DBRS Morningstar Assigns Issuer Rating of BBB to Trisura Group Ltd. and Financial Strength Ratings of A (low), to Insurance Affiliates; All Trends Stable

DBRS Limited (DBRS Morningstar) assigned an Issuer Rating of BBB to Trisura Group Ltd. (Trisura or the Company). Concurrently, DBRS Morningstar assigned Financial Strength Ratings of A (low) to Trisura Guarantee Insurance Company and Trisura Specialty Insurance Company, the operating subsidiaries of Trisura. All trends are Stable.

KEY RATING CONSIDERATIONS
The ratings and Stable trends reflect the Company’s evolving and diversified franchise, resilient liquidity position, and sound regulatory capital levels. The Company is an internationally diversified underwriter of specialty insurance which tends to generate better underwriting profitability than conventional property and casualty (P&C) insurance companies due in part to the pricing flexibility of specialty lines and products. Trisura has experienced rapid growth the U.S. insurance market while retaining low risk due to the success of its U.S. insurance fronting business. The Company has an appropriate enterprise risk-management framework that reflects its operational and product complexity. Trisura maintains ample liquid assets on its balance sheet, as well as access to committed banking lines of credit. However, the Company’s discounted unpaid claims balance is subject to interest rate risk, particularly the Company’s life insurance reserves which have longer durations. At the same time, Trisura had experienced some volatility in its investment income caused by asset-liability matching inherent in the legacy life insurance business, but this is actively being addressed.

RATING DRIVERS
DBRS Morningstar would upgrade the ratings if there is a sustained material improvement in market positioning and overall profitability while maintaining strong regulatory capital ratios. An improvement in the risk profile of the investment portfolio would also be viewed positively for the ratings.

Conversely, the ratings would be downgraded if there is a sustained deterioration in overall profitability, capitalization, or market positioning.

RATING RATIONALE
The Company is an internationally diversified underwriter of specialty insurance products. Trisura has a respectable market position in the Canadian commercial specialty insurance market, supported by an efficient channel distribution strategy, with appropriate product and geographic business diversification. The Company has been able to maintain and gradually grow its market share by effectively retaining and expanding the broker distribution networks that serve its target niche markets. The Company’s market position should continue to strengthen over time as it expands geographically and through organic growth across its major lines of business. Trisura’s partnership with reputable reinsurance companies helps it maintain a consistent, long-term approach to program business and protect its balance sheet. The Company writes a broad range of specialty lines business through these programs. Positively, Trisura only selects program administrators with a track record for writing profitable business and maintaining strong underwriting discipline.

Trisura’s good/moderate risk profile is supported by the Company’s strong underwriting and risk-limit controls, effective claims management, and appropriate reinsurance coverage for aggregate claim events or large losses. Moreover, the Company has appropriate internal controls and has been able to operate successfully in multiple jurisdictions. A ratings constraint for Trisura is its exposure to interest rate risk largely based on unpaid claims reserves related to the legacy life insurance business. This has resulted in volatility to the Company’s yearly net income as a result of the fluctuating market valuations of its investments. The Company also has an elevated proportion of BBB-rated bonds in its bond portfolio mix, which comprise 31.2% of the total portfolio as at YE2020.

Trisura has good earnings ability, reflecting strong underwriting performance in the Company’s Canadian specialty insurance business and growing fee income generated from ceding commissions from the U.S. insurance fronting business. The revenue stream comprises a balanced and stable group of specialty lines products as well as geographic operations with significant growth characteristics from the ongoing success of the Company’s U.S. fronting business.

DBRS Morningstar views Trisura’s liquidity position as good/moderate, reflecting a reasonably predictable insurance and claims risk profile, high levels of marketable assets, applicable reinsurance cover commensurate with risk exposure limits, and good asset quality. Moreover, the Company has a resilient liquidity position, with the balance sheet comprising mainly marketable assets.

Trisura also maintains high solvency ratios, as evidenced by the Minimum Capital Test ratio of 249% as at YE2020 and 258% as at YE2019. The Company’s three-year weighted-average fixed-charge coverage ratio is strong at 23.3 times as at YE2020. The Company’s public company ownership structure allows for the issuance of common stock to investors if additional capital is needed.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The Grid Summary Grades for Trisura are as follows: Franchise Strength – Moderate; Risk Profile – Good/Moderate; Earnings Ability – Good; Liquidity – Good/Moderate; Capitalization – Strong/Good.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (July 21, 2020; https://www.dbrsmorningstar.com/research/364260). Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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