Trisura Group Ltd

TSX:TSU

Earnings Call Transcript 2022-Q2

[Operator]

Good morning. Welcome to Trisura Group Second Quarter 2022 Earnings Conference Call.

On the call today are David Clare, Chief Executive Officer; and David Scotland, Chief Financial Officer. David Clare will begin by providing a business and strategic update followed by David Scotland, who will discuss financial results for the quarter. Following formal comments, lines will be open for analyst questions.

I'd like to remind participants that in today's comments, including in responding to questions and in discussing new initiatives related to financial and operating performance, forward-looking statements may be made, including forward-looking statements within the meaning of applicable Canadian and U.S. securities law. These statements reflect predictions of future events and trends and do not relate to historical events. They are subject to known and unknown risks and future events and results may differ materially from such statements. For further information on these risks and their potential impacts, please see Trisura’s filings with the securities regulators.

After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]

I will now turn the call over to David Clare.

[David Clare, Chief Executive Officer]

Thank you. Good morning, everyone, and welcome. Our business continue to perform well in the second quarter, growing premium 77% compared to Q2 2021, and supporting a 19% return on equity through continued investment in infrastructure. Momentum has sustained as we scaled increasingly diversified specialty insurance platform. Results again were particularly strong in Canada, with 36% premium growth in the quarter supported by profitable underwriting.

U.S. premiums stepped up significantly, and reached a new record increasing a 103% over the second quarter of 2021. In Canada, disciplined underwriting produced strong profitability, while fronting drove increasingly diverse earnings. We have observed standout growth in earnings from risk solutions, the largest contributor to Canadian underwriting income in the quarter.

The favorable marketing corporate lines in Canada and EMS lines in the U.S. continued in the quarter, although we see a reduced pace of rate increases versus last year. The majority of our growth has been achieved through enhance distribution relationships and new volume. And as such, we expect to navigate eventual rate normalization smoothly.

68% growth in top-line in corporate insurance was driven by expansion of programs and sustained momentum with distribution partners, as well as the healthy, but mitigating rate environment discussed. Surety growth of 17% was strong as the business benefits from tailwinds and established lines and expansion of our U.S. practice.

Importantly, loss ratio of 14% in Canada improved sequentially, driven by profitable underwriting across all groups. Combined ratio in corridor was 81%, compared to 83% in Q2 2021, a very strong result. The Canadian platform posted a striking 32% return on equity and grew net income 70% over the prior year.

With the extension of our U.S. fronting expertise in Canada, our Canadian entity now generates attractive fee-based earnings to complement a heritage of profitable underwriting. U.S. fronting more than doubled premium over Q2 2021, maturation of existing programs drove top line supplemented by onboarding of new programs. U.S. fronting generated $448 million in gross premiums written and 15 million in fronting fees.

We have recorded $35 million of deferred fee income at the end of the quarter, indicative of future fees to be earned. Loss ratio in the quarter increased slightly due to an evolving business mix, while fronting operational ratio increased to 82% as a result of higher retention and significant investments in staffing and infrastructure. We also noted an increase in certain reinsurance costs, which have impacted fronting operational ratio.

It is important to note that, our U.S. earnings will lag premium production as fees are earned. The corollary being that near-term results will be comparable to this quarter. We expect to experience the benefit of this premium growth in earnings in 2023 and beyond.

On the last 12 month basis, the U.S. produced a 14% ROE in line with the prior year as a result of corresponding growth in infrastructure over the period in two significant capital injections. Given the rapid growth in the U.S. and the amount of capital recently downstream, we are encouraged to see the quarterly annualized ROE at 16%.

Although, we wrote $44 million in admitted premiums in the quarter, the market continued to drive opportunities to excess and surplus lines. The strength of our growth catalyzed our recent capital raise, which will support the expansion of our platform. I would like to thank our partners for the continued confidence. We do not take the prospect of raising equity lightly and look forward to deploying our new capital efficiently on your behalf.

