Each quarter, we update this statement with the latest performance information for the TIAA General Account to offer assurance of our commitment to its security and stability.
Since 1918 and through periods of great economic volatility, 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.
TIAA's General Account supports our guaranteed fixed annuity, TIAA Traditional. The General Account primarily invests in corporate and government bonds, structured finance instruments (such as mortgage-backed securities) and real estate.
Accordingly, TIAA is not immune from the market declines, but the losses1 we have experienced have not affected our claims-paying ability to make good on our guarantees to you — as affirmed by the independent rating agencies that each give TIAA their highest rating for financial strength.2
In the first quarter of 2009, the TIAA General Account recorded $1.1 billion in realized losses, and $0.8 billion in unrealized losses, for a total of $1.9 billion. The rate of losses slowed in the second quarter, however, as the economy and equity markets showed signs of improvement. In particular, unrealized losses shrank to $0.2 billion year-to-date. Total realized losses through June 30, 2009 were $2.2 billion for a total loss of $2.4 billion.
At the end of the third quarter 2009, the TIAA General Account had unrealized gains of $0.7 billion against realized losses of $2.6 billion, for a total loss year-to-date of $1.9 billion, an improvement of $500 million since 6/30/09. Importantly, our capital position remains strong — $18.3 billion as of September 30, 2009, an increase of $1.3 billion over the previous quarter.
While reaffirming TIAA's Triple-A insurance financial strength rating, some of the rating agencies commented on TIAA's structured investments and real estate holdings. As of September 30, 2009, TIAA held about $70.5 billion in structured investments (commercial and residential mortgage-backed securities (CMBS and RMBS), along with other asset-backed securities), and recorded about $1 billion in losses in 2009. Real estate-related investments, excluding the CMBS and RMBS securities in the structured investments portfolio, totaled about $27 billion, or approximately 15% of TIAA's total investment portfolio of $185 billion. These aggregate real estate-related holdings recorded about $1 billion in losses. Combined, these losses total approximately one percent of TIAA's total portfolio.
Importantly, the crediting rate for TIAA Traditional Annuity - currently 3.65% for Retirement Annuities (RA)3 — remains highly competitive. Further, the average annual return for the TIAA Traditional Annuity for the 10-year period ended September 30, 2009 is 6.16%, which is significantly higher than the average 10-year Treasury yield during that period and well above the general rate of inflation for most of the past three decades for our RA contracts.
The Trustees of TIAA set the interest rates at a level that allows TIAA to guarantee and pay lifetime income to millions of retirees. Due to the strong capital position of the General Account, TIAA's guarantees of principal and minimum rates of interest remain strong in spite of these recent investment results.
Note: This statement pertains to the TIAA General Account. The TIAA General Account is an insurance company general operating account. It is not available to investors and does not present investment returns to participants. The performance of the investments held in the TIAA General Account support the TIAA Traditional Annuity's guarantees 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 either fair value or the present value of the discounted cash flows, depending on the asset class, 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.
2TIAA 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 10/09); 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.
3Funds applied to TIAA Traditional from November 1, 2009 through November 30, 2009 will be credited with interest at the annual effective rate of 3.65% for Retirement Annuities and 3.0% for Supplemental Retirement Annuities, IRAs and Keoghs until February 28, 2010. Funds transferred to TIAA Traditional between November 1, 2009 and November 30, 2009 will begin earning interest at the beginning of the next 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
