Post by
retiredcf on Mar 21, 2023 9:09am
CIBC
EQUITY RESEARCH
March 20, 2023 Flash Research
TRISURA GROUP LTD.
AM Best Outlook Revision Reflects An Incrementally Negative
Development
Our take: AM Best has revised its outlook on Trisura from stable to negative,
but reaffirmed the company’s A- rating. The revised outlook has no material
or immediate impact to the company’s existing programs or ability to win
business. However, it arguably increases the risk of a future rating
downgrade, which would have negative implications. We firmly believe that
management is keenly aware of this risk and is working with AM Best to
provide transparency on the circumstances that led to the Q4 write-down and
take all necessary steps to strengthen risk management practices going
forward.
Key Metrics
• AM Best outlook revised to negative. AM Best has revised the
outlook to negative (from stable) but affirmed Trisura Group’s
Financial Strength Rating of A- (Excellent) and the Long-Term Issuer
Credit Rating of “a-” (Excellent) of the operating entities. AM Best
noted that the negative outlook reflects “required improvements in
Trisura’s operational risk management processes around
management of captives within its U.S. operations.” Although the
company is addressing these issues, AM Best believes that “the
effectiveness of these actions will require time to evaluate.” The
revised outlook clearly relates to the write-down of reinsurance
recoverables in Q4 (see our note here).
• No material or immediate impact. Owing to the fact that AM Best
has reaffirmed the A- rating, there is no expected impact to current
programs or ability to win new business. It could potentially slow the
expansion of Corporate Insurance lines into the U.S., but this is a
very early stage initiative and would have no material impact to our
forward estimates (we already forecast a normalization of the top-line
growth rate in Canadian lines from 30% in 2022 to 15% in 2023).
• However, a downgrade would have negative implications. AM
Best ratings are the gold standard in the P&C insurance industry and
are commonly relied upon by various counterparties as an objective,
third-party assessment of an insurer’s creditworthiness (e.g., its
ability to pay claims). Consequently, a rating downgrade would
negatively impact Trisura’s business. We suspect that management
has been working with AM Best to: 1) provide transparency on the
circumstances that led to the Q4 write-down; 2) demonstrate that
similar situations do not exist across the book of business, and; 3)
identify steps necessary to strengthen risk management practices
going forward.
Outperformer
TSU-TSX, Sector: Financials
Current Price (3/17/23): C$32.10
Price Target (12-18 mos.): C$55.00
Comment by
prabhatmalik on Mar 21, 2023 2:30pm
I think it is an excellent buy at this point. What is a general consesus?