Interest and dividend income increased 38% over Q2, 2021, the result of a larger portfolio as we grow our platform. The continued increase in interest rates drove unrealized losses in our fixed income portfolios though the impact was mitigated through our short duration posture. As a growing company supported by a recent capital raise, we are in a unique position to deploy investment funds at yields not seen since 2018.

We are fortunate to have a significant and consistent flow of capital to invest, enhanced by the maturation of our existing short duration portfolio investments. Prevailing bond yields are accretive to portfolio yield, meaning that we are improving our base of interest and dividend income on a risk-adjusted basis for years to come.

Our platforms have become complementary sources of opportunities for one another, as we gain market share in one geography, our presence in and capabilities of companion offices, provide opportunities to generate new business and service our partners in both Canada and the U.S. in the quarter, we observed this on both the distribution and capacity side as opportunities to collaborate with distribution agents and reinsurers we are shared between Canada and the U.S.

We remain an insurance company in growth mode and must focus on the skills and discipline that brought us to this point. Concentration in business lines we know, conservative underwriting and detailed structuring. We are navigating a volatile environment now armed with a larger capital base and renewed debt capacity.

We are in a better position than ever before to support our partners and grow our business. In the context of strong results, it is always worth acknowledging that our business can experience volatility and severity on claims. As we continue to grow, we strive to increase the proportion of our businesses strive from occurring or fee based earning sources.

With that, I'd like to turn it over to David Scotland for a detailed review of financial results.

[David Scotland, Chief Financial Officer]

Thanks, David. I'll now provide a brief walkthrough of some financial results for the quarter. Gross written premium was 642 million for the quarter, which reflects growth of 77% over Q2 2021. Net claims expense for the quarter was greater than the prior year, primarily as a result of growth in the business. We also experienced a claims recovery in 2021 associated with our life annuity reserves, which have since been noted and which reduced claims expense in that quarter.

Net commission expense increased by 68% in the quarter, reflecting growth in the business in both the Canadian and U.S. operations as well as a shift in business mix towards certain lines with higher commissions. Operating expense in the quarter grew by 22% over Q2 2021, reflecting growth in both the Canadian and the U.S. operations.

Net underwriting income in Canada for Q2 was greater than the prior year as a result of growth in the business and a lower loss ratio. Net underwriting income for the U.S. for Q2 2022 was lower than Q2 2021 as a result of a higher loss ratio and an additional catastrophe reinsurance payment made in the quarter.

In Q2, the combined ratio in Canada was 81% and the fronting operational ratio in the U.S. was 82%. With the innovation of our life annuity reserves in Q4 2021, we are now able to calculate a meaningful combined ratio on a consolidated basis. In Q2, that combined ratio for the Company was 79%.

Net investment income was greater in Q2 2022 than 2021 as a result of an increase in interest and dividend income. The increase was primarily related to an increase in the size of the investment portfolio. Net investment income in 2021 was also negatively impacted as a result of movement in the investment supporting the life annuity reserves, which was offset by the corresponding movement and claims expense in that quarter.

Net gains were 1.4 million in the quarter as a result of realized gains on investments disposed of during the period. This was less than the net gains of Q2 2021, largely as a result of movement and derivatives used to hedge share based compensation, which were greater in that quarter.

Income tax expense increased in Q2 2022 compared to 2021, reflecting higher net income before tax in the quarter. And the impact of a tax recovery in 2021 with reduced income tax expense in that quarter. Net income for the group was 20 million in the quarter which was greater than 2021 as a result of growth in the business.

Diluted EPS with $0.48 a share in Q2 2022, which was greater than 2021. Consolidated ROE are rolling 12 month basis was 19% at the end of Q2 2022, which was greater than the rolling 12 month ROE at the end of Q2 2021.

Assets year to date grew by 489 million. Cash in the period increased as a result of the drawing of 30 million from our revolving credit facility. Investments have decreased reflecting the transfer of assets from the innovation in 2021 as well as unrealized losses incurred in the period.

