Trisura Group Ltd

TSX:TSU

Earnings Call Transcript 2023-Q2

[Operator]

Good morning, welcome to Trisura Group Ltd. Second Quarter 2023 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 historic events. They're 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 securities regulators.

[Operator Instructions] I'll now turn the call over to David Clare.

[David Clare, Chief Executive Officer]

Thank you, operator. Good morning and welcome. We demonstrated strong performance in the second quarter, growing insurance revenue 43% compared to Q2 2022 and supporting a 19% return on operating equity. Momentum is sustained as we scale an increasingly diversified specialty insurance platform. Results again were particularly strong in Canada, with 32% growth in insurance revenue supported by profitable underwriting. Our U.S. Fronting business produced $468 million of insurance revenue, an increase of 49% over prior year and reaching a new record for quarterly premiums.

In Canada, we saw top line growth across all lines. Fronting and Surety led the way, Fronting driven by a more mature platform and growth in surety supported by market share gains and contribution from both our sovereign acquisition and U.S. expansion. Corporate Insurance continued to benefit from expansion of distribution partnerships and stable pricing. With the launch of corporate insurance in the U.S. market, we're excited to see the potential of a North American wide platform. Importantly, disciplined underwriting drove a 19% loss ratio, higher than a strong comparative year, although below our long term -- below our long-term averages as we benefit from increased diversification within niche lines.

We are proud of our 83% combined ratio in the quarter but did not beat the strong comparative period set in Q2 2022 due to a slightly higher loss ratio. Our expense ratio improved in the quarter due to lower commission rates in the period but remains within expectations. Strikingly, the Canadian platform generated a 20% -- 28% operating return on equity and strong underwriting in line with disciplined expense control and enhanced investment income.

U.S. Fronting generated $468 million in insurance revenue, growing almost 50% over Q2 2022, despite the cancellation of the program associated with the Q4 write-down. Maturation of existing programs and positive pricing trends drove top line. We continue to grow our admitted capabilities and saw $61 million in admitted revenue in the quarter. However, the market continues to drive opportunities to access and surplus lines. U.S. Fronting generated $19 million in fees, a 22% increase and recorded $40 million of deferred fee income indicative of future fees to be earned.

Operating results in the quarter were strong and demonstrate progress made on improved profitability in our U.S. platform. Loss ratio was 56% in the quarter, excluding the impact of the runoff and decrease due to lower claims activity as well as an increase in yields used to discount claims reserves.

Fronting operational ratio reported below 80%, excluding the impact of the runoff and decreased as a result of similar factors: growth, profitable underwriting and a significant increase in investment income which rose over 250% contributed to a 61% increase in operating net income. This supported a 14% operating return on equity despite capital contribution through the last 12 months.

A combination of higher interest rates, growth and profitability alongside our July 2022 capital raise has resulted in a 134% increase in investment income, more than doubling our prior year. On an annualized basis, investment income is expected to reach almost $50 million. Importantly, our portfolio is more conservatively positioned than ever with a lower equity allocation, shorter fixed income duration and a higher allocation to A-rated bonds. We are excited about the enhanced risk-adjusted yields we are capturing for years to come.

We recently signed an agreement to purchase a small treasury listed Surety company in the U.S., pending regulatory approval. This is an important step in our journey to become a more significant player in the U.S. market as the treasury listing provides access to broader, more diversified and an attractive array of bonding opportunities. It also allows us to gain traction with our distribution partners. This aligns well with other strategic initiatives, including our previously announced services arrangement with a major U.S. surety participant and our ongoing expansion efforts, exceeding $10 million of premium year-to-date in U.S. Surety.

We observed healthy pricing trends across most lines in the quarter and expect hardening trends in insurance and pricing to balance, although not reverse later this year. This will be informed by the state of the reinsurance market as well as economic and interest rate trends and we feel well equipped to navigate the environment.

As we did in the first quarter, we provided an update on the runoff program in advance of quarterly reporting. We will continue to show guidance on expected impacts as they become available. We remain committed to disciplined underwriting and structuring standards as well as conservative reserving, although we have not seen the signs of recession in our results, we acknowledge the risks remain front of mind.

