What was announced?
Fitch Ratings and Standard & Poor's (S&P) have affirmed TIAA's "AAA" financial strength rating, and revised their outlooks on TIAA to negative from stable. Fitch also lowered TIAA's Senior Debt Rating one notch.
What does this mean?
The financial strength ratings assess the financial strength of an insurance organization, including the ability of the insurer to meet its obligations. In a statement affirming the AAA rating, Fitch recognized "TIAA's extremely strong risk-adjusted capitalization, the ability of the company to offset investment losses through strong statutory operating earnings, an exceptionally stable liability structure and the existence of hidden capital through reserve conservatism." Fitch assigns its "AAA" insurance financial strength rating only in the case of exceptionally strong capacity to meet policyholder and contract obligations that is highly unlikely to be adversely affected by foreseeable events.
An insurer rated "AAA" has extremely strong financial security characteristics, according to the S&P, which cited TIAA's "extremely strong competitive position that it has cultivated by delivering a strong value proposition to the U.S. higher education pension market," as well as the company's ability to preserve, generate and maintain capital.
Why was TIAA's outlook revised?
Both Fitch and S&P said the negative outlooks reflect their concerns about potential investment losses and impairments, as well as general economic conditions. A negative outlook indicates a rating may be lowered. However, a negative outlook is not necessarily a precursor of a rating change. Both rating agencies said they will continue to monitor TIAA's capital position over the coming 12-24 months.
What does a negative outlook mean?
According to both Fitch and S&P, an outlook assesses potential for change and the likely direction of the rating over the intermediate term. The time frame for an outlook generally is up to two years. A positive outlook indicates a rating may be raised, and a negative outlook indicates a rating may be lowered. An outlook should not be confused with expected stability of the issuer's financial or economic performance, according to S&P.
How does TIAA's financial strength rating affect my investments?
For TIAA policyholders it means you have entrusted your savings to a company with extremely strong financial security characteristics, according to independent rating agencies.
Is there reason to be concerned about TIAA's financial position?
Fitch noted that TIAA's statutory profitability is strong relative to other AAA-rated mutual company peers and TIAA enjoys substantial cost advantages from economies of scale and a low-cost distribution system, and has significant flexibility in setting crediting rates.
According to S&P, its decision to affirm TIAA's rating reflects the company's strong competitive position, operating performance and ability to preserve, generate and maintain capital.
On May 26, 2009, Moody's Investors Service affirmed TIAA's "Aaa" insurance financial strength rating with a stable outlook. TIAA is also rated A++ by A.M. Best Company (as of 9/08).
What is TIAA's Senior Debt Rating?
TIAA's senior debt rating relates to TIAA's guarantee of the debt of its TIAA Global Markets, Inc. (TGM) subsidiary, which issues debt as part of a spread arbitrage program for the benefit of TIAA policyholders. TGM's total assets are about $3 billion, less than two percent of TIAA's total assets under management.
What does the change to TIAA's Debt Rating mean?
Fitch downgraded TIAA's Debt Rating to AA+ from AAA. The Debt Rating is separate from Fitch's financial strength rating. TIAA has no outstanding corporate, long-term debt, no long-term financial leverage and no outstanding commercial paper.
How have market conditions affected TIAA's performance?
While TIAA has exceptional financial strength and a strong competitive position, like all life insurance companies it is not immune from prevailing economic conditions or losses in its portfolio. Both Fitch and S&P cited concerns about potential losses as reasons for revising TIAA's outlook to negative from stable. For more information on the investment performance of TIAA's General Account, click here.
What have other ratings agencies had to say?
On May 26, 2009, Moody's Investors Service affirmed TIAA's "Aaa" insurance financial strength rating with a stable outlook.
TIAA holds an A++ rating (the highest) with stable outlook from A.M. Best Company, the fourth independent rating agency, which last affirmed its rating in September 2008.
What is the difference between a CreditWatch and Outlook?
According to S&P, a rating may be placed on CreditWatch when an event or deviation from an expected trend has occurred or is expected, when this event or deviation increases the probability of rating action, and when additional information is necessary to take a rating action. In contrast to a CreditWatch, an outlook is assigned as an ongoing component of all long-term ratings. A positive or negative outlook is not necessarily a precursor of a rating change or a CreditWatch listing.
1 TIAA 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.
TIAA is rated A++, A.M. Best Company (as of 9/08); AAA, Fitch Ratings (as of 6/09); Aaa, Moody's Investors Service (as of 5/09); AAA, Standard & Poor's (as of 6/09) - the highest possible ratings from these independent analysts. 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.
© 2009 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017
