Trisura Group Ltd. ($TSU)

Good morning. Welcome to Trisura Group Limited's First Quarter 2026 Earnings Conference Call. On the call today are David Clare, Chief Executive Officer; and David Scotland, Chief Financial Officer. David Clare will begin by providing a business and strategic update, followed by David Scotland, who will discuss financial results for the period. [Operator Instructions] I'd like to remind participants that in today's comments, including in responding to questions and in discussing new initiatives related to financial and operating performance, forward-looking statements may be made, including forward-looking statements within the meaning of applicable Canadian and U.S. securities law. These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impacts, please see Trisura's filings with the securities regulators. [Operator Instructions] Thank you. I'll now turn the call over to Dave Clare.

Thank you, Daniel. Good morning, everyone, and welcome. We had a strong start to the year, extending consistent execution and momentum for 2025, underpinned by quality underwriting and a customer-focused approach. This is our best Q1 operating net earnings in our history, demonstrative of our ability to grow profitably through expansion. Underwriting performance was robust with an 84% combined ratio and book value per share growth over 16%, approaching $20 per share. Our evolution continues, writing proportionately more primary lines business with attractive durable margins as we expand in both established and de novo segments. Primary Lines, Surety, Corporate Insurance and Warranty remain our foundation, growing 13% in the quarter. Surety grew 14% on a constant currency basis with success in Canadian contract surety and continued momentum in our U.S. expansion. We made meaningful progress in our U.S. licensing, receiving approvals in 5 states, including Florida most recently, one of the most active construction and infrastructure markets in the U.S. We continue to pursue 5 remaining state licenses and expect our expanding footprint to support growth. Corporate Insurance demonstrated consistent growth and improved profitability despite a softer market, with GPW increasing over 5% and underwriting income nearly doubling, supported by a strong loss ratio and improved operational leverage in our U.S. practice. Progress in U.S. Corporate Insurance follows the approach proven in surety, expanding in areas we know well and attracting experienced talent supported by a centralized head office. We are seeing signs of momentum with Q1 premiums in U.S. Corporate Insurance exceeding full year 2025. While still early stage, this platform is expected to contribute meaningfully to profitability and scale over time. Warranty net insurance revenue increased 19%, reflecting the maturation and expansion of existing programs after a strong 2025. U.S. program premium growth of 11% and net insurance revenues growth of 37% were strong, reflecting contributions from existing and new programs as well as the backdrop of a more supportive reinsurance market. We achieved an 80% combined ratio, benefiting from consistent performance and continued investment in infrastructure. Our scale, permanent capital and diversification increasingly position Trisura as a preferred long-term partner for strong profitability-focused MGAs. Canadian Fronting underwriting income was steady at about $5 million despite pressure from a softening market. We expect decreased premium this year in Canadian Fronting, but remain committed to the line and its potential to contribute to growth and profitability over the long term. We continue to onboard new partners selectively, building a pipeline that we expect will increasingly support GPW over the coming quarters. Investment income grew 16.5% to $21.2 million in the quarter, driven by ongoing contributions to the portfolio and mitigated by some seasonality and FX impacts. Defending yield and positioning the portfolio constructively through a period of elevated volatility was a key focus in the quarter. The portfolio remains conservatively positioned, ready to take advantage of market dislocation as attractive opportunities arise. The completion of our $200 million senior unsecured notes offering in March was a meaningful milestone. It represents our largest capital raise to date and refinanced existing indebtedness, extending our maturity profile and strengthened the balance sheet in preparation for future investment. This was executed well by the team despite geopolitical volatility. Trisura has scaled meaningfully, and we believe the opportunity ahead is significant. We remain committed to the pursuit of profitable growth through expansion of our primary lines and curation of a diverse, high-quality portfolio of programs in Fronting business. Above-average underwriting profitability, combined with enhanced investment income is expected to drive consistent increases in shareholders' equity. Expansion into the U.S. builds on 2 decades of disciplined underwriting. As the platform matures, we expect them to equal or exceed the earnings contribution of their Canadian counterparts. The significance and profitability of our U.S. surety platform and early momentum realized in U.S. Corporate Insurance this quarter lends credibility to the attractiveness of our geographic expansion. As we navigate the balance of 2025, our operating priorities remain consistent, scaling profitably in primary lines, expanding deliberately in the U.S. and maintaining the discipline that has underpinned our track record. The structural tailwinds supporting Surety remain intact, and we are confident in our ability to replicate our success in Corporate Insurance. Primary Lines continue to grow at attractive margins and investment income is adding meaningfully to earnings quality and predictability. Volatility creates opportunities to demonstrate consistent insurance appetite, invest opportunistically and strengthen our reputation. With the strongest capital base in our history and a platform that continues to scale, we are optimistic about the years ahead. With that, I'd like to turn it over to David Scotland for a more detailed review of financial results.

