Trisura Group Ltd.

Good morning. Welcome to Trishura's Group Limited's fourth quarter and full year 2022 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 and year. 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 applicable of 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 these risks and their potential impacts, please see Shura's filings with security regulators. Thank you. I'll now turn the call over to David Clare.

Thank you, Operator. Good morning, everyone, and welcome. Despite strong earnings and operating performance, Results were impacted by a one-time write-down of reinsurance recoverables in our U.S.-fronted business in the fourth quarter. Notwithstanding the impact of this write-down, Tresure is a larger, more diversified entity than at any stage in our history. We believe firmly that this write-down is an isolated event, and we remain confident in the rest of the portfolio and in our ability to scale the platform profitably in the long term. Our specialty P&C operations delivered strong performance in 2022, with $2.4 billion in gross premiums written, a 56% increase following growth from 2019 to 2021. In the context of significant top line growth, expansion of our capital base in uncertain operating environments, we are proud to have generated a 20% adjusted return on equity, although I acknowledge a lower 6% reported return on equity taking into account non-recurring items. The write-down in the fourth quarter was related to a disagreement over obligations under a quota share reinsurance contract. The program was unique in our portfolio. It included captive participation, which means a reinsurer associated with the MGA, and required catastrophe reinsurance. This year, the prices of catastrophe reinsurance increased dramatically, which reduced the amount of collateral available and contributed to the write-down. It is important to note that the driver of the write-down was not claims experience, but these higher catastrophe costs. This program had a multi-year history with Trishura when it had performed as expected. However, a unique mix of factors drove the experience this year. The reinsurer does not participate on any other programs, and the program is now in runoff. We are confident in our remaining reinsurance recoverables, with 83% represented by rated reinsurers and holding collateral for unrated reinsurers. This experience has informed the infrastructure development that was already underway at Trishura. We introduced a dedicated in-house chief risk officer in the middle of 2022 who oversees an actuarial team and a group monitoring collateral. This event has been highlighted to these groups, and although we have reviewed our remaining portfolio and believe that there are no comparable situations, it is critical to acknowledge these experiences as we continue to grow. It is important to note that although this issue caused a delay in our financial statements, Treasurer's own team highlighted the situation to our auditors, who reviewed the situation alongside us. Unfortunately, at this stage, we can't share many more details about the situation as we explore our options with Council. What I would reiterate is the unique and isolated nature of this event. Results across the rest of the operations were strong, and particularly so in Canada, with 30% premium growth in the year, supported by profitable underwriting, and an 82% combined ratio. Momentum was sustained in the U.S. as premiums again hit an annual record, increased 70% over 2021. In Canada, all three business lines contributed to growth, with fronting to standout, growing 61% compared to 2021. corporate insurance continues to benefit from strong market conditions, growth in programs, and momentum with distribution partners, producing 33% growth over the prior period. Surety growth of 22% in the year was strong, as the business benefits from tailwinds and established lines, expansion of a U.S. practice, and a new home warranty segment began to mature. We also saw the benefits of a recent sovereign acquisition and the growth of Surety in Q4. Importantly, Loss ratio of 17% for the year, improved versus 21% in the prior period, driven by strong experience in corporate insurance and risk solutions. Combined ratio for the year was 82%, comparable to the 81% in 2021. The slight increase was driven by an increase in expense ratio, given by a shift in the business mix towards fronting, and mitigated by an improvement in our loss ratio. Despite a higher combined ratio, net underwriting income actually increased by 36% in the year, driven by growth in the business. With growing investment income, the Canadian platform maintained a strong 30% return on equity. Our Canadian entity now generates attractive fee-based earnings to complement a heritage of profitable underwriting. We have made important progress in our U.S. surety platform, adding experienced team members in Connecticut, Denver, Philadelphia, and Chicago. We are excited at the potential of this platform, expanding a product line where we have demonstrated expertise in a geography with promising infrastructure tailwinds. For the year, we wrote $17 million in surety premiums from our U.S. platform. U.S. fronting grew 70% over 2021, with maturation of existing programs and new relationships driving top line. U.S. fronting generated $1.7 billion in gross premiums written and $67 million in fronting fees. We recorded $40 million of deferred fee income at the end of the year, indicative of future fees to be earned. I apologize. We recorded $35 million in deferred fee income at the end of the year, indicative of future fees to be earned. Loss ratio in the year decreased as a result of comparably higher weather events in the prior period. Fronting operational ratio increased as a result of the write-down in the fourth quarter and the cost of reinsurance of non-scaled programs. Despite the market driving opportunities to excess and surplus lines, we wrote $165 million in admitted premiums in the year, mitigated by slower approvals by state regulators and the longer ramp times of admitted programs. I have already received questions about our premiums to capital ratio, which has been quoted at about seven times. In fact, in the fourth quarter, we injected $25 million of surplus notes into the entity that is effectively equity and takes our account or takes our target ratio closer to our target range. Interest and dividend income increased significantly in the year and by over 100% in the quarter, the result of growth and higher yields impact in our portfolio. We continue to allocate conservatively, acknowledging an uncertain environment as central banks navigate inflation and a tight labor market. We are steadfast in our approach on achieving profitable growth in specialty P&C markets. We continue to expand our reach in Canada and the U.S., supported by a history of disciplined underwriting, growing investment returns, and newly enhanced risk management infrastructure. The hardening market in certain corporate lines sustained through 2022, And although we don't anticipate surplus capacity to drive a soft market in the near term, we do not expect the level of rate increases demonstrated in 2022 to be repeated. The majority of our growth was achieved through enhanced distribution relationships and new volume. And as such, we expect to navigate any change in rate or pricing smoothly. With the continued maturation of fronting, development of a U.S. surety strategy, and ongoing expansion of our core lines, we have ample and attractive opportunities to grow. Our platforms continue to act as complementary sources of revenue for one another, and distribution partners have increasingly recognized our broader offering. As we gain market share in one geography, our presence and capabilities elsewhere offer opportunities to generate new business. As we look to 2023, environmental, social, and governance considerations are front of mind, an important part of Trishura's development. In the last year, we enhanced our governance framework, welcoming a new director to the board. We anticipate further progress here in the near future. We continue our focus on better communicating ESG initiatives, identifying opportunities for enhancement, and working diligently to improve. In closing, despite an impactful experience in the fourth quarter, we are optimistic for the years ahead. The operational trends that we've been excited about for years are intact and demonstrating progress. We are keen to build on the strengths of the organization and learn through our evolution. Tresura maintains financial flexibility through a 13% debt-to-capital ratio and capital available at the holding companies. I would like to again thank our employees, partners, and shareholders for their support. As we continue to grow and mature, we look forward to demonstrating progress on our way to building a North American specialty insurance provider of scale. With that, I would like to turn it over to Dave Scotland for a more detailed review of financial results.

