Trisura Group Ltd.

Good morning. Welcome to Tresor Group Limited's third quarter 2021 earnings conference call. On the call today are David Clare, Chief Executive Officer, and David Scotland, Chief Financial Officer. David Clare 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 events and trends and do not relate to historic events. They're subject to known and unknown risk and future events and results may differ materially from such statements. For further information on this risk and their potential impacts, please see the resource filings with securities regulators. At this time, all participants are in listen-only mode, and later we will conduct a question and answer session, and instructions will follow at that time. Thank you. I'll now turn the call over to David Clare. Please go ahead.

Thank you. Good morning, everyone, and welcome. The third quarter continued our momentum from the first half of the year, producing again our largest premiums to date following sequential records in Q1 and Q2. Importantly, disciplined underwriting and a fronting model that generates recurring fee income yielded strong earnings per share and a 20% return on equity, the highest in our history. Our team continues to demonstrate strength and a healthy pipeline of opportunities as we scale an increasingly sophisticated and diversified specialty insurance platform. Results were particularly strong in Canada with 110% premium growth supported by profitable underwriting. Momentum was sustained in the U.S. as premiums in the quarter grew 52% over the third quarter of 2020. We observed significant increases across all lines in Canada. The standout in growth was again risk solutions where expanded fronting arrangements and new warranty programs drove 155% rate of growth versus 2020. Corporate insurance continues to benefit from a hard market and momentum with distribution partners, producing 97% growth over the prior period. Surety growth of 49% was similarly strong as the business benefits from tailwinds in our established lines and expansion of a U.S. practice and new home warranty products. More importantly, loss ratio of 18% improved versus the 28% achieved in Q3 2020, driven by strong experience in corporate insurance and continued strength in surety and risk solutions. Surety's 8% loss ratio this year continues to sustain better-than-average profitability, amplified by greater retention as a result of our new reinsurance program. Profitability was enhanced by Risk Solutions' 18% loss ratio and a quadrupling of underwriting income in the line as warranty programs mature and we observe a growing contribution from new fronting arrangements. Combined ratio in the quarter was 79%. An improvement versus Q3 2020 due primarily to the comparative strength of corporate insurance and resolution and an improved expense ratio. Net underwriting income increased 330% in the quarter, a striking increase, and the combined result of the factors already described. Taking into account investment income, the Canadian platform produced a return on equity of over 30%. Our U.S. surety practice continued to progress. We've expanded surety licensed states to 48, and we bound approximately $2 million in premium in the quarter. We have continued to hire, adding staff in both Stanford and Denver. Our U.S. fronting platform grew 52% over 2020. Maturation of existing programs and new relationships drove top line. Premiums averaged $87 million per month, compared to $74 million in Q2. U.S. fronting generated $261 million in gross premiums written in the quarter and $11 million in fronting fees. Importantly, we recorded $24 million of deferred fee income at the end of the quarter, indicative of future fees to be earned. Our reinsurance result was a loss in the quarter, driven by a one-time $1 million loss on the sale of our structured insurance asset. Although we realize a loss on the sale today, we benefit from the simplification of our international operations. including reduced compliance costs and improved liquidity from a unique asset. Strong matching and a favorable interest rate environment in our annuity portfolio, which we continue to own, coupled with seeded premium from our U.S. operations, mitigated that loss. The strength of our growth has catalyzed the historic level of hiring. An important focus through this expansion continues to be increasing operational leverage while maintaining appropriate resources to manage and underwrite our business. Our premium per employee has increased, driven mainly by risk solutions, as fronting and warranty programs carry large premium bases on a smaller staff contingent. Excluding assets back in our life annuity policies, portfolio performance was marginally positive in Q3, as investment income offset price volatility. We observed a pullback in equity markets in late September, driven by fears of slowing growth, inflation, and withdrawal of accommodative monetary policy. Rising rates negatively impacted fixed income positions, though it is important to note we've mitigated that impact for maintaining a short duration, approximately three years across our North American portfolios. Interest and dividend income increased year over year, the result of growth in our business and corresponding growth in our portfolio. We continue to allocate conservatively, acknowledging a challenging yield environment. We balance our risk appetite between the prevailing rate environment and required yield of our portfolios. Reinvestment risk threatens interest and dividend income, and the threat of inflation limits our appetite for longer-duration credits. Despite these dynamics, we continue to defend an approximate 3% yield on our investment portfolio. The hardening market continued in the quarter, and we expect this trend to sustain through 2021. Although excess and surplus markets remain strong, the introduction of admitted capabilities will be important as the market normalizes. The launch of a U.S. surety strategy... provides opportunities to continue to grow organically. Increasingly diverse and fee-based earnings helps reduce volatility and supports growth and access to capital. Growth and performance in Canada has been a highlight this year and is providing momentum for the enterprise beyond the profitable maturation demonstrated in the U.S. fronting. We remain an insurance company in growth mode and 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 experience can experience volatility and severity. We should expect the claims experience approximating historical averages in the long term. With that, I'd like to turn it over to Dave Scotland for a more detailed review of the financial results. Thanks, David.

