Item 1. Business - ------------------
(a) General development of business.
There have been no material changes or developments since the beginning of the fiscal year in the business done or intended to be done by the registrant and its subsidiaries.
(b) Financial information about industry segments.
The registrant is a mutual life insurance company whose principal product is life insurance. The registrant also sells annuity contracts, including variable annuity contracts.
(c) Description of business.
The Registrant is the seventh largest life insurance company in the United States with total assets in excess of $54 billion on December 31, 1995.
The registrant's principal products are life insurance contracts distributed by approximately 5,600 full-time producing agents. Sales of life insurance contracts as a percentage of total sales is as follows:
As of December 31 1995, the registrant had 3,344 employees.
(d) Not applicable.
Item 2.
Item 2. Properties - --------------------
The principal properties used in the business are located at 720 East Wisconsin Avenue and 818 East Mason Avenue, Milwaukee, Wisconsin. The properties, which house the registrant's home office, include approximately three and one-half square blocks improved with three office buildings and a parking structure. Title to land and buildings is held in fee.
Item 3
Item 3 is on page 3.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 3. Legal Proceedings - --------------------------
The Northwestern Mutual Life Insurance Company is engaged in litigation of various kinds, which in its judgement is not of material importance in relation to its total assets. The litigation includes various administrative or judicial proceedings, relating to investments of the Registrant, arising under Federal, State or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment. The Registrant believes that these proceedings, singularly and in the aggregate, are not material. In addition, NML Variable Annuity Accounts A and C are not engaged in any litigation which is considered material to their total assets.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------
(a) Not applicable. The Registrant is a mutual life insurance company and has no stockholders as such.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 5
Item 5 is on page 4.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
PART II -------
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters - -------------------------------------------------------------------------
(a) Not applicable. The Registrant is a mutual life insurance company and has no equity securities or stockholders as such.
(b) Not applicable.
(c) Not applicable.
Item 6
Item 6 is on page 5.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 6. Selected Financial Data 5 - --------------------------------
Results of Operations for NML Variable Annuity Account A for each of the five years ending December 31, follows:
** Represents operations through April 29, 1993. # Commenced operations on April 30, 1993. ## Commenced operations on May 3, 1994.
See Notes to Financial Statements on page 22-23.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 6. (continued) 6 - --------------------
Changes in Equity for NML Variable Annuity Account A for each of the five years ending December 31, follows:
See Notes to Financial Statements on page 22-23.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 6. (continued) 7 - --------------------
Total Assets of NML Variable Annuity Account A for each of the five following years at December 31, follows:
** Capital Appreciation Stock Fund was merged into Index 500 Stock Fund on April 30, 1993. # Commenced operations on April 30, 1993. ## Commenced operations on May 3, 1994.
See Notes to Financial Statements on page 22-23.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 6. (continued) 8 - --------------------
Results of Operations for NML Variable Annuity Account C for each of the five years ending December 31, follows:
** Represents operations through April 29, 1993. # Commenced operations on April 30, 1993. ## Commenced operations on May 3, 1994. See Notes to Financial Statements on page 31-32.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 6. (continued) 9 - --------------------
Changes in Equity for NML Variable Annuity Account C for each of the five years ending December 31, follows:
See Notes to Financial Statements on page 31-32.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 6. (continued) 10 - --------------------
Total Assets of NML Variable Annuity Account C for each of the five following years at December 31, follows:
** Capital Appreciation Stock Fund was merged into Index 500 Stock Fund on April 30, 1993. # Commenced operations on April 30, 1993. ## Commenced operations on May 3, 1994.
See Notes to Financial Statements on page 31-32.
Item 7
Item 7 is on page 11.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------
(a) Liquidity ---------
The assets of the Northwestern Mutual Life Insurance Company Variable Annuity Accounts A and C are invested solely in shares of Northwestern Mutual Series Fund, Inc. Index 500 Stock Portfolio, Northwestern Mutual Series Fund, Inc. Aggressive Growth Stock Portfolio, Northwestern Mutual Series Fund, Inc. International Equity Portfolio, Northwestern Mutual Series Fund, Inc. Select Bond Portfolio, Northwestern Mutual Series Fund, Inc. Money Market Portfolio, Northwestern Mutual Series Fund, Inc. Balanced Portfolio, Northwestern Mutual Series Fund, Inc. Growth Stock Portfolio, Northwestern Mutual Series Fund, Inc. Growth and Income Stock Portfolio, and Northwestern Mutual Series Fund, Inc. High Yield Bond Portfolio (the "Funds"). The Funds are open-end investment companies registered under the Investment Act of 1940. In order to pay annuity benefits and expenses, the Accounts redeem shares in these Funds. The registrant's liquidity is not expected to change in a material way.
