OREANDA-NEWS. 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, the Nuveen integration progressing as expected, and very strong competitive position in the U.S. pension market. The company's financial leverage and interest coverage metrics have weakened over the past year due to Nuveen-related financing but remain in line with rating expectations. Fitch continues to believe the impact of ongoing low interest rates is manageable given TIAA's extremely strong credit profile.

TIAA's capitalization continues to be extremely strong and in line with rating expectations. Risk-based capital (RBC) ratio declined in 2014 to 567% compared to 606% in 2013 due to increased required capital associated with the company's equity ownership of Nuveen. At year-end 2014, TIAA reported total adjusted statutory capital (TAC) of $39.9 billion, and statutory operating leverage was low at 5.1x.

Statutory financial leverage increased in 2014 to 13.6% due to the Nuveen acquisition and is at the high end of Fitch's tolerance of 15%. Nuveen-related debt financing consisted of $2 billion of surplus notes issued by TIAA and $2 billion of senior unsecured notes issued by TIAA Asset Management Finance Company, LLC (TAMF). Fitch expects statutory financial leverage to stay below 15% and to decline modestly longer term due to growth in statutory capital.

TIAA's profitability measures are within range of similarly rated mutual peers. Pre-tax operating earnings were lower for full-year 2014 compared to prior year due to a modest increase of the crediting rate and increased operating expenses. 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 declined to 6.1x in the second quarter of 2015 (2Q15), reflecting the lower run rate earnings as well as higher interest expense from the newly issued debt. Fitch expects interest coverage to remain around current levels in the medium term but to increase modestly over the longer term due to improved operating earnings.

TIAA's investment portfolio has performed within expectations over the last few years. Total impairments for 2014 were higher at $683 million, due primarily to operating losses from affiliate subsidiaries. Excluding affiliate losses, credit related losses were within expectations. Losses related to the company's CMBS portfolio continued to trend lower at $109 million of OTTI in 2014 compared to $159 million in 2013 and $542 million in 2012. Total bond impairments continued to trend lower as the company continues to reduce its CMBS exposure.

TIAA's integration of Nuveen has thus far been as expected. The company has reported no large client or key employee departures from closing in October 2014 to 2Q15 and operating performance has been as expected.

Interest margins in the core pension segment have historically accounted for over 80% of TIAA's operating earnings. In the current low interest rate environment, the company's ability to adjust the crediting rate on its pension liabilities has supported strong earnings. Fitch's primary concern is the impact of the prolonged low interest rate environment on TIAA, given the average 3% or higher minimum rate guarantee on most of it's in force pension contracts. Fitch believes this is a longer term issue, and that TIAA has flexibility to adjust crediting rates lower if needed over the medium term.

The ratings on TAMF 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 TAMF, a two notch differential was used as the additional notch differentiates the ratings of the senior unsecured notes of TAMF 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 include:

--Deterioration in Nuveen's stand-alone credit profile could change Fitch's view of TAMF's strategic importance, which could lead to a downgrade of TAMF.
--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 15%.

Fitch affirms 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'.

TIAA Asset Management Finance Company, LLC
--IDR at 'AA-';
--$1 billion 2.95% senior notes due 2019 at 'AA-'.
--$1 billion 4.125% senior notes due 2024 at 'AA-'.