It is our hope that volatility will provide opportunities to win business and strengthen our reputation and feel confident that we can navigate any potential changes in economic outlook. We are planning for growth. And with a strong capital base and comparatively greater scale, feel optimistic for the years ahead. Our equity base has grown to $530 million, a healthy increase from the year-end and high watermark for Trisura.

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

[David Scotland, Chief Financial Officer]

Thanks, David. I'll now provide a brief walk-through of some financial results for the quarter and year-to-date periods. As a reminder, the 2023 results reflect the implementation of IFRS 17, the new accounting standard for insurance contracts which has been applied retroactively and as a result, our 2022 results have been restated to reflect the new standard. 2023 also reflects the implementation of IFRS 9, the new accounting standard for financial instruments which has not been restated retroactively. The new standards have led to a number of changes in the presentation of both the income statement and the balance sheet.

Insurance revenue which replaces gross premiums written as the new top line revenue balance was over $664 million for the quarter and $1.3 billion year-to-date, reflecting growth of 43% and 50%, respectively, over the prior year. Insurance service expense which consists of amortization of insurance acquisition cash flows such as commissions, claims expense and other operating costs increased in the quarter and year-to-date periods, primarily as a result of growth in the business, leading to an increase in claims and commissions expense.

Net expense from reinsurance contracts which includes both premium paid to reinsurers as well as the recoveries from reinsurers increased in the quarter and year-to-date periods as a result of growth in the business which led to more reinsurance ceded, particularly from Canadian and U.S. Fronting. The increase in this balance was lower than that of the insurance service expense as this balance includes recoveries of claims ceded to reinsurers.

Insurance service results in Canada for the quarter and year-to-date period was greater than the prior year as a result of growth in the business and consistently strong underwriting. Insurance service results in the U.S. for the quarter was greater than the prior year as a result of growth in the business as well as the impact of the runoff program in the quarter which was positive. Insurance service results for the U.S. for the year-to-date period was lower than the prior year as a result of losses generated from the program in runoff on a year-to-date basis. Without the impact of the runoff business, insurance service result was greater than the prior year as a result of growth in that business.

In 2023, the combined ratio in Canada was 82%. In 2023, the Fronting operational ratio in the U.S. was 94% and without the impact of the runoff was 83% for the year-to-date period. Net investment income was greater in Q2 and year-to-date 2023 than 2022 as a result of an increase in interest and dividend income. The increase is primarily related to an increase in the size of the investment portfolio and also benefited from higher risk-adjusted yields.

Net loss on investments was $6.9 million in the quarter and $9.1 million year-to-date, primarily as a result of unrealized losses on investments held at fair value to profit and loss under IFRS 9 as well as some foreign exchange movement. Net finance expense from insurance and reinsurance contracts which reflects the time value of money and changes in the time value of money, was $300,000 in Q2 2023, rather than a recovery of $1.2 million in Q2 2022. This -- sorry, as movement in the yield curve used to discount net claims reserves in Q2 2023 had less of a positive impact on those reserves in Q2 2023 than it did in the prior year when the impact of the yield curve movement was more significant. For Q2 2022, the yield curve used to discount claims reserves had a significant enough impact on claims reserves as to generate a net recovery. For the year-to-date 2023 period, net finance expense from insurance and reinsurance contracts was an expense of the impact of movement in the yield curve over that period was not significant.

In Q2 -- sorry, in 2022, net finance expense on insurance and reinsurance contracts was a recovery as upward movement in the yield curve during that period had a more significant impact on net unpaid claims balances and led to a recovery. Other income which represents fees for Surety services, grew 5.5% in the quarter and 17% year-to-date, reflecting growth in the number of surety accounts.

Other operating expense grew 44% in the quarter and 36.8% on the year-to-date period, reflecting growth in both the Canadian and U.S. operations. Excluding the impact of share-based compensation, which is mitigated through a hedging program, the increase was 21% for the quarter and 19% for the year-to-date period. Income tax expense in Q2 2023 was greater than Q2 2022 as a result of greater income before tax, income tax expense for the year-to-date period was lower than the prior year as a result of lower net income before tax. Net income for the group was $26.8 million for the quarter and $40 million on a year-to-date basis.

