After explosive growth that outperformed the rest of the industry's historic growth in 2021, The Northwestern Mutual Life Insurance Co. believes its long-term approach, digital investments to complement its financial advisor sales force and focus on diversity and inclusion will allow the company to stand out against other life insurers, wealth managers and the biggest banks.
In the latest "Street Talk" podcast, Michael Carter, executive vice president, CFO and chief risk officer at Northwestern Mutual, discussed the drivers of the historic growth for the life insurance industry, competition with insurtechs and the impact of higher interest rates on the company's investment portfolio, including its commercial real estate exposures. Carter also spoke of the company's focus on diversity and inclusion.
The life insurance industry posted record growth in 2021 as the pandemic prompted consumers to think about their mortality, but Northwestern Mutual's growth was more than double that level, with individual life insurance sales exceeding 50%.
S&P Global Market Intelligence expects the life insurance growth rate to slow in 2022 from the historically high levels in 2021. However, Northwestern Mutual's Carter remains bullish about his company's growth prospects as some of the factors that drove its outsized growth last year remain in place. In 2021, Carter attributed the growth to the financial strength of Northwestern Mutual, the focus on the long term that its mutual structure provides and the successful recruitment efforts that bolstered its financial advisor sales force. The executive remains bullish on future growth as the company invests in digital products to complement its financial advisors, which have grown by 20% since the beginning of 2020, marking the best recruiting period in the company's history.
Carter said a focus on diversity and inclusion helped those recruitment efforts and noted that women and people of color accounted for 75% of the growth in full-time advisers.
"Our focus on being more diverse, that's a strategy of growth. It's a growth strategy," Carter said in the episode, recorded in early October. "It will pay dividends in sales for decades to come by getting a more diverse set. You're going to increase recruiting, when you look beyond [what was] maybe a target pool from a decade ago, but the diversity is leading to growth. That's going to lead to better company results. We have a bigger, better, stronger company because of it."
The executive also noted that the company focuses on creating a strong, relationship-based culture and believes that having employees in the office — at least through a hybrid model where employees spend three days a week in the office — is essential to that process.
"For us, it's about culture, not about productivity. And we think that as time goes on, more and more of our employees will choose to be back in the office to be with their co-workers to be in the beautiful campus environment that we have here and all the amenities that we provide," Carter said.
The company takes a similar view when it comes to balancing digital tools against a physical sales force. Carter said the company never sees digital tools replacing its financial adviser sales force but is investing in artificial intelligence to automate more than 60% of policy applications that it receives, allowing those customers to avoid going through medical examinations and other procedures before gaining coverage.
"People talk about at some point, replacing financial advisers with some kind of automated approach, some kind of system. We just don't believe that's going to work for the long term," Carter said.
While digital adoption accelerated during the pandemic, the move in interest rates has been even more notable over the last year. Carter said higher rates are beneficial to Northwestern Mutual because it offers the opportunity to deploy cash at higher yields in its investment portfolio. Northwestern has exposure to the commercial real estate market in that portfolio, including exposure to the office market. Northwestern Mutual ranked as the second-largest holder of mortgage loans in the U.S. life insurance industry as of June 30, 2022, trailing MetLife, Inc.
Carter noted that office represents just 11% of the company's real estate portfolio. He acknowledged that like any commodity-like office product will be challenged but said not all markets or exposures are created equal. For example, he noted that office utilization is stronger in Atlanta than in San Francisco but noted that higher-floor office buildings with water city views in the latter still perform stronger than others. Carter added that many other parts of the company's real estate portfolio perform well in an inflationary environment, including apartments and industrial properties.
"It depends what market you're in, what the submarket are you in, what's the particular building," Carter said. "I think all the commodity office space in every market is challenged. We actually feel pretty good about the exposure that we have. We're really disciplined in our office investment strategy."
"Street Talk" is a podcast hosted by S&P Global Market Intelligence.
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