Premiums and accounts receivable and other assets have grown as a result of growth in GPW particularly in the U.S. over this most recent quarter. Recoverables from reinsurers have increased primarily as a result of growth in the U.S. fronting business as well as certain fronted programs in Canada, where claims liabilities are largely offset by expected recoveries from the reinsurers to whom we see the business.

Liabilities in the year-to-today period grew by 491 million, primarily as a result of growth in under premiums and unpaid claims and loss adjustment expenses, which have grown as a result of growth in both Canada and the U.S. As discussed, growth in these balances is largely offset by growth in reinsurance recoverables. Accounts payable accrued in other liabilities has decreased in the period as a result of the settlement of assets from the innovation in 2021, as well as the number of large payments in the period.

Equity is approximately the same as year-end, reflecting growth in net income offset by reduction in other comprehensive income. Other comprehensive income decreased in 2022, primarily as a result of unrealized losses on the bond portfolio due to rising interest rates, book value per share was $8.62 at June 30, 2022, which is greater than June 30, 2021 as a result of profit generated year-to-date and mitigated by unrealized losses in the investment portfolio over the quarter.

As of June 30, 2022, the debt to capital ratio was 22.7% as a result of a drop in the Company's revolving credit facilities. However, following the equity raise in July of 144 million of net proceeds, the Company's debt to capital ratio was below our 20% target. The Company remains well capitalized, and we expect to have sufficient capital to meet our regulatory capital requirements.

David, I'll turn things back over to you.

[David Clare, Chief Executive Officer]

Thank you. Operator, if you could remind analysts on the line, how to queue up for questions. We'll take questions at this time.

[Operator]

Yes, sir. [Operator Instructions] Our first question comes from the line of Nik Priebe of CIBC. Nik Priebe, your line is open.

[Nik Priebe, CIBC]

Good morning. So my general read on the pricing environment in U.S. commercial lines is that, rate increases have continued on renewal, but at a more moderate pace from one year ago. So higher rates are supportive of top-line growth in the U.S., but how much of the momentum that you're experiencing would be attributed to the flow of business from standard to E&S markets? Like has that remained an important tailwind or do you see that tapering along with the rate environment?

[David Clare, Chief Executive Officer]

It's an interesting question, Nick, and it's difficult to pinpoint exactly how much of the momentum in the E&S space right now is attributed to that phenomenon. I would say certainly we would agree with your observation that rate increases are still positive although not the magnitude that we've seen in years past. That narrative I would say is still present in the market -- in the preference or momentum we're seen in the E&S space.

We haven't yet been able to exactly measure how much is shifting under the admitted markets into the E&S. But I would say in hard market environment, generally, that is the term or generally that is the trend that you experience. So difficult to give you a precise answer on that, but I would say that we continue to see faster growth in the E&S market than the admitted market overall, which should suggest that market continues to benefit from substitution into the space.

[Nik Priebe, CIBC]

Yes. Okay. Well, fair enough. When you think about the evolution of the U.S. platform, if you are able to achieve a mid to high 60% loss ratio over time, is there a target fronting operational ratio that you feel is optimal for that platform or realistic that you would plan to manage to?

[David Clare, Chief Executive Officer]

Yes, this is going to depend somewhat on structure and mature retention levels, because that informs somewhat where your fronting operational ratio resides. At this stage, certainly in the longer-term, I would expect to be targeting something in the mid 70s. But in the near-term, as we talked about in our comments, the next couple quarters will be higher than that as we invest in the platform and as we navigate through Q3 and Q4.

So, I would say if you're thinking about this business over the longer-term, say through 2023, 2024, I would expect and hope that this ratio gets back down into the mid 70s. But in the near-term, as we grow and as we step up the infrastructure in this platform, you're going to see that slightly higher.

[Nik Priebe, CIBC]

Okay. That's helpful. And then one last one for me before I pass the line, the equity raise, does that -- will that push you into a higher size category for AM Best? And if so, would that have an impact on your competitive positioning? I'm just wondering if enables you to pursue larger policies that might be supported for the ramp of admitted lines.

