Trisura Group Ltd.

Good morning. Welcome to Treasurer Group Limited's fourth quarter and annual 2024 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 period. 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 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. At this time, all participants are in a listen-only mode. To ask a question during the question and answer session, you'll need to press star 1-1 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is also being recorded. Thank you. I'll now turn the call over to David Clare.

Thank you. Good morning, everyone, and welcome. We continue to benefit from a focus on specialty insurance, with profitable underwriting and structuring in niche lines of business. Momentum persisted in 2024, with mid-teens growth across surety, corporate insurance, and warranty, while the combination of Canadian fronting and U.S. programs grew 11% as we scale in Canada and curate our portfolio in the U.S. Underwriting strength yielded an 89% annual combined ratio, and alongside increased investment returns and favorable foreign exchange, we drove book value per share growth of 26%. We achieved record operating and reported net income of $136 million and $119 million this year. Operating and reported bid return on equity of 19% and 17% respectively exceeded our mid-teens target and demonstrate resilience through growth. These results, alongside our highest ever capital base of $785 million, have driven meaningful progress towards our goal of being a North American specialty insurer of scale. Trishura Specialty's strength continued. The most significant piece of our business achieved 19% growth and an annual operating combined ratio of 84%. We finished the year strong with a 79% operating combined ratio in the quarter, demonstrating continued underwriting excellence. We are expanding lines of business we know well and aim to provide consistent support to distribution partners. Surety maintained a track record of underwriting excellence, achieving a 15% annual loss ratio while expanding into the U.S. U.S. Surety grew 197% in 2024, broadening our presence and relationships. By Q3 2024, we were ranked in the top 35 of U.S. Sureties, up from a 51 rank at the end of 2023. This represents significant progress in a market meaningfully larger than Canada and a testament to the strength of our team. Warranty and Canadian fronting continue to grow their contribution to earnings as both business lines expand. We are seeing momentum in our warranty lines as auto purchasing normalizes and we gain market share with our partners. In U.S. corporate insurance, we began binding premium this year, growing our broker network and building out our infrastructure. Despite the investment in both nascent U.S. platforms, Trishura's specialty grew operating net income 20% in 2024, supporting a 25% operating return on equity despite an MCT of 276%. U.S. programs benefit from a secular trend of growth in MGAs, and Trishura remains uniquely positioned to source, structure, and monitor program business with distribution partners and reinsurers. We believe the diversification of our portfolio, strong rating, size and permanence of capital make Treasura a preferred partner in the market, with over $2 billion in premium and $90 million in fee income across 70 programs. As our platform matures, we strategically exited relationships where we did not see a path to appropriate profitability. Although we were disappointed in the impact of exited lines in the quarter, we feel confident about profitability of the platform in the future. Growth of our ongoing programs was 27% for the year, with an 81% operating combined ratio, demonstrating that both growth and profitability remain the expectation. We have had questions about exposure to recent fires in California. We do not anticipate an impact from this tragic event as we have strategically avoided homeowner's business in the state. Our investment portfolio performed well in 2024, growing investment income 30% and contributing to book value growth through mark-to-market gains. Our portfolio maintains a conservative posture with the highest proportion of investment grade and investment-grade corporate and government bonds in our history. As we look to the future, we remain committed to the pursuit of profitable growth, expanding primary lines where we have underwriting expertise, and maintaining a diverse program and fronted business to generate stable fee income. Above-average underwriting profitability combined with enhanced investment income is expected to drive consistent increases in shareholders' equity. Expansion of surety and corporate insurance to the U.S., built on a history of disciplined underwriting over the last two decades. The market opportunity is exciting and significantly larger than Canada. As nascent U.S. platforms mature, we anticipate they will equal or exceed the contributions to earnings of their Canadian counterparts. With $75 million in U.S. surety premium and an expectation for a 2025 combined ratio comparable to our Canadian practice, we have early evidence of how attractive geographic extension can be. Growing scale has allowed an expansion of appetite in Canadian surety as we move into larger limit contractor bonding. Recent strategic hires added expertise that allowed Trishura to target parts of the market we have historically not participated in. A greater breadth of offering has already resulted in more touch points with our broker partners. Inorganic growth has been an important part of Trishura's evolution. U.S. acquisitions, book rollovers, and strategic hires have provided access to new markets amplified growth, and expanded our capabilities. We continue to pursue and are well positioned to execute more significant M&A should it align with our risk appetite and meet our return thresholds. Our strategic initiatives are well funded. Our capital base of $785 million is the highest in our company's history. Debt capacity of almost $100 million and expanded earnings represent support for both organic and inorganic initiatives. An attractive but measured growth profile, in addition to strong profitability, establishes a self-funding posture in the near term. 2024 marked the first year since 2018 that Trishura did not raise capital, as we expand with the benefit of internally generated capital. Progress made through 2024 and our optimism for 2025 has reinforced our expectations of premium growth, operating return on equity, and book value per share growth in excess of 15%. targeting a billion dollars in book value by the end of 2027. We remain committed to the principles that have driven profitable growth and compounding book value, a strategic focus in specialty insurance, experienced, profitable underwriting, consistent support, and exceptional service for distribution and capacity partners, and a conservative approach to growth, risk appetite, and structuring. We expect continued growth and that market volatility will provide opportunities to win business and strengthen our reputation. Our capital base is the strongest in our history, and we continue to expand. We are optimistic for the years ahead. With that, I'd like to turn it over to David Scotland for a detailed review of financial results.

