financial statement bases of reporting. The temporary differences primarily included changes in net deferred tax assets and permanent differences primarily included unconsolidated subsidiary distributions, dividends received deduction, amortization of the IMR and tax credits. The related tax impacts of these differences were reductions of $334 million, $431 million, and $403 million for the years ended December 31, 2015, 2014, and 2013, respectively.

The Company made payments to the Internal Revenue Service (“IRS”) for federal income taxes of $505 million, $480 million and $526 million during the years ended December 31, 2015, 2014 and 2013, respectively. Total federal income taxes paid, including refunds or overpayments applied, for tax years 2015, 2014 and 2013 of $225 million, $598 million and $585 million, respectively, are available as of December 31, 2015 for refund claims in the event of future tax losses.

Federal income tax returns for 2009 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 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, 2015 and 2014 were as follows:

 

     For the years ended December 31,  
     2015     2014  
     (in millions)  

Balance at beginning of year

   $ 431      $ 467   

Additions for tax positions of prior years

     10        -   

Reductions for tax positions of prior years

     -        (36
  

 

 

   

 

 

 

Balance at end of year

   $ 441      $ 431   
  

 

 

   

 

 

 

Included in contingent tax liabilities at December 31, 2015 and 2014 were $403 million and $395 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 taxes 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, 2015 balance are $16 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

 

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

50% 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% 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% of the total tax contingency, the total amount is established as a liability. Changes in contingent tax liabilities are included in tax expense in the year that such determination is made by the Company.

The Company reports interest accrued or released related to contingent tax liabilities in current income tax expense. For the years ended December 31, 2015, 2014 and 2013, the Company recognized $1 million, $(15) million and $8 million, respectively, of interest-related tax expense (benefit). Contingent tax liabilities included $23 million and $22 million for the payment of interest at December 31, 2015 and 2014, 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 Company’s 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, 2015 and 2014 were as follows:

 

     December 31,         
     2015      2014      Change  
     (in millions)         

Deferred tax assets:

        

Policy acquisition costs

   $ 1,243       $ 1,192      $ 51   

Investments

     446         390        56   

Policy benefit liabilities

     2,225         2,194        31   

Benefit plan obligations

     864         827        37   

Other

     112         110        2   
  

 

 

    

 

 

    

 

 

 

Gross deferred tax assets

     4,890         4,713        177   

Nonadmitted deferred tax assets

     (9      (9 )      -   
  

 

 

    

 

 

    

 

 

 

Gross admitted deferred tax assets

     4,881         4,704        177   
  

 

 

    

 

 

    

 

 

 

Deferred tax liabilities:

        

Investments

     792         892        (100

Other

     801         757        44   
  

 

 

    

 

 

    

 

 

 

Gross deferred tax liabilities

     1,593         1,649        (56
  

 

 

    

 

 

    

 

 

 

Net deferred tax assets

   $     3,288       $     3,055      $ 233   
  

 

 

    

 

 

    

 

 

 

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.

 

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Gross deferred tax assets at December 31, 2015 and 2014 included $4.4 billion and $4.3 billion, respectively, related to temporary differences that were ordinary in nature and $0.4 billion and $0.4 billion, respectively, related to temporary differences that were capital in nature. Gross deferred tax liabilities at December 31, 2015 and 2014 included $0.8 billion and $0.8 billion, respectively, related to temporary differences that were ordinary in nature and $0.8 billion and $0.9 billion, respectively, related to temporary differences that were capital in nature. All gross deferred tax liabilities have been recognized at December 31, 2015 and 2014. The Company did not employ tax planning strategies in its valuation allowance assessment or deferred tax asset admissibility calculations at either December 31, 2015 or 2014.

The Company exceeded the minimum risk-based capital (“RBC”) level of 300% based on authorized control level RBC computed without net deferred tax assets at December 31, 2015 and 2014 and expects to exceed this minimum during 2016.

Significant components of the calculation of net deferred tax assets at December 31, 2015 and 2014 were as follows (in millions):

 

     December 31, 2015      December 31, 2014      Change  
     Ordinary      Capital      Total      Ordinary      Capital      Total      Ordinary      Capital      Total  

Gross deferred tax assets

   $ 4,444       $ 446       $ 4,890       $ 4,323       $ 390       $ 4,713       $ 121       $ 56       $ 177   

Statutory valuation allowance adjustment

     -         -         -         -         -         -         -         -         -   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted gross deferred tax assets

     4,444         446         4,890         4,323         390         4,713         121         56         177   

Deferred tax assets nonadmitted

     9         -         9         9         -         9         -         -         -   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal net admitted deferred tax asset

     4,435         446         4,881         4,314         390         4,704         121         56         177   

Deferred tax liabilities

     801         792         1,593         757         892         1,649         44         (100      (56
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net admitted deferred tax asset/(liability)

   $ 3,634       $ (346    $ 3,288       $ 3,557       $ (502    $ 3,055       $ 77       $ 156       $ 233   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2015      December 31, 2014      Change  
     Ordinary      Capital      Total      Ordinary      Capital      Total      Ordinary      Capital      Total  

Federal income taxes paid in prior years recoverable through loss carrybacks

   $ 1,393       $ 320       $ 1,713       $ 1,755       $ 266       $ 2,021       $ (362    $ 54       $ (308

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)

     1,858         -         1,858         1,401         -         1,401         457         -         457   

Adjusted gross deferred tax assets (excluding the amount of deferred tax assets offset by gross deferred tax liabilities)

     1,184         126         1,310         1,158         124         1,282         26         2         28   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total deferred tax assets admitted as the result of application of SSAP No. 101

   $ 4,435       $ 446       $ 4,881       $ 4,314       $ 390       $ 4,704       $ 121       $ 56       $ 177   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

a. Adjusted gross deferred tax assets expected to be realized following the balance sheet date

         $ 1,858             $ 1,401             $ 457   
        

 

 

          

 

 

          

 

 

 

b. Adjusted gross deferred tax assets allowed per limitation threshold

         $ 2,464             $ 2,408             $ 56   
        

 

 

          

 

 

          

 

 

 

Ratio percentage used to detemine recovery period and threshold limitation amount

           1134            1144         
        

 

 

          

 

 

          

Amount of adjusted capital and surplus used to determine recovery period and threshold limitation

         $ 16,425             $ 16,055            
        

 

 

          

 

 

          

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

11.

Frank Russell Company

On December 2, 2014, the Company sold its entire investment in Russell common and preferred stock to a third party. Prior to this sale, the Company, through a wholly-owned non-insurance subsidiary, was the majority shareholder of Russell, a worldwide provider of investment products and services. Upon the sale, the Company’s wholly-owned subsidiary reported an after-tax gain of $1.1 billion from the sale of its common stock investment in Russell, which was reported by the Company as an unrealized capital gain in the consolidated statements of changes in surplus for the year ended December 31, 2014. For the year ended December 31, 2015, the Company recorded an additional $54 million after-tax gain upon final settlement of amounts held in escrow. Of this amount, $50 million was reported as an unrealized capital gain in the consolidated statements of changes in surplus with the remainder reported as a realized capital gain in the consolidated statements of operations.

 

12.

Contingencies and Guarantees

In the normal course of business, the Company makes guarantees to third parties on behalf of affiliates (e.g., debt guarantees) and financial representatives (e.g., the guarantee of office lease payments), or directly to financial representatives (e.g., future minimum compensation payments). If the 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-four years at December 31, 2015.

Following is a summary of the guarantees provided by the Company that were outstanding at December 31, 2015 and 2014, including both the maximum potential exposure under the guarantees and the financial statement liability reported based on fair value of the guarantees.

