[September 16, 2014]

Fitch Rates Teachers Insurance and Annuity Association of America (TIAA) Surplus Notes 'AA'

Fitch Ratings has assigned a 'AA' rating to $2.0 billion of new surplus notes issued by Teachers Insurance and Annuity Association of America (TIAA). Other TIAA ratings are unaffected. The Rating Outlook is Stable.

KEY RATING DRIVERS

The ratings on the new surplus notes are equivalent to the ratings assigned to TIAA's existing surplus notes and reflect standard notching based on Fitch's rating criteria. The new surplus notes rank pari passu with TIAA's existing surplus notes. Surplus notes are subordinate in right of payment to both policyholder and senior debt obligations of the insurance company. Consistent with current outstanding surplus notes, interest and principal payments on new surplus notes are subject to prior approval by the New York State Department of Financial Services.

Proceeds from the surplus debt issuance will be used to partially fund TIAA's purchase of Nuveen Investments, Inc. (Nuveen) and for general corporate purposes. The scale of the transaction and the execution risk appear 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 approximately 17% of total adjusted statutory capital as of June 30, 2014. The decline in asset quality and liquidity are minor.

Fitch believes that TIAA's 'AAA' credit profile remains intact under the expected financing strategy for Nuveen. 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. A modest strategic shift in increased risk appetite with the potential issuance of acquisition related debt would not affect the ratings.

Statutory financial leverage increases to 9.5% (of Fitch total adjusted capital) from 4.7% with the issuance of new surplus notes on a pro forma basis as of June 30, 2014. Fitch expects statutory financial leverage to increase over the near term at the close of the transaction due to assumed debt but to moderate and decline modestly longer term due to growth in statutory capital. Fitch expects statutory leverage to stay below 15%. Pro forma interest coverage is expected to decline to 6.6x with the issuance of the surplus notes from 9.2x in Q2 2014.

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 leadng position in closed-end funds and tax exempt mutual funds and a growing presence in specialty funds. Nuveen reports $231 billion in assets under management at June 30, 2014 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 and earnings, as well as 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 profile 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 a downgrade include:

--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 reported RBC below 450%;

--Financial leverage exceeding 15%;

--Fixed charge coverage not recovering to levels above 6x by 2017.

--Failure to meet post close integration targets as proposed would cause Fitch to reconsider all ratings or the strategic importance of Nuveen;

Fitch assigns the following ratings:

Teachers Insurance and Annuity Association of America

--$1.65 billion 4.90% surplus notes due 2044 at 'AA';

--$350 million 4.375% fixed to floating rate surplus notes due 2054 at 'AA'.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (September 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=873414

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