Trisura Group Ltd

TSX:TSU

Q3-2025 Earnings Call

[Operator]

Good morning. Welcome to Trisura Group Limited's Third Quarter 2025 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 Trisura's filings with securities regulators.

[Operator Instructions]

Please be advised that today's conference is being recorded. Thank you. I'll now turn the call over to David Clare.

[David Clare, executive]

Thank you, operator. Good morning, everyone, and welcome. Q3 was another strong quarter for Trisura, underscoring our consistency and the growing opportunities across our platform.

Our high teens operating ROE and mid-80s combined ratio reflect continued underwriting discipline. Book value per share rose to $18.90, up more than 20% year-over-year, supported by both profitability and strong investment returns.

Primary lines, our surety warranty, and corporate insurance lines remain the foundation of our business, growing net insurance revenue 16% this quarter.

Surety delivered another exceptional quarter with net insurance revenue up 25% year-over-year. Although premiums declined relative to Q3 2024 due to timing nuances of premium onboarding in the U.S., growth year-to-date is 22%, and we expect to return to mid-teens growth in Surety in Q4 of this year.

Activity tied to infrastructure investment, manufacturing expansion, and data center construction across North America continues to accelerate.

These sectors are expected to provide multiyear tailwinds for contract bonding demand. Our contractor business is strong, and our U.S. platform continues to grow in scale and credibility with national brokers while expanding licensing with the recent addition of Texas in October.

Warranty growth has been significant, with 38% growth in written premium, driven by strong relationships with program partners and sustained demand in auto sales.

We have been successful in expanding our share with our partners, driving a step-up in our market presence. Although we expect growth to return to the mid-teens level in the future, our platform has scaled meaningfully.

Corporate Insurance was able to grow at a measured pace despite competitive pressure, with our selective underwriting and pricing discipline preserving margins.

We continue to invest in our expansion into the U.S., which impacted net underwriting income in the quarter by almost $2 million. This phase of build-out is expected to yield a practice of comparable size to our Canadian business in time, a precedent established by our successful build-out in U.S. surety.

Canadian Fronting saw an expected decline in premiums due to continued competition, though underwriting income improved through lower claims and enhanced efficiency.

We expect the same in Q4 and are evaluating a strong pipeline of opportunities for 2026. U.S. programs returned to growth with gross written premiums up 18% in the quarter and admitted business reaching a record $179 million, a 22% increase.

Increased capacity has improved reinsurance appetite and terms, setting up a constructive environment for growth. The quarter was particularly strong with several new programs contributing to growth, and we anticipate continued growth in Q4, albeit in the mid-single digits.

Investment income continues to be a key driver of earnings growth. Our portfolio and investment income reached new records with $1.8 billion in assets and $20 million of investment income, up 24% year-over-year.

That reflects portfolio expansion as well as prudent active management. Higher interest income, combined with disciplined duration and credit positioning, leaves us well placed in today's environment.

Investment contribution will continue to support earnings and book value growth into 2026. Conditions remain supportive for our strategy. Our focus on niche specialty lines experiences market trends differently than broad or commoditized lines.

Reinsurance capacity has improved, and this is a tailwind for our programs business as partners seek access to stable and strategic capacity. The potential for large-scale investment in infrastructure, clean energy, and data center construction across North America continues to expand the addressable market for surety.

These trends, combined with the depth of our underwriting talent and expanding broker relationships, position Trisura to benefit from secular growth.

At the same time, we remain focused on cost discipline and operating leverage. Our expense ratio reflects both a shift towards primary lines, which have higher commissions, and the investment phase we're in.

We expect efficiencies to emerge as our platform continues to mature. This has been demonstrated through the build-out of our U.S. surety platform, which contributes meaningfully to the top and bottom line.

Year-to-date, U.S. surety is over 40% of our surety premiums and operates at a combined ratio approaching our Canadian business. Q3 reinforces our ability to execute profitably while positioning for growth.

Primary lines continue to drive our performance, and U.S. programs are benefiting from improved market conditions. Investment income remains a significant contributor to earnings quality and book value growth.

As we look ahead, Trisura is well-positioned to compound book value through underwriting discipline, balanced capital deployment, and continued expansion in markets where we have proven expertise.

With that, I'll turn it over to David Scotland for a detailed review of our financials.

[David Scotland, executive]

Thanks, David. I'll now provide a walk-through of our financial results for the quarter.

Operating EPS, which reflects our core performance from the business, was $0.71 per share for the quarter, reflecting growth of 4.4% over the prior year. This contributed to operating ROE on a rolling 12-month basis of 18% at Q3 2025, which exceeded our mid-teens target.

