It's great to have you here for another year.
Yeah. Good to be here, Phil. Thank you.
All right. Trisura continues to undergo a fairly significant evolution as it matures. Maybe if we can start off with a bit of an overview of where Trisura stands today, and where you see the biggest opportunities for growth from here.
Yeah. We're very excited at this moment, especially post Q2. I know you saw this, but we reached our 2027 targeted book value about a year and a half early. Hitting CAD 1 billion in book value, which is a huge step up in scale and a nice just psychological milestone for the organization. We're really excited about what that means for the success we've had in the past, as well as what that could mean for us in the future. I think excitingly, we've seen a lot of momentum in those primary lines that we've been now writing for 20 years here in Canada, and recently have expanded into the U.S. Our platform is getting more diversified, more significant, more scaled, candidly more durable as we build out that practice. It's an exciting time for us here at Trisura.
All right. When you think about Trisura's competitive positioning, what do you see as the key things that really differentiate Trisura versus its competitors and peers?
I think that niche or specialty focus is rare to find in the market. There's a lot of players who compete in this space who are many things to many people. Trisura definitively has not made that choice. We are very focused on a few lines of business that we believe we do very well and have a 20-year track record of competing successfully in those lines. That would be the first piece I'd highlight about our entity that's maybe a bit different than others. That specialty P&C angle and that expansion into the U.S. is also a rare combination. A lot of people today are talking about insurance cycles and how they are impacting parts of the market or individual businesses. It's easy to miss that as a specialty player, we experience those cycles much differently than other people and much more independently.
Our highly reinsured lines, like the US Programs business, actually can be a beneficiary of greater reinsurance availability. Our Surety lines of business, given how specialized they are, they're generally outside of those traditional market trends. It means that as we're growing and as we're building, we've actually got differentiated opportunities to play the market maybe differently than the others in the space.
Okay. Trisura has clearly been evolving as that platform matures. What are some of the bigger changes you'd kind of reflect on over the past year or two, and how should investors think about this evolution?
Yeah. I think the big one, and it relates to that first point we made, is just the absolute scale of Trisura is meaningfully different. Even than two years ago, we have compounded book value at a 25% compound annual growth rate over the last five years. That's a significant change in scale of the business, and it gives us a lot more credibility when we show up for opportunities. It gives us a lot more ability to compete for maybe products in the market that we didn't use to play in. It gives us a lot more upside in qualifying ourselves as a North American player. That scale piece is a meaningful change. That's directly related to some of the success we've had in expanding our business geographically.
If you talk about Trisura today, it's a lot more reasonable to qualify the vehicle as a North American specialty player. Our U.S. Surety practice is almost as large as our Canadian practice. Our U.S. Corporate Insurance practice is growing faster every month as we build that out in the U.S. Some of these big changes not only relate to the scale and heft of the vehicle, but it's also evidenced by where we're showing up in the market, right, which is now not just Canada, it's all over the U.S. in ways that is originating premium very profitably.
Okay. As we look out over the next year or so, what are the main priorities you're focused on, and what should investors be looking for or watching for?
I think we've talked a lot about growth in primary lines as a really critical priority for us over the last couple of years, and targeting that sort of mid-teens growth in net premiums or under insurance revenue in primary lines. You're seeing that momentum come through in Surety and Corporate Insurance, especially as we see some of the pickup in momentum in premium in those U.S. practices. I think beyond this and maybe a bit more specific to each line, that ability to move up market in these lines as we expand in our Canadian practice is really meaningful. The vehicle historically has had a lot of success playing in the small and medium sized parts of the markets, the specialty markets that we play in. We've now got an opportunity to move those markets or expand that market share up into some of that larger limit space.
