TSU - Trisura

[snowball82]

I bought a position in this microcap insurance company, a spinoff from Brookfield Asset Management (BAM). Current price is $ 26.97.

 

It is interesting to see they got 19 % return on equity in Canada and they have a plan to expand in US.

 

"Trisura Group is an international specialty insurance provider operating in surety, risk solutions, corporate insurance and reinsurance, and is trading on the Toronto Stock Exchange (TSX: TSU). Trisura Group has three principal regulated subsidiaries: Trisura Guarantee Insurance Company, Trisura International Insurance and Trisura Specialty Insurance Company (“Trisura US”).

 

Trisura Guarantee Insurance Company started writing business in Canada in 2006 and has a long track record of profitable operations.

Trisura International Insurance has operated as a reinsurance company for almost 15 years.

Trisura Specialty Insurance Company is currently being incorporated as an operating subsidiary in the U.S.

Trisura Group benefits from an experienced management team, strong distribution partners and a specialized and profitable business focus. Trisura plans to grow through strategic acquisitions and a multi-line, multi-jurisdictional platform while continuing to focus on our existing distribution network and increasing penetration in our existing product segments."

 

 

They released the Q4 :

 

TORONTO, Feb. 14, 2019 (GLOBE NEWSWIRE) -- Trisura Group Ltd. (“Trisura” or “Trisura Group”) (TSX: TSU), a leading international specialty insurance holding company, today announced financial results for the fourth quarter and year ended December 31, 2018.

 

David Clare, CEO of Trisura, stated, “We are very pleased with our fourth quarter and full year results for 2018. Strong underwriting and topline growth continued for our Canadian subsidiary, yielding industry leading returns. We continue to build momentum in our US fronting platform, binding 14 programs and generating over $50 million in gross premiums written in 2018.”

 

Highlights

 

Gross premiums written growth of 77% in Q4 2018 and 49% in full year 2018, driven by continued growth in our Canadian Specialty P&C business and strong momentum in our US Specialty business.

 

Net income in Q4 2018 of $1.6 million, an increase of $1.7 million over Q4 2017, and full year income of $8.6 million, an increase of $3.8 million (excluding Minority Interests) over 2017, driven by our Canadian Specialty P&C business. 

 

Consolidated ROE (trailing 12 months) of 6.9% at December 31, 2018, compared to 5.6% at September 30, 2018 and 4.1% at June 30, 2018.

 

Strong Q4 and full year results from our Canadian Specialty P&C business, achieving an 83.9% combined ratio in Q4 and an 86.3% combined ratio for the full year, driving a 19.1% ROE for the trailing 12 months. 

 

Basic and diluted EPS of $0.24 in Q4 2018 and $1.29 (basic) and $1.27 (diluted) in full year 2018.

 

Book value per share of $19.63, a 7.0% increase over December 2017.

 

https://globenewswire.com/news-release/2019/02/15/1725958/0/en/Trisura-Group-Reports-Fourth-Quarter-and-2018-Annual-Results.html

 

The annual report 2018 is available :

 

https://www.trisura.com/wp-content/uploads/2019/02/TGL-2018-Annual-Report.pdf

 

More content to come. Let start the discussion. Or the monologue.

[Jurgis]

I bought some of this when it was spun off from BAM. I also got few shares in spinoff, but that was very tiny - my BAM position was not big.

 

I think the bull case is company growth now that it's free from parent. I think TRU may be acquired by Fairfax eventually - although I don't know if personalities involved make this more or less possible.

 

The risk is that pursuing growth they write policies too cheap. And that overall insurance business is not great at the time of low bond yields.

[netnet]

Returns in this space are totally driven by good management, so are the managers closer to the second coming of Ajit or Forest Gump?

 

 

[obtuse_investor]

What’s the compensation structure for management?

 

The gold standard is Markel. Their bonus is based on a rolling 5 year average book value per share.

[snowball82]

I agree management is crucial here. They also have to add the right products for the right clients.

