quarterly statement - TIAA-CREF

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STATEMENT AS OF SEPTEMBER 30, 2011 OF THE TEACHERS INSURANCE and ANNUITY ASSOCIATION of AMERICA NOTES TO FINANCIAL STATEMENTS The Company did not recognize any OTTI on securities it lacked the ability to retain. (3) The following table represents loan-backed and structured securities with a recognized OTTI currently held at September 30, 2011, where the present value of cash flows expected to be collected is less than the amortized cost. See Exhibit A for detail (4) All impaired securities (fair value is less than cost or amortized cost) for which an OTTI has not been recognized in earnings as a realized loss (including securities with a recognized OTTI for non-interest related declines when a non-recognized interest related impairment remains): Continuous Unrealized Losses Fair Value of Securities with Continuous Unrealized Losses Less than 12 Months .....……... $ (200,745,541) $ 3,877,427,099 12 Months or Longer .....……... $ (2,762,649,385) $ 10,046,685,567 (5) The Company’s management periodically reviews the investment portfolios and identifies investments which may have deteriorated in credit quality and are candidates for impairment. The Company develops cash flows as part of its impairment review process. Where the cash flows support the recovery of the principal balance, the Company concludes that the impairment is not other-thantemporary. E. Repurchase Agreements and / or Securities Lending Transactions During 2011, the Company commenced a repurchase program to sell and repurchase securities for general corporate purposes. During periods of excess liquidity levels, proceeds from the repurchase program will be invested in short-term instruments. At September 30, 2011, the Company did not have any outstanding repurchase agreements. F. Real Estate (1) The Company did not recognize OTTI on its investments in real estate for the nine months ended September 30, 2011. The Company monitors the effects of current and expected market conditions and other factors on its real estate investments to identify and quantify any impairment in value. The Company assesses assets to determine if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company evaluates the recoverability of income producing investments based on undiscounted cash flows and then reviews the results of an independent third party appraisal to determine the fair value and if an adjustment is required. (2) As of September 30, 2011, the Company has no real estate investments classified as held for sale. For the nine months period ended September 30, 2011, the Company recognized a net realized gain on real estate sold of $1,130,351. The gains are included in net realized capital gains/(losses) in the statutorybasis summary of operations. (3) There were no changes during the first nine months of 2011 in the Company’s plans to sell investment real estate. (4) The Company does not engage in retail land sales operations. (5) The Company does not hold real estate investments with participating mortgage loan features. G. Low Income Housing Tax Credits (“LIHTC”) As of September 30, 2011, the Company does not have any LIHTC. 6. Joint Ventures, Partnerships and Limited Liability Companies A. The Company has no investments in Joint Ventures, Partnerships or Limited Liability Companies that exceed 10% of its admitted assets. B. For the nine months ended September 30, 2011, the Company recognized $104,284,112 of OTTI on its investments in joint ventures, partnerships and limited liability companies. These investments are stated at the Company’s percentage of the underlying GAAP equity. An impairment is considered to have occurred if an event or change in circumstance indicates that the carrying value of the asset may not be recoverable or if there is limited ability to recover an unrealized loss. When an OTTI has been determined to have occurred, a realized loss is recorded to write the investment down to the estimated recoverable amount as determined by management. 7. Investment Income No Material Change. 7.2
STATEMENT AS OF SEPTEMBER 30, 2011 OF THE TEACHERS INSURANCE and ANNUITY ASSOCIATION of AMERICA 8. Derivative Instruments NOTES TO FINANCIAL STATEMENTS The Company records the carrying amount of its derivative instruments under Assets, line 7, Derivatives and under Liabilities, line 24.08, Miscellaneous Liabilities - Derivatives, with any corresponding gains or losses included in the calculation of the Change in Asset Valuation Reserve in the Summary of Operations. Interest Rate Swaps A. This type of derivative instrument is traded over-the-counter, and is exposed to both market and counter-party risk. B. The Company enters into interest rate swap contracts to hedge against the effect of interest rate fluctuations on certain variable interest rate bonds. These contracts are designed as cash flow hedges and allow the Company to lock in a fixed interest rate and to transfer the risk of higher or lower interest rates. The Company also enters into interest rate swap contracts to exchange the cash flows on certain fixed interest rate bonds into variable interest rate cash flows. These contracts are entered into as a fair value hedge in connection with certain interest sensitive products. C. Interest rate swaps for which hedge accounting is applied and that qualify as effective hedges in accordance with the accounting guidance have a carrying value of $0. Interest rate swaps for which hedge accounting is not applied or that are no longer effective are carried at fair value. The changes in the carrying value of interest rate swap contacts are recognized at the end of the period as unrealized gains or losses. D. For the nine months ended September 30, 2011, the net unrealized gain from interest rate swap contracts that do not qualify for hedge accounting was $14,700,253. Foreign Currency Swaps A. This type of derivative instrument is traded over-the-counter, and is exposed to both market and counter-party risk. B. The Company enters into foreign currency swap contracts to exchange fixed and variable amounts of foreign currency at specified future dates and at specified rates (in U.S. dollars) as a cash flow hedge to manage currency risk on investments denominated in foreign currencies. C. Foreign currency swaps for which hedge accounting is applied have a carrying value of $(108,343,529) as of September 30, 2011. The U.S. dollar notional amounts of these positions are represented by the foreign notional amounts translated at the spot exchange rate. Foreign currency swaps that no longer qualify as effective hedges are carried at fair value from the date they ceased to be effective according to the accounting guidance. Foreign currency swaps for which hedge accounting is not applied are carried at fair value. The changes in the carrying value of foreign currency swap contracts are recognized at the end of the period as unrealized gains or losses. D. For the nine months ended September 30, 2011, the net unrealized gain from foreign currency swaps that do not qualify for hedge accounting was $61,633,181. Foreign Currency Forward Contracts A. This type of derivative instrument is traded over-the-counter and is exposed to both market and counter-party risk. B. The Company enters into foreign currency forward contracts to exchange fixed amounts of foreign currency at specified future dates and at a specified rate (in U.S. dollars) as a cash flow hedge to manage currency risk on investments denominated in foreign currencies. C. A foreign exchange premium (discount) is recorded at the time a contract is opened, based on the difference between the forward exchange rate and the spot rate. The carrying value of foreign currency forward contracts, for which hedge accounting is applied and that qualify as effective hedges in accordance with the accounting guidance, represents amortized cost translated at the spot exchange rate. Foreign currency forward contracts that no longer qualify as effective hedges are carried at fair value from the date they ceased to be effective according to the accounting guidance. Foreign currency forward contracts for which hedge accounting is not applied are carried at fair value. The changes in the carrying value of the foreign currency forward contracts are recognized at the end of the period as unrealized gains or losses. D. For the nine months ended September 30, 2011, the net unrealized gain from foreign currency forward contracts that do not qualify for hedge accounting was $3,255,427. Credit Default Swaps A. This type of derivative instrument is traded over-the-counter, and is exposed to market, credit, and counterparty risk. In a replication transaction, the Company synthetically assumes the credit risk of a reference entity and has the obligation to reimburse the default protection buyer for the loss of par principal value in exchange for the defaulted asset if a credit event occurs. The Company also purchases credit default swaps to hedge against unexpected credit events on selective investments in the Company’s portfolio. 7.3
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quarterly statement - TIAA-CREF

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