Of Results Our Conclusion
Trisura reported a 5% earnings beat versus consensus and a clean set of
results. Growth trends in the Canadian entity remain solid, offsetting a slower
H1 for the U.S. fronting platform (which was already communicated to the
market). Underwriting margins were a bit better than expected in Canada,
and the adjusted fronting operational ratio in the U.S. entity normalized
quickly after a noisy fourth quarter. We consider the TSU story to be largely
de-risked owing to: 1) the lack of any lingering risk associated with the
indirect Vesttoo exposure; 2) AM Best revising its outlook to Neutral; and
3) the Q4/22 experience being fully behind them. We believe that a cleaner
set of results in 2024 should support a continued re-rating. We reiterate our
Outperformer rating and are raising our price target to $60 (from $55
previously).
Key Points
Beat on operating EPS. Trisura reported operating EPS of $0.68 which was
~5% above the consensus average and a penny above our estimate. Relative
to our estimate, the modest beat appears driven by slightly better-than-
expected underwriting margins in the Canadian entity. Book value per share
increased 6.7% sequentially (essentially in line with our forecast) and was
favourably impacted by $9 million of other comprehensive income (driven
primarily by translation income associated with a stronger U.S. dollar).
Canadian segment continues to experience strong growth trends.
Gross premiums written increased 25% Y/Y, reflecting the continuation of a
solid pace of top-line growth in the prior quarter (i.e., 26% in Q4). Net
premiums written increased 34% compared to the year-ago period. Top-line
growth was largely driven by Surety and Risk Solutions (on both a primary
and fronted basis). The Q1 combined ratio came in at 81.8%, which was a bit
better than our estimate at 83.4%. A low loss ratio in Surety supported the
solid underwriting margins.
U.S. results were largely as expected. In the U.S. fronting entity, gross
premiums written increased 4% Y/Y in Q1, which was unchanged from the
prior quarter. Management had previously signaled that growth would be a
bit more modest in the first half of 2024 before normalizing in the second half
of the year once the impact of certain rationalized programs fall away from
the Y/Y comparison. In this sense, we felt that a mid-single-digit growth rate
was pretty well telegraphed. The adjusted fronting operational ratio came in
at 85%, which was an improvement versus 106% in the previous quarter and
directly in line with our estimate.
Net investment income was also in line with our forecast. Net investment
income came in at $16.8 million in Q1, up 66% Y/Y and directly in line with
our estimate. Growth in the investment portfolio combined with higher market
yields are driving strong growth in this line item.