All right. We'll keep things rolling here. Thank you for continuing to stay with us. Our next speaker this morning is CEO David Clare from Trisura Group. Dave, welcome back to our conference. Thanks for joining us again.
Yeah, I always appreciate being invited. Thank you.
Let's maybe kick off with how is the business performing so far in Q1? Can you give us a little bit of perspectives or hints in terms of the growth and profitability of the business?
Yeah, I think a lot of the trends that we've been seeing lately have continued. We've seen good growth in the lines of business we are trying to grow. Surety would be a standout of that. We're seeing good momentum in lines like Warranty, which I know was a bit of a pickup in growth last year. The question I get a lot around these days is Exited lines, what's happening in that business? It's worth noting we're not seeing any change, any expectation of movement in those lines in the quarter. I think setting up well. I think the momentum and some of the work we did last year is hopefully putting us in a good trajectory for 2025.
Good. Good. Looking forward to a good start in the first quarter. Maybe let's get the tariff question off the board too here. What are you seeing? What do you expect from a prolonged trade war? Is there any sort of impacts whatsoever within the Trisura business, import/export bond, anything of that nature that could be impacted?
Yeah, direct impacts at Trisura are tougher to identify. We're not in some of the lines of business that you'd usually associate with that. Personal property, personal auto, that's not a focus for us. I think where we think about tariffs is more of the secondary and tertiary impacts. If there's uncertainty in the environment, insurance is naturally a GDP-levered business. There's going to be some impact on this environment if this kind of uncertainty continues. From a direct perspective and what we're seeing day to day, there's nothing really to point to. I would say the only area we think continues to be slow, and this isn't a change from last year, is something like developer. Condo developers have been pretty slow in the last couple of years. They rely on a lot of imported items to develop. Their slowness is actually more probably related to the credit environment than it was to tariffs. That means that space will probably still be slow this year.
Yeah. Yeah, no, that makes sense. Let's go through the business lines then. Maybe we'll start with the Trisura specialty lines and first in Surety. I guess maybe the more exciting part of the Surety is the expansion in the U.S., which has been progressing well. What are some of the key drivers of that success that you've delivered so far, and what more can we expect from Surety U.S.?
Yeah, we're really proud of the North American Surety team and the U.S. team in executing the last couple of years. It's worth noting this wasn't just something that arrived last year. This is a project and an initiative that we've been investing in since about 2020. It is a long build to get to sort of the overnight success you saw last year. Critical items of success for us in the Surety practice in the U.S. are the same as Canada, right? This is a repeat of a build-out in the Surety industry that looks a lot like it did when we started in 2005 here in Canada. It is hiring good people with good relationships, giving those people the right resources to go out and build the business, and executing, right? Selecting good business, being able to navigate a market as a smaller player.
That has always been Trisura's posture. We pick niches or lines of business we know really well and we like, and we compete very directly in those lines of business. If you look out from where we are today, we think we will end 2024 at about a mid-30s ranked Surety player in the U.S. That is up from sort of a mid-50s ranked player last year. Huge jumps in, let's say, relevance in the U.S. Surety market. I think continued success there is going to depend on a few things. We talked a little bit last year about our acquisition in that U.S. Surety space. We are shifting a lot of our business onto our own balance sheet. That licensing process is underway right now. We are through about 50% of the licenses in the U.S.
You'll start to see us launch our own balance sheet, our own infrastructure, which gives the guys, again, more talking points, more credibility, I'll say, in that U.S. market. Then it's continued execution with our distribution partners. Getting more touchpoints with brokers, getting more product, more capital into that balance sheet because size matters in the Surety space. What you'll see likely, and I know you're going to ask about capital allocation later, but what you'll see likely is continued focus on getting that U.S. Surety balance sheet a little bit larger for us.
Okay. In terms of winning that share in the U.S. Surety market, how are you going about that? Is it really just relationship building, or is there some sort of pricing aspect that allows you to win share, to move from mid-50 to mid-30, and then more likely even moving higher than that this year?
Yeah, no, Surety is a really dangerous place to compete on price. That's not something we've ever done. I think if you spoke to most Surety participants, it would be really rare for someone to try and win business by pricing. This is relationships, very simply. We're focused on a specific part of the market, so we're not competing at the large end in the U.S . That nuance in Canada where you've got a large, mid, and small part of the market, it's expanded in the U.S., right? Just that market is that much larger, the players are that much bigger. We really like that small and mid-cap space for the Surety market. That's where we play. That's where relationships tend to be more impactful. That's why hiring people with relationships in that U.S. market and investing in those broker relationships in that mid-cap space, that's where and how we're going to be successful.
