A.M. Best Upgrades Ratings of DTRIC Insurance Company Limited and DTRIC Insurance Underwriters, Limited [Manufacturing Close – Up]

A.M. Best Asia-Pacific Limited has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and issuer credit ratings to "a" from "a-" of DTRIC Insurance Company Limited and its reinsured affiliate, DTRIC Insurance Underwriters, Limited.

In a release on July 12, the Company noted that the outlook for all ratings is stable. Both companies are domiciled in Honolulu, Hawaii, USA.

The upgrading of the ratings reflects DTRIC's adequate risk- adjusted capitalization, prudent catastrophe risk management practice and its strong presence in the Hawaii insurance market. The ratings also consider the explicit support from DTRIC's Japan-based parent, Aioi Nissay Dowa Insurance Company Limited (ADI), as it participates in DTRIC's major reinsurance arrangements and provides a financial guarantee.

DTRIC's capital and surplus as at December 31, 2012 declined to USD 30.2 million, largely due to unfavorable underwriting performance and unrealized losses on investments during fiscal year 2012. Nonetheless, DTRIC's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), was maintained at around 200 percent in 2012, which remains supportive of its ratings.

DTRIC performs catastrophe exposure analyses regularly. The level of catastrophe protection purchased is based on estimated potential catastrophic losses from internal analyses as well as independent catastrophe models. The catastrophe retention level is determined by limiting occurrence basis after tax loss to a certain percentage to statutory surplus. Aggregate exposure and adequacy of catastrophe protection is monitored three to four times a year.

DTRIC has a long history of having a strong presence in personal lines in the Hawaii insurance market. In the past few years, the company also targeted to grow its writings in commercial lines. In fiscal year 2012, commercial lines including commercial property, workers' compensation and liability lines contributed to more than half of DTRIC's gross written premium.

Partially offsetting these positive factors are DTRIC's unfavorable underwriting performance in 2012 and the prevailing soft market conditions in Hawaii.

DTRIC's combined ratio deteriorated to 113 percent in fiscal year 2012 from 93 percent in 2011, largely due to the deteriorating loss ratio of the company's automobile business. Several large losses from its commercial business also occurred during the year. To address these issues, DTRIC will continue to enforce strict underwriting guidelines and adequate pricing.

Hawaii's insurance market continues to be highly competitive. Some insurers are very aggressive in attempting to grow market share and offer very competitive pricing. Although some level of pricing correction has been observed in the market recently, the profit margin is still expected to be thin in the short term.

DTRIC is well positioned for its current ratings. Negative rating actions could occur if DTRIC's operating performance deteriorates in the coming years or if its risk-adjusted capitalization declines to a level that is below A.M. Best's expectations.

The methodology used in determining these interactive ratings is Best's Credit Rating Methodology, which provides an explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process.

Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.

A.M. Best Asia-Pacific Limited is a subsidiary of A.M. Best Company.

More information:

www.ambest.com

www.ambest.com/ratings/methodology

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