Trisura Group Ltd.
(TSU-T) C$37.12
Q4/22: Solid Quarter Excl. Reinsurance Recoverable Write Down Event
Trisura reported a $0.86/share loss vs. our estimate of $0.37 (consensus: $0.39). The loss relates to an $81.5mm (pre-tax) write-down on reinsurance recoverables. Adjusted EPS and ROE (TTM) came in at $0.51 (up 61% y/y) and 20.0%, respectively. The EPS beat was driven by higher-than-expected investment income and stronger-than-expected top-line growth.
Impact: MIXED
The reinsurance recoverable write-down relates to one program in the U.S. tied to one specific counterparty (a captive) that TSU has been dealing with for several years (no other programs with this counterparty). Importantly, this was not related to claims, but rather a disagreement over obligations under the quota share arrangement. It was a property program that required CAT reinsurance protection. These costs have risen materially over the past year, impacting the value of collateral and contributing to the write-down. The program is now in accelerated run-off.
Gross premiums written (GPW) of $665mm were up 3% q/q and 37% y/y and were above our forecast of $648mm, mostly driven by higher-than-expected premiums in Canada and strong growth in the U.S.
U.S.: As expected, U.S. GPW of $447mm are down compared to a particularly robust Q2 and Q3, but growth on a year-over-year basis, remains strong (up 52% y/y). This reflects the maturation of existing programs and new program additions.
Canada: Top-line growth remained solid, with premiums up 14% y/y (better- than-our-estimate). Surety experienced particularly strong growth (+27% y/y), complemented by the Sovereign acquisition, while the fronting platform continues to scale, providing more stable fee-income.
TD Investment Conclusion
Trisura continues to demonstrate its strong growth profile and ROE. Despite the significant write-down this quarter, we continue to like the company based on our view of its: 1) relative underlying earnings and price stability as a P&C insurer; 2) rapidly growing earnings profile, especially in the U.S. (early days of launching into admitted market and Surety in the U.S.); and 3) relative valuation compared with peers (KNSL and RLI are trading at higher multiples, but have similar EPS growth and ROE profiles). The company has achieved impressive growth over the past 3-5 years, which we believe supports our outlook of the earnings trajectory in 2023 and beyond.