Trisura Group Ltd. (TSU) Earnings Call Transcript & Summary

All right. Good afternoon, ladies and gentlemen. It is now 2 p.m. and time to begin the Annual and Special Meeting of Shareholders of Trisura Group Ltd. My name is George Myhal. And as Chair of the Board, it is my pleasure to chair today's meeting. On behalf of the Board and management, I would like to extend a warm welcome to everyone listening in today. We are pleased to host the meeting through this virtual meeting platform accessible to all our shareholders to participate, submit questions and vote. I will now call the meeting to order and would ask TSX Trust Company by its representatives to act as scrutineers. I will also ask Brian Sinclair to act as secretary of today's meeting. It is now my pleasure to introduce the members of management on the telephone line with me. First, we have David Clare, President and Chief Executive Officer; and second, David Scotland, Chief Financial Officer. As outlined in our management information circular, there are 4 items of business to be considered today. First, to receive the consolidated financial statements of the company for the fiscal year ended December 31, 2021; second, to elect directors who will serve until the next annual meeting of shareholders; third, to appoint the external auditor and authorize the directors to set their remuneration; and fourth, to consider, and if appropriate, pass an ordinary resolution, the full text of which is reproduced as Appendix A to our Management Information Circular, to approve the entering into of the shareholder rights plan agreement between the company and TSX Trust Company. In connection with the business to be dealt with today, only registered shareholders who held shares in their name as of April 13, 2022, the record date of this meeting or validly appointed proxy holders are entitled to vote at this meeting. We will conduct the votes on the matters before us by poll once the poll is opened. Registered shareholders and proxy holders will be able to vote through the webcast portal. Please refer to the instructions on the left side of the webcast page. Polling will be opened for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. If you voted in advance of the meeting and do not wish to revoke your previously submitted proxies, then you do not need to do anything. There will be an opportunity to ask questions on each resolution in turn. Again, please refer to the instructions on the left side of the webcast page for information on voting and how to ask a question. I would note that those listening in as a guest will not be able to vote and will only be able to ask questions during management's presentation. Once discussion on all items of business has concluded, I will give you a minute to enter your votes and then declare voting closed on all resolutions. In the unlikely event of serious technological failure that prevents the meeting from continuing, the meeting will be rescheduled. I now declare the polls open on all resolutions. In order to expedite the formal part of today's meeting, I have asked certain shareholders to move and second various resolutions. Although this procedure will assist in the handling of the formal matters, it is not intended to discourage anyone from speaking in reference to any resolution after it has been proposed and seconded. I am advised that the notice calling this meeting and the Management Information Circular were disseminated to voting shareholders in accordance with all applicable laws. I have asked the secretary of the meeting to keep a copy of the notice and proof of mailing with the minutes of this meeting. Based upon the scrutineers' preliminary report on attendance, the secretary has confirmed that in accordance with the company's bylaws, there is a quorum present. So I, therefore, declare the meeting properly constituted for the transaction of business for which it has been called. Now turning to the company's 2021 annual report to shareholders, which includes the company's consolidated financial statements for the fiscal year ended December 31, 2021 together with the external auditor's report. Copies of our annual report have been mailed to shareholders who have requested the report and are also available on our website. The second item of business at our meeting today is to elect directors who will serve until our next annual meeting of shareholders. It is my pleasure to introduce the 7 director nominees standing for election this year: Paul Gallagher, Barton Hedges, Janice Madon, Greg Morrison, George Myhal, Robert Taylor and David Clare. All nominees are current directors of the company. Information on all 7 director nominees is set out in our management information circular, which was posted on our website for shareholder review and available from the company upon request. I am pleased to report that based on proxies received by management in advance of the meeting, each director nominee received votes in favor of their election from over 70% of votes cast. The meeting is now open to receive nominations for the election of the proposed directors.

Mr. Chair, I nominate for election as directors the 7 nominees named in the management information circular delivered dated April 12, 2022.

Thank you, David.

Mr. Chair, I second the motion.

Thank you, Chris. Are there any further nominations? If not, I declare the nominations closed. As there are 7 directors to be elected and the same number of nominees, I now declare that those nominated have been duly elected as directors of the company. The third item of business today is the appointment of the company's external auditor and authorizing the directors to set their remuneration. As stated in the management information secular, the Audit Committee of our Board has recommended to shareholders that Deloitte LLP be reappointed as the company's external auditor. It is now in order for someone to move this resolution.

Mr. Chair, I move that Deloitte LLP be appointed the external auditor of the company until the next annual meeting and that the directors be authorized to set their remuneration.

Thank you, Chris.

Mr. Chair, I second the motion.

