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

Thank you. Good afternoon, everyone, and thank you for joining. I'll be taking us through a presentation alongside David Scotland of Trisura's history as well as where we hope to go in the next few years. Thank you all for joining, both in person and online, and we will be taking questions at the end of the presentation. Our agenda today is to go through who we are as Trisura, where we've come from and where we hope to go. We'd like to summarize and finish the presentation with why we think you should both partner with Trisura as a participant in our business lines as well as partner with us as an investor. I'll start with the company overview. Our platform today is anchored by 2 operating businesses, 1 in Canada and 1 in the United States. It's important to note that these businesses are at different stages of maturation. Our Canadian business has been around and operating since about 2005. It's a strongly performing operation with significant profitability. That business is separated between 2 lines, what we call primary insurance, which is about $380 million of premium and fronting, which is about $340 million of premium. Our primary insurance lines range across Surety, Warranty and Corporate Insurance lines. These practices are specialized practices focused on commercial risks, which I'll talk about in the next couple of slides. In our Fronting lines, we cover both property and casualty business lines. And most of those business lines are lines we do not write on a primary basis. In the United States, the bulk of our premium comes from a business model known as Fronting. We wrote $1.7 billion in Fronting in 2022, in mostly the excess and surplus lines. We have also launched a primary insurance practice in the U.S. Today, that practice is focused mainly on the Surety lines of business comparable to the Surety practice that we operate here in Canada. We also have goals of launching a U.S. Corporate Insurance practice, which has started, and you'll hear more about it today. What is specialty insurance. This is a tough thing to define, and it's a tough thing for many new investors in Trisura to understand. We are not a home, auto or life insurance company. And that's important to understand because most of the people, you can invest in this market across one of those lines. We focus on classes of business that require differentiated expertise to underwrite administer and service. And those are the classes of business I talked about in the last slide. We don't think that the majority of our policies are geared towards people, they're geared towards businesses. This is a commercial insurance product that is much different in profile than the products you see in the home or auto space. Structuring can become an expertise in and of itself. Our products and our structures often are more complex than the broader market, and we try to balance the needs of our partners with risk retention internally at Trisura as well as appropriate use of Reinsurance. And these structures across Fronting, Warranty, Surety and traditional insurance. We think one of the big items that's important in the specialty space is experience. A lot of people talk about specialty, a lot of people are interested in the specialty space. And one of our big differentiators is that the people who run our business, the people who you'll meet today have been in these specialty lines for decades, and we think that experience matters. Our team is uniquely focused on specialty. We only do this as part of our business. We're not a broad commoditized insurance company. We focus on these lines and on these lines only. Part of our business and a significant part of our business is Fronting and that's been a huge driver of growth for us in the last couple of years. If you're an external investor or someone who's not as familiar with the insurance space, Fronting can be a confusing concept, but we've tried to simplify that on this page. In essence, Trisura as a hybrid Fronting company or as a pure Fronting company, and we act as both really acts as a conduit between capacity providers and distribution partners in the insurance space. we collect our aggregate premium in the market, and we see that premium to the Reinsurance community for a fee. In this way, most of the economics of a Fronting business are fee-based rather than underwriting income based. And our participation can range. On average in the U.S., we retain between 5% and 10% of any one business that we originate, but that can be a spectrum. We can go up to about 15%, and we can go to as little 0% retention. When we first started researching this model, this Fronting space, it was about 2015, and we identified a few structural tailwinds in the market that we thought were very interesting. One of those big tailwinds is the MGA space in the U.S., and this is a space that has been growing structurally and significantly faster than the rest of the industry since about 2010. Part of that is as a result of shifts in the market. Part of that is as a result of new capital flowing into the MGA community. But what it has driven is a much larger portion of the insurance market in the U.S. being originated or premiums being originated by this MGA space. Those MGAs need capacity. They need partners in the market to write the businesses that they are focused on. Those partners can be groups like ours who connect that premium with capacity through the Reinsurance market or they can be traditional insurers. And as a result of the growth in this MGA space, we've seen a large growth in the Fronting space. And we were one of the first to do this in a really dedicated way. There were structural tailwinds. There are structural tailwinds in the capacity markets as well. And this was a big part of why we launched our Fronting model. The Reinsurance community, when we started looking at this business in 2015, 2016, was heavily capitalized. There's a lot of capital looking for premiums in the Reinsurance markets, and MGA has become a great source of premium for those groups. Those reinsurers have continued to evolve. There's traditional reinsurers, there's alternative reinsurers, ILS Capital and some investment funds who look for exposure to the returns to the insurance industry through these models. We service both these groups. We provide value to the MGA communities. We provide value to the reinsurers. And you can see some of the areas that we find that value on the right side of the slide. Trisura in its current form today really started in 2017, but it's important to note that this business and its component parts has existed for a lot longer than that. Chris and Rich, who is here from today and even David Scotland who's coming up shortly, have been a part of this business for long before we were a public entity. In 2017, we spun out from Brookfield, but the business that really forms one of the crown jewels of our entity had been operating since 2005 in the Canadian markets. The hypothesis at the time, the reason for the spin out was we saw a really interesting mandate for a specialty-focused team, one that was given more agency to grow, more capital to grow and access to U.S. markets. And so in 2017, we started setting up the infrastructure for what you see as Trisura today. We spun out from Brookfield, we became our own licensed entity in the U.S. We got rated in the U.S. And in 2018, we started writing our first premium. We made some shifts internally, including internalizing the investment function. And from 2019 onwards, our focus was really on capitalizing the concept that we've proven in the last couple of years, bringing capital to the Fronting markets, providing investment management services to the established practice in Canada and really supporting growth in really attractive profitable lines of business. Those capital raises took the form of both equity and debt. We also pursued inorganic initiatives. So you see in 2019, we had a small acquisition in the U.S. admitted space that gave us capabilities and infrastructure that we benefit from today. We novated a life annuity contract. And for the shareholders who have been with us for a long time, we used to actually have some exposure to life insurance contracts in non-Canadian, non-U.S. domiciles. We've rationalized that exposure since then. And I want to raise that to show our willingness to change the structure of this business to better serve our shareholders and our people. Very recently, in Q3 of last year, we acquired a small Surety company here in Canada called Sovereign. And we've recently launched, as we've talked about and we'll go in further new practices in the U.S., including U.S. Surety and U.S. Corporate Insurance. I'm going to pass it over to Dave to walk through some of the changes in the financials of our business and the results of the business over this time.