Gross premiums written were $853 million for the quarter, an 11% increase year-over-year, reflecting continued growth across the portfolio. U.S. programs returned to growth in the quarter, posting an 18% increase in gross premiums written.

Net insurance revenue, which approximates net premiums earned, was $197 million for the quarter, reflecting growth of 6.4% over the prior year.

Growth was driven by continued expansion in our primary lines, which increased by 16%. The combined ratio for the group was 86% for the quarter, which was slightly higher than the prior year.

The loss ratio for the quarter was slightly higher in Trisura Specialty and slightly lower in U.S. programs than the prior year. Both remained within our range of expectations.

On a consolidated basis, the expense ratio was slightly higher than the prior year, primarily as a result of the shift in the mix of business towards Trisura Specialty, which has a higher expense ratio than our U.S. programs business, but a lower loss ratio.

Underwriting income in the quarter was modestly lower than the prior year as a result of a slightly higher combined ratio offset by growth in the business.

Net investment income of $20 million increased by 23.8% for the quarter as a result of an increase in the size of the investment portfolio, driven by new cash deployment even as the broader interest rate environment continued to trend lower.

Our operating effective tax rate was 24.3% for the quarter, reflecting the composition of taxable income between Canada and the U.S. and consistent with previous quarters.

Overall, operating net income was $34.4 million for the quarter, which was greater than the prior year as a result of consistently profitable underwriting and growing net investment income.

Nonoperating results in the quarter and prior year consisted primarily of net gains associated with unrealized gains on the investment portfolio. Exit lines had an immaterial impact on net income in the quarter.

Strong EPS contributed to a 15% increase in book value for the year-to-date period, resulting in a book value per share of $18.90 at September 30, 2025.

Book value per share also increased as a result of unrealized gains through other comprehensive income due to favorable movement in our fixed income portfolio. This was partly offset for the year-to-date period by FX movement associated with the weakening U.S. dollar against the Canadian currency.

Book value has grown at an average rate of 26% over the past 5 years, ending the third quarter with over $900 million of equity. We are well on track to achieve our book value target of $1 billion by the end of 2027.

Earlier this year, we drew down on our revolving credit facility to further capitalize our growing U.S. surety balance sheet. This increased our debt-to-capital ratio to 13% as of September 30, 2025, which was higher than December 31, 2024, but still well under our conservative leverage target of 20%.

The company remains well capitalized, and we expect to have sufficient capital to meet our regulatory capital requirements and continue to support our robust organic growth. David, I'll now turn things back over to you.

[David Clare, executive]

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

[Operator]

[Operator Instructions]

Our first question comes from Bart Dziarski with RBC Capital Markets.

[Bart Dziarski, analyst]

I wanted to ask, David, about your commentary on the data center build-out, the infrastructure announcement. We had the Canadian budget recently passed as well. So would love to get your thoughts on how meaningful this opportunity could be for your surety business on both sides of the border.

[David Clare, executive]

Thanks, Bart. At this stage, it's tough to size these opportunities. What we do know is these types of commitments, if we talk about Canada first, for nation-building projects for large-scale infrastructure generally fit the types of projects that require bonding.

That bonding needs to the extent it's significant, would benefit the entire surety industry. And we've made a concerted effort over the past, I'll say, a year to expand our practice into some of that larger limit bonding space.

So at this stage, we're very happy to see the commitments, although the rubber is going to hit the road when we start seeing what those commitments actually mean for projects.

In the U.S., I think everyone has seen the level of commitment and activity around both manufacturing, data centers, and infrastructure spending as well.

I think all of those things are positive for demand at a high level for the surety industry. It's worth noting for us as Trisura, it's unlikely we'll be participating with the large general contractors who would navigate those projects.

But we do participate in the subcontractor space. And so, to the extent these types of projects lift that demand, we would be expected to participate in those types of activities.

[Bart Dziarski, analyst]

And then just on the investment income, I mean, it was strong this quarter, up 24% year-over-year. But even year-to-date, it's still pretty strong at 14% over the year.

And so how should we be thinking about that in terms of the durability of that and its contribution to book value growth as we go into '26 and '27? I'm sensing there's a bit of a shift there in terms of its growth power, but I wanted to understand that a bit better.

[David Clare, executive]

Yes. I appreciate you pointing this out, Bart. It's something that we're excited about, and it's a very natural consequence of the proportion of our growth coming from these primary lines.