Thank you, David. This resolution has been moved and seconded, and the motion is now before the meeting for discussion. Adoption of this motion requires the favorable vote of at least a majority of the votes cast by shareholders present or represented by proxy at this meeting. Management has received proxies representing approximately 74% of the common shares. These proxies direct me to vote all of those shares in favor of the resolution. On that basis, I declare the motion carried. The fourth and final item of business today is the approval of the ordinary resolution authorizing the entering into of the shareholder rights plan agreement between the company and TSX Trust Company. The text of the ordinary resolution is set out in Appendix A to the Management Information Circular. The background, purpose and summary of the shareholder rights plan is described in the management information circular. As stated in that circular, the Board has recommended that shareholders vote for the approval of this resolution. It is now in order for someone to move this resolution.

Mr. Chair, I move that the ordinary resolution approving the shareholder rights plan agreement described in the Management Information Circular dated April 12, 2022, be approved.

Thank you, David.

Mr. Chair, I second the motion.

Thank you, Chris. The resolution has been moved and seconded, and the motion is now before the meeting for discussion. Adoption of this motion requires the favorable vote of at least a majority of the votes cast by shareholders present or represented by proxy at this meeting. Management has received proxies representing approximately 74% of the company's common shares. These proxies direct me to vote approximately 99% of those shares in favor of the resolution. On that basis, I declare the motion carried. Ladies and gentlemen, that completes the formal part of today's meeting unless there is any other business. Okay. For those who have not voted on all the resolutions, please do so now as I will shortly close the poll. I will close the poll on all resolutions in 60 seconds to allow for any delay. [Voting]

Okay. So the polls are now closed. Since there is no other business, I declare the meeting terminated, and I will now call on David Clare to introduce the management team presentations. At the end of the presentation, management will be available to respond to any questions or comments you may have. Please note that in responding to questions and in talking about our initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I would encourage you to review the risk management section of the management's discussion and analysis in our annual report. Thank you all very much. And over to you, Dave.