Thanks, David. So this next slide shows growth in gross premiums written, which has continued to climb from $147 million in 2017, which is before our U.S. operations have begun to rate business to $2.4 billion in 2022. Much of the growth has come from Fronting lines of business where gross premiums written are ceded to third parties, and premium is largely -- gross premiums written is largely offset by ceded premiums. The CAGR of 75% is quite high and largely reflects the increase in premium volume from Trisura U.S., which went from 0 in 2017 to what it is today. More important -- sorry, actually, the slide over. More important than growth in premiums, however, has been the increase in profitability. Net underwriting income referring to the income generated from our insurance operations has increased from $3.6 million in 2017 to $85.6 million in 2022, excluding the impact of the write-down. This reflects strong underwriting growth in the business and also the benefits of economies of scale as we've grown. The combined ratio is a key measure of profitability in the P&C insurance industry. A combined ratio under 100% reflects profitable underwriting and the difference between 100% and the combined ratio reflects underwriting income as a percentage of net earned premium or underwriting margin. Excluding the impact of the write-down, the combined ratio for Trisura has declined from 96% in 2017 to 80% in 2022. This improvement in combined ratio is partly driven by the economies of scale that the business has benefited from as it has grown. Operating net income includes underwriting earnings as well as investment income and is adjusted to remove the impact of certain items in order to better reflect our core operations. It has grown in a similar fashion to net underwriting income. The figures tend to be similar to those of net underwriting income as is often the case that interest, and dividend income is roughly offset by income tax expense. So you see these tend to move in the same direction. This growth in operating net income and improved profitability over time is reflected in the growth of our operating ROE from 3% in 2017 to 20% for 2022. Capital has also grown from 2017 to 2022, reflecting 3 equity raises as well as continued profitability, which has been reinvested in the business. Our debt-to-capital ratio has declined from 20% in 2017, which was at our target ratio to 13% at the end of 2022, leaving us with additional flexibility to expand our debt capacity if needed. Book value per share has risen from $4.59 per share at the end of 2017 to $10.76 per share at the end of 2022, reflecting accretive growth in the business over that time period. This next slide here shows a breakdown of operating ROE into some of its components. Underwriting reflects net income from our primary lines, including Surety, Corporate Insurance and Risk Solutions Warranty, while fee-based reflects earnings related -- earnings generated from Canadian and U.S. Fronting operations, which generate more of their income from Reinsurance ceding commission or fees charged to the reinsurers for whom we see the business -- sorry, for whom we front the business. Investments reflects primarily earnings generated from interest and dividends. Corporate other and tax reflects certain corporate costs but is mostly the impact of tax expense on the business. Over time, underwriting earnings has become a smaller share of our overall earnings composition, while fee-based has grown. Today, over 50% of the earnings base is fee-based and investment income, and we expect that proportion to continue. And then this next slide here reflects our share performance of Trisura from 2018 to 2023. And as the slide demonstrates, shares have outperformed the market over that time period when compared to a number of benchmarks, reflective of the operating performance of the business over that time. David, I'll turn it back over to you.

Thank you very much, Dave. We try to talk here about some of the markets that we play in. And the message we're trying to get across is the space as we are a part of very small component of the market, but they're a very attractive component of the overall market. Here, we segregated both Canadian and U.S. pieces of the insurance space between specialty and P&C markets. You can see where we've played. These industries have grown faster than the broader insurance space. In Canada, the specialty markets that we play in have grown by about 11% versus 7% for the broader industry. And in the U.S., excess and surplus lines, which is where the majority of our business is originated, and the MGA community have both grown significantly faster than the P&C market. I would note that of these amounts, Trisura itself has grown even faster. So the performance that you're seeing from Trisura is not simply a result of being in the right place at the right time. Our team has selected great places of the business to participate and then outperform the growth inherent in those markets. A question we get a lot is how Trisura shifts or how insurance companies move in hard and soft markets. And for those who are newer to insurance, the concept of insurance cycle can be described as either hard or soft. And we've listed some of the characteristics of those here. And in essence, a hard mark is the time when insurance prices are rising, and a soft market is the time when insurance prices are decreasing. Today, and for the last couple of years, we have benefited from a hard market in some of our lines. And it's important to note that not all of our lines benefit from that hard market stance. But it's important to note that the success of Trisura is not dependent on those market cycles. And in fact, the long history of Trisura, especially in Canada was, for the most part, operated in a soft market and the specialty lines that we play in have demonstrated their ability to show profitability through that stage. As you shift from a hard market to a soft market, different things will drive Trisura's result. And you can see some of those that have helped us recently, increased rates, improved terms and conditions, higher excess and surplus premium and optimize retention. That's really how you interact with the Reinsurance community. But in a soft market, those things can change. In a soft market, Reinsurance capacity gets easier to access. That's a positive for a Fronting model. Fronting fees, obviously, are something that come into play in a soft market. And admitted premium is a shift away from access and surplus premium that we would anticipate benefiting from as we grow in the admitted markets. Finally, an established reputation in a soft market is incredibly important, and you build that reputation in a hard market by having to find appetites and by being consistent in your support of your partners. That's something we've been focused very, very closely on -- not only the past 6 years but the past 17 with Trisura Canada. One of the items that really helps our entity and has helped more in the last couple of years has been the increasing size of our portfolio. And Dave walked through on our composition of earnings page, how significant our investment portfolio has become as a proportion of our earnings. Today, about 6 points of our ROE is from our investment portfolio. And we're in a position that, that should grow in 2023. You can see in 2020, this was only 3 short years ago, we had about $12.2 million in investment income. That increased last year to $25 million. And in the first quarter, we had $10 million. So in the first quarter, we had already made 40% of our full year 2022 investment income. What's nice about this nuance this trend for Trisura is this is very repeatable for investors, for people who are partnering with us. You can look very closely to this investment income and predict it very easily. But the increased size of our investment portfolio with the growth in our business, we've been deploying into higher and higher rates. And we've shown here net investment yields for 2020 and 2022, that 3.6% in 2022 is probably understating what we're actually getting on newly deployed capital. Anecdotally, even as recently as this week, we're deploying into paper above 5% in investment-grade bonds below 5 years in duration. So that's a really positive area for us to be deploying into without the historic risks of things like equities. This profitability that Dave talked through has really been enhanced by scale. And we talk about Trisura or at least I used to talk about Trisura as a relatively subscale entity. We are still small in the markets that we participate in. But we're a lot more significant than we used to be. As we've grown, we've diversified our earnings. Dave talked about the mix of underwriting and fees and investment income, but we've also benefited from that nascent scale that you're seeing across the entity. This all informs what we view as our hurdle rate and for investors and for ourselves, we target that at a mid- to high teens operating ROE. And that's the level that we want to be performing at. That's the level that we have performed at for the last couple of years, and we would see that and expect that to continue in the future. One of the big components of our narrative in the last couple of years has been growth. And although the levels of growth that we've seen in the past couple of years have been teens operating ROE. And that's the level that we want to be performing at. That's the level that we have performed at for the last couple of years, and we would see that and expect that to continue in the future. One of the big components of our narrative in the last couple of years has been growth. And although the levels of growth that we've seen in the past couple of years have been very, very strong, and we see those rationalizing, we don't see growth going away. We have a number of initiatives across the organic channels, including expansion of our distribution partners and our primary models that should sustain a lot of these trends of growth. We continue to believe that on a secular basis, the markets that we play in will continue to demonstrate growth and growth that should outpace the broader industry. Inorganically, we've talked a lot in the past about our appetite to pursue initiatives outside of organic growth. And we really think about it as a spectrum. On the one end of the scale, that's people and team acquisitions, which we have done actively in the last couple of years. We've brought on people in the U.S. We brought on people here in Canada. We brought on teams through acquisitions like Sovereign General. We've had capability bolt-ons like our acquisition of a licensed entity in the U.S., giving us admitted capabilities. You have not seen us pursue scaling transactions or really transformational M&A. But at some stage, our entity will be at the scale and position to consider that. How will we measure our performance over the next 5 years? And how will you, as an investor, how should you think about what we're targeting? At a very high level, we think about our revenue growth metrics in the mid- to high teens. And we've talked about that a lot for this year, but we think that's -- those are targets that will be consistent in the years following. I think more importantly than top line growth is profitability. So those operating ROE metrics really anchor everything that we do. As an investor, a lot of the concerns or a lot of the questions that we get are around how these all translate to book value per share. And that's been a real touchstone for us, and you've seen how accretively book value has grown in the 5 or 6 years that we've been navigating this business. Very openly, we are targeting to have $1 billion in book value by the end of 2027. And to contextualize, we started this vehicle in 2017 with about $100 million in equity. We're sitting at about $513 million today. So there's been a significant step-up in the size of the business. And we don't think that, that trajectory changes in the next few years. One of the anchor points, one of the touchstones for any insurance company and certainly for ours is disciplined risk management. And what I've included here is a demonstration or an illustration of the different layers of risk management we have in our organization. The front lines of risk management are always our people, the management teams and the supervisors of the frontline operators of our business. Those feed into our risk management infrastructure that's dictated by a group risk management function. So we have both internal chief risk officers inherent in the subsidiaries themselves as well as a risk officer at the group company. We have separate group -- separate risk offices in both Canada and the U.S. as well as a group risk committee chaired by independent directors. So there's a fulsome governance model here that navigates and supports the infrastructure of our platform. Lastly, I'd like to walk through why we think Trisura is an interesting partner. And Chris and Rich and Mike will talk a little bit about this in the next section. But we really hear are addressing our partners. Our partners are many of the distribution partners we work with, many of the brokers that we navigate this space with as well as the clients that we ultimately write policies for. We believe we're collaborative and solutions oriented. And we have a dedicate and specialized focus. I think that's something we've talked about very openly. The experience level in this organization is significant, and you'll hear some of that today, but I think that's a point that is often easy to overlook. The qualitative benefits of having people with decades of experience leading these lines is tough to overstate. We are responsive. We need to move faster than our competitors. We are a small participant in a big market and being nimble and quick to respond is a real differentiator for us. Finally, for some of our partners in the U.S., our size, our scale, our rating and our licenses are a real reason people come to us to partner on the Fronting side. For you, as an investor, why is Trisura interesting. And we are a rare entity in the Canadian listed market and that we are a pure-play diversified specialty platform. Most investable vehicles in this space are much broader insurance vehicles than we are. And we talk through why we believe that specialty platform is attractive today. We have a strong capital position and a strong heritage of risk management as well as industry-leading profitability. I think there are significant growth leaders -- levers in this business that we will continue to pursue, and that is supported by an experienced management team and Board of Directors, many of whom you'll meet today. So on that theme, I'll be ending this presentation with a fireside chat. I'm going to be introducing Chris and Rich to our investors here today. I'd encourage you to ask questions at the end of those sessions as well as Michael Beasley, the CEO of our Canadian -- our U.S. Fronting business. So maybe we'll transition to that section now. Test, good. You are good, Rich?