Operating net income which adjusts for certain items to reflect income from core operations and excludes the impact of the runoff business was $26 million for the quarter which was approximately the same as net income as gains for the quarter -- as gains in the quarter from the runoff program roughly offset unrealized losses on the investment portfolio. Operating net income for the year-to-date period was $52 million which is greater than net income for 2023, primarily as a result of the impact of the runoff program and unrealized losses. Operating net income has grown since 2022 as a result of strong underwriting and underwriting and growth in the business. Diluted EPS was $0.57 a share in Q2 2023 which was greater than the prior year as a result of growth in the business.

For the year-to-date period, EPS decreased compared to 2022 as a result of losses associated with the runoff program as well as unrealized losses on the investment portfolio. Operating EPS which reflects the core operations and excludes the impact of the runoff portfolio and unrealized losses was $0.56 a share for the quarter and $1.13 a share for the year-to-date period, reflecting growth of 24% and 23%, respectively, over the prior year.

Consolidated ROE on a rolling 12-month basis was 4.9% at Q2 2023, while operating ROE was 19% which is approximately the same as the prior year. The balance sheet has also changed as a result of the implementation of IFRS 17 with premiums receivable, deferred acquisition costs, unpaid claims and unearned premium presented together as a single line item referred to as insurance contract liabilities. In addition to this, reinsurance assets, reinsurance premiums payable and unearned reinsurance commission are now presented as a single line item referred to as reinsurance contract assets.

Cash in the period decreased as a result of additional purchases of investments in the period as well as cash outflows associated with the runoff program. Investments have increased as a result of more deployment of cash into the investment portfolio. Reinsurance contract assets have increased as a result of growth in both the Canadian and U.S. business. Insurance contract liabilities increased as a result of growth in insurance revenue in both Canada and the United States.

Growth in these balances was largely offset by the growth in reinsurance assets. Equity is greater than the prior year-end as a result of positive net income in the period. Book value per share was $11.53 at June 30, 2023 and is greater than December 31, 2022, as a result of profit generated from insurance and investment income over the period. As of June 30, 2023, the debt-to-capital ratio was 12.4% which was lower than at December 31, 2022, as a result of an increase in equity during the period. The company remains well capitalized and we expect to have sufficient capital to meet our regulatory capital requirement.

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

[David Clare, Chief Executive Officer]

Thanks, David. Operator, we'll take questions at this time.

[Operator]

[Operator Instructions] Our first question comes from the line of Nick Priebe with CIBC Capital Markets.

[Nick Priebe, CIBC Capital Markets]

Okay. I just wanted to dig into the Surety acquisition. I understand that the strategic rationale was to obtain access to a T-listing in a more expedited way. Can you just help us frame the size of that transaction value, the scale of the business with respect to its premium base and underwriting margins. I'm just trying to understand how that's going to fold into the business mix here.

[David Clare, Chief Executive Officer]

Nik, we're pretty excited about this acquisition, although it is a relatively small entity today. I would compare this to our 2019 acquisition of an admitted platform that we subsequently expanded and then used to grow our admitted front-end capabilities. This is a relatively small platform today, so not a significant add to the business at this stage. But we're expecting that as we get to regulatory approval and fold this business in. It will act as the dedicated balance sheet for our U.S. Surety platform. It's important to note that to be a real player in the U.S. Surety market, a treasury listing is required. And that's something we've been operating without for the last couple of years. As we get through regulatory approvals, expand this balance sheet from a licensing perspective and dedicate now our own balance sheet with the treasury list into the U.S. Surety market, we think that should be a really transformational change for our launch of that business. So this is something we've been working on for some time and are very excited to get through the approvals required to close it.

[Nick Priebe, CIBC Capital Markets]

Okay, got it. And just in the same vein, is there anything else on the M&A front that stands out to you as an opportunity to either enhance or complement your existing capabilities or accelerate growth in one of your business lines like this?

