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

Thank you. Good morning. Welcome to Tresura Group Limited's second 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. Following formal comments, lines will be open for analyst questions. 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 Tresher as Filings with Securities Regulators. To ask a question during the Q&A session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. Thank you. I'll now turn the call over to David Clare.

Thank you, Operator. Good morning, everyone, and welcome. In Q2, we extended the consistent execution and momentum of recent quarters. We achieved a significant milestone, surpassing $1 billion in book value, reaching our 2027 target ahead of schedule, underscored by disciplined, profitable underwriting and strong growth in investment returns. Underwriting performance was robust, with a combined ratio below 85%, driving double-digit growth in earnings, while book value per share grew more than 20%, reaching over $21 per share. Our evolution continues as we write proportionally more primary lines business with attractive, durable margins as we expand in both established and emerging platforms. Primary lines, surety, corporate insurance, and warranty remain our foundation, growing 7% in the quarter. Priority underwriting income rose 44%, supported by a strong loss ratio of 17%. Growth continued across key segments. In Canada, investments made in new capabilities are bearing fruit, demonstrated by increased submission activity and larger limit contract surety opportunities. While in the US, we injected further capital in our treasury listed balance sheet to support underwriting across a more widely licensed platform. licenses in California, Minnesota, and Hawaii and look forward to building our presence. Corporate insurance delivered solid growth and higher underwriting income, with premium accelerating and underwriting income up 60%. Our US team is gaining traction, supported by a depth navigation of a competitive market in Canada where we continue to grow. Progress in U.S. corporate insurance follows our surety playbook, expanding in areas we know and attracting experienced talent, supported by a centralized head office. While still early, this platform is expected to contribute meaningfully to profitability and scale over time. Warranty net insurance revenue increased 19%, reflecting the earned premium impact of stronger GPW in prior periods. Business mix is expected to drive a slightly higher than historic combined ratio for the remainder of the year, while elevated claims experience on select programs are expected to normalize. A consistent approach in U.S. programs has resulted in a strong contribution to our results. We achieved an 80% combined ratio, benefiting from steady performance and continued investment in infrastructure. Our scale, permanent capital, and diversification differentiate Trishura as a preferred partner for strong, profitability-focused MGAs. We have seen several recent opportunities to expand relationships in the US to our Canadian platform, a unique advantage of our North American posture. Canadian fronting underwriting income was steady at about $5 million, modestly higher than Q2 2025, despite pressure from the softening market and increased competition. We expect decreased premium this year in Canadian fronting, but remain committed to the line and its potential to grow profitably over the long term. continue to onboard new partners, building a pipeline that we expect will support premium over the coming quarters. Trashura 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 and front-of-business. Above average underwriting profitability combined with enhanced investment income is expected to drive consistent increases in shareholders' equity. We are celebrating our 20th year at Trishura, and it is striking to achieve our goal of a billion dollars in equity on that anniversary. Decades of underwriting experience underpin our continued expansion in both Canada and the US. And as our US platforms mature, we expect them to equal or exceed the earnings contribution of their Canadian counterparts. We continue to invest in our future, attracting senior management talent to our organization. includes our new North American leader of corporate insurance, Derek Spafford, who joined us to spearhead growth and expansion of Appetite across North America. The opportunity to build our U.S. presence and expand our share in Canada is significant. We are looking forward to the years ahead. Our AI pilot programs have shown strong adoption and promising results in multiple areas of the organization. Proof-of-concept initiatives in underwriting, actuarial insurity, or demonstrating efficiency gains with human oversight maintained throughout. We continue to build on this momentum as we work towards broader rollout. Our goals are clear, scaling profitably in primary lines, expanding deliberately in the US, and maintaining discipline that has underpinned our track record. The structural tailwind supporting surety remain intact as our practice establishes a larger presence across North America. Our US corporate insurance platform is gaining traction. Q2 exceeded Q1 premium with momentum building. Primary lines continue to grow at attractive margins and investment income is adding meaningfully to the quality and predictability of earnings. We believe we are well equipped to navigate cycles. The backdrop for sure is constructive, and despite softening trends in corporate insurance, our specialty approach continues to generate opportunities to grow profitably. significant consumers of reinsurance and increasingly supportive markets create opportunities to optimize reinsurance programs, build partnerships and expand our impact. Trishure's increasingly diversified earnings base, strong capital position, collaborative culture, and investment in technology and talent position us well for the next phase of growth. With that, I'd like to turn it over to David Scotland for a detailed review of financial results.