 

     December 31, 2015      December 31, 2014  

Nature of guarantee

   Maximum
potential amount
of future
payments
     Financial
statement
liability
     Maximum
potential amount
of future
payments
     Financial
statement
liability
 
     (in millions)         (in millions)   

Guarantees of future minimum compensation - financial representatives

   $ 150       $ 1       $ 128       $ 1   

Guarantees of real estate obligations

     385         4         388         4   

Guarantees of obligations of affiliates

     -         -         -         -   

Guarantees issued on behalf of wholly-owned subsidiaries

     25         -         -         -   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total contingencies and guarantees

   $ 560       $ 5       $ 516       $ 5   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

No material 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 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 and other investments. These forward commitments aggregated to $5.7 billion at December 31, 2015 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 the Company. If the Company believes, 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 is recognized and a related liability reported. Legal actions are subject to inherent uncertainties, and future events could change the Company’s 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 the Company 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 Company’s financial position at December 31, 2015.

 

13.

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, 2015, 2014 and 2013, which is reported as a reduction of net investment income in the consolidated statements of operations. A total of $585 million in interest has been paid on the notes from their issuance through December 31, 2015.

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, 2015 and 2014.

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

14.

Fair Value of Financial Instruments

Certain of the Company’s assets and liabilities are considered “financial instruments” as defined by Statement of Statutory Principles No. 100, Fair Value Measurements (“SSAP 100”). The Company’s 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 the 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 using internally-developed pricing models or indicative (i.e., non-binding) quotes from independent securities brokers (“level 3”).

The Company actively monitors 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 third-party valuations or methods and require more observable inputs or different methodologies.

For financial instruments included in the scope of SSAP 100, the statement value and fair value at December 31, 2015 and 2014 were as follows:

 

     December 31, 2015  
     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:

              

Bonds

   $ 133,449       $ 135,537       $ 2,894       $ 128,973       $ 3,670   

Mortgage loans

     32,236         33,617         -         -         33,617   

Policy loans

     17,146         17,146         -         -         17,146   

Common and preferred stocks

     3,753         3,769         3,173         50         546   

Derivative assets

     469         552         -         552         -   

Surplus note investments

     160         199         -         165         34   

Collateral loans

     -         -         -         -         -   

Cash and short-term investments

     1,460         1,460         486         974         -   

Separate account assets

     26,731         26,731         24,275         2,100         356   

General account liabilities:

              

Investment-type insurance reserves

   $ 5,209       $ 5,021       $ -       $ -       $ 5,021   

Liabilities for securities lending

     1,047         1,047         -         1,047         -   

Derivative liabilities

     26         28         -         28         -   

Separate account liabilities

     26,731         26,731         24,275         2,100         356   

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

     December 31, 2014  
     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:

              

Bonds

   $ 128,126       $ 135,247       $ 3,234       $ 128,505       $ 3,508   

Mortgage loans

     29,341         31,247         -         -         31,247   

Policy loans

     16,756         16,756         -         -         16,756   

Common and preferred stocks

     3,583         3,613         2,970         77         566   

Derivative assets

     330         388         -         388         -   

Surplus note investments

     160         211         -         179         32   

Collateral loans

     40         40         -         -         40   

Cash and short-term investments

     2,588         2,588         708         1,880         -   

Separate account assets

     27,056         27,056         24,462         2,221         373   

General account liabilities:

              

Investment-type insurance reserves

   $ 5,220       $ 5,058       $ -       $ -       $ 5,058   

Liabilities for securities lending

     954         954         -         954         -   

Derivative liabilities

     27         23         -         23         -   

Separate account liabilities

     27,056         27,056         24,462         2,221         373   

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 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 Company’s 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 using a discounted cash flow approach based on market interest rates for commercial mortgage debt with comparable credit risk and maturity. See Note 3 for more information regarding the Company’s 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 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 Company’s investments in common and preferred stocks.

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Derivative Instruments

The Company’s derivative investments are generally traded in over-the-counter markets with fair value estimated 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 Short-term Investments

Cash and short-term 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 Company’s separate accounts, for which fair value is primarily based 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 Company’s underlying equity in the partnerships, which the Company considers to approximate fair value.

General Account Insurance Reserves

The Company’s general account insurance liabilities defined as financial instruments under SSAP 100 are limited to “investment-type” products such as fixed-rate annuity policies, supplementary contracts without life contingencies and amounts left on deposit. The fair value of investment-type insurance reserves is estimated 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 liability to return collateral to approximate the fair value of collateral originally received.

 

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Table of Contents

The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

Assets and Liabilities Reported at Fair Value

The following tables summarize assets and liabilities measured and reported at fair value in the consolidated statements of financial position at December 31, 2015 and 2014.

 

     December 31, 2015  
     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

   $ 3,172       $ 1      $ 432       $ 3,605   

Bonds

     -         23        9         32   

Derivative assets at fair value

     -         103        -         103   

Derivative liabilities at fair value

     -         (25     -         (25
  

 

 

    

 

 

   

 

 

    

 

 

 

Total general account

   $ 3,172       $ 102      $ 441       $ 3,715   
  

 

 

    

 

 

   

 

 

    

 

 

 

Separate accounts:

          

Mutual fund investments

   $ 22,432       $ -      $ -       $ 22,432   

Other benefit plan assets/liabilities

     58         23        2         83   

Pension and postretirement assets:

          

Bonds

     171         1,774        69         2,014   

Common and preferred stock

     1,595         3        20         1,618   

Cash and short-term securities

     14         289        -         303   

Other assets/liabilities

     5         11        265         281   
  

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal pension and postretirement assets

     1,785         2,077        354         4,216   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total separate accounts

   $ 24,275       $ 2,100      $ 356       $ 26,731   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

     December 31, 2014  
     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

   $ 2,971       $ -      $ 443       $ 3,414   

Bonds

     -         14        -         14   

Derivative assets at fair value

     -         158        -         158   

Derivative liabilities at fair value

     -         (12     -         (12
  

 

 

    

 

 

   

 

 

    

 

 

 

Total general account

   $ 2,971       $ 160      $ 443       $ 3,574   
  

 

 

    

 

 

   

 

 

    

 

 

 

Separate accounts:

          

Mutual fund investments

   $ 22,663       $ -      $ -       $ 22,663   

Other benefit plan assets/liabilities

     43         19        3         65   

Pension and postretirement assets:

          

Bonds

     244         1,908        74         2,226   

Common and preferred stock

     1,503         5        20         1,528   

Cash and short-term securities

     10         257        -         267   

Other assets/liabilities

     -         31        276         307   
  

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal pension and postretirement assets

     1,757         2,201        370         4,328   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total separate accounts

   $ 24,463       $ 2,220      $ 373       $ 27,056   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

The Company may reclassify assets reported at fair value between levels of the 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, 2015 or 2014.

The following tables summarize the changes in fair value of level 3 financial instruments for the years ended December 31, 2015 and 2014.

 

                            Separate account pension and postretirement1         

For the year ended
December 31, 2015            

     General account
common and
preferred stock
     General
account bonds
     Separate account
other benefit
plan assets1
     Bonds      Common and
preferred stocks
     Other
assets/liabilties
     Total  
       (in millions)  

Fair value, beginning of period

     $ 443       $ -       $ 3       $ 74       $ 20       $ 276       $ 816   

Realized gains/(losses)

       59         (18      -         -         6         67         114   

Unrealized gains/(losses)

       (17      -         -         (5      1         (22      (43

Issuances

       -         -         -         -         -         -         -   

Purchases

       51         -         -         15         4         61         131   

Sales

       (111      -         (1      (3      (6      (117      (238

Settlements

       (26      -         -         (22      (4      -         (52

Net discount/premium

       -         -         -         1         -         -         1   

Transfers into Level 3

       33         27         -         9         -         -         69   

Transfers out of Level 3

       -         -         -         -         (1      -         (1
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Fair value, end of period

     $ 432       $ 9       $ 2       $ 69       $ 20       $ 265       $ 797   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

1 Changes in separate account invested asset fair values have no impact on consolidated surplus

 

