Good morning. Welcome to the Trisura Group Limited's first 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. At this time, all participants are in a listen-only mode. Following formal comments, lines will be open for analyst questions. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. 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 laws.
These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risk in 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. Thank you. I'll now turn the call over to David Clare.
Thank you, Operator. Good morning, everyone, and welcome. We continue to see the benefits of our focus strategy in specialty insurance, and we started the year strong. Underwriting and structuring the niche segments drove profitability and growth in Q1. Momentum in our primary lines, surety, corporate insurance, and warranty continued, growing 28% with particular strength in surety, growing 38% as we expand in the U.S. and build out our Canadian practice. Our portfolio of ongoing U.S. programs grew 17%, showing the continued potential of the core platform. Net insurance revenue, which is similar to net premiums earned, increased 13%. Importantly, our combined ratio was a strong 82.7%, with profitability across all segments. book value per share grew 24% to a record $ 17.16, and equity exceeded $ 819 million, continuing our track record of capital generation.
Our Canadian surety platform continues to perform, supported by an established market presence and building momentum from our team focused on larger limit bonding. We see continued growth in our larger practice, contract surety, as we acknowledge an expected slower developer environment. In the U.S., our surety platform is gaining traction. We hold 33 state licenses, plus Washington, D.C., up from a handful last year. This quarter marks an inflection point. U.S. surety is contributing to profitability with a comparable combined ratio to our Canadian practice. We're seeing increasing broker engagement and submission volume, which gives us confidence in the scalability of the platform. Corporate insurance sustained momentum in the quarter, and despite competitive conditions, continued to demonstrate growth alongside profitable underwriting.
U.S. p rograms show the benefit of actions taken last year, and our ongoing program portfolio grew 17% while achieving a 76% combined ratio, supporting expectations for continued growth and profitability. Exit lines had no material impact in the quarter. Investment income rose 9% to $ 18.2 million. Our $ 1.6 billion portfolio remains conservatively positioned, with 96% of bond holdings rated investment grade. We continue to benefit from higher reinvestment yields in the U.S., where rates and corporate spreads have increased. The surety market remains competitive, with significant opportunity for us in U.S. expansion, as well as continued growth in Canada accessing larger bonding opportunities. We see balancing and, in some cases, softening trends in corporate insurance that are confident in our ability to grow profitably through the cycle. In the U.S., excess and surplus markets continue to expand, growing faster again last year than the traditional markets.
We see firmness in casualty lines and some rationalization in property, depending on both region and line. Sophisticated MGAs are increasingly central to distribution, and Trisura is well positioned to support leaders in this industry. Our structured model, with disciplined retention and strong reinsurance support, enables us to participate with scale and selectivity. While we're optimistic about the business, we're mindful of the broader backdrop. Trade policy and geopolitical volatility have introduced uncertainty. These factors can influence capital markets, executive sentiment, and rate expectations. It is important to remember our insurance products are non-discretionary, and we operate within countries, not across borders. Trisura's conservative balance sheet and increasingly diversified platform help us navigate. Our approach, grounded in underwriting discipline, capital efficiency, and a long-term view, gives us flexibility in volatile conditions and the ability to move decisively when opportunities emerge.
Our capital base is stronger than ever, with a 10.7% debt-to-capital ratio. This provides capacity for established organic opportunities and flexibility to consider other initiatives. Our strategy remains to focus on growing profitably in primary lines, scaling U.S. infrastructure, and building a larger program portfolio that balances fee income and underwriting results. We continue to deepen our bench and broaden our capabilities. The formal launch of our treasury-listed surety balance sheet last month was a milestone in our U.S. surety ambitions. We are growing meaningfully in areas we have proven expertise, deepening relationships with distribution partners, and building on a foundation that supports sustainable profitability. Our optimism for 2025 has reinforced our expectations for premium growth, operating ROE, and book value per share growth in excess of 15%, with significant progress made towards our goal of $1 billion in book value by the end of 2027.
We're building a specialty insurer of scale in North America that requires discipline, adaptability, and a measured approach to risk, all of which the team is demonstrating. We are grateful for the support of our partners, shareholders, and employees, and look forward to what lies ahead. With that, I'll turn it over to David Scotland for a detailed review of financial results.
