FAQ on TIAA's Issuance of Surplus Notes
December 16, 2009
What type of notes did TIAA issue?
TIAA issued surplus notes, which are debt instruments subordinated to policyholder claims, beneficiary claims and claims of other classes of creditors of TIAA, as specified under New York law. Each interest and principal payment on the surplus notes requires the express prior approval of the superintendent of the New York State Insurance Department.
Why did TIAA do this?
The notes enable TIAA to further reinforce its strong capital position.
Why now?
Market conditions are currently favorable for these types of surplus notes, as evidenced by issuances from other life insurance companies over the past year.
How will TIAA use the capital it raised from the sale?
The net proceeds of the sale of these notes will be used for general corporate purposes.
Why do the notes carry a different rating than TIAA's insurance financial strength rating?
Debt issuances typically receive a lower rating than the issuing entity's financial strength rating because the notes are subordinate to policyholder claims.
TIAA's surplus notes received a rating of AA from Fitch Ratings and S&P while Moody's gave the notes its equivalent Aa2 rating. Ratings of specific issuances are distinct from the issuer's overall insurance financial strength rating.
Note that earlier this year, Moody's, Standard & Poor's and Fitch Ratings all affirmed TIAA's insurance financial strength ratings - the highest possible ratings from these agencies.1 At the same time, each of Moody's, S&P and Fitch revised TIAA's outlook to negative from stable, reflecting the overall insurance industry's outlook.
Note that these ratings do not apply to any other product or service not fully backed by TIAA's claims-paying ability. Additional information about TIAA's insurance financial strength ratings can be found here.
What is TIAA's capital position?
TIAA's adjusted capital position (which encompasses TIAA's capital and contingency reserves of $17.7 billion as well as asset valuation reserves of $415 million) stood at $18.1 billion as of September 30. For additional information on the performance of the TIAA General Account please click here.
Is CREF involved in this offering?
No. These notes will be obligations only of TIAA. CREF's assets, as well as those of the TIAA-CREF Funds, will not serve as a payment source for the notes, and CREF and the TIAA-CREF Funds are not obligated in any way under the notes.
1 Aaa by Moody's (as of 10/09); AAA by Fitch Ratings (as of 6/09); AAA by Standard & Poor's (as of 6/09); and A++ by A.M. Best Company (as of 9/08). Ratings are subject to change. There is no guarantee that current ratings will be maintained.
TIAA-CREF Individual & Institutional Services, LLC, and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products. Annuity products are issued by TIAA (Teachers Insurance and Annuity Association), New York, NY.