Thanks, David. I'll now provide a walkthrough of financial results. Consolidated ROE on a rolling 12-month basis was 16.9% at Q4 2024, which improved over the prior year due to improved profitability from U.S. programs and ongoing strong results from Trishura Specialty. Operating ROE was 19.4%, which also exceeds our mid-teens target. Insurance revenue was $794 million for the quarter and $3.1 billion year-to-date, reflecting growth of 5.2% and 11.8%, respectively, over the prior year. Insurance revenue in primary lines, consisting of surety, corporate insurance, and warranty, grew 18% for the quarter and 14% for the year, which are the lines where profit margin on GPW is the highest. The combined ratio for the group was 96.7% for the quarter and 88.8% for the full year, which improved over the prior year as strong profitability and trishare specialty offset the impact of exited lines. Trishura took decisive actions in 2024 to non-renew certain underperforming programs and to strengthen reserves for those programs at a prudent level, addressing frequency and severity trends observed industry-wide. Exited lines refers to certain programs which have been non-renewed and put into runoff. We do not expect a meaningful impact from exited lines in future quarters. The operating combined ratio of Trishura was 81.5% for the quarter and 82.9% for the full year. For the quarter, this is lower than the prior year as a result of a lower loss ratio in 2024 for all segments. For the full year, the operating combined ratio was slightly higher than 2023 as a result of a higher expense ratio driven partly by startup costs associated with US corporate insurance and US surety, as well as greater retention of US programs, which contributed to a higher expense ratio. This was offset by a lower loss ratio on a year-to-date basis. Operating insurance service result for the quarter was greater than the prior year as a result of a lower loss ratio and growth in the business. Operating insurance service result was greater than the prior year for the year-to-date period as a result of growth in the business and continued strong underwriting profitability. That investment income of $17 million increased by 5.8% for the quarter and took 29.8% year-to-date as a result of an increase in the size of the investment portfolio, but also benefiting from higher risk-adjusted yields. Net gains were $2.9 million for the quarter and $27 million for the year-to-date period, primarily as a result of unrealized gains on equity and fixed income investments held at fair value through profit and loss under IFRS 9, as well as foreign currency gains. Our effective tax rate was 24% for the quarter and 25% for the year-to-date period, reflecting the composition of taxable income between Canada and the US. Overall, net income for the group was $19.3 million for the quarter and $119 million year-to-date. Operating net income, which adjusts for certain items to reflect income from core operations and excludes the impact of non-recurring items and unrealized gains, was $38.2 million for the quarter and $135.9 million year-to-date, which is greater than the prior year for both periods as a result of growth in the business, continued strong underwriting performance, and growth in net investment income. Earnings per share was $0.40 a share in the quarter and $2.45 a share for the year-to-date period, which was greater than the prior year as a result of growth in the business, a lower loss ratio, higher net investment income, and higher net gains for the year-to-date period. Operating EPS, which reflects core operations and excludes the impact of non-recurring items and unrealized gains, was $0.79 per share for the quarter and $2.80 year-to-date, reflecting growth of 46% and 20% respectively over the prior year. EPS contributed to a 5.1% increase in book value for the quarter and a 26% increase in book value per share over the prior year, resulting in book value per share of $16.40 of December 31, 2024. Book value per share also increased as a result of unrealized gains on the investment portfolio and foreign exchange gains. Book value at December 31st, 2024 was $785 million and is greater than the prior year end as a result of positive net income in the period, as well as unrealized gains on the investment portfolio and an increase in the US dollar. As of December 31st, 2024, debt to capital was 11%, which was greater than the prior year as a result of additional borrowing from the revolving credit facility in the period, offset by an increase in book value. 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.