[David Clare, Chief Executive Officer]

I think we're always reviewing opportunities in the market, although we're pretty -- we try to be pretty disciplined in what we have looked to. This is an interesting environment. It's more volatile than it has been in years past and that obviously surfaces a number of opportunities. I think we will continue to evaluate those, both in Canada in the U.S. but these types of smaller bolt-on acquisitions that we can then grow alongside established core competencies. That's where we like to focus and I think that's where you'll see us stay.

[Nick Priebe, CIBC Capital Markets]

Okay, got it. And just shifting to the ongoing West 2 [ph] situation. When you have a circumstance like this which might prompt you to reassess what financial institutions you'd be willing to accept, letters of credit from as a form of collateral. How easy is it to replace that with another version of collateral, like the one program that you have in the U.S. Fronting entity, like would you just simply withhold higher premiums? Or do you encourage the reinsurance counterparty to secure a letter of credit from another financial institution? Like I'm just interested to hear a little bit more about how you would navigate that?

[David Clare, Chief Executive Officer]

Traditionally, if you're replacing forms of collateral, if your substituting out other financial institutions, it's a relatively easy switch. So these relationships really depend on reinsurance relationships with financial institutions and who they select as their partners. But to the extent you'd like to switch to your collateral with our different financial institutions. That's usually a relatively straightforward switch. It's important to note that collateral can take a lot of forms, including withheld premiums and cash and relationships with financial institutions can be switched out to the extent they need to be.

[Operator]

Our next question comes from the line of Jeff Fenwick with Cormark Securities.

[Jeff Fenwick, Cormark Securities]

So yes, I wanted to maybe have you run through a little bit more around the growth of the U.S. premiums we saw in the quarter. I mean, there was quite a significant quarter-over-quarter step up. So could you maybe just speak to some of the dynamics that you're seeing down there in terms of program growth? Was there a step-up in some existing programs that became a bigger factor in the quarter? And sort of what's your expectation for that trending going forward?

[David Clare, Chief Executive Officer]

Thanks, Jeff. We've seen a relatively healthy continued trend in pricing, especially in the excess and surplus lines market. So those trends that we've seen for the last couple of years. They continue to support the business and our existing programs this year. So I would say we haven't seen as many new programs coming on this year and most of the growth has been concentrated in existing relationships and programs that we've had -- had now for a couple of years. That's always a great way for us to see how the platform grow. And most of that is simply maturation of these programs alongside a pretty healthy pricing environment. I do know we are starting to see a little bit more contribution from the admitted platform. So that wrote about $60 million in the quarter which isn't as high as our E&S platform but it's starting to be a significant contributor. So both of those trends added to the momentum in the quarter. And that growth number, that premium number, we were very, very proud to report.

[Jeff Fenwick, Cormark Securities]

And I guess another nice feature of the result there was the loss ratio coming down. I know over the last, I guess, 1.5 years or so, there's been some quarters where there's been a bit of noise, some higher cat loss exposures, et cetera. What's your read on the loss ratio performance there and how that might trend going forward as well?

[David Clare, Chief Executive Officer]

I think this is both a benefit of some of the pricing trends we've seen in the E&S lines as well as a bit of diversification and business mix shifts we've been making in the U.S. business over the last couple of years. So we've always targeted that 65-ish range, mid-60s range on loss ratio, although admit that it shifts around. It's nice to see some of those initiatives as well as the pricing that we're seeing in the market translate to a healthy loss ratio. I do note around the margin, these new IFRS 17 metrics do benefit the loss ratio slightly in the quarter. But on a fundamental basis, those healthy pricing trends and the mix of business is supporting that on a greater scale.

[Jeff Fenwick, Cormark Securities]

And I guess alongside that, the Fronting operating ratio was just a tick under 80 -- the ROE in the U.S. unit has been pretty good in sort of trending in the mid-teens. But it looks like there's maybe some operating leverage to come here that might drive the Fronting OpEx ratio lower and earnings higher I know there was a bit of noise in the quarter but maybe just walk us through what's happening there?