Thanks, David. I'll now provide a brief walkthrough of some financial results for the quarter. First written premium was $664 million for the quarter and $2.4 billion for the year, which reflects growth of 37% and 56% respectively. Net claims expense in the quarter and full year were greater than the prior year, primarily as a result of growth in the business. We also experienced elevated claims expense in the fourth quarter of 2021 and a claims recovery for the full year of 2021 associated with our life annuity reserves, which have since been novated and which increased claims expense in the quarter and reduced claims expense for the full year of 2021, affecting the comparatives. Net commission expense increased by 43% in the quarter and 65% for the full year, reflecting growth in the business in both Canada and the U.S. operations, as well as a shift in this business mix towards certain lines of higher commissions. In the quarter, there was a write-down of reinsurance recoverables of $81.5 million as a result of a determination that these recoverables were no longer collectible. This had a significant impact on net income for the quarter and full year. Operating expense grew by 29% in the quarter and 31% for the full year, reflecting growth in both the Canadian and U.S. operations. Net underwriting income in Canada for Q4 and the full year were both greater than the prior year as a result of growth in the business and consistently strong underwriting. that underwriting income in the U.S. for Q4 and the full year was lower than the prior year as a result of the write-down. Without the impact of the write-down, that underwriting income was greater than the prior year as a result of growth in the business, but mitigated by certain reinsurance purchases during the quarter. In Q4 2022, the combined ratio in Canada was 84%, and for the full year, it was 82%. In Q4 2022, the fronting operational ratio in the U.S. was over 100% as a result of the write-down. Without the impact of the write-down, it was 82% for the quarter and 81% for the full year. Net investment income was greater in Q4 and for the full year of 2022 than 2021 as a result of an increase in interest and dividend income. The increase was primarily related to an increase in the size of the investment portfolio, but also benefited from higher yields. Net investment income for Q4 2021 was positively impacted as a result of the movement in investments supporting life annuity reserves, which was offset by the corresponding movement in claims expense in that quarter. But the full year 2021 movement in the investment supporting the life annuity reserves was negative. Net gains were $4.1 million in the quarter, primarily as a result of real-life gains on investments disposed of during the period, as well as movement on swap agreements used to hedge share-based compensation. Net gains were $8.8 million for the year, primarily as a result of real-life gains on investments disposed of during the year and foreign exchange movements. Income tax expense in Q4 was in a recovery position as a result of the loss in the U.S. operations in the quarter, and for the full year 2022, income tax expense was lower than the prior year as a result of the lower net income before tax. Net income for the group was a loss of $40 million for the quarter and a gain of $25 million for the full year. Without the impact of the write-down, net income would have been $23 million for the quarter and $83 million for the full year, which would have been greater than 2021 as a result of growth in the business and the strong underwriting results. Diluted earnings per share was a loss of $0.86 in Q4 2022 and a gain of $0.56 a share for the full year, which are lower than the prior year as a result of the write-down. Consolidated ROE on a rolling 12-month basis was 5.9% at the end of 2022, which was lower than the rolling 12-month basis of the prior year. However, without the impact of the write-down, ROE would have been 20%, which was greater than the prior year. Assets year-to-date grew by $1.3 billion. Passion period increased as a result of the equity offering. Investments also increased as a result of the equity offering, though were offset by unrealized losses incurred in the year. Premiums and accounts receivable in other assets has grown as a result of growth in GPW, particularly in the U.S. Recoverables from reinsurers have increased, primarily as a result of growth in the U.S. front-end business, as well as certain front-end programs in Canada, where claims liabilities are largely offset by expected recoveries from the reinsurers to whom we see the business. Liabilities in the year to date grew by $1.2 billion, 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 discussed, growth in these balances is largely offset by growth in reinsurance recoverables. Accounts payable accrued and other liabilities have decreased in the period as a result of the settlement of assets from the novation in 2021, as well as a number of large payments in the year. Equity is greater than the prior year end. than the prior year end, reflecting the impact of the equity offering and growth in net income, offset by a reduction in other comprehensive income. Other comprehensive income decreased in 2022, primarily as a result of unrealized losses on the bond portfolio due to rising interest rates, though it was mitigated by strengthening of the US dollar, which drove higher Canadian dollar valuations of the capital we hold outside of Canada. Book value per share was 10.53. at December 31st, 2022, and is greater than December 31st, 2021, as a result of the equity offering, as well as profit generated year to date, and mitigated by unrealized losses in the investor portfolio in the quarter. Sorry, in the year. As of December 31st, 2022, debt to capital was 13.4%, which was lower than December 31st, 2021, as a result of the equity offering. The company remains well capitalized, and we expect to have sufficient capital to meet our regulatory capital requirements.