Thanks, David. I'll now provide a walkthrough of financial results for the quarter. Operating EPS, which reflects core performance from the business, was $0.70 a share for the quarter, reflecting growth of 2.9% over the prior year. This contributed to operating ROE on a rolling 12-month basis of 18% for Q1 2025, which exceeded our mid-teens target. GPW was $ 711 million for the quarter, reflecting a slight reduction over the prior year, primarily as a result of non-renewed U.S. programs in 2024, which was offset by growth in primary lines. Trisura's primary lines grew by 28% in the quarter, which are the lines where the profit margin on GPW was the highest. Net insurance revenue, which approximates net premiums earned, was $172 million for the quarter, reflecting growth of 12.8% over the prior year.
The combined ratio for the group was 82.7% in the quarter, which was slightly higher than the prior year, primarily as a result of a higher loss ratio from Trisura's specialty, which reflected a more normalized result from our surety operations compared to a particularly low Q1 2024. The loss ratio from U.S. programs decreased for the period, reflecting prudent reserving action taken in 2024. The expense ratio was slightly higher than the prior year as a result of a shift in the mix of business towards Trisura's specialty, which has a higher expense ratio. Underwriting income for the quarter was greater than the prior year as a result of growth in the business and foreign exchange movement, offset by a slightly higher combined ratio. Net investment income of $ 18 million increased by 8.6% in the quarter as a result of an increase in the size of the investment portfolio.
Our operating effective tax rate was 25.4% for the quarter, reflecting the composition of taxable income between Canada and the U.S. Overall, operating income was $34.2 million in the quarter, which was greater than the prior year as a result of growth in the business, offset by a slightly higher combined ratio. Non-operating results consisted primarily of net losses associated with share-based compensation hedging and ECL adjustment, as well as market yield adjustment, compared to the prior year when non-operating results were positive, consisting of larger unrealized gains. Exited lines have had an immaterial impact to net income in the quarter. Earnings per share contributed to a 4.4% increase in book value for the quarter, resulting in a book value per share of $ 17.16 at March 31, 2025.
Book value per share also increased as a result of unrealized gains on the investment portfolio, as positive movement in the fixed income portfolio through other comprehensive income positively impacted book value. Book value has grown at an average rate of 26% over the past five years. Book value at March 31, 2025, was $ 820 million, which 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. As of March 31, debt-to-capital was 10.7%, which was lower than the year-end as a result of a significant 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 would now take questions.
Thank you. As a reminder to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Doug Young of Desjardins. Your line is open, Doug.
Hi, good morning. Maybe, David, can you further just flesh out how things are going in the U.S. surety expansion? Maybe if you can give a little detail around net earned premium for that U.S. surety business. I think the combined ratio, you say it was in line with Canada, so it's in that 80% range. Do I have that right? Is that sustainable? I know you're in 33 states now, and expansion is going well. How long does it take to get into them all? There's a bunch of things in there, but maybe you can just kind of take a moment and just flesh out a little bit more detail around that expansion.
Yeah, I think, Doug, the expansion to the U.S. has been going well, and I think, candidly, a little bit better than we had hoped. If we look at some of the big milestones of that practice in the last couple of months, obviously getting into a zone where combined ratio and premiums have scaled to the same level, I should say, on a combined ratio basis as Canada is a big milestone. This platform is now contributing profitably to the overall platform, and we haven't yet scaled into a full infrastructure in the U.S., so still lots of potential for the platform to grow. I don't have at hand net premiums earned splits, but I can say from a premium basis, we're approaching about 40% of surety premiums coming from the U.S., so there's a lot of opportunity there to continue scaling that practice.
If you think about the licenses, we started with very few licenses, so getting up to 33 now within about a year is a great progression. We obviously want to see all 50. The big states, the largest states in the U.S., will be the longest ones to achieve, but the most significant ones from a premium standpoint. Those ones we'd look towards achieving at the end of the year, but I think we've got a good pathway established and an expectation to achieve those pretty soon.
Is it, if I recall, is it the U.S. surety market's four times the size of Canada or something? You can correct me if I'm wrong. Is that how we should be thinking about Canada versus the U.S. for your business, or?
It's much larger than that, Doug. The U.S. surety environment would be maybe 10 times, maybe a little bit larger than that compared to the Canadian environment, so it's significant. For context, the largest surety writers in the U.S. would write more premium than the entire Canadian market.
Yeah. Okay. A little off on that. Sorry. Maybe second is you talked about moving up market in Canada surety. I think you mentioned it in your prepared remarks. Can you kind of maybe flesh out a little bit more about how that expansion is going?