[David Clare, Chief Executive Officer]

Yes. I think we've targeted trying to get below 80% for some time now. And you're right, operational leverage and a bit better overall profitability will be how we get there. I'm really happy to see that starting to trend down below 80%. I think we're going to continue trying to target that trajectory going forward. We've -- we made a lot of investments in the U.S. platform in 2022 around an infrastructure basis. And I think we talked a lot about how we expected that in the short term to step up our Fronting operational ratio. It's nice to see with the growth that we're experiencing that those investments are now paying some dividends. So it's a good trend and we'll continue to both monitor and update you on that.

[Operator]

Our next question comes from the line of Marcel Mclean with TD Securities.

[Marcel Mclean]

Good morning. I want to start by going just back to the U.S. Surety acquisition. Are you able to help us size what that opportunity set looks like? And if you know the split, I'm not sure if you have this data or not but premiums that require the treasury listing versus norm [ph]?

[David Clare, Chief Executive Officer]

Yes. So when we're thinking about the opportunity of the U.S. Surety market, Marcel, it is a much larger market in the Canadian landscape. So order of magnitude, we always think about it as a 10x larger market than the Canadian space and the loss ratios of the U.S. Surety market are comparable to the Canadian space. We've now been working for almost 3 years on building out staff offices and a presence in that U.S. market and a treasury listing will allow us now to access a broader proportion of U.S. Surety bonds. I don't have the split off hand between T-listed and non-T-listed bonds. Although I will say bar of entry or a requirement to conduct business for a lot of brokers even without T listed bonds is having that treasury listing. It's really a -- almost a badge of honor to operate in that space to have that treasury listing.

So despite maybe not needing it for all bonds, it's really a mark of our seriousness and our commitment to the space that we've got it. Now long term, this is a much larger market than Canada. But in the medium term here, we'd like to see that space step up to be as significant as our Canadian surety operation. So the goal here is to really build a significant presence in the North American Surety market. And what we've got now is a very strong presence in the Canadian space. And what we're building is hopefully the infrastructure and platform to have a strong presence in the U.S. market.

[Marcel Mclean]

Okay, that's helpful. And then how do you see that ramping? Like is this a 2024 story? Or is it beyond that? Like I know we're still waiting on regulatory approvals, just timing and sort of pace of ramp?

[David Clare, Chief Executive Officer]

Yes, it's going to depend on the timing of that regulatory approval. And then it will be a likely a generally slower ramp than -- and for example, our Fronting business. That being said, we're already writing $10 million year-to-date in the U.S. Surety platform, so we're not starting from 0. But once we get through regulatory approvals, we'll start to define some better time lines and targets for you.

[Marcel Mclean]

And I just want to switch gears, the overall premium growth, I think it was up 25% year-over-year. Are you able to separate that for us in terms of what's being driven by the price increases versus the just volume growth at this point?

[David Clare, Chief Executive Officer]

Yes. It's tough to give a consolidated view of that. The answer really lies individually in the business lines. I would say the majority of our growth likely continues to be from distribution relationships and market share expansion. Although price increases in certain lines is helping, especially the E&S business in the U.S. So we can take that back and try and give you some more color or segmentation. But at a high level, I think, frankly, you're seeing a real expansion of our touch points in the distribution landscape and that's supplemented by some price increases by line, right? We've talked about Surety of the business is not one where you're seeing a lot of price increases but we are seeing material changes in our presence, both from a U.S. expansion and our sovereign acquisition. So that line of business shows a bit different trends, than, let's say, a U.S. E&S presence. So it really is one you have to look at segment by segment.

[Operator]

Our next question comes from the line of Stephen Boland with Raymond James.

[Stephen Boland, Raymond James]

Thanks, everyone. Sorry, I don't want to beat this to death, David, on the acquisition, like we've seen Surety as one of the -- I guess, one of the business lines has got the least amount of rate increases, MarketScout and things like that. Is there any difference in pricing within the treasury part of the business? Like is that business more firm than the general Surety bond market?