As you think about the big drivers of our growth, given the magnitude of expansion in lines like net premium earned, there's a faster recycling or a more significant contribution from those lines of growth into the investment portfolio.

So something we track very closely is obviously the level of net premiums earned growth in the organization. That translates relatively quickly into a contribution to the investment portfolio.

And given the nature of our portfolio as a majority investment-grade bond portfolio, we have fairly high confidence that, that is a very durable contribution and a new base for investment income going forward.

So for us, we always like to see predictable earnings, and that portfolio's significant growth over the last 3 or 4 years has just positioned us in a lot better spot than we've been previously.

[Operator]

Our next question comes from Doug Young with Desjardins Capital Markets.

[Doug Young, analyst]

Just sticking, David, with the investment income side. Obviously, a good quarter from that line.

As you mentioned, you tend to be more conservative in the investments that you make. Any plans to push a little bit more for yield duration, take on a little bit more risk within the portfolio? Or is it just steady under the current strategy?

[David Clare, executive]

Our priority in the investment portfolio is both capital preservation and optimizing for yield. We try to do that opportunistically, Doug.

So what you've seen around the edges is some active management around both duration and credit quality. So for us, the focus here is not changing materially the composition of the portfolio, but reflecting opportunities, for example, if there's a better term premium than there has been historically.

So you're not going to see us meaningfully change the composition of the portfolio. But around the edges, if we can add yield through an expansion of duration appetite or shifting asset allocations between investment-grade credit, we'll likely do that.

What we haven't done year-to-date, and we haven't done really recently in the last couple of years, is meaningfully change things like equity allocations.

So the portfolio gives us a lot of confidence in its durability, and the team has done a good job of defending yields as we've seen what I'd call a transitioning environment.

[Doug Young, analyst]

And then Lots of discussions, some having lots of discussions around the softening of the P&C insurance cycle. I know you and I have talked a bit about this, and I think you talked a little bit about it in your prepared remarks.

But to the extent that reinsurance pricing or the cycle does pull back, can you elaborate, maybe a little bit on how that impacts Trisura, and maybe just actually how it could potentially benefit you if reinsurance pricing in of itself does pull back a bit?

[David Clare, executive]

Yes. This is a question we get a lot, and it's worth level setting before we get into the discussion that, given our niche and specialty focus, the broad themes that people talk about and reference around cycle trends generally hit our business or impact our business differently than more commoditized lines.

So, surety, for example, would be outside of typical market cycles. We've talked a little bit in the past about corporate insurance, which is, I'll say, a competitive environment right now.

But the team is doing a great job of growing that business in that environment and maintaining the types of margins we expect. I think your comment around the program's business and the impact of reinsurance is likely underappreciated at Trisura.

We tend to benefit when reinsurance markets are more available and when reinsurance market capacity increases. That makes it a better operating environment for an entity that consumes a significant amount of reinsurance.

And our U.S. programs division is an entity that utilizes a lot of reinsurance. You saw this quarter that we were able to grow more meaningfully in that line than we have in other quarters.

Part of that is lapping sort of that exited lines period, but part of that is our ability to launch new programs this year that fit our risk appetite. And a good component of that is the return of capacity to those reinsurance markets.

So at a high level, it's at Trisura something that can be a benefit in that market cycle. And then in those specialty lines, it's something that we generally expect to have a less direct impact than more commoditized lines.

[Doug Young, analyst]

And then just lastly, in the U.S. program business, as you said, gross written premiums grew this quarter and were above us. I mean, can you just kind of walk through how many new programs were added this quarter?

I don't think they're all producing premiums yet. So I think there'll be a bit of a layering in of that, maybe correct me if I'm wrong, and retention rates, if you can paint the picture for us, how all of those things should impact gross written premium, net premium earned over the year or 2 years or so?

[David Clare, executive]

Yes. I can provide the program number on a year-to-date basis. We've added 8 or 9 new programs in that space this year.

A few of those programs started producing premium in Q3, which has helped us step up a little bit. As you're thinking about modeling the business, I think the best way to think about it is that the retention component will likely be in the low teens range.

It's going to bounce around by quarter, as you've seen this year. Your loss ratio is likely in the low 70s on a full-year basis. And then your expense is anywhere between 10% to 11%.

So the combined ratio of that business, you should think about in the low 80s on a full-year basis. That trend in that business, what we see going forward, likely in Q4, is growth, but probably at a lower rate than what we saw this quarter, and then a good opportunity to continue expanding in 2026.

[Operator]

[Operator Instructions]

Our next question comes from Jaeme Gloyn with National Bank of Canada.