Thank you, George, and thank you to everyone joining us today. Everyone should see our slides up on their screen. These slides are also available on our website. 2021 represented an inflection point in many ways for Trisura. Although we continue to navigate a global pandemic, shoots of optimism were evident in progress made on vaccinations and a return to normalcy in everyday life. Initiatives across our organization yielded a robust infrastructure, more diversified earnings and the nascent benefits of scale. I would like to highlight the efforts and the performance of our team as they maintain our service-oriented culture, adding value for partners and continuing to grow profitability. On that note, I would like to start today by thanking our staff and partners. Our team has continued to provide the highest caliber of service and our partners have responded by embracing our initiatives to grow. We are excited for the years ahead. Trisura is an increasingly diversified insurance platform with a specialty focus in operations across Canada and the United States. We have a history of profitable underwriting and growth in Canada and a growing and increasingly profitable fronting platform in the U.S. Our financial profile has been enhanced with flexibility provided by an investment-grade rating, surplus capital and the support of profitable operations. In 2021, maturation of our business and growth of our balance sheet led AM Best to increase our size category rating to 9 and allowed us to successfully raise $75 million in unsecured debt at attractive rates. This moved us to a more mature capital structure while supporting growth across the platform. We maintain additional flexibility in our access to capital through our undrawn $50 million credit facility. Our entity has a 5-year compound annual growth rate of 66% and a high teens return on equity, supported by a mature and growing Canadian entity and now enhanced by a scaling U.S. platform. Although we pursue growth, we do so with risk management top of mind. We prioritize growth in business lines we know alongside established underwriting guidelines. Our track record of underwriting discipline is evident from our 5-year average loss ratio of 23% in Canada. In fronting, a diversified book of business, the view to counter-party credit risk informs our approach. Our investment portfolio prioritizes capital preservation and yield contributing stable interest and dividend income to underwriting operations. We're fortunate to benefit from the leadership of an experienced Board of Directors and are proud of a healthy level of ownership in Trisura management. I'd like to take this opportunity again to welcome Janice Madon to our group. We are more and more a North American specialty insurance company amplified by the rationalization of our life annuity contract last year. Although our company is formed by distinct operating subsidiaries, significant and growing collaboration across jurisdictions enhances our value proposition in each region. Our company has grown significantly since its spin-off in 2017 at a time, $125 million entity. We now generate almost $2 billion in premium over the last 12 months and have $357 million in book value. Strikingly, trailing net income of $64 million has yielded a 19% return on equity despite significant growth. We believe we are in the early innings of Trisura's development and are excited by the potential we see. On this slide, we contextualize our growth and share price performance versus the TSX and TSX financials. We have enjoyed dramatic scaling of our premium base and profitability, and shareholders have been rewarded for supporting our business plan. The achievements listed below this chart demonstrate a history of execution, and as importantly, investments in initiatives to sustain our trajectory of growth and profitability, including the acquisition of a platform providing an [indiscernible], which will serve to expand our fronting platform and has already acted as the regulatory base for U.S. Surety launch. Our strategic priorities are consistent to previous years. Although our tactics evolve with our growth, Trisura remains an insurance company in growth mode, and this remains a focus. Over the past year, we have demonstrated benefits of a unified North American platform creating referral opportunities for operations across the border as we expand fronting in Canada and Surety in the U.S. We moved to a size 9 rating category, formerly in the fall of last year, which has already helped us to partner with larger and more sophisticated distribution partners in the U.S., especially important as our business grows. In the long term, we need to gain scale. I've included the evaluation of inorganic growth and strategic partnerships. Although we are not actively pursuing any targets today, we acknowledge that at some stages may be an appropriate path for us to pursue. The company has become larger and more sophisticated, and as such, our risk and capital management function must evolve to serve the needs of a bigger entity. An underwriting mindset, a focus on counterparty risk, a fortified balance sheet and capital flexibility will serve us well as we grow. We continue to increase allocations to alternatives through our relationship with Brookfield, which coupled with portfolio shifts to prioritize yield and quality have generated sustained increases in investment income. We recognize that we are still a relatively new name in the public markets and remain committed to developing a positive track record of execution, earning the trust of shareholders who have supported our plans to date. We are often asked to define a specialty commercial insurer, and I admit that it is a hard turn to pinpoint. We think of specialty commercial products as services and products that require specialized underwriting or structuring expertise that are not provided by most insurers. Our focus in specialty lines has benefited us. We and they have grown faster than the broader industry and been more profitable. A hardening environmental is present in many commercial lines in 2021, a trend that was maintained through this first quarter. Unlike personal lines, claims experienced in specialty lines is typically low frequency but can be higher severity. We mitigate this through the use of reinsurance. This analysis -- this makes analysis of our business particularly important over the long term as any one quarter can demonstrate volatility, not indicative of the run rate of the business. Our Canadian business lines are familiar to many of you, and we have shared detailed information on them and our other public materials as well as a slide in this presentation dedicated to Surety in our appendix. I'd like to highlight the chart on the right side of this page, demonstrating an almost 30% compound rate of growth since 2014 alongside improving combined ratios. These results demonstrate a track record of growth and profitability for our Canadian platform, one that I believe compares favorably to any insurance company operating today. Since 2014, premium has increased sixfold, and Q1 LTM return on equity reached 30%. Our Canadian entity has enjoyed strong momentum across its lines and the dramatic growth that we have enjoyed. Fronting has enhanced existing distribution relationships, which in turn generates more opportunities for us to write business. Most recently, we are focused on expanding our Surety operation into the U.S. With the expansion of our Risk Solutions arm, a higher proportion of income than ever before is generated by recurring fees, an attractive diversification of an already strongly performing segment. Our U.S. business is a fee-based model. We source and generate premium through distribution partners, which is then ceded to reinsurance panels for a fee. We cede on average between 90% and 95% of our gross written premiums to our reinsurance partners. Most of them are large rated insurance companies. Our U.S. business has demonstrated significant gross premiums, and we are proud of the trajectory of earned fee income, shown in the chart on the bottom right, which supports target return on equity thresholds in the early innings of our scaling. Worth noting, the majority of our capital raised has been allocated to supporting growth in the U.S. At this stage, with both greater premium and better profitability, we are confident in the potential of this still early stage platform. Our balance sheet has grown alongside our business, and we now benefit from a $357 million equity base and $3 billion in assets. Contrast this to last year, where we sat at approximately $300 million in book value and hoped to reach $2 billion in assets. As a company in growth mode, we are always conscious of our sources of funding. Historically strong support from the equity capital markets has furnished our growth plans. And today, with a larger and still growing platform, we have diversified our funding sources, as demonstrated by our success in raising term debt and our $50 million undrawn revolver. Our segmented book value by subsidiary can be helpful and oriented to the capital in each business. Impressively, the U.S. has surpassed Canada in size after only 4 years, supporting consolidated growth and profitability. Our portfolio remains conservatively positioned and concentrated in investment-grade rated bonds, although we have observed volatility in 2022, we know that today's prevailing deals are becoming more attractive for new deployment. And as a growing insurance company, we have a higher proportion of new capital to deploy into these opportunities than mature entities. One change I would note on this slide versus prior years is the slight increase in alternatives, which represents investments in asset classes, we think are both attractive and diversified, things like infrastructure debt, secured real estate investments and product credit. Our management team and Board of Directors is made up of executives with significant experience in Canada and the U.S. as well as beyond. I would note that diversity is a strong focus, and we have demonstrated improvements with the introduction of Janice Madon to our Board. We are actively working to enhance that diversity and expect to introduce new candidates in due course. I will conclude the presentation with the same slide we started with, an overview of Treasures platform. Despite the uncertainty of the past 3 years, we are encouraged by our company's growth and the potential of our increasingly diversified and scaled platform. We believe our niche focus will serve shareholders well, and we expect this specialty insurance will continue to outperform the broader P&C market. As we look forward, I would like to thank our employees, our partners and our shareholders for their continued support. We have an opportunity to build a large and more profitable specialty insurance company in Trisura, one that I am excited to be a part of. We haven't had any questions submitted today, but we are always happy to hear questions and feedback from our shareholders. If you would like to reach out, please feel free to reach out through our Investor Relations contact, and we will organize a meeting or respond to any questions we have at that stage. With that, operator, I think we'll terminate this section of the meeting.