The upgrade reflects our revision of TARGO Leben's group status to Germany-based Talanx Primary Insurance Group (TPG; core operating entities rated A+/Stable/--) to "core" from "strategically important," according to our criteria. TPG is intermediately held by Talanx AG (A-/Stable/--). We believe that TARGO Leben will maintain its integral position, profitable business, and earnings contribution within TPG.

In our view, TARGO Leben has successfully proven effective execution of its bancassurance model through TARGOBANK AG & Co. KGaA (Targo Bank; not rated), under Targo Bank's new owner Caisse Centrale du Credit Mutuel (A+/Stable/A-1). The company has also had strong operating performance and made a meaningful earnings contribution to TPG over the past few years. We believe that TARGO Leben supports TPG's strategy to further diversify its earnings, having contributed 7% of TPG's overall premium in 2011.

TARGO Leben's financial profile is strong, in our view, benefiting from strong capitalization and earnings and a conservative investment profile. However, we regard its competitive position as a relative ratings weakness.

TARGO Leben is TPG's most profitable life insurer, based on 2010 embedded value figures. Its average contribution to TPG's group EBIT was about 10% in 2006-2010, and its strong profitability continued in 2011. TARGO Leben's strong operating performance benefits from high mortality risk and cost surpluses, stemming from its strong position in the group's highly profitable credit life insurance segment and a small cost base. This makes the company less dependent on capital market developments and enables it to maintain its bonus rates on traditional products at a consistently high level among the top insurers in Germany (4.6% in 2011 and 4.8% in 2010).

TARGO Leben's complete dependence on Targo Bank as its sole distribution channel constrains our view of the company's competitive position. TARGO Leben reduced its lapse ratios in 2011. However, compared with those of domestic peers, these ratios are still very high.

The stable outlook on TARGO Leben reflects that on TPG (for details see "Talanx Primary Insurance Group," published on Oct. 31, 2011, on RatingsDirect on the Global Credit Portal). As a core subsidiary, the ratings and outlook will move in tandem with those on its parent.

RELATED CRITERIA AND RESEARCH

All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.

Principles Of Credit Ratings, Feb. 16, 2011

Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010

Use Of CreditWatch And Outlooks, Sept. 14, 2009

Group Methodology, April 22, 2009

Interactive Ratings Methodology, April 22, 2009