Yes.

Good. So guys, this is a little bit less formal part of the presentation. One of the pieces of feedback we got a lot from investors was they wanted to see the people operating the business, operating the front lines of the business every day. And so sitting beside me here, we've got Chris Sekine, who's the CEO of Trisura Canada; as well as Richard Grant, who's the Chief Operating Officer of Trisura Canada. Both have been with the entity since its inception in 2005 and have experience in the industry beyond that. So maybe, Chris, why don't you start give the group here a bit of your background?

Thanks, David. I've been in the business now for 32 years. I started as a Surety underwriter at a company. Actually, that was founded by Bob Taylor, who sits on our Board of Directors today. And since then, actively progressing in roles in the Surety industry. Just before Trisura, I was Managing Director at Zurich for Canada. And in 2006, I was recruited into help Trisura start up and to specifically start up our Surety operation. And so that's been now 17 years of operation in our Surety business. And we've grown it really from 0 from scratch to where we've got it today. And Rich and I actually, we've worked together now for 27 years. So our team is very familiar with each other.

That's great. And Rich, maybe a bit of your background for...

Yes. So I'm Richard Grant, Chief Operating Officer, as you mentioned. So I started in the business 27 years ago. Again, working with Chris and Bob at the predecessor company to Trisura, started in as directors and officers liability underwriter. And then through that piece had different roles from placing Reinsurance, drafting policies, setting direction for the division. And then in 2005, when Trisura started up, that's when the guys reached out to say, "Hey, do you want to help start up the insurance part of the operation."

That's great. And so you both have sort of had different focuses across Trisura. Chris, originally in Surety now across the whole organization. Rich, again, originally Corporate Insurance. Can you talk about maybe some of the market dynamics in the lines that you focus on, Chris. So some more of the Surety space in Canada and the U.S.

Yes. The Surety space, we sit today in Canada at the fourth largest Surety. That dynamic will change as we progress over the course of 2023 with the acquisition of the Sovereign Surety book. And so it wasn't an acquisition of Sovereign General. It was an acquisition of the book. So I just want to clarify, we didn't buy the company. So that will change. Sovereign was in one of the top 10 writers of Surety. The majority of the competition in Canada, our large international insurance giants. And the overall market is roughly about $900 million. The top 10 players represent about 90% of the business. And so it was an important acquisition for us on the Sovereign side, that will help fuel some growth that we'll see over the course of 2023. And then on the U.S. side of things, the U.S. market is 10x out of Canada. It's about $9 billion. And so for us, I think in 2022, we were #58, so we've got a pretty new business. But for us, we put that into context of the size of our Surety business here. And we don't need to be fast growing. We don't need to be in the top 10. What we need to do is continue to grow a disciplined business in the U.S., and it will be impactful to the growth of our overall Surety business.

That's great. And Rich, what are you seeing on the Corporate Insurance side?

Yes. So for the Corporate Insurance side, our primary products that we offer, directors and officers liability, professional liability, fidelity would be the core products. Right now, we sit in the top 15 in the Canadian marketplace, and we're definitely running up against and compete with global players, as Chris mentioned, on the Surety side. So a lot of the same players underwrite the Corporate Insurance lines of business. We've definitely grown continued to work with our brokers on getting the submission flow in writing the business. And much like the U.S. where we started the Surety operation a couple of years ago, part of that strategy is to take the Canadian operation down on the insurance side as well. So market's 10x bigger, definitely an opportunity for us to take our expertise in what we've done in Canada and replicate that in the States.

That's perfect. And so Chris, how would you describe Trisura's competitive advantage? A lot of questions I get from investors is we are a lot smaller than a lot of these groups. How do we navigate the market every day?

It's a great question. I get that -- asked that same question by a lot of people sort of in my day-to-day travels. And it really comes down for us to culture. When we started Trisura, our reason for being was really to serve our brokers. And we view our brokers as our customers. And from that end of things, it's about providing service. It's about being collaborative. It's about looking for solutions. And it's really looking at how we can partner with them to help them improve their business. And so we look at it as a partnership, and it really has helped us in the marketplace. And I take it back to behavior, how our people behave in the market. And it's soft skills. A lot of our competitors, frankly, talk about the same values in terms of service and people. But at the end of the day, I truly believe it's an execution. And what we've been able to do well is execute that mantra.

