2017
ANNUAL REPORT
Letter to Shareholders
This past year was a transformational one for Trisura Group, our first year of operations as a public,
global specialty insurance company. On June 22, 2017, our common shares were listed on the TSX
following a spinoff from our former parent, Brookfield Asset Management Inc. We would like to
acknowledge and thank Brookfield for the integral role they played in our formation and growth over
the past decade. Throughout this period of change, what hasn’t changed is our focus on the culture and
values that have made us preferred partners for our specialty insurance distribution networks in Canada
and abroad.
Business Operations
Our primary strategic objective following last June’s public listing was to expand into the U.S. specialty
insurance market. The U.S. is well-suited to our niche products and offers considerable opportunities for
growth. During the year, we secured a U.S. insurance license and AM Best A- (Excellent) rating, which
positions us to compete effectively in the U.S. specialty markets in 2018. We are pleased to announce
that we have written our first policy in the US and expect to bind more program business under our
fronting fee-based business model in this market shortly.
Our business has historically been focused on contractor surety and specialty P&C products, and we
continue to be a leader in the Canadian specialty commercial insurance market. Our Canadian subsidiary
is our most mature business line and run by an experienced and skilled management team. We have
strong underwriting teams in the business lines that we write and believe we are well-positioned for
future growth. In our specialty P&C business last year, we recorded a combined ratio of 89%, driving a
solid 13.7% return on common equity. We’re proud of the recognition of our Canadian team in once
again being designated one of Canada’s Top Small and Medium Employers, demonstrating the special
culture of our organization.
Our international reinsurance business based in Barbados provides us with an important platform for
future international growth. As we continue to build out our operations we expect to further integrate
our businesses with Trisura International in creating a leading global specialty insurance company.
Financial Highlights
Our balance sheet is strong, with a $122 million capital base and a consolidated debt-to-capital ratio of
less than 20%. Each of our regulated insurance subsidiaries are well-capitalized with ample regulatory
capital positions.
Our specialty P&C insurance business delivered strong performance, with $147 million in gross
premiums written, an increase of 17%. We continue to participate in the niche markets where we have
built our business, demonstrating the value of a specialized focus. Our growth was broad-based, with
increased premiums year over year in each of Surety, Risk Solutions and Corporate insurance. Our
dedicated focus on specialty lines has enabled our Canadian business to grow at rates above that of the
broader Canadian P&C industry.
Strategic Initiatives
Last fall, we simplified our corporate structure by acquiring the 40% management group interest in our
Canadian subsidiary that we did not own. In exchange, we issued common shares at the Trisura Group
level to the management team. We now own 100% of Trisura Guarantee, and importantly, we
strengthened alignment of our Canadian management team with Trisura Group shareholders.
Following overwhelming approval at a special meeting of shareholders in December 2017, we
rationalized our shareholder base through a share consolidation and subsequent share split. This
initiative provided liquidity to Trisura Group shareholders with fewer than 10 shares and enabled all
other shareholders to benefit from, materially reduced future administrative costs.
We have also bolstered our investment capabilities, recognizing the value of a global investment posture
and access to a diversified set of securities. The investment environment remains challenging, with
corporate spreads at historic lows and equity market valuations at historic highs. Despite these
headwinds, we believe that we can have success applying principles of prudent investment management
in seeking opportunities to enhance yield.
Closing
We are well-positioned to continue our trajectory of growth in 2018. Our team is focused on
underwriting specialty commercial business alongside our distribution partners and we are actively
searching for opportunities to expand in Canada and abroad. Our U.S. platform is in the early innings of
its development and its potential is promising; we are excited to begin writing business. Our niche focus
will serve our shareholders well and we expect that specialty commercial insurance will continue to
outperform the boarder P&C market’s underwriting results.
As we look forward towards 2018, I would like to thank our partners, shareholders and employees for
their continued support.
Sincerely,
Gregory A. Morrison
Chief Executive Officer
February 16, 2018
Trisura Group Ltd.
Management’s Discussion and Analysis
For the year ended December 31, 2017
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
MANAGEMENT’S DISCUSSION AND ANALYSIS
Our Management’s Discussion and Analysis (“MD&A”) is provided to enable a reader to assess the results of operations and
financial condition of Trisura Group Ltd. for the three and twelve-month periods ended December 31, 2017. This MD&A
should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2017, and
all of the financial statements included in our Prospectus dated May 12, 2017.
Unless the context indicates otherwise, references in this MD&A to the “Company” refer to Trisura Group Ltd. and references
to “us,” “we” or “our” refer to the Company and its subsidiaries and consolidated entities.
The Company’s consolidated financial statements are in Canadian dollars, and are prepared in accordance with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. In this MD&A, unless
otherwise specified or the context otherwise requires, all references to “$” are to Canadian dollars.
This MD&A is dated February 16, 2018. Additional information is available on SEDAR at www.sedar.com.
1
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
TABLE OF CONTENTS
Section 1 – Overview ....................................................................................................................................................................................... 3
• Our Business
• Organizational Structure & Regulatory Framework
Section 2 – Financial Highlights ....................................................................................................................................................................... 4
Section 3 – Financial Review ............................................................................................................................................................................ 5
Income Statement Analysis
•
• Balance Sheet Analysis
• Share Capital
• Liquidity
• Capital
Section 4 – Underwriting Performance Review .............................................................................................................................................. 9
• Specialty P&C
• Reinsurance
• Corporate
Section 5 – Investment Performance Review................................................................................................................................................ 16
• Overview
• Summary of Investment Portfolio
•
Investment Performance
Section 6 – Outlook & Strategy ...................................................................................................................................................................... 18
Industry
•
• Outlook and Strategy
Section 7 – Other Information ....................................................................................................................................................................... 20
• Ratings
• Cash Flow Summary
• Segmented Reporting
• Contractual Obligations
• Financial Instruments
• Related Party Transactions
• Operating Metrics
Section 8 – Risk Management........................................................................................................................................................................ 23
• Key Risks
Section 9 – Summary of Results..................................................................................................................................................................... 27
• Selected Quarterly Results
Section 10 – Accounting and Disclosure Matters ............................................................................................................................. 27
Internal Controls over Financial Reporting
• Disclosure Controls and Procedures
•
• Special Note Regarding Forward-Looking information
• Glossary of Abbreviations
2
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
SECTION 1 - OVERVIEW
OUR BUSINESS
Our Company is a leading international specialty insurance and reinsurance provider operating in the Surety, Risk Solutions,
Corporate Insurance and Reinsurance niche segments of the market. Our operating subsidiaries include a Canadian specialty
insurance company, an international reinsurance company and a new US specialty insurance company. Our Canadian
specialty insurance subsidiary started writing business in 2006 and has a strong underwriting track record over its eleven
years of operation. Our international reinsurance business has been in operation for more than sixteen years and although
we ceased writing new reinsurance business in 2008, we continue to evaluate writing new business in the context of market
conditions. Our US specialty insurance company participates in the excess and surplus non-admitted markets and is licensed
in Oklahoma to write business in all states within the United States.
Our Company benefits from an experienced management team, strong distribution partners and a specialized business focus.
We plan to grow by building our new business in the US, by growing our Canadian and international businesses organically
and through strategic acquisitions. We believe our Company can capitalize on favourable market conditions through our
multi-line and multi-jurisdictional platform. Further, we will continue to focus on our existing distribution network, and strive
to increase the penetration of our products.
Significant company milestones in 2017 include:
✓
Incorporation of the Company in January 2017
✓ Spin-off from Brookfield Asset Management Inc. (“Brookfield”) in June 2017
✓ Commenced trading on the Toronto Stock Exchange, under the symbol TSU, in June 2017
✓
Incorporation in May 2017 and authorisation in July 2017 of our US subsidiary, Trisura Specialty Insurance
Company (“Trisura Specialty”)
✓ Trisura Specialty obtained an A- (Excellent) rating from the A.M. Best Company Inc. (“A.M. Best”), in September
2017
✓ Completion of two significant corporate objectives in Q4 2017 which position us well for our future development
plans
•
•
The acquisition of full ownership of Trisura Guarantee following the issuance of common shares at Trisura Group
in exchange for Trisura Guarantee’s management group’s 40% ownership interest in the business (“the
Buyout”). The Buyout is expected to be accretive to earnings and book value per share in 2018.
The rationalization of our shareholder base as a result of a 10 for 1 share consolidation of Trisura Group common
shares followed immediately by a 1 for 10 share split. This transaction, which was approved by shareholders at
a special meeting in December 2017, resulted in smaller shareholders receiving liquidity and lowered current
and future administrative costs significantly while keeping the holdings of any holder of 10 or more common
shares unchanged.
✓ Staffing of underwriting and infrastructure teams for Trisura Specialty and the binding of its first transaction in
February 2018.
3
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
ORGANIZATIONAL STRUCTURE & REGULATORY FRAMEWORK
The Company was incorporated under the Business Corporations Act (Ontario) (“OBCA”) in January 2017. We have three
regulated wholly owned insurance subsidiaries:
(i) Trisura Guarantee is our Canadian specialty insurance company. Trisura Guarantee is federally incorporated in
Canada, is licensed in all provinces and territories of Canada and is subject to both prudential regulation by the Office
of the Superintendent of Financial Institutions (“OSFI”) and market conduct regulation by each of the insurance
regulatory authorities of the provinces and territories in which it conducts business.
(ii) Trisura Specialty is our US specialty insurance company. Trisura Specialty was incorporated on May 31, 2017 and is
licensed by the Oklahoma Insurance Department as a domestic surplus line insurer and can write business as a non-
admitted surplus line insurer in all states within the United States.
(iii) Trisura International Insurance Ltd. (“Trisura International”), is our international reinsurance company. Trisura
International is incorporated in Barbados, is licensed to write international reinsurance business and is regulated by
the Financial Services Commission (“FSC”) in Barbados.
SECTION 2 – FINANCIAL HIGHLIGHTS
✓ Excellent premium growth in 2017 increasing gross premiums written by 15.8% in Q4 2017 and by 17.4% for the full
year and net premiums written by 21.1% in Q4 2017 and by 14.4% for the full year driven by increased activity in the
Risk Solutions and Surety business lines at Trisura Guarantee.
✓ Strong underwriting performance in 2017 at Trisura Guarantee with combined ratios of 93.7% and 88.9% in the
fourth quarter and full year respectively. ROE for Trisura Guarantee 2017 was a solid 13.7%.
✓ Net income and earnings per share in Q4 2017 were slightly negative at ($0.1) million and ($0.01) per share driven
by overhead expenses incurred from the establishment of the Trisura Specialty and the Group functions
✓ Strong capital position with a minimum capital test (“MCT”) for Trisura Guarantee of 255% and with Trisura Specialty
capitalized in line with its planned business development. Furthermore, we achieved our target debt-to-capital ratio
of 20% maximum by reducing our debt-to-capital ratio to 19.6% from 32.5% during 2017.
4
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
SECTION 3 – FINANCIAL REVIEW
INCOME STATEMENT ANALYSIS
Premium Revenue and Fee Income
The strong premium growth seen in previous quarters continued in Q4 2017 with a 15.8% increase in GPW and 21.1% increase
in NPW arising mainly from Risk Solutions and Surety business. This contributed to a 6.3% increase in Q4 2017 total
underwriting revenue.
For the full year 2017, GPW grew 17.4% and NPE grew 14.4%, driven mainly by growth in Risk Solutions and supported by
growth in Surety. Fee income which is a significant driver of net underwriting income and net income remained steady. Total
underwriting revenue rose 9.5%.
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TRISURA GROUP LTD.
Q4 2017Q4 2016$ variance% variance20172016$ variance% varianceGross premiums written38,68933,4065,28315.8%146,763124,96521,79817.4%Net premiums written26,43921,8374,60221.1%99,61587,06412,55114.4%Net premiums earned19,86618,5911,2756.9%79,43372,2557,1789.9%Fee income127214(87)(40.7%)3,4003,365351.0%Total underwriting revenue19,99318,8051,1886.3%82,83375,6207,2139.5%Net claims(5,187)(5,636)449nm(17,653)(28,800)11,147nmNet commissions(5,195)(5,106)(89)nm(24,882)(23,070)(1,812)nmPremium taxes(1,227)(962)(265)nm(4,463)(3,591)(872)nmOperating expenses (8,913)(8,862)(51)nm(32,279)(26,604)(5,675)nmNet claims and expenses (20,522)(20,566)44nm(79,277)(82,065)2,788nmNet underwriting (loss) income(529)(1,761)1,232nm3,556(6,445)10,001nmNet investment income1,0072,575(1,568)(60.9%)5,41112,424(7,013)(56.4%)Foreign exchange gains (losses)103(123)226nm(35)(528)493nmInterest expense(197)(152)(45)nm(1,009)(481)(528)nmChange in minority interests- 2(2)(100.0%)(5,156)(155)(5,001)nmIncome before income taxes384541(157)(29.0%)2,7674,815(2,048)(42.5%)Income tax expense(461)(455)(6)nm(3,109)(1,862)(1,247)nmNet (loss) income(77)86(163)(189.5%)(342)2,953(3,295)(111.6%)Other comprehensive income (loss)1,14199914214.2%(4,495)2,156(6,651)(308.5%)Comprehensive income (loss)1,0641,085(21)(1.9%)(4,837)5,109(9,946)(194.7%)(0.01)n/an/a0.37n/an/a(0.01)n/an/a(0.06)n/an/a18.35n/an/a18.35n/an/aBook value per share $Earnings per common share, basic and diluted, in dollars (for Q4 and the period June 22 to December 31, 2017)Earnings per common share, basic and diluted, in dollars (for Q4 and the period January 1 to December 31, 2017)
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
Net Claims
Net claims in Q4 2017 and Q4 2016 were comparable. In Q4 2016 a large claim in Risk Solutions (see Prospectus for full
description) was partially offset by favourable prior years’ reserve development in our Reinsurance, Surety and Corporate
Insurance business. The comparable Q4 2017 claims experience was achieved despite lower favourable prior year’s reserve
developments.
On a full year basis Net claims in 2017 were lower than in 2016 driven by heightened Risk Solutions claims and reserve
increases on Reinsurance annuity reserves resulting from falling European interest rates in 2016.
Operating Expenses
Operating expenses for the full year 2017 increased due to corporate expenses related to the formation and development of
the Company and our new US subsidiary
Net Underwriting Income and Net Income
Net underwriting income in Q4 2017 and full year 2017 was largely driven by net claims experience over these time periods
resulting in comparable net underwriting income being comparable in Q4 2017 and significantly greater than 2016 on a full
year basis.
Minority Interests
Minority interests reflect the 40% of Trisura Guarantee which was owned by Trisura Guarantee management prior to the
Buyout and were revalued as at January 1 of each year. The valuation of the minority interests increased by $5.2 million in
January 2017 compared to an increase of $0.2 million in 2016. Following the Buyout, we do not expect future impact from
minority interest.
Net Investment Income and Other Comprehensive Loss
See Section 5 – Investment Performance Review.
6
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
BALANCE SHEET ANALYSIS
The Company’s total assets increased by $69.0 million during the year ended December 31, 2017 driven primarily by an
increase in our cash and cash equivalents from the capital injection from Brookfield in connection with and prior to the spin-
off. In addition, recoverables from reinsurers increased by $18.1 million due to the increase in ceded premiums and related
reserves mainly on the Risk Solutions business.
