Trisura Group Ltd.

Good morning. Welcome to Tricera Group LTD's second quarter 2021 earnings conference call. On the call today are David Clair, Chief Executive Officer, and David Scotland, Chief Financial Officer. David Clair will begin by providing a business and strategic update, followed by David Scotland, who will discuss financial results for the quarter. Following formal comments, lines will be open for analyst questions. I'd like to remind participants that in today's comments, including in responding to questions and in discussing new initiatives related to financial and operating performance. Forward-looking statements may be made, including forward-looking statements within the meaning of applicable Canadian and U.S. securities law. These statements reflect predictions of future statements and trends and do not relate to historic events. They're subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks, and their potential impacts, please see Tricera's filings with its securities regulators. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Due to time restrictions, please limit yourself to one question and one follow-up question only. If you require any further assistance, please press star zero. Thank you. I'll turn now the call over to David Clare. Go ahead, please.

Thank you, operator. Good morning, everyone, and welcome. Q2 continued the momentum demonstrated in Q1, again producing our largest premiums to date following a record first quarter. Importantly, disciplined underwriting and a business model that focuses on recurring fee income yielded strong earnings per share and an 18% return on equity, the highest in our group's history. This demonstrates the strength of our multi-jurisdictional and multi-line specialty insurance platform, as well as the quality of our businesses today. I should acknowledge that we continue to operate in the midst of a global pandemic and have enjoyed resilience made possible by our committed employees and high-quality partners. Growth in the quarter was driven by Canada, taking the torch from the U.S. and leading our organization in growth in new premiums. As our fee-based renting model expands, we observe momentum and risk solutions growing over 250% versus last year. Corporate insurance also demonstrated expansion, with over 100% increase in premiums. Income was supported by exceptional underwriting and growth in Canada and continued maturation of business in the U.S. Canada again generated a 27% return on equity, while fee income in the U.S. drove a 14% ROE, particularly striking in the context of both platforms' continued growth. In Canada, the majority of our staff continue to work from home. We have used the time to expand our footprint in Toronto and Montreal in anticipation of a future return. We continue to monitor local guidelines as well as approaches by peers and financial institutions to guide our staff. In Oklahoma City, employees have returned to the office and we have observed a quick return to normalized operations. We are looking forward to the advantages of in-person interactions and expect to benefit from the tools and processes we have adopted in the last year. I am hopeful that comfort with video conferencing and less reliance on travel will produce efficiencies with internal and interoffice communication. Claims have yet to observe a material change related to COVID-19. I believe the ultimate impact is yet to be fully understood, and we maintain increased reserving levels on several business lines as a result. In Canada, premiums grew 147% over Q2 2020. Risk solutions drove our top-line growth with contributions from new fronting and warranty programs. We continue to benefit from a hardening market in corporate insurance lines, as well as momentum with existing and new distribution partners. Another quarter of gains in market share and continued impact of recently launched new home warranty products in surety drove 38% growth over the prior period. Loss ratio of 25% in the quarter was higher than the 16% achieved in Q2 2020 driven by higher claims in corporate insurance despite continued strong results in surety and resolution. We are also comparing against a strong quarter for surety claims in 2020 when loss ratio was below 10%. However, Surety's 14% loss ratio this quarter continues to sustain better than average profitability, amplified by greater retention as a result of our new reinsurance program. Profitability was mitigated by corporate insurance's 49% loss ratio, a mix of E&O, D&O, and cyber claims arriving in the quarter. Despite this, year-to-date loss ratio for corporate insurance is within plan. Risk Solutions' loss ratio of 16% was comparable to 2020, and year-to-date improved versus the prior period, as maturing warranty programs performed better than expected. Our U.S. surety practice continues to progress. We've expanded surety licensed states to 47 and bound our first premium in the quarter. We have continued to hire, adding staff in Stamford and now Denver. With a new focus on fronting in Canada, we have opportunities to expand our current presence and replicate our U.S. hybrid fronting model. In the quarter, $40 million of premium were generated in our solutions through fronting, and we continue to evaluate opportunities to grow this business line. Our U.S. platform grew 52% over the prior period