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

Good morning, everyone, and we apologize for the delay this morning. Thank you for joining us on today's call with David Clare, CEO of Trisura Group; and Doug Young, Bank and Insurance Analyst at Desjardins. [Operator Instructions] With that, I'd like to turn the call over to Doug. Thank you.

Yes. Good morning, and thanks for your patience. We had a little bit of technology issues, which we obviously got through here. So I want to say thanks, Dave, for joining us today and to dig into some of the themes here in the property and casualty insurance space and for Trisura. And what we're going to do here is we'll dive into some Q&A. I've got a bunch of Q&A I'm going to throw out there, but please do post your questions in the question section, and I can kind of read them off. I've got a few that have been e-mailed to me too, and I've got my e-mail up here, so you can always just e-mail me questions if you'd rather do it that way as well.

So maybe with that, David, I'll start with kind of throwing something out here just to kind of get the conversation going. Q4, just announced that last week. Yes, it was a good result. So good -- I was -- people were asking me what I thought was a good boring quarter. And in the P&C insurance space, I'd like to think boring is good and the stock react positively. But maybe I'll throw it over to you, like what were some of the themes in your view? What do you think was maybe missed if there was anything that was missed in the things that you've read in the conversations you've had?

I think, first off, thanks, Doug, for the acknowledgment. We did think it was a strong quarter and a good end to the year. I think thematically, what we saw in Q4 was an extension of a lot of the themes we've been talking about through the year. We've had an exciting build-out in the surety platform, especially in the U.S. that's extended, obviously, seeing some good growth in the Canadian space. We've got a lot of momentum that's continued through the year in the warranty platform that finished a very strong year in Q4. And I think that was capped off by pretty strong execution in some areas that have had maybe more market impact or cycle impact, as you've called it, in the past. So Canadian fronting, obviously, a bit weaker on the top line, but very strong on the bottom line. Corporate insurance, it's a balancing market and the team was able to grow and do that at a very, very profitable level. And I think importantly, from a stability perspective, we saw very, very consistent results through the year at our U.S. programs platform. This is a large participant in the program space. This is a significant component of the business that has delivered quite a strong year for us, very low combined ratio business that importantly was a little bit more consistent this year, which we talked a lot about at the end of last year. And I think those items on the business side all fed into what was a pretty exciting narrative on the investment portfolio side. So because a lot of our growth, which you've highlighted, has been coming from primary lines, the conversion of that premium into investment income has been quite strong. And that narrative for us, I think people can miss this, the prominence of investment income or the contribution of that part of the platform to our overall profitability has really increased. And for us, that just derisks earnings going forward. It makes us more confident, more able to pursue business opportunities and makes the platform more durable. So for us, I think there's a really nice end to the year with a lot of momentum going into 2026.

Perfect. And then a lot of conversations I have, and I've been marketing tail end of last year and this year, and this comes up a lot is just the property and casualty insurance cycle. Now it's a bit different for your business than it is for Intact and Definity. I think everybody knows the mix is very different, not in personal auto and personal lines. But maybe you can frame how you think about this, like where are we in the cycle for the businesses that kind of are impacted that you're involved in? And what's your outlook there? And then b, like does it really matter as much for Trisura because 52% of your net written premiums is surety and warranty, which is not what I typically think are businesses that go through the normal P&C insurance cycle. But you can kind of correct me if I'm wrong. But maybe you can kind of frame what you're seeing from a cycle perspective.

Yes. So on that first question, at a really high level, I tend to think about insurance cycles first from the reinsurance lens. Like if you think about the ecosystem, they are the tip of the spear in capital flows and often impact or at least a preview of where the cycle is going. What we've seen certainly in the last couple of years has been a very, very firm reinsurance market, especially in the property space, especially in the U.S. And I would say 2022, 2023, 2024, even the beginning of 2025 was very firm in those spaces. That is changing. And definitively, I think you will have seen this from following commentary in the U.S., but more globally, reinsurers have had very, very strong years in the last couple of years. Those high ROEs, that strong results has driven more capital in the industry. And really, let's ignore kind of business line nuances at this stage. But at the highest level, when you have more capital in the industry, there is generally more pressure to deploy that capital that's usually a precursor to softening in the insurance market. Now there's nuance to that this year. We certainly see that softening or at least initial stages of that softening starting very much in the property space in the U.S. We're not seeing it broadly in the casualty space just yet. But it is a much different feeling reinsurance market than it has been in years past. We saw that at the 1/1 renewals for us. We saw that kind of through the year. We renewed reinsurance, especially in our programs business and our Canadian fronting business through the year. So you kind of get a touch point all the way along. All that being said, let's take a step back, we think we're on the cusp of a little bit more accommodative reinsurance market. All that being said, Trisura really experiences this market much differently than most insurers, which you highlighted at the beginning. We are not a personal lines company. We are not a majority property company. We utilize reinsurance quite a bit across our lines. But first and foremost, the majority of our business from -- at least from a contribution perspective, I would say, is in lines that maybe don't follow traditional reinsurance or insurance cycles. So if you think about surety, for example, this is really outside of those cycles. If you think about warranty, this is really much more of a structured product. Think about more of our specialty lines in corporate insurance or the E&O, D&O space. This is maybe a derivative of some of the trends that you see in the broader markets. But I think very important for all of our shareholders to understand the specialty line spaces, one, tend to move around a little less than the broader market or two, are not following the same trends of the market and three, I think, importantly, should be expected through any cycle, whether it's hard, soft or balancing, should be expected to perform a bit better than the broader industry. And that's why we focus on the niche areas that we're in.

Yes. One thing I wanted to dig in because I think you've said this a few times, like accommodative reinsurance pricing could actually benefit you because you are a consumer of reinsurance in the U.S. program business specifically. Can you maybe just unpack that a little bit and maybe give an example of how you benefit from that?

