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.

Thanks, David. Operator, I think we would take questions now.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. Again, that is star, then the number 1 on your telephone. Please stand by while we compile the Q&A roster. And your first question will come from Sihan Tsankai with Stifle. Your line is open.

Good morning. Good to see strong results again, as usual. But we could just dig a little bit deeper into the premium growth trends we're seeing in the Canadian business. Obviously, well in excess of industry growth levels. Now, you've got a couple of new product offerings coming on. There's hardening prices in some of the lines that you operate in. But could you talk a little bit about the market share gains that you guys are making, particularly, it sounds like, in surety lines? If we could get a little bit more clarity on what's happening there, that would be great.

Thanks, Gian. You're right. Surety has experienced a pretty healthy level of growth, 38% in the quarter. A lot of that's being driven by, historically anyways, some M&A activity in the surety space. That's resulted in a bit of consolidation for brokers and Trishura as an independent alternative to some of the larger players in the market has benefited from that nuance. In addition to that, we are seeing better momentum with some of our distribution partners or traditional lines of contract, commercial, and developer surety just as a result of having more touch points with those brokers are achieving some good momentum. Amplifying all those trends is the fact that we've launched a new home warranty business really in the last few quarters. That's helping to sustain those growth rates.

Appreciate that, Dave. And maybe just a follow-up question with the U.S. premium line activity. Can you comment a little bit about the pricing situation that you're seeing south of the border? How strong are prices in the lines in which you operate, commercial auto, surety lines, and How can we think about that translate to fronting fee income growth going forward? Thanks.

I would say the excess and surplus lines market, which represents the majority of our premiums in the U.S., continues to experience a pretty healthy level of rate hardening. Anecdotally, we obviously have a number of programs. We're up to 53 now. Anecdotally, we're seeing rate increases anywhere between 10% and 20% on those programs. It depends a little bit on the line of business that you're in, but it has experienced a continued and sustained rate hardening, which is nice to see. Operator, I think we'd take the next question now.

Your next question will come from Jamie Goyne with National Bank. Your line is open.

First question is on the U.S. admitted markets and the growth outlook for the second half this year. Can you put that into context with perhaps the five gross programs added in this quarter, and what gives you confidence that we're going to see that really, or I guess you shouldn't say really tick up, but potentially tick up in the second half?

Yeah, so of the five programs that we added, we did see two of those programs being in that admitted space. I will acknowledge that the ramp-up of admitted premiums is much slower than the excess and surplus line space. We need to go out to each individual state that we are anticipating writing business and file rates in those states before we can start writing that business. So it does lend itself to a longer ramp-up period. That being said... We have seen a slow burn in our admitted premiums, achieving about $11 million this quarter. In the context of adding a few new programs, I don't want to provide formal guidance on where we think that admitted premium base can go, but we do continue to see and anticipate growth in that line through the latter half of this year. It's tough for me to be too specific until we start to see those premiums come online, but we do feel that the platform will be well served by that exposure to the amended market.

Okay, great. And with respect to the ENS market on the U.S. side, are there, given the high grading of the program portfolio at this point, are there particular lines that you're more interested in, less interested in? Can you give us a little bit of context around that, how you're viewing the next several months in ENS?

At a high level, we like to target about a 60% casually, 40% property mix. If you drill down into that segmentation, we don't love property exposure that has significant catastrophe potential. We really just don't think it's appropriate for a company of our size nor an entity that's focused in prioritizing recurring fee income. So that is a bit of a result of or driving a bit of the result in high-grading these programs. Those two that they took out had a little bit more catastrophe exposure than we thought was appropriate. From our perspective going forward, you're going to see us continue to focus on that 60% casualty, 40% property mix, and staying in lines that we think have an appropriate loss ratio experience and volatility experience for an entity of our size and focus.