Thanks, Dave. Operator, we would now take questions.

As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Please stand by while we compile the Q&A roster. Our first question comes from Doug Young with Desjardins.

Hi. Good morning. Just wanted to get a further update on the U.S. surety expansion. Sounds like you're beyond breakeven. Maybe get a bit more detail on the profit outlook. I mean, and the statement that you expect a similar combined ratio is Canada in 2025. I mean, I think that's a pretty interesting statement and it sounds like you're about three years ahead of plan. So maybe you can just kind of push that out a little bit.

Thanks, Doug. I would agree. We've seen a little better and a little faster execution of our U.S. surety expansion. That's informing the comments that we're making around expectations for combined ratio. If you recall, these investments in U.S. platforms have historically been a marginal drag on overall profitability as we've built up the infrastructure in the U.S. The pace of premium growth and sort of success of the team in that U.S. surety market has driven a bit faster path to profitability as we've scaled that platform. So I think our expectations, certainly from a combined ratio for a surety business, usually are in the low 80s. And my view for U.S. surety going forward is we should certainly expect a pathway to that type of profitability for the future of that business.

Okay. And then in your Canadian surety business, correct me if I'm wrong, in your prepared remarks, you talked about moving up market. Is that correct? And can you kind of just Talk a little bit about what you're doing there, why you're doing there, and then the size of that potential.

Yeah, if you look at our Canadian practice, we're about the fourth-ranked surety player in the Canadian market. And historically, Trishura has focused a lot on the smaller mid-market space, and that's been a function of, candidly, our size. We just haven't been big enough to access that larger part of the market. We're now at the stage and scale to be considering and to be considered for bonding needs of larger contractors. And you can see some of the strategic hires we've made around this space early in 2025 indicate a bit of investment and expectation for a better participation in that market. So for us, if you look at the largest players in the surety market, many of them have much more significant practices in the larger end of the bonding space. That's an area we would like to take our fair share.

And when we think about the profit, I mean, this has been a fantastic business on the smaller side for Trishura with fairly low loss ratios, combined ratios. As you go up market, should we be anticipating any change in that?

No, I would anticipate a similar economics or similar expectation for profitability across this market. Usually, as you move up in market, you're getting to more sophisticated counterparts, and so we wouldn't anticipate a change in profitability as we move up into that space.

Okay. And then just two quick ones. M&A, you talked about it here. Can you remind us what it is that you're interested in? Like, I understand team pullouts to expand UAssured, the U.S. corporate insurance But in terms of actually buying businesses, what would be your focus there?

