[June 08, 2017] |
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A.M. Best Affirms Credit Ratings of Teachers Insurance and Annuity Association of America and Its Subsidiary
A.M. Best has affirmed the Financial Strength Rating of A++
(Superior) and the Long-Term Issuer Credit Ratings of "aaa" of Teachers
Insurance and Annuity Association of America (TIAA) and its wholly
owned insurance subsidiary, TIAA-CREF Life Insurance Company
(TIAA-CREF Life). TIAA and TIAA-CREF Life are collectively referred to
as the TIAA Group. A.M. Best also has affirmed the Long-Term
Issue Credit Ratings of "aa" on TIAA's $1.05 billion 6.85% surplus notes
due Dec. 16, 2039, $1.65 billion 4.9% surplus notes due Sept. 15, 2044,
$2 billion 4.27% surplus notes due May 15, 2047, and $350 million fixed
to floating rate 4.375% surplus notes due Sept. 15, 2054. The outlook of
these Credit Ratings (rating) is stable. TIAA and TIAA-CREF Life are
domiciled in New York, NY.
The rating affirmations reflect TIAA's market leading position in the
higher education and not-for-profit pension marketplaces. TIAA, together
with its companion organization, College Retirement Equities Fund
(CREF), enjoys significant economies of scale, and combined they form
one of the largest retirement systems in the United States with combined
assets under administration of $981 billion as of year-end 2016.
TIAA-CREF Life's primary products are life insurance, individual
annuities, funding agreements and separate account guaranteed interest
contracts. Individual life and annuity products are marketed to existing
customers of TIAA, as well as to the general public.
The rating affirmations also reflect TIAA's strong risk-adjusted
capitalization, as measured by A.M. Best's Capital Adequacy Ratio
(BCAR). Risk-adjusted capitalization has been enhanced by its solid
operating performance that has more than offset investment losses in
recent years. A.M. Best notes that TIAA maintains significant statutory
accounting flexibility to manage its risk-adjusted capital position with
the ability to adjust crediting rates on its large in-force block of
general account retirement annuities. In addition, TIAA utilizes a
conservative approach to valuing certain statutory reserves, and as a
result, its balance sheet contains a considerable amount of hidden
capital. A.M. Best also notes that TIAA's current adjusted financial
leverage is prudent, and operating leverage is minimal.
Additionally, A.M. Best views favorably TIAA's unique liability
structure whereby approximately three-quarters of its general account
reserves are not cashable and can only be received as a death benefit or
in the form of a periodic annuity payout. Contract holders may transfer
funds from TIAA to CREF or to another employer-approved funding vehicle,
but typically in the form of a 10-year annuity payout. TIAA's long
insurance liability structure, coupled with its low liquidty needs,
allows it to take advantage of typically higher yields offered by
investments that are less liquid and of longer duration. TIAA does not
provide living benefit guarantees on its variable annuities, and its
exposure to guaranteed minimum death benefits is limited.
A.M. Best also considers TIAA's investment management capabilities to be
extremely strong and notes that the overall investment portfolio has
generated moderate levels of investment losses in recent years. Although
A.M. Best believes any near-term asset impairments for the group will be
more than offset by net operating gains, it remains concerned regarding
the group's sizeable exposure to real estate assets and Schedule BA
assets. A.M. Best believes the potential for material credit losses from
TIAA's real estate holdings remains should the global economy
deteriorate.
Although net operating performance remains acceptable for its ratings,
A.M. Best notes that the majority of TIAA's earnings are derived through
active spread management of its core pension businesses. However, with
the majority of its pension businesses having 3% minimum interest rate
guarantees, A.M. Best believes TIAA may be challenged to sustain
and improve its historical net operating performance, as it continues to
navigate the persistent low interest rate environment. To mitigate its
exposure to these relatively high minimum interest rate guarantees over
the long term, TIAA utilizes an indexed minimum interest rate guarantee
for new institutional and individual retirement accounts. Additionally,
the acquisition of Nuveen Investments, Inc., added additional net
operating earnings diversification and added further scale to TIAA's
existing asset management business. The pending acquisition of EverBank
Financial Corp. should diversify, expand and strengthen relationships
with individual retail customers.
While TIAA continues to hold its dominant position in the U.S. higher
education pension market niche, its dominance has been challenged in
recent years by strong brand-name, low-cost mutual fund firms that offer
a wide array of non-guaranteed investment options. Although A.M. Best
does not believe TIAA's existing customer relationships would be
affected significantly, it does believe TIAA could be challenged to
attract new customers in this highly competitive market. In response,
TIAA has engaged in marketing strategies focused on strengthening its
brand awareness and customer reach.
Factors that could result in negative rating actions include a
significant and sustained decline in risk-adjusted capitalization, as
measured by BCAR, due to operating and investment losses, net operating
performance that does not meet TIAA's historical operating performance
over a period of time or a regulatory change that adversely impacts
TIAA's core pension business.
This press release relates to Credit Ratings that have been published
on A.M. Best's website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best's Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best's Credit Ratings. For information on the proper media
use of Best's Credit Ratings and A.M. Best press releases, please view Guide
for Media - Proper Use of Best's Credit Ratings and A.M. Best Rating
Action Press Releases.
A.M. Best is the world's oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.
Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its
subsidiaries. ALL RIGHTS RESERVED.
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