                            Separate account pension and postretirement1         

For the year ended
December 31, 2014            

     General account
common and
preferred stock
     General account
bonds
     Separate account
other benefit plan
assets1
     Bonds      Common and
preferred stocks
     Other
assets/liabilties
     Total  
       (in millions)  

Fair value, beginning of period

     $ 606       $ 7       $ 3       $ 74       $ 30       $ 278       $ 998   

Realized gains/(losses)

       128         -         -         1         16         28         173   

Unrealized gains/(losses)

       15         2         -         (7      (5      (2      3   

Issuances

       -         -         -         -         -         -         -   

Purchases

       14         -         -         28         2         44         88   

Sales

       (301      -         -         (1      (24      (73      (399

Settlements

       (4      (7      -         (28      1         -         (38

Net discount/premium

       -         1         -         2         -         -         3   

Transfers into Level 3

       -         -         -         10         -         2         12   

Transfers out of Level 3

       (15      (3      -         (5      -         (1      (24
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Fair value, end of period

     $ 443       $ -       $ 3       $ 74       $ 20       $ 276       $ 816   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

1 Changes in separate account invested asset fair values have no impact on consolidated surplus

 

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The Northwestern Mutual Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2015, 2014 and 2013

 

 

The fair values of level 3 financial instruments are sensitive to changes in significant unobservable inputs. The following table presents certain quantitative information about the unobservable inputs used to estimate fair value measurement for bonds and privately-placed common and preferred stocks classified as level 3 financial instruments at December 31, 2015.

 

     Fair value
(in millions)
  

Valuation techniques

  

Significant

unobservable inputs

   Range      Weighted
average
 

Bonds

   $        78    Broker quotes    Quoted prices 1      65.00         100.67              84.76   
      Discounted cash flows    Credit spreads 2      401.56         1,951.52         1,002.96   

Common and preferred stocks

   $        452    Sponsor valuations    EBITDA multiples      4.85 X         12.75 X               10.52 X   
      Market comparables    EBITDA multiples 3      2.99 X         30.74 X         10.71 X   
      Sponsor valuations    Book value multiples      0.40 X         1.36 X         1.17 X   

1 - Presented as a price per hundred dollars of par

2 - Presented in basis points

3 - Includes transaction multiples

Level 3 bonds are valued using a combination of discounted cash flows and indicative quotes from independent securities brokers based on market comparable companies. The most significant unobservable input in the discounted cash flow analysis is the discount rate. This rate is estimated based upon a risk-free market interest rate (U.S. Treasury with comparable maturity) plus a credit spread adjustment based on the estimated credit rating of the issuer. In general, issuers with lower credit ratings have higher credit spreads. A decrease in the credit spread adjustment would increase the fair value of the investment as the future expected cash flows are discounted at a lower rate. The opposite impact would occur if credit spread adjustments increase.

Level 3 privately-placed common and preferred stocks are valued using a market comparables approach, a private equity sponsor valuation, or a combination of the two methodologies. The market comparables approach relies on the use of multiples that are based on industry-specific comparable companies. Multiples are derived from the relationship of an entity’s fair value to its book value or earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA is normalized for company-specific differences in capital structure, taxation and fixed asset accounting. An increase in the multiple would result in an increase in the fair value of the investment. The opposite impact would occur if the multiple decreased.

 

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PART C

OTHER INFORMATION

Item 26.  Exhibits

 

Exhibit    Description   

Filed Herewith/Incorporated Herein By

Reference To

(a)(1)    Resolution of the Board of Trustees of The Northwestern Mutual Life Insurance Company amending Northwestern Mutual Variable Life Account Operating Authority    Exhibit (a)(1) to Form N-6 Post-Effective Amendment No. 30 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed February 21, 2006
(a)(2)    Resolution of Board of Trustees of The Northwestern Mutual Life Insurance Company establishing the Account    Exhibit A(1) to Form S-6 Registration Statement for Northwestern Mutual Variable Life Account, File No. 333-36865, filed on October 1, 1997
(b)    Not Applicable     
(c)    Distribution Agreement Between The Northwestern Life Insurance Company and Northwestern Mutual Investment Services, LLC, dated May 1, 2006    Exhibit (c) to Form N-6 Registration Statement for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed on July 28, 2006
(d)(1)    Flexible Premium Variable Joint Life Insurance Policy (RP.VJL. 1298), with Policy Split Provision, including Policy amendment    Exhibits A(5)(a) and A(5)(b) to Form S-6 Post-Effective Amendment No. 4 for Northwestern Mutual Variable Life Account, File No. 333-59103, filed May 31, 2001
(d)(2)    Variable Life Insurance Policy, RR.VJL, Flexible Premium Variable Joint Life policy, including Policy Split Provision (sex-neutral)    Exhibit A(5)(a) to Form S-6 Registration Statement for Northwestern Mutual Variable Life Account, File No. 333-59103, filed July 15, 1998
(d)(3)    Variable Life Insurance Policy, RR.VJL, Flexible Premium Variable Joint Life policy, including Policy Split Provision (sex-distinct)    Exhibit A(5)(b) to Form S-6 Registration Statement for Northwestern Mutual Variable Life Account, File No. 333-59103, filed July 15, 1998
(e)    Form of Life Insurance Application 90-1 JCL (0198) WISCONSIN and Application Supplement (1003)    Exhibit (e) to Form N-6 Post-Effective Amendment No. 9 for Northwestern Mutual Variable Life Account, File No. 333-59103, filed April 28, 2005
(f)(1)    Restated Articles of Incorporation of The Northwestern Mutual Life Insurance Company (adopted July 26, 1972)    Exhibit A(6)(a) to Form S-6 Post-Effective Amendment No. 18 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed April 26, 1996
(f)(2)    Amended By-Laws of The Northwestern Mutual Life Insurance Company dated December 4, 2002    Exhibit (f) to Form N-6 Post-Effective Amendment No. 6 for Northwestern Mutual Variable Life Account, File No. 333-59103, filed February 28, 2003
(g)    Form of Reinsurance Agreement    Exhibit (g) to Form N-6 Post-Effective Amendment No. 6 for Northwestern Mutual Variable Life Account, File No. 333-59103, filed February 28, 2003
(h)(a)(1)    Participation Agreement dated March 16, 1999 Among Russell Insurance Funds, Russell Fund Distributors, Inc. and The Northwestern Mutual Life Insurance Company    Exhibit (b)(8)(a) to Form N-4 Post-Effective Amendment No. 66 for NML Variable Annuity Account B, File No. 2-29240, filed on April 28, 2005
(h)(a)(2)    Amendment No. 1 dated August 7, 2000 to the Participation Agreement dated March 16, 1999 Among Russell Insurance Funds, Russell Fund Distributors, Inc. and The Northwestern Mutual Life Insurance Company    Exhibit (h)1(a)(2) to Form N-6 Registration Statement for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed on July 28, 2006
(h)(a)(3)    Amendment No. 2 dated October 13, 2006 to Participation Agreements dated March 16, 1999 and August 7, 2000, respectively, by and among The Northwestern Mutual Life Insurance Company, Russell Investment Funds, f/k/a “Russell Insurance Funds,” and Russell Fund Distributors, Inc.    Exhibit (h)1(a)(3) to Form N-6 Pre-Effective Amendment No. 1, for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed December 13, 2006

 