despite a weaker U.S. dollar and the non-renewal of certain programs with property catastrophe risk. As we have matured, it is appropriate for us to be selective in our premium. With 53 programs at the end of the quarter, we have a robust pipeline to support our trajectory. On a constant currency basis, we observed a small increase in premiums quarter over quarter, alongside $11 million of earned fee income and $21 million of deferred fee income at quarter end, indicative of future fees to be earned. Importantly, we reached our highest monthly premium to date in June, demonstrating continued momentum as programs on board. We continue to receive admitted program submissions, although admitted premium generation of $11 million remains immaterial versus our excess and surplus lines. From our original 13 admitted licenses, the team has expanded our ability to write business to 48 states, with the expectation of a fully licensed platform by year-end based on our recent seasoning thresholds being met. We are actively evaluating admitted programs and acknowledging a longer ramp-up period versus excess and surplus lines are hopeful to demonstrate progress in the second half of the year. In Q1, we received an investment grade rating of BBB stable from DBRS. The milestone was followed quickly in Q2 with our inaugural $75 million bond offering, taking advantage of historically low rates and tight corporate spreads. We achieved a coupon of 2.641%, an attractive cost of debt for a first-time issuer of our size. We will use the proceeds to support growth in the U.S. and fund a new excess and surplus balance sheet. Importantly, debt to capital remains below our 20% target, and we have maintained $50 million of undrawn revolver capacity for future growth. On June 23rd, we announced a four-for-one share split effective for shareholders on record on June 30th. Although economically unimpactable, the increase in shares outstanding is anticipated to support normalized trading and improve liquidity, something we have struggled with in the past. The company continues to evolve, and the increasingly diverse and fee-based nature of our earnings helps to reduce volatility and supports growth and access to capital. Strength of growth and performance in Canada has been a highlight this year and is providing momentum for the enterprise beyond the profitable maturation demonstrated in U.S. fronting. It is striking to compare results this year to previous periods. In the first half of the year, we have surpassed annual income in 2020, our best full-year results reported to date. The hardening market continued in the quarter, and we expect this trend to sustain in 2021. Although ENS markets remain strong, the introduction of admitted capabilities will be important as the market normalizes. The launch of a U.S. surety strategy and our Canadian fronting platform provides ample opportunities to grow organically. We remain an insurance company in growth mode, and we must focus on the skills and practices that brought us to this point. Concentration in business lines we know, conservative underwriting, and detailed structuring. It must be acknowledged that claims in our business can experience volatility and severity. We should expect claims to experience approximating historical averages in the long term. With that, I'd like to turn it over to Dave Scotland for a detailed review of financial results.

Thanks, David. I'll now provide a brief walkthrough of some financial results for the quarter. Gross return premium was $363 million for the quarter and $674 million year-to-date, which reflects growth of $79 million over Q2 2021 and 80% over year-to-date 2021. Fee income, which is primarily related to fronting fees from our U.S. operations, grew by 106% in the quarter and 93% year-to-date, reflecting growth of fronted premium in the U.S. and an increase in surety accounts in Canada. Net claims in Canada for the quarter were greater than the prior year as a result of a higher loss ratio of 24%, driven primarily by higher claims in corporate insurance. On a year-to-date basis, however, the loss ratio remains very close to prior year. Net claims in the U.S. for the quarter were greater than the prior year as a result of growth in the business, however, the loss ratio decreased slightly compared to that. For the full year, the U.S. loss ratio was slightly higher than the prior year as a result of CAAT claims in Q1 2021. On a consolidated basis, net claims expense in the quarter was greater than the prior year as a result of growth in the business and a higher loss ratio in Canada. Net claims expense for the year-to-date period was lower than the prior year as a result of the reinsurance business, reflecting claims recoveries associated with the discounting of our life annuity reserves in 2021. Those life annuity reserves were impacted by a rise in European interest rates in 2021. It's important to note that the claim movement associated with the life annuity reserves were largely offset by movements in investments derived from the security supporting those liabilities. Net commission expense increased by 116% in the quarter and 92% year-to-date, reflecting growth in the business in both Canada and the U.S. operations. Operating expense in the quarter grew by 34% over Q2 2020 and for the full year by 37%. Part of the increase is related