Total liabilities increased by $18.3 million during the year ended December 31, 2017 primarily due to increases in unearned
premiums and unpaid claims and loss adjustment expenses. Offsetting these increases were the elimination of the minority
interests following the Buyout and reductions in accounts payable, accrued and other liabilities and the loan payable. See
Note 17 to the consolidated financial statements for details on the Company’s bank loan.
Shareholders’ equity increased by $50.6 million primarily as a result of the capital injected by Brookfield in connection with
and prior to the spin-off and the elimination of the minority interests in connection with the Buyout.
7
TRISURA GROUP LTD.
As at20172016$ varianceCash and cash equivalents165,675122,09643,579Investments 190,641194,393(3,752)Premiums and accounts receivable, and other assets23,17222,0691,103Deferred acquisition costs40,26630,9859,281Recoverable from reinsurers65,25447,12018,134Capital assets and intangible assets2,6122,116496Deferred tax assets740622118Total assets488,360419,40168,959Accounts payable, accrued and other liabilities19,79525,434(5,639)Reinsurance premiums payable17,55513,4614,094Unearned premiums 115,35790,61224,745Unearned reinsurance commissions5,5664,928638Unpaid claims and loss adjustment expenses178,885163,97014,915Loan payable29,70034,100(4,400)Minority interests - 16,008(16,008)Total liabilities366,858348,51318,345Shareholders' equity121,50270,88850,614Total liabilities and shareholders' equity488,360419,40168,959
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
SHARE CAPITAL
Our authorized share capital consists of: (i) an unlimited number of common shares; (ii) an unlimited number of non-voting
shares; and (iii) an unlimited number of preference shares (issuable in series).
As at December 31, 2017, 6,621,680 common shares and 64,000 preferred shares of the Company were issued and
outstanding.
LIQUIDITY
Liquidity sources immediately available to the Company include: (i) existing cash and cash equivalents; (ii) our portfolio of
highly rated, highly liquid investments (iii) cash flow from operating activities which include receipt of net premiums, fee
income and investment income and; (iv) bank loan facilities. These funds are used primarily to pay claims and operating
expenses, service the Company’s bank loan and purchase investments to support claims reserves.
We expect to have sufficient liquidity to fund our operations and to meet our current business plans. However, should the
need arise, additional liquidity sources include further bank loans and new issuances of debt or shares in the private or public
markets.
CAPITAL
The MCT ratio of Trisura Guarantee was 255% as at December 31, 2017 (265% as at September 30, 2017 and 272% as at
December 31, 2016), which comfortably exceeds the 150% regulatory requirements prescribed by OSFI.
Trisura International’s capital of $26.6 million as at December 31, 2017 was well in excess of FSC’s regulatory capital
requirement of $0.2 million.
Trisura Specialty’s capital and surplus of $56.5 million as at December 31, 2017 was in excess of the $18.8 million minimum
capital requirements of the Oklahoma Insurance Department.
We had a debt-to-capital ratio of 19.6% as at December 31, 2017 compared to 22.2% in September 2017 and 32.5% as at
December 31, 2016 with the reduction reflecting the continuing repayment of our bank loan and the Brookfield capital
injection in connection with the spin-off, as well as the issuance of equity alongside the Buyout.
The Company is well-capitalized and we expect to have sufficient capital to meet our regulatory capital requirements, fund
our operations and support our current business plans.
8
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
SECTION 4 – UNDERWRITING PERFORMANCE REVIEW
We operate through the following four business lines: Surety, Risk Solutions, Corporate Insurance and Reinsurance.
Substantially all of our premiums in 2017 and 2016 have been written by Trisura Guarantee, in the Canadian specialty
insurance market. Our new U.S. non-admitted insurer, Trisura Specialty, received an A- (Excellent) A.M. Best rating in Q3
2017. We are actively pursuing new business opportunities that are expected to generate U.S. premiums in the coming
quarters.
SPECIALTY P&C
The table below presents financial highlights for our Specialty P&C business (which consists of our Surety, Risk Solutions and
Corporate Insurance business lines).
Our Specialty P&C business produced strong growth in GPW in Q4 2017, increasing by 15.8% over Q4 2016, driven mainly by
our Risk Solutions and Surety businesses which contributed to a 6.3% increase in Q4 2017 net underwriting revenue. Net
underwriting income in Q4 2017 was ahead of Q4 2016 by $2.2 million as Q4 2016 was impacted by a significant Risk Solutions
claim which led to a 55.8% loss ratio. A significant reduction in the staff bonus provision because of this claim contributed to
the low expense ratio of 49.3% in the Q4 2016 period leading to an overall combined ratio of 105.1%. Q4 2017 had a much
improved combined ratio of 93.7% due primarily to the reduction in loss ratio to 28.1%
Full year 2017 GPW grew by 17.5%, driven by Risk Solutions and Surety leading to a 9.6% increase in net underwriting revenue.
2017 net underwriting income was ahead of 2016 results by $3.2 million. The 2017 loss ratio improved to 24.0% from 31.1%
for 2016 due in part to the large Risk Solutions claims in 2016 albeit 2017 had lower favourable prior years’ reserve
development. The combined ratio in 2017 improved to 88.9% from 92.2% in 2016 driven by continued strong underwriting.
ROE improved in 2017 on a quarterly (annualized) and full year basis to 9.0% and 13.7% respectively.
9
TRISURA GROUP LTD.
Q4 2017Q4 2016$ variance% variance20172016$ variance% varianceGross premiums written38,64233,3705,27215.8%146,598124,80121,79717.5%Net premiums earned19,82118,5561,2656.8%79,27072,0927,17810.0%Fee income127201(74)(36.8%)3,4003,352481.4%Net underwriting revenue19,94818,7571,1916.3%82,67075,4447,2269.6%Net underwriting income1,246(941)2,187nm8,8395,6303,20957.0%Net investment income8331,783(950)(53.3%)3,9311,1372,794245.7%Net income1,619686933135.9%9,6575,2034,45485.6%Comprehensive income2,5887711,817235.5%10,57910,2403393.3%Loss ratio: current accident year35.1%77.0%29.0%41.6%Loss ratio: Prior years' development(7.0%)(21.2%)* (5.0%)(10.5%)Loss ratio28.1%55.8%(27.7%)24.0%31.1%(7.1%)Expense ratio65.6%49.3%16.3%64.9%61.1%3.8%Combined ratio93.7%105.1%(11.4%)88.9%92.2%(3.3%)Rolling ROE (annualized for quarters)9.0%4.1%13.7%8.4%5.3%* Covers period July 1 to December 31, 2016
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
The table and charts below provide a segmentation of our GPW for the three and twelve month periods ended December 31,
2017 and 2016, respectively.
Gross Premiums Written
Q4 2017
Gross Premiums Written
2017
25.9%
51.9%
22.2%
43.8%
34.0%
22.2%
Surety
Corporate Insurance
Risk Solutions
Surety
Corporate Insurance
Risk Solutions
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TRISURA GROUP LTD.
Surety10,01425.9%8,51425.5%49,69033.9%43,75135.1%Corporate Insurance8,57322.2%8,00524.0%32,71822.3%31,76025.4%Risk Solutions20,05551.9%16,85150.5%64,19043.8%49,29039.5%Total GPW38,642100.0%33,370100.0%146,598100.0%124,801100.0%GPW growth %(1)15.8%23.7%17.5%19.8%(1) % growth relative to prior year periodQ4 2017Q4 201620172016
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
Surety
The main products offered by our Surety business line are:
✓ Contract 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 or fiduciary obligations; and
✓ Developer surety bonds, comprising mainly bonds to secure real estate developers’ legislated deposit and warranty
obligations on residential projects.
Surety accounted for 25.9% of our overall GPW in Q4 2017 and 34.0% for full year Q4 2017.
Q4 2017 GPW grew by 17.6% relative to Q4 2016 and NPE increased by 18.0% over the same period. Q4 2016 combined ratio
of 32.4% benefited from significant favourable prior years’ reserve development coupled with a low expense ratio due to
lower staff bonus. The Q4 2017 combined ratio was 83.1% resulting in net underwriting income of $1.4 million compared to
$4.8 million in Q4 2016.
2017 GPW grew by 13.6% relative to 2016 and NPE increased by 10.4% over the same period. Fee income which is a significant
driver of profitability of the Surety business remained steady in 2017 at $3.4 million. Net underwriting income of $6.3 million
and a combined ratio of 80.8% for 2017 were strong but below the $8.4 million net underwriting income and 71.8% combined
ratio in 2016 which benefited from more favourable prior years’ reserve development and lower expenses particularly in Q4.
11
TRISURA GROUP LTD.
Q4 2017Q4 2016$ variance% variance20172016$ variance% varianceGross premiums written10,0148,5141,50017.6%49,69043,7515,93913.6%Net premiums earned8,4037,1201,28318.0%32,78429,6853,09910.4%Fee income127201(74)(36.8%)3,3853,337481.4%Net underwriting revenue8,5307,3211,20916.5%36,16933,0223,1479.5%Net underwriting income1,4174,810(3,393)(70.5%)6,3018,375(2,074)(24.8%)Loss ratio: current accident year30.0%15.9%21.4%23.1%Loss ratio: Prior years' development(9.5%)(25.3%)* (6.3%)(10.7%)Loss ratio20.5%(9.4%)29.9%15.1%12.4%2.7%Expense ratio62.6%41.8%20.8%65.7%59.4%6.3%Combined ratio83.1%32.4%50.7%80.8%71.8%9.0%* Covers period July 1 to December 31, 2016
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
Risk Solutions
Risk Solutions includes specialty insurance contracts which are structured to meet the specific requirements of program
administrators, managing general agencies, captive insurance companies, affinity groups and reinsurers. Our Risk Solutions
business line consists primarily of warranty programs.
Risk Solutions accounted for 51.9% of our overall GPW in Q4 2017 and 43.8% for full year 2017. On a full year basis this is up
significantly from 39.5% for 2016 and reflects the strong growth of a number of newer programs.
In Q4 2017 GPW grew by 19.0% while NPE fell by 7.1% compared to the previous year. The lower growth rate of net premiums
earned reflects the slower earning pattern of the multi-year warranties of many of the newer programs in Risk Solutions. Q4
2016 and the full year 2016 were heavily influenced by one large claim which resulted in a net underwriting loss of $9.1
million and a combined ratio of 270.1% in Q4 2016. Q4 2017 had a net underwriting loss of $0.4 million and an operating
ratio of 109.0%.
2017 GPW grew by 30.2% relative to 2016, while 2017 NPE were 12.4% higher. Again, the lower growth rate of net premiums
earned reflects the slower earning pattern of the multi-year warranties of many newer of the programs in Risk Solutions. The
full year 2017 produced positive net underwriting income of $1.5 million and a combined ratio of 92.8% compared to the
large 2016 underwriting loss of $7.5 million and combined ratio of 139.3%.
12
TRISURA GROUP LTD.
Q4 2017Q4 2016$ variance% variance20172016$ variance% varianceGross premiums written20,05516,8513,20419.0%64,19049,29014,90030.2%Net premiums earned4,9535,334(381)(7.1%)21,49819,1212,37712.4%Fee income- - - nm1515- 0.0%Net underwriting revenue4,9535,334(381)(7.1%)21,51319,1362,37712.4%Net underwriting (loss) income(441)(9,078)8,637nm1,547(7,518)9,065nmLoss ratio: current accident year39.6%215.9%29.6%77.3%Loss ratio: Prior years' development(3.5%)(5.8%)* (1.7%)(2.6%)Loss ratio36.1%210.1%(174.0%)27.9%74.7%(46.8%)Expense ratio72.9%60.0%12.9%64.9%64.6%0.3%Combined ratio109.0%270.1%(161.1%)92.8%139.3%(46.5%)* Covers period July 1 to December 31, 2016
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
Corporate Insurance
The main products offered by our Corporate Insurance business line are D&O insurance for public, private and non-profit
enterprises, E&O liability insurance for both enterprises and professionals, business office package insurance for both
enterprises and professionals and fidelity insurance for both commercial and financial institutions.
Corporate Insurance accounted for 22.2% of our overall GPW in Q4 2017 and for the full 2017 year. This compares to 24.0%
and 25.4% in Q4 2016 and full year 2016, respectively. The decrease reflects the stronger growth of the Risk Solutions and
Surety business lines.
Corporate Insurance includes a number of three-year policies. We recognize the premiums for the full three-year term at the
time these policies are written but earn them over the three-year term. This can cause differences in written and earned
growth rates as was the case in 2017 when GPW grew by 3.0% compared to 2016, but by 7.3% on a NPE basis
Corporate Insurance produced growth in net underwriting revenue of 5.9% in Q4 2017 and 7.3% for the full year 2017 and
produced positive net income with combined ratios of 95.6% for Q4 2017 and 96.0 for the full year 2017. By contrast, Q4
2016, in particular, and full year 2016 produced stronger net underwriting income and combined ratios helped by favourable
prior years’ reserve development and lower expense ratios.
13
TRISURA GROUP LTD.
Q4 2017Q4 2016$ variance% variance20172016$ variance% varianceGross premiums written8,5738,0055687.1%32,71831,7609583.0%Net premiums earned6,4656,1023635.9%24,98823,2861,7027.3%Net underwriting revenue6,4656,1023635.9%24,98823,2861,7027.3%Net underwriting income2783,345(3,067)(91.7%)1,0225,103(4,081)(80.0%)Loss ratio: current accident year38.0%27.0%38.5%35.7%Loss ratio: Prior years' development(6.3%)(30.0%)* (6.1%)(16.7%)Loss ratio31.7%(3.0%)34.7%32.4%19.0%13.4%Expense ratio63.9%48.2%15.7%63.6%59.1%4.5%Combined ratio95.6%45.2%50.4%96.0%78.1%17.9%* Covers period July 1 to December 31, 2016
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
REINSURANCE
Our international reinsurance business ceased writing new business in 2008 but previously wrote quota share reinsurance
(prospective), loss portfolio transfers (retrospective) and niche, specialty contracts covering international risks across multiple
commercial lines. Currently our international reinsurance business is managing its remaining portfolio of in-force reinsurance
contracts and will shortly recommence writing new business, initially in support of our Canadian and US specialty insurance
businesses and thereafter in the international reinsurance markets as attractive opportunities arise.
The remaining in-force portfolio of reinsurance contracts is dominated by one large life annuity reinsurance contract
denominated in euros, on which annuity reserves and supporting assets change in response to interest rate changes. As a
result, we measure the performance of our reinsurance business by reference to net income in order to capture (i) the change
in annuity reserves, which is included in net underwriting income; and (ii) the offsetting change in the value of the supporting
assets, which is included in net investment income as these supporting assets are designated FVTPL.
In Q4 2017 net income was $0.5 million compared to a net loss of $0.5 million in Q4 2016, driven mainly by some favourable
annuity reserve development and reduced operating expenses. These factors were also the main contributors to the net
income improvement in the full year 2017 compared to 2016.
The offsetting effect of movements in annuity reserves and supporting assets was evident in 2016 when the fall in European
interest rates led to increases in annuity reserves and a large net underwriting loss but also drove a significant increase in the
value of the assets supporting the annuity reserves which contributed to the strong net investment income.
Q4 2017 saw a continuation in the reduction in operating expenses as the scale and complexity of the in-force portfolio
continues to diminish. Operating expenses have reduced by 53% in Q4 2017 and by 39% on a full year basis compared to the
same periods in 2016.
(1) Note that the Q4 YTD 2016 operating expenses in the above table have been adjusted to reflect a $2.9 million legal expense reimbursement which arose
from the successful conclusion of a legal dispute in Q2 2016 and a payment of $3.7 million on a long-term incentive plan for senior executives of the
reinsurance business. See the Prospectus and Management Discussion and Analysis for Q2 2017 for further detail.