[David Clare, Chief Executive Officer]

It's a good question, Nick. It doesn't push us into that higher size category yet. The next size category, I believe is $500 million. So on a consolidated equity basis for still below that in U.S. dollars, but it's something that's on our radar.

[Operator]

Thank you. Our next question comes from the line of Jeff Fenwick of Cormark. Jeff Fenwick, your line is open.

[Jeff Fenwick, Cormark]

So Dave, maybe one thing we could talk about surety and the outlook there, I get a lot of investor questions around the risks around recessionary environment and the construction market alongside of that. Maybe just give us a bit of color about how you are approaching the business there? What the mix looks like in your comfort level going forward.

[David Clare, Chief Executive Officer]

I would say, surety is an industry and certainly a practice within our company that obviously watch closely all the time, but especially in times where people are thinking about recession. I would say from our perspective, we are usually very interested in understanding the credit quality of our surety partners of our bonding partners that's the crux of our underwriting philosophy, that's how we have been successful over the past 16 years in the surety practice.

As you go into a more uncertain economic environment, certainly, there is a lot of headlines about this now. You are obviously making sure that you are watching the credit quality of your partners. Really importantly for the most part, our surety partners have about an 18 month backlog of work. So, what that means is as you are entering some economic slowdown or some change in economic environment. You would start to find some change in your partner's health, in the event that economic slowdown lasted for longer than their backlog of work.

The other thing that this environment introduces is changes on inflation, and then inflationary environment does have impacts on the surety space. Now really importantly, what a lot of people don't recognize is it actually changes bond prices. So, some of the growth that you are seeing in the surety landscape is reflective of higher project costs, as input costs for surety have moved up. So, that inflationary environment does move up your bond premiums as you navigate through this changing space.

[Jeff Fenwick, Cormark]

Okay. That's helpful. Thanks. And then maybe one other thing we could talk about is technology, and some of your competitors highlight that as a differentiator for them and how they target different lines. Maybe you just speak to where Trisura has been investing there and how that's utilized in your approach to the market?

[David Clare, Chief Executive Officer]

I would say technology in the insurance space is really a standard bar that everyone needs to meet. I wouldn't qualify our competitive advantage as technology based. And frankly, I think if we had any temporary or short-term technological advantage that would in time be arbitrage away by investments by other players.

I think where you're seeing us benefit and invest is really in areas to make collaboration with our partners be they distribution partners or reinsurers more efficient that's where we like to improve the entity, improve the experience of our partners in working with Trisura.

But I wouldn't qualify by the vehicle as tech enabled or sort of differentiating specifically on technology. This is really a group that benefits from the expertise of underwriters and people who've been in the business for a long time. And that's enhanced by proper sort of investment in technology and systems.

[Operator]

Thank you. Our next question comes from the line of Tom MacKinnon of BMO. Tom MacKinnon, your line is open.

[Tom MacKinnon, BMO]

My questions with respect to net expenses in the U.S. and some of the spends you're doing in terms of infrastructure there. Maybe you can elaborate a little bit on those? And when I look at those net expenses as a percentage of earned premium, they seem to be running higher so far in 2022 than they were in 2021, perhaps you can shed some light on that and how that should trend going forward?

[David Clare, Chief Executive Officer]

So, net expenses have moved up in the U.S. and there's a couple things driving that this quarter. As you've seen our premium growth has really significantly and substantially stepped up. So this new premium based requires a pull forward of some of the longer-term investments that we've contemplated. So that includes people, that includes regulatory and filing investments, some legal costs as we build out this platform to support a larger infrastructure.

The other thing you're seeing as we've grown in the platform is investments in or changing nuances with our retention models, and those retention models can change the calculus or the proportion of the expenses and the calculation of net premiums earn. So, there is some impact as you seen our retention step up closer to that 10% level.

The other item that you're seeing specifically in the quarter and that I would expect to see in Q3 is a little bit higher reinsurance cost as we enter into the more storm exposed season in Q3. So, all of those factors have driven this up. I would say we're likely seeing that at a little higher rate as we go through Q3 and Q4, but that should mitigate into 2023, as we see these higher premiums, this higher fee income start to get earned through that longer period.

