Is there someone here able to figure what could be the impact related to unearned premium growth at the end of 2018 ($182 623 000 vs $ 115 357 000 for 2017, balance sheet, note 8 ) for 2019 ?
Thanks
Thanks for the thread. There is a lot to like about TSU and I will keep it on a watchlist to see how it will develop a consistent operating history given its present vision and strategy.
The positives: niche and specialty market, room to grow in a fragmented market, management team appears strong.
Some areas to follow, mostly about their US business:
-partnering with program administrators
-fronting arrangement
-business model relies on access to reasonable reinsurance capacity
You may remember that Fairfax ran into trouble with their TIG acquisition which had about 50% of its insurance business tied to programs controlled by managing general agents who had authority to bind the company. TSU needs to partner with competent and diligent program managers because they are effectively "giving their pen away".
For fronting arrangements to work, you need to align incentives and have financial checks in place. Some years ago (70's and 80's) many US insurers ran into trouble for various reasons which involved fronting arrangements. You may want to get your hands on a report called "Failed Promises" which was produced in the early 90's by Mr. John Dingell (who died a few days ago) who was the longest-ever serving Congressperson in American history. The report describes the potential ways how fronting arrangements can go wrong and how regulation could be improved. But fronting arrangements can work very well in selected markets and it seems that TSU has found a model which meets market demand. They also maintain skin in the game (retained 4.7% of premiums in 2018)
A potential problem has to do with their reliance on reinsurance for almost all business written in the US. The model requires reinsurance capacity to be maintained in order to maintain business or to grow. It is possible that reinsurance capacity eventually diminishes and alternative capital has not made its way to this area of the insurance market. A bad scenario would involve an extrinsic reason that would both reduce reinsurance capacity and TSU's capacity to retain the business. It looks like they will reinsure themselves to some degree (Barbados unit) going forward.
Concerning your question, it's not clear what you're looking for. Unearned premiums means that the deferred premiums relating to periods subsequent to the balance sheet date will be recognized as revenue on a pro-rata basis over time (net of premiums ceded). So increasing unearned premiums leads you to expect higher premiums earned and the unearned premium account will increase if written premiums keep ahead of premiums earned. Note also that unearned premiums are recorded at gross levels and, for the US business, TSU mostly acts as a pass-through.