[David Clare, Chief Executive Officer]

I like the question, Steve and I wish I could say that that's the case. But the Surety market right now continues to be pretty competitive. That's been the way that market has been for a long time. We've continued to operate within that market in both Canada and the U.S. showing strong profitability. So I don't want to create the perception that a move into treasury listed bonds somehow changes pricing dynamics. But despite that, we believe the market remains attractive and it's a core competency for us, right? The heritage of Trisura is really as a Surety underwriter. You're going back over a decade now in Canada of underwriting experience. That's something we'd really like to expand on in the U.S. and this acquisition and treasury listing. It's going to allow us to do that in a differentiated way.

[Stephen Boland, Raymond James]

Okay, that's good. And then secondly, just in terms of the regulatory approvals, I presume you got to get a state approval. Do you have to go through the Department of Treasury approval as well?

[David Clare, Chief Executive Officer]

Yes, there's a few regulatory approvals we'll go through. So that can take anywhere from 4 to 6 months. I always would hate to comment on the processes of bodies outside of ours but we'll be sure to keep everyone updated as we go through that. And you'll likely see us filing those documents very shortly.

[Operator]

Our next question comes from the line of Jaeme Gloyn with National Bank Financial.

[Jaeme Gloyn, National Bank Financial]

Just wanted to start with the U.S. business and I guess, Canada actually as well on the top line growth, it's coming in pretty rapidly so far this year and ahead of your rough guidance to start the year. Just wondering if there was anything, let's say, like timing related or lumpiness in this quarter? Or these growth rates something that you think is sustainable through the rest of the year and into '24?

[David Clare, Chief Executive Officer]

I always tend to look at the business on an annual basis. So I don't want to take anything away from the quarter. I don't think there's anything to point to specifically on seasonality or lumpiness but it is just an example of continued momentum across the platform. We still think the guidance we're providing sort of on a rolling 12-month basis applies, although I admit the growth we've seen in the first half of the year has been higher than we anticipated. So I wouldn't pick out any theme specifically in the quarter that are one-off or unique to the quarter. I think you're just seeing a lot of good momentum across almost every part of the business.

[Jaeme Gloyn, National Bank Financial]

Okay, good. In specific to the U.S. then with some of the industry noise, have you seen or are you starting to feel any changes in the competitive environment as that noise perhaps affects some of your competitors? What are you seeing on that front? Or what are your boots on the ground thing?

[David Clare, Chief Executive Officer]

Anytime events like this happen, there is volatility and there are questions in the market. We haven't -- it's still pretty early days to see anything sort of material or commercial happening. What I would say is these types of events may delineate some parts of the fronting market. One of the differentiators for Trisura, we're fortunate to have a large diversified set of counterparties, including both reinsurers and distribution partners. I think we've talked about this in the past, Jaeme, over -- around 80% of our reinsurance recoverables are from rated partners. The other nuance for Trisura that's unique versus the Fronting market. So we've got a combination of businesses, right? We're not just a front-end company in the U.S. We benefit from permanent capital from a listed holding company. Our Fronting platform is part of a larger organization, including the Canadian entity that's demonstrated both strong growth and profitability for over a decade. I think that -- those types of differentiations. These platforms that are resident within a larger insurance organization. I think that's going to be a differentiator going forward. The size and scale of our entity is a little bit different than some of the other participants in the market and that's something we're very happy to have.

[Jaeme Gloyn, National Bank Financial]

Okay, good. Looking at the U.S. premiums to capital leverage, it's still, let's say, at the upper end of where you've historically operated. Is that something that in your conversations with the regulator? Is that where you expect to operate in the near term? Or should we expect to see some capital sort of push down in the next couple of quarters?

[David Clare, Chief Executive Officer]

Yes. We've looked at this recently on an LTM basis. So we're pretty close to 6x on an LTM basis for that premium to capital ratio. We've got a few levers to pull around that to the extent we see any reason to put in more capital, including some capacity at the holding company. So we're monitoring it. We're obviously very happy to see the pace of growth in the U.S. but we feel pretty comfortable with our set of options for this going forward.