Okay, great. And last one for me, as I think about sort of a, you know, perhaps a bit stronger outlook for the US, I think you've talked about, you know, sort of in the range of 15 to 20 million, or maybe 10 to 20 million in premiums growth on a quarter to quarter basis. Does that still hold as we move into Q3 and Q4? And is there opportunity to see that take a little bit higher?

So it's tough, Shane. We don't love to provide a lot of quarter-to-quarter guidance. We think there's a great pipeline of programs and premiums for us in this space. I would say the momentum we saw at the end of Q2 gives us a lot of confidence in the pipeline going forward. I think about these programs and this business on an annual basis, but I think if you triangulate what we're seeing sort of from an annual growth rate those numbers you're thinking about on a quarterly basis are reasonable. Great. Thanks very much.

Again, if you would like to ask a question, that is star 1 on your telephone keypad. And your next question will come from Marcel McLean with TD Securities.

Okay. Thank you. I just kind of have a follow-up on a few of those points. So back to the admitted side in the U.S., You added two of those five programs were on the admitted side. So what's the total amount of admitted programs you have approved now? And sort of what's in the hopper, if you can give me that, for when you expect to ramp up later this year? What do you plan on coming out with?

Yeah, I don't think we've disclosed specifically the mix of our programs between admitted and ENS. We have, I would say, below eight admitted programs right now. I'm not going to put a specific number on it because a few are either onboarding or going through risk committee right now. Of our pipeline looking forward, we continue to see submissions in both the admitted and excess and surplus line space, but I would echo some of the sentiments we're hearing from other market observers in that the excess and surplus line space in the U.S. continues to have a lot of focus. So more of the submissions we're seeing are in that excess and surplus line space, which is great. We think that's an opportunity as well, but... but it's proportionally higher anyways on our experience in that line than the admitted space.

Okay. Thanks for that. And then just on the ENS side, where you trimmed those two programs as you hybrid the portfolio, was that a review of the complete portfolio you guys have right now, or could there potentially be more that you're waiting to come up for renewal that you plan to trim as well? What's the kind of thoughts – going forward on that?

Yes. These two programs that we trimmed, this was as a result of a sort of multi-year review process. We've been attempting to improve those programs. So we weren't really surprised to see them move away on this renewal. In fact, we sort of anticipated it. I wouldn't say we're seeing a lot in the rest of our portfolio. I shouldn't say even a lot. I wouldn't say we're seeing anything in the rest of our portfolio that we would be anticipating. on renewal in the coming quarters that we cut, but that's obviously a review in more detail on exact renewal. I understand what you're asking, Marcel, which is should we expect more of these program high grading or renewals to come through in the future quarters. Today, I'm not seeing a lot in Q3 or Q4 that would make me think that's going to happen, but we'll provide more guidance, obviously, at every quarter.

Okay. All right. Thanks. And then I just have one last one on the hardening markets in corporate insurance. Some people or industry data has shown that the rate of increase has actually come down. So it's still very hard markets. But just wondering what you guys are seeing sort of from the inside in terms of your specific lines of business. Are the rate increases still as strong as ever or have they come off their peak now?

So individually by business line, there are areas where rates are still increasing, but increasing less than they were at this point last year. I would say there are also examples of business lines, both in the U.S. and Canada, where those rate increases are as strong as they've been historically. It's tough to give you sort of a blanket statement that would tie into some of the industry comments that you're reflecting. In Canada, generally, in corporate insurance, we generally still see pretty good and healthy rate increases. Anecdotally, our lines, given our specialty focus, tend to be a little bit more profitable than the broader market. So the rate increases you see in our Canadian lines are less material than some of the big ones that you see out in the more commoditized market. In the US, in the excess and surplus line space, the narrative really depends on which line you're in. And we would see across our portfolio generally still pretty healthy increases. Some of those are mitigating versus last year, but some continue as strong as ever.

Okay. And then the outlook going forward, I know that you still see this sustaining for a while, or sort of what's the trend there?

