CIBC ReportThey have a $50.00 target. GLTA
EQUITY RESEARCH
May 5, 2022 Earnings Update
TRISURA GROUP LTD.
A Solid Quarter On Multiple Fronts
Our Conclusion
Trisura reported a much-needed earnings beat (29% versus consensus),
largely driven by favourable prior years’ reserve development. The top-line
growth rate moderated in Canada as expected, but the U.S. segment
achieved the highest rate of sequential premium growth (in dollars) since
inception of the platform. Overall, we felt that Q1 results were solid and
should help soothe some jittery nerves following the Q4 earnings miss. We
remain at Outperformer with a $50 price target.
Key Points
Strong earnings beat. Trisura reported adjusted diluted EPS of $0.45,
nearly 30% above consensus at $0.35 and 7% above our estimate of $0.42.
The beat can be largely attributed to favourable prior years’ reserve
development in Canada. In both the Canadian and U.S. segments, the loss
ratio normalized following a volatile Q4. Book value per share ended the
quarter at $8.66, down less than 1% sequentially despite volatile capital
markets conditions in the quarter. Unrealized losses on the investment
portfolio largely flowed through other comprehensive income and did not
impact headline earnings.
Canadian loss ratio normalizes following a volatile Q4. The combined
ratio came in at 80%, reflecting an improvement sequentially from 91%. The
Q/Q improvement in underwriting margins reflected a normalization of the
loss ratio (16% versus 26%), which benefitted from an increase in favourable
prior years’ reserve development across all three lines. The pace of top-line
growth moderated in Q1, with gross premiums written increasing 63% Y/Y
versus an exceptionally high growth rate of 85% in the prior quarter. This was
largely in line with our estimate of 64%, however. The Canadian segment
produced an ROE of 30% over the LTM period.
Positive surprise on U.S. growth. GPW amounted to $342 million in Q1,
reflecting 52% growth Y/Y and above our forecast of $320 million. The
growth was largely driven by existing programs and E&S lines. Admitted
programs generated premiums of $34 million in Q1, reflecting a sequential
increase versus $23 million in Q4. We continue to expect E&S lines to
generate the preponderance of submission flow, but acknowledge that any
business written in the admitted space will be incremental to whatever level
of organic growth is achieved in E&S markets. The fronting operational ratio
came in at 75% in Q1, versus 79% in the prior quarter. The decrease was
related to a more normalized loss ratio (65% versus 82% in Q4).
Valuation update. Trisura trades at 18x P/E (based on the NTM consensus
EPS estimate), in line with peers at 17x despite demonstrating above-
average growth and underwriting margins. As recently as early February, the
company traded at 28x.
Conference Call: Tomorrow morning at 9:00 a.m. ET available via webcast.