Yes. I would extend that comment, Doug, beyond just pricing to capacity. So accommodative reinsurance pricing is great, especially if we're purchasing reinsurance beyond what is in the typical program. But I think importantly, and first and foremost, accommodative capital or appetite for the reinsurance is a really important precursor to the opportunity available to us in certain lines of our business. So you pointed out U.S. programs. This is a very heavy consumer of reinsurance. It was actually through the last few years, a relatively interesting time to be adopting a model that utilizes a lot of reinsurance. The reinsurance markets were tightening. And so what that means is the opportunity available for you to go out and find new partnerships, build new relationships with reinsurers or help current MGAs expand their offerings was more difficult than the years past, right? And what we see now, and in fact, you saw it a little bit in Q3 and Q4 is all of a sudden, the reinsurance industry, so the capacity available or capital available in that industry has started to tick up. And that's driving more of an appetite for people to deploy capacity through business models like ours. And so you saw in Q3 and Q4, all of a sudden, you're seeing a bit more growth in that platform. And that candidly is as a result of a bit more appetite from the traditional reinsurance markets to support traditional property programs. What you saw from us, right, you've known us for a while, what you saw from us kind of through 2022, 2023, 2024 is we leaned away a little bit from that property space in the U.S. programs. And that was because we couldn't find the right types of partners to work with in that space. What we're seeing right now is very traditional rated reinsurance come back to that market. We're very willing to jump into that space with the right types of partners in that environment. If I take that conversation beyond just the capacity piece. So one, the upside for us when we talk about that U.S. program space, we think about that market or that piece of the business next year as mid-single digits to high single digits growth. The upside risk here for us is, okay, does the reinsurance market all of a sudden get more accommodative, more interested in the space. Does that capital shift from just property to casualty lines? Does it extend into that space? So that's -- if I'm talking about the upside case, that would be levers that we could see the industry pull to expand that. That's not really priced into what we're talking about for the business. But your pricing point is also important because Trisura as a participant in this market as a relatively conservative steward of capital, we generally purchase reinsurance beyond what's just in the individual program. So your first point, reinsurance pricing as it moves around generally is a pass-through in these programs for us. So that may not directly impact the economics of Trisura, but for those reinsurance programs or policies that we purchase beyond those programs. So for example, in all of our property programs in the U.S., we have vertical covers, vertical towers. We also have horizontal towers across those. The vertical towers are economically covered or supported by the programs that they are supporting. The horizontal ones are ones we purchased out of our own balance sheet, our own financials. And that means in these environments where that property pricing is coming down, that's a margin-accretive situation for Trisura. I would extend this a little bit to more traditional lines for us. So if you think about surety, corporate insurance, we have very large treaties in these programs in both Canada and the U.S. This environment today, although it hasn't really extended to the specialty space in reinsurance, it is starting to get more accommodative for those businesses. So we saw a renewal season this year in the context of us growing that was fairly positive. I don't think anything you'll see come through on economics of the business, but just capacity is willing and available to support the business, which allows us to punch above our weight from an expansion standpoint.

So just to kind of paraphrase, like so it's just it's about capacity and dealing with probably higher quality reinsurance partners in the U.S. program business. And then from a financial perspective, as you buy kind of cat coverage and extra additional coverage to protect yourself, which you would do every year, that's just costing less.

Costing less or getting better protection for the same spend. And so there's wins on both sides of that right now.

Yes. Okay. I want to take this -- this is a question that did come in, and someone had met with Kinsale recently, and they've been vocal about a massive influx of capital into the fronting companies where MGAs assume loss ratios of 55% and then blow up at 100% to 150% as the years develop. And they believe this is Kinsale, apparently believes this is a classic late cycle bad behavior that should shake out bad actors and could lead to the next hard market cycle. So just maybe your general thoughts on that. Any concerns, how -- what are you seeing in the marketplace?

Yes. I think these observations are twofold. One, some of these observations speak directly to the MGA market, some of them speak to the fronting market. And in a lot of cases, we agree with some of the observations at a high level. I think there has been a lot of capital that's flowed into the space. This isn't new, right? The assertion that this is new capital flowing into the space is a bit dated. We saw a huge influx of capital into the space in 2020, 2021, 2022. That's when there was a lot of new entities being formed. Trisura has been in this space since 2017. So we've got a bit of a benefit of a longer cycle and a bit bigger platform. But I think you've seen us very openly and proactively talk about how we think these businesses should be run. And the discussion that we had very openly last year about reserving and about being proactive and about navigating this appropriately as a true insurance company, I think, reflects the way that we think the entities should run. I think some of the quotes you see from these partners have cherry picked a little bit on statistics, but there are platforms out there that have done very well in building up businesses that have produced very low loss ratios. Part of those for me depends a little bit on mix. So if someone's quoting 55% loss ratios in fronting companies, I would assume that's been a relatively property-heavy portfolio in the last couple of years. But if that's in the casualty space and especially in certain lines of casualty, that's likely something that needs to be watched. And for us, we've been fairly proactive and vocal about what we think the right levels of reserving are and candidly, very willing to adjust that if it's not appropriate. So I don't know that I can really comment on the fact that this is late cycle or about to catalyze some larger hard market. I think these businesses are still a relatively small participant in that overall market. So it would be maybe optimistic of me to think that these business models drive the direction of overall market pricing. But I think from a discipline perspective, and let's call a spade a spade, Kinsale are very good operators. They are very strong loss ratios. We think that we have a similar approach to underwriting, especially in our primary lines, and we would extend that to the way that we adjudicate or evaluate lines that utilize a lot of reinsurance.

