OLDWICK, N.J.–(BUSINESS WIRE)–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 ratings reflect the TIAA Group’s balance sheet strength, which A.M. Best categorizes 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 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 $1.1 trillion as of year-end 2017. 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 strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Risk-adjusted capitalization has been enhanced by its very strong 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 only can 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 liquidity 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 and increasing exposure to real estate assets and Schedule BA assets. A.M. Best believes the potential remains for material credit losses from TIAA’s real estate holdings should the global economy deteriorate.

Although net operating performance supports the assessment of very strong, 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 recent acquisitions of Nuveen Investments, Inc. and EverBank Financial Corp have added additional net operating earnings diversification and added further scale to TIAA’s existing asset management and banking businesses.

While TIAA continues to hold its dominant position in the niche U.S. higher education pension market, 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, or a material and sustained decline in net operating performance.

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