TSU - Trisura

[snowball82]

I try to see the futur earning power. Cormark has better EPS estimates than BMO mentioned earlier. They see the ROE at 12.1 % for 2019 and 14.4 % for 2020. 12.8 & 15.5 % for BVPS growth.

 

Please don't ask them for EPS estimates, some could think it is a small Graham stock!

[ourkid8]

Oh my...

 

I try to see the futur earning power. Cormark has better EPS estimates than BMO mentioned earlier. They see the ROE at 12.1 % for 2019 and 14.4 % for 2020. 12.8 & 15.5 % for BVPS growth.

 

Please don't ask them for EPS estimates, some could think it is a small Graham stock!

[snowball82]

Partners value investments LP 2017 annual report:

 

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.

 

 

What this exactly mean ?

[ourkid8]

I pulled the below details on Trisura's 3 subs:

 

1. Canadian subsidiary - currently with industry leading returns and started in 2006

2. US fronting platform - Founded in 2017 and this is in growth mode and what I am most excited about

3. Trisura International Insurance - Operated as a reinsurance company for almost 15 years but I do not have much details on this sub

 

Partners value investments LP 2017 annual report:

 

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.

 

 

What this exactly mean ?

[ourkid8]

Analyst Actions: Trisura Group Gets Higher Target Price at BMO Capital; Maintained with Market Perform

10:07AM ET on Wednesday Feb 20, 2019 by MT Newswires

10:07 AM EST, 02/20/2019 (MT Newswires) -- Trisura Group (TSU.TO) has received a higher target price of $32 from BMO Capital while keeping a market perform rating.

 

BMO said it likes Trisura's Canadian business and sees potential in Trisura's Q1 2018 launched US specialty business but sees Trisura as fairly valued at 1.4x P/BV, especially given its 10% 2019 operating ROE. While the broker recognizes there could be multiple expansion to 1.7x BV(or a $38 share price) should it sees significant growth in its well-capitalized nascent U.S. business, it prefers a near-term "wait and see" approach.

[snowball82]

Cormark is more optimistic than BMO.

 

Trisura Group Ltd (TSE:TSU) – Stock analysts at Cormark lifted their Q3 2019 earnings estimates for Trisura Group in a research report issued on Tuesday, February 19th. Cormark analyst J. Fenwick now forecasts that the company will post earnings of $0.64 per share for the quarter, up from their prior estimate of $0.62. Cormark also issued estimates for Trisura Group’s FY2019 earnings at $2.51 EPS, Q1 2020 earnings at $1.06 EPS, Q2 2020 earnings at $0.76 EPS, Q3 2020 earnings at $0.83 EPS, Q4 2020 earnings at $0.79 EPS and FY2020 earnings at $3.44 EPS.

 

https://www.google.ca/amp/s/www.fairfieldcurrent.com/news/2019/02/23/cormark-equities-analysts-boost-earnings-estimates-for-trisura-group-ltd-tsu.html/amp

 

We will see. The execution is the key. Will they add many programs in US over next year ? How fast will they deploy the capital in excess? Will they be very impacted if a big recession come ?

 

Can they really be a large global specialty insurance company?

[snowball82]

The new Vice President (march 2019), Bryan Sinclair has also worked at Partners Value Investments as Associate.

 

https://www.linkedin.com/in/bryan-sinclair-cfa-35676a88/?originalSubdomain=ca

 

Maybe Trisura is really the PVI's vehicule for a global specialty insurance company.

[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

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.

 

@Cigarbutt

You have some very good points. I took a deeper look about a part harder to forecast when the economy growth slower. They are less construction-exposure than I thought. The Surety business line likely represents less than 30% of gross premiums and this ratio will be lower as Trisura Specialty continues to ramp up.

 

They write to government / infrastructure type projects, which tend to exhibit less cyclicality than the broader residential construction market.

 

 

 

 

 

[Broeb22]

It's not really about the cyclicality of the end markets that matters as much. The contractors themselves have to stay solvent through a debt squeeze, so if the contractor has debt that can't be rolled over or extended they will default. I'm not in tune with contractor loans and how banks look at a contractor's customers when making lending decisions. So while you could be right, I suggest going back and looking at surety combined ratios during the early 90's. They were extremely high for a few years, well north of 100%, and if I remember correctly 140-150%. This remains the biggest risk to Trisura that I see is that some kind of adverse real estate event happens that crushes Surety profitability before Trisura has the chance to diversify away from it. Because its Canadian real estate, and many of us have probably read about the shoddy real estate lending practices up there since the Great Recession, see Home Capital Group, I think the potential for an adverse Surety period is higher than average.

