CIBC Raise TargetEQUITY RESEARCH
November 4, 2022 Earnings Update
TRISURA GROUP LTD.
CORRECTION: Benign Claims Experience Drives Sizeable Q3 Earnings Beat
Our Conclusion
Trisura reported another sizeable earnings beat (25% versus consensus)
driven by a benign claims experience. Most notably, the U.S. loss ratio was flat sequentially despite Hurricane Ian making landfall towards the end of the quarter. The company also printed better-than-expected top-line results driven by a continuation of recent momentum in the U.S. fronting entity. We are increasing our price target from $55 to $60 to reflect further confidence in the sustainability of above-average earnings growth.
Key Points
Sizeable earnings beat on better-than-expected loss ratio. Trisura
reported adjusted diluted EPS of $0.45, exceeding the consensus estimate by 25% and our estimate by 36%. Relative to our forecast, the beat was largely driven by lower-than-expected net claims expense. The Canadian combined ratio (“CR”) came in at 83%, whereas we generally forecast a “through-the-cycle” CR in the high-80% range. For reference, the Canadian CR has averaged approximately 86% since 2016. The loss ratio in the U.S. fronting entity came in at 71%, unchanged sequentially, which was a positive surprise in the context of Hurricane Ian. Our estimate had stood at 76%.
Book value per share ended the quarter at $11.47, up 33% sequentially
driven by an equity raise in Q3 (which was largely accretive to BVPS as it
was completed at nearly 4x P/B). Other comprehensive loss was essentially nil in Q3, as translation gains from a stronger USD offset the impact of market volatility on book value. This was slightly better than we had anticipated. Another strong top-line print from the U.S. fronting entity. On the heels of an abnormally strong second quarter (which reflected the largest period of sequential premium growth since inception of the franchise by a factor of 2x), the company further built on that momentum, binding a new all-time record of $466MM in gross premiums. Our estimate had stood at $380MM. Trisura attributed the continued momentum to the maturation of existing programs. Admitted programs generated premiums of $52MM in Q3, reflecting a modest sequential increase versus $44MM in Q2. It appears that the majority of growth continues to be driven by maturing E&S lines.
Canadian segment beat on a lower-than-expected loss ratio. The
Canadian segment generated underwriting income of $14.MM, which
exceeded our estimate of $9.3MM. Underwriting revenue was directly in line, whereas lower claims expense drove the beat on margins. Gross premiums written also beat our estimate ($179MM versus $170MM), albeit by a smaller magnitude than the U.S. entity. The Canadian segment continued to produce an impressive ROE at 31% over the LTM period.
Conference call tomorrow at 9:00 a.m. ET via webcast