[Jaeme Gloyn, National Bank Financial]

Okay. And last one on the U.S. and then I'll turn it back. Just as we're thinking about reinsurance coverage. I guess there's 2 components to this question. There is -- the first is we're seeing lower retention on your part as you purchase more reinsurance coverage. So first part is, what do you expect from that side of the equation going forward. And then in terms of the cost environment and from reinsurers, what have you seen in terms of how you're layering on reinsurance coverage for, let's say, the core programs, not the -- and this would be excluding any runoff stuff?

[David Clare, Chief Executive Officer]

Yes. So on that first point, there's a bit of bridging we need to do, I think, on that retention metric, at least on a reporting basis. We continue to target on a quota share basis on our programs between 5% and 10% and you've actually seen us on some programs we've had for a few years now, be trending a little bit closer to that 10% retention, given our familiarity with the programs and the pricing environment that we're seeing. Those reported metrics on a retention or on -- that you see in our MD&A, they tend to be shifted around by some of the reinsurance purchases we make. So I do want to delineate between our behavior in the market and some of these reported metrics. I think that's a takeaway we can improve on going forward to show people how we're navigating the business.

The second part of your question, from a pricing standpoint, I'd delineate this between some of our reinsurance treaties in Canada and then some of our reinsurance programs in the U.S. We have seen continued let's say, sustained pricing in the U.S. reinsurance markets, we haven't seen a real drop down in that pricing. In a fronted model, for the most part, you're passing through those costs on a quota share basis.

In our treaty programs in Canada, we did see slight increases in pricing as of January 1 but those renewals will come around next January and we'll be able to update you on how that looks at that stage. I think around the edges, you're starting to see a little bit more appetite in the reinsurance market at this stage, although likely too early to say whether or not that changes the trend of pricing.

[Operator]

[Operator Instructions] Our next question comes from the line of Thomas MacKinnon with BMO Capital.

[Thomas MacKinnon, BMO Capital Markets]

So two quick questions here. Corporate OpEx seemed to be a little bit higher this quarter. I realize these things jump around but how should we be thinking about that, especially given the acquisition here in terms of the treasury listed platform, I assume that the corporate should probably remain elevated as a result of that? And then I have a follow-up.

[David Clare, Chief Executive Officer]

Some of the noise you're seeing in the corporate expense line this quarter is driven from share-based compensation. So there is some volatility around that as the share price moves around that we attempt to hedge. You do see some professional fees and one-off items in the quarter that move that number around. We're not seeing a material increase quarter-over-quarter in the corporate expense line. Nor do we see some big change going forward as a result of the acquisition in the U.S. That's a bucket that tends to move around quarter-to-quarter but not in a way that in this quarter, we're seeing as noteworthy.

[Thomas MacKinnon, BMO Capital Markets]

Okay. I was looking at it ex the share-based comp but it seems to be some professional fees and some other one-offs in your opinion then. Okay and then on the Fronting operational ratio, it's just under 80 if excluding the runoff. And I think you had discussed probably still remaining above 80 maybe trending to be below 80 sometime perhaps later this year or into next year, has your thinking changed here?

[David Clare, Chief Executive Officer]

We're very happy to see that ratio trend a little bit ahead of our expectations. I think we're still targeting likely an about 80% Fronting operational ratio for the rest of the year. But to the extent we see continued improvements around that operational leverage and our loss ratio, you'll see that ratio move down. I think we'd really like to see it in the long term in the high 70s and that's what we continue working to demonstrate.

[Thomas MacKinnon, BMO Capital Markets]

And just to be clear, the Surety launch in the U.S. that all comes -- in terms of how that's accounted for, that comes through the Canadian segment and not into your U.S. segment for the time being. Is that correct?

[David Clare, Chief Executive Officer]

That's correct, yes. All of our Surety operations are reflected in the Surety reporting that we have through Canada at this stage.

[Thomas MacKinnon, BMO Capital Markets]

Okay. And just as a follow-up, is there any other plans to launch anything that isn't necessarily a Fronting style platform in the U.S., like this is -- this tends to be something where you're -- the launch here that you're doing here with Surety is moving away from a Fronting model in the U.S. and going towards more of a traditional model. Are there further plans to launch anything with respect to warranty or corporate or any of those other kind of lines that you have in Canada into the U.S.? And can you do that with this platform?