[whistlerbumps]

It's not really about the cyclicality of the end markets that matters as much. The contractors themselves have to stay solvent through a debt squeeze, so if the contractor has debt that can't be rolled over or extended they will default. I'm not in tune with contractor loans and how banks look at a contractor's customers when making lending decisions. So while you could be right, I suggest going back and looking at surety combined ratios during the early 90's. They were extremely high for a few years, well north of 100%, and if I remember correctly 140-150%. This remains the biggest risk to Trisura that I see is that some kind of adverse real estate event happens that crushes Surety profitability before Trisura has the chance to diversify away from it. Because its Canadian real estate, and many of us have probably read about the shoddy real estate lending practices up there since the Great Recession, see Home Capital Group, I think the potential for an adverse Surety period is higher than average.

 

great point Broeb... the one thing I would mention is that TSU's surety practice is mostly aimed at govt and commercial contractors.... I don't think they have much (any?) exposure to residential...  that being said, I agree that govt/comm contractor bankruptcies is a key risk

 

one potential tailwind is the infrastructure projects being pushed on both the federal and province (ontario) level...

[snowball82]

It's not really about the cyclicality of the end markets that matters as much. The contractors themselves have to stay solvent through a debt squeeze, so if the contractor has debt that can't be rolled over or extended they will default. I'm not in tune with contractor loans and how banks look at a contractor's customers when making lending decisions. So while you could be right, I suggest going back and looking at surety combined ratios during the early 90's. They were extremely high for a few years, well north of 100%, and if I remember correctly 140-150%. This remains the biggest risk to Trisura that I see is that some kind of adverse real estate event happens that crushes Surety profitability before Trisura has the chance to diversify away from it. Because its Canadian real estate, and many of us have probably read about the shoddy real estate lending practices up there since the Great Recession, see Home Capital Group, I think the potential for an adverse Surety period is higher than average.

 

Your point is valid, so they have to stay disciplined as they did over last + 10 years. I bought my large position based on that track record..I hope they will continue to execute !

 

That said, often times in a recessionary environment governments ramp up spending on public projects as a way to support the economy, which in the past has provided a certain degree of countercyclicality in the surety business. For now, I heard the construction demand in Canada is still good. This could change. I also heard there's a new regulation for mandatory bonding of public projects in Ontario. I don't have the details.

 

 

[Broeb22]

From page 12 of the 2018 Annual report:

 

The main products offered by our Surety business lines are:

-Contractor Surety Bonds, such as performance and labour and material payment bonds, primarily for the construction industry;

-Commercial Surety bonds, such as license and permit, tax and excise, and fiduciary bonds, which are issued on behalf of commercial enterprises and professionals to governments, regulatory bodies or courts to guarantee compliance with legal and fiduciary obligations; and

-Developer surety bonds, comprising mainly bonds to secure real estate developers' legislated deposit and warranty obligations on residential projects.

 

The second bullet, while it could be interpreted as pertaining to government contractors, seems more broad and likely covers most industries in Canada. Of course, in a recession, many industries are likely to run into issues and may face claims.

 

Is there some other source that explains in more detail what Trisura's Surety business underwrites? To me, this seems like run-of-the-mill Surety business, and while we don't know the mix between the three types of Surety, two out of three relate to construction. so I would guess at least 1/3 of the book is construction and likely much more.

 

On their discipline for the last 10 years, we should be careful given today is almost 10 years to the day of market lows in 2009. Many businesses show exemplary records of performance on that time horizon. I agree combined ratios have been very good, but we also have to consider that the company has grown significantly since 2009 (or at least that's my impression), so it represents a larger part of the Surety market today than it did in 2009. So, there may not be as many juicy insurance premiums now as there were over the last 10 years, and particularly for a few years after the crisis.

 

 

 

[snowball82]

From page 12 of the 2018 Annual report:

 

The main products offered by our Surety business lines are:

-Contractor Surety Bonds, such as performance and labour and material payment bonds, primarily for the construction industry;

-Commercial Surety bonds, such as license and permit, tax and excise, and fiduciary bonds, which are issued on behalf of commercial enterprises and professionals to governments, regulatory bodies or courts to guarantee compliance with legal and fiduciary obligations; and

-Developer surety bonds, comprising mainly bonds to secure real estate developers' legislated deposit and warranty obligations on residential projects.

