Fitch Affirms Northwestern Mutual's IFS at 'AAA'.

CHICAGO -- Fitch Ratings affirms the 'AAA' insurer financial strength (IFS) rating of The Northwestern Mutual Life Insurance Co. (NM) and Northwestern Long Term Care Insurance Co. (NLTC). In addition, Fitch affirms the 'AAA' rating on Frank Russell Co.'s senior notes, which are unconditionally guaranteed by NM. The Rating Outlook is Stable.

Fitch's ratings reflect NM's very strong competitive position in the U.S. life insurance market and exceptionally strong balance sheet fundamentals. Fitch considers NM's key competitive advantages to include its successful distribution system, large and stable block of traditional life insurance, and focus on expense control.

The Northwestern Mutual Financial Network (NMFN), which is the sole distributor of NM's insurance products, is highly productive. NM was successful in improving the growth and productivity of NMFN in 2006 and 2007, which was a key priority for the organization and is critical to NM's ability to compete in the market. After the company experienced a decline in financial representative recruiting in 2003-2005, NM's recruiting has rebounded in the last two years, with increases in full-time recruits of 32% and 13% in 2006 and 2007 respectively. At the same time retention has improved since falling off in the late 1990's, resulting in level average five year retention ratio of 17.2% for the last three years.

NM's extremely strong balance sheet fundamentals reflect the company's very strong capital position, as demonstrated in Fitch's PRISM capital model scores of over 300% of the 'AAA' threshold level at year-end 2006, very low financial leverage and relatively low-risk liability profile. 2007 statutory surplus plus AVR increased to $15.8 billion due to the strong contribution of realized investment gains and good statutory operating earnings. From 2006 to 2007 risk based capital decreased from 474% to a still strong 462%. Fitch believes that NM's mutual status enhances the company's ability to maintain a strong capital position and execute on its long-term investment strategy. Fitch expects surplus to continue to increase, although at a slightly slower growth rate.

Other key rating factors include NM's above-average investment exposure to equity securities, real estate and commercial mortgages in its investment portfolio. Although NM has a larger than industry average allocation to real estate and commercial mortgages the credit risk in that portfolio appears to be relatively low. Commercial mortgages, had good demographic and diversification characteristics and strong performance in 2007. There were no mortgages categorized as 'troubled' at year-end 2007. In addition commercial mortgage-backed securities (CMBS) exposure and non-agency residential mortgage-backed securities (RMBS) exposure was low at about 5% of invested assets and almost no exposure to subprime securities. The concern with NM's sizable equity investment portfolio is the potential exposure of surplus to volatility from capital gains and losses over shorter time horizons. However, Fitch believes that the company's overall exposure to investment risk is reasonable considering the company's stable, long duration liabilities and strong statutory capital position.

Another factor Fitch notes is the company's reported operating returns, which tend to be lower than similarly rated peers. However NM's reported operating returns are measured after provision for over $5 billion in policyholder dividends, an industry leading rate and amount. Fitch believes NM enjoys significant flexibility in the amount of such dividends declared and paid if the need arises.

Outstanding debt consists of $350 million of senior notes issued by its affiliate Frank Russell Company and guaranteed by NM. Frank Russell also had $26 million outstanding in bank loans at year-end 2007. Fitch expects consolidated financial leverage to remain well below 10%.

NLTC is a wholly owned stock subsidiary of NM, and its financial strength rating reflects the strength of the entire NM organization, as well as the explicit capital support agreement between NM and NLTC.

Fitch affirms the following ratings with Stable Rating Outlook:

Northwestern Mutual Life Insurance Company

--IFS at 'AAA'.

Northwestern Long Term Care Company

--IFS at 'AAA'.

Frank Russell Company

--Senior debt at 'AAA'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.