CIBCHave a $60.00 target. GLTA
EQUITY RESEARCH
November 24, 2024 Company Update
TRISURA GROUP LTD.
Drilling Deeper Into Third-quarter Results
Purpose Of This Note
Since reporting third-quarter results on November 7, TSU shares have
declined 10%. Although operating earnings were in line, we believe that
investors are expressing some disappointment with a more moderate rate of
top-line growth across the entity (particularly in the U.S. fronting business).
There was also a chunky add-back to earnings that may have contributed to
the market reaction. This note examines both in greater depth, and also
discusses the growth outlook for Trisura Specialty entering 2025.
Key Conclusions
US Fronting: non-renewals are a setback, but not indicative of a trend
or changing market conditions. Over the course of the past year, Trisura’s
U.S. fronting entity has been adversely impacted by a handful of non-
renewals. This has detracted, to some extent, from the growth trajectory and
earnings power of the entity. In that context, we wouldn’t necessarily
advocate that investors “look through” the reduction in premiums as we
believe it has clearly been a setback. However, it is important to remember
that the flattening top line is not necessarily indicative of a trend or changing
market conditions. Management has indicated that existing programs (in
which Trisura will continue participating going forward) collectively grew their
premium base ~20% in Q3 on a Y/Y basis.
Claims from exited programs are likely non-recurring. Unlike the run-off
experience in 2023, elevated claims that were recognized in Q3 from exited
programs should be unique to the quarter and non-recurring in future
periods. Adverse prior-year development can theoretically occur in any
period, but this situation appears unique to the third quarter and should not
impact future periods. It’s important to reiterate that the losses stemmed from
a commercial property program. Notwithstanding the experience in Q3,
property losses tend to have a fairly short tail attached to them. Claims are
normally brought forward and settled in a relatively short amount of time.
Losses in casualty lines, by contrast, often need to work their way through
the court system and can sometimes settle years after the event. We can’t
state definitively that Trisura won’t recognize further losses from this
particular program, but in this context it seems generally unlikely.
Continued double-digit growth outlook for Trisura Specialty. Putting it all
together, we see potential for continued double-digit growth in the Trisura
Specialty segment. The more moderate rate of growth in US Fronting has
probably overshadowed, to some degree, the more exciting growth
prospects of US Surety and Corporate Insurance. However, we see
continued runway for growth and expect Trisura Specialty to outpace US
Fronting for the next few quarters from a top-line standpoint.