14
TRISURA GROUP LTD.
Q4 2017Q4 2016$ variance20172016$ varianceNet underwriting (loss) income361(820)1,181(659)(12,075)11,416Net investment income29792(763)1,20511,287(10,082)Net income (loss)451(450)901545(1,614)2,159Q4 2017Q4 2016$ variance20172016$ varianceOperating expenses (1)5501,164(614)2,6364,302(1,666)
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
CORPORATE
Our corporate results represent operating expenses that do not relate specifically to any one business line of the Company
as well as any changes in the valuation of the minority interests.
During Q4 2017 and full year 2017, we incurred corporate costs of $2.1 million and $4.6 million respectively. These expenses
comprised costs related to the formation and development of the Company and our new US subsidiary, Trisura Specialty
including compensation costs of group management and start-up team at Trisura Specialty and various consulting fees. No
such costs were incurred in the corresponding periods of 2016.
The minority interests reflect the 40% of Trisura Guarantee which was owned by Trisura Guarantee management prior to the
Buyout and were revalued as at January 1 of each year. The valuation of the minority interests increased by $5.2 million in
January 2017 compared to an increase of $0.2 million in 2016, impacting the full year 2017 and the full year 2016 accordingly.
Following the Buyout, we do not expect future impact from minority interest.
15
TRISURA GROUP LTD.
Q4 2017Q4 2016$ variance20172016$ varianceCorporate expenses2,137- 2,1374,625- 4,625Increase in minority interests- (2)25,1561555,001Corporate2,137(2)2,1399,7811559,626
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
SECTION 5 – INVESTMENT PERFORMANCE REVIEW
OVERVIEW
The Company’s investment policy seeks to achieve attractive total returns without incurring an undue level of investment risk
while supporting our liabilities and maintaining strong regulatory capital levels. Currently, we have outsourced a portion of
our investment management to third-party managers. As we grow, we intend to develop internal investment management
capabilities.
SUMMARY OF INVESTMENT PORTFOLIO
Our $356 million investment portfolio consists of cash and cash equivalents, government and corporate bonds, preferred
shares, common shares and a small amount of other asset types. Ninety-nine percent of our fixed income holdings are highly
liquid, investment grade bonds. A significant portion of the consolidated investment portfolio remains invested in cash and
cash equivalents, reflective of the capital in our US entity, expected to be deployed alongside the onboarding of new business
in the US.
Fixed Income Securities by Rating
Investment Portfolio by Asset Class
INVESTMENT PERFORMANCE
Net Investment Income
16
TRISURA GROUP LTD.
Q4 2017Q4 2016$ variance20172016$ varianceSpecialty P&C8331,783(950)3,9311,1372,794Reinsurance29792(763)1,20511,287(10,082)Corporate145- 145275- 275Net investment income1,0072,575(1,568)5,41112,424(7,013)
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
The Company’s operations currently include specialty property and casualty insurance (Surety, Risk Solutions, and Corporate
Insurance business lines), underwritten predominantly in Canada by Trisura Guarantee, and international reinsurance
business at Trisura International. These businesses focus on different market segments, geographic regions and risks, and
accordingly, hold different assets and currencies to support their liabilities. Consequently, investment returns are most
appropriately viewed at a business unit level.
Trisura Guarantee’s net investment income was driven by interest and dividend income on portfolio assets. 2016 net
investment income included a significant impairment on preferred shares, which resulted in negative investment income in
the full year period. The market based yield of the Specialty P&C portfolio as at December 31, 2017 was 2.8%.
In the Reinsurance business unit, net investment income in the 2016 period was attributable to realized gains on the disposal
of certain mortgage backed securities and net of unrealized losses on investments held at FVTPL driven by increasing interest
rates. The strong performance in 2016 was attributable to an increase in the valuation of certain Euro-denominated assets
designated FVTPL which support the reserves on a Euro-denominated annuity reinsurance contract. Importantly, there was
a largely offsetting increase in the reserves held on the same annuity reinsurance contract. The market based yield of the
Reinsurance portfolio as at December 31, 2017 was 2.3%.
Other Comprehensive Income (“OCI”)
The Company records changes in the value of its AFS assets through OCI. The mark to market effect of these assets on OCI
was a gain of $0.7 million in Q4 2017 driven by mark to market movements in the fixed income portfolio, compared to a
$(0.2) million loss in Q4 2016, from market value decreases on Canadian and US securities. Unrealized market movements
on AFS assets were $0.9 million for the full year 2017 compared to a $3.8 million in the same period of 2016, mainly due to
market value increases on certain US bonds in 2016.
Foreign exchange differences arising from the translation of the financial statements of Trisura International and Trisura
Specialty to Canadian dollars are recognized as cumulative translation gains or losses, which are a constituent part of overall
OCI. There were cumulative translation gains in Q4 2017 and Q4 2016 of $0.4 million and $1.2 million respectively.
Cumulative translation losses for the full year 2017 and the full year 2016 were $5.4 million and $1.6 million respectively.
The cumulative translation losses were due to the strengthening of the Canadian dollar against the US dollar, driving lower
C$ valuations of capital and securities held outside of Canada.
Refer to Note 20 Investment income and the Other Comprehensive Income section in the Consolidated financial statements
for more detail on the components of investment returns.
17
TRISURA GROUP LTD.
Q4 2017Q4 2016$ variance20172016$ varianceUnrealized gains in OCI719(216)9359493,795(2,846)Cumulative translation4221,215(793)(5,444)(1,639)(3,805)OCI1,141999142(4,495)2,156(6,651)
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
SECTION 6 – OUTLOOK & STRATEGY
INDUSTRY
The specialty insurance market offers products and services that are not written by most insurance companies. The risks
covered by specialty insurance policies generally require focused, specialist underwriting knowledge and technical financial
and actuarial expertise. Consequently, these risks are difficult to place in the standard insurance market where many carriers
are unable or unwilling to underwrite them. As a result, specialty insurers usually have more pricing and policy form flexibility
than traditional market insurers. For this reason, specialty insurers have historically and are expected to continue to
outperform the standard market by having lower claims and operating ratios than traditional insurance companies.
In contrast to the standard P&C insurance market, which is divided almost evenly between personal and commercial lines,
specialty insurers are focused almost exclusively on commercial lines. Even within the commercial sector, the business mix
of the specialty insurers can vary significantly from that of the overall P&C industry. Although no standard definition for the
specialty insurance market exists, some common examples of business written in specialty include: non-standard insurance,
niche market segments (such as Surety, D&O and E&O) and products that require tailored underwriting. Many insurance
groups with a specialty focus have several different carriers and licenses and allocate business between these carriers
depending on market conditions and regulatory requirements.
OUTLOOK AND STRATEGY
Our Company has a highly experienced and capable management team with strong industry relationships, and long
experience and excellent reputations with rating agencies, insurance regulators and business partners. We have operated in
the Canadian specialty P&C insurance market for more than eleven years and in the international specialty reinsurance
market for over fifteen years establishing a conservative underwriting and investing track record.
In Canada, we have built our brand through Trisura Guarantee to serve our clients, brokers and institutional partners as a
leading provider of niche specialty insurance products. Trisura Guarantee will continue to build out its product offerings in
existing and new niche segments of the market with suitably qualified underwriters. Trisura Guarantee remains committed
to its broker distribution channel to promote and sell its insurance products. Trisura Guarantee is selective in partnering with
a limited brokerage force, focusing its efforts on leading brokerage firms in the industry with expertise in specialty lines. This
distribution network currently comprises over 150 major international, national and regional brokerage firms operating
across Canada in all provinces and territories as well as boutique niche brokers with a focus on specialty lines.
Our US specialty insurance business, Trisura Specialty, is fully operational and bound its first transaction in February 2018. It
is licensed as a domestic surplus line insurer in Oklahoma and can operate as a non-admitted surplus line insurer in all states
within the US and is rated A- (Excellent) by A.M. Best. It is our belief that the conditions are favourable for the continued
growth of Trisura Specialty, which operates primarily as a fronting carrier using a fee based business model. Its focus will be
to source high quality business opportunities by partnering with a core base of established and well-managed program
administrators that are already known to our management. From our business activity to date these program administrators
welcome our new capacity as there is currently a lack of fronting carriers and the products and arrangements currently
offered to them by the existing market do not always meet the needs of their business and clients.
18
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
Furthermore, we believe there is a strong supply of highly rated international reinsurance capacity keen to gain exposure to
this business, allowing Trisura Specialty to cede most of the risk on its policies to these reinsurers on commercially favourable
terms. Again, our management team has strong, established relationships with these reinsurers. We are confident that this
fee-based business model will generate attractive, stable fee income while maintaining a small risk position, limiting
underwriting risk and aligning our interests with our program distribution partners and reinsurers. As Trisura Specialty grows,
we expect that our US operations will become a more significant component of our Company.
We will continue to develop our distribution network, building on our existing partner network in Canada and our core base
of program administrators in the US. Our Company will strive to increase the penetration of our products in our partner
network by providing the support they require to enhance the effectiveness of their sales and marketing efforts.
We also intend to consider acquisitions on an opportunistic basis and pursue those that fit with our strategic plan. We expect
the consolidation in the Canadian, US and international specialty insurance and reinsurance markets will continue and in
which we may participate. Building on the knowledge and expertise of our existing operations, we intend to initially target
businesses in the US that operate in similar niches of the specialty insurance market. Additionally, we expect our reinsurance
business to commence writing new reinsurance business as an international multi-line reinsurer, initially in support of our
Canadian and US specialty insurance businesses and thereafter where other attractive opportunities arise.
19
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
SECTION 7 – OTHER INFORMATION
RATINGS
Trisura Guarantee has been rated A- (Excellent) by A.M. Best since 2012. Trisura Specialty obtained an A- (Excellent) rating
from A.M. Best in September 2017.
CASH FLOW SUMMARY
20
TRISURA GROUP LTD.
Q4 2017Q4 2016$ variance20172016$ varianceNet (loss) income from operating activities(77) 86 (163) (342) 2,953 (3,295) Non-cash items to be deducted1,145 (3,817) 4,962 2,354 (387) 2,741 Stock options granted143 - 143 143 - 143 Change in working capital operating items3,000 (1,381) 4,381 23,722 9,673 14,049 Realized losses on AFS investments(228) (93) (135) (932) (1,936) 1,004 Income taxes paid(967) - (967) (7,090) (1,797) (5,293) Interest paid(232) (292) 60 (1,042) (625) (417) Net cash from (used in) operating activities2,784 (5,497) 8,281 16,813 7,881 8,932 Proceeds on disposal of investments18,664 26,470 (7,806) 39,050 61,140 (22,090) Purchases of investments(7,539) (2,019) (5,520) (139,403) (33,934) (105,469) Net purchases of capital and intangible assets(925) 40 (965) (1,070) (803) (267) Net cash from (used in) investing activities10,200 24,491 (14,291) (101,423) 26,403 (127,826) Change in minority interests- (2) 2 5,156 155 5,001 Dividends paid(8) 4 (12) (8) (17,699) 17,691 Common shares issued- - - 140,270 - 140,270 Shares redeemed(4,031) - (4,031) (4,031) (21,000) 16,969 Repayment of notes payable- (38) 38 (355) (346) (9) Loans received- - - - 35,000 (35,000) Repayment of loans payable(200) (918) 718 (4,400) (7,518) 3,118 Net cash (used in) from financing activities(4,239) (954) (3,285) 136,632 (11,408) 148,040 Net increase in cash8,745 18,040 (9,295) 52,022 22,876 29,146 Cash at beginning of the period156,321 101,988 54,333 122,096 101,387 20,709 Currency translation609 2,068 (1,459) (8,443) (2,167) (6,276) Cash at the end of the period165,675 122,096 43,579 165,675 122,096 43,579
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
The main cash flow activity in Q4 2017 centered on purchases and disposals of investments primarily related to activity in our
bond portfolios as bonds were sold or matured and new investments were purchased. $4.0 million of these proceeds were
used to redeem shares held by small shareholders as part of the 10 for 1 share consolidation and 1 for 10 share split.
On June 15, 2017, the Company issued approximately 5.8 million common shares to Brookfield for $140 million, as indicated
in the full year 2017 financing activities section above. These funds were used to acquire the Company’s interest in Trisura
Guarantee and Trisura International from Brookfield for approximately $100 million, as indicated in the full year 2017
investment activities section above. Additional purchases and disposals of investments, as indicated in the full year 2017 and
Q4 2017 investment activities section, were primarily related to activity in the bond portfolio of Trisura Guarantee as bonds
matured and new investments were purchased.
The increase in working capital in the full year 2017 and Q4 2017 is primarily attributable to increases in unearned premiums
and unpaid claims at Trisura Guarantee.
In 2016, Trisura Guarantee obtained a loan from a Canadian Schedule I bank, and used the proceeds of that loan to redeem
$19 million of Class A common shares, and paid the outstanding value gain associated with those shares of $16.1 million, as
indicated in the 2017 financing activities section above (see also Note 17 in the Consolidated financial statements).
SEGMENTED REPORTING
CONTRACTUAL OBLIGATIONS
21
TRISURA GROUP LTD.
As atTrisura GuaranteeTrisura InternationalTrisura SpecialtyCorporateTotal(2)Assets(1)317,124119,20856,888(4,860)488,360Liabilities(1)243,97992,65842629,795366,858Shareholder's Equity73,14526,55056,462(34,655)121,502Book Value Per Share, $(3)11.054.018.53(5.24)18.35(2) Total reflects the Group's Assets, Liabilities, and Book Value Per Share after consolidation adjustments.2017(1) Operating companies include the assets and liabilities of their holding companies, except for the loans payable of $29,700 currently held in 6436978 Canada Limited which is included in Corporate.(3) Number of common shares used in the calculation of book value per share equals to the Group's total number of common shares outstanding as at December 31, 2017.TotalLess than 1 year1 - 3 years3 - 5 yearsThereafterLoans payable29,700 - - 29,700 - Interest payments on debt(1)3,679 1,025 2,050 604 - Lease commitments4,877 1,258 2,161 841 617 Total contractual obligations38,256 2,283 4,211 31,145 617 (1) Based on estimated interest rate on outstanding loan payable.Payments due by period
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
FINANCIAL INSTRUMENTS
See Note 4 to the Company’s consolidated financial statements.
RELATED PARTY TRANSACTIONS
See Note 24 to the Company’s consolidated financial statements.
OPERATING METRICS
We use operating metrics to assess our operating performance. The combined ratio is the sum of the loss ratio and the
expense ratio. The difference between 100% and the combined ratio represents underwriting income as a percentage of net
premiums earned, or underwriting margin. A combined ratio under 100% indicates a profitable underwriting result. A
combined ratio over 100% indicates an unprofitable underwriting result. The loss ratio is claims and loss adjustment expenses
incurred as a percentage of net premiums earned. The expense ratio is all expenses incurred net of fee income as a
percentage of net premiums earned. In our MD&A for Q1 through Q3 2017, the expense ratio was all expenses incurred net
of commissions on fee income as a percentage of net premiums earned.
We use return on shareholders’ equity (“ROE”) as a measure of operating performance. ROE is calculated based on net
income, divided by the average amount of shareholders’ equity of the Company for a given time period.
We report the results of our MCT as prescribed by OSFI’s Guideline A — Minimum Capital Test for Federally Regulated
Property and Casualty Insurance Companies, as amended, restated or supplemented from time to time. MCT determines the
supervisory regulatory capital levels required by Trisura Guarantee.
