TIAA-CREF's Statement on Moody's Actions
New York, October 05, 2009
Today’s action by Moody’s affirms TIAA’s Triple-A insurer financial strength rating, lowers TIAA’s long-term issuer rating and the unsecured debt rating of TIAA Global Markets, Inc. (TGM) by one notch and changes to negative from stable the company’s rating outlook.
According to Moody’s, the rating agency affirmed TIAA’s Triple-A insurance financial strength rating because of the company’s continued dominant position in the higher-education pension market, strong capital base, expense advantages, uniquely stable liability structure, and very low financial leverage together with the priority of policyholders over senior secured creditors.
TIAA is one of just three U.S. life insurance companies to hold an insurance financial strength rating of Aaa from Moody’s.
Georganne Proctor, Executive Vice President and Chief Financial Officer, said: "TIAA continues to manage across economic cycles to help meet the long-term financial interests of participants. We are gratified by the affirmation of our Triple-A rating, which is just one measure of our claims-paying ability and overall strength and stability."
TIAA maintains the debt rating for TGM, which seeks to issue debt and earn a profit for the benefit of policyholders. TGM has a total investment of about $3 billion, less than two percent of TIAA’s total assets under management. TIAA has no outstanding corporate or long-term debt and no long-term financial leverage.
Moody’s noted that the downgrade of TIAA’s issuer rating and the negative outlook reflect investment losses in its real-estate related portfolio and structured investment, all of which reduce the cushion to protect senior secured creditors, whose claims are subordinate to those of TIAA policyholders – investors with retirement savings with TIAA.
Today’s action by Moody’s to lower TIAA’s long-term issuer and unsecured debt ratings by one notch brings TIAA in line with comparable ratings at other Triple-A rated insurers and is consistent with their standard notching practice. The outlook change is consistent with the entire life insurance industry’s negative outlook due to the economic crisis.
Questions and Answers
What was announced?
Moody’s Investors Service has affirmed TIAA’s Triple-A insurer financial strength rating, while revising the company’s outlook to negative from stable and lowering TIAA’s long-term issuer and debt ratings to Aa1 from Aaa, citing losses in real-estate related investments that reduce the cushion to protect to senior lenders, whose claims are subordinate to the company’s policyholders. Moody’s had placed both ratings under review in May, when it reaffirmed TIAA’s insurance financial strength rating. he long-term issuer and debt ratings are separate from the overall strength rating.
What do the issuer and debt ratings measure?
Issuer and debt ratings are opinions of the ability of entities to honor senior financial obligations and contracts. They are distinct from insurance financial strength ratings, which are opinions of the ability of insurance companies such as TIAA to honor policyholder claims and obligations.
How do these ratings affect my retirement security?
Issuer and debt ratings do not assess TIAA’s claims-paying ability, which is assessed by the company’s insurance financial strength rating that Moody’s has affirmed. TIAA holds the following insurance financial strength ratings: 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) – the highest possible ratings from these analysts. Note that 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.
Why does TIAA maintain issuer and debt ratings?
TIAA maintains a debt rating for our TIAA Global Markets, Inc. (TGM) subsidiary, which seeks to issue debt and earn a profit for the benefit of policyholders. TGM has a total investment of about $3 billion, less than two percent of TIAA’s total assets under management. TIAA itself has no outstanding corporate debt.
What is the effect of today’s action?
While a lower debt rating can raise the cost of capital to TGM, and, consequently, lowers the returns TGM can earn from lending, as a practical matter the action has little consequence because TGM has been winding down its lending activities over the past year and maintains a relatively small total investment. Also, TIAA has no outstanding corporate, long-term debt and no long-term financial leverage.
What is the status of TIAA’s losses?
While the environment remains challenging, TIAA’s losses slowed notably in the second quarter. Please see the attached statement as of June 30, 2009.
What can you tell me about losses in the area of commercial mortgage-backed securities (CMBS) that the ratings agencies cited in revising their outlook?
While Moody’s and other rating agencies cited 2008 and first-half 2009 losses in deciding to revise their outlooks, CMBS investments comprise a relatively small part of TIAA’s capital. As of June 30, 2009, TIAA held about $22 billion in such securities, however, only about a third, or $7 billion, dated from later than 2005, which are the securities facing particular strain in the current economic environment. That comes to about 3.8% of TIAA’s total portfolio of $180 billion.
About TIAA-CREF
TIAA-CREF (www.tiaa-cref.org) is a national financial services organization with more than $374 billion in combined assets under management (as of 6/30/09) and is the leading provider of retirement services in the academic, research, medical and cultural fields.
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.
These ratings discussed above 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.
