Good morning. Welcome to Trisura Group Ltd.'s Second Quarter 2025 Earnings Conference Call. On the call today are David Clare, Chief Executive Officer, and David Scotland, Chief Financial Officer. David Clare will begin by providing a business and strategic update, followed by David Scotland, who will discuss financial results for the period. Following formal comments, lines will be open for analyst questions. I'd like to remind participants that in today's comments, including in responding to questions and in discussing new initiatives related to financial and operating performance, forward-looking statements may be made, including forward-looking statements within the meaning of applicable Canadian and U.S. securities law. These statements reflect predictions of future events and trends and do not relate to historic events. They're subject to known and unknown risks, and future events and results may differ materially from such statements.
For further information on these risks and their potential impacts, please see Trisura's filings with securities regulators. To ask a question during the Q&A session, you'll need to press Star, one, one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star, one, one again. Please be advised that today's conference is being recorded. Thank you. I'll now turn the call over to David Clare.
Thank you, operator. Good morning, everyone, and welcome. We delivered another strong quarter in Q2 with exciting momentum across primary lines and continued expansion of the infrastructure we have been building over the last several years. Operating ROE was 18%, book value grew 21% to a new record $843 million, and operating net income was $33.3 million, up 6% from last year. Surety was particularly strong. Gross premiums written grew 61% as both the Canadian and U.S. platforms continued to scale. Importantly, surety underwriting income grew over 150%, demonstrating the potential of a growing North American footprint. We continued to demonstrate strength in warranty, which grew premiums 39% as we expand relationships with our partners and auto purchasing activity was sustained. Our primary lines, surety, warranty, and corporate insurance, grew by more than 35%.
This is striking growth in some of our most established and profitable lines, positioned for continued momentum as we expand our reach. Our progress in surety continued with small yet promising contributions from new larger limit Canadian bonding, growth in core portfolio, and continued momentum in our U.S. distribution relationships. In the U.S., our program's business was stable. While gross premiums written declined due to previously discussed non-renewals, our ongoing portfolio grew 12%, and admitted business now contributes more than $160 million of premium, a record quarter. Momentum in program additions year to date has been promising as we see strong submissions and reinsurance support. We continue to observe softness in Canadian fronting, where competition has elevated, though we are encouraged by the continued build of our pipeline. Investment portfolio increased to $1.6 billion, generating $18.9 million in interest and dividend income, up 12% over last year.
Lower interest rates and tightening credit spreads in the quarter supported gains on fixed income, and equity and preferred shares performed well. Our posture remains conservative. We have yet to deploy significantly into equities and don't expect to change that in the near term. Yields in the U.S. remain attractive, which, when combined with uncertain macroeconomic conditions and healthy equity valuations, inform our posture. We injected $40 million into our U.S. Surety balance sheet to support growth and infrastructure, which increases the size of bonds that we can issue and should signal our confidence and excitement in this platform. This reflects an efficient funding of growth initiatives through a combination of internal capital and revolver drawings, compared to historically financing growth with equity. Our business continues to evolve. We've achieved outsized growth in surety and warranty and improved quality in our program's portfolio.
The relative contribution of primary lines is increasing. That evolution is important and consistent with the historic long-term drivers of Trisura's success. Market conditions vary by line and by geography. In Canada, we see softening conditions in corporate insurance and certain fronted lines, while in the U.S., reinsurance capacity is returning, particularly in the property space. Casualty remains firm, and we encourage and expect discipline from our partners and our underwriters. We are pleased with our performance this quarter and encouraged by the momentum in primary lines, particularly surety and warranty. Our focus remains on growing our specialty platform profitably, and we are well armed through a strong capital base, experienced underwriting talent, and increasingly sophisticated infrastructure. We continue to believe we are building a unique platform in attractive niche markets with experienced and proven operators. This will allow us to replicate our success as we scale.
Before I hand it off, I'd like to thank those who joined us at our recent Investor Day. The engagement and feedback have been strong, and we appreciate the opportunity to share our strategy in greater depth. I'll turn it over to David Scotland for a detailed walkthrough of our financials.
