TIAA Statement on Action by Standard & Poor’s

Today’s action by Standard & Poor’s (S&P) affirms TIAA’s AAA insurance financial strength rating, which reflects TIAA’s extremely strong financial security characteristics, while maintaining the negative outlook instituted last June.

In a statement, S&P said its affirmation reflects TIAA’s dominant competitive position and a history of positive operating performance. According to S&P, TIAA has extremely strong financial flexibility, the ability to change crediting rates, and the ability to access the capital markets via a surplus note issuance.

S&P further noted that “despite the potential for significant losses, which could occur during a prolonged or deep commercial real estate downturn, we feel that the company has maintained a very strong capital base capable of absorbing a significant amount of these losses should they arise.”

S&P’s action follows action last month by Fitch Ratings, which affirmed its “AAA” insurer financial strength rating of TIAA with a stable outlook. TIAA also holds the highest insurer financial strength ratings from Moody’s Investors Service (as of 10/09) and A.M. Best Company (as of 12/09).

As noted in the most recent statement of financial condition of the TIAA General Account, TIAA’s capital and contingency reserves – which determine its claims-paying ability – grew strongly, ending the first quarter of 2010 at $24.1 billion, an increase of $1.3 billion over year-end 2009. This is TIAA’s highest level of capital and contingency reserves in the company’s history.

According to S&P, the continued negative outlook largely reflects potential challenges to its capital position that the company might face from real-estate related losses.

As of March 31, 2010, the General Account’s net realized capital losses of $0.3 billion in the first quarter of 2010 were offset by $0.3 billion in net unrealized capital gains, resulting in no net capital losses on TIAA’s General Account portfolio for the first quarter of 2010.

TIAA held about $72.0 billion in structured investments (commercial and residential mortgage-backed securities (CMBS and RMBS), along with other asset-backed securities), and recorded about $0.2 billion in losses in first quarter of 2010. Real estate-related investments, excluding the CMBS and RMBS securities in the structured investments portfolio, totaled about $5.2 billion. These aggregate real estate-related holdings recorded about $0.1 billion in losses, including directly owned real estate, real estate joint ventures and real estate subsidiaries.

For more on TIAA’s insurance financial strength ratings see these questions and answers.

These ratings do not apply to variable annuities, mutual funds, or any other product or service not fully backed by TIAA’s/TIAA-CREF Life’s claims-paying ability.

Questions & Answers

What was announced?
Standard & Poor’s (S&P) affirmed TIAA’s AAA insurance financial strength rating and maintained the negative outlook first instituted last June. S&P assigns a AAA rating to companies with “extremely strong capacity to meet financial commitments.”

What does this mean?
Insurance financial strength ratings are one means of assessing the financial strength of an insurance organization, including the ability of the insurer to meet its obligations. TIAA’s capital and contingency reserves – which determine its claims-paying ability – are the highest level in company history, ending the first quarter of 2010 at $24.1 billion, an increase of $1.3 billion over year-end 2009.

What does S&P mean by “capital adequacy is currently deficient?”
Rating agencies apply stress factors and test to extreme measures as a means of assessing financial strength. Based on its methodology, S&P feels that TIAA’s capital may be inadequate in the event of an incremental stress scenario of a prolonged or deep market downturn. However, in S&P’s opinion, TIAA “maintains extremely strong capital, financial flexibility, and the earnings ability to organically generate capital to make up for any perceived shortfall within two years, as per our criteria.”

What have other ratings agencies had to say?
In addition to S&P, TIAA holds the highest insurer financial strength ratings from Fitch Ratings, which affirmed TIAA’s AAA rating last month, Moody’s (as of 12/09) and A.M. Best Company (as of 6/09).

How do TIAA’s insurance financial strength ratings affect my savings invested in TIAA products?
For TIAA policyholders, high insurance financial strength ratings mean you have entrusted your savings to a company with extremely strong financial security characteristics and claims-paying ability. Please note that the performance of variable annuity and mutual funds offered by TIAA-CREF affiliates will fluctuate and are not guaranteed.

Where can I find more information about TIAA’s performance?
For more information on the investment performance of TIAA’s General Account, click here.