These operating metrics are operating performance measures that highlight trends in our core business or are required ratios
used to measure compliance with OSFI standards. Our Company also believes that securities analysts, investors and other
interested parties will use these operating metrics to compare our Company’s performance against others in the specialty
insurance industry. Our Company’s management also uses these operating metrics in order to facilitate operating
performance comparisons from period to period, to prepare annual operating budgets and to determine components of
management compensation. Such operating metrics should not be considered as the sole indicators of our performance and
should not be considered in isolation from, or as a substitute for, analysis of our financial statements prepared in accordance
with IFRS.
22
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
SECTION 8 – RISK MANAGEMENT
Our Company has developed and embraces a comprehensive and effective enterprise risk management framework and
internal controls processes to identify, measure, monitor and mitigate risk. This is central to our decision making in regard
to the business we choose to write and the business we choose to decline. Furthermore, for the business we write the risk
management framework informs our determination of whether to retain the risk fully or to apply risk mitigation features
including reinsurance.
The Board of Directors is responsible for oversight of risk management and internal control systems and policies. The Board
has delegated authority to the Audit Committee to act on its behalf in respect of risk management matters. Our Risk
Committee, chaired by the Chief Risk Officer, assists the Audit Committee in this work through regular reporting and dialogue.
KEY RISKS
The following represent key risks, which the Company has identified, which broadly fall into the categories of Insurance risk
and Financial risk (See also Note 11 to our Consolidated financial statements):
Insurance Risks:
Insurance risk is the risk that the ultimate cost of claims and LAE, as well as acquisition expenses, related to insurance
contracts will exceed premiums received in respect of those contracts. This could occur because either the frequency or
severity of claims is greater than expected. The following list sets out some of the key insurance risks, which the Company
has identified:
1 - Product and Pricing
We price our products considering numerous factors, including claims frequency and severity trends, product line expense
ratios, special risk factors, the capital required to support the product line, reinsurance costs, and the investment income
earned on that capital. Our Company’s pricing process is designed to ensure an appropriate return on capital and long-term
rate stability, avoiding wide fluctuations in such rate unless necessary. These factors are reviewed and adjusted periodically
to ensure they reflect the current environment.
2 - Exposure to Losses Resulting from Underwriting and Claims
Our Company is exposed to losses resulting from the underwriting of risks being insured and the exposure to financial loss
resulting from greater than anticipated adjudication, settlement and claims costs. Our success depends upon our ability to
accurately assess the risks associated with the insurance policies that we write. Our underwriting objectives are to develop
business within our target markets on a prudent and diversified basis and to achieve profitable underwriting results.
3 - Estimates of Loss Reserves and Claims Management
The amounts established and to be established by our Company for loss and loss adjustment expense reserves are estimates
of future costs based on various assumptions, including actuarial projections of the cost of settlement and the administration
of claims, estimates of future trends in claims severity and frequency, and the level of insurance fraud. Most or all of these
factors are not directly quantifiable, particularly on a prospective basis, and the effects of these and unforeseen factors could
negatively impact our Company’s ability to accurately assess the risks of the policies that we write. In addition, future
adjustments to loss reserves and loss adjustment expenses that are unanticipated by management could have an adverse
impact upon the financial condition and results of operations of our Company.
23
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
Although our Company’s management believes our overall reserve levels as at the date of this prospectus are adequate to
meet our obligations under existing policies, actual losses may deviate, perhaps substantially, from the reserves reflected in
our Company’s financial statements. To the extent reserves prove to be inadequate, our Company would have to increase
such reserves and incur a charge to earnings.
Financial Risks:
The significant financial risks are credit risk, liquidity risk and market risk (comprising currency risk, interest rate risk and other
price risks such as equity risk). The following describes how the Company manages these risks.
1 - Credit Risk
Credit risk is the risk that a party to a financial instrument will fail to discharge an obligation and cause the Company to incur
a financial loss. Credit risk arises mainly from investments in bonds and short-term securities. Our investment policies mitigate
credit risk through requirements relating to, inter alia, type, credit quality, size and duration of permitted investments.
Management monitors credit quality on an ongoing basis and reviews the investment portfolio regularly with the Board.
2 – Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities
that are settled by delivering cash or another financial asset. Liquidity risk may arise from a number of potential areas
including, for example, duration mismatch between assets and liabilities.
To manage its liquidity requirements, the Company maintains a minimum balance of cash and cash equivalents and a highly
rated, highly liquid investment portfolio. The Company’s investment policy sets out minimum criteria for the credit quality
of each class of investment held. In addition, the investment policy stipulates average duration of bonds and maximum
maturity limits. For common shares, preferred shares and income and investment trusts limitations are placed on exposure
to any one issuer.
The Company also manages the liquidity risk associated with its assumed reinsurance liabilities through its asset liability
matching processes. The long-tailed nature of much of the Company’s reinsurance business also reduces the likelihood of
sudden or unexpected spikes in claim payment requirements.
3 - Market Risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market prices. Market risk includes currency risk, interest rate risk and other price risks such as equity risk.
i)
Currency Risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
foreign exchange rates.
The Company has operations in the United States and Canada, as well as European exposure through its reinsurance
operations and therefore has exposure to currency risk arising from fluctuations in exchange rates of the Canadian and Euro
against the United States dollar. The foreign currency positions of the Company are monitored quarterly and the Company
uses derivatives to manage foreign exchange risks where a material unmatched foreign exchange position exists.
24
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
ii)
Interest Rate Risk
Interest rate risk is the potential for financial loss resulting from changes in interest rates. Bonds, structured insurance assets
and preferred shares are subject to interest rate risk although, in the case of bonds, to the extent they are held to maturity,
the risk is limited to the reinvestment yield being different from the original yield to maturity. The fair value of bonds, change
inversely with changes in market rates of interest, with greater impact to bonds with longer durations. The Company’s unpaid
claims balance is also subject to interest rate risk, in particular the Company’s life reserves which have longer durations.
The Company manages its interest rate risk through its investment policy which considers average duration of bonds held
and maximum maturity limit as well as asset liability matching.
iii)
Equity Price Risk
Equity price risk is the uncertainty associated with the valuation of assets arising from changes in equity markets.
The Company’s exposure to equity price risk is managed and mitigated through its investment policy which sets out maximum
exposures to equities at aggregate and per issuer levels as well as requiring diversification across different industry sectors.
The Prospectus contains descriptions of the following additional risk factors relating to our Company and our activities.
Holding Company
Fluctuations in Results of Operations
Highly Competitive Specialty Insurance Business
Cyclical Nature of Specialty Insurance Industry
Negative Publicity in the Specialty Insurance Industry
A.M. Best Ratings
Reliance on Distribution Partners
Product and Pricing
Exposure to Losses Resulting from Underwriting and Claims
Errors and Omissions Claims
Adverse Effects of Regulatory Changes
Change of Control Restrictions of U.S. Insurance Laws
Availability of Reinsurance
Ability to Recover Amounts Due from Capacity Providers
Regulatory Challenges to Use of Fronting Arrangements
25
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
Dependence on Capacity Providers and MGAs
Failure of Capacity Providers or MGAs to Properly Market, Underwrite or Administer Policies
U.S. Expansion
Reinsurance Arrangements with a Limited Number of Reinsurers
Future Acquisitions
Reliance on Key Personnel
Inability to Generate Necessary Amount of Cash to Service Existing Debt
Risks Associated with Investment Portfolio
Future Capital Requirements
Payment of Dividends
Future Sales of Substantial Amount of Share Capital
Small Company Liquidity Risk
Impact of Securities Analysts’ Research or Reports
Unpredictable Catastrophic Events
Dependence on Technology
Cyber Security
26
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
SECTION 9 – SUMMARY OF RESULTS
SELECTED QUARTERLY RESULTS
SECTION 10 – ACCOUNTING AND DISCLOSURE MATTERS
DISCLOSURE CONTROLS AND PROCEDURES
We maintain appropriate information systems, procedures and controls to ensure that new information disclosed externally
is complete, reliable and timely. Management of the Company, at the direction and under the supervision of the Chief
Executive Officer and the Chief Financial Officer of the Company evaluated the effectiveness of the Company’s “disclosure
controls and procedures” (as defined in “National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim
Filings” (“NI 52-109”)) as at December 31, 2017, and have concluded that the disclosure controls and procedures are
operating effectively.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
We maintain appropriate “internal control over financial reporting” (as defined in NI 52-109) and the Chief Executive Officer
and the Chief Financial Officer of the Company have concluded that the internal controls have been designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS. Management has evaluated whether there were changes in our internal control over
financial reporting during the year ended December 31, 2017 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting and has determined that there have been no such changes.
27
TRISURA GROUP LTD.
Q4Q3Q2Q1Gross premiums written38,68936,12343,33628,615Net premiums written and other revenue26,56626,95827,09622,395Total underwriting revenue19,99322,20620,07620,558Net (loss) income attributable to shareholders(1)(77)2,010285n/aEPS, basic and diluted (in dollars)(1)(0.01)0.350.05n/a2017(1) Net (loss) income attributable to shareholders represents the amount allocated to the shareholders post-spin-off for the period on and after June 22, 2017. EPS is calculated based on the post-spin-off Net (loss) income attributable to the Group's shareholders.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This MD&A contains “forward-looking information” within the meaning of Canadian provincial securities laws and “forward-
looking statements” within the meaning of applicable Canadian securities regulations. Forward-looking statements include
statements that are predictive in nature, depend upon or refer to future events or conditions, include statements regarding
the operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities,
targets, goals, ongoing objectives, strategies and outlook of Trisura Group Ltd. and its subsidiaries, as well as the outlook for
North American and international economies for the current fiscal year and subsequent periods, and include words such as
“expects,” “anticipates,” “plans,” “believes,” “estimates,” “seeks,” “intends,” “targets,” “projects,” “forecasts” or negative
versions thereof and other similar expressions, or future or conditional verbs such as “may,” “will,” “should,” “would” and
“could”.
Although we believe that our anticipated future results, performance or achievements expressed or implied by the forward-
looking statements and information are based upon reasonable assumptions and expectations, the reader should not place
undue reliance on forward-looking statements and information because they involve known and unknown risks, uncertainties
and other factors, many of which are beyond our control, which may cause the actual results, performance or achievements
of Trisura Group Ltd. to differ materially from anticipated future results, performance or achievement expressed or implied
by such forward-looking statements and information.
Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements
include, but are not limited to: the impact or unanticipated impact of general economic, political and market factors in the
countries in which we do business; the behaviour of financial markets, including fluctuations in interest and foreign exchange
rates; global equity and capital markets and the availability of equity and debt financing and refinancing within these markets;
strategic actions including dispositions; the ability to complete and effectively integrate acquisitions into existing operations
and the ability to attain expected benefits; changes in accounting policies and methods used to report financial condition
(including uncertainties associated with critical accounting assumptions and estimates); the ability to appropriately manage
human capital; the effect of applying future accounting changes; business competition; operational and reputational risks;
technological change; changes in government regulation and legislation within the countries in which we operate;
governmental investigations; litigation; changes in tax laws; ability to collect amounts owed; catastrophic events, such as
earthquakes and hurricanes; the possible impact of international conflicts and other developments including terrorist acts
and cyberterrorism; and other risks and factors detailed from time to time in our documents filed with securities regulators
in Canada.
We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our
forward-looking statements, investors and others should carefully consider the foregoing factors and other uncertainties and
potential events. Except as required by law, Trisura Group Ltd. undertakes no obligation to publicly update or revise any
forward-looking statements or information, whether written or oral, that may be as a result of new information, future events
or otherwise.
28
TRISURA GROUP LTD.
TRISURA GROUP LTD.
Management’s Discussion and Analysis for the year ended 2017
(in thousands of dollars, except as otherwise noted)
GLOSSARY OF ABBREVIATIONS
Abbreviation
Description
AFS
CTA
D&O
E&O
EPS
FVTPL
GPW
Available for Sale Financial Asset
Cumulative Translation Adjustment
Directors’ and Officers’ insurance
Errors and Omissions Insurance
Earnings Per Share
Fair Value Through Profit & Loss
Gross Premium Written
Minority interests
The liability to participating shareholders
n/a
NII
nm
NPE
NPW
NUI
OCI
not available
Net Investment Income
not meaningful
Net Premium Earned
Net Premium Written
Net Underwriting Income
Other Comprehensive Income
Q1, Q2, Q3, Q4
The three months ended March 31, June 30, September 30 and December 31 respectively
Q2 YTD
Q3 YTD
Q4 YTD
ROE
YTD
The six months ended June 30
The nine months ended September 30
The twelve months ended December 31
Return on Shareholders’ Equity
Year To Date
29
TRISURA GROUP LTD.
Trisura Group Ltd.
Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
Deloitte LLP
Bay Adelaide East
8 Adelaide Street West
Suite 200
Toronto ON M5H 0A9
Tel: 416-601-6150
Fax: 416-601-6151
www.deloitte.ca
Independent Auditor’s Report
To the Shareholders of
Trisura Group Ltd.
We have audited the accompanying consolidated financial statements of Trisura Group Ltd., which
comprise the consolidated statements of financial position as at December 31, 2017 and 2016, and the
consolidated statements of comprehensive (loss) income, consolidated statements of changes in equity
and consolidated statements of cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor's judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Trisura Group Ltd. as at December 31, 2017 and 2016, and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
Chartered Professional Accountants
Licensed Public Accountants
February 16, 2018
Page 2
TRISURA GROUP LTD.
Consolidated Financial Statements
Table of Contents for the consolidated financial statements of Trisura Group Ltd. as at and for the years ended December
31, 2017 and 2016
Consolidated Statements of Financial Position .......................................................................................................................2
Consolidated Statements of Comprehensive (Loss) Income ...................................................................................................3
Consolidated Statements of Changes in Equity .......................................................................................................................4
Consolidated Statements of Cash Flows .................................................................................................................................5
Notes to the Consolidated Financial Statements ....................................................................................................................6
1
TRISURA GROUP LTD.
Consolidated Statements of Financial Position
(in thousands of Canadian dollars, except as otherwise noted)
As at December 31,
Assets
Cash and cash equivalents
Investments
Premiums and accounts receivable, and other assets
Deferred acquisition costs
Recoverable from reinsurers
Capital assets and intangible assets
Deferred tax assets
Total assets
Liabilities
Accounts payable, accrued and other liabilities
Reinsurance premiums payable
Unearned premiums
Unearned reinsurance commissions
Unpaid claims and loss adjustment expenses
Loan payable
Minority interests
Shareholders’ equity
Common shares
Preferred shares
Contributed surplus
Note
4
9
6
12
13,14
28
10
7
6
8
17
26
18
18
Accumulated (deficit) retained earnings
Accumulated other comprehensive (loss) income
Total liabilities and shareholders’ equity
See accompanying notes to the consolidated financial statements
On behalf of the Board:
2017
165,675
190,641
23,172
40,266
65,254
2,612
740
488,360
19,795
17,555
115,357
5,566
178,885
29,700
-
366,858
163,582
1,600
89
(41,849)
(1,920)
121,502
488,360
David Nowak
Director
Gregory A. Morrison
Director
2016
122,096
194,393
22,069
30,985
47,120
2,116
622
419,401
25,434
13,461
90,612
4,928
163,970
34,100
16,008
348,513
9,618
-
-
58,695
2,575
70,888
419,401
2
TRISURA GROUP LTD.