It's tough for me to predict too far in the future on that. I would say that we are getting more confidence that this market condition or this market climate is sustained through the end of the year. But beyond that, it's tough to tell.

Okay. All right. Thank you.

Your next question will come from Stephen Boland with Raymond James. Your line is open.

Thanks. I don't want to harp on the two programs you dropped, but it seems like, as you said, it was a multi-year review. So it was more preemptive. You hadn't seen any adverse development in those programs that you're still responsible, I guess, for in the future. But is that the right way to kind of read that?

Yeah. So, Stephen, this isn't like a – a claim that you have received that you are working out over the next few quarters and are expecting adverse development. When we non-renew a program, obviously you run off those policies that you have written in the last year. Those policies are annual policies for that program, but the experience on that program should be comparable to any other program. It is not as if we have set aside a big amount of reserves that we are expecting to receive we're expecting to deteriorate over the coming future. It's really now just a reduced version of the program that it used to be and will run off in the next year.

Okay, that makes sense. And then just secondly, when you're moving now into the admitted market, what's the real source of new programs that you're seeing? Is it from new MGA partners, existing MGA partners? You talked in the past about reinsurers actually approaching you and looking for your balance sheet. Is that

um is it so where's the source of these new admitted programs coming from so the the first and best source for us is existing mga partners we have a number of partners in the access and surplus line space who have admitted versions of their programs and it's a really nice maturation for our platform to be able to provide both admitted and ens licenses to those those players so we qualify them as super MGAs or larger MGAs, these entities with an array of programs across both ENS and admitted, that's the first place we're going to focus. Obviously, we've seen submissions from MGAs that we don't have relationships with today, and we'll evaluate those on their merit. We do continue to use and see some of our reinsurance partners as sources of distribution, but in the first instance, the programs that we're putting on in that admitted space has been with partners in the MGA space that we already work with. Okay. That's great.

That's all I have. Thanks very much.

And your next question will come from Chihan Sante with Stifle. Your line is open.

Well, hi, guys. Just one quick follow-up for me. Just with respect to the U.S. business, it looks like you're retaining a little bit more premium. I think the seeded premiums were lower this quarter than in the last couple of quarters. So just wondering, how do you think about that going forward? Obviously, there could be some lumpiness with, I think, commissions to reinsurers and stuff like that, but going forward, how comfortable are you with retaining more risk on your balance sheet?

Yes, at a high level, Gian, our appetite still remains in that sort of 5% to 10% range. We do see examples where we'll exceed that range, and certainly in the context of hardening market, there are opportunities where where we're keen to do that. There is a bit of an accounting nuance in the reported numbers this quarter. You've seen a little bit of a step-up in retention in Q1 and Q2, and I might pass it over to Dave Scullin just to walk through what you're seeing happening there, because from a reported basis, it is showing a little bit higher retention than we feel is economically the case.

Yeah, we do have a couple of programs in the quarter that have come online which have higher ratios, basically. that higher commission has also been offset by higher premiums. So you end up in situations with some of these programs where you have what appears to be a higher retention from a net written premium perspective, but doesn't necessarily equate to a higher risk retention because what's actually happening is there is a higher commission expense, but it's being offset against a higher premium. And that is driving the numbers a little bit higher in this particular quarter.

Great. That's it for me. Thanks for the color there.

Thanks, John. And your next question will come from Jamie Glowing with National Bank. Your line is open. Yeah, thanks.

I just wanted to come back to the Canadian business and the growth in the fronting platform in Canada. Can you give us a little bit more color on that? on some of the key drivers of what's going on in the fronting space in Canada. Maybe some commentary around other players or what's allowing Tresure to be so strong here at least in 2021 and maybe some commentary around what that looks like here in the next several quarters to further out.