[David Clare, Chief Executive Officer]

Yes. It's a smart question, Tom. The intention has always been to expand the core lines, the primary lines that we have in Canada into the U.S. So Surety has been a project now for -- going on about 2.5 years. This platform, this acquisition will give us a dedicated balance sheet for Surety. So we're expecting to lean into that in a differentiated way here going forward. We have already hired a U.S. leader of corporate insurance. So that will be the next leg of our primary expansion into the U.S. So you should see us starting to talk about that in the next few quarters here as we build that up. That will be the net flag of our intended expansion from a primary standpoint.

The idea was always -- we start on a fronted basis in the U.S., build out a bit of familiarity and expertise in navigating that market and then expand our primary lines behind that. And frankly, the U.S. Fronting platform grew very, very quickly and very well because of a lot of secular trends of growth in those markets. But the intention is always to be and expand the primary model into the state. So I'm glad you asked the question that corporate insurance expansion will be the next phase of our plans.

[Operator]

Our next question comes from the line of Jaeme Gloyn with National Bank Financial.

[Jaeme Gloyn, National Bank Financial]

Just wanted to follow up and come back to Canada and the corporate insurance segment and just get your commentary on what you're seeing in the corporate insurance environment from a broker perspective. Obviously, penetration with those brokers have been very strong for you to take some market share. Where is that today? What are those brokers saying to you from a competitive standpoint? Is that a meaningful continued driver going forward that can support strong premiums growth over there?

[David Clare, Chief Executive Officer]

We've got great relationships with our brokers in Canada and really enjoy how they've grown with us. I think Trisura continues to be a relatively small player in the context of the corporate insurance market overall. We're larger than we used to be but there is still opportunity to expand our reach in this market, both with our current brokers and with brokers, who maybe don't have as much market share as we'd like. So I don't want to ignore or downplay the momentum and sort of step change that we've had with these partners but there is more to go. And we've got aspirations to be bigger and better partners with our broker community in Canada going forward. That's something I think our team is always thinking and have been working on and we continue to think about ways that we can partner with our brokers in a larger and more significant way.

So, it's a roundabout way of addressing your question, Jaeme. I don't want to -- I don't want to not acknowledge the progress we've made with these groups but we think that there's more to do.

[Jaeme Gloyn, National Bank Financial]

Okay. And how much does Fronting play into these relationships? Like is that -- is that the key driver where you're able to place larger premiums through the Fronting platform and that, in turn, allows you to write a bit more business in, let's say, the primary lines? How important is Fronting to these broker relationships?

[David Clare, Chief Executive Officer]

Fronting has been additive to many of these relationships. If you think about Trisura before let's say, 2020 before we started growing more significantly in Canada. We had great relationships with brokers and a strong expertise in the lines of business that we participated in but we were relatively small partners overall in the Canadian market. The addition of some Fronting capabilities as well as, frankly, just growth in our primary lines has made us a more significant partner but it's not necessarily directing these relationships. I think there's a nice ecosystem here where you've just naturally got more touch points with the brokers as you become larger, as you offer more solutions. Fronting is a part of that, it's not necessarily the main driver but it is helpful. So it's a nice way for us to work with the brokers alongside other areas of focus but doesn't necessarily direct the results of the business. So it's a positive but an indirect one.

[Operator]

[Operator Instructions] I'm showing no further questions in queue at this time. I'd like to turn the call back to David Clare for closing remarks.

[David Clare, Chief Executive Officer]

Thank you, operator and thank you, everyone, for joining today. In closing, maybe one item we didn't get a question on but I think is interesting in the quarter is the step-up that we saw in investment income. This piece of the business historically has not got a lot of focus but the materiality of our investment income now and hopefully, going forward, is something I think we don't want to go unnoticed. So as you're thinking about Trisura and as you're thinking about our narrative, we do want to highlight that, that step up has been significant and it is something we think is relatively positive for the organization going forward.

I do want to thank everyone for joining today and don't hesitate to reach out if you have any further questions.

[Operator]

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