In surety, for example, we can compete on now and entertain submissions in the larger limit bonding space. That is a really exciting time to be talking about it. We're just about to enter into a summit next week where hopefully Mark Carney is going to announce a bunch of new infrastructure investments. The surety market will benefit from those types of conversations. We would love to be at the table to participate in those, and having a large limit practice is the first step of that. If you think about our Corporate Insurance practice, we're kind of playing the same game in Corporate Insurance, so you can see us moving up market, expanding our product suite in the Corporate Insurance space. Still within that specialty definition of product and of lines of business.
But now with a bigger balance sheet, a broader employee base, a broader reach with brokers, we can play in a broader part of the market.
Okay. Now, the specialty lines platform, it's often being referred to as the crown jewel. Over the past few years, really delivered exceptional results. What's the outlook for the platform over the next 12, 24 months?
Yeah, I think this platform, you're right, it's performed incredibly well. We've been fortunate that we have expanded the platform while maintaining very competitive levels of profitability. My goal, and I know the goal of everyone at Trisura, is to continue that momentum. Growing this platform, or growing Trisura Specialty's platform's net premiums earned by 15% over the next 12 or 24 months, I think that's something that's achievable and a target that we have. Qualitatively, I think bringing and continuing to bring on good talent and new people, especially as we expand in the U.S., is a real focus for us. We have had real success in the last 12 months of getting across the line of some of our final licensing conversations, especially with big states like California, Florida, and Texas.
Now bringing on the teams in those local geographies to originate business and execute on our plan will be a real exciting next step.
Okay. We are seeing some diversions across segments in terms of top line and margin direction. If you can maybe walk us through, I'll call it some of the line by line dynamics and maybe kind of one year outlook across those major lines.
Yeah. I'd center everything on that 15% target on the specialty line space. I think within that, what we call primary lines, you're going to have marginal differences between them. Surety's got a lot of momentum right now. We think that mid-teens rate of growth in that line of business is very sustainable. Corporate Insurance, as that U.S. platform continues to ramp up, I think that same mid-teens rate of growth is what we're thinking about achieving. Where we've got a bit of a divergence, I'll say more recently, would be something like a Canadian Fronting, where you're seeing some of that competitive nuance in the market of the more commoditized lines impacting top line. We would expect that Q3 and Q4 to continue, but likely through 2027 at least find some bottom.
Warranty, I think from a top line perspective, is likely a low to mid single digits growing platform. What's really exciting about the Warranty business, given how successful we've been in that practice over the last couple of years, you're going to see a really strong trajectory of growth in net premiums earned or insurance services revenue. That will feed very directly into net underwriting income. Lots of great momentum in the platform, especially in the areas we've been putting a lot of shoulder behind in the last couple of years in Surety and Corporate Insurance.
Okay. So U.S. Surety expansion, it is expected to be a solid growth opportunity. I think you are up to now about 48 licenses in the U.S., and as you mentioned, you recently added some large states. How big a catalyst is that for growth in the near to midterm, and what other milestones or team lift-outs should investors be looking for?
Yeah, we are actually, I am happy to say we are at 49 states now. I would qualify us as relatively fully licensed in the U.S. I am so excited, Phil, to not talk about licensing all the time anymore. I think there is a very natural delay, as you referenced, between getting that license and starting to ramp up premium in that space. We are seeing very good growth out of our U.S. Surety practice, even in Q3, despite not having a lot of origination coming from California, Florida, or Texas. I would assume and hope that those businesses start impacting premium production through 2027. So we start to see rates being filed, teams being put in place, and then premium starting to flow through the middle of 2027, which is a great de-risking of the execution plan. Right?
If you talked to me 12 months ago, the regulators can be black boxes in terms of how quickly they are going to get back to you on licensing. The change today may be versus 12 months ago, is we have those licenses in hand. We have now most of our rate filings in hand, and it is back to something we are very familiar with, which is building the business day to day out in the market with the brokers. That type of momentum and that type of shift in building the business in those new states is very exciting, likely not impactful until sort of the middle of next year.
Okay. What types of clients are you focused on in the U.S., and does that differ or how does it differ from the Canadian business?