 

The second bullet, while it could be interpreted as pertaining to government contractors, seems more broad and likely covers most industries in Canada. Of course, in a recession, many industries are likely to run into issues and may face claims.

 

Is there some other source that explains in more detail what Trisura's Surety business underwrites? To me, this seems like run-of-the-mill Surety business, and while we don't know the mix between the three types of Surety, two out of three relate to construction. so I would guess at least 1/3 of the book is construction and likely much more.

 

On their discipline for the last 10 years, we should be careful given today is almost 10 years to the day of market lows in 2009. Many businesses show exemplary records of performance on that time horizon. I agree combined ratios have been very good, but we also have to consider that the company has grown significantly since 2009 (or at least that's my impression), so it represents a larger part of the Surety market today than it did in 2009. So, there may not be as many juicy insurance premiums now as there were over the last 10 years, and particularly for a few years after the crisis.

 

New intraday high today at $ 28.90

 

You can find the products by industry here :

 

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

 

It is also interesting to do some Google search about Trisura's brokers and programs. They have a nice network at this stage.

 

I'm still curious to know what the largest shareholder sees when they say TSU should become a global specialty insurer... ???

 

Is there someone planning to ask to Partners Value Investments ? Or going to the AGM ?

 

 

[ourkid8]

I reached out to Bryan Sinclair from Trisura:

 

To answer your question below, our international expansion at this point in time speaks primarily to the expansion of our US entity. I would note we own an international reinsurance entity, based in Barbados; however, that entity is less active at the moment.

 

I'm still curious to know what the largest shareholder sees when they say TSU should become a global specialty insurer... ???

 

Is there someone planning to ask to Partners Value Investments ? Or going to the AGM ?

[ourkid8]

Bryan Sinclair from Trisura:

 

Trisura’s Surety business, resident in our Canadian operation, writes Contract Surety, Commercial Surety and Developer Surety.

 

Contract surety is primarily related to government infrastructure projects, at the municipal, provincial and federal levels, and represents the majority of both gross premium written and underwriting income within that vertical (~75% on average). It’s important to note that this sub-segment is not exposed to housing construction.

 

Commercial surety relates to license and permit, and customs bonds, and represents ~15% of gross premium written.

 

Developer surety relates to the condo market, with our book of business focused on the GTA and Vancouver markets. Developer surety would make up less than 10% of our gross premium written.

 

Hope that helps,

 

Bryan

 

From page 12 of the 2018 Annual report:

 

The main products offered by our Surety business lines are:

-Contractor Surety Bonds, such as performance and labour and material payment bonds, primarily for the construction industry;

-Commercial Surety bonds, such as license and permit, tax and excise, and fiduciary bonds, which are issued on behalf of commercial enterprises and professionals to governments, regulatory bodies or courts to guarantee compliance with legal and fiduciary obligations; and

-Developer surety bonds, comprising mainly bonds to secure real estate developers' legislated deposit and warranty obligations on residential projects.

 

The second bullet, while it could be interpreted as pertaining to government contractors, seems more broad and likely covers most industries in Canada. Of course, in a recession, many industries are likely to run into issues and may face claims.

 

Is there some other source that explains in more detail what Trisura's Surety business underwrites? To me, this seems like run-of-the-mill Surety business, and while we don't know the mix between the three types of Surety, two out of three relate to construction. so I would guess at least 1/3 of the book is construction and likely much more.

 

On their discipline for the last 10 years, we should be careful given today is almost 10 years to the day of market lows in 2009. Many businesses show exemplary records of performance on that time horizon. I agree combined ratios have been very good, but we also have to consider that the company has grown significantly since 2009 (or at least that's my impression), so it represents a larger part of the Surety market today than it did in 2009. So, there may not be as many juicy insurance premiums now as there were over the last 10 years, and particularly for a few years after the crisis.

[snowball82]

Bryan Sinclair from Trisura:

 

Trisura’s Surety business, resident in our Canadian operation, writes Contract Surety, Commercial Surety and Developer Surety.