Are you seeing at all a shakeout in the MGA market in terms of bad actors kind of going away or number of the MGAs kind of falling? Or any kind of disruption there that you're seeing?

I would say we're not seeing a shakeout per se, but we see fewer new de novo launches recently and more momentum or success from groups that have some scale. So if you talk to me in 2021, 2022, 2023, there were de novo launches of MGAs all the time, right? Capital was relatively cheap. This has been a secular trend of MGA investment really catalyzed in 2010. So this isn't new. Capital has been flowing into the space and continues to flow into that space over the last 10, 15 years. I would say the difference recently, and this is partially, I think, impacted by reinsurance trends in the market has been that as capital or capacity has dried up a little bit, that environment for de novo MGAs hasn't been as accommodating. That being said, I saw 2 press releases this week for new programs or new launches of MGAs in these spaces. I saw an announcement for a new reinsurer focused on supporting MGAs. So I think there are still narratives or still businesses getting support and capital. And I think the focus going forward is going to be on groups that have good data, good ability to underwrite and some scale. And those are candidly the types of people that we've been partnering with for years.

We do have another question that did come in, and this -- we're going to jump around a little bit here. But the question is, given the underlevered balance sheet, does initiating a dividend make sense if you can't deploy all the excess capital back into the business and maybe excess capital and I guess, your debt capacity. And maybe -- yes, I'll leave it there and...

Yes. I think when we think about capital allocation, as stewards of capital, we've always got to have that hat on what's the best use of our capital, what's the prioritization of that. And we still do think, at least in the near or medium term that we've got a lot of uses for that capital organically. So if I think about building out that U.S. surety platform, we want that balance sheet to be bigger. If I think about building out that U.S. corporate insurance platform, we certainly want that platform to start producing premium and be able to invest in that. That being said, as the entity gets larger and larger and certainly as we maintain the types of returns that we've seen, I think those conversations around returns of capital become more interesting, become more valid. I just don't think that it's something that is likely in the next couple of years. I think we've got to stand up these businesses. We've got to build out these platforms in a way that's responsible. And then I think you could very likely, like most P&C companies, as they mature and as they build, you'll see us adopt and consider other forms of more traditional return of capital. I think today, candidly, there's so much opportunity for us. We are still very small in a lot of the markets that we play in, and we'd like to capture that opportunity. And then as we gain that scale, I think we have those conversations, right? You've seen us be opportunistic on the NCIB to offset some dilution from equity-based awards. I think that's the first time we've done something like that. So you do know that these tools and levers are things that are in the conversation. And as we move past, what I'll say is build phases of the business, especially in markets with a lot of opportunity like the U.S. as you get a little bit of scale and if you maintain these types of profitability levels, that capital discussion gets a lot more pressing.

Yes. And that would extend, I would assume, like would you be more inclined to start with an NCIB a little bit more aggressive than the dilution -- offset dilution and then move to a dividend? Or like how do you think about buybacks outside?

So let's acknowledge first and foremost, these are decisions and discussions for the Board. I can talk about what we think is logical academically. But I think first and foremost, organic growth is going to be the first thing we talk about inorganic opportunities after that, ways to grow the business accretively would be the next versions of those discussions. Opportunistic and nondilutive forms of share repurchases are always going to be a tool in a good corporate governance toolkit. So you do see us looking at that, and I think that will continue. And then I think once you get to a certain size and scale, the conversation turns to those dividends. And my challenge a little bit, at least philosophically on the dividend conversation today is we continue to raise capital, right? We're talking about internally shifting capital to build the business. I don't mean raise capital externally, but we've got a debt maturity that's coming up that I would certainly expect us to refinance. So these scenarios where we've got a lot of capital to deploy or build, I think we'll take precedence over returning capital, at least in this phase where we still see there's a lot of opportunity.

And then check -- nothing else in the online here. But then I'll go back to just some other kind of topical areas, distribution. You addressed a question on the quarterly call around consolidation of brokers. You're a broker distribution model. You talked about consolidating more of your business with fewer brokers, which is a good thing, and you talked about getting more extension into national accounts, which I thought was quite interesting. Can you maybe unpack that a little bit and maybe provide a little bit of examples of how you're kind of winning with your brokers?

Yes. I think that this comment for us reflects a bit of a change in Trisura. We historically, as a very small player, even as recently as 4 or 5 years ago, you always wonder or worry about, okay, what happens if one of my big broker partners gets taken out by a larger partner that we don't have a relationship with, how do you continue to build the business? And today, that stress is a lot lower because our relationships and our relevance with the brokers are so much larger. We've gotten to be a bigger partner. We've gotten to be a bigger player in the space. The advent of new business lines or expansion of business lines just makes us a little bit more important to the brokers that we're working with, and we are leaning into those relationships. I think the idea is always that we're going to have very specialized dedicated partners who tend to align themselves in the lines of business that we write. But there's a lot of upside for us still in markets that we haven't tapped. And you referenced this in the national brokers. We work with the Marsh and the Aons of the world, but they're not our largest partners. And that means that for us, there's quite a lot of wallet share to be expanded if we can get a fair share of these types of partners. I think we're always going to have a great focus and respect and prioritization for the groups of people that we're working with today. I think what I'm acknowledging is there's lots of space for us to keep growing with some of these larger groups, especially, Doug, as we start to be more of a North American platform, right? There are a lot of the partners that we work with most today are just Canadian or Canadian focused. One or 2 of them have North American platforms that we've had some success transferring relationships across the border. We'd really like to see that continue as we get larger. And if you think about the national brokers or the alpha houses, they are really natural groups that have relationships and businesses that cross borders alongside us.

