Author Topic: TSU - Trisura  (Read 14384 times)

snowball82

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Re: TSU - Trisura
« Reply #30 on: February 27, 2019, 07:31:18 PM »
Cormark is more optimistic than BMO.

Trisura Group Ltd (TSE:TSU) Ė Stock analysts at Cormark lifted their Q3 2019 earnings estimates for Trisura Group in a research report issued on Tuesday, February 19th. Cormark analyst J. Fenwick now forecasts that the company will post earnings of $0.64 per share for the quarter, up from their prior estimate of $0.62. Cormark also issued estimates for Trisura Groupís FY2019 earnings at $2.51 EPS, Q1 2020 earnings at $1.06 EPS, Q2 2020 earnings at $0.76 EPS, Q3 2020 earnings at $0.83 EPS, Q4 2020 earnings at $0.79 EPS and FY2020 earnings at $3.44 EPS.

https://www.google.ca/amp/s/www.fairfieldcurrent.com/news/2019/02/23/cormark-equities-analysts-boost-earnings-estimates-for-trisura-group-ltd-tsu.html/amp

We will see. The execution is the key. Will they add many programs in US over next year ? How fast will they deploy the capital in excess? Will they be very impacted if a big recession come ?

Can they really be a large global specialty insurance company?
« Last Edit: February 27, 2019, 07:33:03 PM by snowball82 »


snowball82

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Re: TSU - Trisura
« Reply #31 on: March 03, 2019, 01:22:53 PM »
The new Vice President (march 2019), Bryan Sinclair has also worked at Partners Value Investments as Associate.

https://www.linkedin.com/in/bryan-sinclair-cfa-35676a88/?originalSubdomain=ca

Maybe Trisura is really the PVI's vehicule for a global specialty insurance company.
« Last Edit: March 03, 2019, 04:16:18 PM by snowball82 »

snowball82

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Re: TSU - Trisura
« Reply #32 on: March 04, 2019, 07:39:48 PM »
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.

@Cigarbutt
You have some very good points. I took a deeper look about a part harder to forecast when the economy growth slower. They are less construction-exposure than I thought. The Surety business line likely represents less than 30% of gross premiums and this ratio will be lower as Trisura Specialty continues to ramp up.

They write to government / infrastructure type projects, which tend to exhibit less cyclicality than the broader residential construction market.

 


« Last Edit: March 04, 2019, 07:46:56 PM by snowball82 »

Broeb22

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Re: TSU - Trisura
« Reply #33 on: March 05, 2019, 08:10:41 AM »
It's not really about the cyclicality of the end markets that matters as much. The contractors themselves have to stay solvent through a debt squeeze, so if the contractor has debt that can't be rolled over or extended they will default. I'm not in tune with contractor loans and how banks look at a contractor's customers when making lending decisions. So while you could be right, I suggest going back and looking at surety combined ratios during the early 90's. They were extremely high for a few years, well north of 100%, and if I remember correctly 140-150%. This remains the biggest risk to Trisura that I see is that some kind of adverse real estate event happens that crushes Surety profitability before Trisura has the chance to diversify away from it. Because its Canadian real estate, and many of us have probably read about the shoddy real estate lending practices up there since the Great Recession, see Home Capital Group, I think the potential for an adverse Surety period is higher than average.

whistlerbumps

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Re: TSU - Trisura
« Reply #34 on: March 05, 2019, 08:15:47 AM »
It's not really about the cyclicality of the end markets that matters as much. The contractors themselves have to stay solvent through a debt squeeze, so if the contractor has debt that can't be rolled over or extended they will default. I'm not in tune with contractor loans and how banks look at a contractor's customers when making lending decisions. So while you could be right, I suggest going back and looking at surety combined ratios during the early 90's. They were extremely high for a few years, well north of 100%, and if I remember correctly 140-150%. This remains the biggest risk to Trisura that I see is that some kind of adverse real estate event happens that crushes Surety profitability before Trisura has the chance to diversify away from it. Because its Canadian real estate, and many of us have probably read about the shoddy real estate lending practices up there since the Great Recession, see Home Capital Group, I think the potential for an adverse Surety period is higher than average.