I'll now provide a brief walkthrough of some financial results for the quarter. Gross written premium was $405 million in the quarter, which reflects growth of 69% over Q3 2020. Fee income, which is primarily related to fronting fees from our U.S. operations, grew by 71% for the quarter, reflecting growth of fronting 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 growth in the business despite a lower loss ratio. Net claims in the U.S. for the quarter were greater than the prior year also as a result of growth in the business. While there too, the loss ratio decreased, in this case as a result of fewer weather-related claims. On a consolidated basis, net claims expense in the quarter was greater than the prior year for the reasons described. Net commissions expense increased by 96% in the quarter, reflecting growth in the business in both the Canadian and U.S. operations. Operating expense in the quarter grew by 14% over Q3 2020. Part of the operating expense is related to share-based compensation associated with certain outstanding options for which we have introduced a hedging program. The movement of the hedge is reflected in net gains on the income statement. excluding share-based compensation, which has been hedged, operating expenses grew by 38% over Q3 2020, reflecting primarily growth in the Canadian operations. Net underwriting income in Canada for Q3 was higher than the prior year as a result of growth in the business and the lower loss and expense ratios. Net underwriting income in the U.S. for Q3 2021 was higher than Q3 2020, largely as a result of growth in new and existing programs, as well as improved operational efficiencies. In Q3 2021, the combined ratio in Canada was 79% and the fronting operational ratio in the U.S. was 73%. Net investment income was lower in Q3 2021 as a result of the sale of the structured insurance assets in our international operations, as well as the increase in European interest rates during the year, which impacted the year-denominated bonds supporting our life annuity reserves. The movement in those bonds was largely offset by movement in corresponding claims reserves. Interest and dividend income increased by 19.6% over Q3 2020. That increase was primarily related to an increase in the size of the portfolio associated with growth in operations and contributions to capital from the debt offering in June 2021, and was mitigated by reduced market yields. Net gains were $2.1 million in the quarter, which was less than Q3 2020, largely as a result of FX movements. Income tax expense was $6.5 million in the quarter, which was greater than Q3 2020, reflecting growth in the business. Net income generated from the reinsurance operations was also greater in Q3 2021 as a result of a slight favourable asset liability mismatch, which occurred in the context of rising European interest rates and, in general, improved asset liability matching in 2021 compared to 2020. Net income for the group was $16.1 million for the quarter, which was greater than Q3 2020 by 146%, The increase was largely driven by increased profitability in both the Canadian and U.S. operations as a result of growth and improved operating metrics. Diluted EPS was $0.38 in Q3 2021, which was greater than the prior year. Consolidated ROE on a rolling 12-month basis was 20.4% at the end of Q3 2021, which was greater than the rolling 12-month ROE at the end of Q3 2021. Overall, strong growth and improved profitability in both Canada and the U.S. has contributed to an increase in earnings and improvement in key financial metrics during the year. Assets in the year-to-date period grew by $869 million as a result of growth in Canada and the U.S. Recoverable from reinsurers have increased primarily 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, as well as capital generated from operations. Liabilities in the year-to-date period grew $809 million, primarily as a result of growth in unearned premiums and unpaid claims and lost 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 the reinsurance recoverables. Equity has grown for the year by $60 million, reflecting growth in net income as well as growth in other comprehensive income. Other comprehensive income increased in 2021, primarily as a result of unrealized gains in the investment portfolio. Cumulative translation gain has also contributed to the strengthening of the U.S. currency against the Canadian dollar, which drove up valuations of capital held outside Canada. Book value per share was $8.49 at September 30th, 2021, and is greater than December 30th, 2020 as a result of profit generated year to date and unrealized gains on the investment portfolio. As of September 30th, 2021, the debt to capital ratio was 17.7%, 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 now turn things back over to you.