Okay. There's another question. I'm going to apologize because we have to lean in to read this. Another question just came in online. So U.S. corporate insurance -- are you following I guess, the surety playbook in the U.S.? What lines of business are you targeting first? And when can we expect meaningful premium contribution? And can you size the target premium here for that business over the next few years?

Yes. I think that's a great question because from an inflection point perspective, we're hoping towards the end of this year to see that inflection point of premium production. You should think about this as the surety playbook that we're trying now to replicate in the corporate insurance space. I will say there's a bit more of a heavy lift on corporate insurance because you're going through and filing rates and policy forms for a broader set of products. So right now, people should feel very comfortable with the types of products that we are writing are very similar to the products that we write in Canada. So this is miscellaneous E&O, private or charitable board, D&O products. The lower limit smaller types of business that we write in the Canadian space. We are today going through and have almost finished that rate filing policy form documentation process through the U.S. It's a big lift. It's been going on for 2 years. And so what you would hope is as you continue to build that, now that you have the infrastructure and the rails, we have been hiring, you can see this in our expense ratios. We've been hiring people to go out and bring their relationships to Trisura to originate that business. And the hope is towards the latter half of this year, you start to see that momentum from a premium perspective. If we talk about what our premium goals are here, we've been very open on the surety space that we think that, that U.S. surety business can equal and eventually exceed our Canadian business. I think we were surprised at how quickly that happened. There's probably in our surety platform overall, about low 40s percent of the platform is now U.S. surety. So you're approaching that parity point. Our expectation would be in the next 3 to 5 years, that corporate insurance practice should equal our Canadian practice in terms of size. And eventually, given the opportunity in that U.S. market, we would expect that it eventually exceeds it.

Okay. Okay. I think we got another question here. All right. So another question online here. Can you comment on the reserve triangle that was published in the annual report? The trend looks improved. But if we were to separate the triangle for the U.S. only, how does it look?

Yes. I think we're very proud to see that reserve triangle showing favorable reserve development overall. I think that's a trend we've talked about a lot. Candidly, most of this reserve triangle from a positive development perspective is coming from the Canadian business. There is still a marginal bit, a much lower amount of, I'll say, reserve development in the U.S. That's kind of natural if you think about some of the lines of business that we're in. But the trend and the improvement here has been material. And I think you should continue to expect that as we go forward.

And we should get I guess we should be able to kind of split the 2 outcome March. Is that right?

Yes. We should be able to -- one, if we can provide that to you directly, those -- that data will become public very quickly. It is a much improved story and much less -- there's much less materiality to any sort of development you see in the U.S.

Yes. Maybe before I get into my business line questions, which there's nothing else on here. You stated this several times. We've had a lot of conversations about this, but I think it is really important. Your focus is on profitable growth. And I think you've really kind of tried to drive that message. And I think you've done a really good job driving that message on. Can you just unpack what that means to you?

Yes. I think for Trisura, and this is -- we're in our 20th year now for Trisura. So if you go back to the genesis of this entity back in 2006, the idea was always that we are a growth company. We are always pursuing and chasing growth. But in the insurance space and especially in our lines of business, that growth has to be anchored in an assumption and a requirement of profitability. I think, Doug, as you know, growth can be easy to find in the insurance space. And you can only really credibly pursue that growth and build businesses if you have a track record of doing that profitably. So internally, we talk a lot at our budget sessions in building targets for the business. There is a real touchstone on this profitable growth concept. I started talking about this publicly probably in 2022, maybe a little bit before that, because we obviously were an entity that was growing very quickly on a percentage basis at that time. And I think for us, it's important for people to understand that this growth is always pursued, achieved in the framework of growth that we believe is accretive to the platform. So profitable adding NUI or adding profitability to the platform. You can see that this year, right? This wasn't our biggest growth year from a top line perspective, mostly because you had some movements around in those highly reinsured lines. But you're growing mid-20s percent in a surety line at a low 80s combined ratio. Overall, you're growing 10% at a mid-80s combined ratio. These types of growth percentages, these types of metrics are rare in the space, right? It's hard to achieve. And one of the things I just want to make sure everyone understands is when we're pursuing this growth, it's not an attempt to gain market share with loss leaders and correct the business later on. The assumption is all the business that we write is profitable and build the platform. So we talk about that, I think, because candidly, there are people in the space who maybe aren't as familiar with the insurance industry, and we always want people to understand growth could be -- growth is something we can always find. What's tougher to find and what's more important for us to prioritize is profitable growth.

Yes. Perfect. So let's go into some of the business lines and some of the questions have come out already. But maybe I'll start, like what are you excited -- most excited by over the next 3 to 5 years business line-wise?

Yes. It's an interesting question. I saw this, Doug. You sent this one through in advance. And we have really kind of 4 pillars of the business, right? It's surety, it's corporate insurance, structured solutions, which includes programs and fronting and then warranty. And so when I talk about those 4 pillars, we don't have a lot of business lines that I would prioritize one over the other. I think the most dramatic changes, if I can use that as a heuristic for exciting, are likely coming in the U.S. expansions of our established models. So if we can demonstrate some momentum in that corporate insurance practice in the U.S., I think that will be a big change. I think there is still so much green space for us in the U.S. surety platform that those items will add over the next 3 to 5 years, maybe more substantially on a dollar perspective than some other groups. I think in the Canadian space, if we can get our fair share of that Canadian market by expanding into that larger limit contractor space, there's a lot of room for us to run. And then if we talk about that same concept of moving upmarket or building a broader offering, corporate insurance is a space where we can do that. And the Canadian market for us has been a very niche approach to this space. I think within those niches, there's abilities for us to expand our offering. And if we can do that pragmatically, there's a lot of runway for us to grow. So those would be within our 2 kind of, I'll call it, most significant pillars, those would be the nuances that we're thinking about every day that when we talk about our 5-year plans, how we want to evolve. I think there's a real question in my mind on how warranty evolves going forward. This has been a great platform for us. We see a lot of momentum and opportunity in the Canadian market. There's a huge market in the U.S. And if you think about the playbook that we have navigated in both Canada and the U.S. at some stage, it would be natural for us to try and achieve something like this in the U.S. So I don't flag this because we've got some ace up the sleeve in an announcement that I'm going to make on warranty, but I think the opportunity there is pretty significant. I think if we talk about Canadian fronting or U.S. programs, those will be a little bit more consistent practices. I think we've got a pretty great position in both of those markets. They tend to be maybe Canadian fronting more so than others. Canadian fronting tends to be lumpy. That's a business that's going to expand and contract as we see opportunities, but it's a great diversifier of the business, great add into the business. That U.S. programs model, I think there is a massive playing field out there in that business. And as we see maybe some of the comments you raised earlier, as we see the market coalesce around what we view as the real leaders in the space, groups with permanent capital bases, real claims departments, real underwriting and actuarial departments, there's likely room for us to keep winning space there. It's just the changes will be less dramatic.