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(h)(a)(4)    Amendment No. 3 dated August 29, 2007 to Participation Agreements dated March 16, 1999, and August 7, 2000, and October 13, 2006, respectively, by and among The Northwestern Mutual Life Insurance Company, Russell Investment Funds, f/k/a “Russell Insurance Funds,” and Russell Fund Distributors, Inc.    Exhibit (h)(a)(4) to Form N-6 Post-Effective Amendment No. 41 for Northwestern Mutual Variable Life Account, File No. 002-89972, filed on April 25, 2013
(h)(b)(1)    Participation Agreement dated May 1, 2003 among Variable Insurance Products Funds, Fidelity Distributors Corporation and The Northwestern Mutual Life Insurance Company    Exhibit (b)(8)(b) to Form N-4 Post-Effective Amendment No. 66 for NML Variable Annuity Account B, File No. 2-29240, filed on April 28, 2005
(h)(b)(2)    Amendment No. 1 dated October 18, 2006 to Participation Agreement dated May 1, 2003, by and among The Northwestern Mutual Life Insurance Company, Fidelity Distributors Corporation, and each of Variable Insurance Products Fund, Variable Insurance Products Fund II, and Variable Insurance Products Fund III    Exhibit (h)1(b)(2) to Form N-6 Pre-Effective Amendment No. 1, for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed December 13, 2006
(h)(b)(3)    Participation Agreement dated April 30, 2007 among Neuberger Berman Advisers Management Trust, Neuberger Berman Management Inc., and The Northwestern Mutual Life Insurance Company    Exhibit (h)(e) to Form N-6 Post-Effective Amendment No. 39 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed April 30, 2012
(h)(b)(4)    Participation Agreement dated September 27, 2013 among Credit Suisse Trust, Credit Suisse Asset Management, LLC, Credit Suisse Securities (USA) LLC, and The Northwestern Mutual Life Insurance Company    Exhibit (h)(b)(4) to Form N-6 Post-Effective Amendment No. 10 for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed on October 1, 2013
(h)(b)(5)    Form of Amendment to Participation Agreement Regarding Rule 498    Exhibit (h)(b)(5) to Form N-6 Post-Effective Amendment No. 10 for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed on October 1, 2013
(h)(c)(1)    Administrative Service Fee Agreement dated February 28, 1999 between The Northwestern Mutual Life Insurance Company and Frank Russell Company    Exhibit (b)(8)(c) to Form N-4 Post-Effective Amendment No. 66 for NML Variable Annuity Account B, File No. 2-29240, filed on April 28, 2005
(h)(c)(2)    Service Agreement dated May 1, 2003 between Fidelity Investments Institutional Operations Company, Inc. and The Northwestern Mutual Life Insurance Company    Exhibit (b)(8)(c)(2) to Form N-4 Pre-Effective Amendment No. 1 for NML Variable Annuity Account A, File No. 333-133380, filed on August 8, 2006
(h)(c)(3)    Amendment dated August 1, 2004 to the Service Agreement dated May 1, 2003 between Fidelity Investments Institutional Operations Company, Inc. and The Northwestern Mutual Life Insurance Company    Exhibit (b)(8)(c)(3) to Form N-4 Pre-Effective Amendment No. 1 for NML Variable Annuity Account A, File No. 333-133380, filed on August 8, 2006
(h)(c)(4)    Form of Administrative Services Agreement    Exhibit (h)(c)(2) to Form N-6 Post-Effective Amendment No. 39 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed on April 30, 2012
(i)    Not Applicable     
(j)(a)    Agreement entered into on February 13, 1984 among Northwestern Mutual Variable Life Account, The Northwestern Mutual Life Insurance Company and NML Equity Services, Inc. (n/k/a Northwestern Mutual Investment Services, LLC)    Exhibit A(8) to Form S-6 Registration Statement for Northwestern Mutual Variable Life Account, File No. 333-36865, filed October 1, 1997
(j)(b)    Shareholder Information Agreement dated April 13, 2007 among Russell Investment Management Company on behalf of Russell Investment Funds and The Northwestern Mutual Life Insurance Company    Exhibit (j)(b) to Form N-6 Post-Effective Amendment No. 39 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed April 30, 2012

 

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(j)(c)    Amendment No. 1 dated October 20, 2008 to Shareholder Information Agreement dated April 13, 2007 among Russell Fund Services Company on behalf of Russell Investment Funds and The Northwestern Mutual Life Insurance Company    Exhibit (j)(c) to Form N-6 Post-Effective Amendment No. 39 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed April 30, 2012
(j)(d)    Shareholder Information Agreement dated April 13, 2007 among Fidelity Distributors Corporation on behalf of Fidelity® Variable Insurance Products Fund and The Northwestern Mutual Life Insurance Company    Exhibit (j)(d) to Form N-6 Post-Effective Amendment No. 39 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed April 30, 2012
(j)(e)    Shareholder Information Agreement dated April 16, 2007 among Northwestern Mutual Series Fund, Inc. and The Northwestern Mutual Life Insurance Company    Exhibit (j)(e) to Form N-6 Post-Effective Amendment No. 39 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed April 30, 2012
(j)(f)    Shareholder Information Agreement dated October 16, 2007 among Neuberger Berman Management Inc. and The Northwestern Mutual Life Insurance Company    Exhibit (j)(f) to Form N-6 Post-Effective Amendment No. 39 for Northwestern Mutual Variable Life Account, File No. 2-89972, filed April 30, 2012
(j)(g)    Shareholder Information Agreement dated September 27, 2013 among Credit Suisse Securities (USA) LLC and The Northwestern Mutual Life Insurance Company    Exhibit (j)(f) to Form N-6 Post-Effective Amendment No. 10 for Northwestern Mutual Variable Life Account II, File No. 333-136124, filed on October 1, 2013
(j)(h)    Power of Attorney    Exhibit (j)(h) to Form N-6 Post-Effective Amendment No. 27, for Northwestern Mutual Variable Life Account I, File No. 333-59103, filed on February 18, 2016
(j)(i)    NMIS/NM Annuity Operations Admin Agreement    Exhibit (b)(8)(i) to Form N-4 Post-Effective Amendment No. 19 for NML Variable Annuity Account A, File No. 333-72913, filed on April 22, 2008
(k)    Opinion and Consent of Raymond J. Manista, Esq. dated April 28, 2016    Filed herewith
(l)    Not Applicable     
(m)    Not Applicable     
(n)    Consent of PricewaterhouseCoopers LLP dated April 25, 2016    Filed herewith
(o)    Not Applicable     
(p)    Not Applicable     
(q)    Memorandum describing Issuance, Transfer and Redemption Procedures    Filed herewith

Item 27.  Directors and Officers of the Depositor

The following lists include all of the Trustees, executive officers and other officers of The Northwestern Mutual Life Insurance Company without regard to their activities relating to variable life insurance policies or their authority to act or their status as “officers” as that term is used for certain purposes of the federal securities laws and rules thereunder.

TRUSTEES – As of April 1, 2016

 

    Name    Address
  John N. Balboni   

Senior Vice President & CIO

International Paper

6400 Poplar Avenue

Memphis, TN 38197

 

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  David J. Drury   

Owner & CEO

Poblocki Sign Company LLC

922 South 70th Street

Milwaukee, WI 53214

  Connie K. Duckworth   

President & Chairman of the Board

ARZU

77 Stone Gate Lane

Lake Forest, IL 60045

  James P. Hackett   

President & CEO

Steelcase, Inc.

901 - 44th Street

Grand Rapids, MI 49508

  P. Russell Hardin   

President

Robert W. Woodruff Foundation

191 Peachtree Street NE, Suite 3540

Atlanta, GA 30303

  Hans Helmerich   

President & CEO

Helmerich & Payne, Inc.

1437 S. Boulder Avenue

Tulsa, OK 74119-3609

  Dale E. Jones   

Vice Chairman

Heidrick & Struggles

2001 Pennsylvania Avenue, NW

Suite 800

Washington, DC 20006

  Margery Kraus   

President & CEO

APCO Worldwide

700 12th Street, NW

Suite 800

Washington, DC 20005

  David J. Lubar   

President

Lubar & Co.

700 N. Water Street

Suite 1200

Milwaukee, WI 53202

  Ulice Payne, Jr.   

President & CEO

Addison-Clifton, LLC

13555 Bishops Court

Suite 245

Brookfield, WI 53005

  John E. Schlifske   

Chairman & CEO

Northwestern Mutual

720 E. Wisconsin Avenue

Milwaukee, WI 53202

  Mary Ellen Stanek   

Managing Director & Chief Investment Officer

Baird Advisors

Robert W. Baird & Co.