That's great. Do you have any anecdotes, any instances where people from those organizations have started to move over to Trisura?

Yes. We've actually been very successful in moving some fairly high talent from our competitors over the last little while. And really, a lot of it has been based on our story based on the way they see us behaving in the market, and that's what's attracting them to Trisura. And certainly, as we grow in the U.S., that same story is starting to resonate.

And that's something that's worth highlighting here. Historically, Trisura, when we first started, we hired very -- I won't say very junior, but younger people and develop them. And as the entity has gotten larger, we've gotten now an ability to attract more senior people at competitors over to our model. And I think that's been really impactful in the last couple of years.

Yes, absolutely. And one of the things as well is we still like the model of developing our own. But what we've been able to do with some of our senior talent is actually attract some senior talent across some very different disciplines. For example, actuarial, we've attracted some high-level actuarial talent that has really helped us in terms of diving deeper into some of our analytical capabilities.

That's great. And Rich, I know one of the big pieces of growth, especially in Corporate Insurance has been an expansion of our distribution partners, the people that we're working with. Can you talk through how that's evolved maybe in the last 5 years versus what it was before?

Yes, sure. So we have a program we call the BSI, the broker strategic initiative, where really we get all of our staff focused on servicing our brokers. Brokers give us their business. They make us successful. And what's really transformed or taken place over the past 4 or 5 years is with our growth, our level of discussions with our partner brokers has really deepened as we've grown. So when you're a $100 million company, the level of discussions is very different when you're a $750 million company. So with that growth has just become more in-depth conversations, more strategic discussions happening with our brokers on how we can work together to not only grow their business but grow our business as well.

And has there been any new piece of the business that's helped that at Trisura?

Yes. The one big part of the business that's certainly grown throughout the hard market is our Fronting business in Canada. So with the hard market starting late 2019 into 2020. we definitely saw a capital outside of Canada looking to underwrite risks within Canada but needed license paper to do so. So we leaned into that sort of working with those capital providers to be able to help them in lines of business we don't underwrite ourselves and really support our brokers. And we viewed it as an opportunity to solve our brokers problems by giving them capacity in a hard market. And in return, brokers want to work with us. They want to say, "Hey, you're helping us out on that business, how can we help you on all of your lines of business." And that's where the conversations have really developed over the past 2 to 3 years.

That's correct. And I would say that was very much of a specialty solution, not a traditional solution in the sense of what we would normally write.

It goes back to that structuring point maybe more so the underwriting. Maybe, Chris, on that theme of growth, one of the items that we're talking about a lot these days is the expansion of U.S. Surety, how do you view the U.S. Surety market versus the Canadian space?

It's 10x the size of the Canadian space as we grow our U.S. Surety operation. I really see that doing -- going in very similar to the way that we grew our Surety operation in Canada, and it will be expanding our geographic footprint, putting boots on the ground in key locations across the U.S., and it will be based on acquiring people. It will be based on people that think -- that have the thought process that's very much aligned with Trisura's culture and service, putting people in those key locations and really just growing it organically like we did in Canada. The one area is certainly construction. And in the U.S., Biden announced it was a $1 trillion infrastructure build. So we want to be able to lean into that and get some of that. We have the capabilities, we have the knowledge. And so it's a matter of really just being steady and consistent with our approach to expanding the business.

So that practice is probably a couple of years ahead of the U.S. Corporate Insurance expansion, but can you give us a preview of what you're trying to do with that piece of the business?

Yes, a very similar approach to what we did in Canada, hire underwriters of people with the relationships in key cities across the U.S. and really build out that platform as we did the Canadian operation. So right now, we're busy drafting policies, getting ready for rate filings. But when that premium starts to come on, we'll definitely see an uptick in investing in staff to be able to harvest that premium.

Yes. Something we don't talk a lot about or at least has been a little bit behind the scenes. It's been the warranty business, especially as we saw lower car inventories through COVID. But how do you think about the prospects for the warranty business in the next couple of years?

Yes. Definitely a great future for the warranty business. As you mentioned, the results on the top line and the premium has certainly been muted a little bit due to some of the supply chain issues that we've been experiencing, especially on the automobile space. But as those supply chain issues resolve themselves, we definitely see a great future for that product line.

That's correct. And it's another product line, frankly, that we could build out in the U.S. We haven't started doing that, but we certainly have our sights on that at some point in the future.

Trisura Canada has changed quite a bit from a top line perspective, but what a lot of people don't see is how it's changed internally. Can you talk about maybe how the team has changed in the last couple of years? And maybe -- I mean, one of the things you raised there, Chris, is this attraction of actuarial talent, which was a new addition to the organization.

Yes. No, absolutely. So our team has grown over that period of time. Our team has probably doubled in numbers. We have broadened the talent pool that we have. We've broadened the expertise, actuarial, IT, finance, those other disciplines. And at the same time, we've built our underwriting teams in each one of our regions and our offices, and we've added to those teams. And so we feel really good about the depth that we've had. During COVID, the employment environment was tough. And so we saw a shift. But at the same time, we've been able to manage through that, grow our team and grow our talent pool.

Yes. And I mean, it's interesting to hear Rich and you talking both about investing in these U.S. businesses. We're investing in the U.S. Surety practice for a long time. But through that, the organization is still producing and reporting pretty strong profitability. So you've got a good balance here of recycling profits into new growth initiatives.

Yes, absolutely.

Maybe on that point, how do you think about operating leverage through this growth? Because that's something we talk about a lot as we're growing the platform. What do you think about as the levers to pull for operating leverage? What are the areas that you'd talk to internally? Maybe Rich as Chief Operating Officer could start there.

Yes. No. As we continue that expansion, there's definitely, from finance systems, all of those head office functions and having those groups support that U.S. expansion will definitely help with that leverage, so definitely part of the plans.

Yes, absolutely. But I think one of the things that we do acknowledge is that for Trisura, we're a little bit different than other P&C companies in that our expense ratio is a little bit higher. And so our thought around that is we get a lot more leverage with a higher expense ratio if we can manage down our loss ratios. And so we put a lot of focus on ensuring that our loss ratio stays a lot lower than the industry norm. And so we feel that we get a lot more out of that than if we try to gear down our expense ratio and take up a loss ratio.

Well, it's worth noting, too, our expense ratio is majority driven by variable expenses, right? Commissions are high in the lines of business that we operate in. Premium taxes are high. So the controllable piece you have demonstrated progress on, right, the operational expense line has come down.

Yes. The operational expense line has come down a lot, and Fronting has really contributed well to that.

Yes, because it's a high leverage business that people have. So maybe, Chris, start with you, if you're thinking over the next 5 years, what are your goals for Trisura in Canada and the U.S.?

I would just say, for me, it's about Trisura really being seen as a leading specialty insurer in North America. And we don't have specific volume targets because we're just still building out a bunch of that in the U.S. But I think when you think about what does that mean to be a leading specialty insurer, it's really going to be about how others think about us, how our reinsurance partners think about us, how our distribution partners think about us. Do they call us for advice? Are we the first call for some problems that they need help with? And so to me, I think it's those softer things. And I think if we continue to be consistent with what we do and apply the same principles that got us to where we are today, I think we could get there.