Yes. So maybe we start with the Canadian surety because that's your big business, you're moving up market. There's some big players in front of you like Intact, Aviva, Travelers, you're #4. I think you've kind of stated a few times like you want to go into that #3, #2 spot. And like how do you get there? Like when you kind of sit there and put together your strategic plan and kind of blowing the others out and moving into that #3, #2, like what do you have to do? What are you doing to kind of to drive that?

Yes. I think we've talked a lot about our Canadian surety strategy from an expansion of appetite, expansion of size perspective. We talked about this a little bit at the Investor Day. We think today, we really have access to about 60% of the market in the Canadian environment. And for us to be a fourth ranked player in that market, playing in a relatively small sandbox or not the entire sandbox shows maybe the opportunity that we have in front of us. And so we've made some pretty targeted investments in those capabilities to build those items. And so what we need to do now is see those investments, those people, those teams start to originate or capture that opportunity. And for us, that really means, are we able to adopt a model that encourages submissions in that larger limit bonding space. Can we win business here to build up the platform? Can we continue growing faster than the market in the lines of business that we already have. So for us in Canada, this is an extension of the execution we've seen over the last 20 years in the surety space. We started from a standing start, built up into that fourth ranked player. I think now for us to go from a 4 to a 3 or 3 to 2, you've got to strap on a broader offering in the market. And then you've got to lean into broker relationships to get your fair share of those submissions. And the only way you do that, the only way you achieve that is servicing those brokers, proving that you are a consistent partner and building the business brick by brick.

So do you have products now? And are you dealing with distributors that would give you full access to 100% of the market? Or...

I wouldn't say we're all the way there yet. There is parts of the market that are just too big for us from a size perspective, but we've improved, right? I would say that, that 40% of the market that we're not accessing is shrinking. I could check in for the team on what they think is actually accessible today. But I think it is shrinking, right? We saw some momentum in Canadian surety in the fourth quarter as a result of that submission activity increasing because we've been very vocal about the capabilities and the team that we have. That is a multiyear process, right, as you're building up in this. You can see how attractive these surety businesses are, right? It takes people years and years to build them and those relationships and market positions are hard one.

And then how many people or teams have you added in the last year to 2 years?

So in surety, if I talk about teams, like de novo teams with capabilities we technically didn't really have before, we've added one major team in that space, which is, I'll say, focused on that larger limit space. That being said, we've added a lot of people over the last 2 years, right? If you think about the buildup of our U.S. surety platform, even the buildup of our support functions in surety as we've built up the head office vehicle. In Toronto, we support the overall North American platform, right? And so as the U.S. entity grows, so too does head office functions here in Toronto. So there's a lot of adds that have happened. What's nice now in that surety practice is generally, we are adding those people in that business accretively. So the combined ratios of that practice are right alongside our expectations for the overall business.

And how excited -- I mean, 75 -- I think 75% of your total surety business is contract surety. So that kind of lends yourself to contractors to government infrastructure investment. I mean I know this stuff lags before you get shovel in the ground, and I'm sure you've been asked this probably by me before, too, but how excited are you about that opportunity? Are you starting to see any movement there?

Yes. I would say we're seeing a lot of conversations, but dollars have not flown yet. The background for the surety market is pretty consistent right now. It's a healthy market. We do continue to see opportunities to grow. I think the upside is do governments, be they provincial or federal or even municipal do they actually get those dollars into the ground in the form of projects and approved projects. And certainly, they have a mandate right now for launching those projects, but we have not seen them really enacted just yet. It's worth noting, Doug, most of our growth, most of our opportunity, most of our achievement in this platform has just been us taking existing market share. So we don't need the market to grow in an outsized way for us to continue to build the business. Certainly, if it does, that's a great backdrop for us to be building a platform. But we certainly believe and have demonstrated that we can build the entity in a consistent or flat market.

And you're not seeing any irrational activity in this market. You're not seeing any stupid money come in?

No. Surety is such a specialized specific space. It's a really dangerous one for people to launch into on a de novo basis. You can't really get reinsurance to do that. So no, it's a pretty sophisticated market.

Okay. And then I want to go back to U.S. surety because when you and I talked not long ago, I mean, this is probably in 2024. I mean this is a 3- to 5-year build-out and with the hopes of eventually kind of mid to the tail end of that, maybe getting towards, I don't know if it was $60 million or $80 million of premium and kind of breaking even. But here you stand today with 40%, 45% of your premium coming from U.S. surety. I mean it has happened a lot faster, obviously, than you anticipated. But maybe you can kind of talk a bit about like what drove that growth? And like -- and what really went right with that expansion? And what hasn't gone right?