Thanks, David. I'll now provide a walkthrough of financial results for the quarter, as well as provide some additional perspective on our evolving mix of business and our capital position. The second quarter represented another profitable quarter for Trishura and reflected continued progress in the evolution of our platform. Operating earnings per share was $0.76 for the quarter, up 10%, contributing to a solid operating return on equity of 16.7%, comfortably above our mid-teens target. Underwriting results were strong, net investment income continued to increase, and bulk value per share grew further in the quarter, up 20% year over year. While reported top line growth was mixed, we believe the underlying momentum of the business remains healthy. Our primary line businesses continue to generate attractive growth and underwriting profitability, while competitive conditions in Canadian fronting and timing-related factors and surety drove a modest decline in premium for the quarter. The insurance revenue increased by 1%, reflecting the continued growth in primary lines at 6.6%, partially offset by contraction in Canadian fronting. In addition, year-over-year premium comparisons in surety were affected by an unusually strong prior year quarter that benefited from timing effects related to new distribution relationships. We are encouraged by the continued momentum in primary lines, which represent more than two-thirds of net premiums written over the last 12 months. Comprising surety, corporate insurance, and warranty, these businesses represent the historic foundation of Trashura and continue to be central to our long-term growth strategy and profitability. The mix of premiums continues to shift towards businesses that generate more profitability per dollar of premium and where we are investing the most for future growth. We expect our primary lines to achieve mid-teens growth in net insurance revenue for the full year. unusually strong surety comparison that affected the second quarter is expected to normalize over the balance of the year, and we remain encouraged by opportunities in corporate insurance. Canadian fronting pressured premium growth in the quarter. However, we continue to believe fronting offers attractive long-term opportunities and maintain a healthy pipeline. Our surety business continues to benefit from momentum in both Canada and the US. Approximately 45% of our surety premium in 2026 is expected to be generated from our US platform, and we continue to see strong partner engagement, with Trasura ranked among the top 30 US surety writers. During the quarter, we contributed an additional $50 million USD in capital to our Treasury-listed balance sheet, building on the momentum of recent state licensing additions, including California, positioning the platform for further expansion. Given the size of the market opportunity, we expect to continue supporting the platform through disciplined and measured capital deployment over time. Importantly, the economics of our U.S. surety business are broadly consistent with those of our Canadian platform. While business mix differs modestly, returns remain attractive and we continue to see significant opportunity for profitable growth. Corporate insurance also continued to make progress in the quarter. While still relatively small, our U.S. corporate insurance platform continues to build scale and we remain encouraged by its trajectory. We expect it to increasingly contribute to underwriting income and grow its relevance to our top line. Turning to profitability, our underwriting performance remains strong in the quarter with a consolidated combined ratio of 84.9%. The loss ratio in the quarter remains solid and within our expectations with modest decrease from prior year reflecting a lower loss ratio in surety and US programs. The expense ratio was consistent with the prior year and within expectations for the Underwriting income increased in the quarter, reflecting business growth and strong contributions from Surety and Corporate Insurance. We are pleased with the quality of the business being written across the portfolio and our underwriting performance continues to support our mid-teens operating ROE objectives. Net investment income of $22 million increased by 18% in the quarter, driven by new cash deployment to the investment portfolio. Investment income is becoming an increasingly meaningful contributor to earnings as the business scales and provides additional diversification alongside our underwriting results. Our operating effective tax rate was 24.7% in the quarter, resulting from the composition of taxable income between Canada and the US. Overall, operating net income for the quarter grew 10.7% to $36.8 million, reflecting consistent profitable underwriting and growing net investment income. Non-operating results in the quarter primarily consisted of unrealized gains on the investment portfolio. Exited lines had an immaterial impact to net income in the quarter. Coming to capital, David highlighted earlier that our book value exceeded $1 billion during the quarter, achieving the objective we had previously established for the end of 2027, more than one year ahead of schedule. We are pleased with that achievement and view it as a reflection of the continued compounding of the business through profitable underwriting, disciplined capital allocation, and consistent execution over time. book value has grown at an average rate of 26% for the last five years. As the organization scales, a larger capital base provides increasing flexibility to support organic growth initiatives, particularly across our U.S. primary lines. while creating additional opportunities to deploy capital in a disciplined manner. Our balance sheet remains conservatively positioned with debt to capital ratio of 16.5%, well below our long term target of 25%, providing meaningful financial flexibility. The company remains well capitalized and with capacity to meet regulatory requirements and support growth. As we progress through 2026, we believe our diversified specialty platform strong capital and 20-year track record of disciplined underwriting position us well for the opportunities ahead. We remain focused on deploying capital thoughtfully, growing profitably and compounding long-term shareholder value. David, I'll now turn things back over to you.