This is an area we're quite excited about. Historically, Trisura has participated in, I'll say, the small and medium-sized contractor space, and a big part of the market is larger bonding opportunities that we just haven't played in previously. We've built up a team now that has the capabilities to adjudicate, underwrite these types of bonds, as well as the relationships in this space, and we've now supplemented that with, obviously, a much larger balance sheet. A combination of those two factors, we think, puts us in pretty good positioning to participate in this market. It's early days, but we're seeing good momentum in that space and anticipate sort of in the next year or so that's going to be a larger component of our business.
Okay. And then just one question I often get is how economically sensitive your business is, and it's a bit different than at definity or Intact, and the businesses that come to mind are surety and D&O. Maybe you can provide a little bit of context around what you're seeing in the current environment, and what are some of the leading indicators that you're looking at in terms of what would drive loss ratios for these businesses? I think some of them are obvious, but maybe if you can flesh that a little bit out.
Yeah. It's important to note our lines are generally commercial lines, so driving on a bit different factors than personal, but insurance at its core is a GDP-levered business. If we take a step back and look at some of the environment that we're in, if any of these actions meaningfully slow economic growth or GDP expansion, that will have a knock-on effect on premium growth in the industry. Now, if you go through our lines of business, you think about the most economically sensitive or pro-cyclical industry, surety would be that space. Generally, contractors in our portfolio have about an 18-month backlog of work, and so what you have from a sensitivity perspective is concern around economic recessions or slowdowns that start to approach or exceed that length of time. Your experience in claims in the surety environment really depends on contractor solvency.
That solvency is usually healthy as long as there's a backlog of work. If we look broader across our portfolio, say, corporate insurance, that type of environment obviously is sensitive to business activity, so both solvencies and activity in the corporate space, and we are generally focused on navigating that space conservatively. We wouldn't say that this environment at this stage has changed much of what we're seeing on the front lines, but obviously, as I mentioned in my comments, the extent some of these actions change broader direction or trajectory of the environment, there's a knock-on effect to the overall insurance industry.
Okay. Lastly, on the M&A front, and I know it's not just buying businesses, but it's team lift-outs and whatnot. Any big team lift-outs this quarter? There is a deal in Canada in the warranty business recently. I would assume that's something that you would look at in that particular segment, but any update in terms of what you're seeing on the M&A side?
Yeah. I would qualify some of our expansion into the larger bonding space as a version of some of those things you're referencing. We haven't done anything beyond that, but we have continued to talk to and look at hiring around the industry and around our company as a way to strategically expand. From an inorganic perspective, we've continued to evaluate opportunities, but obviously haven't seen anything actionable. Our priority, Doug, continues to be we have a lot of organic opportunities that we think we can and should prioritize. We'll supplement those around the edges with some of these actions that you're talking about, expanding bench strength, adding capabilities through strategic hires, and in the right circumstance, considering inorganic expansion.
I appreciate your time. Thank you.
Thanks, Doug.
Thank you. Our next question comes from the line of Tom MacKinnon of BMO Capital. Please go ahead, Tom.
Yeah, thanks. Two questions. First is, if you can tell us what the book yield is on your investment portfolio and maybe something on the duration of that and what it's largely composed of. The second is, with respect to your warranty business, what are you seeing here in terms of any kind of tariff implications there? Maybe how much of that warranty business would be kind of auto-related? Thanks.
Thanks, Tom. Book yield on the portfolio across our entire North American portfolio is about 4.25%. Duration of the fixed income portfolio is about four years. It might be a little lower in Canada and maybe a little higher in the U.S. If we talk about warranty, this has been an interesting line. We've seen a lot of momentum in the warranty practice in the last few quarters, very, very strong growth on the top line, specifically in this quarter, but not something we haven't seen in the past. I would highlight we've had a few wins on launching new programs with some of our partners, so there's a bit of market share growth in the warranty line.
What is interesting is the auto sector is probably one of the ones most directly impacted by tariffs, and to the extent those tariffs are put in place, I question whether or not there's an impact on auto demand. We have seen very, very strong growth in the warranty practice in this quarter. It's tough to say whether or not that's related to a pull forward of demand or whether that's an impact of our broader market share, but that's an area where certainly premiums will be impacted by tariffs in the short term.
How much of the Warranty portfolio is auto-related?
The majority of it.
Okay. Thanks.
Thank you. Again, to ask a question, please press star 11 on your telephone. Our next question comes from the line of Nick Priebe of CIBC. Please go ahead, Nick.
Okay. Thanks. Just on the pickup in top-line growth for Corporate Insurance, I just wanted to confirm that that wouldn't have been related in any way to the U.S. expansion, right? The expectation there is that that'll start to come online in a more meaningful way kind of in the second half of this year.