I think you're right. We were -- it was a bit faster than we expected. And to give the team some credit, I think the opportunity in this U.S. market has been significant, and they've been successful in capturing a portion of that opportunity. Part of this is you get some wins early on, on the right distribution relationships, those partners of yours build up. There is a real scale difference in the U.S. market versus Canada. And so if you are successful in that market, it can move, especially for a company of our size, very quickly. I think if I talk about what's not gone right here, I am constantly frustrated by the amount of time it takes us to build licenses in this space, right? We still don't have the full suite of licenses that we'd like to see in that U.S. market. And despite that, have built a practice that's been ahead of our expectations. So I don't want to take anything away from the opportunity of the team, but there is a still not insignificant unlock of opportunity in this market were we to get to a higher [ T-listing ], or we to get licenses in California or Florida. These types of things are just given at most surety entities, but there are things that we are continuing to tackle. And we have end dates on all of those. We expect to see them achieved. But I think the difference for Trisura is we've been building all the way through that phase, doing so, I think, accretively and doing so sort of pragmatically, but it's not lost on me that you might see a different outcome if this entity had a larger balance sheet in the U.S., it would have more licenses upfront. So if I can criticize our build-out, I think that's the one area that I would say it's just not been quite as smooth as I'd hoped. The other side of that, Doug, candidly, is this is high-limit severity business. And so being prudent on the build-out is not a bad thing. And now it's been 5 years we've been building this U.S. surety practice. You can see the benefit of those investments now taking hold.

Yes, I always get worried when things grow fast, but -- and I can't see the reserve triangle or experience for just the U.S. Surety business. But has there been -- like has it been positive? Has it been in line with what your Canadian surety reserve experience historically has been, which is positive?

Yes, it's been very consistent across the group, right? I think you can see now that it's at scale, these businesses are very comparable.

Yes. And then can you size that? I think you said 40%. So if I just take 40%, 42% of total gross written premiums for surety, that's the U.S. Is that -- and then maybe I can add in to this. Like I think you talked about getting to 25 to 35 licenses in the U.S. surety market by the first half of '25. I don't think I've got an update on that. Like where are you in terms of the license?

Yes. So our licenses today, we're in the low 40s of licenses. So there's a few big ones that we'd like, but I would say the back has been broken on getting most of the entities that we hope for, 43, I think, is my latest count of licenses. And so you've got 7 more that we would like to see. Now of those 7, some are more critical or more impactful than others, ones like California or Florida would be on those lists. I think those are groups that we expect to come in time, but it's a real shift, right? If you talked to me at the beginning of last year, we were in sort of the low teens on licenses. So there's been a big move for the entity.

So what's the size like so can you double this in a period of 3 to 5 years? Because I think you've talked about being a top 30 player. You don't need to be a top 2 player in this market to have a huge amount of premium come in. You could be 25 and it can be real kind of attractive. But like can you size like where you go as you start to get the rest of those 7 licenses and further build out the team?

Yes. I think if you talk about our longer -- maybe medium- to long-term goals in this platform, we'd love to be a top 20, top 15 player. At the end of last year, a top 15 player would have had just under USD 200 million of premium. So there is quite a bit, we would view of upside and potential in this platform. We talked about -- I think Terry talked about on the Investor Day a couple of years ago, we think that there's opportunity in this business to have a pretty substantial North American platform. A big part of that is going to come from the U.S. So if we can -- I think we're in the mid-20s now, maybe 25, 26 ranked player in the U.S. If we can pierce that top 20 range at some stage, and we'll need all of our licenses to do it, you should expect to see us in that multi-hundreds, maybe high hundreds of premium in the next, I don't know, 3 to 5 years.

And this is a very important question. Is that U.S. dollars?

These are U.S. dollars. Yes.

So real money.

Good question.

Okay. And then on the corporate insurance, I want to go back to the other question and the answer you had on the corporate insurance just as we kind of go through this because you said something that was really interesting. You've had to sit there and file and I assume file by state and get everything kind of lined up before you really start to write business. Like how many -- like can you just maybe kind of put perspective on like are you done -- you say you're done in all states that you want to be in terms of filing and therefore, the premium should start to come in on the U.S. kind of corporate insurance side?

No, we're not done yet. But I would say that we are -- let's say, on an E&O product, for example, we're probably in the low 40s of filed and approved rates. We're going through that process now in some other product lines. So I think overall, last year in the U.S. business, we were up between $1 million and $2 million in premium. So there's effectively no contribution from that platform. But now that we've got at least one product up and running there, you've got more opportunity to go out and solicit submissions. And as more of those products now start to make their way through that licensing and rate filing process through this year, that's where we'd expect to start to see some uptick in that submission activity. So it is a similar challenge to when we were first building up surety, but more complex and that you've got more products and more rate filings to navigate.

Okay. I'll just throw it out there. If anybody does have questions, do please post them in here or flip me an e-mail. I'm happy to kind of read them off where you can listen to me throwing on here. But -- and then maybe if we just keep on because I think warranty, we've got -- we've looked at warranty for a long time for those that have bought cars with the extended vehicle warranty or the key fob kind of marketplace and the margins are extremely attractive. What is the opportunity? Because it does sound like you feel like you could be bigger in that market. In Canada, maybe you go into the U.S., and this is something we saw with Industrial Alliance. They were in Canada. They did go into the U.S. Unfortunately, they did it through COVID, which is a bit of a challenge. But maybe can you kind of just talk or unpack what you think the opportunity there on the warranty side is?

