A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-" of DTRIC Insurance Company Limited (DTRIC) and its reinsured affiliate, DTRIC Insurance Underwriters, Limited.

The outlook for all ratings is stable. Both companies are domiciled in Honolulu, HI.

The ratings reflect DTRIC's adequate risk-based capitalization, prudent reserving practice and improving operating performance. The ratings also consider the explicit support from DTRIC's Japan-based parent, Aioi Nissay Dowa Insurance Company Limited (Aioi Nissay Dowa), as it participates in DTRIC's major reinsurance arrangements and provides a financial guarantee.

DTRIC's risk-based capitalization remains adequate. In view of the increase of DTRIC's exposure to natural catastrophe risk due to its business growth and change in business mix, it has reviewed its reinsurance arrangement and increased its reinsurance protection. DTRIC also reviews its catastrophic exposures regularly to ensure that it is adequately protected.

DTRIC's operating performance has improved in fiscal year 2011. The 93 percent combined ratio in 2011 is the lowest in the most recent five years, and the consistent investment return also contributes to its favorable operating result in 2011.

Partially offsetting these positive factors are the prevailing soft market conditions in Hawaii and the potential impact from natural catastrophes.

DTRIC has been tightening its underwriting standards in certain targeted lines of business and gradually putting more focus on profitable market segments in view of the competitive insurance market in Hawaii. Nonetheless, operating performance will still be affected by the recovery pace of the economy and the company's investment return.

Assessing the impact of natural catastrophes is a major challenge because of data limitation. Historical catastrophe events that caused major economic losses had occurred long time ago. These factors create additional difficulties for DTRIC to estimate the frequency and severity of its potential catastrophic losses from its growing exposure.

A.M. Best believes DTRIC is well positioned at its current rating level. Factors that could result in negative rating actions include a significant decline in risk-adjusted capitalization or deterioration in operating performance.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include:: "Catastrophe Analysis in A.M. Best Ratings"; "Rating Members of Insurance Groups"; "Risk Management and the Rating Process for Insurance Companies"; and "Understanding BCAR for Property/Casualty Insurers." Best's Credit Rating Methodology can be found at ambest.com/ratings/methodology.

A.M. Best Company is an insurance rating and information source.

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