DBRS Morningstar Changes Trend on Trisura Group Ltd. and Its Operating Entities to Positive From Stable; Confirms Ratings

DBRS Limited (DBRS Morningstar) changed the trends on the ratings of Trisura Group Ltd. (Trisura or the Company) and its operating entities to Positive from Stable and confirmed the Issuer Rating of BBB for Trisura and the Financial Strength Rating of A (low) for its operating entities.

KEY RATING CONSIDERATIONS
The change in trend to Positive from Stable recognizes the significant growth of Trisura’s specialty insurance franchise in the Canadian and U.S. markets, while demonstrating consistently strong financial performance. The Company’s healthy underwriting margins and fee income result in very strong profitability metrics including the combined ratio and the return on equity. In addition, Trisura raised an additional $144 million in equity capital in Q3 2022, demonstrating its increased capital flexibility and further improving its financial position.

The rating confirmations reflect Trisura’s established position in specialty insurance in Canada, especially in surety insurance, and in the U.S. fronting market. The Company has demonstrated the ability to generate substantial value from relationships with distributors and reinsurers while maintaining a prudent risk profile, low financial leverage, and adequate capitalization.

RATING DRIVERS
DBRS Morningstar would upgrade the ratings if the Company were to continue executing on its growth strategy while maintaining profitability and capitalization levels, particularly against weaker economic conditions. Given the Positive trend, a downgrade in the near future is unlikely. However, DBRS Morningstar would revise the trend to Stable if there were a sustained decline in profitability and capitalization metrics.

RATING RATIONALE
Trisura’s position in the specialty commercial insurance market in Canada and in the fronting market in the U.S. has allowed it to deliver strong, profitable growth in recent years. Trisura has a respectable market position in the Canadian specialty commercial insurance market, especially in surety where it ranks fourth at approximately 10% of direct premiums written. Trisura’s U.S. fronting business continues to grow substantially, despite a competitive market, showing the effectiveness of its distribution strategy based on strong relationships with third-party program administrators.

Trisura has a comprehensive enterprise risk-management framework that is appropriate for its operational and product complexity. The Company maintains prudent risk exposure through a business model that relies heavily on reinsurance coverage. It has above-average credit risk exposure through the surety insurance line as well as through the reinsurance counterparty risk on fronting programs. Its investment portfolio is well diversified across sector, geography, and risk exposure with a large cash position providing ample liquidity.

Trisura has reported strong financial results in recent years, driven by superior underwriting performance and growing fee income from its fronting business. Despite an ambitious growth trajectory, it has maintained consistently high underwriting margins and return on equity. This profitability is expected to result in growing internal capital generation, which the Company can put to use to fund future growth opportunities. In addition, Trisura’s strong capitalization reflects its low leverage and strong regulatory solvency ratio, supported by an equity raise of $144 million in Q3 2022. The Company continues to report comfortable regulatory capital ratios and to have good financial flexibility with demonstrated access to capital markets.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
Environmental concerns regarding Climate & Weather Risks are relevant to the rating of Trisura as a P&C insurer but did not affect the assigned rating or trend. As part of its P&C product offering, Trisura is exposed to weather-related losses from natural catastrophic events such as wind, wildfire, hail, flooding, and other extreme weather events. These events can lead to earnings volatility and increased reinsurance cost. DBRS Morningstar considered this ESG factor as part of product risk when assessing the Company’s risk profile. As of now, Trisura has not adopted the processes of the Task Force on Climate-Related Financial Disclosures.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

The Grid Summary Grades for Trisura are as follows: Franchise Strength – Good/Moderate; Risk Profile – Good/Moderate; Earnings Ability – Strong/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 Insurance Companies and Insurance Organizations (August 31, 2022; https://www.dbrsmorningstar.com/research/402220). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings, https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022) in its consideration of ESG factors.

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.

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

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

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