President-Baird Funds Inc.

777 E. Wisconsin Avenue

21st Floor

Milwaukee, WI 53202

 

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  S. Scott Voynich   

Managing Partner

Robinson, Grimes & Company, PC

5637 Whitesville Road (31904)

P. O. Box 4299 (31914)

Columbus, GA

  Ralph A. Weber   

Founding Member

Gass, Weber, Mullins, LLC

309 North Water Street

Suite 700

Milwaukee, WI 53202

  Benjamin F. Wilson   

Managing Principal

Beveridge & Diamond, P.C.

1350 I Street, NW

Suite 700

Washington, DC 20005

  Edward J. Zore   

Retired Chairman

Northwestern Mutual

777 E. Wisconsin

Suite 3005

Milwaukee, WI 53202

EXECUTIVE OFFICERS – As of April 1, 2016

 

John E. Schlifske    Chairman of the Board & Chief Executive Officer
Leslie Barbi    Senior Vice President (Public Investments)
Rebekah B. Barsch    Vice President (Planning and Sales)
Blaise C. Beaulier    Vice President (Enterprise Projects & Support)
Sandra L. Botcher    Vice President (Facility Operations)
Michael G. Carter    Executive Vice President & Chief Financial Officer
Eric P. Christophersen    Vice President (Strategic Philanthropy & Community Relations)
Joann M. Eisenhart    Senior Vice President (Human Resources)
Christina H. Fiasca    Vice President
Timothy J. Gerend    Senior Vice President (Distribution Growth & Development)
Kimberley Goode    Vice President (Communications & Corporate Affairs)
Karl G. Gouverneur    Vice President & Chief Technology Officer
John M. Grogan    Senior Vice President (Insurance and Investment Products)
Thomas C. Guay    Vice President (Risk Selection Strategy)
Gary M. Hewitt    Vice President (Investment Risk Management)
Meg E. Jansky    Vice President – Field Integration
Ronald P. Joelson    Executive Vice President & Chief Investment Officer
Todd Jones    Vice President & Controller
John L. Kordsmeier    Vice President
Jeffrey J. Lueken    Senior Vice President (Private Securities)
Stephanie A. Lyons    Vice President – Enterprise Risk Assurance
Raymond J. Manista    Senior Vice President, General Counsel & Secretary
Steven C. Mannebach    Vice President (Field Growth & Development)
John W. McTigue    Chief Distribution Advisor
Christian W. Mitchell    Vice President (Wealth Management)
Gregory C. Oberland    President
Rebecca Porter    Vice President (Corporate Strategy)
Steven M. Radke    Vice President (Government Relations)
David R. Remstad    Senior Vice President & Chief Actuary
Bethany M. Rodenhuis    Senior Vice President (Distribution Strategy and Finance)
Tammy M. Roou    Vice President & Chief Risk Officer
Timothy G. Schaefer    Executive Vice President (Client & Digital Experience)
Calvin R. Schmidt    Senior Vice President (Integrated Customer Operations)
Sarah R. Schneider    Vice President (New Business)
Sarah E. Schott    Vice President (Enterprise Compliance)

 

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Sheldon I. Cuffie    Vice President & Chief Information Security Officer
David W. Simbro    Senior Vice President (Life & Annuity Product)
Steve P. Sperka    Vice President (Field Rewards)
David G. Stoeffel    Vice President (Wealth Platform & Partners)
Steven J. Stribling    Vice President (Disability Income)
Alexa Von Tobel    Vice President (Client Experience)
Kamilah D. Williams-Kemp    Vice President (Long Term Care)
Conrad C. York    Vice President (Marketing)
Thomas D. Zale    Vice President (Real Estate)
Todd O. Zinkgraf    Vice President (Enterprise Solutions)

OTHER OFFICERS – As of December 1, 2015

 

   

Employee

 

  

Title

 

         
Gregory A. Gurlik    Senior Actuary
James R. Lodermeier    VP-Actuary
Ted A. Matchulat    Director-Product Compliance
Chris G. Trost    VP-Corporate Actuary
Paul W. Skalecki    VP-Actuary
         
Mark J. Gmach    Regional VP
Laila V. Hick    VP-Agency Development
Jason R. Handal    Regional VP
Arthur J. Mees    Regional VP
Timothy Nelson    Regional VP
Michael E. Pritzl    VP-Managing Director Relations
John C. Roberts    VP-Targeted Office Support
         
Anne A. Frigo    Director-Insurance Product Compliance
Ricky J. Frank    Director-Systems
Robert J. Johnson    Director-Compliance
Gregory S. Leslie    Director-Variable Product Compliance
Randy M. Pavlick    VP-Managed Investments Compliance
Jeffrey P. Schloemer    Director-Compliance
Rebecca Villegas    Director-Compliance
         
Kevin J. Abitz    Director-Corporate Reporting
Lisa M. Belli-Fuchs    Director-Reporting & Systems Administration
Barbara E. Courtney    Director-Mutual Fund Accounting
Michelle A. Hinze    Director-Accounting Operations
Todd C. Kuzminski    Director-Investment Accounting
K. David Nunley    VP-Tax
David E. Willert    Director-Federal Tax
         
Rick T. Zehner    VP-Research & Special Projects
         
Mark McNulty    Director-Field Distribution Policies & Administration
Daniel A. Riedl    VP-Field Distribution Policies & Administration
         
David A. Eurich    Director-Field Training
Joanne M. Migliaccio    Director-Contract, License & Registration
Sarah L. N. Koenig    Director-Horizontal Growth
Cindy S. Prater    Director-Practice Management
         
Arleen J. Llewellyn    Director-FR Engagement & Selection
Paul J. Steffen    VP-Agency Development
         
Michael R. Fasciotti    Director-Field Real Estate

 

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Employee

 

  

Title

 

Richard P. Snyder    Director-Field Compensation
         
Brenda J. Antkowski    Director-Field Integration
Paula B. Asen    Director-Field Integration
Kevin J. Konopa    Director-Field Integration
         
Karen A. Molloy    VP-Treasurer
Deborah A. Schultz    VP-Financial Management
         
Pency P. Byhardt    Vice President-Annuity Operations
Don P. Gehrke    Director-Retail Investment Operations
Dennis P. Goyette    Director-Annuity Customer Service
Linda A. Schaefer    Director-Document Shared Services
Lori A. Torner    Director-Retail Investment Operations
         
Karla J. Adams    Director-Investment Risk Management
James A. Brewer    Director-Investment Planning
David A. Escamilla    Director-Investment Information
Donald Forecki    Director-Investment Operations, Asst. Secretary
Lisa A. Cadotte    VP-Investment Risk Management
         
