Trisura Group Ltd T.TSU

TD Resumes Coverage

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Looking for an 80% return with a target of $57.00. GLTA

Trisura Group Ltd.

(TSU-T) C$31.28

Resuming Coverage Following Equity Issuance Event

We are resuming coverage of Trisura following the closing of a $53mm common equity offering (including ~6.5% partial exercise of the over-allotment option). We believe that the additional capital will support growth opportunities in Canada and the U.S., as well as provide balance sheet for the U.S. surety acquisition.

Impact: POSITIVE

The offering did not come as a surprise given the announcement of the U.S. surety acquisition (disclosed alongside Q2/23 results earlier this month) as well as sustained strong momentum across the existing platform.

Expansion into U.S. surety is an attractive opportunity, in our view. In Canada, Trisura has deep expertise and significant presence in the surety market operating in this line for over 15 years and ranking #4 in market share on a GPW basis. Moreover, despite the low frequency, high severity nature of the business, over the long-term, TSU has consistently delivered loss rates better than the industry. This has contributed to surety being TSU's highest ROE segment.

In Q2/23, TSU posted its second-strongest quarter of sequential premium growth ever (on an absolute dollar basis). This was driven by strength across the platform including a record quarter of sequential growth in Canada (particularly surety and fronting) as well as the second-strongest quarter of U.S. premium growth (+$78mm q/q vs. past 1-3 year average of +$30-$35mm per quarter). While the pace of growth on a year-over-year basis is slowing as a result of increasingly tougher comparable quarters, on an absolute dollar basis, momentum appears to be sustained across most business lines, in our view.

TD Investment Conclusion

We believe Trisura demonstrates a strong growth profile and ROE. We continue to like the company based on our view of its: 1) relative underlying earnings and price stability as a P&C insurer; 2) rapidly growing earnings profile, especially in the U.S. (early days of launching into admitted market, Surety, and Corporate Insurance in the U.S.); and 3) relative valuation compared with peers (KNSL, PLMR, and RLI are trading at higher multiples). The company has achieved impressive growth over the past 3-5 years, which we believe supports our outlook of the earnings trajectory in 2023 and beyond.