Okay. Bringing it back to Canada, you did kind of just mention the market dynamics of large versus small. You have been making more of a push into large contractor space in Canadian Surety. How do you go and compete against the bigger guys, like an Intact, for example, that is one of the larger players in that space?
Yeah, it's worth noting for anyone who's kind of newer to the story. Trisura's history in Canada was that we started in 2005 as a de novo player in the Surety market. We're the fourth largest player now, and we've achieved that scale and that ranking without really competing in the larger end of the bonding market. That usually means the more significant contractors, the larger balance sheets. We just haven't been large enough to play in that space. Very recently, we've now started to crest that relevance in terms of balance sheet size. We're still on the low end of it, but we're starting to be in the conversation more. What we're doing to compete now is we've made some targeted hires of people that we think have the skills to underwrite those larger limit bonding.
We've had conversations around our balance sheet side to be credible and eligible to quote on those bonds because, candidly, historically, we just haven't been in the conversation with those bonding requirements. Now that our balance sheet is a little bigger and we've invested in a team that has that capability, we're in those conversations. This, again, is another version of that build-out into another part of the market. We have about a 12% market share in the Canadian space. That gets us about a fourth-ranked position in the market. We'd like to be higher. For us to get there, we need to be participating in this part of the market.
Yeah. Let's shift to Canadian Corporate Insurance. Growth in that business in 2024, somewhat flattish. I guess first, what's the outlook for 2025 in Corporate Insurance? The follow-up on that is we were talking, I think this time last year, about penetration in alpha brokers in the Corporate Insurance space. Is that still a tailwind? Is that still a story that can reignite growth in Corporate Insurance?
Yeah, so Corporate Insurance is worth noting that this is probably the space most directly impacted by hard and soft market trends. That market was very, very hard for three or four years. We saw a little bit of balance coming into the market last year, and that impacted top-line growth. I think for us, what we care about most deeply is underwriting income. So we're happy to let business go away if we don't think it's priced properly. I would expect this year, and we've sort of seen the start of the year kick off in this direction, we'd likely expect Corporate Insurance to be about mid-single digits growth for the full year. We think that's a fair level to expect for our own internal people, but also external people who follow the business. If we think about the alpha houses, this is a trend for Trisura.
Candidly, it doesn't just touch Corporate Insurance. I think we are underrepresented or underpenetrated in the alpha houses across the book. That's because historically we have focused on those smaller relationships, smaller clients. As the entity gets larger, things like larger limit contracting, larger product offerings in the Corporate Insurance space, we do hope to continue to penetrate those alpha houses, right? The Marshes the Aons of the world. We produce less proportionately with them than we should.
Okay. The strategy you're implementing in Surety, similar in Corporate Insurance, which is to build out a platform in the U.S. Corporate Insurance space. Maybe an update on how that's progressing. What are you expecting from growth in 2025 in U.S. Corporate Insurance and timelines to reach profitability?
Yeah, so it's worth noting that timeline that we set out in Surety is probably a similar timeline that you see in Corporate Insurance. We leapfrogged a little bit last year in Surety because we were successful in getting some new distribution relationships. But that five-year trend of getting to sort of break-even and profitability is usually what we expect as we launch a business. So Corporate Insurance, we launched last year. We are in the process of filing rates and forms. You do that in each individual state in the U.S. So we've done our D&O product. We're doing our E&O product now. We're not in all states yet, but that build is happening sort of very gradually and very, I'll say, deliberately. That process, I wouldn't expect a really meaningful amount of premium to be coming through this year.
If you look through the year, sort of more of it will come in the second half of the year, but it's not really going to move the needle just yet. I'd say you start to see next year, the year after, this business will start to contribute a lot more. That is always dependent on the market that you're in, right? The U.S. Corporate space has been soft recently, which informs a little bit how hard we lean into the market. What we know very definitively and what we believe is that for us to continue on this trajectory to be a North American specialty player of scale, we will have practices in both Canada and the U.S. I think that history of building businesses both in Canada and now in the U.S. with Surety, we've got a lot of confidence that we can do that over the next three to five years in Corporate Insurance.
Yeah. Maybe just following up on that, do you feel like you have the people in place today in both U.S. Surety and U.S. Corporate Insurance, or is it still just an ongoing build to bring the right people in and have the right exposures?
Yeah, I think we're further along in Surety, obviously, because that practice is a little bit more mature. Corporate Insurance, we've probably got five or six people dedicated into the U.S., sort of reporting into and benefiting from the North American infrastructure that we've set up. As that practice scales, we'll be adding more people. The magic or the efficiency curve you try to be on is you're adding people as you have visibility to premiums. I think Surety, we did that in a very disciplined way where we were able to sort of bring people on as premiums were coming on. You kind of see that curve inflecting for profitability for us last year in the Surety space. That's what we'll likely try to do in the Corporate Insurance space too.
