Trisura Group Ltd T.TSU

Alternate Symbol(s): TRRSF

Financial Services Insurance - Property & Casualty

Trisura Group Ltd. is a specialty insurance provider. The Company is engaged in operating in surety, risk solutions, corporate insurance, and fronting business lines of the market. It has investments in subsidiaries through which it conducts insurance and reinsurance operations. Those operations are primarily in Canada (Trisura Canada) and the United States (Trisura US). Its segments include the operations of Trisura Canada, comprising surety business underwritten in both Canada and the United States, and risk solutions, fronting and corporate insurance products primarily underwritten in Canada and Trisura US, which provides specialty fronting insurance solutions underwritten in the United States. The main products offered by its surety business line are contract surety bonds, commercial surety bonds, developer surety bonds, and new home warranty insurance. Its contract surety bonds, such as performance and labor and material payment bonds, are primarily for the construction industry.

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Trisura Group Ltd

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Post by retiredcfon May 06, 2024 10:29am

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Post# 36024818

RBC Report

Their upside scenario target is also raised to $56.00. GLTA

May 3, 2024

Outperform

TSX: TSU; CAD 42.63

Price Target CAD 52.00 ↑ 44.00

Trisura Group Ltd.

Growth remains strong, Canadian business continues to perform well

Our View: Trisura's overall Q1 results reflect a combination of healthy premium growth and solid core underwriting margins. As has been the case for some time now, the Canada unit was a standout with considerable premium growth and a low 80s combined ratio. While eventually we expect U.S. traditional insurance to be a long-term growth opportunity, we think there are plenty of growth opportunities in Canada and its fronting operations in the near term. Investment remains a meaningful tailwind to results and book value is rising nicely. We remain at Outperform.

Estimates & price target: We are raising our 2024 operating EPS estimate to $2.75 (from $2.70) mainly to incorporate Q1 results. We also moved up our 2025 operating EPS estimate to $3.10 (from $3.05) on slightly better underwriting margin assumptions across both units. We are raising our price target to $52 (from $44), which is now based on 3.4x our ending FY'24 book value per share forecast (previous multiple used was 3.0x). We think the higher multiple is warranted given improving underlying results and solid growth prospects in favorable environment.

Q1 Results ;Trisura reported Q1/24 operating EPS of $0.68 vs. $0.57 in Q1/23, which was slightly ahead of our $0.64 estimate and the $0.65 consensus estimate. The modest upside was spread across Canada and the U.S. unit.

Key Takeaways: Overall, Trisura’s Canadian unit reported another set of good results all around. The Q1 combined ratio of 81.8% for the Canada segment was better than our 85.3% assumption and the 85.5% delivered in Q4/23. The U.S. fronting operational ratio ex certain non-recurring items was 84.8% vs. our 86.0% assumption (this was 89.6% on a reported basis). Gross written premiums in Canada grew +25.0% y/y to $221.8.0 mm vs. $177.4 million last year (RBC estimate was +23.0%), reflecting strong growth again in fronting and surety. Gross written premiums in the U.S. grew +3.8% y/y to $501.2 mm vs. $483.1 million last year while the net premium retention ratio was in line with our estimate at 5.5%. While U.S. fronting has its share of competition, the company noted that fee structures are holding up and there is an opportunity to increase its retention with some programs to the high single digits over time. Importantly, A.M. Best recently removed their negative outlook on Trisura (now a stable rating), which we believe alleviated some risks and concerns.

Positives:

1) Robust premium growth in Canada; 2) Solid sequential book value growth; and 3) Canada combined ratio remains highly profitable.

Negatives:

1) U.S. loss ratio higher than our estimate; 2) Higher expense ratio in Canada; and 3) U.S. earned premiums trailed our forecast.

Key takeaways for the quarter

Canada segment: Trisura’s Canadian unit reported another set of good results all around in our view. Overall operating income for the Canada segment totaled $20.4 mm vs. $16.6 million last year, which was a little above our $19.2 million assumption. The Q1 combined ratio of 81.8% for the Canada segment was better than our 85.3% assumption and the 85.5% delivered in Q4/23. Gross written premiums grew +25.0% y/y to $221.8.0 mm vs. $177.4 million last year (RBC estimate was +23.0%), reflecting strong growth again in fronting and surety. We continue to see solid fronting opportunities in Canada in a market where Trisura has a large presence (the U.S. market remains more competitive from a fronting perspective). The net/gross retention ratio for Canada also came in higher than expected at 51.9% in the quarter (RBC estimate was 50.0%).
U.S. segment: Overall operating income for the U.S. segment totaled $13.4 mm vs. $10.4 million last year vs. our $12.7 million assumption. The U.S. fronting operational ratio ex certain non-recurring items was 84.8% vs. our 86.0% assumption (this was 89.6% on a reported basis). Trisura continues to target a U.S. fronting operational ratio in the low 80s/high 70s. Gross written premiums grew +3.8% y/y to $501.2 mm vs. $483.1 million last year (RBC estimate was +10.0%) while net written premiums were up +71.1% y/y to $46.6 mm (RBC estimate was +7.4%). Net earned premium in the U.S. was $43.4 million vs. our $51.0 million assumption. While U.S. fronting has its share of competition, the company noted that fee structures are holding up and there is an opportunity to increase its retention with some programs to the high single digits over time (overall the company targets adding 10 new programs on a gross basis in the U.S. per year). The growth slowed a bit in U.S. fronting ’23 as the company pulled back in light of the large run-off charge in Q4/22, but think there is growth left here. The company is seeing growth from not only the E&S market but the admitted market as well. We think the environment for specialty insurers in the U.S. remains healthy albeit with a bit more capacity and competition than at this time a year ago. There wasn’t anything new to report on the planned expansion into U.S. traditional insurance lines except that its recent U.S. surety acquisition recently closed and should allow for a ramp up in this line over time.
Other items of interest: Net investment income remained an EPS driver and grew to $16.8 million from $10.1 million in Q1/23 (RBC assumption was $16.8 million). We think that there is further left on NII growth as higher new money yields outpace expiring yields. The debt/cap. ratio ended Q1 at 10.2% (vs. 10.8% at YE’23). The premiums/capital ratio was at 6.2x in the quarter while the minimum capital test ratio of the regulated Canadian subsidiary rose to 259% (from 251% at YE/23), the third consecutive quarter of improvement. A total of just 6.3% of invested assets were rated BB and lower, which has been falling in recent quarters and is lower than 8.6% in Q1/23. Trisura’s operating ROE amounted to 20% in the March quarter. Importantly, A.M. Best recently removed their negative outlook on Trisura (now a stable rating), which we believe alleviated some risks and concerns.