(b) Capital Resources -----------------
All payments from contract owners of NML Variable Annuity Accounts A and C are invested in shares of the Funds. The capital resources of NML Variable Annuity Accounts A and C are the equity in the respective Accounts. This consists of payments from the contract owners, plus unrealized and realized appreciation on the investment of these payments, plus investment income received from the Funds, minus payment of annuity benefits and expenses.
(c) Results of Operations ---------------------
NML Variable Annuity Account A ------------------------------
Accumulation Unit Values Contracts Issued Prior to December 17, 1981:
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 7. (Continued) - --------------------
Accumulation Unit Values Contracts Issued On or After December 17, 1981 and before March 31, 1995:
Accumulation Unit Values Contracts Issued On or After March 31, 1995: Front Load Version
# Growth Stock, Growth and Income Stock, and High Yield Bond Divisions began operations on May 3, 1994. The percentage change in unit value reflects performance from May 3, 1994.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Accumulation Unit Values Contracts Issued On or After March 31, 1995: Back Load Version
The change in equity for each period is largely derived from investment activities within the Account: A $29,681,098 increase for the year ended December 31, 1993, a $2,579,179 decrease for the year ended December 31, 1994, and a $96,695,584 increase for the year ended December 31, 1995. Net contributions (surrenders)from contract owners amounted to $17,380,160 for the year ended December 31, 1993, $18,651,028 for the year ended December 31, 1994, and $(13,795,319) for the year ended December 31, 1995.
NML Variable Annuity Account C ------------------------------
Accumulation Unit Values Contracts Issued Prior to December 17, 1981 or between April 30, 1984 and December 31, 1991:
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 7. (Continued) - --------------------
Accumulation Unit Values Contracts Issued On or After December 17, 1981 or before May 1, 1984:
Accumulation Unit Values Contracts Issued After December 31, 1991 - Front Load Version:
# Growth Stock, Growth and Income Stock, and High Yield Bond Divisions began operations on May 3, 1994. The percentage change in unit value reflects performance from May 3, 1994.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 7. (Continued) - --------------------
Accumulation Unit Values Contracts Issued After December 31, 1991 - Simplified Load Version:
# Growth Stock, Growth and Income Stock, and High Yield Bond Divisions began operations on May 3, 1994. The percentage change in unit value reflects performance from May 3, 1994.
The change in equity for each period is largely derived from investment activities within the Account: A $20,222,278 increase for the year ended December 31, 1993, a $946,478 increase for the year ended December 31, 1994, and a $68,906,233 increase for the year ended December 31, 1995. Net contributions (surrenders) from contract owners amounted to $17,414,485 for the year ended December 31, 1993, $21,988,786 for the year ended December 31, 1994, and $(1,482,462) for the year ended December 31, 1995.
Item 8
Item 8 is on page 16.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. Financial Statements and Supplementary Data - ----------------------------------------------------
NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
# Growth Stock, Growth and Income Stock, and High Yield Bond Portfolios began operations on May 3, 1994.
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (Continued) - -------------------- NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (Continued) - -------------------- NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
# Growth Stock, Growth and Income Stock, and High Yield Bond Divisions began operations on May 3, 1994.
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (Continued) - -------------------- NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (Continued) - -------------------- NML VARIABLE ANNUITY ACCOUNT A STATEMENT OF ASSETS AND LIABILITIES
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) - --------------------
NML VARIABLE ANNUITY ACCOUNT A COMBINED STATEMENT OF OPERATIONS AND CHANGES IN EQUITY For the Years Ended December 31
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) - --------------------
NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS
Note 1--NML Variable Annuity Account A (the "Account") is a segregated asset account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual Life") used to fund variable annuity contracts ("contracts") for HR-10 and corporate pension and profit-sharing plans which qualify for special tax treatment under the Internal Revenue Code. Beginning March 31, 1995, two versions of the contract are offered: Front Load contracts with a sales charge up to 4% of purchase payments and Back Load contracts with a withdrawal charge of 0-8%.
Note 2--The preparation of the financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Principal accounting policies are summarized below.
Note 3--All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund"). The shares are valued at the Fund's offering and redemption price per share.
On May 3, 1994, five new portfolios commenced operations in the Fund: Aggressive Growth Stock Portfolio (formerly Northwestern Mutual Aggressive Growth Stock Fund, Inc.), International Equity Portfolio (formerly Northwestern Mutual International Equity Fund, Inc.), Growth Stock Portfolio, Growth and Income Stock Portfolio and High Yield Bond Portfolio. Additionally, on May 3, 1994, the assets of Northwestern Mutual Life's Variable Annuity funds were merged into the respective portfolio of the Fund in a tax-free exchange of shares.
The Fund is an open-end investment company registered under the Investment Company Act of 1940.