[Tom MacKinnon, BMO]

How many points on do you think that would be translate into if we looked at those net expenses as a percentage of the urine premium? If we were look into 2023 and then 2024, would it be a couple points improvement, there's got to be some operational leverage in this platform?

[David Clare, Chief Executive Officer]

Yes. At this stage, we haven't targeted that level of granularity, but I think we can probably get a little bit more specific as we into Q3 and Q4 with you.

[Operator]

Our next question comes on the line of Marcel McLean of TD Securities. Marcel McLean, your line is open.

[Marcel McLean, TD Securities]

So, kind of just following on that point with your retention being sort of towards the top end of that 5% to 10% range that you referenced. Just given the larger capital base and the maturation of the business, is that a range that you're thinking of maybe moving up over time? Or is the 5% to 10%, the long term play for this U.S. business?

[David Scotland, Chief Financial Officer]

At this stage for our quota share structured transactions, really that 5% to 10% on average across the portfolio is where it will likely stay. You are seeing right now some nuance or some impact from structured programs that are a bit different than quota shares, which drives that reported retention ratio a little bit higher.

So from a modeling perspective, Marcel, certainly I think if you anchor yourself at that 10%, it should be a fair place to start for the business. But operationally from a quota share perspective, the transactions we structure in that way still remain in that 5% to 10% range.

[Marcel McLean, TD Securities]

Okay. Thanks for that. And then sort of on a potentially a bit of a related note, another ratio in the U.S. the fronting fees to seated premiums. I think you've referenced, 5% to 6% is what to think about there, but in the past, you'd been sort of right near the top end of that, but for the past few quarters, it's sort of trended down to the bottom half. I think there's a little bit of that as related to this purchase of cat coverage. Is that going to be something that's ongoing, that's going to keep this ratio lower? And are there any other factors that play like increased competition where you may have to price more aggressively on your commission?

[David Scotland, Chief Financial Officer]

Yes, I would say certainly, we would expect that now to be in the 5% to 5.5% range as we see a strong revolution or more diversified evolution of ourbook. Part of that is related to reinsurance costs as we navigate a more diverse book part of it, I wouldn't say is related directly to competition, but part of it is simply changing structures. So some transactions are structured in a way that on an accounting basis really adopt more excessive loss structures rather than quota share structures. Those carry different styles of fronting fees or reinsurance seeding commissions. So as the book has evolved, as you've gotten a broader more diversified mixed business. You see that ratio moving down, but certainly our target for fronting operational ratio, our target for fronting fees. Those are consistent with the messages we've given previously.

[Operator]

Thank you. Our next question comes from Jaeme Gloyn of MBS. Jaeme Gloyn, your line is open.

[Jaeme Gloyn, MBS]

First question is on a recently added program At-Bay insurance. I believe, cyber insurance provider in the U.S. Just maybe more on the strategic side and maybe talk about how Trisura was able to win that program? I think it's could be a pretty large and substantial program. So how were you able to win that program? What does it say about your size rating, your service relationships capabilities from a technology standpoint? And what are the prospects for adding potentially other large programs such as this one?

[David Clare, Chief Executive Officer]

Thanks, Jaeme. I think At-Bay is a good example or a good anecdote of a program that was available to us to compete on because of that larger size category. Recently, if everyone recalls, we moved up into this larger size category at the end of 2021, and this was really the first program that we saw a real tangible benefit of being able to compete in that larger size.

So it's certainly an example of that larger infrastructure generating opportunities to compete on more substantial transactions. And all of the work that we have been doing in the past four to five years, building our services, building our technology platforms, building our systems to support these, that's the background of the infrastructure that we need to support these opportunities.

So, it was a nice confluence of events. The relationships that we have in the space, the history that we have in navigating the fronting environment, coupled with now a new size category rating that gave us the opportunity here at a partner with a new entity that we are very excited about.