I think if we could find a platform that was either in the lines of business that we participate in or adjacent to it in either Canada or in the U.S. and was digestible, we would have a lot of interest and appetite for an acquisition of that. I'm candidly referring to carriers. If we could find something in the specialty space to grow our scale and our capabilities, we would have a lot of appetite for that. I think we've talked a lot internally about the expansion of our warranty business, and if we found something in that space that could add scale and capabilities, we would also have appetite there. We do like and we continue to find really accretive, I'll call it inorganic, initiatives in things like book rollovers and team liftoffs. But as we've gotten larger and it's gotten more substantial, I think we can expect more of ourselves in terms of the types of inorganic opportunities we can evaluate.

And then just lastly, you know, when I look at the reserve triangle and the reserve developments, it looked like it was negative for for the year, but I think there's kind of a bigger story underneath it. Can you talk about the split between the three buckets, the split between Canada, the U.S. ongoing program, and the U.S. exited lines? Because in my head, I think Canada would be positive, I think U.S. ongoing would be neutral, and then the U.S. exited lines would be negative, but just hoping to get some color around that.

I think that's a fair summary, Doug. We've had a pretty strong and consistent track record in Canada of of positive reserve developments. You can see the delineation and profitability in our new disclosure in the MDMA between those exited lines and the ongoing lines. And there was a disproportionate impact from those exited lines on that negative development. You can see strategically why we've moved away from these types of lines. They're lines that we've been out of for some time now. And so what we are attempting to do is set up a a more predictable more consistent experience in lines of business we've got confidence of of their profitability perfect appreciate the call thank you thanks doug our next question comes from nick pre with cibc capital markets yeah thanks um one of the things that stood out to me was the the loss ratio insurity was exceptionally low in the fourth quarter

I know Q4 can sometimes contain some potential for higher claims from a seasonality standpoint as the construction season wraps up. I'm just wondering, was the loss ratio in Q4 supported by any favorable prior development, or was it just an abnormally benign claims experience in the period?

It's a little bit of both, Nick. Surety is a relatively short-duration product, so there's generally some level of positive development as you move through the year. You can have quarters where you just have quite a low loss ratio in the surety space, and we happen to have one of those in the fourth quarter. So I would reiterate our guidance around surety. We continue to budget and expect that line to be written in the long term around a 20% loss ratio. We've had a few years now and a few quarters where we've outperformed that, and Q4 happened to be one of those.

Okay. And there was an uptick in investment income this quarter sequentially. I think your guidance has been for flattish growth, but we've seen a steepening of the U.S. yield curve here. In your fixed income book, how would it break down between Canadian and U.S. exposure? And what would your outlook for investment income look like for the year ahead?

I think you're right. We have actually seen a bit of an uptick in rates in the U.S. I don't know that that drove a lot of the uptick you saw in the quarter. Candidly, I think that's That's just growth in the investment portfolio as we've continued to grow in the primary lines business. The breakdown is about 50-50 in our fixed income portfolio, and we obviously see a lot higher yields right now in the U.S. I think it would be fair to model and assume that we continue to see kind of low to mid single digits growth in the investment income generated from the portfolio as we continue to deploy across the platforms.

Okay, and then just last question. One of the areas that we just naturally don't have great visibility into is the performance of the individual programs in the U.S. programs business. There's been a rationalization of some of the underperforming programs. There's been a true-up of reserves associated with them. But when you look across the existing book, how would you characterize sort of your comfort levels with the performance of the portfolio from a loss ratio perspective? And I'm just wondering if there are any candidates that could stand out as being at risk of non-renewal in the year ahead.

Yeah, it's important to note, Nick, that this exercise we went through on Exited Lines from a reserving perspective, we also went through on every program that we write. And so the confidence that we have in the ongoing portfolio and the go-forward profitability is simply just increasing. We've got more history, we've got more time with these partners, we've got more resources looking at these programs. We feel pretty good about the ongoing portfolio. You can see that in the combined ratios and loss ratios for the full year. You do have some reflection there of a review of these programs on a pretty granular basis, but the performance of that ongoing book is one we feel strongly about. Got it. Okay. Thanks very much. I'll read you.