 

Contract surety is primarily related to government infrastructure projects, at the municipal, provincial and federal levels, and represents the majority of both gross premium written and underwriting income within that vertical (~75% on average). It’s important to note that this sub-segment is not exposed to housing construction.

 

Commercial surety relates to license and permit, and customs bonds, and represents ~15% of gross premium written.

 

Developer surety relates to the condo market, with our book of business focused on the GTA and Vancouver markets. Developer surety would make up less than 10% of our gross premium written.

 

Hope that helps,

 

Bryan

 

 

New all time high at $ 29.50

 

Thanks for the sharing. Very appreciated to see we are some in a team effort here.

 

I like to see than the contract Surety is primarily related to government infrastructure projects. The government’s commitment to infrastructure spend is significant.

 

It is obviously too soon to know if Trisura will build a business model like Markel but it is interesting to see they also have some activities in the specialty insurance :

 

https://www.markelinsurance.com/about-us

 

https://www.markelcorp.com/specialty

 

Is Markel the best Specialty insurance company in United States ?

[snowball82]

New high at $ 30.

 

They have a large brokers network in Canada. We can see them there :

 

https://www.trisura.com/find-a-broker/

 

I didn’t see the same network in US. I guess it will be different in US as the goal is to add specialty programs.

[ourkid8]

https://www.bnnbloomberg.ca/video/steven-ko-s-top-picks~1553244

 

Trisura is one of Steven's top picks.

[snowball82]

Very strong results for Q1 2019.

 

Trisura Group Reports First Quarter 2019 Results Book Value Per Share Increased to $20.41

TORONTO, May 09, 2019 -- Trisura Group Ltd. (“Trisura” or “Trisura Group”) (TSX: TSU), a leading international specialty insurance holding company, today announced financial results for the first quarter of 2019.

David Clare, CEO of Trisura, stated, “Strong performance from both our Canadian and U.S. subsidiaries demonstrated continued progress on our strategic priorities in the first quarter. In Canada, robust top line growth and underwriting profitability, generated industry-leading returns on equity. Our U.S. platform produced over $41 million in gross premiums written, $1 million in fee income, generating its first profitable quarter.”

Highlights

• Gross premiums written growth of 133.7% in Q1 2019, driven by continued growth in our Canadian Specialty P&C business and strong momentum in our US Specialty business.

• Net income in Q1 2019 of $2.5 million, an increase of $0.7 million over Q1 2018, driven by our Canadian Specialty P&C business and supported by profitability from our US Specialty business.

• Consolidated ROE (trailing 12 months) of 7.2% at March 31, 2019, compared to 6.9% at December 31, 2018 and 5.6% at September 30, 2018.

• Strong Q1 2019 results from our Canadian Specialty P&C business, achieving an 83.5% combined ratio, driving a 21.3% ROE for the trailing 12 months.

• Basic and diluted EPS of $0.38 and $0.37 in Q1 2019 respectively, compared to $0.28 and $0.27 in Q1 2018.

• Book value per share of $20.41, a 9.3% increase over March 31, 2018.

Amounts in millions of Canadian dollars

Q1 2019

Q1 2018

Variance

Gross Premiums Written

Net Premiums Written

Net Underwriting (Loss) Income

Net Investment Income

Net Income

EPS – Basic, $

EPS – Diluted, $

Book Value Per Share, $

Debt-to-Capital Ratio

ROE Trailing Twelve Months (“TTM”) Combined Ratio - Canadian Specialty P&C Canadian Specialty P&C ROE - TTM

81.4 28.4 (8.3)

4.6

2.5 0.38 0.37 20.41 18.0% 7.2% 83.5% 21.3%

34.8 23.9 1.2 1.9 1.9 0.28 0.27 18.68 19.4% 4.6%* 83.6% 14.5%

133.7% 18.8% nm 140.6% 35.1% 34.5% 36.3% 9.3% (1.4pts) 2.6pts (0.1pts) 6.8pts

*For period after spin-off from Brookfield Asset Management Inc. on June 22, 2017 (annualized)

Underwriting

• Excellent performance from our Canadian Specialty insurance operations, achieving GPW growth of 17.8% driven by Risk Solutions and Surety and an 83.5% combined ratio driven by strong results in Surety and improved claims experience in Corporate Insurance.

• Strong and accelerating premium growth in our US Specialty platform, with GPW of $41.9 million in Q1 2019 compared to $53.7 million in fiscal 2018. Earned fee income of $1 million helped support our first profitable quarter in the U.S.