Thanks, David. I'll now provide a walkthrough of financial results for the quarter. Operating EPS, which reflects core performance from the business, was $0.69 for the quarter, reflecting a growth of 6.2% over the prior year. This contributed to operating ROE on a rolling 12-month basis of 17.8% at Q2 2025, which exceeded our mid-teens target. GPW was $900 million for the quarter, reflecting a 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. Gross premiums written grew by 9%, excluding premiums from our exited lines, and Trisura's primary lines grew by 35% in the quarter, which aligns with the highest profit margin on GPW. Net insurance revenue, which approximates net premium earned, was $195 million for the quarter, reflecting a growth of 18% over the prior year.
The combined ratio for the group was 85.6% in the quarter, which was slightly higher than the prior year. The loss ratio in the quarter was slightly higher in both Trisura Specialty and U.S. programs in the prior year, but within our range of expectations. The expense ratio for the quarter was lower than the prior year for Trisura Specialty as a result of improved operational leverage and was slightly higher for U.S. programs. On a consolidated basis, the expense ratio was slightly higher than the prior year as a result of a shift in business mix towards Trisura Specialty, which has a higher expense ratio than our U.S. programs' business, but a lower loss ratio. Underwriting income for the quarter was greater than the prior year, primarily as a result of growth in the business.
Net investment income of $18.9 million increased by 11% in the quarter as a result of an increase in the size of the investment portfolio driven by new cash deployment. Our operating effective tax rate was 25.3% for the quarter, reflecting the composition of taxable income between Canada and the U.S. Overall, operating net income was $33 million for the quarter, which was greater than the prior year as a result of growth in underwriting and investment income. Non-operating results in the quarter consisted primarily of net gains associated with unrealized gains on the investment portfolio, compared to the prior year when non-operating results were negative as a result of certain non-recurring items. Exited lines had an immaterial impact to net income in the quarter.
Strong earnings per share contributed to a 7.2% increase in book value for the year-to-date period, resulting in a book value per share of $17.63 at June 30th, 2025. Book value per share also increased as a result of unrealized gains through other comprehensive income due to favorable movement in our fixed income portfolio. This was partially offset by foreign exchange movement in the quarter associated with a weakening U.S. dollar against the Canadian currency. Book value has grown at an average of 21.9% for the past five years, ending the second quarter at $843 million. We are on track to achieve our book value target of $1 billion by the end of 2027. During the quarter, we drew down on our revolver to further capitalize our growing U.S. surety balance sheet.
This increased our debt-to-capital ratio to 13.8% at June 30th, 2025, which was higher than at December 31st, 2024, but still well under our conservative leverage target of 20%. The company remains well capitalized, and we expect to have sufficient capital to meet our regulatory capital requirements and to support our robust organic growth. David, I'll now turn things back over to you.
Thanks, David. Operator, we now take questions.
As a reminder, if you'd like to ask a question at this time, please press Star, one, one on your telephone and wait for your name to be announced. To withdraw your question, please press Star, one, one again. Please stand by while we compile the Q&A roster. Our first question comes from Doug Young with Desjardins Capital Markets.
Hi, good morning. I'm getting more questions about softening market conditions in the commercial market. David, I know you kind of talked a bit about it in your opening remark, but I'm hoping you can flesh out this a little bit more about what you're seeing and maybe your top four commercial businesses in Canada and within the U.S. program. More as well, just put it in the context of whether you really have benefited from a hardening cycle in the last two, three years, like we would have seen, you know, potentially from some of your larger competitors that benefited materially from hardening conditions in the auto or in the property side. I know a lot in there, but maybe you just can give us a little bit of context.
Yeah, it's important to segregate, Doug, the areas that we participate in, maybe versus the broader commentary on the market. The first thing I would say about Trisura is we're definitively within specialty line in the commercial areas that we operate. Generally, you should expect that through a cycle, we are delivering and expecting better than industry average combined ratios. The first thing to understand is those expectations don't change in a hard or soft market. Now, that being said, if we take a step back and we look at broader trends across the industry, there are examples and there are areas where you're seeing, I'll say, competitive pressures come into the market. Some of these areas have been markets where we have seen very, very strong pricing trends for the last three or four years. Some of that is normalization of those trends.