Consolidated Statements of Comprehensive (Loss) Income
(in thousands of Canadian dollars, except as otherwise noted)
For the years ended December 31,
Note
2017
2016
Gross premiums written
Reinsurance premiums ceded
Retrospective premiums refund
Net premiums written
Change in unearned premiums
Net premiums earned
Fee income
Total underwriting revenue
Claims and expenses
Claims and loss adjustment expenses
Reinsurers’ share of claims and loss adjustment expenses
Commissions
Reinsurance commissions
Premium taxes
Operating expenses
Total claims and expenses
Net underwriting income (loss)
Net investment income
Foreign exchange loss
Interest expense
Change in minority interests
Income before income taxes
Income tax expense
Net (loss) income
Net income attributable to common shareholders – for the period from June 22, 2017
to December 31, 2017 (see Note 1 and Note 2.2)
Weighted average number of common shares outstanding during the year (in
thousands) – basic
Earnings per common share (in dollars) – basic and diluted (see Note 19)
Net (loss) income
Unrealized gains on available-for-sale investments
Unrealized losses on available-for-sale investments
Income tax expense
Items that may be reclassified subsequently to net (loss) income
Realized gains
Realized losses
Impairment adjustment
Income tax (benefit) expense
Items reclassified to net (loss) income
Items other than cumulative translation loss
Items that will not be reclassified subsequently to net (loss) income – Cumulative
translation loss
Other comprehensive (loss) income
Total comprehensive (loss) income
See accompanying notes to the consolidated financial statements
20
17
28
146,763
(46,980)
(168)
99,615
(20,182)
79,433
3,400
82,833
(42,215)
24,562
(34,969)
10,087
(4,463)
(32,279)
(79,277)
3,556
5,411
(35)
(1,009)
(5,156)
2,767
(3,109)
124,965
(37,617)
(284)
87,064
(14,809)
72,255
3,365
75,620
(41,742)
12,942
(31,384)
8,314
(3,591)
(26,604)
(82,065)
(6,445)
12,424
(528)
(481)
(155)
4,815
(1,862)
(342)
2,953
2,218
5,959
0.37
n/a
n/a
n/a
(342)
2,953
3,769
(2,634)
(297)
838
(216)
31
321
(25)
111
949
(5,444)
(4,495)
7,796
(5,220)
(2,204)
372
(1,302)
1,451
2,888
386
3,423
3,795
(1,639)
2,156
(4,837)
5,109
3
TRISURA GROUP LTD.
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars, except as otherwise noted)
Common
shares
Preferred
shares
Contributed
surplus
Note
Balance at January 1, 2017
9,618
Accumulated
other
comprehensive
loss (net of
income taxes)
Total
2,575
70,888
-
(4,495)
(4,495)
-
-
-
-
-
(342)
(4,495)
(4,837)
159,910
(4,031)
89
(8)
(100,509)
(1,920)
121,502
Retained
earnings
(deficit)
58,695
(342)
-
(342)
(9,303)
-
-
(8)
(90,891)
(41,849)
-
-
-
-
-
-
89
-
-
89
-
-
-
1, 18
167,613
18
29
(4,031)
-
-
-
-
-
-
1,600
-
-
-
(9,618)
163,582
-
1,600
Note
Common shares
Retained
earnings
Accumulated other
comprehensive income
(net of income taxes)
Total
9,618
-
-
-
-
-
9,618
94,441
2,953
-
2,953
(21,000)
(17,699)
58,695
419
-
2,156
2,156
-
-
2,575
104,478
2,953
2,156
5,109
(21,000)
(17,699)
70,888
Net loss
Other comprehensive loss
Comprehensive loss
Share issuance
Share redemptions
Share-based payments
Dividends paid
Adjustment on reorganization (1)
Balance at December 31, 2017
Balance at January 1, 2016
Net income
Other comprehensive income
Comprehensive income
Redemption (2)
Dividends paid
Balance at December 31, 2016
(1) See Note 18 for details regarding the share adjustment on reorganization.
(2) Reflects redemption of Class A non-voting common shares, redeemed by 6436978 Canada Limited (“643 Can Ltd”) in Q2 2016,
prior to reorganization.
See accompanying notes to the consolidated financial statements
4
TRISURA GROUP LTD.
Consolidated Statements of Cash Flow
(in thousands of Canadian dollars, except as otherwise noted)
For the years ended December 31,
2017
2016
Operating activities
Net (loss) income
Items not involving cash:
Depreciation and amortization
Unrealized gains (losses)
Impairment loss on available-for-sale investments
Stock options granted
Change in working capital and other
Realized loss on available-for-sale investments
Income taxes paid
Interest paid
Net cash flows from operating activities
Investing activities
Proceeds on disposal of investments
Purchases of investments
Purchases of capital assets
Disposal of capital assets
Purchases of intangible assets
Net cash flows (used in) from investing activities
Financing activities
Change in minority interests
Dividends paid
Common shares issued
Shares redeemed
Repayment of notes payable
Loans received
Repayment of loans payable
Net cash flows from (used in) financing activities
Net increase in cash and cash equivalents during the year
Cash, beginning of year
Cash equivalents, beginning of year
Cash and cash equivalents, beginning of year
Impact of foreign exchange on cash and cash equivalents
Cash, end of year
Cash equivalents, end of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements
(342)
839
1,194
321
143
23,722
(932)
(7,090)
(1,042)
16,813
39,050
(139,403)
(115)
23
(978)
(101,423)
5,156
(8)
140,270
(4,031)
(355)
-
(4,400)
136,632
2,953
556
(3,831)
2,888
-
9,673
(1,936)
(1,797)
(625)
7,881
61,140
(33,934)
(576)
-
(227)
26,403
155
(17,699)
-
(21,000)
(346)
35,000
(7,518)
(11,408)
52,022
22,876
113,409
8,687
122,096
96,912
4,475
101,387
(8,443)
(2,167)
83,137
82,538
165,675
113,409
8,687
122,096
5
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 1 – The Company
Trisura Group Ltd. (the “Company”) was incorporated under the Business Corporations Act (Ontario) (the “Act”) on
January 27, 2017. The Company’s head office is located at 333 Bay Street, Suite 1610, Box 22, Toronto Ontario, M5H 2R2.
The Company owns three principal subsidiaries through which it conducts insurance operations. These subsidiaries are
643 Can Ltd, Trisura International Holdings Ltd. (“TIHL”) and Trisura Specialty Insurance Company (“Trisura Specialty”).
643 Can Ltd, through its wholly-owned subsidiary Trisura Guarantee Insurance Company (“Trisura Guarantee”), operates
as a Canadian property and casualty insurance company. TIHL, through its wholly-owned subsidiary Trisura International
Insurance Ltd. (“Trisura International”), provides specialty insurance and reinsurance products to the global insurance
market place, and is currently managing its in-force portfolio of reinsurance contracts. A third wholly-owned subsidiary,
Trisura Specialty was incorporated on May 31, 2017 and was licensed by the Oklahoma Insurance Department as a
domestic surplus lines insurer and can write business as a non-admitted surplus line insurer in all states within the
United States.
1.1
Reorganization Transaction
On June 15, 2017, Brookfield Asset Management Inc. (“Brookfield”) subscribed for 5,813,312 common shares of the
Company in exchange for approximately $140,270. On June 15, 2017, the Company used the $140,270 to acquire: (i)
Brookfield’s 100% interest in TIHL for approximately $50,132; (ii) Brookfield’s 60% interest in 643 Can Ltd for
approximately $50,329; and (iii) Brookfield’s interest in a note payable from 643 Can Ltd to Brookfield for approximately
in additional cash (collectively, the “Reorganization
$185,
Transaction”). See Note 18 for the impact of the Reorganization Transaction on share capital.
leaving the Company with approximately $39,624
1.2
Spin-off
On June 22, 2017, Brookfield completed the spin-off of the Company (the “Spin-off”), which was effected by way of a
special dividend of all of the common shares of the Company to holders of Brookfield’s Class A and B limited voting
shares as of June 1, 2017. Each holder of Brookfield’s Class A and B limited voting shares received one common share of
the Company for every 170 Class A or Class B shares of Brookfield. The common shares of the Company are publicly
traded on the Toronto Stock Exchange under the symbol “TSU”.
Note 2 – Summary of significant accounting policies
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These consolidated financial
statements were authorized for issuance by the Company’s Board of Directors on February 15, 2018.
2.1
Basis of presentation
As at and for the year ended December 31, 2016 and for the period from January 1 to June 14, 2017, the combined
financial statements are comprised of the financial results of the Company, 643 Can Ltd and its subsidiary, as well as the
financial results of TIHL and its subsidiary, and Trisura Specialty on a combined basis of presentation. All intra-group
transactions, balances, income and expenses were eliminated in full on combination.
For the period beginning June 15, 2017, the consolidated financial statements comprise the financial results of the
Company and all entities controlled by the Company, on a consolidated basis of presentation. All intra-group
transactions, balances, income and expenses are eliminated in full on consolidation.
In accordance with IFRS, presentation of assets and liabilities on the consolidated statements of financial position is in
order of liquidity.
6
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
2.2
Continuity of interests
To reflect the continuity of interests, these consolidated financial statements provide comparative information of the
Company for the periods prior to the Spin-off. Accordingly, the financial information for the periods prior to June 22,
2017 is presented based on the historical financial information for the Company. For the period after completion of the
Spin-off, the results are based on the actual results of the Company, including the adjustments associated with the Spin-
off. Therefore, net (loss) income and comprehensive (loss) income have been allocated to Brookfield for the period prior
to June 22, 2017 and allocated to the post-Spin-off shareholders for the period on and after June 22, 2017. The earnings
per share (“EPS”) calculations have been presented for the period from June 22 to December 31, 2017.
2.3
Cash and cash equivalents
Cash and cash equivalents include short-term investments with original maturities of 90 days or less. The Company has
classified cash and cash equivalents along with loans and receivables, which are recorded at amortized cost, which
approximates fair value.
2.4
Investments
Bonds, trust units and equities are classified as available-for-sale (“AFS”) or designated as Fair Value Through Profit or
Loss (“FVTPL”). The classification is dependent on the purpose for which the financial instruments were acquired.
AFS investments are carried at fair value, with changes in fair value recorded as unrealized gains (or losses) in other
comprehensive (loss) income. FVTPL investments are carried at fair value, with changes in fair value recognized in net
(loss) income. Certain investments are designated as FVTPL to reduce the volatility within net (loss) income associated
with the movement of the underlying claims which are supported by these investments.
If an investment incorporates an embedded derivative that is otherwise required to be accounted for separately, the
Company designates that investment as FVTPL and does not separately account for the embedded derivative.
Structured insurance assets consisting of purchased commission arrangements are designated on inception as FVTPL.
Purchases and sales of investments are recognized and derecognized in the financial statements on their trade dates.
Transaction costs related to investments classified as AFS are capitalized on initial recognition and, where applicable,
amortized to interest income using the effective interest method. Transaction costs related to FVTPL instruments are
expensed in investment income.
2.5
Measurement of fair values
The Company has an established control framework with respect to the measurement of fair values which includes input
from the Company’s investment managers who report directly to management.
When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair
values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques.
Investments carried at fair value are classified in accordance with a valuation hierarchy that reflects the significance of
the inputs used in determining their fair value. Under Level 1 of this hierarchy, fair value is derived from unadjusted
quoted prices in active markets for identical investments. Under Level 2, fair value is derived from market inputs that
are directly or indirectly observable, other than unadjusted quoted prices for identical investments. Under Level 3, fair
value is derived from inputs, some of which are not based on observable market data.
Significant unobservable inputs and valuation adjustments are regularly reviewed. If third party information, such as
broker quotes or pricing services, is used to measure fair values, then the evidence obtained from the third parties is
assessed in light of the requirements of IFRS, including the level in the fair value hierarchy in which such investments
should be classified.
7
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
2.5
Measurement of fair values (continued)
If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair
value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value
hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during
which the change has occurred.
2.6
Derivative financial instruments
Derivative financial instruments are classified as held for trading or are designated as effective hedging instruments. All
derivatives are carried as assets when the fair values are positive and as liabilities when the fair values are negative.
Derivative financial instruments held for trading are typically entered into with the intention to settle in the near future.
These instruments are recorded at fair value. Based on market prices, fair value adjustments and realized gains and
losses are recognized in investment income in the consolidated statements of comprehensive (loss) income.
Derivative financial instruments designated as hedging instruments are entered into by the Company to hedge its risks
associated with foreign currency fluctuations. These are considered to be cash flow hedges which are initially recognized
at fair value on the date on which the derivative contract is entered into. The effective portion of the gain or loss on the
hedging instrument is recognized in other comprehensive (loss) income, while the ineffective portion is recognized
within net investment income.
2.7
Other financial assets and liabilities
The Company has classified the following financial assets as loans and receivables that continue to be carried at their
amortized cost, which approximates their fair value due to their short-term nature, with the exception of derivative
assets which are grouped with Premiums and accounts receivable, and other assets but are carried at fair value:
i.
Premiums and accounts receivable, and other assets.
The Company has classified the following financial liabilities as other liabilities that continue to be carried at their
amortized cost, which approximates their fair value, with the exception of derivative liabilities, cash-settled share based
payments and deferred share units, which are grouped with Accounts payable, accrued and other liabilities but are
carried at fair value:
i.
ii.
iii.
Accounts payable, accrued and other liabilities;
Reinsurance premiums payable;
Loan payable; and
iv. Minority interests.
2.8
Insurance contracts
When significant insurance risk exists, the Company’s products are classified at contract inception as insurance contracts,
in accordance with IFRS 4, Insurance Contracts (“IFRS 4”). Significant insurance risk exists when the Company agrees to
compensate policyholders of the contract or ceding companies for specified uncertain future events that adversely affect
the policyholder and whose amount and timing is unknown. The level of insurance risk is assessed by considering
whether there are any scenarios with commercial substance in which the Company is required to pay significant
additional benefits. These benefits are those which exceed the amounts payable if no insured or reinsured event were
to occur. In the absence of significant insurance risk, the contract is classified as an investment contract.
8
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
2.9
Investment contracts
Contracts issued to policyholders that transfer financial risk, but do not transfer significant insurance risk to the Company
are classified as investment contract liabilities. The contributions received from policyholders on these contracts are
recorded as investment contract liabilities, and not as premiums written, and claim payments made are recorded as
adjustments to the investment contract liabilities.
Investment contract liabilities are carried at amortized cost and are measured at the date of initial recognition as the fair
value of consideration received, less payments for transaction related costs. At each reporting period, the liability is
measured as the present value of estimated future cash flows relating to all claims expected to be settled on the
contracts, using the effective interest method. Gains or losses associated with the measurement are recorded in Claims
and loss adjustment expenses (“LAE”). Investment contract liabilities are included in Accounts payable, accrued and
other liabilities in the consolidated statements of financial position.
2.10
Premiums
Premiums are earned over the terms of the related policies or surety bonds, generally on a pro rata basis. There are
some instances where premiums are earned over the term of the policy in accordance with the risk profile of those
policies with more premiums being earned when the risk exposure from the policy is greatest. Unearned premiums
represent the unexpired portion of premiums written. Gross premiums written are presented gross of retrospective
premium refunds to insureds. Retrospective premium refunds are accounted for on an accrual basis.
In the normal course of business, the Company enters into fronting arrangements with third parties, whereby the
Company assumes the insurance risk but then cedes all of it to other insurers and reinsurers, and security arrangements
are established to offset the Company’s risk exposure. Premiums related to those fronting arrangements are recognized
over the term of the related policies on a pro rata basis.
