Trisura Group Ltd.

Good morning. Welcome to Trishura Group Limited's second quarter 2023 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 meeting 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 risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impacts, please see treasurer's filings with securities regulators. To ask a question during the Q&A session, you will need to press star 1 1 on your touch tone phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Thank you. I'll now turn the call over to David Clare.

Thank you, operator. Good morning and welcome. We demonstrated strong performance in the second quarter, growing insurance revenue 43% compared to Q2 2022 and supporting a 19% return on operating equity. Momentum was sustained as we scale an increasingly diversified specialty insurance platform. Results, again, were particularly strong in Canada, with 32% growth in insurance revenue supported by profitable underwriting. Our U.S.-funded business produced $468 million of insurance revenue, an increase of 49% over prior year. and reaching a new record for quarterly premiums. In Canada, we saw top line growth across all lines. Fronting and surety led the way. Fronting driven by a more mature platform and growth and surety supported by market share gains and contribution from both our sovereign acquisition and US expansion. Corporate insurance continued to benefit from expansion of distribution partnerships and stable pricing. With the launch of corporate insurance in the U.S. market, we're excited to see the potential of a North American-wide platform. Importantly, disciplined underwriting drove a 19% loss ratio, higher than a strong comparative year, although below our long-term averages, as we benefit from increased diversification within niche lines. We are proud of our 83% combined ratio in the quarter, but did not beat a strong comparative period set in Q2 2022 due to a slightly higher loss ratio. Our expense ratio improved in the quarter due to lower commission rates in the period, but remains within expectations. Strikingly, the Canadian platform generated a 28% operating return on equity, a strong underwriting aligned with disciplined expense control and enhanced investment income. U.S. fronting generated $468 million in insurance revenue, growing almost 50% over Q2 2022, despite the cancellation of the program associated with the Q4 write-down. Maturation of existing programs and positive pricing trends drove top line. We continued to grow our admitted capabilities and saw $61 million in admitted revenue in the quarter. However, the market continues to drive opportunities to access and surplus lines. U.S. fronting generated $19 million in fees, a 22% increase, and recorded $40 million of deferred fee income, indicative of future fees to be earned. Operating results in the quarter were strong and demonstrate progress made on improved profitability in our U.S. platform. Loss ratio was 66% in the quarter, excluding the impact of the runoff, and decreased due to lower claims activity, as well as an increase in yields due to discount claims reserves. Front-end operational ratio reported below 80%, excluding the impact of the runoff, and decreased as a result of similar factors. Growth, profitable underwriting, and a significant increase in investment income, which rose over 250%, contributed to a 61% increase in operating net income. This supported a 14% operating return on equity, despite capital contributions through the last 12 months. A combination of higher interest rates, growth, and profitability alongside our July 2022 capital raise has resulted in 134% increase in investment income, more than doubling our prior year. On an annualized basis, investment income is expected to reach almost $50 million. Importantly, our portfolio is more conservatively positioned than ever, with a lower equity allocation, shorter fixed income duration, and higher allocation to A-rated bonds. We are excited about the enhanced risk-adjusted yields we are capturing for years to come. We recently signed an agreement to purchase a small treasury listed surety company in the US, pending regulatory approval. This is an important step in our journey to become a more significant player in the US market, as a treasury listing provides access to broader, more diversified, and an attractive array of bonding opportunities. It also allows us to gain traction with our distribution partners. This aligns well with other strategic initiatives, including our previously announced services arrangement with a major US surety participant and our ongoing expansion efforts, exceeding $10 million of premium year-to-date in U.S. surety. We observed healthy pricing trends across most lines in the quarter and expect hardening trends in insurance pricing to balance, although not reverse later this year. This will be informed by the state of the reinsurance market, as well as economic and interest rate trends, and we feel well equipped to navigate the environment. As we did in the first quarter, we provided an update on the runoff program in advance of quarterly reporting. We will continue to share guidance on expected impacts as they become available. We remain committed to disciplined underwriting and structuring standards, as well as conservative reserving. Although we have not seen the signs of recession in our results, we acknowledge the risks remain front of mind. It is our hope that volatility will provide opportunities to win business and strengthen our reputation, and feel confident that we can navigate any potential changes in economic outlook. We are planning for growth, and with a strong capital base and comparatively greater scale, feel optimistic for the years ahead. Our equity base has grown to $530 million, a healthy increase from the year end, and a high watermark for Trishula. With that, I'd like to turn the call over to David 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 and year-to-date periods. As a reminder, the 2023 results reflect the implementation of IFRS 17, the new accounting standard for insurance contracts, which has been applied retroactively, and as a result, our 2022 results have been restated to reflect the new standard. 