Note 4--Annuity reserves are based on published annuity tables with age adjustment and benefit payments which reflect actual investment experience. For variable payment plans issued prior to January 1, 1974, annuity reserves are based on the 1955 American Annuity Table with assumed interest rates of 3%, 3 1/2% or 5%. For variable payment plans issued on or after January 1, 1974 and before January 1, 1985, annuity reserves are based on the 1971 Individual Annuity Table with assumed interest rates of 3 1/2% or 5%. For variable payment plans issued on or after January 1, 1985, annuity reserves are based on the 1983 Table a with assumed interest rates of 3 1/2% or 5%.
Note 5--Dividend income from the Fund is recorded on the record date of the dividends. Transactions in Fund shares are accounted for on the trade date. The basis for determining cost on sale of Fund shares is identified cost. Purchases and sales of Fund shares for the years ended December 31 by each Division are shown below:
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) - --------------------
NML VARIABLE ANNUITY ACCOUNT A NOTES TO FINANCIAL STATEMENTS
Note 6--On April 30, 1993, Northwestern Mutual Capital Appreciation Stock Fund was merged into the Northwestern Mutual Index 500 Stock Fund in a tax-free exchange of fund shares. 21,689,286 shares of Northwestern Mutual Capital Appreciation Stock Fund, Inc. were exchanged for 22,749,651 shares of Northwestern Mutual Index 500 Stock Fund, Inc. The shares exchanged were valued at $30,719,638 for each Division.
Note 7--A deduction for annuity rate and expense guarantees is determined daily and paid to Northwestern Mutual Life as compensation for assuming the risk that annuity payments will continue for longer periods than anticipated because the annuitants as a group live longer than expected, and the risk that the charges made by Northwestern Mutual Life may be insufficient to cover the actual costs incurred in connection with the contracts.
For contracts issued on or after March 31, 1995, for the Front Load version and the Back Load version, the deduction for annuity rate and expense guarantees is determined daily at annual rates of 4/10 of 1% and 1 1/4%, respectively, of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual Life. For these contracts, the rates may be increased or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed 3/4 of 1% and 1 1/2%, respectively.
For contracts issued on or after December 17, 1981 and before March 31, 1995, the deduction is at an annual rate of 1 1/4% of the net assets of each Division attributable to these contracts. For these contracts, the rate may be increased or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed a 1 1/2% annual rate.
For contracts issued prior to December 17, 1981, the deduction is at an annual rate of 3/4 of 1% of the net assets of each Division attributable to these contracts. For these contracts, the rate may be increased or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed a 1% annual rate.
Beginning in 1995, Northwestern Mutual Life paid a dividend to certain contracts. The dividend was reinvested in the Account and has been reflected as a Contract Owners' Net Payment in the accompanying financial statements.
Note 8--Northwestern Mutual Life is taxed as a "life insurance company" under the Internal Revenue Code and the operations of the Account form a part of and are taxed with those of Northwestern Mutual Life. Under current law, no federal income taxes are payable with respect to the Account. Accordingly, no provision for any such liability has been made.
Price Waterhouse LLP Letterhead
REPORT OF INDEPENDENT ACCOUNTANTS
To The Northwestern Mutual Life Insurance Company and Contract Owners of NML Variable Annuity Account A
In our opinion, the statements appearing on pages 16 through 23 present fairly, in all material respects, the financial position of NML Variable Annuity Account A at December 31, 1995 and 1994, and the results of its operations and the changes in its equity for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards which 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 provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP Milwaukee, Wisconsin January 24, 1996
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) Financial Statements and Supplementary Data - --------------------------------------------------------------------
NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
# Growth Stock, Growth and Income Stock, and High Yield Bond Portfolios began operations on May 3, 1994.
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) - -------------------- NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) - -------------------- NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) - -------------------- NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
# Growth Stock, Growth and Income Stock, and High Yield Bond Divisions began operations on May 3, 1994.
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) - -------------------- NML VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES
# Growth Stock, Growth and Income Stock, and High Yield Bond Divisions began operations on May 3, 1994.
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) - -------------------- NML VARIABLE ANNUITY ACCOUNT C COMBINED STATEMENT OF OPERATIONS AND CHANGES IN EQUITY For the Years Ended December 31
The Accompanying Notes are an Integral Part of the Financial Statements.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) - --------------------
NML VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS
Note 1--NML Variable Annuity Account C (the "Account") is a segregated asset account of The Northwestern Mutual Life Insurance Company ("Northwestern Mutual Life" or "Sponsor") used to fund variable annuity contracts ("contracts") for HR-10 and corporate pension and profit- sharing plans which qualify for special tax treatment under the Internal Revenue Code. Beginning December 31, 1991, two versions of the contract are offered: Front Load contracts with a sales charge up to 4.5% of purchase payments and Simplified Load contracts with an installation fee of $750.