Okay. Good. Maybe one of the surprise growth drivers in 2024 was warranties. So vehicles, white appliances, things like that. Do you see the growth in that business as sustainable this year in 2025, or will a consumer pullback maybe have some impacts on how that business grows?
Most of the growth in Warranty towards the end of last year was being driven by new relationships or new programs put together in that Warranty space. We are sort of coming off a higher bar now that is independent of, I do not want to say totally independent of consumer trends, but just a bigger market now for us to be participating in. We are seeing generally strong growth to start the year in that Warranty business. I would say from a full-year perspective, we are thinking sort of mid-to-high teens growth in that business, which is healthy for that practice.
Most of this is being driven by the auto space. Part of that is obviously just a healthier environment. Part of that is just us taking more market share. You are right, it is nice to see it growing a little bit quicker than it used to. It's worth noting that for a few years, that business was depressed growth versus others. A combination of catch-up here and just a bit of success of the team and getting new relationships off the ground.
Okay. Good. Let's flip to the U.S. Programs business. Maybe a little more of a broader question to start in terms of what you're seeing with the market environment in U.S. Programs from a demand, from a competition and pricing perspective in U.S. Programs.
Yeah, we are disproportionately focused on the E&S space in the U.S. That market has just been on a consistent trajectory of more premiums, higher rates, better growth in those standard markets. I'm guilty of this, but I keep expecting it to come down, to revert. We've just seen continued momentum in that space. The market seems to be shifting. I'm reticent to say permanently, but more sustainably to that E&S space, which is benefiting groups like MGAs and program administrators who disproportionately participate in that space. I would say that macro thesis that informed our entrance into that market six and seven years later is still intact, which is encouraging for the space. I'd say competition-wise, reinsurance markets-wise, those are the other factors that impact this market.
There continues to be a little bit of segmentation in the market between groups that are larger and more significant and have permanent capital bases. It's worth noting A.M. Best just upgraded our size rating in the U.S. to a Size 10. That was official effectively this week, but really by the end of the year when we hit over $500 million in capital. There's only a few players in that U.S. market that are in that realm. That steps us again further away from competition. The reinsurance markets have been very hard in the last couple of years, which limits the capacity available for you to grow. Around the edges towards the end of last year, we started to see that soften a little bit. You've seen more capacity come into the reinsurance markets.
You've seen more willingness of those markets to invest across the ecosystem, including the program space. That's a little bit of that pause at the beginning of the year with what we saw in the LA wildfires. I don't think, again, that knocks the industry off its trajectory, but we do see a generally more favorable reinsurance market with now, I would say, better infrastructure, better scale in our own practice. That, I think, sets us up well for the next couple of years.
Yeah. The reinsurance market, it's going to be different based on what lines you're looking at, but are there any lines in particular where you're seeing more attractive reinsurance markets that's going to drive the U.S. Programs business? Any softening in some of them, other lines that maybe create a bit more of a pullback for you?
Yeah, it's interesting. The torch has almost been passed from a rate hardening and capacity perspective from property to casualty. If you talk to me in 2022 or 2023, property markets were really tough, right? It was really hard to get reinsurance. It was really hard to get capacity. That meant pricing on the primary level went up. What we saw last year, and we buy many different forms of property reinsurance, is at the mid-year, we buy a corporate cover on top of individual program covers. At mid-year, we saw property pricing come down. At one-one, we actually saw property pricing come down again. Capacity in that property market has started to come back. Where we're seeing a little bit of conservatism or maybe a passing of that torch is in the casualty side.
Pricing in the casualty market, and you've seen this in reserving trends across both U.S. and international reinsurance, some of the pricing obviously was not as adequate as people hoped. That has driven now more pricing on the primary side, but a little bit more tightness on the reinsurance side. That environment for us is actually positive on the casualty side because that means pricing likely goes up on the primary side. The other side, it means there are likely fewer new casualty programs launched. Now, property seems to be unlocking a little bit, and we'll see how LA wildfires impact that in the longer term. That market seems to be coming back from a capacity standpoint.
Okay. Still in the U.S. business, you did kind of mention that the MGA space obviously had some huge benefits and drove some of the growth in U.S. Programs. Where is that MGA space today? Is there still capital and private equity entering that MGA space? Is there still a longer-term growth trend where I think over the last five years, MGAs have doubled? Should we expect another doubling of MGAs over the next five years?