2.11
Fees
Fees charged to insureds are recorded as revenue and separately disclosed on the consolidated statements of
comprehensive (loss) income. Fees are recognized in the period in which they are charged provided that no significant
obligations to insureds exist and reasonable assurance exists regarding collectability.
2.12
Acquisition costs
Acquisition costs comprise commissions paid to insurance brokers and premium taxes. These costs are deferred to the
extent they are recoverable from unearned premiums and are amortized on the same basis as the related premiums are
earned. If unearned premiums are not sufficient to pay expected claims and expenses, including the deferred acquisition
costs, after taking into consideration anticipated investment income, the resulting premium deficiency is recognized in
the current period by first reducing, to a corresponding extent, the deferred amount of the acquisition costs. Any
residual amount is recorded in Deferred acquisition costs in the statements of financial position as a provision for
premium deficiency.
2.13
Funds held by ceding companies
Funds held by ceding companies are carried at amortized cost using the effective interest rate method. These amounts
are reported on a net basis, as a deduction from claims and LAE, where the effective right of offset exists.
9
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
2.14
Claims and loss adjustment expenses
The liability for unpaid claims and LAE represents an estimate of the ultimate cost of all claims incurred but not paid by
the statement of financial position date. The reserving process employed in determining future claims and LAE payments
includes consideration of individual case estimates of future claims and LAE payments on reported claims as well as
provisions for future development of case estimates, and claims and LAE related to incurred but not reported claims
(“IBNR”). In some instances further provisions are made for the time value of money by applying discount rates based
on projected investment income from the assets supporting this liability. The Company uses qualified actuaries in its
reserving processes.
In estimating unpaid claims and LAE, a range of actuarial techniques are used. Typically these techniques consider
historical loss development factors and payment patterns. They require the use of assumptions relating to future
development of claims and LAE, future rates of claims frequency and severity, claims inflation, payment patterns and
reinsurance recoveries, taking into consideration the circumstances of the Company and the nature of the insurance
policies. Typically the delay to ultimate settlement of claims increases the uncertainty of the estimate of the ultimate
cost of those claims and LAE. The uncertainty in estimation tends to be higher for long-tail lines where information
typically emerges over time. For the reinsurance business, the time lag in obtaining information from ceding insurers as
well as the differing reserve practices employed by ceding insurers can further increase the uncertainty of the estimate.
In certain circumstances, explicit actuarial margins are included in the liability in recognition of the inherent uncertainty
of the estimates and the possibility of deterioration in experience relative to expectation in relation to claims
development, investment return rates and recoverability of reinsurance balances.
As a result of the uncertainly in estimation, actual future claims and LAE payments may deviate in quantum and timing,
perhaps materially, from the liability recorded in the Company’s current provision for unpaid claims and LAE and
investment contract liabilities as recorded on the consolidated statements of financial position. The liability for unpaid
claims and LAE is reviewed regularly and evaluated in light of emerging claims experience and changing circumstances.
Any resulting adjustments to the estimates of the ultimate liability are recorded as claims and LAE in the period in which
such changes are made.
2.15
Reinsurance
The reinsurers’ share of unearned premiums and their estimated share of unpaid claims and LAE are presented as
Recoverable from reinsurers on a basis consistent with the methods used to determine the unearned premium liability
and the unpaid claims liability, respectively.
Unearned reinsurance commissions are deferred and earned using principles consistent with the method used for
deferring and amortizing acquisition costs.
2.16
Capital assets
Capital assets are carried at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives
of these assets using the following rates and methods:
Office equipment
Furniture and fixtures
Leasehold improvements
2.17
Intangible assets
40%, declining balance
25%, declining balance
5 to 10 years, straight-line over the term of the lease
Intangible assets are carried at cost less accumulated amortization. Amortization is provided over the estimated useful
lives of those assets. A 40% amortization rate and the declining balance method of amortization are applied to computer
software. A 20% amortization rate and the declining balance method of amortization are applied to the customer lists
recorded as intangible assets.
10
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
2.18
Income taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method of tax allocation,
deferred income tax assets and liabilities are determined based on the differences between the financial reporting and
tax basis of assets and liabilities, and are measured using the tax rates and laws that are expected to be in effect in the
periods in which the deferred income tax assets or liabilities are expected to be settled or realized, where those tax rates
and laws have been substantively enacted.
The following temporary differences are not provided for: the initial recognition of goodwill or the initial recognition of
an asset or a liability in a transaction which is not a business combination and at the time of the transaction, affects
neither accounting or taxable income as well as differences relating to investments in subsidiaries to the extent that they
are unlikely to reverse in the foreseeable future.
Deferred tax assets are only recognized to the extent that it is probable that they will be realized. Estimates are used to
determine the value of the deferred tax asset balance based on the assumption that the Company will generate taxable
income in future years. Estimates are used to determine the taxes payable balance based on applicable tax legislation.
For items in other comprehensive (loss) income, the related tax is also presented in other comprehensive (loss) income.
2.19
Impairment
The Company’s financial assets are assessed at each reporting date to determine whether there is any objective evidence
that they are impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more
events have had a negative effect on the estimated future cash flows of that asset.
When an unrealized loss on an available-for-sale investment results from objective evidence of impairment, the
difference between the acquisition cost (net of any principal repayment and amortization) of the investment and its fair
value is recognized as a realized loss in net (loss) income and a corresponding adjustment is made to other
comprehensive (loss) income. For debt securities, impairment could occur if there is objective evidence of impairment
as a result of a loss event and that loss event has an impact on future cash flows, and for equity securities, impairment
could occur as a result of a significant or prolonged decline in the fair value below its cost. In determining whether there
is objective evidence of impairment, the factors considered are, primarily, the term of the unrealized loss and the
amount of the unrealized loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-
sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized
in net (loss) income, the impairment loss is reversed, with the amount of the reversal recognized in net (loss) income.
The carrying amounts of the Company’s non-financial assets are assessed at each statement of financial position date to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is
estimated and the carrying value is reduced to the estimated recoverable amount by means of an impairment charge to
net (loss) income. The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in
use.
2.20
Foreign currency
a)
Functional and presentation currency
The Company’s functional and presentation currency is Canadian dollars. Foreign currency transactions are translated
into Canadian dollars at the foreign exchange rate in effect on the date of the transaction.
Foreign denominated monetary assets and liabilities are translated into the functional currency at the exchange rate in
effect at the statement of financial position date. Foreign exchange differences arising on translation are recognized in
net (loss) income. Foreign currency non-monetary assets and liabilities which are measured at historical cost are
recorded at the exchange rate in effect at the date of transaction. Foreign currency non-monetary assets and liabilities
which are measured at fair value are recorded at the exchange rate in effect at the date that fair value was determined.
For fixed maturities classified as available-for-sale, foreign exchange differences resulting from changes in amortized cost
are recognized in net (loss) income, while foreign exchange differences arising from unrealized fair value gains and losses
are included as unrealized (losses) gains within other comprehensive (loss) income.
11
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
2.20
Foreign currency (continued)
b)
Financial statements of foreign operations
For foreign operations that have a functional currency other than Canadian dollars, the results and financial position of
such operations are translated into Canadian dollars. Assets and liabilities of the foreign operations are translated at the
foreign exchange rates in effect at the statement of financial position date, and income and expenses are translated at
average rates approximating the foreign exchange rates in effect at the dates of the transactions.
Foreign exchange differences arising from the translation to Canadian dollars are recognized as cumulative translation
adjustment (“CTA”) in other comprehensive (loss) income.
2.21
Offsetting
Financial assets and liabilities are offset and the net amount reported in the consolidated statements of financial position
only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a
net basis, or to realize the assets and settle the liability simultaneously. Under certain reinsurance contracts, the
Company offsets amounts carried as funds held by ceding companies against the corresponding liability for claims and
LAE or investment contract liability where the intention is to settle on a net basis, or to realize the assets and settle the
liability simultaneously.
2.22
Share-based compensation
The Company’s accounting policies with respect to share-based compensation are in accordance with IFRS 2, Share
based payment, for which the Company has adopted the amendments early.
a)
Equity-settled stock option plan
The Company maintains an equity-settled stock option plan, which is described in Note 29.1. The value of equity-settled
stock options is measured at the grant date, and the cost is recognized in Operating expenses as an expense over the
period from the issue date to the vesting date. Obligations related to equity-settled stock options plans are recorded in
shareholders’ equity as contributed surplus. Any consideration paid by stock option holders to exercise the options
increases share capital. The Company uses the Black-Scholes model to measure the fair value of stock options. Inputs to
the model include a volatility measure, a risk free rate, and expected life of the options.
b)
Cash-settled share based plan
The Company maintains a cash-settled share based plan, which is described in Note 29.2. The cost of cash-settled share
based options is recognized in Operating expenses as an expense over the period from the issue date to the vesting date.
Obligations related to cash-settled share based plans are recorded as liabilities at fair value in Accounts payable, accrued
and other liabilities. At each reporting date, obligations related to the plan are re-measured at fair value with reference
to the fair value of the Company’s stock price and the number of units that have vested. The corresponding share-based
compensation expense or recovery is recognized over the vesting period. The Company uses the Black-Scholes model to
measure the fair value of cash-settled share based options. Inputs to the model include a volatility measure, a risk free
rate, and expected life of the options.
c)
Deferred share units plan
The Company has adopted a non-employee director Deferred Share Units (“DSU”) plan, which is described in Note 29.3.
This entitles the participants to receive, following the end of the director’s tenure as a member of the Board, an amount
equivalent to the value of a common share at settlement, for each DSU unit that the participant holds. Obligations
related to the plan are recorded as liabilities at fair value in Accounts payable, accrued and other liabilities, and re-
measured at each reporting date at fair value with reference to the fair value of the Company’s stock price and the
number of units that have vested. The cost of the DSUs is recognized in Operating expenses in the period they are
awarded.
12
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
2.23
Future accounting policy changes
a)
IFRS 9 Financial Instruments (“IFRS 9”)
In November 2009, the IASB issued IFRS 9 as part of its plan to replace IAS 39 Financial Instruments: Recognition and
Measurement (“IAS 39”). IFRS 9 requires financial assets, including hybrid contracts, to be measured at either fair value
or amortized cost. In October 2010, the IASB added to IFRS 9 the requirements for classification and measurement of
financial liabilities previously included in IAS 39. Another revised version of IFRS 9 was issued in July 2014 to include
impairment requirements for financial assets and limited amendments by introducing a “fair value through other
comprehensive income” measurement category. It also removed the mandatory effective date of January 1, 2015 and
replaced it with a new effective date of January 1, 2018. This notwithstanding, the Company has elected to defer
implementation of IFRS 9 to coincide with the implementation of IFRS 17 Insurance Contracts (“IFRS 17”) as it is
permitted to do (see IFRS 17 below).
b)
IFRS 15 Revenue from Contracts with Customers (“IFRS 15”)
On May 28, 2014, the IASB published IFRS 15, which replaces IAS 11 Construction Contracts and IAS 18 Revenues. This
new standard specifies how and when to recognize revenues according to a single five-step model, and the additional
disclosure requirements. The provisions of this new standard were to apply to financial statements beginning on or after
January 1, 2017. On September 11, 2015, the IASB published an amendment to the standard which deferred the
effective date to financial statements beginning on or after January 1, 2018. Early adoption was permitted. The
Company has assessed the impact of IFRS 15 and has determined that it will not have an impact on its consolidated
financial statements.
c)
IFRS 16 Leases (“IFRS 16”)
In January 2016, the IASB published IFRS 16. The new standard brings most leases on to the statements of financial
position, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely
unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17 Leases and
related interpretations and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted
if IFRS 15 has also been applied. The Company is assessing the impact that IFRS 16 will have on its consolidated financial
statements.
d)
IFRS 17
On May 18, 2017, the IASB issued the new standard IFRS 17 which allows insurance entities to elect one of the following
two approaches with respect to financial instruments: (a) the deferral approach, which provides entities whose
predominant activities are to issue insurance contracts within the scope of IFRS 4 a temporary exemption to continue
using IAS 39, instead of IFRS 9, until January 1, 2021; and (b) the overlay approach, which can be applied to eligible
financial assets and provides an option for all issuers of insurance contracts to reclassify from profit or loss to other
comprehensive income any additional accounting volatility that may arise from applying IFRS 9 before IFRS 17 is applied.
IFRS 17 requires insurance liabilities to be measured at current fulfillment value and provides a more uniform
measurement and presentation approach for all insurance contracts. IFRS 17 supersedes IFRS 4 and related
interpretations and is effective for fiscal years beginning on or after January 1, 2021. The Company is assessing the
impact that IFRS 17 will have on its consolidated financial statements.
13
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 3 – Critical accounting judgments and estimates in applying accounting policies
The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments,
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses for the
periods presented.
3.1
Critical accounting judgments in applying the Company’s accounting policies
Judgments are used in applying the accounting policies used to prepare financial statements. Those judgments affect
the carrying amount of certain assets and liabilities and the reported amounts of revenues and expenses recorded during
the period.
a)
Insurance Contracts
Judgments are used to determine whether contracts should be classified as insurance or investment contracts (see Note
2.9).
b)
Investments
Judgments are used in determining the classification of investments as AFS or FVTPL (see Note 4.1).
c)
Unpaid claims and LAE
Judgments are used in establishing provisions for unpaid claims and LAE (see Note 2.14).
3.2
Assumption and estimation uncertainty
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material
adjustment in the year ended December 31, 2017 is included below. Any changes in estimates are recorded in the
period in which they are determined. Accordingly, actual results may differ from these and other estimates thereby
impacting future financial statements:
a)
Valuation of claims liabilities
Assumptions and estimation uncertainties exist related to the valuation of unpaid claims and LAE (see Note 2.14), as well
as significant risk factors associated with insurance and reinsurance (see Note 11 and Note 12).
b)
Valuation of structured insurance assets
Assumptions and estimation uncertainties exist related to the valuation of the structured insurance assets (see Note 4.4
and Note 5).
c)
Measurement of income taxes
Assumptions and estimates are used in measuring the provision for incomes taxes (see Note 2.18 and Note 28).
14
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 4 – Investments
4.1
Classification of financial instruments
The following table presents the classification of the investments.