That's great. And Rich, from the operating standpoint, anything you'd add?

Yes. No, I think Chris pretty much summed it up on where we want to go, where we're headed. And yes, looking forward to it.

That's great. So guys, we've wrapped this up a little bit faster than I expected. I'd be happy to take questions now for either Chris or Rich or me on the Canadian piece of the business, if there's any that we can take online or we can take in here. So any questions in the audience today? So I see 1 that came through. How did the relationship come about with Argo for Surety? Are there opportunities to do more deals like that? How does this position Surety business in the U.S. as you partner with a top 10 player? It's a good question. This is -- it's a very new relationship. So for those of you who don't know, Trisura entered into a services relationship with Argo last week. Argo is a large specialty insurance company in the U.S. that has a pretty significant Surety practice. At this stage, it's a bit early for us to talk about much in the way of specifics of this. But at a high level, Trisura will be providing services to the Argo Surety book. Those services mostly involve administering and stabilizing their book of Surety business. But in the long term, we are hopeful this develops into more of a strategic relationship, so opportunities with co-Surety, opportunities to share business, front-end opportunities for Trisura to access larger paper. Argo is a really significant participant in those U.S. markets. And this is a unique partnership, I would say, for an entity like ours. I think it will elevate Trisura's presence in the market. People will notice this presence, but it's also an opportunity for us to help someone who's going through some transition in their own business. And that's the focus for us in the near term.

Yes, I think that's a good summary.

Yes. So I don't see any other questions. And maybe I'd thank Chris and thank Rich and invite Michael Beasley up.

Thanks, David.

Thank you.

So today, we've also got Michael Beasley here, who some of you will have met. I know a long time ago, Michael came up in Toronto. We hosted a lunch up here. But I know some newer people won't have had a chance to meet him yet. Michael runs our U.S. Fronting practice, and Michael was actually the brains behind this business model. I think you and I met for the first time in 2015 with George.

2016.

2016 with George, when we were talking about this business model. So there's been a long history of talking through this even before the formal relationship. So if you could give this group maybe a bit of an idea of your background in the industry.

Yes, very similar to Chris. I think we started at about the same time in the early '90s. I cut my teeth out of college as a reinsurer. And in about 1994, '95, there were other fronting companies out there, Clarendon and United National or about 8 of which we felt a couple of them did this better than others. MGAs were starting to evolve, not like they've evolved in the 21st century, but a few of them started to figure this out even back then. So I started to make a play to be a reinsurer behind a couple of these carriers back in the mid-'90s. Then another company called Employers Reinsurance decided they wanted to get deep into the program space. So on the later '90s, I ran a $200 million treaty portfolio for Employers Re, basically supporting several MGAs through Clarendon and United National, a new company at the time called the State National Companies. At the time in 1999, State National decided to basically build a program division so they hired me to run it. Spent several years there, built a very successful business model as a fronting company. We took risk back then, and I've always had this idea of doing a hybrid-fronting model. And I've run a couple of other companies in a much smaller size, smaller scale, deploying this business model. And then like David said in 2016, I was out trying to raise capital, came up here to Canada, met George and David. They thought I might be onto something. And Brookfield gave us the money and the rest is history.

We operate mostly in the U.S. in the E&S space. But Canadians, to the extent there's Canadians in the room and online, that's a different market here in Canada. So can you talk through at a high level, the difference between excess and surplus and admitted lines.

Yes. It's -- when COVID hit, things definitely got blurred to a certain extent. But I always think of E&S business in the U.S. being more like Lloyd's of London, the weird, the wonderful, there's no forms or rate filings that have to be done. It's not regulated. It's not monitored as much. So it's kind of the wild, wild West. Admitted business is very regulated. You have to file all your rates, all your forms. You have to stay within certain boxes and so forth. And you get a lot more of, I would call, a commodity-driven business in the admitted space and non-commodity specialized business more in the E&S space.

And so for those in Canada or those may be more familiar with our markets, it would always be the difference between standard and nonstandard business. And one of the points of flexibility that's been really fortunate for E&S business, especially in the last couple of years of a hard market is that, that rate filing process, which can limit your flexibility, your nimbleness in the market, that's less onerous in the E&S space, where you've got freedom of form and freedom of rate. So that's allowed this space not only to grow faster in the market but allowed a lot of our partners in the MGA community to nimbly navigate what's been a pretty tough market in the last couple of years.

Yes. And as David pointed out earlier, the market in the U.S. and several lines of business has hardened. So when you see those E&S numbers going up, when the market hardens, more business goes to the E&S space. When the market starts to soften, more capacity moves back to the admitted space. Then -- and oftentimes, they just become blurred. But when COVID hit, a lot of these states couldn't process rates and forms and get approvals out quickly, so they allowed more people to write the same type of business on an E&S platform, which was really helpful to us.

Can you talk a little bit about why people in this community would use Trisura? What's Trisura's competitive advantage in the fronting space?

Yes. Kind of like Chris also pointed out, similar philosophies. We provide the best service or the most responsive. We have a lot of people within the organization that have a lot of intellectual knowledge in the space. We have 5 actuaries. We've got operations teams. We've got business analysts, our metrics that we run. We have underwriters. We have a big compliance team. That's very different from a lot of our competitors. They're highly focused on business development and marketing. But it's really, you've got to be able to protect the client once you get the client on the books. And one of our big competitive advantages after we land the business is that we're able to service the business incredibly effective.

That's great. And you did reference here a little bit of this competition. This is a space after those who are less familiar to it, we were one of the early movers in what I'll call the hybrid-fronting space, which is someone who shares risk alongside the reinsurers. But can you talk about how the competitive landscape has evolved?

Yes, it's really been a shocker. When we got the capital and we launched really in 2017, where there was Fortegra, who was kind of a hybrid front but mostly doing warranty and some specialized focus. State National, the big one and then Clear Blue had just gotten launched and were starting to put business on their books. Most of those carriers were traditionally just 100% front carriers. Once we were launched, people started to take notice that, hey, you can attract a better quality of reinsurer and there is a market space for this capacity. And capacity will move at traditional insurance carriers to a front company, if you can take risk and align interest in a more competitive fashion. When we became pretty successful within 2 or 3 years later, a lot of other carriers got capital startups and they launched, and now I believe we have 20-plus competitors fighting over the $60 billion to $80 billion worth of business in the MGA space.

Well, and it's interesting to contextualize that because the MGA community has grown very quickly. 4 or 5 years ago, it was $40 billion in this space and now you're seeing $60 billion, $70 billion of capacity. It's important to note today, the fronting community probably only represents $10 billion to $11 billion of that. So there's -- this is a space that's growing very quickly and fronting, I'll admit, has grown quickly but it's not saturated from a fronting opportunity standpoint, which is, I think, one of the things that's exciting for us. Help the group, help these guys understand the life cycle of a program. How does an MGA onboard with you? What's the work that you do to figure out who you want to partner with?