Yeah, on the second part of the question on MGA growth rates, I mean, we've seen E&S markets continue to grow. We've seen the MGA market continue to grow as a proportion of that overall market. I think the rate of growth that we've seen over the last five years is likely not repeated over the next five. You saw a historic hard market over the last couple of years. The permanence of capital in that industry and the interest of professional capital in that industry has not waned. We've seen continued investment in this space. We've continued capital flowing into the space. The question on everyone's mind, both from an E&S market's perspective and an MGA market's perspective, is what's different about this cycle? Because we've seen this in the past, right? We've seen in hard markets, MGAs generally write a lot more business.
In soft markets, that business flows back into either admitted or traditional channels. What's different or what feels a little bit different this time is the absolute magnitude of capital that's flowing into this space and the sophistication of those MGA partners, right? These are much larger businesses. The talent outflow from traditional insurance companies into MGAs has been a lot more significant this time around. It feels to me anyways that that presence of that part of the market is a little bit more permanent this time around.
Does the growth rate sustain in the last couple of years? My estimation is probably not, but these business models and these individuals are very entrepreneurial and very motivated and very nimble. That means that as market opportunities arise, they can react faster than other groups can. That usually means that there's likely a sustained opportunity to continue growing. I just don't believe it's tough to predict that you see 50%-60% growth in these lines sustainably.
Right. Maybe that kind of leads into my next question about the core book, I'll say. There are some Exited lines in U.S. Programs, but the rest of the book, your confidence in its ability to deliver continued solid growth and continued profitability, obviously MGAs being solid helps tell that story.
Yeah, I think we started talking a little bit more definitively or in a segmented way about that core portfolio in Q4. You can really see that book, even with some of the actions we took last year, is really delivering the types of profitability that we expected to. What we've seen in the first part of 2025 is those trends have continued. Loss ratios and growth in that core book are right alongside our expectations. You're seeing good continued growth in that core book of business, which gives us confidence again that the partners that we're investing in are the groups that you want to be aligned with in the long term.
Yeah. Good. You kind of hinted towards capital allocation earlier in the conversation. Let's dive into that a little bit. What capabilities, I guess, would you look to target or add to the Trisura business platform at this point? Is there something more in the U.S. that can be done? What are we looking at in terms of M&A?
Yeah. The first thing I should highlight, and I realized I probably was inappropriate a little bit on our Q4 earnings call, in that I raised M&A as sort of a core priority or a primary priority of capital allocation. Our capital allocation goals continue to be funding organic growth. We've got a lot of organic initiatives in place. We've got a lot of things that we can continue growing organically that I don't want to ignore. I want to level set people. We are still, and I don't say this to be disparaging to our group, we're a pipsqueak in a lot of the markets that we operate in. There are a lot of areas for us to continue investing in the business organically.
Now, where we are today with about $800 million in balance sheet size and a lot more scale than we were historically, we can look at M&A opportunities maybe differently than we could previously. The areas that we continue to evaluate would be adjacencies in the Canadian markets. Could we find a specialty player in Canada that would allow us to scale in the markets that we're already in? Could we find someone in specialty Corporate Insurance? Could we find someone in the surety space? We'd love to add those platforms on. I think Ken talked earlier about the reality of M&A. It's the availability of these assets that really informs whether or not we'll chase them. Those types of assets in the Canadian market would be great scaling transactions for Trisura.
I think now, differently than maybe two or three years ago, we would look at those assets in the U.S. as well. You have seen us pursue versions of M&A in that U.S. market that were licensing transactions or small bolt-ons like this surety platform that we added last year. I think those are great examples of us being able to execute in smaller versions of M&A. We would love to be able to demonstrate a little bit larger capabilities in adding scale, let's say, lines of business that are adjacent to ours. Those are areas that we would really like to find. I think the Warranty space in Canada is one we have talked about a lot. That is an area that you have seen other players in this market build through acquisition. That is a space that we historically have not done that. If we'd like to scale, there's a lot of players in this market that are small and looking for larger homes.
Okay. Maybe last one then, just given the experience that we had with some Exited lines last year and maybe some other industry and past hiccups, what gives you confidence that Trisura in 2025 is going to, let's say, avoid any of those types of hiccups or missteps in the performance of the business?
Yeah, I think if you look over the last six or seven years of our life as a public company, the entity today feels a lot different than it did even three or four years ago, right? The scale, the vehicle, the size, the sophistication, the people that we have across the entity are all meaningfully either larger or more sophisticated than they were a few years ago. That, I think, as we build out Trisura, it's sort of striking to say we started this vehicle with $100 million in capital and let's say $150 million of premium. We're sitting today with about $800 million of capital and over $3 billion of premium. That vehicle, as we've grown and we've added more people, more sophistication, it just makes us feel more confident about where we are. I think those actions, those experiences in the last couple of years just informs that as we go forward.
Good. All right. That's it for today, David. Thanks again for joining us and good luck the rest of the day.
Yeah, thanks, Jim.