great point Broeb... the one thing I would mention is that TSU's surety practice is mostly aimed at govt and commercial contractors.... I don't think they have much (any?) exposure to residential...  that being said, I agree that govt/comm contractor bankruptcies is a key risk

 one potential tailwind is the infrastructure projects being pushed on both the federal and province (ontario) level...

snowball82

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Re: TSU - Trisura
« Reply #35 on: March 05, 2019, 02:37:57 PM »
It's not really about the cyclicality of the end markets that matters as much. The contractors themselves have to stay solvent through a debt squeeze, so if the contractor has debt that can't be rolled over or extended they will default. I'm not in tune with contractor loans and how banks look at a contractor's customers when making lending decisions. So while you could be right, I suggest going back and looking at surety combined ratios during the early 90's. They were extremely high for a few years, well north of 100%, and if I remember correctly 140-150%. This remains the biggest risk to Trisura that I see is that some kind of adverse real estate event happens that crushes Surety profitability before Trisura has the chance to diversify away from it. Because its Canadian real estate, and many of us have probably read about the shoddy real estate lending practices up there since the Great Recession, see Home Capital Group, I think the potential for an adverse Surety period is higher than average.

Your point is valid, so they have to stay disciplined as they did over last + 10 years. I bought my large position based on that track record..I hope they will continue to execute !

That said, often times in a recessionary environment governments ramp up spending on public projects as a way to support the economy, which in the past has provided a certain degree of countercyclicality in the surety business. For now, I heard the construction demand in Canada is still good. This could change. I also heard there's a new regulation for mandatory bonding of public projects in Ontario. I don't have the details.

« Last Edit: March 05, 2019, 02:46:37 PM by snowball82 »

Broeb22

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Re: TSU - Trisura
« Reply #36 on: March 06, 2019, 01:33:00 PM »
From page 12 of the 2018 Annual report:

The main products offered by our Surety business lines are:
-Contractor Surety Bonds, such as performance and labour and material payment bonds, primarily for the construction industry;
-Commercial Surety bonds, such as license and permit, tax and excise, and fiduciary bonds, which are issued on behalf of commercial enterprises and professionals to governments, regulatory bodies or courts to guarantee compliance with legal and fiduciary obligations; and
-Developer surety bonds, comprising mainly bonds to secure real estate developers' legislated deposit and warranty obligations on residential projects.

The second bullet, while it could be interpreted as pertaining to government contractors, seems more broad and likely covers most industries in Canada. Of course, in a recession, many industries are likely to run into issues and may face claims.

Is there some other source that explains in more detail what Trisura's Surety business underwrites? To me, this seems like run-of-the-mill Surety business, and while we don't know the mix between the three types of Surety, two out of three relate to construction. so I would guess at least 1/3 of the book is construction and likely much more.

On their discipline for the last 10 years, we should be careful given today is almost 10 years to the day of market lows in 2009. Many businesses show exemplary records of performance on that time horizon. I agree combined ratios have been very good, but we also have to consider that the company has grown significantly since 2009 (or at least that's my impression), so it represents a larger part of the Surety market today than it did in 2009. So, there may not be as many juicy insurance premiums now as there were over the last 10 years, and particularly for a few years after the crisis.



snowball82

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Re: TSU - Trisura
« Reply #37 on: March 06, 2019, 05:58:10 PM »
From page 12 of the 2018 Annual report:

The main products offered by our Surety business lines are:
-Contractor Surety Bonds, such as performance and labour and material payment bonds, primarily for the construction industry;
-Commercial Surety bonds, such as license and permit, tax and excise, and fiduciary bonds, which are issued on behalf of commercial enterprises and professionals to governments, regulatory bodies or courts to guarantee compliance with legal and fiduciary obligations; and
-Developer surety bonds, comprising mainly bonds to secure real estate developers' legislated deposit and warranty obligations on residential projects.