[Jaeme Gloyn, MBS]

And on the back of this new relationship, have you seen any increase in prospects? Like, is there anything you can -- any commentary you can provide about, let's say, like a pipeline type of data point or at least anecdotal data point?

[David Clare, Chief Executive Officer]

I would say, this opportunity specifically, I wouldn't say drives new opportunities. We have had a fairly strong pipeline and a fairly healthy submission flow in 2022 that included At-Bay. And that certainly continues through this year. So, I wouldn't point specifically to At-Bay as a step change in our submission or our pipeline, but I would say that we've had a very healthy pipeline this year.

[Jaeme Gloyn, MBS]

Okay, great. Just want to shift to Canada and the market share gain that it seems, like you're still grabbing. You made some comments about surety and the inflation and so on. So maybe we can focus some comments on corporate insurance or go back to surety, I guess if you want. But just maybe some commentary about market share gains, which you are seeing from a competitive standpoint in the Canadian specialty space across your lines as growth remains really, really rapid here.

[David Clare, Chief Executive Officer]

Yes, we're seeing a few factors driving a step-up in growth in Canada. As we have talked about in the past, the new entry into the fronting space in Canada has really enhanced a lot of our relationships with existing and new brokerage partners. Those distribution relationships are giving us more touch points with brokers that we have worked with either for a long time or that we have hoped to work with. And this is allowing us now to expand more established lines that operate in Canada.

I think amplifying that, there are nuances within each business line that that help within the corporate insurance practice. Obviously, you're seeing a relatively healthy rate environment. You're also seeing distribution relationships expand for all the reasons we've talked about. And the surety landscape, I would say that's, that's an environment that remains very interesting to us. It remains very competitive and you're seeing growth in that Canadian line also supported by the expansion of our U.S. business. So, we've got a U.S. platform that's very early on today in its evolution in the surety landscape, and that is adding to our sort of Canadian surety premiums.

[Jaeme Gloyn, MBS]

Okay, great. And if I think about growth rates in Canada versus the U.S., is there one segment that is set up to grow more rapidly here in near-term, let's say, over the next few quarters?

[David Clare, Chief Executive Officer]

It's tough because we have -- there are newest segment obviously is Canadian fronting, which has been growing most rapidly, that's the space that I'm sort of struggling to really find exactly where that level's out from a growth perspective. But certainly recent history would inform an estimate that that's likely our fastest growing piece to the business, although corporate insurance has been expanding very health as well. Our most mature line, I would say surety is likely probably the one that looks on a relative basis, a bit slower than the other two groups, but you seem very healthy growth in that line as well.

[Jaeme Gloyn, MBS]

Can you actually -- just to follow-up on the Canadian fronting, maybe some commentary about pipeline on that business as you're seeing it develop and continue to post really strong results.

[David Clare, Chief Executive Officer]

Yes, I would say we continue to see interesting opportunities and evaluate new partnerships in that fronting space again, because it's a newer environment for us. The market size, the sort of natural addressable market is more difficult for me to give you a perfect estimate on.

But from your perspective, from a modeling perspective, I think the best way to think about this going forward is, is if we take the last 12 months of writing and so a rolling estimate of what our premiums have been, that should be the base that we grow from.

And that growth rate going forward, given it's a more established practice than two years ago should look more reasonable than it has in the past. So think about a mid teen to low twenties percent growth rate on that practice. And again, we'll update you as we see that evolve, but sitting today, that's our best estimate.

[Jaeme Gloyn, MBS]

Last one for me maybe for Dave Scotland on the investment income. And part of me, if I missed this as we're seeing higher rates in the market today, what type of trajectory should we be thinking about for yields across the Canada and U.S. portfolios in the next couple of quarters in terms of potential basis point increases in your ability to capture that?

[David Clare, Chief Executive Officer]

Yes, I'm happy to start and if Dave would like to add in he can here. I would say two things are supporting this move in yield. Obviously, we are a growing entity and as a growing entity, you are investing that new premium and recycling your capital base a little bit faster than the more established entities. So anecdotally, when we look at the asset allocation or the target yield today from our portfolio, you're seeing that closer to the 4% to 4.5% range than previously.

