The statement below has been updated to reflect investment performance of the TIAA General Account as of March 31, 2009. The original statement was published on March 18, 2009 and detailed the account’s 2008 investment performance.
Over the past nine decades, TIAA's disciplined, long-term approach to asset management has enabled us to help meet the financial needs of the individuals and institutions we serve through economic downturns and upturns. That continues in the current downturn, which understandably has prompted some participants to ask how deteriorating conditions in the United States and abroad affect TIAA's assets.
While TIAA is not immune from the downturn in interest rates or general declines in the markets, losses1 we have experienced have not significantly affected our claims-paying ability to make good on our guarantees to you — we ended 2008 with the same fundamental soundness as we began the year with.
While volatility in the credit markets led to investment losses for TIAA during 2008, the effect of this was mitigated by positive results we were able to attain due to favorable investment conditions and advantageous tax planning. The total net capital losses incurred by the TIAA General Account for 2008 were $7.3 billion, or a relatively modest 3.7 percent of the account's total assets. Of this total, $4.5 billion are "realized" losses while the remaining $2.8 billion are "unrealized" losses, based on the fair value of the TIAA General Account's equity investments. Importantly, TIAA's claims-paying ability, as assessed by industry-standard measures, remains virtually unchanged since year-end 2007.
The challenging environment continues in 2009. In the first quarter of the year, we recorded $1.1 billion in realized losses, and $0.8 billion in unrealized losses, for a total of $1.9 billion. Although partially offset by income, the losses resulted in a capital position of $16.9 billion as of March 31, 2009, down from $17.8 billion as of year-end 2008.
Though we are always displeased by losses, long experience teaches that they are inevitable in the short-term, due to the historical cyclical nature of capital markets. Thus we assess tumultuous times by asking whether our performance remains within levels to be reasonably expected given prevailing economic conditions. TIAA's losses through March 31, 2009 meet that threshold, and assessed alongside our strong capital position, will not compromise our ability to pay additional amounts that the Board of Trustees may declare on a year-by-year basis.
In addition, the crediting rates for TIAA Traditional Annuities remain highly competitive2, despite recent reductions which reflect the generally lower interest-rate environment. Further, the average annual returns for TIAA Traditional Annuities for the 10-year period ended March 31, 2009 were 6.08% for Retirement Annuities and 5.52% for Supplemental Retirement Annuities - significantly higher than the average 10-year Treasury yield as well as the general rate of inflation during that period.
Due to TIAA's strong capital position, the account's performance does not affect the strength of TIAA's guarantees of principal and minimum rates of interest. We continue to draw on that stability to help meet your financial needs to and through retirement.
Note: This statement pertains to the TIAA General Account. Although the TIAA General Account is an insurance company account and does not present an investment return [is not available to investors,] the performance of investments held in the TIAA General Account supports the TIAA Traditional Annuity's guarantee of principal, minimum guaranteed returns, additional amounts and payout obligations.
1TIAA accounts for investments in accordance with statutory accounting principles as prescribed or permitted by the New York State Insurance Department. A realized loss on an investment is recorded when an impairment is considered to be other-than-temporary. An impairment in an investment is considered to have occurred if an event or change in circumstance indicates that the carrying value of the asset may not be recoverable or that the receipt of contractual payments of principal and interest may not occur when scheduled. When an impairment has been determined to have occurred, the investment is written down to fair value, and a realized loss is recorded. TIAA considers available evidence to evaluate the potential impairment of its investments. Realized losses also include losses on investments that have been sold or otherwise disposed of as well as losses on investments that continue to be held in the portfolio.
2Funds applied to TIAA Traditional from May 1, 2009 through May 31, 2009 will be credited with interest at the annual effective rate of 3.65% for Retirement Annuities and 3% for Supplemental Retirement Annuities, IRAs and Keoghs until February 28, 2010. Funds transferred to TIAA Traditional between May 1, 2009 and May 31, 2009 will begin earning interest on the calendar day following the effective date of the transfer, and will be credited with the indicated rates through February 28, 2010.
© 2009 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017