Note 2--The preparation of the financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Principal accounting policies are summarized below.
Note 3--All assets of each Division of the Account are invested in shares of the corresponding Portfolio of Northwestern Mutual Series Fund, Inc. (the "Fund"). The shares are valued at the Fund's offering and redemption price per share.
On May 3, 1994, five new portfolios commenced operations in the Fund: Aggressive Growth Stock Portfolio (formerly Northwestern Mutual Aggressive Growth Stock Fund,Inc.), International Equity Portfolio (formerly Northwestern Mutual International Equity Fund, Inc.), Growth Stock Portfolio, Growth and Income Stock Portfolio and High Yield Bond Portfolio. Additionally, on May 3, 1994, the assets of Northwestern Mutual Life's Variable Annuity funds were merged into the respective portfolio of the Fund in a tax-free exchange of shares.
The Fund is an open-end investment company registered under the Investment Company Act of 1940.
Note 4--Annuity reserves are based on published annuity tables with age adjustment and benefit payments which reflect actual investment experience. Annuity reserves are based on the 1983 Table a with assumed interest rates of 3 1/2% or 5%.
Note 5--Dividend income from the Fund is recorded on the record date of the dividends. Transactions in Fund shares are accounted for on the trade date. The basis for determining cost on sale of Fund shares is identified cost. Purchases and sales of Fund shares for the years ended December 31 by each Division are shown below:
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 8. (continued) - --------------------
NML VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS
Note 6--On April 30, 1993, Northwestern Mutual Capital Appreciation Stock Fund was merged into the Northwestern Mutual Index 500 Stock Fund in a tax-free exchange of fund shares. 23,586,477 shares of Northwestern Mutual Capital Appreciation Stock Fund, Inc. were exchanged for 24,739,593 shares of Northwestern Mutual Index 500 Stock Fund, Inc. The shares exchanged were valued at $33,406,725 for each Division.
Note 7--A deduction for annuity rate and expense guarantees is determined daily and paid to Northwestern Mutual Life as compensation for assuming the risk that annuity payments will continue for longer periods than anticipated because the annuitants as a group live longer than expected and the risk that the charges made by Northwestern Mutual Life may be insufficient to cover the actual costs incurred in connection with the contracts.
Generally, for contracts issued on or after December 31, 1991, for the Front Load Version and the Simplified Load Version, the deduction for annuity rate and expense guarantees is determined daily at annual rates of 6.5/10 of 1% and 1 1/4%, respectively, of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual Life. For these contracts, the rates may be increased or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed 1% and 1 1/2% annual rates, respectively.
Generally, the deduction for contracts issued before December 17, 1981 or between April 30, 1984 and December 31, 1991 as provided for in the contracts has been waived by the Board of Trustees of Northwestern Mutual Life. For these contracts, the rate may be determined by the Board of Trustees of Northwestern Mutual Life not to exceed a 1/4 of 1% annual rate.
For contracts issued on or after December 17, 1981, and before May 1, 1984, the deduction is determined daily at an annual rate of 1/2 of 1% of the net assets of each Division attributable to these contracts and is paid to Northwestern Mutual Life. For these contracts, the rate may be increased or decreased by the Board of Trustees of Northwestern Mutual Life not to exceed a 3/4 of 1% annual rate.
Note 8--Northwestern Mutual Life is taxed as a "life insurance company" under the Internal Revenue Code and the operations of the Account form a part of and are taxed with those of Northwestern Mutual Life. Under current law, no federal income taxes are payable with respect to the Account. Accordingly, no provision for any such liability has been made.
Item 9
Item 9 is on page 34.
[PRICE WATERHOUSE LLP LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To The Northwestern Mutual Life Insurance Company and Contract Owners of NML Variable Annuity Account C
In our opinion, the statements appearing on pages 25 through 32 present fairly, in all material respects, the financial position of NML Variable Annuity Account C at December 31, 1995 and 1994, and the results of its operations and the changes in its equity for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards which 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 provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP Milwaukee, Wisconsin January 24, 1996
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 9. Disagreements on Accounting and Financial Disclosure - -------------------------------------------------------------
Not applicable.
Item 10
Item 10 is on page 35.
The Northwestern Mutual Life Insurance Company 35 ---------------------------------------------- Form 10-K ---------
PART III --------
Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------
(a) The following information as of March 1, 1996 is provided with respect to each director, including persons chosen to become directors, of the Registrant. The Registrant uses the title of Trustee to denote the directors.
(1) Candidate proposed for re-election by the Board of Trustees for the election to be held at the May 1996 meeting of policyholders. If re-elected, these Trustees' terms will expire in May of 2000.
* Retiring on May 22, 1996.