Thanks, Nick.

Our next question comes from Tom McKinnon with BMO Capital.

yeah thanks good morning um question on the exited lines imagine they're kind of short tail just wondering how long before uh they would uh essentially run off here and we'd be back to having reported numbers um apart from any uh investment gains and losses be reasonably more close to the operating number so tom it's important to note we don't anticipate

a meaningful impact from exited lines in future quarters. So you shouldn't be thinking about this as something that drives results in future quarters. What we've attempted to do here is set up a prudent reserving approach to reflect the fulsome impact of those lines. So certainly we are not anticipating movement or meaningful movement in these lines going forward. Now that being said, I think the duration of these This bucket is about 2.6 years, and we would expect about 80% of these claims to be fully paid out within four years. So it's a pretty short portfolio. It's a mix of casualty and property lines.

And to follow on to that, I mean, you're always writing business and always churning programs. how do we know that in future there's not going to be more exited lines and then they just get thrown into this exited lines business because the nature of the business is you're always kind of entering new lines and exiting other lines so how do we what can you tell us to to help us I guess give us confidence that in the future there won't be any more significant negative impact from what you would call exited lines

Yeah, I would delineate the exited lines portfolio from normal non-renewals. It's important to note that these are lines that strategically and from a risk appetite perspective, we don't have an expectation of pursuing these types of relationships or these types of lines any longer. So from a comfort perspective, we've invested a little bit in consistent underwriting approaches across the platform. You can see some new people now responsible for underwriting across the group. You can see strategically some exits of relationships, not in the quarter, candidly. These are relationships that have been ended for, in some cases, over a year. The normal course non-renewals that you're referencing that are a normal part of the business, those continue and have not been put into an exit alliance bucket, right? So there are some smaller non-renewals that are represented in our ongoing portfolio. I think from my perspective, The combination of strategic review, strategic exits of these relationships, a bit narrowed risk appetite gives us more confidence in the ongoing portfolio and the resources now that we've invested in to monitor and navigate that portfolio make us feel pretty good about the future. So it's a good question, Tom, because anytime you have an exit line, you want to make sure that you're not continuing to put business into that. This is not a line we've seen any premiums being written into or new programs going into in the last couple quarters.

And just a final numbers question. What was the U.S. surety growth premiums in the fourth quarter? I think you said for 2024 they were $75 million. Do you have that number for the fourth quarter?

I don't have that offhand, Tom, but we can get back to you on that. Okay, thanks.

As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your touchtone phone. Our next question comes from a line of James Gloyne with National Bank Financial.

Thanks. So just on the exited lines again, just following on Tom's conversation, can you remind us specifically what are the risks um in these lines that you saw that uh that no longer interest you or maybe talk about like why why did it interest you years ago but no longer does it interest you today like what shifted in the market and uh and specifically like what are those risks yes so there's a mix here james there's there's probably about six to eight programs in this the biggest driver here is um as we've been building up the businesses and we've seen more history in these lines we just haven't seen

performance of a level that we think is appropriate for the business. So these lines range across casualty and property. In some cases, in casualty lines, for example, we just have not seen strong performance. There are always attempts that we have in working with these partners to improve that performance. And in some cases, we, over a number of years, just aren't seeing the improvement that we want to see. That attempt to move away, that attempt to fix these lines, drove a conclusion or a position where we just thought it was better for us to move on. In some examples, these are lines of business that just have more property cat exposure than we like. So that's a consistent theme you've seen over the last couple of years where we've moved away from property lines which have a little bit more risk on the weather side than we like. That combination or the consistent theme across all of these is I think expectations for performance in the long term weren't meeting our goals.

Yeah, can you give us just a little bit more flavor here on, like, you know, what kind of casualty? And then on the property cash side, like, what geography, what type of property, something along those lines, or just a little bit more detail as to, like, what the actual risk is?