That's right, Nick. This is just sort of expansion of our practice in Canada. We're not seeing a meaningful contribution from U.S. corporate insurance yet.
Got it. Okay. Just on the U.S. programs business, I think in normal course, there can be some natural churn in the mix of programs, and I recognize that more of the growth today is coming from the expansion of existing programs, but what does the balance look like between the pipeline for new program additions and any potential non-renewals? How's that kind of shaping up for the balance of the year?
Yeah. Our pipeline is pretty strong right now, so we're evaluating and have launched a number of new programs in recent quarters. I wouldn't say we are seeing anything out of the normal course in terms of normal churn of the portfolio. It's a relatively mature portfolio, and a lot of the actions that we took last year were sort of the more material ones. I don't think anything to highlight there outside of the norm. That portfolio and the pipeline continues to strengthen, and it will be a function of sort of the reinsurance markets and the opportunities that we see by line of business that determines where we lean in.
Got it. Okay. And then just one last one on, I guess, program concentration in U.S. fronting. Can you just remind me what the largest program would represent as a rough proportion of the overall premium base?
It would be high single digits.
Okay. All right. That's perfect. All right. Thanks very much.
Thank you. Our next question comes from the line of Stephen Boland of Raymond James. Please go ahead, Stephen.
Thank you. Morning, guys. Just in the Canadian fronting, the mention of competition, can you just kind of describe, is this traditional commercial players here in Canada? Where's the new competition coming from?
Thanks, Stephen. Yeah. You've highlighted an interesting nuance. Fronting top line can be quite lumpy, but we acknowledge this quarter that certainly competitive factors and market conditions can feed into that as well. If you think about the lines of business we write in Canadian fronting, they're generally more commoditized P&C lines than what we would access in, say, surety or corporate insurance. Those can be moved around by market trends and competitive factors. If you think about the competitive nuances, the return of Lloyd's to the Canadian market can impact this around the edges, as well as sort of pricing trends more broadly. That one is a tough one, I will acknowledge, to model.
It can be relatively lumpy depending on timing and depending on individual program nuances, but what we focus on and what you should really monitor is the bottom line contribution from that line of business.
I mean, obviously, with Lloyd's, is it the MGAs that are going looking for programs, or is it the reinsurers that are kind of moving the focus around? I know you source from both the origination, like the MGAs, but you also get referrals from reinsurers. Is it happening on both sides, or? How do you counter that, I guess, to get the growth going back in the positive direction?
Yeah. I would say our pipeline, to address the second part of your question first, our pipeline is still pretty attractive in Canadian fronting. We're evaluating a number of transactions, a number of partners in the space, so I don't think anything is changing on that narrative. On the first part, I think you may be conflating a few of the nuances. This is a space that generally is driven by foreign capacity interest in the Canadian environment, and that capacity can be originated through a range of distribution partners. That can include MGAs. It can include brokers. It can include other forms of distribution. What I would say is generally those markets across all of those categories are just experiencing more competition. There are more people interested in running the business. You may or may not win that business any year.
That's really what we're referencing on competitive nuances. We just want to say this environment, there are more people interested in writing that business, and so around the edges, that can drive a little bit of volatility in top line.
Okay. Maybe just my second one then is just on the U.S., the fronting, is there more competition popping in there as well? It seems like some of the traditional insurers are kind of doing both, as you call your primary underwriting as well as fronting. Have you seen that start to come into the market?
No. I would say we saw a lot of new competition in that U.S. programs line in 2021, 2022, 2023, but we have not seen those new entrants in the last couple of years. That market is maturing pretty quickly. I think estimates of market size in that sort of structure is approaching about $20 billion. There is a good market share of that overall MGA originated premium space, but still lots of room to grow. I think as we look out in the future for the next couple of years, the business models that will win in that environment tend to be, or I would expect to be, those with larger balance sheets and more diversified models, and we certainly fit into that category.
Thanks very much.
Thank you. Our next question comes from the line of Jaeme Gloyn of NBF . Please go ahead, Jaeme.
Yeah. Thanks. Just wanted to get some refreshed perspectives, I guess, on the leverage. Debt-to-Capital has been running kind of low double digits now for a couple of years, and that's well below the target of 20%. I just wanted to kind of dig in on what conditions or what other factors or what you're waiting for or looking for before deploying a little bit more leverage into the business at this stage.