Yes, great question. We have a very exhaustive intense due diligence packet. So if I get 10 of them in, I'll send -- or 10 submission opportunities in, we'll send out these due diligence packets. And then unfortunately, our hit ratio comes back at about 20%. And then we spend a little bit of time trying to fill in all the gaps. Once we fill in all the gaps, it usually takes about 3 months, then we go out to the reinsurance community to try to attract a reinsurance capacity. The reason we like to vet so much is because we want to take risk, and we want to be comfortable with the MGAs that we're vetting and that we're doing business with. And in order for us to be comfortable, that's where it takes to the reinsurers comfortable. So where some of our competitors go to the reinsurance market first and do their due diligence afterwards, we do the opposite. So our onboarding process can take, say, 3 months to get all the information back, another 2 to 3 months to get the reinsurance in place and probably another month or 2 before they actually get their systems in place and they actually start writing business. Now in the E&S space, that goes a lot quicker, which is great because you don't have to wait for the rates and forms and filings to all get approved by the states. So on an E&S deal, I'd say, depending on how much -- how completely filled out the diligence packets are, we can deploy a program in 3 to 6 months. If it's admitted, probably 6 to 9 months. And then the nice thing is once you do this and as long as you service your program well and keep the reinsurers happy on the back end, these programs are very sticky. We have not lost any program since we've started to another carrier or anything else. Some have gone into runoff or poor results, but I would say 90% of our business is very sticky and it's stuck with us.

So maybe once an MGA, once a partner comes on board, can you talk a little bit more about that monitoring process? Because I know that's important for us as a company who's taking risk but also for reinsurers who use some of these reports.

Yes, that's a big competitive advantage for us on the back side. So we have 2 customers and we have to service the MGA on the front side, and we have to service our reinsurers on the back side. Now the reinsurers want people to be able to monitor the business, understand the business and so forth. So all of our programs now, not so much when we first started out, but we try to have and do business with the most technologically advanced MGAs out there so that we can remote access and remote view into all of our MGA's operations. And we do this and we look at underwriting policies every month to make sure they stay in their guidelines. On the back end, we went hard into data. So we have provided data feed to every one of our MGAs and they load their monthly data into our data warehouse. Every one of our programs is sliced and diced by metrics that are important to the reinsurers. And we give reinsurers access to this business every month. So with the Trisura program, this is what's really unique. A reinsurer knows where they stand every month. They don't have to go out and audit. And I hear this from a lot of reinsurers as we have several that are on several of our programs, always say, Trisura has the best data. We know where we stand all the time on a Trisura program. And we go out to see the clients, it's not to necessarily audit them all the time, it's actually get to know them more and find out how to expand the relationship. So I think that's another competitive advantage and unique.

And I would note, I know Michael talked a lot about technology there and our space has been one where a lot of people talked about insurtech and those components. We don't really partner with insurtechs. We don't have a practice that focuses on that, although there are some companies that do. What we're saying is we have a requirement for a certain technological bar our partners have to meet in order for us to monitor them.

Yes. These are not what you would call insurtech MGAs. These are great MGAs with great programs that have really nice technology so they can outperform their traditional insurance competitors.

So Michael, we did have a tough experience in the fourth quarter and we've talked a lot about this publicly. But maybe on a go-forward basis, I'd be interested for you to share your appetite maybe for things like property exposure going forward. How are you thinking about that market today?

Yes. One thing I left out is when I started as a reinsurer, I handled the global cat book for a company called Underwriters Re. In my entire history, I've never seen a market as hard in property and property cat as we've had in the last 2 years. This is shift -- and it shifted quickly. In '19/'20, things were fairly normal. Then 2021, in things got very difficult and challenging. In '22, '23, it was almost impossible to renew your programs and get deals done if you had any type of property cat exposure. Right now, more capacity is coming back into the market, which is nice, but at the same time, rates are up 30% to 50% for property cat exposed business. For a fronting model, that's not a good place to be because it puts a tremendous amount of pressure on the MGA to have to create enough premium to support the cat tower that a fronting carrier needs. So right now and over the last 1.5 years, we've been derisking considerably in the U.S. away from property cat and into other lines that are more casually driven or non-property cat-driven and mostly commercial.

Well, and to point out that, that process started in 2021, I mean, there was some program rationalization we did back in that period for those same concerns. Can you talk about, maybe back on the MGA theme, some of the tailwinds you see supporting growth in this market? And we touched on this a little bit in the broader presentation, but from boots on the ground, how are you seeing this market maybe growing in the last 10 years and growing in the next couple?

Yes. David hit on it earlier. That slide presentation was exactly correct. About 2010, interest rates started going down in the 2008, 2009 with the last banking recession. With interest rates really at 0, a lot of professional capital we're trying to find different pockets across all industries to deploy capital. Just so happened that a lot of these guys don't like balance sheet transactions, but they really like service industries. MGAs are kind of an ideal place to park money where you can get great growth and great growth quickly. So what was nice for us is, as all those professional capital goes into the MGA space, gives them the ability to create -- to basically purchase better technology, bolt-on better teams of people, underwriters from traditional insurance carriers and it gave these new teams the ability to get much more upside with an MGA who is a lot more willing to give decent equity positions in the company as long as everything grows.

Well, and this is an important nuance because it's 1 I didn't understand before about the industry. There's been a lot of talent moving away from traditional insurance companies to MGAs. And that component that Michael talked about there, the compensation is a big part of it. If you're a strong underwriter or a strong operator in the commercial or specialized insurance space, moving to an MGA can be a more profitable, better home for you these days than it used to be.

Yes, absolutely. And that's attracted a lot of talent to the MGA space where before, they were considered more distribution, wholesale, so forth. Now they're professional underwriting operations with a lot of capital behind them. And Trisura tries really hard to partner with what we call the super MGAs, these people that have multiple books of business, multiple teams, will deal with multiple carriers. So we don't have to be everything for somebody like Arrowhead who writes $3 billion in MGA business. We just have to be one of their key providers, key players, and we can write $50 million to $100 million with them and continue to grow as they come to us with other books of business where they may have capacity needs. So I would say a majority of our programs are with MGAs that write multiple books of business and are always looking to expand. And once we diligence them and once they diligence us, it's a lot easier to bolt-on a new program to our -- to both entities' platforms.

So on that theme, I mean, there's been tremendous growth in top line, tremendous growth in the operations of the business. But maybe that same question I asked Chris, talk a little bit about how the team composition has evolved in the last couple of years.

Yes, when we started out of the gate, there were like 5 of us in 2017. And then when we ended 2022, I believe we had about 85 or 86 people. The goal, I think, over time is to try to get to a scalability of employee at a premium of around $15 million to $20 million per employee. That would be at the very high end of the spectrum for a company that actually takes risks, has actuaries, analyzes the business. We will probably end this year with 100 people. And if you had a 15% to 20% growth rate, which is hopefully what we're projecting and put out there for 2023, that kind of gets us to those numbers, which basically shows that you can have tremendous scalability and profitability and analyze the business if you run this business model correctly.

Well, and that's a good segue into the types of economics you'd be expecting from a fronting model. Where do you -- what's your touchstone on return on equity?

Yes. I think once you kind of start to hit that $1 billion premium number, if you're doing all the other -- you're doing the blocking and tackling internally appropriately, you should be in that mid- to high teens ROEs. And if you outperform that, you could go higher. But I think for us, that's really our target goal and that's kind of what we presented back in 2016 was if this is done well, we should be able to hit ROEs in that 15% to 18% range.