• Weakening interest rates in Europe drove reserve strengthening in our Reinsurance subsidiary, largely offset by investment income and gains from a legal settlement.

Capital

• The minimum capital test (“MCT”) ratio of our Canadian subsidiary was 242% as at March 31, 2019 (239% as at December 31, 2018), which comfortably exceeds regulatory requirements of 150%.

• Trisura Specialty’s capital of $66.8 million as at March 31, 2019 ($66.5 million as at December 31, 2018) was in excess of the minimum Risk Based Capital Ratio requirement of the Oklahoma Insurance Department.

• Trisura International’s capital of $27.6 million as at March 31, 2019 ($28.7 million as at December 31, 2018) was sufficient to meet the FSC’s regulatory capital requirement.

• Consolidated debt-to-capital ratio of 18.0% as at March 31, 2019 is below our long-term target of 20%.

Investments

• Net investment income of $4.6 million in Q1 2019 compared to $1.9 million in Q1 2018.

• In Canada, interest and dividend income increased 61.1% over the prior period as we continued to benefit from the reallocation of the Canadian portfolio.

• Investment income related to the Reinsurance portfolio increased due to gains from declining interest rates in our sovereign bond portfolio.

• A legal settlement related to our structured insurance asset generated a significant windfall in the quarter.

About Trisura Group

[snowball82]

The results had been better than expected. I added recently.

 

CAN :

 

"Q1 2019 ROE (trailing 12 months) of 21.3% compared favourably to 14.5% for Q1 2018, benefitting from strong claims performance in Q1 2019 and the latter half of 2018 while weaker underwriting income in late 2017 impacted Q1 2018 ROE (trailing 12 months).

 

USA :

 

US Specialty P&C continued to accelerate in its premium generation, producing GPW of $41.9 million in Q1 2019 across 16 programs ($27.2 million in Q4 2018, $17.7 million in Q3 2018, $7.6 million in Q2 2018 and $1.3 million in Q1 2018). The US platform retained 3.8% of this GPW, the remainder of which was ceded to reinsurance partners.

 

Fee income in our US Specialty P&C business is comprised of fronting fees received from reinsurers and are recognized over the life of the insurance contracts they are associated with, similar to the premium earning profile. In Q1 2019 the earned fronting fees of $1 million were 5.7% of earned ceded premium and have grown strongly as the business written in 2018 earns through. Fronting fees are not reflected in underwriting ratios for the US Specialty P&C business.

 

US Specialty achieved its first quarter of positive net income in Q1 2019 as growth in net earned premiums, fronting fee income and investment income exceeded claims and operating expenses.

[whistlerbumps]

Agree that it was a great quarter.  Canada is humming and US has shown an ability to grow quickly and should be profitable faster than expected. 

 

[snowball82]

The new presentation is available:

 

https://www.trisura.com/wp-content/uploads/2019/05/Trisura-2019-AGM-Final_V2.pdf

 

[snowball82]

Agree that it was a great quarter.  Canada is humming and US has shown an ability to grow quickly and should be profitable faster than expected.

 

New growth opportunity?

 

Application for Approval to Acquire Control of 21st Century Preferred Insurance Company

 

https://www.pabulletin.com/secure/data/vol49/49-25/941.html

[ourkid8]

I received the below message from Bryan:

 

You’re correct in that 21st century is a shell entity that will enable us to expand our licensing in the admitted space in the US. However, as with many things in the insurance industry, we require regulatory approval before the initiative can move forward. We intend to share more information once we have feedback from the Pennsylvania and Oklahoma Insurance Departments; until then not much will change for us operationally and we’ve held off on any material public communication on it.

 

Business as usual for now however once we obtain all the necessary approvals, this will definitely help accelerate the fronting business.  (@Snowball82: Exactly what I wrote to you via email this weekend)

 

 

Agree that it was a great quarter.  Canada is humming and US has shown an ability to grow quickly and should be profitable faster than expected.

 

New growth opportunity?

 

Application for Approval to Acquire Control of 21st Century Preferred Insurance Company

 

https://www.pabulletin.com/secure/data/vol49/49-25/941.html

[whistlerbumps]

Got a similar response from the company.  Nothing material yet but does seem like another positive step forward as they work to grow Trisura US.