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America’s Protection Gap: An “Exclusive” Approach to Meeting the Need

Steve Mannebach, CLU, MSM

Vice President – Field Growth & Development Northwestern Mutual

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Northwestern Mutual Facts

Located in Milwaukee; founded in 1857 Mutual Company operating for the long-term benefit of

policyowners $190 billion in assets; $24 billion in annual revenues $5 billion of dividends expected to be paid to

policyowners in 2013 $1.3 trillion worth of life insurance in force; 3.5 million

policyowners 300 offices nationwide; 6,500 full-time financial reps

(FR), 2,500 college FRs, 1,000 senior FRs

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Structure of Our Distribution System

Affiliated Independent

Employee Status common law, statutory, independent

contractor

Direct/3rd Party

Direct Response Branch

Office General Agency

PGA Insurance Broker

Financial Institution

Advisor &

Planner

Exclusive (Career or MLEA)

Non-exclusive

or

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Sales Force Trends

195,141 178,864

165,024 162,271 163,814

118,685

151,977 161,955 163,409 149,187

313,826 330,841 326,979 325,680 313,001

1998 2001 2004 2007 2010

Affiliated agents Independent producers Total sales force

4

LIMRA’s Census of U.S. Sales Personnel

Number of advisors

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The Northwestern Mutual Paradox:

Strengths of our distribution model means that any attempt to mitigate

them through change in model (e.g. diversifying away from the risks),

by definition reduces or weakens those very strengths

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The Northwestern Mutual Paradox: (continued)

Therefore, we face a dichotomy, either:

1. Change distribution model and risk unintended consequences in exchange for reducing distribution model risks, or

2. Maintain distribution model and redouble company efforts to ensure that risks don’t occur.

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Core Belief

Our products and the value they provide are created as much by the way we distribute them

as by the way we design them.

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Circle of Success

Exclusive NM Financial Rep

The NM Policyowner

Superior Product Value

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The Northwestern Mutual Recruit

Excusive NM Financial Rep: College educated; age 30 99% are inexperienced to the industry 80% of candidates will score a 13+ on LIMRA’s Career

Profile FRs will be trained to develop life-long relationships with

clients – before clients build wealth Risk management will be their initial focus Processed 240,000 leads to recruit 2,400 FT FRs in 2012 Recruited 3,200 college interns FRs in 2012

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The Exclusive NM Career FR

Average age is 40; median 37 60% hold a professional designation Aligned with the value of doing what is in the best

interest of the policyowner for the long-term and therefore does not demand: - Lowest going-in premium - Loosest underwriting standards - Product gimmicks for a quick one-time sale - Highest first-year commissions

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“The fact is with most agents a salary is more demoralizing than whiskey, it seems to persuade them to put off until

tomorrow what could be accomplished today.”

• Matthew Keenan, Superintendent of Agencies, 1870s

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Source: LIMRA International - 2011 Agent Production and Retention Survey * Includes earnings on annuities and investment products. ^ Annualized premium on life insurance, DI & LTC. Excludes deposits on annuity and investment products.

Protection Products Premium^

Total Earnings (All Products)*

2011 FR Productivity For Average 5+ Year FR

Northwestern Mutual $226,259 $188,835

Industry Average 141,919 104,771

Closest Competitor 192,174 119,785

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NM Lapse Ratio vs. Industry Average Superior product value:

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NM Mortality Rate vs. Industry Average

Source: Society of Actuaries Intercompany Mortality Studies

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NM Unit Cost vs. Industry Average

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Dividends Over Time

* Dividend Scale Interest Rate (DSIR) for unborrowed funds for most traditional permanent life insurance policies with Direct Recognition.

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

1993 2003 2013

Disability Income, Annuities & Long Term Care Life: Mortality, Expenses & Additional Benefits Life: Interest

$1.8 billion

$5.0 billion (estimated)

71%

26% 3%

60%

37%

32%

61%

DSIR* = 9.25% DSIR* = 8.20% DSIR* = 5.60%

3%

7%

$3.8 billion

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The Challenges of Growing an Exclusive Distribution System

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OUTCOMES CAPABILITIES

More: Client centricity Keep: Financial discipline

More: Proactive strategies to guide the Field

Keep: Responsiveness to the Field

More: Accountability Keep: Collaboration

DRIVERS

Deliver Expert Guidance To Clients

Manage The Fundamentals

Ensure Financial Strength

Live By Mutual Values

Deliver Financial Security

$300K

Total Field Revenue per 5+ yr FR

$150M FYC <5yr FRs

Strengthen Exclusive Distribution

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Under Five Year Growth Core 4 Recruiting Internship Program Early Productivity Leadership Development

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<5 Total Lives and New Clients

2008 2009 2010 2011 3-YearCAGR

Lives 106,313 123,203 140,529 150,475 12.3%New Clients 59,813 68,014 75,131 80,321 10.3%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Tota

l Liv

es

N

ew C

lient

s

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Leadership Development

Presenting Sponsor: Produced By: Source: Northwestern Mutual Financial Security Study – August 2010

Client perception of FR as broad-based planner

Clients Prefer a Comprehensive Approach

1 to 2 3 to 4 5 to 6 7 to 8 9 to 10

7% 13%

36%

55%

87%

97%

Satisfied with FR

Will consider FR for future financial needs

Willingness to provide referrals

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Planning Personal Planning Analysis

Customized to our unique planning process Allows our FRs to plan for their clients at every

life stage, from simple needs analysis to comprehensive financial planning Provided to/supported free of charge to our

Field Integrated with CRM software for product

downloads Graphical and/or numerical presentation Easily illustrates results of recommendations

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Our Opportunity,

Our Responsibility

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Declining Individual Life Sales

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Increasing Life Policy Lapses

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Sales Force Trends

195,141 178,864

165,024 162,271 163,814

118,685

151,977 161,955 163,409 149,187

313,826 330,841 326,979 325,680 313,001

1998 2001 2004 2007 2010

Affiliated agents Independent producers Total sales force

27

LIMRA’s Census of U.S. Sales Personnel

Number of advisors

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Morality Protection Gap $20,000,000,000,000