Morningstar DBRS Changes Trend on Trisura Group Ltd. to Positive from Stable; Confirms All Ratings

DBRS Limited (Morningstar DBRS) changed the trend to Positive from Stable and confirmed all ratings of Trisura Group Ltd. (Trisura or the Company) including the Issuer Rating and the rating on Trisura's Senior Unsecured Notes at BBB as well as the Financial Strength Rating of its operating entities at A (low).

KEY CREDIT RATING CONSIDERATIONS
The change in the trend to positive reflects Trisura's notable growth and strong financial performance in recent years, underpinned by the expansion of its product offerings in the Canadian and U.S. markets. Additionally, the Company has also demonstrated significant risk management enhancements and an improved investment portfolio risk profile.

The confirmation of the credit ratings reflect Trisura's established position in the Canadian specialty insurance and U.S. Programs markets and its extensive relationships in the brokerage and reinsurance industries. Trisura's risk profile is characterized by its high-quality underwriting and heavy use of reinsurance in its U.S. Programs line, where operational and counterparty credit risks are more prominent. The Company's investment portfolio is short-term and relatively conservative with a larger focus on investment-grade corporate bonds. Trisura has enhanced its risk management infrastructure in recent years as it has grown its operations and its financial position is solid with good liquidity, strong capital buffers, and low financial leverage.

CREDIT RATING DRIVERS
Morningstar DBRS would upgrade the credit ratings if Trisura continued to demonstrate enhanced risk management practices while reporting healthy profitability and capitalization levels. Morningstar DBRS would downgrade the credit ratings if Trisura were to face problems with its risk management practices or the quality of its reinsurance counterparties. In addition, the credit ratings would be downgraded if there were a substantial decline in profitability and capitalization metrics.

CREDIT RATING RATIONALE

Franchise Building Block Assessment: Good/Moderate
Trisura's specialty commercial insurance franchise has delivered strong and profitable growth in recent years in the Canadian and U.S. specialty insurance markets. Trisura has a well-established market position in the Canadian specialty commercial insurance market, especially in surety, where it ranks fourth in direct premiums written. Trisura's U.S. Programs business continues to grow substantially, ranking third in the U.S. despite a competitive environment, showing the effectiveness of its distribution strategy based on strong relationships with third-party program administrators. Trisura has a diversified specialty insurance product offering, a long history of working with various brokers, and has shown strong execution on its growth strategy.

Earnings Building Block Assessment: Strong/Good
Trisura continues to deliver strong financial performance into 2024, driven by above-average growth, good underwriting profitability and higher investment income. Earnings of $99.7 million for Q3 2024 year-to-date (YTD) compare favorably to $55.6 million for the same period in 2023, which was still negatively affected by the run-off of a terminated U.S. Program. Return on equity of 16.7% Q3 2024 YTD is above the Company's mid-teen target and trending higher, reflective the operating potential of the business. Higher yields on fixed-income investments have supported higher profitability with the company increasing its allocation to investment grade corporate bonds. Morningstar DBRS expects Trisura to continue to deliver strong profitability while slowing down the pace of growth.

Risk Building Block Assessment: Good/Moderate
Trisura's insurance risk exposure is limited because of the heavy reliance on reinsurance, especially in its U.S. programs business. However, the exposure to counterparty credit risk and the processing of large volumes of insurance premiums and claims introduces some operational complexities. Trisura's enterprise risk-management framework has been enhanced through additional structures, processes, and procedures in recent years while its investment portfolio risk profile has improved as indicated by a lower proportion of lower-rated securities.

Liquidity Building Block Assessment: Good/Moderate
Trisura maintains ample liquid assets on its balance sheet, as well as access to committed banking lines of credit, which is seen positively. While the Company processes a higher dollar volume of claims in its U.S. Programs business, its claims profile is diversified and matched to premium inflows, limiting the liquidity exposure to reinsurance counterparties, which are either high quality or fully collateralized.

Capitalization Building Block Assessment: Strong/Good
Trisura is well capitalized with a growing equity base and low financial leverage. Its regulatory capital ratio buffers are very strong at 263% MCT for its Canadian entity and well above regulatory targets for its U.S. entities. Capital generation is supported by the good profitability and low risk profile of Trisura's business, and the Company continues to have good financial flexibility with demonstrated access to capital markets.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors
The following Environmental factor had a relevant effect on the credit analysis:

Environmental concerns regarding Climate & Weather Risks are relevant to the credit ratings of Trisura as a property and casualty (P&C) insurer but did not affect the assigned credit ratings or trends. 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 or increased reinsurance cost. Trisura's risk management framework provides consideration to climate risk, including through board level oversight.

Governance (G) Factors
Since the last rating action, the relevance or significance of the following Governance Factor(s) changed:

Governance factors were previously deemed to have a significant impact on the ratings following a 2022 event related to one of Trisura's reinsurance counterparties, which resulted in a material loss for the Company. In response, Trisura has taken adequate actions to enhance its risk management framework, which gives Morningstar DBRS confidence that such an incident is unlikely to be repeated. There is no longer any governance factor that has a significant or relevant effect on the credit analysis.

There were no Social factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations (September 10, 2024) https://dbrs.morningstar.com/research/439195. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

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 dbrs.morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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