Yes. I think for us, there's still quite a lot of opportunity in picking up market share at that lower end of the market. Where we tend to play, right? If you think about the gorillas in the room, Industrial Alliance is a huge participant in this market. And we would qualify ourselves as a top 10 participant in this space, but that means that there's a lot of opportunity for us to grow. The Canadian dealer network or Canadian dealer space is relatively fragmented, and the warranty space has a lot of small players in it. We're a good partner for those types of groups. And we think that as this industry continues to grow, as these products continue to be seen as useful products from a distribution standpoint, we're well placed, I think, to focus on growing it. So our warranty practice historically has grown quite well, but we haven't had a real ability to differentiate or step up in that marketplace. And I think now given the size of the business, given our willingness to invest, I think there is maybe an opportunity for us to lean into the space and build a little bit more definitively. And that's what I'd like to see. We've got some great partners in the warranty space in Canada. I think the opportunity for them to expand with us is still material. And I think we'd like to get out more and more in that environment and show people that Trisura is an option to build the business.

So -- and I think it's massively fragmented and the returns are quite attractive. I guess one thing I've always worried about is just the pressure on inflation because this is a product where you write it and if it's on a new car, you typically -- your claims don't come until 4 years later. We've gone through a big kind of push on inflation. Like are you seeing any pressure on your loss ratios for this business? Because in talking to one other player, they are feeling a little bit of inflationary pressures on the loss ratio. I didn't see that in your Q4 numbers, but maybe I'll kind of pause and see.

I would say, Doug, this is a conversation we have with our partners every quarter, if not more, right? We've got actuaries driving focused pricing models on how they view things evolving, both from an inflation perspective, a pricing perspective, driver behavior perspective. So certainly, at this stage, we haven't seen any real change in the results of the business, but it is always something we're watching and making sure that as we see growth or as we navigate growth, it's something that's contemplated. So I will say pre and post-COVID are sort of 2 different environments in that warranty space. There's been a lot of inflation. There's been some changes in driving behaviors. We try to be pragmatic and proactive on building that into our assumptions. But what you have in these models and certainly the way that we structure it is a relatively structured product. So if you see shifts in loss ratio, you generally have CPCs or contingent profit commissions that move around, right? And so what we are trying to build for Trisura is a targeted return on these products. And that targeted return should be fairly consistent unless you see really strange outsized behavior in either direction. So I would say it's always something we're thinking of. We haven't seen that impact results at this stage. And certainly, should we ever see it start to, there's a real ability to both change that posture, but also absorb those changes through CPCs.

Okay. And then the other thing you heard is that there is potentially a push from regulators to push this business into the insurance market because it's not always done, I don't think through the insurance market. You can correct me if I'm wrong. Any sense that are you hearing anything about that? Because that would be an opportunity to grow the business.

Yes. Listen, we have heard -- there's always a conversation around the space and each province is different in how they treat these products. So I think it's an interesting conversation that would be an interesting opportunity to expand broker relationships, right, if these became broker-distributed products or you had some licensing discussion with dealers on how they distribute these products. I think we would be a very natural partner to expand those relationships or enhance relationships with the connections that we have in the broker community. I haven't seen anything definitive yet from the regulatory groups, but it's certainly a conversation that every few months gets raised in the space.

Okay. Wanted to move into -- I wasn't going to go into anything more on the U.S. program. We've kind of talked a little bit at the beginning. There was a question that was posed online from it. But anything else that you kind of want to touch on the U.S. program business before I go on?

No. I think that, that business is evolving in a way that we've been describing it should for a while. So I don't know if there's anything more to say there.

Okay. Regulatory capital. I can see your MCT in Canada. It's hard to get a sense of -- maybe I missed it in terms of your regulatory capital position in the U.S. But can you frame your regulatory stance in both those? Do you need to downstream more capital into the U.S.? And any regulatory capital changes that you foresee or think could be coming down the pipe?

Yes. So on the last question, we don't see or nothing has been flagged to us on regulatory changes to expect from a capital perspective. Right now, in both -- in all our jurisdictions, we are at or above our regulatory targets, both internal and regulatory targets. So we've got a very healthy position from a regulatory capital perspective. I would say you shouldn't expect us to downstream capital specifically to like a U.S. programs business. But what I would like to see, and this goes back to our surety discussion, is capital at some stage being shifted into a U.S. treasury listed balance sheet. And so in Canada, for example, this is a platform that is very healthily capitalized. We did have excess capital on that platform last year that was dividended up to the Canadian holding company, which was then sent down to the U.S. vehicle. More and more, as the entity gets larger, right, this is this is sort of the -- not to take a strategy that isn't ours. But if you talk to Brookfield, right, their big model is they take capital and opportunity from one jurisdiction and deploy it in jurisdictions that they think have greater opportunities. We have a microcosm of that at Trisura, where you've got maybe some excess capital being generated in certain pockets of the business. You've got a structure now where you can dividend that to a holding company and redistribute it into other parts of the business. And that is a different posture, a different feel for the business than, say, 3 years ago when any time I talked about capital, the conversation was, okay, do I need to go out and raise it? And today, because of the maturity of the business, we see more opportunities to redistribute capital internally rather than pull it from external sources.

Okay. Perfect. Thinking of targets, you have $1 billion target of equity by the end of 2027. I mean that implies a 4% CAGR, which looks really conservative to me. So either it's really conservative or there are some headwinds that I should be or we should be thinking about. Can you maybe just frame that?

Yes. Let's frame that in the context of when it was announced, right? That target is quite old now. And I think when we set it out, that was viewed as an aspirational target. I think if you look at our expectations for this year, our ROE targets, I would hope that there's a fair amount of confidence in hitting that. I think we would like to refresh that at some stage and going through these planning processes and figuring out the right interval to communicate those is those are conversations that are happening right now. But you certainly shouldn't take that lack of update of that target as any lack of confidence in our side from hitting it. We just want -- we don't want to -- I should say we don't want to be coming out every 2 years with a new 5-year plan, right? Like the purpose here is I think, one that we recognize we've overachieved or hopefully are on the path to overachieving that target, and we'd like to talk about what...