to share-based compensation associated with certain outstanding options for which we have introduced a hedging program. The movement in the hedge is reflected in net gains loss on the income statement. Excluding share-based compensation, which has been hedged, operating expense grew by 27% for Q2 2020 and grew by 24% over year-to-date 2020, reflecting primarily growth in the Canadian operations. Net underwriting income in Canada for Q2 and year-to-date 2021 was higher than the prior year as a result of growth in the business and a lower expense ratio. The expense ratio was lower as a result of improved operational efficiency as well as certain one-time commission payments to reinsurers associated with modifications to our surety reinsurance program in Canada. Net underwriting income in the U.S. for Q2 and year-to-date 2021 was higher than Q2 and year-to-date 2020, largely as a result of growth in new and existing programs as well as improved operational efficiency. In Q2 2021, the combined ratio in Canada was 83% and the fronting operational ratio in the U.S. was 70%. Net investment income was lower in Q2 and year-to-date 2021 as a result of the increase in European interest rates during the year, which impacted the Euro-denominated bonds supporting the life annuity reserves. As discussed, the movement in those bonds was largely offset by movement in corresponding claims reserves. Interest and dividend income increased by 24% over Q2 2020 and 11.9% over year-to-date 2020. The increase was primarily related to an increase in the size of the portfolio associated with growth in operations and the debt offering in June of 2021 and was mitigated by reduced market yields. Net gains were $4.8 million for the quarter and $8.6 million year-to-date, which was significantly greater than Q2 and year-to-date 2020, primarily as a result of gains in our share-based compensation hedging program. As previously discussed, those gains were largely offset by share-based compensation expense. Income tax expense was $2.1 million for the quarter, which was lower than Q2 2021, despite growth in the business. This reflects a one-time recovery in the period. For the full year, income tax expense was greater than the prior year as a result of growth in the business, as well as the recognition of a deferred tax asset related to previously unrecognized tax losses, which occurred in Q1 2020. Net income generated from the reinsurance operations was also greater in Q2 and year-to-date 2021 as a result of a slight favorable asset liability mismatch, which occurred in the context of rising European interest rates in the quarter, and in general, improved asset liability matching in 2021 compared to 2020. Net income for the group was $16.9 million in the quarter and $36.2 million for the year-to-date period, which was greater than Q2 and year-to-date 2020 by 156% and 142% respectively. The increase was largely driven by increased profitability in both Canada and the U.S. operations, as well as growth and improved operating metrics. Effective July 2021, the company executed a 4-for-1 stock split, and the following EPS metrics are reflective of that. diluted EPS was 0.4 in Q2 2021 and 0.86 year-to-date 2021, which was greater than the prior year. Consolidated ROE on a rolling 12-month basis was 18% at the end of Q2 2021, which was greater than the rolling 12-month ROE at the end of Q2 2020. Overall, strong growth and improved profitability in both Canada and the US has contributed to an increase in earnings and improvement in key financial metrics during the year. Assets in the year to date grew by $497 million as a result of growth in Canada and the U.S. Recoverable from reinsurers have increased as a result of growth in the U.S. front-end business, where claims liabilities are largely offset by expected recoveries from the reinsurers to whom we see the business. Investments have grown, reflecting the additional capital generated as a result of the debt offering in Q2 2021. Liabilities in the year-to-date period grew by $456 million, primarily as a result of growth in unearned premiums and unpaid claims and loss adjustment expenses, which have grown as a result of growth in both Canada and the U.S. As was discussed, growth in these balances is largely offset by growth in reinsurance recoverables. Equity has grown for the year by $40 million, reflecting growth in net income as well as growth in other comprehensive incomes. OCI increased in 2021, primarily as a result of unrealized gains in the investment portfolio, in particular as a result of unrealized gains on equities and preferred shares. This has been partially offset by some cumulative translation loss due to the strengthening of the Canadian dollar against the U.S. dollar, which drove lower valuations of capital held outside of Canada. Book value per share was $8.03 at June 30, 2021, taking into account the stock split. and is greater than December 31, 2020, as a result of profit generated year-to-date and unrealized gains in the investment portfolio. As of June 30, 2021, debt to capital was 18.4%, which has increased after the debt offering in the second quarter, but remains below our long-term target of 20%. The company remains well capitalized, and we expect to have sufficient capital to meet our regulatory capital requirements. David, I'll turn things back over to you.