Yeah, our U.S. clients are very similar to our Canadian. Most of our surety practices contract surety here in Canada, probably 75%-80% of it. We've got a bit more even mix in the U.S. between contract and commercial. But the size and types of clients that we are writing in the U.S. are very comparable to those that we write in Canada. In fact, worth knowing and worth reiterating, as we're expanding into the U.S., our head office function, our controls function, our underwriting appetites, they're consistent between the two. So they're based here in Canada and being built out by the same team. That appetite for risk and the types of people that we look to coordinate with, they're consistent across both geographies.
Okay. In which surety lines do you think Trisura is probably most competitive in for the U.S. and Canada?
Yeah, our practice, I mean, we're a fourth largest surety player here in Canada. We're disproportionately represented in that small and medium sized contractor space. So that's where we have real expertise. That's the majority of the market, so it's a good place to be building. I would say we are so small in the U.S. right now, it's a little bit less relevant to compare ourselves to the broader market. But you would expect that in time, that split of business looks a lot like our Canadian business. So probably a slight majority or a majority of our business originated in the contract space, supplemented by commercial and maybe some specialized lines in surety.
Okay. Is the U.S. platform positioned to get involved in some of the larger profile infrastructure build-out themes that are capturing some headlines, or is it more niche, smaller projects?
Yeah. For us in the U.S., you're likely not going to see us on those larger infrastructure projects. The common one I get asked about is things like data centers. That's not going to be an area that drives our business. But to the extent manufacturing reshoring continues in the U.S., infrastructure construction continues, even data center construction continues. That's a tailwind for the construction and contractor industry as a whole. We may see opportunities as a result of subcontractors in that space. Lots of areas for us to play. You shouldn't think about us playing in those really large limit projects in the U.S. Hopefully, a couple of years from now, I'm on this same stage invited back and talking about all the great opportunities we have in that large limit space in Canada. That's the more likely place for us to be first.
Okay. U.S. Corporate Insurance. It's another growth factor, although earlier stage, I think, than Surety. How is that initiative progressing?
Yeah. We're really excited. I think this is the year where we start to see some of that momentum come through on the top line. I think we talked about in our Q2 call expecting about a mid-teens growth rate in that Corporate Insurance practice overall being driven a lot by that U.S. Corporate Insurance ramp. We're now sort of two months into Q3. I think we would just confirm we continue to see that potential arriving, which is a step up in growth for that Corporate Insurance practice. I'm really excited by the blueprint that has been set for us by U.S. Surety. U.S. Surety is six years into its build-out, and now the practice is almost as large as our Canadian Surety practice. U.S. Corporate Insurance is about two years, maybe a little bit more into their build-out.
You're now into that exciting part of the curve where premium is starting to be put on in a more meaningful way. If we continue to execute in the way we believe we can, in four to five years, that practice should be approaching our Canadian practice's size.
Okay. What are the key milestones that investors should be looking for in the year ahead?
I think keep us focused on and keep asking about the combined ratio contribution of that U.S. practice. We've just now started to see it be a little bit more contributory or less, I'll say, dilutive to the overall practice. I would really love to be in a position a year from now, a couple of years from now, where that's contributing better than break-even results to the organization. That's the exact trajectory that we had in our Surety platform. In time, in the fullness of time, you want that platform to be writing comparable combined ratios to the Canadian practice, and I think that's a bit longer timeline, but one that's achievable.
Okay. Let's change gears a bit, and we'll focus on US Programs and that Fronting business. Profitability there is solid. Premium growth in Q2, a bit below target, kind of flat, marginally improving over last year. What do you expect the top-line growth and profitability trajectory to evolve over that next, again, 12 to 18 months?