The Northwestern Mutual Life Insurance Company 36 ---------------------------------------------- Form 10-K ---------
(1) Candidate proposed for re-election by the Board of Trustees for the election to be held at the May 1996 meeting of policyholders. If re-elected, these Trustees' terms will expire in May of 2000.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 10. (continued) - ---------------------
(b) The following information as of March 1, 1996 is provided with respect to each Executive Officer of the Registrant.
All of the Executive Officers, except Susan A. Lueger, have been associated with the Registrant, although not necessarily in their present positions, for more than five years.
Susan A. Lueger has been Vice President of NML since May, 1994; Vice President of Human Resources at Wisconsin Electric Power Company 1992-1994; prior thereto with WEPC in the following positions: Assistant Vice President-Human Resources 1/92 to 11/92; Director-Human Resources 5/91 to 1/92; Manager-Compensation & Benefits Division 7/90 to 5/91; Project Specialist-Employment and Training Division 2/88 to 7/90.
The Northwestern Mutual Life Insurance Company 38 ---------------------------------------------- Form 10-K ---------
Item 10. (continued) - ---------------------
Term of office for all Executive Officers is one year expiring May 31, 1996.
(c) Not applicable
(d) No one of the Executive Officers or Trustees is related to any other to the best of our knowledge.
(e) Business experience and directorships of Trustees are as follows:
The Northwestern Mutual Life Insurance Company 39 ---------------------------------------------- Form 10-K ---------
The Northwestern Mutual Life Insurance Company 40 ---------------------------------------------- Form 10-K ---------
* Note: Prior to 2/15/95, this company was known as Systematics Information Services, Inc.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 10. (continued)
(f) To the best of the Registrant's knowledge, none of the Registrant's Executive Officers or Trustees have been involved in any of the items required to be reported in response to Item 401(f) of Regulation S-K.
(g) Not applicable.
Item 11
Item 11 is on page 42.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 11. Executive Compensation - ---------------------------------
Not applicable. NML Variable Annuity Accounts A and C have no directors or executive officers, the Executive Officers and Trustees of The Northwestern Mutual Life Insurance Company spend no substantial portion of their time on matters relating to NML Variable Annuity Accounts A and C, and the amounts of compensation received by the Executive Officers and Trustees of The Northwestern Mutual Life Insurance Company have no bearing on the values associated with variable annuity contracts issued in connection with Northwestern Mutual Variable Annuity Accounts A and C.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------
(a) Not applicable. The Registrant is a mutual life insurance company and has no stockholders as such.
(b) Not applicable.
(c) Not applicable.
Item 13
Item 13 is on page 44.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 13. Certain Relationships and Related Transactions - ---------------------------------------------------------------
(a) (1) The Registrant's second-tier subsidiary, Northwestern Mutual Investment Services, Inc.("NMIS"), serves as the investment adviser to Northwestern Mutual Series Fund, Inc. (the "Fund"), a series company registered as an open-end management company under the Investment Company Act of 1940 and consisting of nine portfolios; and the Registrant is a party to an investment advisory agreement with each of these portfolios: the Index 500 Stock Portfolio, the Select Bond Portfolio, the Money Market Portfolio, the Balanced Portfolio, the Growth and Income Stock Portfolio, the Growth Stock Portfolio, the Aggressive Growth Stock Portfolio, the High Yield Bond Portfolio and the International Equity Portfolio. The investment advisory agreements with each portfolio were renewed during the fiscal year. Various Trustees and Officers of the Registrant serve as directors and officers of the Fund and may be deemed to have a direct or indirect material interest in the existence of the investment advisory agreements.
(2) Various Trustees and Officers of the Registrant have securities accounts with Robert W. Baird and Co. Incorporated ("Baird") and effected transactions through such accounts during the fiscal year. Baird is a regional broker-dealer firm and a member of the New York Stock Exchange. Baird is a majority-owned indirect subsidiary of the Registrant.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
Item 13. (continued) - ---------------------
(b) The Registrant, during 1995, retained the law firm of Monroe & Lemann, of which J. Thomas Lewis, a Trustee of the Registrant, is a member. The firm was retained to perform certain legal services for the Registrant.
(c) Loans are made to Trustees and Officers in accordance with the provisions of insurance policies which they may own. Such loans are made in the ordinary course of business and are administered solely according to the terms of the policy.
(d) Not applicable. The Registrant was not organized within the past five years.