 

They seem to have many products :

 

https://www.trisura.com/products-by-industry

 

I'm also interested to know more about the new 14 programs in US. Please let us know if one of you find something. Together we can do much better due diligence.

[snowball82]

Returns in this space are totally driven by good management, so are the managers closer to the second coming of Ajit or Forest Gump?

 

netnet

 

You set the bar very high with Ajit !

 

“When Ajit entered Berkshire’s office on a Saturday in 1986, he did not have a day’s experience in the insurance business. Nevertheless, Mike Goldberg, then our manager of insurance, handed him the keys to our small and struggling reinsurance business. With that move, Mike achieved sainthood: Since then, Ajit has created tens of billions of value for Berkshire shareholders. If there were ever to be another Ajit and you could swap me for him, don’t hesitate. Make the trade!”

 

He created tens of billions of value...not the same league. Tsu, traded at 1.4 time book value, is a less than $ 180 M marketcap.

 

[snowball82]

What’s the compensation structure for management?

 

The gold standard is Markel. Their bonus is based on a rolling 5 year average book value per share.

 

I'm also interested to see the details. I guess the largest shareholder should look it too. Partners Value Investment LP owns 18,2 %.

 

https://globenewswire.com/news-release/2018/10/30/1639139/0/en/Partners-Value-Investments-LP-Acquires-Common-Shares-of-Trisura-Group-Ltd.html

 

 

[spark411]

My position is based on three reasons. A) the insurance business if done right is a compounding machine  B) it's a microcap so the runway for growth is significant  C) management has experience, expectations, and backing of a firm 100x larger.

 

I have a simple question.  I have the hardest time finding the investor relations page for Trisura.  It seems that they change it. If anyone has it, please post.  Thank you!

[EricSchleien]

Yes and David Clare was the former CFO of Partners Value Investments.

 

What’s the compensation structure for management?

 

The gold standard is Markel. Their bonus is based on a rolling 5 year average book value per share.

 

I'm also interested to see the details. I guess the largest shareholder should look it too. Partners Value Investment LP owns 18,2 %.

 

https://globenewswire.com/news-release/2018/10/30/1639139/0/en/Partners-Value-Investments-LP-Acquires-Common-Shares-of-Trisura-Group-Ltd.html

[John Hjorth]

Here you go, spark.

[snowball82]

Yes and David Clare was the former CFO of Partners Value Investments.

 

What’s the compensation structure for management?

 

The gold standard is Markel. Their bonus is based on a rolling 5 year average book value per share.

 

I'm also interested to see the details. I guess the largest shareholder should look it too. Partners Value Investment LP owns 18,2 %.

 

https://globenewswire.com/news-release/2018/10/30/1639139/0/en/Partners-Value-Investments-LP-Acquires-Common-Shares-of-Trisura-Group-Ltd.html

 

His letter to shareholders is very interesting. He wrote they have the capacity to write over $ 200 million annual premiums with the current capital. If I understand well it is only for US.

[investmd]

My position is based on three reasons. A) the insurance business if done right is a compounding machine  B) it's a microcap so the runway for growth is significant  C) management has experience, expectations, and backing of a firm 100x larger.

 

I have a simple question.  I have the hardest time finding the investor relations page for Trisura.  It seems that they change it. If anyone has it, please post.  Thank you!

 

Agree with the rationale. Thank you.

However, TSU has been trading between $25 &  $27 for past 18 months. What is the driver that will unlock the value so that rest of market sees it? Time frame?

[snowball82]

My position is based on three reasons. A) the insurance business if done right is a compounding machine  B) it's a microcap so the runway for growth is significant  C) management has experience, expectations, and backing of a firm 100x larger.

 

I have a simple question.  I have the hardest time finding the investor relations page for Trisura.  It seems that they change it. If anyone has it, please post.  Thank you!

 

Agree with the rationale. Thank you.

However, TSU has been trading between $25 &  $27 for past 18 months. What is the driver that will unlock the value so that rest of market sees it? Time frame?

