Fitch Affirms TIAA's IFS at 'AAA' Following Nuveen Acquisition Announcement; Outlook Stable

CHICAGO--()--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). The rating action follows TIAA's announcement of their purchase of Nuveen Investments, Inc. (Nuveen). At the same time, Fitch has affirmed TIAA's 'AA+' Issuer Default Rating (IDR) and 'AA' surplus note rating. A complete list of ratings is provided at the end of this release. The Rating Outlook is Stable.

KEY RATING DRIVERS

Fitch's rating opinion weighs the longer-term strategic and financial benefits of TIAA's acquisition of Nuveen balanced against near-term concerns over financing and integration. Fitch believes that TIAA's 'AAA' credit profile remains intact under a range of financing options.

The scale of the transaction and execution risk appears to be manageable in relationship to TIAA's credit and business profile. The $6.25 billion purchase price of Nuveen represents less than 3% of general account assets and less than 18% of total adjusted statutory capital at year-end 2013. The marginal decline in asset quality and liquidity is minor.

A modest strategic shift in increased risk appetite with the potential issuance of acquisition related debt would not affect the ratings. However, the cushion for adverse credit events declines as leverage increases towards the high end of Fitch's tolerance of 15%. A potential increase in adjusted financial leverage from 6% at year-end 2013 to fund the transaction could raise a concern if structured aggressively, which would be uncharacteristic of TIAA.

Fitch believes this transaction provides a strong complement to TIAA's existing asset management platform, significantly strengthens TIAA's third party distribution capabilities, and could potentially enhance the company's market-leading position in the retirement market. Nuveen is a well-known brand name with a leading position in closed-end funds and tax exempt mutual funds and a growing presence in specialty funds. Nuveen reports $221 billion in assets under management at year-end 2013 and will operate as a standalone unit within TIAA's asset management platform.

Fitch believes a successful integration of Nuveen could provide positive diversification of TIAA's revenue with revenue and earnings, and provide additional scale and expertise in the tax-exempt fixed income market.

Primary integration concerns include TIAA's limited acquisition experience and the retention of key personnel.

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 and the U.S. life insurance industry. Fitch believes that TIAA is well-positioned to deal with these challenges given its extremely strong credit profile.

RATING SENSITIVITIES

Key rating triggers that could result in an upgrade include:

TIAA's IFS ratings are at the highest rating level possible. Other ratings reflect standard notching.

Negative:

Key rating triggers that could result in a downgrade include:

--Failure to meet integration targets would cause Fitch to reconsider all ratings or the strategic importance of Nuveen.

--Failure to achieve ongoing positive surplus growth;

--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 minimum reported RBC on a sustained basis 425%, though more aggressive use of acquisition debt financing could increase minimum RBC to above 500%.

--Financial leverage exceeding 15%

--Fixed charge coverage below 6x by 2017.

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);

--'Rating FI Subsidiaries and Holding Companies' (August 2012).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826869

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.

Contacts

Fitch Ratings
Primary Analyst
Andrew Davidson, CFA, +1 312-368-3144
Senior Director
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst
Douglas Meyer, CFA, +1 312-368-2061
Senior Director
or
Committee Chairperson
Martha M. Butler, CFA, +1 312-368-3191
Senior Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Andrew Davidson, CFA, +1 312-368-3144
Senior Director
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst
Douglas Meyer, CFA, +1 312-368-2061
Senior Director
or
Committee Chairperson
Martha M. Butler, CFA, +1 312-368-3191
Senior Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com