And if I'm thinking about last year, that range was probably approaching 2.5% to 3%. So you do have a step up in that yield on a newly deployed capital. The speed at which the broader portfolio will evolve depends a little bit on how quickly you turn over your portfolio. Now we're relatively short duration. Our fixed income duration is below three years. So you should see over the next 3.5 year 2 years, the bulk of that rotation occur, and as that occurs, you'd likely see that step up in yield.

[Operator]

[Operator Instructions] Our next question comes from the line of Stephen Boland of Raymond James. Stephen Boland, your line is open.

[Stephen Boland, Raymond James]

Maybe you could just talk about the admitted market now that it's 10% of your gross premiums in the U.S., you've expanded into most states. I'm just curious if you're finding now, is there certain states or business lines within states that are just not rational? Like, are you finding great adequacy or is it an easy procedure, I guess, within certain business lines and states? Or are you finding certain states that it's just not rational, maybe just a little bit more on that?

[David Scotland, Chief Financial Officer]

I would say, as a starting point, we are seeing continued momentum in E&S versus admitted submission. So first and foremost, regardless of a rate adequacy or state approach, more people in the market today are interested in supporting and constructing programs in the E&S space. And that's partly a factor of the tone in the market. It's partly a factor of some of the items that you're describing.

I would say from our perspective, we have seen some states, some business lines where that rate adequacy is not at the level that we would start to become interested in participating in those lines. But our approach has been more to support the areas of submission and focus of our business partners, and that has naturally led us to the E&S space. So, it's a little bit of a side step of your question, Stephen I apologize, because frankly, we just see more participation and more market opportunity in that E&S space today than the admitted.

[Stephen Boland, Raymond James]

So, it's interesting. So in terms of the admitted, although it's grown to 10% like we shouldn't expect this to be30% over the next year or two from I guess your commentary.

[David Scotland, Chief Financial Officer]

At this stage, I would say the momentum that we see and in the near term, let's say, the next few quarters, it seems to be favoring the E&S space. So I wouldn't expect a wholesale shift or change in proportion from the admitted markets. Now, we'll keep you posted as we see the frontlines navigate that space. What you would need to see is really a more balanced market that favors that admitted space and that shift takes time.

[Stephen Boland, Raymond James]

Okay. And just maybe following up on James questions in terms of the investment, has there been besides just the fixed income maturity and the duration? Is there a shift going on within the portfolio in terms of moving out of equities, into alternatives anything that is a conscious kind of re-weighting in the portfolio?

[David Scotland, Chief Financial Officer]

Yes. I would say starting in Q1, we proportionally or relative to history have been reduced in a little bit, our equity exposures as we've been deploying into those alternatives. And we really like that diversification of the alternative allocations that we have. I think this environment is a difficult one. It's a tough one to be deploying wholesale into equities or increasing in a material way, our allocation to equities. So you haven't seen us step back into that market yet, and I wouldn't anticipate that to happen in the near future.

[Stephen Boland, Raymond James]

Okay. When you mentioned alternatives, what is that real estate infrastructure liquid-to-liquid public private, maybe just to…

[David Scotland, Chief Financial Officer]

For the most part it's private and this would be infrastructure debt, real estate investment, private credit, those types of asset classes, which we think are both interesting from a yield perspective in enhancing the yield of our portfolio, but also interesting from a diversification standpoint. You've got this private credit market that is much more sophisticated than it has been over the last decade, and it's one where we are finding good partnerships to invest.

[Operator]

Thank you. At this time, I'd like to turn the call back over to David Claire for any closing remarks. Sir?

[David Clare, Chief Executive Officer]

Thank you very much. I'd just like to thank everyone for calling in today, and again, thank our investors for their support on our recent capital raise.

[Operator]

And this concludes today's conference call. Thank you for participating. You may now disconnect.