Fitch Affirms TIAA's IFS at 'AAA'; Outlook Stable

Fitch Ratings has affirmed the 'AAA' Insurer Financial Strength (IFS) ratings of Teachers Insurance and Annuity Association of America (TIAA) and its wholly owned subsidiary, TIAA-CREF Life Insurance Company (TIAA-CREF Life). At the same time, Fitch has affirmed TIAA's 'AA+' Issuer Default Rating (IDR) and 'AA' surplus note rating. A complete list of ratings follows at the end of this release. The Rating Outlook is Stable.

KEY RATING DRIVERS

TIAA's ratings are based on its extremely strong balance sheet fundamentals in line with 'AAA' rating expectations, strong and predictable operating earnings, and very strong competitive position in the U.S. pension market. Key rating concerns include the impact of ongoing low interest rates, uncertain monetary policy, and ongoing discord by federal government officials, which pose risks to the economy, the U.S. life insurance industry, and TIAA. Fitch believes that TIAA is well-positioned to deal with these challenges given its extremely strong credit profile.

TIAA's extremely strong balance sheet fundamentals reflect the company's low leverage, extremely strong risk-adjusted capitalization and very stable liability structure, which mitigates disintermediation risk.

Financial leverage (surplus notes in relation to total adjusted capital [TAC]) remains low at 6% as of Sept. 30, 2013, and operating leverage is very low at 6x. The total financing and commitments (TFC) ratio is among the lowest in the Fitch rated universe. TIAA estimates its risk-based capital (RBC) ratio at 590% as of Sept. 30, 2013 in line with full-year 2012. The RBC is expected to remain at or above current levels for full-year 2013. TIAA's liability structure is made up predominantly of long-duration pension liabilities. Roughly 75% of inforce liabilities are non-cashable.

Fitch views TIAA's financial performance as strong and predictable. Statutory earnings declined modestly in 2013 relative to prior year due to the combined impact of low reinvestment rates and management's decision to modestly increase the crediting rate in the company's core pension segment. TIAA's return on total adjusted capital (TAC) was about 7% at 3Q'13, down from 9% in the prior year period. Looking forward, Fitch views the impact of sustained low interest rates as a manageable earnings headwind and believes TIAA continues to have significant flexibility to adjust crediting rates if necessary to strengthen earnings.

TIAA's realized investment losses continued to decline and were well below expectations through 3Q'13. That is expected to continue for full-year 2013.

TIAA's primary business is providing individually owned retirement annuities to fund defined contribution pension plans at participating institutions. Its core market is the 403(b) market, particularly institutions of higher education, where it is the dominant player. TIAA is also a leading record keeper of defined contribution plans.

Fitch rates the local currency sovereign obligations of the United States of America at 'AAA'; Rating Watch Negative, and the Country Ceiling is similarly 'AAA'. In the event that Fitch downgrades the credit rating of the United States of America one notch, certain highly rated insurers such as TIAA may be rated above the sovereign rating. Fitch's opinion is that these companies are structurally shielded from foreign exchange transfer and convertibility risks and their financial condition is sufficient to withstand a sovereign crisis. A greater than one-notch downgrade of the sovereign rating of the U.S. would cause a reevaluation of TIAA's ratings.

RATING SENSITIVITIES

Key rating triggers that could result in a downgrade include:

--Reported RBC below 425% on a sustained basis;
--Investment losses significantly higher than expected;
--A significant drop in operating earnings resulting in an after-tax operating return on TAC below 5% for 18 months or longer;
--A regulatory change that would have a negative impact on TIAA's core pension market;
--A change in TIAA's ownership structure.

Sovereign Downgrade: A downgrade of more than one notch in the U.S. sovereign rating would cause a re-evaluation of TIAA's ratings.

Fitch affirms the following ratings with a Stable Outlook:

Teachers Insurance and Annuity Association of America
--IFS at 'AAA';
--IDR at 'AA+';
--Surplus note at 'AA'.

TIAA-CREF Life Insurance Company
--IFS at 'AAA'.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (November 2013).

Applicable Criteria and Related Research:
Insurance Rating Methodology - Effective Sept. 19, 2012 to Oct. 18, 2012
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688011

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=815166
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Fitch Ratings
Primary Analyst:
Cynthia J. Crosson, [phone]
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, New York 10004
or
Secondary Analyst:
R. Andrew Davidson, CFA, [phone]
Senior Director
or
Committee Chairperson:
Martha M. Butler,CFA, [phone]
Senior Director
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Media Relations:
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