Item 14
Item 14 is on page 46.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
THE NORTHWESTERN MUTUAL LIFE - ---------------------------- INSURANCE COMPANY - ----------------- CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------- DECEMBER 31, 1995, 1994 AND 1993 - --------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
To the Board of Trustees and Policyowners of The Northwestern Mutual Life Insurance Company
In our opinion, the accompanying consolidated statement of financial position and the related consolidated summary of operations, statement of general contingency reserve and statement of cash flows present fairly, in all material respects, the financial position of The Northwestern Mutual Life Insurance Company and its subsidiary at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles (practices prescribed or permitted by insurance regulatory authorities - see Note 1). These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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 provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP January 24, 1996
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY ---------------------------------------------- CONSOLIDATED STATEMENT OF FINANCIAL POSITION -------------------------------------------- (In millions)
The accompanying notes are an integral part of the financial statements.
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY ---------------------------------------------- CONSOLIDATED SUMMARY OF OPERATIONS ---------------------------------- (In millions)
The accompanying notes are an integral part of the financial statements.
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY ---------------------------------------------- CONSOLIDATED STATEMENT OF GENERAL CONTINGENCY RESERVE ----------------------------------------------------- (In millions)
The accompanying notes are an integral part of the financial statements.
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY ---------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (In millions)
The accompanying notes are an integral part of the financial statements.
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1995, 1994 AND 1993 --------------------------------
NOTE 1 - PRINCIPAL ACCOUNTING POLICIES - --------------------------------------
The accompanying consolidated financial statements include the accounts of The Northwestern Mutual Life Insurance Company (the "Company") and its wholly-owned life insurance subsidiary. The Company offers life, annuity and disability income products to the personal, business, estate and tax-qualified markets.
The consolidated financial statements have been prepared using accounting policies prescribed or permitted by the Insurance Departments of the states in which the Company and its subsidiary are domiciled. These policies are considered generally accepted accounting principles for mutual life insurance companies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions 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 reporting period. Actual results could differ from those estimates.
In April 1993, the Financial Accounting Standards Board issued Interpretation No. 40, "Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises," which establishes a different definition of generally accepted accounting principles for mutual life insurance companies. Under the Interpretation, financial statements of mutual life insurance companies for periods beginning after December 15, 1995 which are prepared on the basis of statutory accounting will no longer be characterized as in conformity with generally accepted accounting principles.
In order to continue to present financial statements in accordance with generally accepted accounting principles for general purpose distribution in 1996, the Company is considering presenting its financial statements in accordance with the requirements of the Interpretation. Management believes that financial statements prepared on this basis would result in an increase to its general contingency reserve. The effects of this change in accounting basis would be reported retroactively through restatement beginning with the earliest year presented.
Investments - -----------
The Company's investments are valued on the following bases:
Separate Account Business - -------------------------
This business consists of annuities funded by specific assets held in separate accounts. The assets in these accounts are carried at market value. The policy values reflect the investment performance of the respective accounts.
Insurance, Annuity and Disability Income Reserves - -------------------------------------------------
Life insurance reserves on substantially all policies issued since 1978 are based on the Commissioner's Reserve Valuation Method with interest rates ranging from 3-1/2% to 5-1/2%. Other policy reserves are based primarily on the net level premium method employing various mortality tables at interest rates ranging from 2% to 4-1/2%.
Deferred annuity reserves on policies issued since 1985 are valued using the Commissioner's Annuity Reserve Valuation Method with interest rates ranging from 3-1/2% to 6-1/4%. Other deferred annuity reserves are based on the contract value. Immediate annuity reserves are present values of expected benefit payments at interest rates ranging from 3-1/2% to 7-1/2%.
Active life reserves for disability income ("DI") policies issued since 1987 are primarily based on the two-year preliminary term method using a 4% interest rate and the 1985 Commissioner's Individual Disability Table A ("CIDA") for morbidity. Previous DI business used the net level premium method, using a 3% or 4% interest rate and the 1964 Commissioner's Disability Table for morbidity. Disabled life reserves for DI policies are based on the present values of expected benefit payments using primarily the 1985 CIDA (modified for Company experience in first two years of disability) with interest rates ranging from 3% to 5 1/2%.
Use of these actuarial tables and methods involves estimation of future mortality and morbidity based on past experience. Actual future experience could differ from these estimates.
Interest Maintenance Reserve - ----------------------------
The Company is required to maintain an interest maintenance reserve ("IMR"). The IMR establishes a reserve for realized gains and losses, net of tax, resulting from changes in interest rates on short and long-term fixed income investments. Net realized gains and losses charged to the IMR are amortized into investment income over the approximate remaining life of the investment sold.
Asset Valuation Reserve - -----------------------
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The Company is also required to maintain an asset valuation reserve ("AVR"). The AVR establishes a reserve for certain invested assets held by the Company. In the aggregate, AVR was 82% and 84% of the allowable maximum at December 31, 1995 and 1994, respectively.
Premium Income - --------------
Life insurance premiums are recognized as income at the beginning of each policy year.