Yeah, thanks for the question, Jay. We actually think this growth in the fronting business in Canada is one of the more exciting nuances of this quarter. So just to level set for everyone, the $40 million of additional premium you're seeing come through in the resolutions group this quarter is really analogous to the style of program and style of fronting that we have adopted in the U.S. Our entity is in a unique position in the market to service that need. So we've seen in the last, I would say, 12 months, a real reduction in capacity in the market. So hardening markets have driven reduction in capacity, increases in pricing, and that's driven more appetite from capacity providers outside of Canada to access business here in Canada. Given Tresher's size, our sort of unique independent position, we're well-placed to service that need, so to link up capacity providers with premium in the Canadian market. And given our experience in the U.S. business and our comfort with these structures, it's served us well to, or it's put us in a good position to take advantage of this market opportunity. Again, anytime you see hardening markets and reduced capacities, the reduction of Lloyd's capacity is a great example. You're going to have new players attempting to access the market. Those new players need partners in the local markets that they operate. And given our underwriting approach and our comfort with sort of hybrid fronting models, We're well positioned to take advantage of that. It's been a quick ramp up. This is an initiative we started looking at really seriously in Q4 of 2020. So to see them move from $15 million in premium in Q1 to $40 million of premium in Q2 is a really encouraging start to the business.

So, if I understand correctly, Trishura holds a unique position here in the Canadian market where perhaps you're big enough to write the business, but also you're not too big where you want to retain all of that business in the Canadian space and you're providing access to other global players that may have tapped into Lloyd's markets. Is that the case?

Yeah, that's a fair description. So we occupy – we're not the only ones. I don't want to imply that. But we occupy an interesting niche in that we are sort of of the size and sophistication to structure these transactions, but we're not a multibillion-dollar balance sheet that would be competing for these transactions on our own balance sheet. Excellent, excellent.

Thank you. Again, if you would like to ask a question, you will need to press star 1 on your telephone keypad. And your next question will come from Tom McKinnon with BMO Capital. Your line is open.

Yeah, thanks very much for taking my question. I jumped on the call late here, so it's probably been flagged a bit, my question. But in terms of the two programs you didn't renew and then the five programs that you added, can you tell, maybe explain the differences in those programs in terms of profitability and and why the new five programs added met your profitability threshold, but the two that you didn't renew didn't, and a little bit about the pipeline and what is attracting these programs to come to Trishura. What is it in your offering other than perhaps price that is helping you win this business?

Yeah, thanks for the question, Tom. So the two programs you're seeing as trim in the US, those were programs that from a loss ratio perspective really weren't hitting our thresholds. If you think about our Q3 of 2020, even Q1 of 2021, you saw our loss ratio creep up beyond a level that was optimal for us in the States. And a disproportionate amount of that increase was as a result of these two programs specifically. So from... From a risk perspective, from a balance of program perspective, from a business mix perspective, we really felt that we were at the stage of maturity and had a mix of programs where we could reasonably push back on and high grade our portfolio to focus on those risks that we think are appropriate for the business. In terms of the five programs that we've added in the quarter, again, from a high level perspective, fit within our target loss ratio corridors, our risk appetite, the types of programs at a high level that we target. Again, that's about 60% casualty, 40% property at a portfolio basis. So those five programs, at least at the underwriting stage and on our binding stage, which is where we are today, we expect to fit in those characteristics. I think from a... from an attractiveness perspective, from a value proposition perspective, which I think speaks to your second question. These fronting entities, our model in the U.S., we do not really compete on price. The service model that we have in the U.S. is really focused on providing capacity to program administrators. We have two clients really. It is the program administration or program administrators in the market, and it's the reinsurance community. To the program administrators, we need to be able to demonstrate access to capacity, flexibility of licensing, a broadly licensed platform across both ENS and admitted markets, and sophistication of interaction. So you need to have good IT systems, you need to have good auditors, good actuarial teams to evaluate and work with these program administrators in running their programs. From a reinsurance perspective, what you need is that premium pipeline to demonstrate to them that you can source those premiums. And one of the differentiators that we have in the U.S. or one of the focuses that we started out with was that we consciously take risk alongside those reinsurers. So we've invested in an actuarial team who evaluates the risk and the performance of these programs on a very regular basis, and we share those analyses with those reinsurance partners. So that forms the basis of our value add. And again, we think about it as facing two counterparties. It's the program administrators, the distributors in the market, and it's the reinsurers. And you have different functions to perform for both of those.