I would segregate this cycle versus previous cycles. We seem to have much more ability or much more delineation as an industry between industry lines. For example, in the U.S. right now, casualty remains a relatively firm part of the market, where we're seeing some loosening in the property space. I think that can apply generally in Canada as well. Certain lines and certain pieces of the market are seeing more pressures versus others. Our business is not generally exposed to the personal line space, so you're not going to see a lot of those trends driving the direction of our business. The other item to really differentiate Trisura versus some other participants is we're disproportionately exposed or concentrated in the surety space, which again doesn't really follow the same market cycles.
Those hard market cycles we talked about in the last three or four years, surety has not benefited from that. We've been navigating a surety market that has been relatively consistent in its approach to pricing and competition. There's a lot there, but what I would say at a really high level is the market in general, the PMC space, is starting to transition. The specialty areas that we participate in, we continue to believe will have an outsized and attractive profitability profile.
Maybe just to wrap, like it doesn't seem like you're too worried. I mean, if I go back in time, there's been some pretty wild swings in cycles. You know, the cycle has been going on for quite some time. It doesn't feel like you're all that concerned about what you're seeing in the marketplace.
I think we're pragmatic. We expect underwriting profit and rationality from both market participants and our own underwriters. We built Trisura for the last 15, 19 years in Canada. Most of that time was a soft market. We're very familiar with navigating markets, be they hard or soft. Our priority is less so following a cycle, but underwriting profitably in niche areas we think are attractive.
Okay. Just hearing a lot more about competitive pressures in the U.S. fronting side from some of your competitors, anything worth kind of fleshing out on that side in terms of what you're seeing and your strategy on the U.S. program business?
Yeah, we haven't. For example, in U.S. programs, if you talk to us in 2021 or 2022, there were a lot of new entrants in the space. There was a lot of conversation and interest in the competitive landscape. I would say for the last couple of years, we've seen a real trickle or slowdown in new entrants into the market. If we segment that part of the space, there still is quite a healthy amount of momentum in the E&F markets in the U.S. I would say we still believe that there's a secular trend of growth in the MGA community in the U.S. Those two trends continue to support what we view as an attractive operating environment for our model in the U.S.
I wouldn't say that we've changed our approach over the last couple of years, and I would say that this year in particular, we've actually seen pretty good strength in pipeline and opportunities to write new business. It is always competitive in every line of business that we play in, but nothing this year has really changed our access to or navigation of the market.
I think you've grown faster or you've had a bit of a shift more towards the admitted versus the E&F market, and just maybe you can talk a little bit about what's driving that and really what does that mean?
Yeah, it's interesting. Submissions have continued to favor E&F markets over admitted, but the admitted lines that we do have have experienced a nice, slow trajectory of growth. It generally takes a bit longer to get an admitted program up and running, but they can access and grow over a long period of time a broader set of premiums. You're starting to see some of the investments we made over the last three or four years in having an infrastructure that serves both an E&F and an admitted platform pay out here. I wouldn't say it's indicative yet of a shift in submissions or market, but it does show somewhat the benefits of having a platform that can skate across both markets.
Okay. Lastly, I'm going to ask you this every quarter, but I'm going to do it again. In the prior year of reserve development, you guys don't give that quarterly. Can you talk about what you're seeing prior year of reserve development-wise in Canada and then in the U.S. specifically and the ongoing concern versus not the exited line?
Yeah, we'll certainly disclose this as we usually do on an annual basis as per our practice, but I would say we're not seeing anything significant to highlight from a prior year of reserve development. Pretty consistent trends in Canada and a lot more, I would say, sophistication around our reserving processes in the U.S., which we expect drives much less volatility in the future.
Appreciate the color. Thank you.
Our next question comes from Tom MacKinnon with BMO Capital.
