OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating of A++ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aaa” (Exceptional) 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 collectively are referred to as the TIAA Group. Concurrently, AM Best has affirmed the Long-Term ICRs of “aa” (Superior) on TIAA’s surplus notes. The outlook of these Credit Ratings (ratings) is stable. TIAA and TIAA-CREF Life are domiciled in New York, NY. (Please see below for detailed listing of the Long-Term IRs).
The ratings reflect TIAA Group’s balance sheet strength, which AM Best assesses as strongest, as well as its very strong operating performance, very favorable business profile and very strong enterprise risk management.
The rating affirmations reflect TIAA’s market-leading position in the higher education and not-for-profit pension marketplaces. TIAA, together with its wholly owned subsidiary, College Retirement Equities Fund (CREF), enjoys significant economies of scale, and combined form one of the largest retirement systems in the United States with assets under administration of more than $1.4 trillion at year-end 2020. 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 customers of TIAA, as well as to the general public.
The ratings also reflect TIAA’s risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Risk-adjusted capitalization has been enhanced by its very strong operating performance, which has more than offset realized investment losses in recent years. TIAA has significant statutory accounting flexibility to manage its risk-adjusted capital position, including the ability to adjust crediting rates on its large in-force block of general account retirement annuities. TIAA uses a conservative approach to statutory reserves, and as a result, its balance sheet contains a considerable amount of hidden capital. AM Best notes that TIAA’s current adjusted financial leverage and operating leverage are relatively low.
AM Best also views favorably TIAA’s unique liability structure, whereby approximately 70% of its general account reserves are not cashable and can only be received as a death benefit, an IRS-required minimum distribution or in the form of a periodic annuity payout. Contract holders may transfer funds from TIAA to CREF or to other employer-approved funding vehicles, but typically in the form of a 10-year annuity payout. TIAA’s long insurance liability structure and its low liquidity needs allows the company to take advantage of 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.
AM Best considers TIAA’s investment management capabilities to be strong, but notes that the overall investment portfolio has generated moderate levels of realized investment losses in recent years. While the company has the strongest level of risk-adjusted capitalization, AM Best continues to be slightly concerned over the group’s sizeable exposure to real estate assets and above-average level of Schedule BA assets. AM Best notes that the increased exposure to real estate has come from commercial mortgages, which have experienced minimal problem loans and the company has worked with borrowers though the pandemic to keep them current. The number of problem loans has continued to improve as we have seen economic improvement in 2021. However, AM Best notes that there are still potential pandemic-related headwinds.
Although operating performance is assessed as very strong, AM Best notes that the majority of TIAA’s earnings are derived through active spread management of its core pension businesses. However, with most of its pension businesses having 3% minimum interest rate guarantees, AM Best believes TIAA potentially could be challenged to sustain and improve its 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, TIAA’s Nuveen Investments, Inc. and TIAA Bank provide earnings diversification and add scale to TIAA’s business profile.
The following Long-Term IRs have been affirmed with a stable outlook:
Teachers Insurance and Annuity Association of America—
— “aa” (Superior) on $1.05 billion 6.85% surplus notes due Dec. 16, 2039
— “aa” (Superior) on $1.65 billion 4.90% surplus notes due Sept. 15, 2044
— “aa” (Superior) on $2 billion 4.27% surplus notes due May 15, 2047
— “aa” (Superior) on $350 million fixed to floating rate 4.375% surplus notes due Sept. 15, 2054
— “aa” (Superior) on $1.25 billion 3.3% surplus notes due March 15, 2050
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