Thanks, David. I'll now provide a walk through our financial results for the quarter. Operating EPS was $0.78 per share for the quarter, up 11%, contributing to strong operating return on equity of 17%, comfortably above our mid-teens target. Gross premiums written was $730 million for the quarter, reflecting continued disciplined growth. U.S. Programs grew by 11% in the quarter, demonstrating continued growth, while Surety delivered strong growth of 13.8% in the quarter. Surety performance reflects ongoing strength in Canada and continued momentum in our U.S. platform, supported by distribution expansion and additional state licensing. During the quarter, we advanced our U.S. build-out, reaching 45 licensed states in our treasury listed entity with recent additions, including Illinois, Pennsylvania, Georgia, Florida and Washington State. We continue to see strong partner engagement and are progressing towards scale with Trisura ranked among the top 30 U.S. surety writers. We expect to support this growth with continued measured capital deployment into the platform over time. Net insurance revenue, broadly consistent with net premiums earned, was $193 million for the quarter, reflecting solid growth of 12% over the prior year. This disciplined approach to growth is reflected in strong underwriting performance with a combined ratio of 84% in the quarter. The loss ratio in the quarter remained solid within our expectations. The increase compared to the prior year reflects a particularly strong Q1 2025 in U.S. Programs. The expense ratio was consistent with the prior year and within our expectations for the quarter. Underwriting income increased modestly in the quarter, reflecting business growth, partially offset by a slightly higher loss ratio. Underwriting performance continues to support our mid-teens operating ROE objective. Net investment income of $21.2 million increased by 16% in the quarter, driven by new cash deployment to the investment portfolio. Our operating effective tax rate was 23% for the quarter, reflecting the composition of taxable income between Canada and the United States. Overall, operating net income was $37.9 million for the quarter, reflecting consistently profitable underwriting and growing net investment income. Nonoperating results in the quarter primarily consisted of favorable movement in the yield curve in the period, partially offset by unrealized losses on the investment portfolio. Exited lines had an immaterial impact to net income for the quarter. Strong earnings per share contributed to a 2.6% increase in book value for the quarter, resulting in a book value per share of $19.91 at March 31. This was partly offset by unrealized losses booked through other comprehensive income on the fixed income portfolio driven by higher interest rates. Book value has grown at an average rate of 26% over the past 5 years, ending the quarter just under $950 million. We are well on track to achieve our book value target of $1 billion by the end of 2027. We successfully completed a $200 million senior unsecured notes offering in March, our largest issuance to date and a meaningful step in the evolution of our capital structure. The issuance was well supported by the market and executed on attractive terms, enhancing financial flexibility while maintaining a conservative debt-to-capital ratio of 17%, well below our target of 25%. The company remains well capitalized with capacity to meet regulatory requirements and support growth. As we progress through 2026, our diversified Specialty platform, disciplined underwriting approach and strong capital position enhanced by our recent debt issuance provide a solid foundation for continued profitable growth. David, I'll now turn things back over to you.

Thanks, Dave. Operator, we will now take questions.

[Operator Instructions] Our first question comes from Doug Young with Desjardins.

Dave, can you quantify or maybe talk about the level of U.S. Surety written premium this quarter and put the growth in perspective as of the quarter. But also, as you talked about, you received 5 new state licenses. I'm hoping you can kind of just maybe talk or put in perspective what level of premiums like we could or should expect over the coming year or few years? And just some context as to what that -- what those 5 new states in Florida sounds like in particular, could mean for the business?

Thanks, Doug. Our mix of business in surety on a North American basis is pretty consistent with recent quarters. So about that 55% Canadian, 45% U.S. split. That growth over the last year has grown faster in the U.S. than Canada, and we can provide maybe some more detailed comments on that in the coming quarters. If we think about the states that we've brought on, you're right, Florida is a very significant one, although the others are not insignificant as well. I think our guidance at this stage, our expectation for premium growth through this year is not changing meaningfully. That mid-teens expectation for growth, I think, is still a good anchor for you to think of. Our confidence in that level and potentially outperforming that level is increasing, although I'd like to see how the businesses perform as we onboard our capabilities in those states. For now, I'd stick with the mid-teens expectation for growth. And as we work through the rest of the year, we'll see how the platform navigates our launches into these states.

And just a follow-up on that. Is the profitability or the underwriting profit that we see in Surety, is it pretty evenly split between Canada and the U.S. as well?

The combined ratios in both entities are very comparable. So the profitability is following that similar proportional breakdown.