Okay. And then the operating ROE target of 15% plus, I guess it's kind of mid- to high teens. One of your peers in tax has kind of talked about structurally that ROE opportunity is just higher in terms of what they targeted before to what they can target today. You're underlevered, obviously, you're growing in businesses where the profitability is going to be lagged. Like do you see structurally a better ROE opportunity coming from this business? So similar to that $1 billion common equity target, it's old, probably get refresh. Is that something similar when we think about the operating ROE target?

Yes. I think I would put this in the category of if we get out of a phase where we are constantly investing and building the business, I think the run rate results of the business start to look a bit different, right? If you talk about right now, the drag on both ROE, combined ratio results of the business because we are making these investments in the future, they're not immaterial, right? We've got a pretty significant amount of capital sitting in the U.S. balance sheet right now that is underlevered. We've got an underlevered capital structure. We've got a couple of points, let's say, of combined ratio that's being invested into future business in the U.S. corporate insurance space. So without stepping beyond what I'll view as the medium-term focus, I think there's a very natural question of what this business could look like without those types of dilutive investments. Now let's level set. We think those investments continue to build the business, and we think that's the best path forward for Trisura. But as you eventually scale and as you build that business, you should start to see -- or you could, I should say, start to see those improvements. The question will be, do you find something new to invest in? Do you find some modicum of operational leverage as you build it? And that's our goal, right? The bigger you build this, the more -- the higher the hurdle rate becomes for making those decisions on capital allocation. So I would love to say we could see that at some stage. I just need to get through this build phase, right? When I'm not talking about navigating the license acquisition or a license build, I think we start to see those benefits more permanently in time.

What would be the drag -- if you're willing to put it out there, like what would be the drag right now?

I mean I can talk about it conceptually from a corporate insurance perspective, like there's a couple of million dollars a quarter going into investments in that platform with not any premium really being put against it. That's nothing to say of the work we're doing in the background on, let's say, licensing our surety platform, right? So your surety returns are probably a bit lower than they should be because of the platform. That's despite it achieving combined ratios that are equivalent to the Canadian business. So other than that $2 million a quarter or so in the corporate insurance space, there's not a lot of hard numbers I can give. But I can tell you, we're hiring lawyers. We're hiring consultants to navigate these processes, which I'd love not to be doing.

Yes. I get it. And then, I mean, it takes us to the next question, the investment income line, right? So where you have been fairly conservatively positioned, but it's becoming a growing contributor to profitability. And part of that is you're focused more on primary lines and as you grow that business out, but maybe you kind of take a different stance and higher interest rates will help. And I assume that, that's been a drag to some degree, but is becoming more of a contributor to ROE. Can you frame that opportunity?

Yes. I think for us, the natural question would always be at what stage do you normalize asset allocation. And we were candidly a bit lucky and well positioned because a lot of our growth as an entity came at a time when interest rates were relatively high. And because of that, we were able to set up a portfolio that had probably comparatively a bit higher book yield than people with established portfolios. Today, what that means is that our portfolio is disproportionately versus other insurance companies, investment-grade bonds. And that's been a great environment for us, especially as you have U.S. rates that are a bit higher than Canadian rates on an absolute basis. And the question will be, going forward, do you see better return profiles with some evolution even marginally of that asset allocation. And especially in Canada, right, if you think about the portfolio today, you're sort of looking at 3% on sub-5-year duration investment-grade bonds. And that's an environment but that's a hurdle that we feel there are opportunities to outperform. And so all of a sudden, the question will be come, where does that deployment go? And how does that optimize your returns? I think to your point on ROE, proportionately, that investment income has become a bigger contributor to ROE than it has been historically. That's a great path for us, a great platform for us because it derisks the returns of the entity. And then if you look at the combined ratios of our insurance platforms, you've got this sustained or durable platform. This combination is the reason we can invest so much in the growth of the business and still produce 17% ROEs, right? When we compare ourselves to entities out there that are also producing these types of ROEs, they are generally a lot more mature, right? They're either not growing as fast or they have established platforms. We're achieving those in the context of a business that's investing quite a bit. And so this goes to your previous discussion as we get through that, I think there's a little bit of upside to it.

Yes. And what I'm going to finish off with because I don't see any other kind of lingering questions in here, but I always like to finish off, and I think last time we chatted, we kind of finished off with this. But when we meet in the year's time, like what are 5 things you want to be able to say, here's what we've accomplished?

I think, first and foremost, I don't want to be talking about licenses anymore. So I'd really like -- it's not an exciting one to talk about, but it's going to be impactful for us. If we navigate the critical mass of licenses and rate filings in that U.S., I think that will be a huge unlock for us in terms of building out in the market. The other piece that I think I'd love to be able to provide some more context or color on is how our build-out in that larger contractor space is going in Canada because I think that upside could be really significant. I would love in a year's time from now to be able to point to some more material premiums coming out of the corporate insurance space. That's something that I think we've been very conscious of building pragmatically. And I think that inflection point should be coming soon. So if we could unlock the business from an infrastructure perspective, convince the market that we are a viable and strong partner on the large contractor space and then also demonstrate to ourselves and our partners that we can build the business in an appropriate way in the U.S. corporate insurance space. I think those will be 3 great updates.

Perfect. Well, that, we're just over an hour, and I do apologize for everybody for the delay in the start, but we pushed it a little bit longer past 11 to kind of get through everything. So -- but David, thank you very much. It was a great discussion. And for everybody that's on the line, if you have any follow-ups, please do feel free to reach out. So otherwise, have a great day.

Thanks very much, Doug, and thanks, everyone, for joining.