The second bullet, while it could be interpreted as pertaining to government contractors, seems more broad and likely covers most industries in Canada. Of course, in a recession, many industries are likely to run into issues and may face claims.

Is there some other source that explains in more detail what Trisura's Surety business underwrites? To me, this seems like run-of-the-mill Surety business, and while we don't know the mix between the three types of Surety, two out of three relate to construction. so I would guess at least 1/3 of the book is construction and likely much more.

On their discipline for the last 10 years, we should be careful given today is almost 10 years to the day of market lows in 2009. Many businesses show exemplary records of performance on that time horizon. I agree combined ratios have been very good, but we also have to consider that the company has grown significantly since 2009 (or at least that's my impression), so it represents a larger part of the Surety market today than it did in 2009. So, there may not be as many juicy insurance premiums now as there were over the last 10 years, and particularly for a few years after the crisis.

New intraday high today at $ 28.90

You can find the products by industry here :

https://www.trisura.com/products-by-industry

It is also interesting to do some Google search about Trisura's brokers and programs. They have a nice network at this stage.

I'm still curious to know what the largest shareholder sees when they say TSU should become a global specialty insurer... ???

Is there someone planning to ask to Partners Value Investments ? Or going to the AGM ?

« Last Edit: March 06, 2019, 06:23:39 PM by snowball82 »

ourkid8

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Re: TSU - Trisura
« Reply #38 on: March 07, 2019, 02:12:49 PM »
I reached out to Bryan Sinclair from Trisura:

To answer your question below, our international expansion at this point in time speaks primarily to the expansion of our US entity. I would note we own an international reinsurance entity, based in Barbados; however, that entity is less active at the moment.

I'm still curious to know what the largest shareholder sees when they say TSU should become a global specialty insurer... ???

Is there someone planning to ask to Partners Value Investments ? Or going to the AGM ?

ourkid8

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Re: TSU - Trisura
« Reply #39 on: March 07, 2019, 02:27:45 PM »
Bryan Sinclair from Trisura:

Trisuraís Surety business, resident in our Canadian operation, writes Contract Surety, Commercial Surety and Developer Surety.

Contract surety is primarily related to government infrastructure projects, at the municipal, provincial and federal levels, and represents the majority of both gross premium written and underwriting income within that vertical (~75% on average). Itís important to note that this sub-segment is not exposed to housing construction.

Commercial surety relates to license and permit, and customs bonds, and represents ~15% of gross premium written.

Developer surety relates to the condo market, with our book of business focused on the GTA and Vancouver markets. Developer surety would make up less than 10% of our gross premium written.

Hope that helps,

Bryan

From page 12 of the 2018 Annual report:

The main products offered by our Surety business lines are:
-Contractor Surety Bonds, such as performance and labour and material payment bonds, primarily for the construction industry;
-Commercial Surety bonds, such as license and permit, tax and excise, and fiduciary bonds, which are issued on behalf of commercial enterprises and professionals to governments, regulatory bodies or courts to guarantee compliance with legal and fiduciary obligations; and
-Developer surety bonds, comprising mainly bonds to secure real estate developers' legislated deposit and warranty obligations on residential projects.

The second bullet, while it could be interpreted as pertaining to government contractors, seems more broad and likely covers most industries in Canada. Of course, in a recession, many industries are likely to run into issues and may face claims.

Is there some other source that explains in more detail what Trisura's Surety business underwrites? To me, this seems like run-of-the-mill Surety business, and while we don't know the mix between the three types of Surety, two out of three relate to construction. so I would guess at least 1/3 of the book is construction and likely much more.

On their discipline for the last 10 years, we should be careful given today is almost 10 years to the day of market lows in 2009. Many businesses show exemplary records of performance on that time horizon. I agree combined ratios have been very good, but we also have to consider that the company has grown significantly since 2009 (or at least that's my impression), so it represents a larger part of the Surety market today than it did in 2009. So, there may not be as many juicy insurance premiums now as there were over the last 10 years, and particularly for a few years after the crisis.