Yeah, thanks. Morning. Question just with respect to expenses, corporate operating expenses. First quarter, they were $1.4 million, probably because of some elevated filing costs. Thought that might have been more seasonal, but it seems to be maintaining around that level in the second quarter. How should we be thinking about these corporate operating expenses going forward? While you're at that, maybe the expense ratio in Trisura Specialty, how should we be thinking about that going forward as well as you continue to build out some of your U.S. surety and your U.S. corporate within that segment too? Thanks.
Thanks, Tom. I think on corporate expenses, it's probably fair to have an approximate run rate around our Q2 level. I would model that around $1.2 million or so a quarter. You've seen a bit of an expansion in the size of the entity and some shifting of expenses around the vehicle. That will take us probably to about $1.2 million or so run rate at corporate expenses. I think from a broader perspective, when we talk about the expense ratio in Trisura Specialty, it is important to note that Q2 tends to be a little bit higher from both an expense and combined ratio perspective, just given some of the seasonality in our surety platform. I would expect that over time and in the full year, we're still achieving about a mid-80s combined ratio. You've got a little bit of marginal impact from corporate insurance this year.
We've got some investments that we're making in the U.S. expansion of that business. Around the edges, that pushes it up slightly, but I don't think anything that would change our long-term expectations here for specialty combined or expense ratios.
The debt costs increase. I assume that you've drawn on the line. What are the purposes for that? Is that really putting money into the U.S.? What does that mean in terms of your U.S. expansion in surety and corporate insurance and whatnot there?
Yeah, that's a good catch, Tom. We did draw down on the revolver to help us expand our U.S. surety operations. We've now increased the size of our U.S. surety balance sheet to $100 million ., which is a critical level or a critical benchmark for us to get by. We think this demonstrates both to the market and to our stakeholders some of the excitement we have about the potential of that platform. The other thing I do like to highlight is this is an example of Trisura being able to fund growth initiatives with internal capital. A combination of our own internally generated capital and some revolver capacity here has funded an internal initiative when historically we would have been accessing markets to drive those expansions.
I think this is actually a great story of us benefiting from a more sophisticated capital structure and leaning into what we view as a really exciting opportunity in the U.S.
Do you envision putting more in? How should we be thinking about this interest expense going forward?
In the near term, in the next three or four quarters, probably not any significant change there, but we'll adjudicate that with how quickly we see expansion in the U.S.
Okay, thanks.
Our next question comes from Stephen Boland with Raymond James.
Oh, good morning. David, can you just follow on about that capital injection into the U.S. surety? Is the U.S. surety like a separate subsidiary that you have to basically post more capital, or maybe just a little bit of the technicals on that, if you wouldn't mind?
Yeah, I appreciate that, Stephen. It's a good question because there are some nuances here from a regulated perspective that inform some of the navigation here. What we set up in the U.S. is effectively separate balance sheets for separate pieces of our business. We've created a vehicle for our U.S. surety operation that has a separate balance sheet, which is separately regulated and separately tracked. One of the most important nuances of that entity is that we have a treasury listing, and the treasury listing size informs the size of bond that you can participate on. That is a direct correlation to the amount of capital that you have in your surety dedicated balance sheet. What you're hearing from us here in increasing the size of that surety-specific balance sheet relates directly to those regulated entities.
This is a bit of a nuance of operating insurance companies everywhere, but specifically in the U.S. and specifically in surety. We want to make sure that we're showing people that we've got a dedicated amount of capital for our surety platform.
Okay, that makes sense. Maybe just on the Canadian fronting, you know, the premiums continue to come down year over year. Is this, obviously, you've talked in the past about competitiveness. Is this, you know, is this a choice of you walking away from programs that you don't think are being priced appropriately? Maybe just a little bit more on Canadian fronting, please.
Yeah, I would say first and foremost, we do expect and we have some confidence that towards the latter half of the year, you're going to see a bit more improvement in those levels of premium growth. There's a lot of lumpiness in this top line and fronting, which we've talked about in the past, but we do see some improvement there coming forward for Q3 and Q4. That being said, what we're seeing in the market is not unsurprising. There's some competition around these types of lines. You want your partners to be operating rationally and not chasing the market down aggressively. What we've seen here and some reductions in premium is a combined result here of both some seasonality and some lumpiness, but also people acting responsibly. You don't want to be writing business if the premiums or the pricing doesn't make sense.
