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Fitch Affirms TIAA's IFS at 'AAA'; Outlook Stable
February 27, 2017 / 9:03 PM / 10 months ago

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

(The following statement was released by the rating agency) NEW YORK, February 27 (Fitch) Fitch Ratings has affirmed all ratings for Teachers Insurance and Annuity Association of America (TIAA), its wholly owned domestic insurance subsidiaries and affiliates. The Rating Outlook is Stable. A complete list of ratings follows at the end of this press release. KEY RATING DRIVERS TIAA's ratings reflect the company's extremely strong capitalization and very stable liability profile, good risk-adjusted earnings, and very strong competitive position in the U.S. pension market. The company's financial leverage is on the high end of rating expectations but is expected to improve over the longer term. Fitch continues to believe the impact of ongoing low interest rates is manageable in the context of TIAA's earnings and capital. The ratings also consider TIAA's acquisition of Everbank, which is expected to close in the first half of 2017. The scale of the transaction is relatively small and execution risk appears manageable in relationship to TIAA's credit and business profile. The $2.5 billion purchase price of Everbank represents less than 1% of general account assets and approximately 6% of total adjusted capital (TAC) as of Sept. 30, 2016. TIAA's statutory capitalization metrics continue to be extremely strong and in line with rating expectations. TIAA's total adjusted capital (TAC) was $40.4 billion, a 2% increase from year-end 2015 driven by retained earnings but partially offset by realized and unrealized investment losses. RBC as of year-end 2015 was at 556%, operating leverage was low at 5.2x, and TIAA's Prism capital model score was 'Extremely Strong'. Fitch's view of TIAA's statutory capitalization also considers the company's statutory reserves as a New York domiciled insurer, which are more conservative relative to a NAIC basis. Year-end 2015 RBC, adjusted to an NAIC equivalent basis, would exceed 600%. Fitch's statutory financial leverage was 15% as of Sept. 30, 2016, which includes $4 billion of surplus notes and $2 billion of senior unsecured notes issued out of Nuveen Finance, LLC (Nuveen Finance). Statutory financial leverage including an adjustment to TAC on an NAIC equivalent basis would fall well below 14% as of Sept. 30, 2016. Although much of the financing for TIAA's acquisition of Everbank is expected to be sourced from the company's general account, TIAA could issue surplus notes as part of the financing. As a result, TIAA's adjusted statutory financial leverage could increase to slightly above 15% on a pro forma basis. In the event that TIAA does issue additional surplus notes, Fitch expects adjusted statutory financial leverage to be reduced below 15% within 12-18 months due to growth in statutory capital from retained earnings. TIAA's profitability measures are within range of similarly rated mutual peers. Statutory net gain from operations were 40% higher as of the first three quarter 2016 over the same period prior year due to strong investment performance, particularly in private equity, which was partially offset by an increase in crediting rates. Fitch considers the company's earnings to be good on a risk adjusted basis given the low risk profile of the company's liabilities and large capital base. Statutory earnings interest coverage was strong at approximately 7x as of third-quarter 2016. TIAA's statutory earnings interest coverage is comparable to other highly rated mutual peers. TIAA's investment portfolio continues to perform within expectations as it has over the last few years. TIAA's credit-related investment losses have been favorable and on a generally improving trend over the last five years as a decline in impairments from commercial mortgage backed securities (CMBS) were partially offset by higher investment losses in corporates, particularly in the energy sector. Fitch expects credit impairments to increase somewhat in 2017 but remain manageable and consistent with long term expectations. Nuveen Finance's ratings are based on implicit support from TIAA and reflect notching based on Fitch's view that Nuveen is a 'strategically important' subsidiary of TIAA. A subsidiary viewed as strategically important will typically have ratings one notch, and in some cases two, lower than the parent. In the case of Nuveen Finance, a two notch differential was used as the additional notch differentiates the ratings of the senior unsecured notes of Nuveen Finance from that of the surplus notes of TIAA, which would have a higher priority. Fitch's view of Nuveen's strategic importance considers TIAA's full ownership and potential synergies providing products and services in markets that are strategically important to TIAA, including the mutual fund, asset management, and retirement services markets. RATING SENSITIVITIES Key rating triggers that could result in a downgrade in TIAA include: --Failure for TIAA to achieve ongoing positive surplus growth; --TIAA's investment losses significantly higher than expected; --A regulatory change that would have a negative impact on TIAA's core pension market; --A change in TIAA's ownership structure; --TIAA's reported RBC below 450%; --TIAA's statutory financial leverage exceeding 16%; Key rating triggers that could result in a downgrade of Nuveen Finance, LLC include: --Deterioration in Nuveen's stand-alone credit profile could change Fitch's view of Nuveen Finance, LLC's strategic importance. Fitch has affirmed the following ratings with a Stable Outlook: Teachers Insurance and Annuity Association of America --Insurer Financial Strength (IFS) at 'AAA'; --Issuer Default Rating (IDR) at 'AA+'; --Surplus note at 'AA'. TIAA-CREF Life Insurance Company --IFS at 'AAA'. Nuveen Finance, LLC --IDR at 'AA-'; --$1 billion 2.95% senior notes due 2019 at 'AA-'; --$1 billion 4.125% senior notes due 2024 at 'AA-'. Contact: Primary Analyst Nelson Ma, CFA Director +1-212-908-0273 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Douglas Meyer, CFA Managing Director +1-312-368-2061 Committee Chairperson Martha M. Butler, CFA Senior Director +1-312-368-3191 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016) here Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019794 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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