2023 also reflects the implementation of IFRS 9, the new accounting standard for financial instruments, which has not been restated retroactively. The new standards have led to a number of changes in the presentation of both the income statement and the balance sheet. Insurance revenue, which replaces gross premiums written as the new top line revenue balance, was over $664 million for the quarter and $1.3 billion year-to-date, reflecting growth of 43% and 50%, respectively, over the prior year. Insurance service expense, which consists of amortization of insurance acquisition cash flows, such as commissions, claims expense, and other operating costs, increased in the quarter and year-to-date periods, primarily as a result of growth in the business, leading to an increase in claims and commissions expense. Net expense from reinsurance contracts, which includes both premium paid to reinsurers as well as the recoveries from reinsurers, increased in the quarter and year-to-date periods as a result of growth in the business, which led to more reinsurance seated, particularly from Canadian and U.S. fronting. The increase in this balance was lower than that of the insurance service expense, as this balance includes recoveries of claims seated to reinsurers. Insurance service results in Canada for the quarter and year-to-date periods was greater than the prior year as a result of growth in the business and consistently strong underwriting. Insurance service result in the US for the quarter was greater than the prior year as a result of growth in the business, as well as the impact of the runoff program in the quarter, which was positive. Insurance service result for the US for the year-to-date period was lower than the prior year as a result of losses generated from the program in runoff on a year-to-date basis. Without the impact of the runoff business, insurance service result was greater than the prior year as a result of growth in that business. In 2023, the combined ratio in Canada was 82%. In 2023 the funding operational ratio in the US was 94% and without the impact of the runoff was 83% for the year to date period. That investment income was greater in Q2 and year to date 2023 than 2022 as a result of an increase in interest and dividend income. The increase is primarily related to an increase in the size of the investment portfolio and also benefited from higher risk adjusted yields. Net loss on investments was $6.9 million in the quarter and $9.1 million year-to-date, primarily as a result of unrealized losses on investments held at fair value to profit in the loss under IFRS 9, as well as some foreign exchange movement. Net finance expense from insurance and reinsurance contracts, which reflects the time value of money and changes in the time value of money, was $300,000 in Q2 2023, rather than a recovery of $1.2 million in Q2 2022. This, sorry, as movement in the yield curve used to discount net claims reserves in Q2 2023 had less of a positive impact on those reserves in Q2 2023 than it did in the prior year when the impact of the yield curve movement was more significant. For Q2 2022, the yield curve used to discount claims reserves had a significant enough impact on net claims reserves as to generate a net recovery. For the year-to-date 2023 period, net finance expense from insurance and reinsurance contracts was an expense, as the impact of movement in the yield curve over that period was not significant. In 2022, net finance expense on insurance and reinsurance contracts was a recovery, as upward movement in the yield curve during that period had a more significant impact on net unpaid claims balances and led to a recovery. Other income, which represents fees for surety services, grew 5.5% in the quarter and 17% year-to-date, reflecting growth in the number of surety accounts. Other operating expense grew 44% in the quarter and 36.8% on the year-to-date period, reflecting growth in both the Canadian and US operations. Excluding the impact of share-based compensation, which is mitigated through a hedging program, the increase was 21% for the quarter and 19% for the year-to-date period. Income tax expense in Q2 2023 was greater than Q2 2022 as a result of greater income before tax. Income tax expense for the year-to-date period was lower than the prior year as a result of lower net income before tax. Net income for the group was $26.8 million for the quarter and $40 million on a year-to-date basis. Operating net income, which adjusts for certain items to reflect income from core operations and excludes the impact of the runoff's business, was $26 million for the quarter, which was approximately the same as net income as gains for the quarter as gains in the quarter from the runoff program roughly offset unrealized losses on the investment portfolio. Operating net income for the year-to-date period was $52 million, which is greater than net income for 2023, primarily as a result of the impact of the runoff program and unrealized losses. Operating net income has grown since 2022 as a result of strong underwriting and growth in the business. Diluted EPS was $0.57 a share in Q2 2023, which was greater than the prior year as a result of growth in the business. For the year-to-date period, EPS decreased compared to 2022 as a result of losses associated with the runoff program, as well as unrealized losses on the investment portfolio. Operating EPS, which reflects the core operations and excludes the impact of the runoff portfolio and unrealized losses, was $0.56 a share for the quarter. and $1.13 a share for the year-to-date period, reflecting growth of 24% and 23% respectively over the prior year. Consolidated ROE on a rolling 12-month basis was 4.9% at Q2 2023, while operating ROE was 19%, which is approximately the same as the prior year. The balance sheet has also changed as a result of the implementation of IFRS 17 with premiums receivable, deferred acquisition costs, unpaid claims, and unearned premium presented together as a single line item referred to as insurance contract liabilities. In addition to this, reinsurance assets, reinsurance premiums payable, and unearned reinsurance commission are now presented as a single line item referred to as reinsurance contract assets. Cash in the period decreased as a result of additional purchases of investments in the period, as well as cash outflows associated with the runoff program. Investments have increased as a result of more deployment of cash into the investment portfolio. Reinsurance contract assets have increased as a result of growth in both the Canadian and US business. Insurance contract liabilities increased as a result of growth in insurance revenue in both Canada and the United States. Growth in these balances is largely offset by the growth in reinsurance contract assets. Equity is greater than the prior year end as a result of positive net income in the period. Book value per share was $11.53 at June 30, 2023, and is greater than December 31, 2022, as a result of profit generated from insurance and investment income over the period. As of June 30, 2023, the debt-to-capital ratio was 12.4%, which was lower than at December 31, 2022, as a result of an increase in equity during the period. 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.