Okay. And then just second, on the U.S. Corporate Insurance, it sounds like we're at that J-curve point where growth should accelerate quite a bit. You've done a lot of the hard work, got the license, got the broker relationships, I believe, you can correct me if I'm wrong. But can you put what this -- what the growth could be in perspective? And we typically think of when you launch something, it takes 2 to 3 -- sorry, 3 to 5 years to kind of reach underwriting profit. You did it faster in Surety. Maybe you can kind of give context as to what your expectation would be for that U.S. Corporate Insurance business? Because I do think it's still -- you can correct me if I'm wrong, a bit of a drag on underwriting profit currently?

You're right. So on your last point, there is still a drag from our build of that U.S. Corporate Insurance business. That's likely expected for the next couple of quarters, although I will acknowledge the underwriting profitability was quite a bit stronger in Corporate Insurance as a whole, partly because that drag has improved somewhat. I would say, in total, our Corporate Insurance growth, we still expect as an overall unit to be in that sort of low -- high single to low teens level for the year. Part of that is going to benefit from some onboarding of new growth in that U.S. Corporate Insurance platform. At this stage, it's tough to talk about exactly what that timing is. But I can say the momentum that we saw in Q1 was meaningfully improved over last year. I think we talked about this in our comments, but first quarter of this year, meaningfully exceeded our full year 2025 premiums in U.S. Corporate Insurance. So that build-out that you're referencing, that 3- to 5-year build-out for this platform to sort of reach our expectations from a profitability and premium perspective, it's certainly having some good momentum right now, which is the same theme we saw in the build-out of our U.S. Surety platform.

And then just a follow-up, like where are you seeing most of the momentum in the U.S. Corporate? Is there a particular region, a particular kind of segment of the market?

Yes. It is a little bit regional. It's a little bit dependent on where we get our licenses, where our people are from. So our base at this stage in the corporate insurance market is in the Northeast of the U.S. Our licenses and our rate filings differ a little bit by state and by product. So there's a little bit of nuance here, Doug, as you're onboarding the practice infrastructure where you get your first licenses and first ratings and first products filed is obviously where you're getting the most momentum. So a little bit of that is concentrated right now in the early areas that we receive that infrastructure. I expect that will start to spread in the same way that most business does in the U.S. by population and business concentration. So at this stage, there's a little bit of focus and concentration in that Northeast area. I expect that starts to balance as we add both people and season some of the licenses and filings that we've navigated.

Our next question comes from Stephen Boland with Raymond James.

Just one question actually. Dave, just when we look at the MGA industry, it's grown materially over the -- I guess, in response to the hard market conditions over 6, 8 years. As the buzz around softer environment is coming into play, what do you think happens to the MGA industry? Is there a compression that we should expect? And I guess, two, when you look at your partners in the MGA world, how comfortable are you with rate adequacy? Do you have to step up your audit functions? I'm just trying to get an idea if anything is going to change with the coming softer markets.

Thanks, Stephen. on your first point, I would say as a general rule, the MGA community, the market is made up a very entrepreneurial group of professionals. And I would say that the caliber and quality of the talent and professionals in this space over the last 5 to 10 years has meaningfully stepped up. So I think this industry, despite following similar cycles to the broader insurance industry is in a more significant position on a relative basis than it has been historically. We generally, as a Trisura entity, partner with groups we feel have specialized underwriting or distribution expertise. And certainly, there's going to be marginal impacts from cycle trends around the edges, but we really are trying to focus on groups we think have a differentiated approach to either underwriting or distribution. Most of our groups are very substantial and significant players in the markets that they navigate. So I think it's fair to say this industry in this space is expected, at least on our end, to continue some growth. That rate of growth is probably different than it has been over the last couple of years, but we've got a lot of confidence in the quality of the partners that we're working with and the ability of this industry to continue navigating now that it's stepped up its overall proportion. On your underwriting question, I think we've been fairly demonstrative in our focus on underwriting quality and sustainability of loss ratios. I don't think I would highlight anything different today than the actions that we've consistently taken over the last few years in monitoring and requiring strong underwriting performance from our partners. I think the nuances that you're talking about at a high level differ very significantly line by line. So the patterns and, let's say, underwriting trends from a pricing perspective are very different in property than casualty today. It really depends on which part of the market, which part of the country, which business lines you're writing. And we very much focus in a detailed way on all of those differences.

[Operator Instructions] Our next question comes from Bart Dziarski with RBC Capital Markets.

I wanted to start with the $200 million senior unsecured notes offering. So congrats on getting that done. And maybe you could just highlight for us what does that do for the business in terms of deploying it? And then a reminder on the capital structure. So you'll be at 17% leverage or you are at 17% leverage? Like what are you guys targeting kind of over time?

