Ratings

The ratings on CiV Lebensversicherung AG (CiV Leben) reflect the company's strategic importance to the Talanx Primary Insurance Group (TPG; core operating entities rated A+/Stable/--). CiV Leben is owned by Talanx AG (A-/Stable/--), TPG's intermediate holding company. The successful execution of the company's bancassurance model and its strong operating performance further support the ratings. These strengths are partly offset by the company's dependence on Germany-based Citibank Privatkunden AG & Co. KGaA (Citibank Privatkunden; not rated), a subsidiary of Citigroup Inc. (AA-/Watch Neg/A-1+) as its sole distribution partner, and by its low product diversification and extremely high level of lapses.

CiV Leben plays a vital role in TPG's bancassurance division, which in turn is of strategic importance to the group. CiV Leben has successfully executed its bancassurance business model in cooperation with its sole distribution partner, Citibank Privatkunden. Thanks to this partnership, spanning more than 20 years, a fully integrated information technology (IT) system, and an aligned brand strategy, the company has reached critical mass and has regularly posted above-market-average premium growth rates and new business volumes.

CiV Leben's operating performance is strong and benefits from its slim cost base. This results in below-market-average administration and acquisition expense ratios before payment of commissions to Citibank Privatkunden. Its return on assets, new business margin, and return on equity compare well with bancassurance peers and affiliated companies within TPG. This is mainly due to the company's market leadership in the highly profitable credit life insurance segment.

The success of CiV Leben's business model depends on Citibank Privatkunden's competitive strength because it is the company's only distribution channel. Consequently, during the bank's current restructuring, CiV Leben's new business volume in 2007 dropped by about 18% and gross premiums written (GPW) declined by 1.5%.

Although CiV Leben offers a wide range of products for all target groups, its product diversification is low. Its main product, credit life insurance, is linked to bank loans, which accounted for about 60% of net income in 2007 and about 36% of total GPW.

Standard & Poor's Ratings Services views CiV Leben's extremely high lapses, reflected in above-average lapse ratios, as a constraint on the sustainability of future revenues. In addition, we consider the task of reducing lapses challenging, given the profiles of Citibank Privatkunden's customers.

The stable outlook reflects our expectation that the company will remain strategically important to TPG, based on the continued successful execution of the exclusive distribution partnership with Citibank Privatkunden. It also reflects our expectation that CiV Leben's operating performance will remain strong, benefiting from high margins in credit life insurance and its market leadership in this segment. We expect the company to enhance business and earnings diversification by reducing its dependence on credit life business.

Because of its strategic importance to TPG, ratings support is capped at one notch below the notional group operating rating, according to Standard & Poor's group methodology. We expect the ratings and outlook on CiV Leben to move in line with the ratings and outlook on TPG's core operating entities. The loss of its exclusive bancassurance agreement, although considered unlikely, could trigger a downgrade to the 'BBB' category.