Reducing some size here could reflect some of that. It could reflect some reduced pricing. There's always a nuance in, especially the Canadian fronting line of lumpiness. If I take a step back, what we really care about in that fronting line is how consistent and how attractive is the net underwriting income coming off of that, and given what we've seen in the pipeline through new business here and some of the programs we've added towards the end of Q2, we still feel pretty confident that this is a great contributor to the overall business.
Okay, that's all I have. Thanks very much.
Thanks, Stephen.
Our next question comes from Bart Jarski with RBC Capital Markets.
Great, thanks for taking the questions. I wanted to ask around the leverage ratio, David. I know you guys are targeting 20% and you know you're at 14% this quarter, but what are your thoughts longer term about maybe increasing that leverage target to take advantage of some of these exciting opportunities that you're seeing? Like we've seen peers go to 25%, sometimes up to 30% on M&A, and not suggesting you go to 30%, but can you shed some light on your thought around that leverage target longer term?
Yeah, I think you've seen precedence in the market and we would have a lot of appetite for stretching that target for the right opportunity. We've talked about 20% since we came out into the public markets, informed by a few things, including our size and a relative posture of conservatism. As we've gotten larger, as we've gotten more sophisticated, and certainly as we've evaluated more opportunities, there is and can be opportunity to stretch that for the right opportunities. You're seeing us, let's say, more appropriately lever the entity for some of the organic opportunities that we have. I think you'll continue to see us fund opportunities with a more market normal leverage ratio as we see those rise in the future.
Very helpful, thanks. Just to follow up on warranty, a really strong growth this quarter, you know, up 40%. Maybe help us understand some of the drivers there. Was it U.S., Canada, both, and sustainability of that going forward? Thanks.
We've been very happy with some of the growth we've seen in warranty. It's important to note we only operate in Canada in the warranty sector, so all of this is Canadian growth. Part of this is just expansion of our relationships with existing partners. We've seen a relatively strong pipeline of opportunities from the groups that we're already working with. That's nice to see in driving the growth. It's familiar partners, it's familiar products that are driving things here. We have seen some return or some success of auto sales in the first half of the year. I wouldn't say that we expect 40% growth every quarter, but certainly it's shaping up to be a strong year in warranty.
Okay, thanks. Just a quick follow-up on that, on the U.S. longer-term opportunity, any sense of timing as to when you will port that business south of the border and expect to write premiums there?
Yeah, I think if you look at the precedence we have in expanding our core lines of business, we've taken surety to the U.S., we've taken corporate insurance to the U.S. now and are building that out. I think it's always been in our vision board, I'll say, to figure out if we can participate in that U.S. warranty market. I think finding the right approach and the right partner is something we think about a lot. At this stage, we don't have any concrete plans in the timeline of that expansion, but it's certainly something we think about and talk about a lot internally.
Great, that's it for me. Thanks.
Thanks, Bart.
As a reminder, if you'd like to ask a question at this time, please press Star, one, one on your touch-tone telephone. Our next question comes from Jaeme Gloyn with National Bank Financial.
Yeah, thanks. Just first on the U.S. surety balance sheet and the $100 million level. Is this like the threshold to get you into a very large snack bracket, or is it kind of like fronting where there's another size rating to get to that can even increase that further, or does this give you the runway for the next, let's say, five years at $100 million+ or do you need to jump to another balance sheet level, say, in a couple of years or maybe in a year to further increase where you can play?
$100 million or $10 million treasury lifting is attractive in the U.S. markets, but without taking away from some of the progress we've made, bigger is always better in the surety space. The types of partners and counterparties and projects that you can participate on open up as you get to a larger and larger entity. There are a lot of exciting opportunities we gain access to at this level. As we continue to expand, I would expect that we continue to draw capital into that surety vehicle and that will continue to expand our potential presence in the market. Without taking away some of the excitement of getting to this level, there's always more we can do here.