As at December 31, 2017
Cash and cash equivalents
Investments
Fixed income
Income and investment trust units
Common shares
Preferred shares
Structured insurance assets
Total financial assets
As at December 31, 2016
Cash and cash equivalents
Investments
Fixed income
Income and investment trust units
Common shares
Preferred shares
Convertible debenture
Structured insurance assets
Total financial assets
AFS
Designated
FVTPL
Cash, loans and
receivables
Total
-
-
165,675
165,675
106,453
2,928
31,249
15,431
-
156,061
22,014
-
-
-
12,566
34,580
-
-
-
-
-
165,675
AFS
Designated
FVTPL
Cash, loans and
receivables
128,467
2,928
31,249
15,431
12,566
356,316
Total
-
-
122,096
122,096
105,482
2,802
26,933
14,865
-
-
150,082
28,986
-
-
-
196
15,129
44,311
-
-
-
-
-
-
122,096
134,468
2,802
26,933
14,865
196
15,129
316,489
15
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
4.2
Unrealized gains and losses
The amortized cost and fair values of investments as at December 31, 2017 and December 31, 2016 were as follows:
As at December 31, 2017
Government
Corporate
Total bonds
Mortgage backed securities
Asset backed securities
Total fixed income
Income and investment trust units
Common shares
Preferred shares
Structured insurance assets
As at December 31, 2016
Government
Corporate
Total bonds
Mortgage backed securities
Asset backed securities
Total fixed income
Income and investment trust units
Common shares
Preferred shares
Convertible debenture
Structured insurance assets
FVTPL
investments
At carrying
value
AFS investments
Amortized
cost
Unrealized
gains
Unrealized
losses
Carrying value
Total
investments
At carrying
value
22,014
-
25,436
80,121
22,014
105,557
-
-
332
55
22,014
105,944
2,115
25,668
14,441
-
-
-
-
12,566
34,580
FVTPL
investments
At carrying
value
28,986
-
27,702
75,663
28,986
103,365
-
-
512
59
28,986
103,936
-
-
-
196
15,129
44,311
2,126
22,162
15,227
-
-
634
407
1,041
-
36
1,077
935
6,780
1,165
-
(30)
(465)
(495)
(18)
(55)
(568)
(122)
(1,199)
(175)
-
26,040
80,063
48,054
80,063
106,103
128,117
314
36
314
36
106,453
128,467
2,928
31,249
15,431
-
2,928
31,249
15,431
12,566
148,168
9,957
(2,064)
156,061
190,641
AFS investments
Amortized
cost
Unrealized
gains
Unrealized
losses
Carrying
value
1,236
724
1,960
8
41
2,009
744
5,372
261
-
-
(8)
(352)
(360)
(44)
(59)
28,930
76,035
104,965
476
41
(68)
(601)
(623)
-
-
2,802
26,933
14,865
-
-
(463)
105,482
134,468
143,451
8,386
(1,755)
150,082
Total
investments
At carrying
value
57,916
76,035
133,951
476
41
2,802
26,933
14,865
196
15,129
194,393
16
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
4.2
Unrealized gains and losses (continued)
Management has reviewed currently available information regarding those investments with a fair value less than
carrying value. During the year ended December 31, 2017, management recognized an impairment of $321 (2016 –
$2,888). Assumptions are used when estimating the value of impairment based on the Company’s impairment policy,
which involves comparing fair value to carrying value.
4.3
Pledged assets
In the normal course of insurance and reinsurance operations, the Company must secure its obligations under certain
insurance and reinsurance contracts by collateralizing them with letters of credit or trust arrangements. These trusts and
letters of credit may, in turn, be secured by the Company’s fixed income investments. As at December 31, 2017, the
Company has pledged cash and cash equivalents and short term deposits amounting to $52,767, and pledged fixed
maturity investments amounting to $30,646 (December 31, 2016 – $64,710 and $42,228, respectively), under insurance
and reinsurance trust arrangements and are therefore not readily available for general use by the Company.
As at December 31, 2017, the Company pledged $375 (December 31, 2016 – $nil) of fixed income investments as
security deposit to the Oklahoma Insurance Department to be held in trust for and pledged to the State of Oklahoma.
4.4
Structured insurance assets
The structured insurance assets represent the Company’s purchase of the rights to collect commission income on
portfolios of long-term care insurance policies issued by investment grade insurance companies. The commissions are
paid into trusts, from which the amounts due to the Company, being the commissions net of expenses of the trusts, are
paid. The commission income for the year ended December 31, 2017 amounted to $2,379 (December 31, 2016 –
$4,940), which has been recorded within net investment income (see Note 20).
Note 5 – Fair value measurement
During the years 2017 and 2016 there were no transfers between levels.
The following sets out the financial instruments classified in accordance with the fair value hierarchy as at December 31,
2017 and December 31, 2016:
As at December 31, 2017
Total fair value
Level 1
Level 2
Level 3
Government
Corporate
Total bonds
Mortgage backed securities
Asset backed securities
Total fixed income
Income and investment trust units
Common shares
Preferred shares
Structured insurance assets
Total investments
Derivative financial assets
48,054
80,063
128,117
314
36
128,467
2,928
31,249
15,431
12,566
190,641
152
190,793
-
-
-
-
-
-
2,928
30,942
15,431
-
49,301
-
49,301
48,054
80,063
128,117
-
-
128,117
-
-
-
-
128,117
152
128,269
-
-
-
314
36
350
-
307
-
12,566
13,223
-
13,223
17
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 5 – Fair value measurement (continued)
As at December 31, 2016
Total fair value
Level 1
Level 2
Level 3
Government
Corporate
Total bonds
Mortgage backed securities
Asset backed securities
Total fixed income
Income and investment trust units
Common shares
Preferred shares
Structured insurance assets
Convertible debenture
Total investments
Derivative financial liabilities
57,916
76,035
133,951
476
41
134,468
2,802
26,933
14,865
15,129
196
194,393
(278)
194,115
-
-
-
-
-
-
2,802
26,933
14,865
-
196
44,796
-
44,796
57,916
76,035
133,951
-
-
133,951
-
-
-
-
-
133,951
(278)
133,673
-
-
-
476
41
517
-
-
-
15,129
-
15,646
-
15,646
The following table shows a reconciliation from the beginning balances to the ending balances for fair value
measurements in Level 3 of the hierarchy for the years ended December 31, 2017 and December 31, 2016:
Balance at beginning of year
Unrealized losses
Amortization of (premium) discount
Purchase of securities
Foreign exchange
Balance at end of year
2017
15,646
(1,705)
(38)
318
(998)
13,223
2016
16,119
(2,950)
2,936
-
(459)
15,646
Included within the Level 3 assets are the structured insurance assets. The structured insurance assets are valued using
a proprietary discounted cash flow valuation model. The fair value of this investment is based on discounting the
expected future commission using a U.S. Treasury yield curve adjusted for credit risk associated with the receipt of
future commission payments from the insurance companies. The credit risk adjustment is done since the Company
takes on the credit risk of the insurance companies who have the ultimate commission obligations. The majority of
commissions are received from insurance companies with an A.M. Best Company, Inc. (“A.M. Best”) long-term issuer
credit ratings of A or better.
Expected future cash flows are projected taking into account the probability of the policy being cancelled by the insured
(referred to as lapse), the insured becoming sick and making a claim under the insurance policy (referred to as morbidity)
and having future premium payments waived, or the insured dying (referred to as mortality). These actuarial risks are
modeled using data drawn from the insurance companies and the Society of Actuaries Long Term Care Studies, as well as
data from other public and non-public sources supplemented, as appropriate, by assistance from external actuarial
consultants. The assumptions used are reviewed on a regular basis.
18
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 5 – Fair value measurement (continued)
The following table shows the sensitivity of the valuation to a 1% change in the lapse rate.
Sensitivity factor
100 basis point increase in lapse rate
100 basis point decrease in lapse rate
December 31, 2017
December 31, 2016
Impact on comprehensive (loss) income from
change in average reserve
(587)
631
(712)
766
The following tables present quantitative information about the significant fair value inputs utilized by the Company for
Level 3 assets:
Structured insurance assets
Fair value as at
December 31, 2017
Valuation technique
12,566 Discounted cash flow
Fixed income
Private equity fund investments
350 Dealer quotes
307 Net asset value (6)
Structured insurance assets
Fair value as at
December 31, 2016
Valuation technique
15,129 Discounted cash flow
Fixed income
517 Dealer quotes
Unobservable inputs
Range
Discount rate load (1)
Mortality rates (2)
Morbidity rates (3)
Lapse rates (4)
n/a (5)
n/a
0.5% - 6%
n/a
0.3% - 28.6%
1.25%
n/a
n/a
Unobservable inputs
Range
Discount rate load (1)
Mortality rates (2)
Morbidity rates (3)
Lapse rates (4)
n/a (5)
0.5% - 6%
n/a
0.3% - 28.6%
3%
n/a
(1) The discount rate used by the Company consists of three components:
Risk free rate: based on U.S. Treasury strip rates that are quoted observable fair value inputs.
Credit risk: based on counterparty credit default swap rates that are quoted observable fair value inputs.
•
•
• Discount rate load: the risk premium applied to projected cash flows which increases over time. A
decrease in discount rate load, increases estimated fair value.
(2) Mortality rates are derived from Annuity 2000 mortality tables developed by the Society of Actuaries in the
United States.
(3) Morbidity rates refer to the percentage of policyholders in receipt of benefit during which time premiums are
waived. These rates vary by age and gender and are based on long term care industry data.
Lapse rates are the percentage of policyholders electing to cancel their policy and are based on long term care
industry data.
The fair value of fixed maturities is determined using International Data Corporation’s valuation methodology and
obtained by Asset Managers responsible for managing these assets. Consequently, quantitative unobservable
inputs are not developed by the Company when measuring fair value.
The reported net asset value from the Asset Manager approximates the fair value of the investment.
(4)
(5)
(6)
19
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 6 – Deferred acquisition costs
The following changes have occurred to the deferred acquisition costs for the years ended December 31, 2017 and
December 31, 2016:
Deferred acquisition costs
Opening costs, beginning of year
Acquisition costs deferred
Amortization of deferred costs
Closing balance, end of year
Reinsurers’ share of deferred acquisition
costs
Opening costs, beginning of year
Acquisition costs deferred
Amortization of deferred costs
Closing balance, end of year
December 31, 2017
30,985
45,245
(35,964)
40,266
December 31, 2017
4,928
9,112
(8,474)
5,566
December 31, 2016
25,862
36,201
(31,078)
30,985
December 31, 2016
5,277
8,478
(8,827)
4,928
The reinsurers’ share of deferred acquisition costs is referred to as Unearned reinsurance commissions in the
consolidated statements of financial position.
Note 7 – Unearned premiums
7.1
Nature of unearned premiums
Unearned premiums are calculated on a pro rata basis from the unexpired portion of the premiums written. The
unearned premiums estimate is validated through standard actuarial techniques to ensure that after deducting any
deferred policy acquisition costs, these premiums are sufficient to cover the estimated future costs of servicing the
associated policies, expected claims, LAE, and taxes to be incurred. In estimating these costs, the Company uses
discounting techniques to take into account the time value of money and a provision for adverse deviation is added to
the discounted amount. There was no premium deficiency at December 31, 2017 or December 31, 2016.
The carrying value of unearned premiums approximates their fair value.
7.2
Unearned premiums by line of business
December 31, 2017
Surety
Corporate insurance
Risk solutions
December 31, 2016
Surety
Corporate insurance
Risk solutions
Gross
21,645
28,216
65,496
115,357
Gross
19,212
20,989
50,411
90,612
Ceded
7,174
9,763
10,071
27,008
Ceded
6,208
4,348
11,888
22,444
Net
14,471
18,453
55,425
88,349
Net
13,004
16,641
38,523
68,168
Reinsurers’ share of unearned premiums referred to as Ceded in the table above forms part of the balance of
Recoverable from reinsurers in the consolidated statements of financial position.
20
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
7.2
Unearned premiums by line of business (continued)
The following changes have occurred in the provision for unearned premiums during the years ended December 31,
2017 and December 31, 2016:
Unearned premiums
Unearned premiums, beginning of year
Gross premiums written
Gross premiums earned
Unearned premiums, end of year
Reinsurers’ share of unearned premium
Reinsurers’ share of unearned premiums, beginning of year
Ceded premiums written
Ceded premiums earned
Reinsurers’ share of unearned premiums, end of year
December 31, 2017
90,612
146,598
(121,853)
115,357
December 31, 2017
22,444
46,977
(42,413)
27,008
December 31, 2016
71,480
124,802
(105,670)
90,612
December 31, 2016
18,121
37,617
(33,294)
22,444
Note 8 – Unpaid claims and loss adjustment expenses
8.1
Unpaid claims and loss adjustment expenses by line of business
As at December 31, 2017
Trisura Guarantee
Surety
Corporate insurance
Risk solutions
Trisura International
Life
Property and casualty
As at December 31, 2016
Trisura Guarantee
Surety
Corporate insurance
Risk solutions
Trisura International
Life
Property and casualty
Gross
Ceded
Net
15,814
52,105
22,593
90,512
68,896
19,477
88,373
4,952
26,656
6,638
38,246
-
-
-
178,885
38,246
10,862
25,449
15,955
52,266
68,896
19,477
88,373
140,639
Gross
Ceded
Net
15,305
23,007
29,153
67,465
72,881
23,624
96,505
163,970
4,333
2,554
17,789
24,676
-
-
-
24,676
10,972
20,453
11,364
42,789
72,881
23,624
96,505
139,294
Unpaid claims and loss adjustment balances due from reinsurers, referred to above as Ceded balances, are grouped with
unearned reinsurance assets in Recoverable from reinsurers on the consolidated statements of financial position.
21
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
8.1
Unpaid claims and loss adjustment expenses by line of business (continued)
The following changes have occurred to the provision for unpaid claims for the year ended December 31:
Gross claim reserves
December 31, 2017
December 31, 2016
Unpaid claims, beginning of year
Add: Provisions offset against funds held by ceding companies1
Gross unpaid claims, beginning of year
Change in undiscounted estimates for losses of prior years
Change in discount rate
Change in provision for adverse deviation
Claims occurring in current year (including paid)
Amounts transferred on novation 1
Paid on claims occurring during:
Current year
Prior years
Foreign exchange
Unpaid claims, end of year
Reinsurers’ share of claim reserves
Unpaid claims, beginning of year
Change in undiscounted estimates for losses of prior years
Change in discount rate
Change in provision for adverse deviation
Claims occurring in current year (including paid)
Paid on claims occurring during:
Current year
Prior years
Unpaid claims, end of year
163,970
-
163,970
(2,101)
(727)
1,627
43,386
-
(10,130)
(19,822)
2,682
178,885
168,772
32,013
200,785
(2,074)
(745)
1,826
40,249
(30,976)
(8,896)
(31,280)
(4,919)
163,970
December 31, 2017
December 31, 2016
24,676
2,483
(348)
782
21,645
(3,933)
(7,059)
38,246
18,958
(800)
(194)
434
11,871
(2,560)
(3,033)
24,676
(1)
In 2016, the provisions offset against funds held by ceding companies were transferred on novation and no longer offset
unpaid claims.