So you've had 5 years sort of building this business. You're at a much different position than you were in the last couple of years. What's your vision for the fronting company in the U.S. over the next 5 years?

Yes. Great question. The growth has been tremendous, and I don't think we're going to continue to grow at the clip we had before unless something dramatic changes. As I mentioned earlier, with property market changing right now, casualty, everybody wants that. So there is more competition. But I would really like Trisura U.S. to be the predominant premier hybrid-fronting model in the U.S. I think we started to separate ourselves in '21, '22 as most of my competitors that are the hybrids at least are kind of in that $300 million to $400 million range. We were $1.3 billion. I think we have the best MGAs and we're in with all the super MGAs that have the ability to grow more with us. So I think we built a lot of goodwill and we built a lot of momentum in the end of 2022. And it's continuing to show through 2023 and I believe in 5 years, we're just going to be able to build on all of that.

That's great. We've got a few questions on the board here. I guess, first off, is there any questions in the room? I'll start with there before we go down to the board. Yes?

Can you talk about hybrid [indiscernible] the part?

I'm sorry.

When you talk about the fronting business and the hybrid model there, 5% or 10% of the risk is kept in-house. Is that a range that you're willing to look at expanding beyond that? Is it an industry practice to stay there? Or can you do more like 50% sharing of the risk? I'm sure there's puts and takes, capital relationship with reinsurers and things like those, but some color would be appreciated.

Yes. There's a lot of nuances that go into how we take risk and how we select our business. When David talks about the 5% to 10%, that's usually if we have $1 million quota share on, say, a casualty line of business. That seems to be our comfort or a sweet spot out of the gate. If it's a program that we have, say, 2 to 3, 4 years of history on, we know it's running very well. We'll maybe bump that up to 15% or go back to risk committee to maybe try to get a little bit more if we're really excited about it, depending on the premium size as well. So a lot of our programs that have stuck with us, especially in a hard market, it makes a lot of sense to take a higher risk position. So we do have a few programs where we've done that. Now the converse is if we have a smaller line of business, say, a $100,000 policy limit, some of those, we've taken a 20% risk position because when we look at the cost of capital outlay, what we outlay internally, it can be more than just a percentage. It can also be based on that line up or that line size. So if we take 20% of $100,000, it's only $20,000 versus 15% of $1 million, that's $150,000. So we're constantly balancing that internally and to try to figure out how to optimize where we get our biggest return for our dollar.

So if you take a step back from that question, it's really how are you thinking about the economics of the business? Because today, 5% to 10%, the majority of that economics are fee-based income. And I would say in general, we would expect that a majority of the economics from this business will continue to be fees. But Michael is right, around the edges, there are opportunities to change that, right? In a hard market, if you see profitability, there's ability to support that. We've grown. We have a lot more capital in this business than we used to so you have different appetites than you did when you started. One of the things that we didn't reference is program size, right? Taking 5% of a $100 million program is different than taking 5% of a $10 million program, and so these all feed into it as well. But it's all back to that touchstone of what's the economics, what's the appropriate deployment of the capital here.

And the nice thing about our board is we have a lot of flexibility there, where I think some of my competitors are very hemmed in to what they can do. So they're not able to take advantage in a hard market where I think we have a little bit more flexibility, which is better for our shareholders.

There's a couple of questions online here. I'll try and kick through them. First 1 is on capital. How do we feel about our current capital position, given your growth ambitions? What are the levers you pull to raise capital? So Michael referenced this a little bit. We have seen spectacular growth in the last couple of years, and a lot of that growth has required injections of capital externally. Now we don't think that growth stops in this organization but we do think it normalizes. And so if you think about this entity growing high teens, low 20s percent in the fronting model, with the profitability we have in this model, that becomes a much more self-funding model. The other levers that we have are some excess capital up to the holding company. So we've got about $30 million sitting at the holding company today as well as, as Dave referenced, a sub-13% debt-to-capital ratio. So not only do we have reinvested earnings, we've got these other capital levers to pull. So that growth that we see in this business is a lot more navigable with internal capital today than maybe it used to be. Long-term plan. We heard leaders of subsidiaries speak to where they'd like their business to be in 5 years. How do you think about the entity as a whole evolving in the next 5 years? I think you talked about that a little bit at the end. Maybe 1 component that we haven't touched on is really that shift in E&S versus admitted business. Can you talk at all about where you'd expect it to be in that part of the market?

Sure. Right now, the E&S market is still seeing strengthening in several different pockets. And unfortunately, in some of the key states like California, New York, not so much Florida even though Florida is a key state, Texas, the regulators just take a long time to approve rate filings and so forth. So right now, as long as our clients continue to write on the E&S space or E&S paper, they will continue to do so. Now I would imagine in the next 2 to 3 years, you will start to see some softening in E&S maybe across the entire industry, depending on what kind of cataclysmic things shift or change for the next year or so. And if that happens, the business does move back to the admitted market. Hopefully, by then, the state regulators will be able to approve things a lot quicker. And if that happens, I think you will see our admitted platform start to gain a lot more traction.

We've got a question here on fronting fees. And we've usually talked about fronting fees as sort of averaging kind of 5% to 6% in this platform. One of the questions I get a lot is, there's been a lot of new competitors in this space. There's been a lot of new entrants. Do you see pressure on that? I think we've had general success in defending those rates of fronting fees. Is that fair?

Yes. That's been part of our back end, like Chris said earlier. Being able to service your clients and being able to keep them happy enables you to continue to charge an appropriate front fee and being able to take risk and do some other things that some of our competitors can't. We've had a couple of competitors try to target a lot of our higher profitable programs, offering much more reduced rates, front fees over what we currently charge and we did not lose a single one. So I think part of that is a known commodity or a known entity is a lot better than someone that they've never done business with before. And moving your business to another paper just overprice, most of these guys don't want to do that. And I think that would be very shortsighted if they did. I guess the old saying is the devil you know is better than the devil you don't know. So I think that comes into play quite a bit.

And I would say we have a pretty firm stance on that fronting fee. There's a cost to run this business and that's pretty well telegraphed in the market. It's no surprise where fronting fees are. And so we haven't seen a real change in that.

The real nice thing is the more established carriers like now Clear Blue and State National, they drew the line in the sand. And they don't do as much as we do for our clients and they won't go down. So people, if they're going to leave us, they would more leave for somebody that's a known entity than a more lesser known entity. So, so far, our business has been pretty sticky and the front fee has been pretty sticky.

There's been a question here on write-down mitigation. What steps have you taken to prevent another large write-down? I'll maybe take this. We talk a lot about this in public. I think the summary of this situation in terms of its uniqueness, the confidence we have in the rest of the portfolio not being at all comparable to the situation we saw in Q4 gives us a lot of confidence on that. But that doesn't mean that there are not new guardrails that we put in place to protect ourselves going forward. And that risk management slide I put up there, there have been additions to those committees, those escalation controls since this experience in Q4. We've got a new independent director on the Board of Trisura U.S. That independent director is also a member of the Risk Committee. We've got new guidelines around property-exposed programs and captive participation. So there's been a tightening of those items, and there's been obviously a magnifying glass on the rest of the portfolio to make sure we feel good about how everything else is evolving. And we do. We feel very strongly about the quality of the book. Outside of that, it was a unique scenario that we were hopeful is not a repeated one and one that we feel pretty good about navigating out of. Here's a question I get quite a bit, Michael. Why don't super MGAs work directly with reinsurance carriers? What key value does Trisura add to prevent you from being disintermediated?