Yeah. Thanks, James. It's a good question. We sort of have record capacity right now. We could probably deploy $ 107 million in capacity before getting up to that 20% threshold that you referenced. There are a couple of things we are looking for, I should say, waiting for in deploying that capacity. Obviously, the flexibility of that capacity just gives us confidence and opportunity to lean into volatility in environments like we're seeing right now. The other item I'm suspecting that might be a more immediate use is as we expand our U.S. surety operation, we'll want to expand the size of that balance sheet. The size of your balance sheet in the surety market matters a lot for the types of opportunities you can get. We've just formally launched our treasury-listed balance sheet in the U.S., and it has about $60 million in it.
I'd like to see that growing as we continue to build out that U.S. practice, and I know our distribution partners want to see that larger as well. Once we see that inflection point of the right licenses coming on board, the right momentum in the market, a use you could see us consider is dropping some more capital into that balance sheet to enhance or encourage the opportunities we're seeing in the U.S. surety market. Beyond that, obviously, we've got, in the longer term, some opportunities to build that U.S. corporate insurance practice, very similar nuances around the surety market that I referenced, and then around the edges to the extent we see inorganic opportunities, be they book rollovers or other versions of capability bolt-ons. That flexibility is nice to have.
Okay. Great. Thank you.
Thanks, Jim.
Thank you. Once again, to ask a question, please press star 11 on your telephone. As there are no further questions in queue, I would now like to turn the conference back to—oh, actually, we do have a question. One moment. Our next question comes from the line of Mario Mendonca of TD Cowen. Please go ahead, Mario.
Good morning. David, could you speak to this ongoing shift into the E&S space from admitted and whether you think there could be some changing dynamics? If this does start to slow, I appreciate that the company's in the admitted space as well, but are there any meaningful profitability differences between the two spaces? If we were to see the shift back into admitted, it would then necessarily lead to a different profit dynamic. Can you speak to that first?
Yeah. If we talk about the profit dynamics of admitted versus E&S in our model, they are not different. We would expect very similar economics for our platform and our approach between E&S lines and admitted lines. We see that today. We have both E&S lines and admitted lines in our practice. There is not a lot of difference between the two. I think the types of lines you see, or at least have historically seen, be served by excess and surplus markets versus admitted markets is changing, and this has been a secular shift, I would say, over the past five or six years. Those E&S markets have very, very significantly expanded, and they have grown substantially faster than the admitted markets over that period of time.
I think what you're referencing now is a little bit of plateauing or normalization of the growth rates in the excess and surplus markets, but from an industry standpoint, there are a lot of observers who expect that trend of E&S momentum to continue. As risks get more complex, as the industry tackles tougher problems to solve through insurance, that excess and surplus market is well served to navigate it. It is also a little bit more flexible in how insurers set rate, how they navigate regulatory environments. That excess and surplus space is one that we think, anyways, is permanently larger than it has been historically. I think your observation that at some stage, depending on the cycle and depending on the environment, you can see premiums shift between those two markets.
We certainly built our practice anticipating some long-term trend of a mix of admitted and excess and surplus markets. We were probably early on that build as the submission volume has disproportionately been in the excess and surplus space, but to the extent that shifts back into the admitted markets, we would be well placed to navigate it and would not expect a difference really in profitability.
Okay. That's helpful. Going to the exited lines in the U.S. now, last quarter, there were net claims of about $41 million, and a portion of that, I presume, maybe a meaningful amount of that was essentially the reserve build. This quarter, we see net claims of about $5.6 million. What I'm trying to understand is the extent to which the reserve build last quarter was utilized this quarter. The reason I ask it is I want to be comfortable that there's plenty of reserve left in this business to absorb net claims over, let's call it, the next two or three quarters. Is two or three quarters the right time frame where we'd see these exited lines essentially leave the business?
I would say at a high level, Mario, we're not expecting material changes in those reserve builds. We didn't have a material change in that reserve figure this quarter, and the goal here is to establish an approach that doesn't see meaningful impact quarter to quarter for these. You shouldn't take the posture of in two or three quarters, there's going to be a change or a different experience in those exited lines. The approach really is we're attempting to establish the level of reserves that reflects that liability in the long term. The duration of these is probably a little bit longer than two to three quarters, but the approach has been to reflect that in the reserving.
Thank you.
Thank you. I would now like to turn the conference back to David Clare for closing remarks. Sir?
Thank you very much, and thank you to everyone for joining. As always, if you have any further questions, do not hesitate to reach out, and we look forward to seeing everyone at our investor day in June. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.