Thomas K. Anderson    Asst. General Counsel & Asst. Secretary
Mark J. Backe    VP-Insurance & Operations Counsel & Asst. Secretary
Joanne M. Breese-Jaeck    Asst. General Counsel & Asst. Secretary
Christopher W. Brownell    Asst. General Counsel & Asst. Secretary
Michael S. Bula    Asst. General Counsel & Asst. Secretary
Thomas B. Christenson    Asst. General Counsel & Asst. Secretary
Michael J. Conmey    Asst. General Counsel & Asst. Secretary
Mark S. Diestelmeier    Asst. General Counsel & Asst. Secretary
John E. Dunn    VP & Investment Products & Services Counsel & Asst. Secretary
James R. Eben    Asst. General Counsel & Asst. Secretary
Bradley L. Eull    Asst. General Counsel & Asst. Secretary
Chad E. Fickett    Asst. General Counsel & Asst. Secretary
James C. Frasher    Asst. General Counsel & Asst. Secretary
Sheila M. Gavin    Asst. General Counsel & Asst. Secretary
Chris K. Gawart    Asst. General Counsel & Asst. Secretary
Katherine T. Hartman    Asst. General Counsel & Asst. Secretary
Matthew D. Heinke    Asst. General Counsel & Asst. Secretary
Steven J. LaFore    Asst. General Counsel & Asst. Secretary
Lisa A. Leister    Asst. General Counsel & Asst. Secretary
Kim W. Lunn    Asst. General Counsel & Asst. Secretary
Michael J. Mazza    Asst. General Counsel & Asst. Secretary
Lesli H. McLinden    Asst. General Counsel & Asst. Secretary
William C. Pickering    Asst. General Counsel & Asst. Secretary
Nora M. Platt    Asst. General Counsel & Asst. Secretary
Zhibin Ren    Asst. General Counsel & Asst. Secretary
Peter K. Richardson    Asst. General Counsel & Asst. Secretary
Rodd Schneider    VP & Litigation and Distribution Counsel & Asst. Secretary
Paul W. Scott    Asst. General Counsel & Asst. Secretary
John M. Thompson    Asst. General Counsel & Asst. Secretary
John W. Warren    Asst. General Counsel & Asst. Secretary
Terry R. Young    Asst. General Counsel & Asst. Secretary
Michael W. Zielinski    Asst. General Counsel & Asst. Secretary
         
Gregory A. Jaeck    Director-Annuity & Income Markets
Jason T. Klawonn    VP-Advanced Markets
William Brian Henning    Director-Competitive Intelligence
Jane Ann Schiltz    Director-LP Planning & Project Support

 

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Employee

 

  

Title

 

Steven J. Stribling    VP-Life Product Development
         
Thomas R. Anderson    Director-Advanced Planning
Candace M. Damon    Director-Strategic Productivity
Angela M. DiCastri    Director-Retirement Markets
Ruthann M. Driscoll    Director-Advanced Planning
Kenneth P. Elbert    Director-Advanced Planning
Matthew K. Fleming    Director-Planning & Investments Support
Stephen J. Frankl    Director-Planning & Sales
William F. Grady, IV    Director-Advanced Planning
Terence J. Holahan    Director-Planning & Sales Education & Development
Emily J. Holbrook    Director-Young Personal Market
Patrick J. Horning    Director-Advanced Planning
William R. Hughes    Director-Advanced Planning
Martha M. Kendler    Director-Closely Held Business Market
Amy Kiiskila    Director-Advanced Planning
Shawn P. Mauser    Director-Network Office Productivity
John E. Muth    Director-Advanced Planning
Elizabeth Ridley    VP-Market Strategy & Training
Andrew J. Smalley    Director-Sales Promotion & Integration
Michael C. Soyka    Director-Planning & Sales
William H. Taylor    VP-Financial Planning & Sales Support
Janine L. Wagner    Director-Planning & Insurance Support
Stephanie Wilcox    Director-Planning & Sales Admin/Integration
Brian D. Wilson    VP-National Sales
         
James LeMere    Director-Policyowner Services
Travis T. Piotrowski    VP-Policyowner Services
Sandra K. Scott    Director-Life Benefits
Carol A. Stilwell    Director-Policyowner Services
Gina Tolzman    Director-Policyowner Services
         
Mark J. McLennon    VP-IPS Business Development

The business addresses for all of the executive officers and other officers is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.

Item 28.  Persons Controlled By or Under Common Control with the Depositor or Registrant

The subsidiaries of The Northwestern Mutual Life Insurance Company (“Northwestern Mutual”), as of April 1, 2016 are shown below. In addition to the subsidiaries shown below, the following separate investment accounts (which include the Registrant) may be deemed to be either controlled by, or under common control with, Northwestern Mutual:

 

  1. NML Variable Annuity Account A
  2. NML Variable Annuity Account B
  3. NML Variable Annuity Account C
  4. Northwestern Mutual Variable Life Account
  5. Northwestern Mutual Variable Life Account II

Northwestern Mutual Series Fund, Inc. (the “Funds”), shown below as a subsidiary of Northwestern Mutual, is an investment company, registered under the Investment Company Act of 1940, offering shares to the separate accounts identified above; and the shares of the Funds held in connection with certain of the accounts are voted by Northwestern Mutual in accordance with voting instructions obtained from the persons who own, or are receiving payments under, variable annuity contracts or variable life insurance policies issued in connection with the separate accounts, or in the same proportions as the shares which are so voted.

 

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NORTHWESTERN MUTUAL CORPORATE STRUCTURE(1)

(as of April 1, 2016)

 

Legal Entity Name    Domestic Jurisdiction          Owner %    

Operating Subsidiaries

         

Northwestern Mutual Capital Limited(2)

   United Kingdom    100.00

Mason Street Advisors, LLC(2)

   Delaware    100.00

Northwestern Long Term Care Insurance Company(2)

   Wisconsin    100.00

Northwestern Mutual Investment Management Company, LLC(2)

   Delaware    100.00

Northwestern Mutual Investment Services, LLC(2)

   Wisconsin    100.00

Northwestern Mutual Wealth Management Company(2)

   United States    100.00
           

All Other Subsidiaries

         

31 Ogden, LLC(2)

   Delaware    100.00

3412 Exchange, LLC(2)

   Delaware    100.00

AFE Brentwood Park, LLC(2)

   Delaware    100.00

Amber, LLC(2)

   Delaware    100.00

AMLI at Perimeter Gardens, LLC(2)

   Delaware    100.00

Arbor Lake Village Apartments Limited Liability Company(2)

   Delaware    100.00

Artisan Garden Apartments, LLC(2)

   Delaware    100.00

Baraboo, Inc.(2)

   Delaware    100.00

Bayridge, LLC(2)

   Delaware    100.00

Bishop Square, LLC(2)

   Delaware    100.00

Bradford, Inc.(2)

   Delaware    100.00

Bradford Master Association Inc. (2)

   North Carolina    100.00

Brendan International Sales, Inc.(2)

   U.S. Virgin Islands    100.00

Burgundy, LLC(2)

   Delaware    100.00

C – Land Fund, LLC(2)

   Delaware    100.00

Chateau, LLC(2)

   Delaware    100.00

Coral, Inc.(2)

   Delaware    100.00

Cortona Holdings, LLC(2)

   Delaware    100.00

Crosland Denver Highway 16, LLC(2)

   North Carolina    100.00

Crosland Greens, LLC(2)

   North Carolina    100.00

Dortmund, LLC(2)

   Delaware    100.00

Fairfield West Deer Park LLC(2)

   Delaware    100.00

GRO, LLC(2)

   Delaware    100.00

GRO-SUB, LLC(2)

   Delaware    100.00

Hamptons PBG, L.P. (2)

   Delaware    100.00

Hazel, Inc.(2)

   Delaware    100.00

Higgins, Inc.(2)

   Delaware    100.00

Hobby, Inc.(2)

   Delaware    100.00

Hollenberg 1, Inc.(2)

   Delaware    100.00

Jacksonville Concourse II, LLC(2)

   Delaware    100.00

Jacksonville Concourse III, LLC(2)

   Delaware    100.00

Jacksonville Concourse, LLC(2)

   Delaware    100.00

Juleen, LLC(2)

   Delaware    100.00

Justin International FSC, Inc.(2)

   U.S. Virgin Islands    100.00

Klode, Inc.(2)

   Delaware    100.00

Kristiana International Sales, Inc.(2)

   U.S. Virgin Islands    100.00

LearnVest Inc. (2)

   Delaware    100.00

LearnVest Planning Services, LLC(2)

   Delaware    100.00

Logan, Inc.(2)

   Delaware    100.00

Maroon, Inc.(2)

   Delaware    100.00

Mason & Marshall, Inc.(2)

   Delaware    100.00

Millbrook Apartments Associates L.L.C.(2)

   Virginia    100.00

 

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NORTHWESTERN MUTUAL CORPORATE STRUCTURE(1)

(as of April 1, 2016)

 

Mitchell, Inc.(2)

