Over the last two years, we have written extensively about the impact of the low interest rate environment on life insurance policy performance, primarily Current Assumption Universal Life policies. Many carriers have pointed to low interest rates as a primary cause for their cost of insurance (COI) increases in these policies. Anyone who has attended one of our webinars on life insurance policy subjects (see: https://www.itm21st.com/Education) knows that we describe Universal Life as a living Excel sheet—you can see each expense and credit in the policy if you know where to look.

Whole Life insurance is a bit harder to decipher. It is the proverbial “black box” of life insurance and the moving parts that drive performance are much less transparent. A Whole Life policy has a guaranteed cash value shown in the “as sold” illustration provided at policy issue and a projected total cash value driven by dividends paid on the policy. The dividend is determined by the actual experience of the company. There are three areas that affect the dividend paid by the carrier.

  1. Investment Earnings: If the earnings of the insurance carrier are more or less than assumed, the dividends will be affected positively or negatively.
  2. Mortality: If the actual carrier mortality experiences are more favorable (fewer deaths occur than expected), the effect on the dividend will be positive.
  3. Expenses: If the carrier’s actual expenses are worse than assumed, then the costs allocated to each policy increase. Accordingly, dividends may be negatively impacted.

Last week, Northwestern Mutual released its 2017 dividend scale and according to information received by ITM TwentyFirst we expect a decrease in their dividend scale on Whole Life policies, driven by lower earnings as well as an increase in some policy expenses.

According to that information, the investment earnings portion will experience a drop in the dividend scale interest rate for 2017 to 5% from the 2016 rate of 5.45%. The mortality component will experience no changes from 2016, but the carrier has stated that expense charges in the policies will see an increase. Overall, dividends paid on Whole Life policies will “generally be lower” in 2017.

For Northwestern Mutual ’s Universal Life policies, which are not participating (i.e., they do not receive dividends), the company announced a crediting rate drop “consistent with the 0.45% decrease to the dividend interest scale rate.” Additionally, the company announced that its Universal Life policies, both fixed and variable, will see expense charge increases similar to those found in Whole Life policies.

This announcement is another acknowledgement of the challenging times that carriers face in this low interest rate environment. Northwestern Mutual is considered by many to be one of the gold standard carriers in the industry. Their AM Best A++ rating, reaffirmed in May 2016, is the highest that can be obtained and reflects the company’s “favorable level of risk-adjusted capitalization” and “earnings diversification…along with a relatively stable investment yield when benchmarked against other ordinary life companies.” A.M. Best also noted the company’s “inherent pricing flexibility to adjust dividend scales prospectively to recognize current investment experience” as a reason for its excellent rating. (1.)

With this notice, it appears that Northwestern Mutual is simply adapting to the current world we live in. According to Northwestern Mutual‘s chief investment officer, the low interest rate environment resulted in the company generating $6 billion less in income than it would have in a normal interest rate environment. Total dividends paid on all products will actually drop to $5.2 billion in 2017, from the $5.6 billion paid in 2016. In response, the company has embarked on cost cutting measures that would pare 100 jobs by the end of 2016, with hundreds more to come in 2017. (2.)

In the notice about the changes on their inforce policies, the carrier suggested that all illustrations showing the current (lower) dividend scale/crediting rate should also be accompanied by a second illustration showing the outcome assuming an “alternate rate of at least 100 basis points below the current rate.” This is the sign of a company that is proactively providing information to help its agents and policy owners monitor policies. Let’s hope it is not a sign of further rate decreases and/or expense increases to come.

At ITM TwentyFirst, we manage close to 2,000 Northwestern Mutual policies and will be monitoring the effect of these changes for policy owners.


  1. AM Best Affirms Northwestern Mutual ‘s A++ Rating; Highlights Solid Performance, PRNewswire, May 11, 2016
  2. Northwestern Mutual to pay $5.2B in dividends in 2017, Milwaukee Business Journal, October 26, 2016