AM Best rates American Republic's $95 million surplus notes bbb

AM Best assigned a bbb long-term issue credit rating to $95 million of 8.25% surplus notes due 2041 from American Republic Insurance Company. The Des Moines-based insurer is the lead insurance subsidiary of Wellabe Inc. The outlook on the rating is stable.

Following the issuance, AM Best expects financial leverage at Wellabe to remain below 20%. The net proceeds are expected to fund general corporate purposes, including support of new business growth and capital management.

Wellabe is expanding its Medicare Supplement business and producing good top-line growth, but AM Best says operating results have been challenged by new business strain that will persist until the book matures. The agency says the surplus notes will continue to support risk-adjusted capital until operating results turn favorable, and describes capitalization as remaining "strongest" on its Best Capital Adequacy Ratio measure. On the stated terms, the 8.25% rate on $95 million implies roughly $7.8 million of annual interest, a cost the Medicare Supplement book has to earn back once the strain of writing it clears.