 

The execution in US should be the key. IMO

 

I heard BMO and Cormark EPS estimates for the current quarter (dec. 2018) were $ 0.20. The company reports $ 0.24.

 

The last time I saw the estimates, the analysts were guessing 68 % earnings growth for next year. I didn't see the last analysts reports. Maybe those numbers are now differents. Is there someone here having the new estimates ?

 

 

[Broeb22]

The business TSU is building in US is like SNC which MKL acquired at 2.7x book. So there is a lot of opportunity for multiple to reflect this business model as well as fundamentals continuing to grow.

[chrispy]

What is the fronting market they describe developing/growing in the US? I'm not familiar

[petec]

I'm intrigued that BAM spun this. One thing missing from the BAM universe seems to me to be an equivalent of TPRE and GLRE - a big insurer that invests float in the various BAM credit and equity funds. Could add billions to fee-paying AUM for the mother ship. I wonder why they haven't gone this route - they must have considered it, and Trisura could have been the seed.

[snowball82]

The business TSU is building in US is like SNC which MKL acquired at 2.7x book. So there is a lot of opportunity for multiple to reflect this business model as well as fundamentals continuing to grow.

 

Broeb22 I like your reference to State National. At the time Markel bought them, they were -likely- the largest pure-play insurance fronting business in US. If my reference is right, they got up to $ 1.3 billion in gross written premium in 2017 and offered 60 programs.

 

Trisura has only 14 programs in US.

 

 

[snowball82]

What is the fronting market they describe developing/growing in the US? I'm not familiar

 

chrispy I'm also interested to learn more about that market. Management also said they are interested to look for acquisitions in this fragmented sector.

 

I'm looking some players in that fields to learn more about the economics. James River (JRVR) and Kinsale (KNSL) seems to be good potential comparables. That said TSU is a small microcap company. JRVR and KNSL are much bigger and well establish than TSU. The execution risk is higher with TSU. Trisura doesn't have a long track record in US.

 

Please let us know if you get more info.

[MarioP]

I'm intrigued that BAM spun this. One thing missing from the BAM universe seems to me to be an equivalent of TPRE and GLRE - a big insurer that invests float in the various BAM credit and equity funds. Could add billions to fee-paying AUM for the mother ship. I wonder why they haven't gone this route - they must have considered it, and Trisura could have been the seed.

 

Yesterday i checked in the investor relation looking to see which percentage of the float was invested in in BAM funds and I was surprised to find nothing.

 

Look at page 15 of the AGM presentation

 

http://www.trisura.com/wp-content/uploads/2018/05/Trisura-2018-AGM-1.pdf

 

Did I missed something?

 

[snowball82]

I'm intrigued that BAM spun this. One thing missing from the BAM universe seems to me to be an equivalent of TPRE and GLRE - a big insurer that invests float in the various BAM credit and equity funds. Could add billions to fee-paying AUM for the mother ship. I wonder why they haven't gone this route - they must have considered it, and Trisura could have been the seed.

 

Yesterday i checked in the investor relation looking to see which percentage of the float was invested in in BAM funds and I was surprised to find nothing.

 

Look at page 15 of the AGM presentation

 

http://www.trisura.com/wp-content/uploads/2018/05/Trisura-2018-AGM-1.pdf

 

Did I missed something?

 

Bonjour Mario, why is this a surprise to you ?

 

 

 

 

[snowball82]

Post Q4, BMO estimates are $ 1.97 EPS for 2019 (9,7 % ROE) and $2.84 for 2020 (12,5 % ROE).

 

I don't know if those estimates are right or not. That said if they are right and the profitable growth continue, the current stock price isn't expensive. I think I will own my position for long term and add if the management executes the plan well.

[snowball82]

Together maybe we could find some of the current 14 programs in US and next to come.

 

Those two had been mentionned in the Insurance insider journal :

 

USI Southwest has finalized an exclusive Intermodal Truck Insurance Program with Hybrid US fronting carrier Trisura Specialty.