[Jaeme Gloyn, analyst]

Just on the surety side, I was wondering if you could, and I apologize if I missed this, if you could break down the performance of Surety Canada versus Surety U.S.

[David Clare, executive]

Yes. Jaeme, the combined ratios of these 2 are pretty comparable. So, on a profitability perspective, I think you should expect, and to the extent you model this, those businesses are contributing relatively equally on a profitability standpoint.

Premium-wise, year-to-date, the U.S. business has contributed, I'll say, just over 40% of the premiums for our surety platform across North America.

So it's becoming more significant, but our Canadian business is still larger.

[Jaeme Gloyn, analyst]

Okay. And the trends in that premium growth?

[David Clare, executive]

I would say on a percentage basis, our U.S. business is growing faster right now, although we do have some great momentum in the contract space in Canada.

So the market opportunity for both is compelling, although the absolute size of the U.S. market is still quite a bit larger than the Canadian market.

[Jaeme Gloyn, analyst]

Yes, of course. And then in terms of looking into the upcoming quarter, do you have any visibility on how that has performed?

[David Clare, executive]

The surety platform?

[Jaeme Gloyn, analyst]

Yes, please.

[David Clare, executive]

Yes. I would say you should expect a return to growth in the surety platform in Q4. So certainly, we would expect something in the mid-teens level of growth from a top-line perspective.

It highlights the nuances of Q3 just on a comparative basis, but we've got confidence that returns to growth in Q4. From a loss ratio perspective, I think you should model this as per usual. So think about kind of a 20% or low 20s percent loss ratio for that business.

[Jaeme Gloyn, analyst]

Shifting elsewhere in Specialty, maybe you can sprinkle these comments around the other lines. But I noticed clearly an uptick in loss ratios or combined ratios across corporate insurance and warranty.

Could you talk about maybe some of those drivers that are leading to that uptick? Is it something that we're at a higher level here, looking forward? Or is there something a little bit more unique in the quarter?

[David Clare, executive]

Yes. The quarter had a few nuances that are worth highlighting. So I appreciate the question. Warranty as a platform, you should think about running about a 90% combined ratio. And the big difference quarter-over-quarter this year is really that Q3 of 2024 was a significantly low quarter from a combined ratio perspective.

However, if you look year-to-date for warranty in both 2024 and 2025, you're pretty comparable. You're pretty close between those 2, which is generally the level that we expect this to run in the long term.

I think the growth in warranty is something we referenced a bit in our opening remarks. It's been spectacular. And so we have to congratulate the team and our partners on their success there.

We do expect that growth comes from these high 30s levels, likely down to the mid-teens levels in the near term, but it's a great new base level for the business.

Corporate insurance, I think you should model this business on a loss ratio basis in the low 30s. That's generally what we expect in the long term. We had a very strong quarter last year in corporate insurance. You had something in the high 20s from a loss ratio standpoint.

But I think more importantly, this quarter in driving what I'll call net underwriting income or profitability, there's a pretty significant investment in the expansion into our U.S. business. That impact on NUI for corporate insurance is probably approaching $2 million in the quarter.

So if you back out that type of investment, the results look pretty comparable to our long-term expectations for that corporate insurance line.

[Jaeme Gloyn, analyst]

And sorry, just to dig in on that corporate insurance loss ratio, low 30s, historical trend here has been maybe more like high 20s.

So is the U.S. platform driving some of that shift? Or is there something else?

[David Clare, executive]

No, low 30s is pretty normal. I mean, we had some very strong years recently as we are expanding the Canadian business.

The U.S. is not material enough at this stage to really move around loss ratios. So I think what you're seeing here is just a return to long-term averages in Canada.

[Jaeme Gloyn, analyst]

And then the last one for me. Just on the warranty growth side of it, I believe it's coming from new merchant wins as opposed to, let's say, like auto sales growth, which has been somewhat tepid.

Perhaps you can outline some of the factors that are leading to those wins and broader distribution.

[David Clare, executive]

You're absolutely right, Jaeme. I wouldn't qualify the growth in warranty as a result of a booming auto sales environment.

This is a win or expansion of relationships within our partnerships. I would say the factors here, or the drivers of this expansion, are candidly just strong relationships.

So we've had a number of these partners for a long time in the last 12 to 18 months, and we've been successful in moving some business from competitors to our own platform, which you're seeing the uplift of through the year as we onboard those programs. It's candidly just a testament to the length of time we've been in the business and the strength of those relationships.

So nothing spectacular, no change in risk appetite, no change in real product offering, just a consistent focus in the business on building with people that we know.