Yes, it's a great question also. What happens is even the Zurichs of the world have capacity constraints. So if you're Arrowhead and you're writing $200 million with Zurich and you need to grow that book of business to $400 million, and you can't with Zurich and you have no relationship with any other traditional carrier who can take a long time to say yes sort of move, a fronting platform, fronting carrier makes a lot of sense because a lot of these MGAs already have deep reinsurance ties, whether it's through a traditional carrier or because they've been in the space for a long time and they're just all over the place. So it's a lot easier to come to somebody like me if you're trying to expand outside of Zurich because you're capped with the reinsurance marketplace that's going to support you because they know you have an incredible history of making profits. So it's -- that's kind of how you separate yourself and how we're able to compete with the AIGs, the Zurichs, the Berkeleys, Markels of the world.

And it's worth noting, many of these super MGAs you referenced are newly super MGAs, right? Because for the past 5 years, a lot of these groups have grown alongside you and become super MGAs with Trisura. And so this disintermediation concept, really, you'd have to have either direct licenses from those reinsurers in the states that they're operating or carriers being developed from MGAs. And as Michael talked about, a lot of these MGAs are not focused on being balance sheet businesses. And that means a partnership with a group like ours makes a lot of sense, especially if there's an institutional history with it. So I don't see any other questions. Any further from the room here?

One there.

There's Marcel.

Yes. So just now that the U.S. business is approaching $2 billion of premium, how do you think about high-grading the portfolio versus balancing growth at this point in the programs you choose to renew?

Yes. What's really nice right now is in a hard market, we try to focus on these $5 million to $25 million programs kind of out of the gate. Over the last 4 years, because of the hard market, we've seen these guys grow 20%, 30% a year. So we don't actually have to add on a lot of new business right now to continue to see growth. So last -- I think the first year out of the gate, we added 18 programs. Then we did another 18, then we did 15. Last year, we did 10. And now this year is even our slowest year through the first quarter, I think like I can share that, we did one. So I think you're starting to see a slowing in the entire industry in general, but because of the hard market, we're getting rate increases on all our portfolios of business, and that's where the growth right now is coming from.

Well, and not only rate increases but maturation of these programs, right? A program doesn't necessarily need to have rate increases to grow. It can just be more widely distributed, more successful in finding clients. So that's been a big part of this growth, right? Because the hard market hasn't been around for the entire time.

No. Last 2 years.

And we've seen growth even through that, right? And that's maybe a different question than you asked, which is how do you talk about high-grading versus selecting new ones. Many of our program partners now have been with us for a couple of years. And that high-grading process probably started in 2021, where we were getting to the size and stage where we didn't need to as aggressively pursue new partnerships. I'll say if that's fair. If you're looking at a new business, new development, you really want to get that entity up to scale. We've had a couple of years now where we've been significant, where we've been over that $1 billion. And that position now has allowed Michael and his team to be selective in both who they continue support in and who they support in a new market. Jaeme, how are you?

So my question is tied to perhaps the AM Best rating and their decision to, I guess, put you on negative watch. So could you offer us some more insights as to some of the key factors, key indicators that they're looking at and some of the steps you've taken in the U.S. business to avoid any negative reaction from AM Best? Because I've heard reputation is like all throughout the business, the most important part, maintaining that AM Best rating, I think, is crucial. And so what are some of those things that they're looking at and the changes that you're making?

Yes, I appreciate the question, Jaeme. It's a good one. I'm not -- I'm sure most people maybe not haven't read the AM Best press release around this, but the big part of their focus was demonstration of enterprise risk management, especially around things like captives. And a lot of those things we talked about in the question on risk management and changes were changes and updates that we made even before we announced this event. So there's been a lot of conversation with AM Best, a lot of conversation internally, a lot of controls, enhancements that we've been talking about internally that have already been communicated to AM Best. And so that's a conversation that is ongoing. That's an update process that we continue on a quarterly basis. And those demonstrated items, those controls that we're showing them, we would expect to continue showing them, right? This is not a direct quantitative issue. This is a qualitative factor. So the controls, the governance, the consistency of how we apply those are things now we're just showing a little bit more direct way to that group. And we would anticipate that as we do that, as we get them comfortable with how things have gone, and they've been involved in every step of the way of this, that's a process that we'll be able to update you on as well. And that's something we think probably takes a few quarters to get through and something we're very comfortable navigating. But we're not surprised to see heightened interest in -- from a group like that after an event like the one we had.

So slightly different theme just on the I guess, AM Best also was talking about a slowing of the program market. I think they were last week at a conference talking about a potential slowing in the program market. So Michael, what are you seeing from an industry overall in the program space? And then second to that, there's been some speculation around Clear Blue becoming available, maybe some other players available. How are you thinking about consolidation in M&A in the U.S. fronting space?

I'll take the first part and probably let David handle the second part as he's a little closer to that M&A side than I have. But on the first part, I think what AM Best was really talking about is the insurtech money is starting to slow down. What you had in the last 5 years, maybe a little bit more than that. It was -- you had a convergence of professional capital going into super MGAs, and then you had a lot of capital from sorts of different areas going into the insurtech space. What you're seeing now is that capital going to insurtechs is slowing down. And while these insurtechs have basically fizzled out or they're not profitable, it's going to take another 3 to 5 years to make money. I think when AM Best was talking about there, they were trying to say that it's kind of that insurtech space. You're not seeing as many startups. You're not seeing as much capital right now go to the startup space. But I tell you from talking to the Brown & Browns and the K2s and the DUAL Howden aligns, these guys have lots of capital behind them, and they're willing to spend money to buy teams and to grow their portfolios and their books of business. A matter of fact, we just saw that with Argo DUAL line. The DUAL guys took the Argo team. That didn't come cheap, and they're out finding -- looking for paper right now, and that's going to be another pretty big bolt-on to their platform. So I think you're seeing that, but anyway.

And Jaeme, I would add it's a good article for people to read if they're looking at our space. That article talked about the program space slowing but continuing to demonstrate growth. And that's a nuance that I would say we're seeing. That's a theme at Trisura, right? The entity grew 70% last year in the U.S. If we see that dropping down to 20%, we think that's a positive, right? 20% growth, 15%, 20% growth is great level of growth and maybe a little bit more sustainable for us from a growth perspective. I think on the second one, I won't comment about individual entities, whether or not they're potentially for sale in the U.S. But I think we've been fairly open in the past about looking at opportunities that could be accretive for Trisura. It has to be the right opportunity. It has to make sense for us and our strategic plan and financially for our shareholders. But I would say we're seeing more of those this year than in years past. And I would hope Trisura is well placed to adjudicate those opportunities.

The other nice thing is when these entities do go up for sale, some of their internal folks, their better programs get a little nervous, and there could be some opportunities that pop out of these.

Any other questions online? No. That's it for the formal part of the presentation, guys. I'm happy to -- I think there's a reception out here. Happy to talk informally and thank you very much for joining today.

Thank you.