Now, how does your target fit in with the reinsured loss ratio target? So I assume those things would have to be in line. And if you're going to non-renew a program, is that Is that more pressure from the reinsurer or is that done in conjunction with the reinsurer or is that done at your own discretion? Talk about the profitability measures that you're talking about and how they work in with the reinsurer's profitability targets.

Yeah, so at a portfolio level in the U.S., we think about sort of a mid-60s loss ratio as forming the basis of our economic model. Obviously, by business line, you're going to differ a lot in what your target loss ratio is. So you do align with the reinsurers on the underwriting of the program for what you think the proper reserving level is, what you think the right level of profitability of each program is. As it comes to renewal or monitoring the program, you are working hand-in-glove with the reinsurers on what's acceptable from a program perspective. And so to the extent that you're seeing programs that are not performing as well as you would hope, we are going to suggest alongside with the reinsurers ways to improve those programs. So changes in underwriting guidelines, changing in risk appetite to the extent that it's property, changes in regions that you're writing. And those suggestions are made in conjunction with the reinsurers. So it should be and usually is a real partnership model. To the extent that one of those groups, either the reinsurer or the fronting company, is coming to a stage where they don't feel that a program should continue, you're sharing that view with your partner before you're canceling the program. So it should be and usually is a very collaborative model.

Okay, thanks for the color.

And your next question will come from Jeff Fenwick with Cormark Security. Your line is open.

Hi, good morning, everybody. Dave, I had a question on capital allocation. So you did the debt issue during the quarter. It looks like you've allocated a chunk of that down into the U.S. operation. So of the capital raised or of that new debt, is there more that needs to go into the U.S.? How much is there available of that new debt that can continue to get fed down there as you grow, or are there any restrictions on doing that?

Yeah, thanks for the question, Jeff. So we've actually already put $30 million Canadian at the end of the quarter down into the U.S. platform. So that leaves, after repaying our short-term facilities, that does leave a good amount of buffer of surplus capital up at the group entity that we could in the future stream down to the U.S. should we see a need to. The other levers that we have to pull up at the group level for capital obviously now include a $50 million revolving credit facility. That's fully undrawn today. So if we think about sources of capital and being able to fund our growth in the U.S. going forward, we certainly feel that we're in a better position than we've ever been to fund that growth internally.

Okay, thanks. That's helpful, Keller. And then maybe just one on the bigger picture here on M&A. It's something you've spoken about from time to time, and I know with all the other organic growth opportunities going on, it may not be front and center, but how are you thinking about the possibility of tucking in something either in Canada or the U.S. that might assist your growth there?

I think we would very openly and rigorously look at any opportunities that we think could be additive to our platform, especially in Canada. We think there would be it would be a great place for us to build scale through an acquisitive model. I will be transparent that this space, especially the insurance market, is a difficult space to find transactable opportunities. Many of the platforms in Canada are either subsidiaries of larger global players or large Canadian players, and to the extent that there are smaller entities, they're very highly prized by their owners these days. So we've got appetite and intent to look at those opportunities, I would say that we've been a bit disappointed in our ability to transact on them. Okay. Great. Thank you.

That's all I had. Again, if you would still like to ask a question, that is star one on your telephone keypad. Excuse me, speakers. I'm showing no further questions at this time. I will now hand it back over to David there for any closing statements.

Thanks very much, operator, and thanks, everyone, for joining. To the extent you have any further questions or would like to hear from our team, don't hesitate to reach out.

And this concludes today's conference call. Thank you for participating. You may now disconnect.