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Hawaii's Most Profitable Companies 2012

First Hawaiian Bank is Hawaii's most profitable company and Bank of Hawaii is No. 2, both for the second year in a row

(page 6 of 6)

Diversification and Specialization

One of the recurring themes in local business recently is how some of Hawaii’s most profitable companies diversified their sources of revenue. The decision to invest in innovation and new programs – choices often made years earlier – is frequently the difference between profit and loss today: Chaminade University invests in nursing and online education, programs that put the school in the black. Aloha Pacific Federal Credit Union, in addition to its daring excursion to Las Vegas, earned nearly $2 million in commercial real estate leases.

Percentage Change
in Profits at Hawaii
Credit Unions
2010-2011

Even some of the most financially challenged organizations in the state have embraced diversification. The Hawaii Health Systems Corp., despite deficits that will likely always require substantial state support, is six months into the implementation of a system-wide electronic medical-record system that it hopes will help it take advantage of incentives under the Affordable Care Act.

Probably the most impressive (and necessary) diversification effort has come from the cash-strapped UH System. CFO Howard Toto points out that even though the school’s state appropriation reached $359 million in 2011, it was far outstripped by the $502 million the university attracted in grants and contracts. “Basically, the trends have been going in opposite directions,” Toto says. “Contracts and grants have been going up, while state appropriations are going down, especially as a percentage of the state’s budget.” Rather than buck the trend, he says, UH expects to increase the annual revenue from contracts and grants to more than $1 billion in the next five to eight years.

Some companies have profited from the flip side of diversification: specialization and focus on core areas. DTRIC’s innovated by initiating drive-through claims assessment at its Kapiolani office, but the real key to the company’s success has been its attention to the basics, especially lowering expenses. For 2011, DTRIC’s combined ratio, which compares losses and expenses to revenues, was one of the lowest in the state, at 93.3.

According to DTRIC VP Linh DePledge, the key is knowing where to diversify. “What is it that we’re good at?” she says. “What’s our core expertise? What business do we know better than our competitors?” She points out that DTRIC is growing its commercial lines in the areas where the company is most profitable. For DTRIC, that means writing more insurance for condominiums, hotels and retail operations. It also means maintaining profitability in difficult times.

UH System’s Budget, 2011-12

DTRIC Loss Ratio

(losses/earned premiums)

25% 

Percentage of its profits that Aloha Pacific FCU attributes to its Las Vegas mortgage business

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