Yeah. I think our full-year guidance for US Programs was mid-single digits growth for that platform. I think we're still around that zone from an expectations perspective. What I'm very excited to see from that US Programs business is just more consistency in the platform. So you've seen a pretty significant change in predictability of that business. Very consistent low 80s combined ratios. Interestingly right now, this theme that we've been talking about reinsurance is arriving most immediately in that US Programs practice. So we haven't really written new property programs in a few years. All of a sudden this year and the end of last year, we had a lot of reinsurance interest and appetite in writing some of those new property programs. Very high-quality partners in that space to build out that practice, which is exciting.
I think our target for the next 12 to 18 months is continue that sort of mid-single digit trajectory of growth and then optimize both retention and profitability of that platform. There's real opportunities here for us as we get larger to think about the best ways for us to structure this business, whether that's retaining more or differently structuring the reinsurance around this practice. I think given the amount of focus on this industry, both from distribution partners and reinsurance, there's a really exciting place for Trisura to play.
Okay. Let's talk a little bit about capital allocation. How would you prioritize capital allocation between, again, organic growth, acquisitions, and shareholder returns?
Organic growth is number one. We have so many opportunities to grow this business through organic means. That's been most of the success of this practice historically. Opportunistically, beyond organic growth, we will look to inorganic initiatives, and that can include things that maybe don't look like traditional M&A. So things like team lift-outs, which you saw us pursue to move into the larger limit contractor space. Renewal rights transactions, license transactions. We actually bought a small surety company a couple of years ago. So those types of things we've shown some appetite for. We've recently started and acted upon an NCIB. So you've seen us repurchasing shares. That's relatively opportunistic and mostly used to offset equity compensation. But I think there's a signaling mechanism there as well.
Longer term, as the business continues to scale and grow, you might get into a conversation about other forms of shareholder return, but a lot of opportunities for us to grow organically today.
Okay. If I can dig into that a little bit, if we thought about milestones for something like a dividend at the board level discussion. Can you just give us a sense in terms of what's being weighed between reinvest in business and potentially introduce that dividend?
Yeah. It's a great question, and we get this a lot. I think, the best way to think about this is we want fully scaled platforms that can capture the opportunity we believe is in front of us before we start seeding that capital out. From our perspective, the measurement of the size of our U.S. Surety balance sheet and the scale of those operations will sort of inform that. So are we at the right level of balancing the U.S.? That number is a bit of a moving target, but I think we can probably get in the next year a lot more definitive about what we'd like to be in that U.S. Surety platform before we would start to see excess capital being available for other types of returns. In my view, that's sort of the item that we need to think about.
The other piece that as any insurance company gets larger, you can start to think about more flexibly is how do you optimize your retention? We're still a vehicle that uses a lot of reinsurance even in our primary lines. That reinsurance is candidly seeding very, very profitable business. The other piece you have to make sure you're thinking about from a dividend perspective is what's the best way to use the capital that you have, and how do you optimize that profitability.
Okay. I think you mentioned the opening remarks, right? You've achieved this goal of reaching a CAD 1 billion in book value years ahead of schedule. What's the ultimate vision for this company, and what's in store for the next three to five years?
Yeah. We are excited to more credibly claim the mantle of a North American specialty leader. I think we have got a great practice in Canada. We have got an emerging practice in the U.S. Scaling that North American presence is a big focus for us. In terms of financial targets, we are excited to be launching another investor day beginning of March of next year. I think we will be very vocal about what we think the right metrics are for this business over the long term. I do not think they are going to significantly surprise anyone. This is a platform that should be returning mid to high teens on an annual basis with a lot of opportunity to outperform if we do the right things. It is kind of an exciting inflection point for Trisura. Right?
The vehicle does not need external capital to pursue the opportunities we have in front of us, and in fact, is creating a lot of capital internally that is being reallocated. That gives us a lot more flexibility and confidence in pursuing our plans.
Excellent. Well, listen, it has been a great discussion. It is very insightful. Again, I would like to thank you personally again for taking the time to do the discussion, to meet with investors. Again, thank you and the Trisura team for your continued support.
Thanks so much, Phil. Appreciate it, guys.
Thank you.