Yeah, I guess if I ask it differently, what % of the surety market in the U.S. does this give you access to today? Is that something you can share?
I probably couldn't give you exact numbers right now, but we would be definitively a small and mid-sized participant in the U.S. market. If you make that same analogy that we've made in the Canadian market, I would port that over to say that the U.S. is a significantly larger market with significantly larger participants than Canada. At this stage, we are not accessing a significant part of that market. I can certainly try to size that for you more specifically offline.
Yeah, thanks. In terms of U.S. surety, I'm sorry if I missed this in the disclosures, but $80 million in premiums written this quarter for surety as a whole. Is it 50/50 now? Is U.S. a bigger part of the surety platform? Where does it sit?
It's not quite 50/50. U.S. is a little bit smaller than the Canadian platform, but they're getting closer.
Okay. Last one on surety, with the growth obviously very strong, can you break down how much of that is unit growth and new business relationships versus pricing?
There's not much of this growth that's being driven by pricing. It's mostly expansion of our distribution relationships and volume growth. Surety has been a relatively consistent market for the last five or six years from a pricing standpoint. All the growth that you're seeing is a success of the team in going out there and winning business.
Okay, great. Congrats on that work there. Shifting to the U.S. programs, core growth 12% year- over- year, a really solid growth number. Can you talk through what's driving that growth? New programs, pricing improvements, and with that new programs commentary, are you shifting away from some other programs? Kind of talk through some of those dynamics in the U.S. side.
Yeah, the U.S. is returning a little bit to some of the themes we had a couple of years ago. A lot of the growth that you're seeing in that core portfolio is growth of existing programs. This relates to the comments I made in speaking with Doug. The market in the E&F space is still pretty healthy, and that MGA community is being successful in expanding their share. Some of what you're seeing there is growth in existing programs. We've had some new program adds this year. They take some time to contribute meaningfully, but you do have some contribution from those new programs. That core portfolio is sort of demonstrative of some of the attractive trends that we saw in this space and continue to see in this space over the last three or four years.
It's a mix of partners we've known for a while and some additions around the edges. I wouldn't say pricing is driving things materially, although we do see casualty being relatively firm. That's a mild tailwind as well.
Yeah, in speaking about the mix, the product mix here, I mean, like property is where you ran into, let's say, some challenges in the past. I would assume property is not a big exposure anymore to the Trisura U.S. platform. Maybe you can kind of highlight some of those exposures. Where does it sit today? I would imagine that the portfolio is fairly well positioned in this current environment of softness on specialty and E&F property.
Yeah, I wouldn't say we have any aversion to the property market specifically. Where we have sensitivity is concentrated CAT exposures. Our property book today is about 25%- 30% of the overall book in the U.S. 70% or so is casualty. We feel pretty good about that positioning. The property programs that we do have today are relatively well diversified, and we tend to stay away from what I'll qualify as highly sensitive zones. Concentrated CAT risk south east, dedicated state wind exposed lines, we're not participating in those areas. Where you see us play is generally the more diversified pieces of that property market. We think that 25%- 30% mix is a healthy one for us to have, especially now as you see the reinsurance market coming back in that space. It makes things a little bit more predictable for us to navigate.
If you take a step back, think about our mix more broadly in both E&F and admitted or property versus casualty, I think you'll likely see a pretty consistent mix in the business in the near term. That 65%-35% or 70%-30% casualty property is a good spot to be in right now. It gives us some of the tailwinds of the casualty space that you're seeing in the pricing environment. It gives us some opportunity to opportunistically look at the property space. We've got the rails of infrastructure to skate between admitted and E&F if our partners would like to adjudicate programs in either of those markets.
Okay, thanks. I'll turn it over.
Thanks, James.
That concludes today's question- and- answer session. I'd like to turn the call back to David Clare for closing remarks.
Thanks very much. Thank you everyone for joining. If you have any other questions, don't hesitate to reach out. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.