Oh, yeah, so for sure. So in casualty, there was a few transportation lines here. There was a few, I'll say, general liability lines. And then in property, you're exactly right, this would be southeast wind-exposed property that we've had a pretty strong track record of just moving away from.

Okay, so shifting gears then, maybe shifting to the Canadian fronting business. the pace of growth has decelerated through this year and then turned negative in Q4. What can you tell us about that growth outlook into 2025? Is this a case of there's other entrants coming into the fronting market? Are there some just less appetite? What can you tell us about Canadian fronting?

Yeah, it's important to note Q4 2023 was a pretty substantial quarter in the Canadian fronting line. So we tend to see or can see some lumpiness in premium production. That being said, as we've gotten larger and larger, obviously the magnitude or the percentage rates of growth can just get a little bit smaller. I would say in fronting, especially in Canada, you see us participating in more of the general lines in the industry. So some of those trends that have been driving a little bit of balancing pricing in the industry are impacting those growth rates in the Canadian fronting space. I would say our expectations for the future in that Canadian fronting space are probably high single digits, low double digits growth, which I think is consistent with what we've talked about in the past.

So nothing to do with more competition on fronting or relationships, like new relationships or renewals or anything along those lines? More just pricing and market dynamic?

Yeah, we're not seeing... Listen, there are other people who participate in the fronting space, for sure. We're not seeing an impact in our book from that competition. I would say there are examples of people who use fronting on a temporary basis as they're building up their own capabilities. That hasn't impacted us this year, but that would be an example of something that would drive premium differently than, say, competition.

Great. And then last one for me on the expense ratio side in Canada specifically. you know, a little, actually maybe a little too far, but expense ratio, you know, a little lower this quarter. Anything going on in this quarter that would have driven that expense ratio a little bit lower than what we've seen recently. You know, I guess the view communicated previously is that we would see it a little bit higher expenses as you're carrying more surety, as you're carrying more corporate build-out costs. You know, what can you give us on a little bit more color on that front?

I think we're just seeing the entity get a little larger as we've built up some more premium across the group. I would say we still would like to drive down that expense ratio in the fullness of time, but are pragmatic that if we want to continue building this platform and investing in growth, we've got sort of a continued trend of investment. that in some quarters can, uh, can move around or, or be a little bit lumpier. But I think that that guidance we've given you that, that there's going to be some investment in things like us corporate insurance, um, that drive that expense ratio a little bit higher in the short term that continues, despite what you saw as a little bit lower ratio this quarter.

Okay. And, uh, I did want to sneak one more in actually, uh, just, uh, The core or ongoing U.S. programs business, you know, the fronting operational ratio, I believe, was 90% or 91%. Still well above the, I guess, the previously communicated target for low 80s or maybe even sub 80s at some point. you know, what can we look at inside that number? Is that a loss ratio driven? Is that expense ratio driven that it's elevated? And then is that sort of low 80s target still the target and the timeframe to get there?

Yeah, I would say in the quarter, that reference we made earlier to a full some bottoms up review of every program we had, you do see a couple points of impact on the loss ratio just on untrue enough reserves, even in ongoing. The materiality of that is much less significant here, but there's a couple points. You got a couple, you got a few points, I should say, on weather-related losses in the quarter that drove up that loss ratio. But the other item here is that retention is up a little bit, which just drives that fronting operational ratio a little bit higher. I think from a fronting operational ratio perspective, we continue to believe that low to mid 80s where we get to and we've also started including a more traditional combined ratio calculation here so if you look at the if you look at the sections in our ongoing programs for our US programs business you can see that we've included as well kind of full year operating combined ratios those numbers on a full year basis are looking in that low 80s figure that I think is a fair expectation for the business Thanks very much, guys. Thanks, Jim.

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I'm showing no further questions at this time.

I'd like to turn the call back to David Clare for closing remarks.

Thanks very much. Thanks to everyone who joined the call, and have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.