The Credit Ratings (ratings) reflect DTRIC’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management. The ratings also consider the impact of implicit and explicit support given to DTRIC by Aioi Nissay Dowa Insurance Company Limited (ADI), a member of MS&AD Insurance Group Holdings, Inc. ADI has an FSR of A+ (Superior) and is classified under the Financial Size Category of XV ($2 billion or greater).
The revised outlooks to negative from stable reflect a deteriorating trend of DTRIC’s capital base over recent years driven by unfavourable underwriting performance and corresponding decline in its risk-adjusted capitalisation, which was assessed at the strong level as of year-end 2023, as measured by Best’s Capital Adequacy Ratio (BCAR). While the upcoming capital injection from ADI within the next few months is expected to mitigate the current capital pressure partially, AM Best expects unfavourable underwriting results will continue to impact capital negatively in the medium term. At the moment, limited visibility of the future business plan and capital strategy under the recently announced new business strategy also was considered in the revised outlooks to negative from stable. That said, AM Best will continue to monitor closely any material changes in DTRIC’s underwriting risk exposure and capital strategy to assess the impact on the company’s balance sheet strength.
DTRIC’s marginal operating performance assessment reflects the company’s overall profitability lagging the composite average, which was affected further by the losses from the Maui wildfires in 2023. In addition, its increased reinsurance costs and information system upgrade expenses are likely to weigh on its performance over next few years. That said, AM Best also notes a level of uncertainty around its prospective performance as DTRIC will transfer to the new business strategy with a material shift in its underwriting portfolio, which includes significant reduction of its commercial business over the next one or two years.
Despite its small size relative to the parent, DTRIC plays an important role in ADI’s global strategic plans. It also receives explicit support through reinsurance, a written parental financial guarantee agreement, and a track record of capital contributions including the upcoming capital injection.
Negative rating actions could occur if there is continued deterioration in DTRIC’s risk-adjusted capitalisation to a level that cannot support the current balance sheet strength assessment. Negative rating action could occur if its profitability falls significantly below the current operating performance assessment level as the company executes the new business strategy. Negative rating actions also could occur if there is a significant reduction of support from ADI or significant deterioration in ADI’s credit profile. While viewed to be unlikely in the medium term, positive rating actions could occur if DTRIC demonstrates sustained and notable improvement in its underwriting and operating profitability for a period of time, while maintaining strong balance sheet strength.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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