[Operator]

Our next question comes from Tom MacKinnon with BMO Capital.

[Tom MacKinnon, analyst]

A bit more of a broader question, just with respect to the program's business, thoughts as to where you want to see better growth. Do you see better growth in specialty versus programs? And then keeping with programs, is this something that you -- or what do you think would be the bigger growth driver of Trisura overall?

And then just with respect to programs, what are you seeing in terms of retention here, maybe fees as a percentage of ceding commissions, just trends generally in that marketplace that you might want to view as being positive or negative, or opportunities to capitalize on?

[David Clare, executive]

Thanks, Tom. I think from a growth perspective, there's quite a lot of opportunity right now in the primary lines. You're seeing more significant growth in those lines as we candidly expand into the U.S. So you're coming off a lower base in some of these lines to drive a higher percentage growth in things like U.S. surety.

We would expect, in time, U.S. corporate insurance to add to that. We do still have quite a strong expectation for growth in our Canadian platform, although the maturity of those lines makes that percentage look a bit different than the U.S.

I think there is an expectation for continued growth in our U.S. programs business. That's likely on a percentage basis, not as significant as growth in some of our primary lines.

And I would make that comment for the Canadian fronting business as well. There's clearly some competitive factors there that are limiting top-line expansion.

But it means that we expect a relatively consistent and attractive contribution from both of those lines. In U.S. programs, retention should be thought about at a low teen level.

It's going to bounce around by quarter, but modeling it over the full year at 12-ish percent should be fair. Fronting fees or fees as a percentage of ceded premium, about that 5% range, maybe high 4s should be pretty consistent with what we've done in the past and will be consistent with what we're seeing both on new programs and existing programs.

[Tom MacKinnon, analyst]

And what opportunities do you see in programs overall? What particular programs are you seeing better growth in? And which ones would you not be as excited about?

[David Clare, executive]

Right now, we see continued excitement around the MGA industry in the U.S. So most groups, be they single MGAs or groups of larger MGAs, are continuing to exhibit very entrepreneurial behavior, more sophisticated platforms, and strong abilities to retain and attract good people.

It means that there's quite a bit of opportunity expected to continue in that market. I would say for us, we try to target a mix of portfolio businesses. It's about 70% casualty and 30% property.

The difference this year, I would say, is that we see a more supportive reinsurance environment, especially in property. So the opportunities that we've onboarded this year have been a mix of both property and casualty.

But it's the first time in a couple of years that we've had both appetite and the types of support we expect to lean back into that property space. So the mix of business is, I'll say, pretty consistent with our overall segmentation of business, and the backdrop for both E&S, MGA demand, and supporting the reinsurance seems to be either consistent or improving.

[Operator]

[Operator Instructions]

Our next question comes from Stephen Boland with Raymond James.

[Stephen Boland, analyst]

Just one question. In the MD&A, it does talk about a higher expense ratio in the U.S. that you're investing in the business. I'm just wondering if you can give a little bit more specifics on that?

And that will be ongoing this quarter and even into 2026?

[David Clare, executive]

Stephen, we haven't made a lot of, I'll call it, de novo or new investments specifically this quarter in the U.S., but we made a number of them at the end of last year and the beginning of this year.

You're seeing some of those investments just play through the year. So I wouldn't expect a significant change in that line or that expectation going forward.

We're simply building the business and preparing that platform for growth, candidly in both programs and primary lines. So you shouldn't expect a meaningful change in the absolute dollar figures there.

The trajectory likely flattens out over the next year or so. But we've made a number of investments that we talked about a lot in Q4 of last year and maybe referenced in Q1 of this year that we just think help us set up for a durable platform in the long term.

[Stephen Boland, analyst]

Actually, I'll sneak in one. You're comfortable with the capital position in the U.S. I mean, you have to move some capital down there, do you think, over the next 12 months? Or you're set for the next little while?

[David Clare, executive]

No, we're very comfortable with our capital position across the organization. So despite having a bit of growth this quarter that was maybe ahead of expectation in programs, we're very well funded there.

I think the area to think about us injecting capital in time will continue to be that surety balance sheet in the U.S. So as we continue to see momentum in that platform, we want to continue to get bigger there.

[Operator]

That concludes today's question-and-answer session. I'd like to turn the call back to David Clarr for closing remarks.

[David Clare, executive]

Thank you very much, everyone, for joining today. And as always, don't hesitate to reach out if you'd like to speak through anything further. Thank you, operator, and thank you, everyone.

[Operator]

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