Thanks Dave. Operator, we now take questions.

as a reminder if you'd like to ask a question at this time please press star one one on your telephone and wait for your name to be announced to withdraw your question please press star one one again Our first question comes from Doug Young with Desjardins. Your line is now open.

Hi, good morning. Just going to be, so yes, you dropped $50 million in the U.S. into the U.S. sub. Sounds like in the comments here, you're fairly bullish on the outlook for the U.S. surety and just the corporate build beyond what you've achieved already. So maybe just hoping you can dig a little bit into what drove the capital injection and what you're expecting in both of these two U.S. sub-states. markets over the coming year. And if you have any examples of wins you can throw out, that would be helpful as well.

Thanks, Doug. I think it's fair to say we are encouraged and excited by the trajectory of that U.S. business. A couple of factors drove the decision to increase capital or inject capital into that surety balance sheet specifically. First and foremost, we are seeing good momentum on the expansion of our licenses, which is which just builds the infrastructure backbone of our practice. The types of opportunities that we are eligible for in the market can be directly tied to the amount of capital in the balance sheet that we have in that U.S. surety platform. So in some ways, what we're doing is balancing the opportunity and pipeline that we see with the types of credentials we want the team to have, out in the market. The more capital that we have in that balance sheet, the more opportunities candidly we can see. And so the balance is making sure that we are funding that balance sheet responsibly and giving the team a good pipeline of opportunities to go out and pursue. I think as we talked about and as Dave referenced, we are seeing quite a good pipeline of opportunities for the remainder of the year. Dave reiterated our expectation that our full year mid-teens premium growth target for that surety platform is still intact, which will drive a healthy amount of growth half of the year. Anecdotally, examples of wins or premiums coming on, it's very typical. There's nothing dramatic happening across the platform, but a very typical build and execution by the team of going out and winning business day-to-day and hand-to-hand with the brokers that we work with. I think the build of our licenses is going to support that going forward and we're excited to see that progress.

I think it's been a little while since you embarked on going upmarket in Canada, and it sounds like you're gaining some momentum in the surety market by going upmarket in the surety market. I think you've got some new distribution partners. Can you talk a bit about the momentum that you're seeing? on that side and the opportunity from going upmarket in Canada in the surety side? Yes, this is an exciting opportunity.

development for Trishura. It's been probably 18 months or so since we started talking about this initiative to grow into that larger limit space. It does take a while to credentialize yourself in the market and earn those opportunities, but what we're seeing very definitively this year is a stepped function change in the types of submissions we're receiving. So opportunities to compete for business on that larger limit space. Um, I think from an update perspective or from a, uh, perspective, we're very happy to see that development and it's justifying and credentializing the investments we made in the team. The outlook for the surety industry in Canada is kind of exciting right now. There's a lot of commitments being made at the federal level and some other government levels for infrastructure. spend, we think in the next few years, those likely disproportionately benefit that larger end of the market. And so we're keen to build our presence there.

And then, the last one for me, just on obviously the softening going on in the corporate side, Can you talk a bit about what you're seeing? Because you were able to grow in the corporate insurance, and part of that I would assume is in the U.S., but it seems like you were able even to grow in the Canadian corporate insurance market despite the softening environment. Can you talk a bit about, you know, what you're seeing there and any signs that you're starting to see maybe more rational activity in the corporate market potential kind of price price.

is kind of stabilizing and potentially going up? I would say in our part of the market, Doug, which tends to be the more specialized risks in that that corporate insurance market, you see a little bit less dramatic moves in prices. Certainly we see competitive pressure in the market, but but the moves that you see, let's say in the commoditized or broad PNC market are not as material in that specialty line space. So that's the first thing that I would say. I think you're right that our ability to grow in this line is a combination of a really strong opportunity and trajectory in our US platform. And that opportunity is market agnostic. We're simply building share in a market that we know and are excited to build. It's being supported by pretty strong execution of our Canadian team and especially line space. So I wouldn't say this is a function of a change in trajectory of the market or a change in the pricing environment of the market. What you're seeing here is a bit of a benefit of the specialty focus that the team has is now being amplified by just more scale in the U.S. I mean, anecdotally, I think you and I have talked about this in the past. Q1 was our biggest quarter previously for that U.S. corporate insurance platform. Q2 exceeded that. And... June was our biggest month yet in that practice. So the momentum is building. So it's a unique position that Trishura has because not only are we building sort of within our expertise in a Canadian specialty market, we've got an opportunity to replicate that geographically, which is, I'll say, less impacted by the time nuances of any cycle.