Reinsurance - -----------
In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding business to other insurance enterprises or reinsurers under excess coverage and co-insurance contracts. As of December 31, 1995 and 1994, total life insurance inforce approximated $380 billion and $347 billion, respectively, of which approximately $113 billion and $104 billion, respectively, comprised principally of term insurance, had been ceded to various reinsurers. The Company retains a maximum of $10 million of coverage per individual life.
Operating Costs - ---------------
Operating costs, including costs of acquiring new policies, are charged to operations as incurred.
Income Taxes - ------------
Provisions for income taxes are based on current income tax returns without recognition of deferred taxes due to timing differences. The portion of the federal income tax based on mutual life insurance company equity is reflected as a component of income tax expense, including related adjustments for prior years.
The Company files a consolidated life-nonlife federal income tax return. Federal income tax returns for years through 1988 are closed as to further assessment of taxes. Adequate provision has been made in the financial statements for any additional taxes which may become due with respect to the open years.
The Company's effective tax rate on savings from operations before income tax expense (after dividends) in 1995, 1994 and 1993 was approximately 60%, 50% and 39%, respectively. Two significant factors cause the Company's effective rate to exceed the federal corporate rate of 35%. First, the Company pays a tax that is assessed only on mutual life insurance companies, which is an amount that purports to equate a portion of policyholder dividends with nondeductible dividends paid to shareholders of stock companies. Second, the Company must capitalize and amortize (as opposed to immediately deducting) an amount deemed to represent the cost of acquiring new business ("DAC tax").
Policyowner Dividends - ---------------------
Dividends payable in the following year on participating policies are charged to current operations. All life insurance policies issued by the Company are participating.
NOTE 2 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - --------------------------------------------------------------
The following summarizes the bases used by the Company in estimating its fair value disclosures for financial instruments:
Bonds and preferred stocks - Fair values are based upon quoted market prices, if available. For securities not actively traded, fair values are estimated using independent pricing services or internally developed pricing models.
Mortgage loans - Fair values are derived by discounting the future estimated cash flows using current interest rates for debt securities with similar credit risk and maturities, or utilizing net realizable values.
Loans on policies - The carrying amount reported in the statement of financial position approximates fair value since loans on policies reduce the amount payable at death or at surrender of the contract.
Cash and temporary investments and due and accrued investment income - The carrying amounts reported in the statement of financial position approximate fair value.
Annuity reserves (without mortality/morbidity features) - Fair values are derived by discounting the future estimated cash flows using current interest rates with similar maturities.
Other deposit liabilities - The carrying amounts reported in the statement of financial position approximate fair value.
NOTE 3 - INVESTMENTS - --------------------
Net Investment Income - ---------------------
The Company's net investment income for the years ended December 31, 1995, 1994 and 1993 consists of the following:
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Realized Gains and Losses - -------------------------
During 1995, 1994 and 1993, the Company, in its normal course of business, sold certain invested assets realizing gains and losses before transfer to the IMR and capital gains tax from such sales as follows:
Debt Securities - ---------------
Debt securities consist of all bonds, fixed maturity preferred stocks and short term fixed income investments.
The statement values, which principally represent amortized cost, and estimated market values of the Company's debt securities at December 31, 1995 and 1994 are as follows:
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The amortized cost and estimated market value of debt securities at December 31, 1995 and 1994, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The fair value of perpetual preferred stocks as of December 31, 1995 and 1994 approximates $578 million and $440 million, respectively, compared to the statement values of $439 million and $440 million, respectively.
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Mortgage Loans - --------------
As of December 31, 1995 and 1994, the mortgage loan portfolio was distributed as follows:
The fair value of mortgage loans as of December 31, 1995 and 1994 approximates $8,983 million and $6,879 million, respectively. Decreases in current interest rates were a major reason for the increase in fair value relative to statement value in 1995.
Affiliates - ----------
The Company has a 19.87% investment in MGIC Investment Corporation ("MGIC"), an affiliate. At December 31, 1995, the Company's investment in MGIC (11.7 million shares) exceeded the statement value by $420 million.
In July 1995, the Company entered into a forward contract with a brokerage firm to deliver 4.4 million to 5.4 million shares of MGIC (or cash) in August 1998 for a price determined by the market value of the MGIC shares at that time in exchange for a fixed cash payment of $247 million ($48 per share). The Company's objective in entering into the forward contract is to hedge against depreciation in the value of its MGIC holdings during the contract period below the initial spot price of $48, while partially participating in appreciation, if any, during the forward contract's duration.
Real Estate - -----------
For real estate and joint venture properties acquired subsequent to December 1990, the Company calculates depreciation using the straight-line method in accordance with guidelines established by the National Association of Insurance Commissioners. For properties acquired prior to December 1990, the Company calculates depreciation using either the straight-line method or the constant-yield method. Home office real estate is depreciated using the straight-line method.