   Delaware        100.00    

Model Portfolios, LLC(2)

   Delaware    100.00

Nicolet, Inc.(2)

   Delaware    100.00

NM BSA, LLC(2)

   Delaware    100.00

NM Cancer Center GP, LLC(2)

   Delaware    100.00

NM DFW Lewisville, LLC(2)

   Delaware    100.00

NM GP Holdings, LLC(2)

   Delaware    100.00

NM Harrisburg, Inc.(2)

   Pennsylvania      100.00

NM Imperial, LLC(2)

   Delaware    100.00

NM Investment Holdings, LLC.(2)

   Delaware    100.00

NM Lion, LLC(2)

   Delaware    100.00

NM Majestic Holdings, LLC(2)

   Delaware    100.00

NM Neptune, LLC(2)

   Delaware    100.00

NM Planning, LLC(2)

   Delaware    100.00

NM Pebble Valley LLC(2)

   Delaware    100.00

NM RE Funds, LLC(2)

   Delaware    100.00

NM Regal, LLC(2)

   Delaware    100.00

NM-Hemlock, LLC(2)

   Delaware    100.00

NM Twin Creeks GP, LLC(2)

   Delaware    100.00

NML Clubs Associated, Inc.(2)

   Wisconsin    100.00

NML Development Corporation(2)

   Delaware    100.00

NML Real Estate Holdings, LLC(2)

   Wisconsin    100.00

NML Securities Holdings, LLC(2)

   Wisconsin    100.00

NMRM Holdings, LLC(2)

   Delaware    100.00

North Van Buren, Inc.(2)

   Delaware    100.00

Northwestern Ellis Company(2)

   Nova Scotia    100.00

Northwestern Mutual Capital GP II, LLC(2)

   Delaware    100.00

Northwestern Mutual Capital GP III, LLC(2)

   Delaware    100.00

Northwestern Mutual Capital GP, LLC(2)

   Delaware    100.00

Northwestern Mutual Capital Mezzanine Fund I, LP(2)

   Delaware    100.00

Northwestern Mutual Capital Mezzanine Fund II, LP(2)

   Delaware    100.00

Northwestern Mutual Capital Mezzanine Fund III, LP(2)

   Delaware    100.00

Northwestern Mutual Capital Strategic Equity Fund I, LP(2)

   Delaware    100.00

Northwestern Mutual Capital Strategic Equity Fund II, LP(2)

   Delaware    100.00

Northwestern Mutual Capital Strategic Equity Fund III, LP(2)

   Delaware    100.00

Northwestern Mutual MU TLD Registry, LLC(2)

   Delaware    100.00

Northwestern Mutual Registry, LLC(2)

   Delaware    100.00

Northwestern Mutual Series Fund, Inc.(3)

   Maryland    100.00

NorthWoods Phase I, LLC(2)

   Delaware    100.00

NWM ZOM GP, LLC(2)

   Delaware    100.00

Olive, Inc.(2)

   Delaware    100.00

Osprey Links Golf Course, LLC(2)

   Delaware    100.00

Osprey Links, LLC(2)

   Delaware    100.00

Park Ridge Corporate Center, LLC(2)

   Delaware    100.00

Perimeter Place Master Condominium Association, Inc.(2)

   Georgia    100.00

Piedmont Center, 1-4 LLC(2)

   Delaware    100.00

Piedmont Center, 15 LLC(2)

   Delaware    100.00

Promenade at Clifton LLC(2)

   Delaware    100.00

Plantation Oaks MHC-NM, LLC(2)

   Delaware    100.00

RE Corp.(2)

   Delaware    100.00

 

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NORTHWESTERN MUTUAL CORPORATE STRUCTURE(1)

(as of April 1, 2016)

 

Regina International Sales, Inc.(2)

   U.S. Virgin Islands          100.00    

Russet, Inc.(2)

   Delaware    100.00

Scotty, LLC(2)

   Delaware    100.00

Solar Resources, Inc.(2)

   Wisconsin    100.00

Stadium and Arena Management, Inc.(2)

   Delaware    100.00

Tapestry Condominium Owners Association, Inc.(2)

   Tennessee    100.00

Trade Street Associates I, LLC(2)

   Delaware    100.00

Tupelo, Inc.(2)

   Delaware    100.00

Two Con Holdings, LLC(2)

   Delaware    100.00

Two Con SPE, LLC(2)

   Delaware    100.00

Two Con, LLC(2)

   Delaware    100.00

Ventura Lakes MHC-NM, LLC(2)

   Delaware    100.00

Walden OC, LLC(2)

   Delaware    100.00

Warren Corporate Center, LLC(2)

   Delaware    100.00

West Huron Joint Venture(2)

   Washington    100.00

White Oaks, Inc.(2)

   Delaware    100.00

Windwood Drive Ann Arbor, LLC(2)

   Delaware    100.00

 

(1) Certain subsidiaries are omitted on the basis that, considered in the aggregate at year end 2015, they did not constitute a significant subsidiary as defined by Regulation S-X. Certain investment partnerships and limited liability companies that hold real estate assets of The Northwestern Mutual Life Insurance Company are not represented.

 

(2) Subsidiary included in the consolidated financial statements.

 

(3) Growth Stock Portfolio, Focused Appreciation Portfolio, Large Cap Core Stock Portfolio, Large Cap Blend Portfolio, Index 500 Stock Portfolio, Large Company Value Portfolio, Domestic Equity Portfolio, Equity Income Portfolio, Mid Cap Growth Stock Portfolio, Index 400 Stock Portfolio, Mid Cap Value Portfolio, Small Cap Growth Stock Portfolio, Index 600 Stock Portfolio, Small Cap Value Portfolio, International Growth Portfolio, Research International Core Portfolio, International Equity Portfolio, Emerging Markets Equity Portfolio, Government Money Market Portfolio, Short-Term Bond Portfolio, Select Bond Portfolio, Long-Term U.S. Government Bond Portfolio, Inflation Protection Portfolio, High Yield Bond Portfolio, Multi-Sector Bond Portfolio, Balanced Portfolio, Asset Allocation Portfolio.

Item 29.  Indemnification

(a) That portion of the By-laws of the Depositor, Northwestern Mutual, relating to indemnification of Trustees and officers is set forth in full in Article VII of the By-laws of Northwestern Mutual, amended by resolution and previously filed as Exhibit A(6)(b) to the registration statement of Northwestern Mutual Variable Life Account (File No. 333-59103) on July 15, 1998.

(b) Section 10 of the Distribution Agreement dated May 1, 2006 between Northwestern Mutual and Northwestern Mutual Investment Services, LLC (“NMIS”) provides substantially as follows:

B. Indemnification by Company. The Company agrees to indemnify, defend and hold harmless NMIS, its successors and assigns, and their respective officers, directors, and employees (together referred to as “NMIS Related Persons”), from any and all joint or several losses, claims, damages or liabilities (including any reasonable investigative, legal and other expenses incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted), to which NMIS and/or any NMIS Related Persons may become subject, under any law, regulation or NASD rule, at common law or otherwise, that arises out of or are based upon (i) any breach of this Agreement by the Company and (ii) any untrue statement of or omission to state a material fact (except for information supplied by or on behalf of NMIS or for which NMIS is responsible) contained in any Registration Statement, Contract prospectus, SAI or supplement thereto or in any Marketing Material.

 

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This indemnification shall be in addition to any liability that the Company may otherwise have; provided, however, that no person shall be entitled to indemnification pursuant to this provision for any loss, claim, damage or liability due to the willful misfeasance, bad faith or gross negligence or reckless disregard of duty by the person seeking indemnification.