Thanks, Bart. This was actually a great milestone for us. So this is our largest capital raise in our history. It was our first index-eligible bond, a very strong offering navigated by this team. So first and foremost, I think, is a marker of how far we've come as a company, how much more significant the vehicle is in its capital raising capabilities. So I do thank you for noting that. This is a nice derisking for us of future growth opportunities. And the biggest use or most immediate use for this will obviously be continued investment in our U.S. treasury listed platform. As we've seen these licenses continue to come on board, the trajectory and the premium expectations for that U.S. surety platform continue to grow. The expectation and the need for more capital in that vehicle also continues to grow. And we've now effectively derisked and internally funded, I'll say, now going forward, the capital for that platform. We are still pretty conservatively leveraged. As you know, 17% is about our debt-to-capital right now. We've got appetite to take that up to about 25% in the fullness of time. So still some, I'll say, conservative posture on the leverage side as we look at, I think, prudently building out the platform.

Okay. Great. And then on the Canadian Fronting, so the premium slowdown there, and you had called kind of for the expectation this year to premiums declining. Could you maybe just unpack a bit more like what are you guys seeing on the competitive front? Is it new entrants? Is it accelerating? Are people writing silly policy? Like just help us understand what's driving that Canadian Fronting industry dynamic.

Yes. It's less so new entrants in this market or different models, companies adopting our approach. It's more so traditional players jumping back into the market in a significant way, and that would include players like Lloyd's and traditional P&C players coming back into the market in a real way. So our focus is always on profitability, on appropriate underwriting. And we and our partners as we see that both rate softening and increased competition, see opportunities to I think, allow that business to price itself out of our appetite. So I don't think there's any real change here in terms of the types of people that are participating in the market. There's just more appetite in that market to write business more aggressively than we've seen in years past. I will say we still have a relatively healthy pipeline and as recently as the last couple of months, are onboarding new relationships in this space. So there's still, I think, appetite and avenue to continue growing this business. We're just setting out sort of pragmatic expectation that in what we're seeing right now, it's likely that, that Fronting premium is a bit lower than 2025 this year.

I'm currently showing no more questions in queue at this time. [Operator Instructions] And our next question comes from Thomas MacKinnon with BMO Capital.

I jumped on the call late here. So sorry if this question was asked. But in U.S. Programs, maybe just the outlook there, some of the stamping data is out April slowed a little bit. Maybe you can talk about outlook for growth in both existing programs, some new partners. And you're growing more in the admitted market as well. And how is that profitability with respect to that? And what are the plans there?

Thanks, Tom. Maybe I'll take a few of these out of order. You did highlight some of the admitted growth in the platform. Some of the new programs that we onboarded last year actually were in that admitted space. And so we are seeing some of our highest premium production out of the admitted programs proportionately this quarter. So it is nice to see that platform expand. It is worth noting for people on the call that our platform does span both E&S and admitted programs. And increasingly, we've got a more proportionate mix between those 2. The growth outlook for this platform, I think we talked about it at the beginning of the year being kind of mid- to high single digits for the full year. On a constant currency basis, we're above that this quarter. So I think there's some indication here that the accommodative or more, let's say, positive tone in the reinsurance market is driving a few more opportunities for us. I think it's obviously a much larger platform than a few years ago. So the platform scale is a bit more significant. Those percentage growth rates are a bit less than they've been historically, but still a great outlook for this business and one we're quite excited about. I think what people often don't understand about our business is that in the insurance space, often people assume that a hard or soft market is inherently positive or negative. One, because our business is much more specialty focused than most, we navigate these markets a bit differently; and two, because we're a fairly large purchaser of reinsurance, as reinsurance markets get more accommodated, that can be a positive nuance for us, and that's what you're seeing a little bit in that U.S. Programs space. So the outlook remains pretty consistent. I think a great start to the year and most importantly, in this platform, a very, very strong combined ratio right alongside our expectations. I think you'll continue to see that type of trajectory for the business for the next few quarters.

And retention was different in the quarter than I think your 10% to 15% guide. Was that addressed in an earlier question? Maybe you can just flesh that out? I'm sorry.

No, it wasn't, Tom. So it's a good question. There's a bit of nuance quarter-to-quarter in retention that can be impacted by the timing of reinsurance purchases, which, as you know, can reduce or impact net premiums earned levels. So what you're seeing this quarter is no real change from an average quota share percentage retention, but some nuances on the calculation of that figure. I think there's probably an opportunity for us to talk about this on a trailing 12-month average going forward, which will be a lot more consistent for people rather than quarter-to-quarter. So no signal for you to take out of the lower retention this quarter, just really nuances and timing of some of the tactical reinsurance purchases.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to David Clare for closing remarks.

Thank you very much, operator, and thank you to everyone for joining today. As always, if you have any further questions, don't hesitate to reach out, and we look forward to talking to you all soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.