At December 31, 1995 and 1994, investment real estate includes $175 million and $146 million, respectively, of real estate acquired through foreclosure. In 1995, the Company recorded writedowns of $8 million and $28 million for the excess of carrying value over fair value of certain real estate investments and mortgage loans, respectively. Valuation allowances for real estate and mortgage loans with fair values that are less than statement values are adequately covered by normal AVR reserves and by a $90 million special investment reserve established by the Company for real estate, mortgage loans and other invested assets.
Derivative Financial Instruments - --------------------------------
The Company's current utilization of derivative financial instruments is limited. Most of the Company's derivative transactions are used to reduce or modify risks of volatility related to currency or interest rate movements. These hedging strategies use forwards, futures and swaps. At December 31, 1995 and 1994, the Company held foreign currency forward contracts with a notional value of $889 million and $605 million, respectively, as a partial hedge against foreign currency exposure of foreign denominated investments. Changes in the market value of these contracts offset currency gains and losses on the hedged investments. The capital gains or losses are unrealized before contract settlement and realized on settlement. These currency hedges and the MGIC forward contract described above represent most of the
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Company's derivative positions. The effect of derivative transactions is not significant to the Company's results from operations or financial position.
NOTE 4 - ANNUITIES AND OTHER DEPOSIT LIABILITIES - ------------------------------------------------
The fair value of annuities and other deposit liabilities as of December 31, 1995 and 1994 are as follows:
NOTE 5 - BENEFIT PLANS - ----------------------
The Company maintains non-contributory defined benefit retirement plans for all eligible employees and agents as well as a 401(k) plan for eligible employees and a non-contributory defined contribution plan for all full-time agents. These plans are funded currently and plan assets of $1,152 million at December 31, 1995 are primarily included in the separate accounts of the Company. In 1995, the Company made a contribution of $13 million to the employee retirement plan; as of January 1, 1995, the most recent actuarial valuation date available, the defined benefit plans were fully funded.
In addition to pension benefits, the Company provides certain health care and life insurance benefits ("postretirement benefits") for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the Company.
Postretirement benefit expenses, which includes the expected cost of postretirement benefits for newly eligible and vested employees and interest costs, were $7 million, $7 million and $9 million for the years ended December 31, 1995, 1994 and 1993, respectively. At December 31, 1995 and 1994, the unfunded postretirement benefit obligation for retirees and other fully eligible or vested employees was $49 million and $47 million, respectively. The estimated postretirement benefit obligation for active non-vested employees was $46 million and $44 million at December 31, 1995 and 1994, respectively. The discount rate used to determine the postretirement benefit obligation was 7% and the health care cost trend rate was 12% in 1995, declining by 1% per year to an ultimate rate of 5% over 7 years. If the health care cost trend rate assumptions were increased by 1%, the postretirement benefit obligation as of December 31, 1995 would be increased by $6 million.
At December 31, 1995 and 1994, plan assets attributable to postretirement health care benefits totaled $31 million and $25 million, respectively.
NOTE 6 - REINSURANCE - --------------------
The amounts shown in the accompanying consolidated financial statements are net of reinsurance activity. The effect of reinsurance on premiums and benefits for the years ended December 31, 1995, 1994 and 1993 are as follows (in millions):
In addition, during 1995, 1994 and 1993, the Company received credits of $67 million, $63 million and $59 million, respectively, from reinsurers representing reimbursements of commissions and other expenses. These credits are included in other income in the consolidated summary of operations.
Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies.
NOTE 7 - CONTINGENCIES - ----------------------
In the normal course of business, the Company enters into transactions to reduce its exposure to fluctuations in interest rates and market volatility. These instruments may involve credit risk and may also be subject to risk of loss due to interest rate fluctuations.
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The Company has guaranteed certain obligations of its affiliates. These guarantees totaled approximately $126 million and $83 million at December 31, 1995 and 1994, respectively, and are generally supported by the underlying net asset values of the affiliates.
The Company is engaged in various legal actions in the normal course of its investment and insurance operations. In the opinion of management, any losses resulting from such actions would not have a material effect on the Company's financial condition.
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
EXHIBIT I
Reference is made to a form of deferred compensation agreement filed as Exhibit B-2 with Form 10-K for 1970 and The Northwestern Mutual Employee Savings Plan filed as Exhibit II for 1985. Pursuant to such contracts the following amounts were deferred in 1995:
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (Registrant)
By James D. Ericson --------------------------------------------- James D. Ericson President and Chief Executive Officer
By Gary E. Long --------------------------------------------- Gary E. Long Vice President and Controller
Date: March 20, 1996 --------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated March 20, 1996
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
SIGNATURES (continued)
The Northwestern Mutual Life Insurance Company ---------------------------------------------- Form 10-K ---------
SIGNATURES (continued)