 

https://www.insurancejournal.com/news/southcentral/2018/04/12/486312.htm

 

Hybrid US fronting carrier Trisura Specialty has put the first deal on its books with an agreement to provide its paper to Allstar Transportation's liability program business, The Insurance Insider can reveal.

 

https://www.insuranceinsider.com/articles/115192/usi-southwest-partners-with-trisura-on-truck-program

[snowball82]

Is there someone here able to figure what could be the impact related to unearned premium growth at the end of 2018 ($182 623 000 vs $ 115 357 000 for 2017, balance sheet, note 8 ) for 2019 ?

 

Thanks

 

 

[ourkid8]

Partners value investments LP 2017 annual report:

 

During the year, we acquired a 16% interest in Trisura Group Ltd., a specialty property and casualty insurance company as a

result of the spinout of this company by Brookfield. Together with our own unitholders, we collectively own an approximate

25% interest in Trisura. We are working with the management team of Trisura to build that company into a global specialty

insurance company and are excited about this opportunity. Our Vice President, Mr. David Clare, has recently agreed to join

Trisura on a full‐time basis as their Senior Vice President responsible for Investments and Business Development. We wish

David much success in this exciting new role.

 

The Partnership acquired a 16% equity interest in TSU and has a management services agreement in place resulting in an

officer  of  the  Partnership  also  acting  in  the  capacity  of  the  Chief  Investment  Officer  of  TSU  and  directly  impacting  the

decisions and profitability of  the entity; as a result,  the Partnership exercises significant influence over TSU. As such,  the

Partnership  records  its  proportionate  share  of  the  TSU’s  income  as  income  from  equity  accounted  investment  in  the

consolidated statement of operations. Due to dilution resulting from issuing shares in a management buyout, the Partnership

owns 14.2% of TSU as at December 31, 2017.

[Cigarbutt]

Is there someone here able to figure what could be the impact related to unearned premium growth at the end of 2018 ($182 623 000 vs $ 115 357 000 for 2017, balance sheet, note 8 ) for 2019 ?

Thanks

Thanks for the thread. There is a lot to like about TSU and I will keep it on a watchlist to see how it will develop a consistent operating history given its present vision and strategy.

 

The positives: niche and specialty market, room to grow in a fragmented market, management team appears strong.

 

Some areas to follow, mostly about their US business:

-partnering with program administrators

-fronting arrangement

-business model relies on access to reasonable reinsurance capacity

 

You may remember that Fairfax ran into trouble with their TIG acquisition which had about 50% of its insurance business tied to programs controlled by managing general agents who had authority to bind the company. TSU needs to partner with competent and diligent program managers because they are effectively "giving their pen away".

 

For fronting arrangements to work, you need to align incentives and have financial checks in place. Some years ago (70's and 80's) many US insurers ran into trouble for various reasons which involved fronting arrangements. You may want to get your hands on a report called "Failed Promises" which was produced in the early 90's by Mr. John Dingell (who died a few days ago) who was the longest-ever serving Congressperson in American history. The report describes the potential ways how fronting arrangements can go wrong and how regulation could be improved. But fronting arrangements can work very well in selected markets and it seems that TSU has found a model which meets market demand. They also maintain skin in the game (retained 4.7% of premiums in 2018)

 

A potential problem has to do with their reliance on reinsurance for almost all business written in the US. The model requires reinsurance capacity to be maintained in order to maintain business or to grow. It is possible that reinsurance capacity eventually diminishes and alternative capital has not made its way to this area of the insurance market. A bad scenario would involve an extrinsic reason that would both reduce reinsurance capacity and TSU's capacity to retain the business. It looks like they will reinsure themselves to some degree (Barbados unit) going forward.

 

Concerning your question, it's not clear what you're looking for. Unearned premiums means that the deferred premiums relating to periods subsequent to the balance sheet date will be recognized as revenue on a pro-rata basis over time (net of premiums ceded). So increasing unearned premiums leads you to expect higher premiums earned and the unearned premium account will increase if written premiums keep ahead of premiums earned. Note also that unearned premiums are recorded at gross levels and, for the US business, TSU mostly acts as a pass-through.