Appreciate the call. Thank you. Our next question comes from Bart Zierski with RBC Capital Markets.

Great, thanks and good morning everyone. Just to get with surety, congrats on the California license. I think now you're fully licensed, at least in the major states. Could you talk us through about the ramp time in that state specifically, and then maybe more broadly, now that you have licenses and pretty much all states like does that change conversations on the ground with uh with clients thanks.

Thanks, Bart. I think first off, we are very excited to have received California and this is maybe a bit ahead of where we expected. You are smart to ask about the ramp up and the rollout post receiving our license. There's a process that we go through to file our rates, which is happening right now. That can be a few months. of process. I expect you're not really going to see the direct impact from California until sometime next year, but it does change the conversation. This is a real catalyst for us to go out and talk to our distribution partners. You've now lapped a few months, if not quarters, of having some of those larger licenses in places like Florida and Texas. As you say, at 48 licenses, we would view this as a very fully licensed platform, which is why you see the confidence for us in putting capital into the entity. continue to bring on new brokerage partners and we continue to bring on new opportunities in that surety space. These are just great points of conversation to increase excitement in that part of the market. We think that surety opportunity in the US remains very, very significant and now finally we can hopefully stop talking about licenses and which states we're waiting on each month and focus on building the business.

Got it. Super helpful. Thanks, David. And then maybe zooming out a bit more strategically, like as you focus on primary lines and you're seeing, you know, longer term attractive growth opportunities there, how should we think about the strategic fit, if you will, of the U.S. programs and Canadian fronting businesses to your business over the next few years?.

medium to long term? I think these practices continue to be really great avenues for us to show up in the market in a different way and provide solutions to our partners. So So one of the reasons we focus on and have built the business in the way that we have is there's a complementary mix of business across these platforms. We're able to touch brokers in different ways in Canada with our Canadian fronting practice. We're able to provide solutions to a really broad swath of the market in the U.S., One of the reasons you hear us highlighting and talking about primary lines, maybe disproportionately in the last couple of quarters, is we like to remind people that the majority of the business and the historic success of the business has come from there. It doesn't in any way the excitement or importance we have of these other lines of business, but we should highlight sort of the majority of the growth, profitability, people and capital continue to be in those primary lines. We're building what I would say is a more durable, more exciting platform now that has really great components of market participation across now surety corporate insurance warranty supplemented by these diverse platforms in Canadian front end and US programs. As you can see is when these programs or when these parts of the business run well and stably, they are really great contributors to not only the bottom line, but our presence and narrative.

in the market. That makes a lot of sense. Thanks, David.

Our next question comes from Tom McKinnon with BMO Capital.

Yes, thanks. Good morning. Just following on a little bit on that conversation. with respect to Canadian fronting. I mean, it's kind of not primary, but it is a good contributor to underwriting income. it does it contributes more than warranty and corporate insurance so like how should we be Thinking about the underwriting income that you do get from that, I would add that it augments, you know, know, it jumps around in terms of its top line capabilities, but it certainly is a good contributor to your underwriting income. So maybe you can talk about the outlook of Two things here. What do you see for net insurance revenue going forward for Canadian fronting? And more importantly, do you think the combined ratio will sort of stay at this 77% level that we're seeing in the second quarter, despite what you've noted as being probably a bit more competitive marketplace? Thanks.

Thanks, Tom. I appreciate the question. I think it's important to note that despite maybe some top line volatility in Canadian fronting, we remain very committed to that line and expect quite a few opportunities to come out of that. Anecdotally, we continue to onboard new opportunities in this space. You've actually seen us nuance or adjust retention across the Canadian fronting portfolio, which is why you see maybe a bit better underwriting income. think pragmatically, if you look to the rest of the year, some of that pressure in gross premium written may pressure underwriting income, but I don't expect in the long term that trend to continue. I think the amount of opportunities, the amount of touch points that we have in the market here, it's going to continue to be a platform that adds. that underwriting income. I think the comparison you make to something like a corporate insurance or a warranty specifically in the quarter, those types of comparisons may evolve over time. I mean, corporate insurance is growing its net underwriting income by about 60% this quarter. So I think that that trajectory will continue, but I don't in any way want to imply that a reduction in top line and Canadian fronting reduces our excitement for the trajectory and potential of that business over time.