C. Indemnification by NMIS. NMIS agrees to indemnify, defend and hold harmless the Company, its successors and assigns, and their respective officers, trustees or directors, and employees (together referred to as “Company Related Persons”), from any and all joint or several losses, claims, damages or liabilities (including any reasonable investigative, legal and other expenses incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted), to which the Company and/or any Company Related Persons may become subject, under any law, regulation or NASD rule, at common law or otherwise, that arises out of or are based upon (i) any breach of this Agreement by NMIS and (ii) any untrue statement of or omission to state a material fact (except for information supplied by or on behalf of the Company or for which the Company is responsible) contained in any Registration Statement, Contract prospectus, SAI or supplement thereto or in any Marketing Material, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon information furnished in writing by NMIS to the Company specifically for use in the preparation of the aforesaid material.

This indemnification shall be in addition to any liability that NMIS may otherwise have; provided however, that no person shall be entitled to indemnification pursuant to this provision for any loss, claim, damage or liability due to the willful misfeasance, bad faith or gross negligence or reckless disregard of duty by the person seeking indemnification.

D. Indemnification Generally. Any person seeking indemnification under this section shall promptly notify the indemnifying party in writing after receiving notice of the commencement of any action as to which a claim for indemnification will be made; provided, however, that failure to so notify the indemnifying party shall not relieve such party from any liability which it may have to such person otherwise than on account of this section.

The indemnifying party shall be entitled to participate in the defense of the indemnified person but such participation will not relieve such indemnifying party of the obligation to reimburse the indemnified party for reasonable legal and other expenses incurred by such party in defending himself, herself or itself.

Item 30.  Principal Underwriters

(a) NMIS is the principal underwriter of the securities of the Registrant. NMIS is also the principal underwriter for the NML Variable Annuity Account A (811-21887), the NML Variable Annuity Account B (811-1668), the NML Variable Annuity Account C (811-21886), and the Northwestern Mutual Variable Life Account II (811-21933).

(b) As of April 30, 2016, the directors and officers of NMIS are as follows:

 

Name    Position
Rebekah B. Barsch    Vice President, Planning and Sales
Pency P. Byhardt    Vice President, Annuity Operations
Michael G. Carter    Director
Linda C. Donahue    NMIS Anti-Money Laundering (AML) Officer
Bradley L. Eull    Secretary
Don P. Gehrke    Director, Retail Investment Operations
Timothy J. Gerend    Director, Senior Vice President, Agencies
John M. Grogan    Director, Senior Vice President, Insurance and Investment Products
David P. Harley    Director, Investment Services
Andrew E. Iggens    Assistant Treasurer
Ronald P. Joelson    Director
Jennifer W. Murphy    Director, NMIS Home Office Supervision/Administration

 

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Jeffrey J. Niehaus    Director, Business Retirement Markets
K. David Nunley    Assistant Treasurer
Gregory C. Oberland    Executive Officer, Agencies, Sales and Marketing
Jennifer O’Leary    Treasurer and Financial and Operations Principal
Travis T. Piotrowski    Vice President, Policyowner Services
Daniel A. Riedl    Vice President, Chief Operating Officer
Bethany M. Rodenhuis    Senior Vice President, Agencies Strategy and Services
Calvin R. Schmidt    Director, Senior Vice President, Integrated Operations
Sarah R. Schneider    Vice President, New Business
Sarah E. Schott    Vice President, Compliance/Best Practices
David W. Simbro    Senior Vice President, Life and Annuity Product
Todd W. Smasal    Director, Human Resources
David G. Stoeffel    Director, President and Chief Executive Officer
Kellen A. Thiel    Director, Investment Products
Jeffrey B. Williams    Vice President, NMIS Compliance, and Chief Compliance Officer
Brian D. Wilson    Vice President, National Sales
Terry Young    Assistant Secretary

The address for each director and officer of NMIS is 611 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.

(c) NMIS, the principal underwriter, received $4,059,098 of commissions and other compensation, directly or indirectly, from Registrant during the last fiscal year.

Item 31.  Location of Accounts and Records

All accounts, books or other documents required to be maintained in connection with the Registrant’s operations are maintained in the physical possession of Northwestern Mutual at 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.

Item 32.  Management Services

There are no management-related service contracts, other than those referred to in Part A or Part B of this Registration Statement, under which management-related services are provided to the Registrant and pursuant to which total payments of $5,000 or more were made during any of the last three fiscal years.

Item 33.  Fee Representation

The Northwestern Mutual Life Insurance Company hereby represents that the fees and charges deducted under the variable life insurance policies which are the subject of this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company under the policies.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, and the Investment Company Act of 1940, the Registrant, Northwestern Mutual Variable Life Account, certifies that it meets all of the requirements for effectiveness of this Amended Registration pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amended Registration Statement to be signed on its behalf, in the City of Milwaukee, and State of Wisconsin, on the 28th day of April, 2016.

 

NORTHWESTERN MUTUAL VARIABLE LIFE

    ACCOUNT (Registrant)

  By      

THE NORTHWESTERN MUTUAL LIFE

INSURANCE COMPANY (Depositor)

 

Attest:  

/s/ RAYMOND J. MANISTA

  By:  

/s/ JOHN E. SCHLIFSKE

  Raymond J. Manista,     John E. Schlifske,
  General Counsel and Secretary     Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amended Registration Statement has been signed by the Depositor on the 28th day of April, 2016.

 

 

THE NORTHWESTERN MUTUAL LIFE

INSURANCE COMPANY (Depositor)

 

Attest:  

/s/ RAYMOND J. MANISTA

  By:  

/s/ JOHN E. SCHLIFSKE

  Raymond J. Manista,     John E. Schlifske,
  General Counsel and Secretary     Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amended Registration Statement has been signed below by the following persons in the capacities with the Depositor and on the dates indicated:

 

Signature                      Title
     Chairman, Trustee and

/s/ JOHN E. SCHLIFSKE

     Chief Executive Officer;
John E. Schlifske      Principal Executive Officer

/s/ MICHAEL G. CARTER

     Chief Financial Officer and
Michael G. Carter      Principal Financial Officer

/s/ TODD JONES

     Vice President and Controller;
Todd Jones      Principal Accounting Officer

 

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/s/ John N. Balboni*

     Trustee
John N. Balboni     

/s/ David J. Drury*

     Trustee
David J. Drury     

/s/ Connie K. Duckworth*

     Trustee
Connie K. Duckworth     

/s/ James P. Hackett*

     Trustee
James P. Hackett     

/s/ P. Russell Hardin*

     Trustee
P. Russell Hardin     

/s/ Hans Helmerich*

     Trustee
Hans Helmerich     

/s/ Dale E. Jones*

     Trustee
Dale E. Jones     

/s/ Margery Kraus*

     Trustee
Margery Kraus     

/s/ David J. Lubar*

     Trustee
David J. Lubar     

/s/ Ulice Payne, Jr.*

     Trustee
Ulice Payne, Jr.     

/s/ John E. Schlifske*

     Trustee
John E. Schlifske     

/s/ Mary Ellen Stanek*

     Trustee
Mary Ellen Stanek     

/s/ S. Scott Voynich*

     Trustee
S. Scott Voynich     

/s/ Ralph A. Weber*

     Trustee
Ralph A. Weber     

/s/ Benjamin F. Wilson*

     Trustee
Benjamin F. Wilson     

/s/ Edward J. Zore*

     Trustee
Edward J. Zore     

 

*By:         

/s/ JOHN E. SCHLIFSKE

   

John E. Schlifske, Attorney in fact,

pursuant to the Power of Attorney filed on February 18, 2016.

Each of the signatures is affixed as of April 28, 2016.

 

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EXHIBIT INDEX

EXHIBITS FILED WITH FORM N-6

POST-EFFECTIVE AMENDMENT NO. 28 TO

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

FOR

NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT

 

Exhibit  

       Description         
(k)         

Opinion and Consent of Raymond J. Manista, Esq. dated April 28, 2016

       Filed herewith
(n)         

Consent of PricewaterhouseCoopers LLP dated April 25, 2016

       Filed herewith
(q)         

Memorandum describing Issuance, Transfer and Redemption Procedures

       Filed herewith