22
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
8.2
Prior year claims development
The following tables present the gross and net cumulative claim payments to date and estimate of gross and net ultimate
claims incurred, including IBNR claims and provisions for adverse deviation (“PfAD”), at the end of the year:
Gross claims loss development
Accident year
All prior
years
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Estimate of gross ultimate claims incurred
287,250
57,059
52,621
51,188
52,522
54,563
54,863
53,469
53,496
53,493
18,104
11,741
12,187
20,896
16,169
12,935
16,669
12,322
16,125
12,006
14,289
13,312
13,316
13,459
9,638
8,979
8,852
17,155
13,608
13,062
12,725
9,615
8,078
7,178
6,801
8,101
22,377
21,878
20,660
20,648
29,316
24,413
24,425
40,249
38,564
43,386
283,461
279,914
281,760
288,683
293,413
293,985
286,522
285,179
285,568
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Estimate of gross ultimate
claims incurred
Cumulative claim
2,432,806
285,568
53,493
13,459
8,852
8,101
12,725
20,648
24,425
38,564
43,386
2,942,027
payments to date
(2,418,944)
(282,030)
(51,369)
(13,272)
(7,624)
(5,121)
(7,979)
(14,665)
(13,805)
(12,133)
(10,129)
(2,837,071)
Unpaid claims
Impact of discounting
Impact of PfAD
Present value of unpaid
claims with PfAD
Add: Discounted reserves on
life contracts
Total unpaid claims and LAE
13,862
3,538
2,124
187
1,228
2,980
4,746
5,983
10,620
26,431
33,257
104,956
-
-
-
1
-
5
(5)
23
(25)
116
(60)
(138)
(204)
(372)
(1,126)
(1,277)
(3,207)
381
459
601
1,026
2,421
3,207
8,240
13,862
3,539
2,129
205
1,319
3,301
5,067
6,380
11,274
27,726
35,187
109,989
68,896
178,885
23
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
8.2
Prior year claims development (continued)
Net claims loss development
Accident year
Estimate of net ultimate
All prior
years
claims incurred
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Estimate of net ultimate
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
282,863
280,151
278,950
280,835
287,602
292,363
292,929
285,455
284,115
284,504
54,545
51,532
50,415
51,707
53,787
54,130
52,740
52,767
52,765
14,613
10,003
10,463
12,349
14,002
18,997
28,378
21,741
12,363
15,878
26,772
10,310
14,365
9,224
12,831
10,211
13,397
12,913
11,179
10,287
10,349
10,492
9,683
9,253
7,564
7,053
6,958
9,953
6,651
5,648
5,324
8,872
7,402
6,845
6,568
7,861
claim incurred
2,366,525
284,504
52,765
10,492
6,958
7,861
5,324
9,224
14,365
26,772
21,741
2,806,531
Cumulative claim payments
to date
(2,352,667)
(280,967)
(50,641)
(10,321)
(6,096)
(4,884)
(3,836)
(6,810)
(9,427)
(6,625)
(6,198)
(2,738,472)
Net unpaid claims
Impact of discounting
Impact of PfAD
Present value of net unpaid
13,858
3,537
2,124
171
862
2,977
1,488
2,414
4,938
20,147
15,543
68,059
-
-
1
1
-
4
(5)
22
(21)
91
(60)
382
(43)
249
(87)
(181)
(882)
(684)
(1,962)
361
650
1,996
1,890
5,646
claims with PfAD
13,858
3,539
2,128
188
932
3,299
1,694
2,688
5,407
21,261
16,749
71,743
Add: Net discounted reserves
on life contracts
Total unpaid claims and LAE
Note 9 – Premiums and accounts receivable, and other assets
As at December 31, 2017 and December 31, 2016, premiums and accounts receivable, and other assets consists of:
As at December 31,
Premiums receivable
Accrued investment income
Tax recoveries
Funds held by ceding companies
Prepaid expenses
Derivative assets
Executive share purchase plan receivable (see Note 25)
Interest receivable
Miscellaneous assets
2017
20,552
909
477
374
224
152
-
-
484
23,172
68,896
140,639
2016
17,887
865
432
406
175
-
1,542
356
406
22,069
24
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 10 – Accounts payable, accrued and other liabilities
As at December 31, 2017 and December 31, 2016, accounts payable, accrued and other liabilities consist of:
As at December 31,
Deposits in trust
Accrued liabilities
Other liabilities
Investment contract liabilities
Share based payment plan
Severance
Taxes payable
Derivative liabilities
Note 11 – Risk management
2017
6,592
6,576
3,586
2,856
185
-
-
-
19,795
2016
4,179
4,238
5,786
2,750
4,262
440
3,501
278
25,434
As a provider of insurance products, effective risk management is critical to the Company’s ability to protect the interests
of its stakeholders. The most significant risks include those associated with insurance contracts and holding financial
instruments. The Company has policies and procedures governing the identification, measurement, monitoring,
mitigating and controlling of risks associated with insurance contracts and holding financial instruments. The most
significant risk associate with insurance contracts is insurance risk, which includes pricing risk, concentration risk and
reserving risk. The significant risks associated with financial instruments are credit risk, liquidity risk and market risk
(comprising currency risk, interest rate risk and other price risks such as equity risk).
The following sections describe how the Company manages both its insurance risk as well as risks associated with
financial instruments.
11.1
Insurance risk
Insurance risk is the risk that the ultimate cost of claims and LAE, as well as acquisition expenses, related to insurance
contracts will exceed premiums received in respect of those contracts. This could occur because either the frequency or
severity of claims is greater than expected.
The Company’s objective for managing insurance risk is to minimize the risk through effective use of underwriting
guidelines, claims and expense management, and reinsurance, while continuing to grow and to achieve profitable
underwriting results within its identified product lines. To achieve that objective, senior management has developed
underwriting and pricing guidelines to be followed when issuing bonds and policies or assuming reinsurance risk. In
addition to that, careful oversight is applied to all aspects of the underwriting process to ensure that guidelines are
followed. Furthermore, the Company regularly reviews its underwriting and pricing guidelines to ensure that they reflect
emerging trends in its existing business and in the marketplace.
The insurance risks associated with insurance contracts underwritten by the Company are subject to a number of
variables such as estimated loss ratios and estimated claims settlement costs, which are sensitive to various assumptions
which can impact the estimation of claims liabilities (see Note 2.14).
25
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
11.1
Insurance risk (continued)
Some additional factors that impact insurance risk include pricing risk, concentration risk and reserving risk, which are
described below:
a)
Pricing risk
Pricing risk is the risk that an insurance product has been priced with assumptions about claims and LAE activity that are
different from the actual experience of that product line. The Company’s pricing guideline are designed such that
premium rates take into account claims frequency and severity, expense levels, investment returns and profit margins
required to support a particular product line. The Company reviews pricing assumptions regularly to ensure that they
reflect the latest claims experience and current market conditions. The Company mitigates the impact of pricing risk
through the application of pricing guidelines in the underwriting process, and through the employment of experienced
underwriting staff.
b)
Reserving risk
Reserving risk is the risk that future claims and LAE arising on past exposure periods exceed the liability recorded in
respect of unpaid claims and LAE. The Company’s management of reserving risk is discussed in Note 2.14.
c)
Concentration of insurance risk
Concentration risk is the risk that the Company’s insurance products are concentrated within a particular geographic
area, particular class of business, or a particular insured, thereby increasing the exposure of the Company to a single
event or a series of related events. Concentration of risk could arise as a result of a single bondholder having multiple
bonds outstanding, or as a result of a large number of insurance or reinsurance contracts issued for a similar class of
business or geographic area. Concentrations of risk can arise from either high-severity or low-frequency events, such as
natural disasters and from situations where the underwriting of risk is biased towards a particular area of risk, such as a
particular type of business or a particular geographic region.
To mitigate the impact of concentration of risk, the Company applies risk management practices in its underwriting
guidelines, and regularly reviews its portfolio of insurance risks for high concentrations and aggregations of risk and
makes adjustments as needed in order to ensure that a diversified portfolio is maintained across geographic regions and
different product lines. The Company also uses a number of modeling tools to monitor the diversification across the
portfolio and actively manages its reinsurance programs and collateral requirements in order to maintain net claims
within its risk tolerance.
The following table shows the mix of the Company’s policies by product line and geography, which reflects the
Company’s diversification of insurance risk:
December 31, 2017
U.S.
Canada
December 31, 2016
Other
Canada
U.S.
Other
Surety
Corporate insurance
Risk solutions
Direct premiums written
Life
Property & casualty
Assumed reinsurance
Gross premiums written
48,815
32,718
64,190
145,723
-
-
-
875
-
-
875
-
-
-
145,723
875
-
-
-
-
-
165
165
165
43,247
31,761
49,290
504
-
-
124,298
504
-
-
-
-
-
-
124,298
504
-
-
-
-
-
163
163
163
26
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
11.1
Insurance risk (continued)
d)
i)
Sensitivity to insurance risk
Property and casualty business of Trisura Guarantee and Trisura International
The insurance risks associated with the lines of business underwritten by the Company are sensitive to various
assumptions which can impact the estimation of claims liabilities. The relevant risk variables for the Company’s Property
and Casualty lines of business associated with the estimation of claims liabilities are subject to assumptions that include
the estimated loss ratio as well as the estimated claims settlement costs. The loss ratio is used to calculate losses of the
Company with respect to its ongoing property and casualty insurance operations as a percentage of net premiums
earned. Below is an analysis showing the impact of a 5% increase in the loss ratio, as a percentage of net earned
premium, and a 5% increase in claims settlement costs of the property and casualty claims reserves, based on an
increase in the current net unpaid claims balance. Such variances in the estimation were considered reasonably possible
during the years ended December 31, 2017 and 2016. The impacts described in the table below are independent of one
another. A 5% decrease to the loss ratio and a 5% decrease in claims settlement costs would have the opposite effect on
comprehensive (loss) income and shareholders’ equity.
December 31, 2017
December 31, 2016
December 31, 2017
December 31, 2016
Sensitivity factor
Impact on comprehensive (loss) income
Impact on shareholders’ equity
5% increase to loss ratio
5% increase to claims settlement costs
(3,964)
(3,484)
(3,605)
(3,093)
(2,905)
(2,786)
(2,649)
(2,526)
ii)
Life business of Trisura International
The Company’s life reserves are held in respect of a book of deferred annuities with guaranteed annuity conversion
options (“GAO”). A significant risk factor in relation to these reserves is the proportion of policyholders who take up the
GAO upon retirement. The following table shows the impact on reserves of a 100 basis point change in the GAO take-up
rate.
Sensitivity factor
100 basis point increase in GAO take-up rate
100 basis point decrease in GAO take-up rate
December 31, 2017
December 31, 2016
Impact on comprehensive (loss) income from
change in average reserve
1,117
(1,135)
1,065
(1,065)
Unpaid claims and LAE are also sensitive to interest rates due to the time value of money. The impact of the interest
rate sensitivity on unpaid claims is shown in Note 11.4(b). The structured insurance assets are sensitive to changes in
lapse rates. The impact of lapse rate sensitivity on the structured insurance assets is shown in Note 5.
11.2
Credit risk
Credit risk is the risk that a party to a financial instrument will fail to discharge an obligation and cause the Company to
incur a financial loss. Credit risk arises mainly from investments in bonds and short-term securities, the structured
insurance assets, and balances receivable from insurance brokers and reinsurers.
For debt securities, the Company manages its credit risk by placing limits on its exposure to a single counterparty, by
reference to the credit rating of the counterparty or, where a rating is not available by assigning an internal rating
equivalent based on market comparables for the counterparty or based on the collateral supporting the counterparty
risk. Management monitors credit quality on an on-going basis and reviews the investment portfolio.
For the structured insurance assets, the Company minimizes its credit exposure through transacting with investment
grade counterparties.
27
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
11.2
Credit risk (continued)
For Premiums receivable, the Company uses insurance brokers as intermediaries for the distribution of its product
offerings and is therefore subject to the risk that these brokers fail to remit the premiums they have collected on its
behalf. The Company only deals with licensed brokers with which it has entered into a contract that details, among
other things, the broker’s responsibilities and payment obligations. Further, the Company monitors accounts receivable
from each broker and follows-up all past due amounts to ensure satisfactory collection arrangements are in place. As at
December 31, 2017, $1,735 of premiums receivable was past due but not considered to be impaired (December 31, 2016
– $1,429).
As at December 31, 2017, the Company has Miscellaneous assets that include amounts that are past due and are
recorded net of an allowance for impairment of $955 (2016 – $1,023) based on management’s estimate given the age
and circumstances surrounding the past due amounts. As at December 31, 2017, $125 of Miscellaneous assets was past
due but not considered impaired (December 31, 2016 – $134).
For recoverables from reinsurers, the Company applies its reinsurance risk management policy to manage the credit risk
associated with these balances. The Company is ultimately at risk on the limits of coverage provided under its product
offerings, regardless of whether it has ceded a portion of this exposure to reinsurers. If a reinsurer is unwilling or unable
to satisfy its obligations, the Company does not have the right to correspondingly reduce its claims payment obligations.
The Company’s general practice is to use only licensed reinsurers that have a minimum A.M. Best credit rating of A-, and
management monitors these ratings on a regular basis. Furthermore, the Company’s reinsurance risk management
policy places limits on the participation of individual reinsurers in the Company’s reinsurance arrangements. These
participations and limits are reviewed regularly.
When the Company uses an unlicensed reinsurer in Canada, it is required to establish a custodial account secured under
a reinsurance security agreement, post a letter of credit or provide other forms of security in an amount equal to at least
115% of the unearned premium, unpaid claims and LAE on business ceded to it.
For funds withheld by ceding companies, credit risk is monitored regularly by experienced staff. Funds withheld by
ceding companies relate to the Company’s reinsurance business and credit risk is mitigated by contractual rights to offset
amounts receivable against claims and other amounts payable. The Company periodically obtains letters of credit from
counterparties to collateralize some of these and potential future receivables.
Derivative assets and other assets are carefully monitored with reference to the credit quality of the counter-party, and
an impairment allowance is made if deemed appropriate.
There is considered to be no credit risk associated with the Executive share purchase plan as payments are deducted
from participants’ monthly payroll and in the event of a departure, participants are required to sell their shares and use
proceeds to settle amounts owing to the Company.
28
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
11.2
Credit risk (continued)
a)
Maximum exposure to credit risk of the Company
The following table sets out the Company’s maximum exposure to credit risk related to financial instruments. The
maximum credit exposure is the carrying value of the asset net of any allowances for losses.
As at
December 31, 2017
December 31, 2016
Cash and cash equivalents
Bonds
Government
Corporate
Mortgage backed securities
Asset backed securities
Structured settlements
Premiums receivable
Accrued investment income
Funds held by ceding companies
Derivative assets
Other assets
165,675
48,054
80,063
314
36
12,566
20,552
909
374
152
961
329,656
122,096
57,916
76,035
476
41
15,129
17,887
864
406
-
1,184
292,034
b)
Concentration of credit risk of the Company
Concentrations of credit risk can arise from exposures to a single debtor, a group of related debtors or groups of debtors
that have similar risk characteristics, for example the may operate in the same or similar industries. The following table
provides details of the fair value of fixed income securities by industry sector:
As at
Government
Financial
Real estate
Industrials
Infrastructure
Automotive
Power and pipelines
Consumer discretionary
Retail
December 31, 2017
December 31, 2016
48,054
40,959
10,514
9,947
5,816
5,624
4,482
3,071
-
128,467
57,916
38,448
5,654
12,327
5,942
2,026
8,026
3,117
1,012
134,468
29
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
11.2
Credit risk (continued)
c)
Asset quality
The following table summarizes the credit ratings for fixed income securities and cash equivalents:
As at
Fixed income securities
AAA
AA
A
BBB
Below BBB
Cash equivalents
R-1 (medium)
R-1 (low)
11.3
Liquidity risk
December 31, 2017
December 31, 2016
11,569
32,062
52,727
30,425
1,684
128,467
56,680
25,858
82,538
211,005
20,022
30,140
45,137
37,316
1,853
134,468
-
8,687
8,687
143,155
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another financial asset. Liquidity risk may arise from a number of
potential areas including, for example, duration mismatch between assets and liabilities.
Generally, the Company’s financial liabilities are settled by delivering cash and it is able to rely on the cash flow
generated from its operations to satisfy its liquidity requirements, which are primarily operating expenses and claims and
loss adjustment payments.
By their nature, the timing and quantum of claims and loss adjustment payments are subject to significant uncertainty
and are estimated actuarially as set out in Note 2.14. Although the Company has reinsurance treaties in place under
which a portion of the claims payments may be recovered, including by way of set off against premiums payable to the
reinsurers, such recoveries usually follow the making of payments and often with delays of a number of months. Hence
the Company must have access to sufficient liquid resources to fund gross amounts payable when required.
To manage its liquidity requirements, the Company maintains a minimum balance of cash and cash equivalents and a
highly rated, highly liquid investment portfolio. The Company’s investment policy sets out minimum criteria for the
credit quality of each class of investment held. In addition, the investment policy stipulates average duration of bonds
and maximum maturity limits. For common shares, preferred shares and income and investment trusts limitations are
placed on exposure to any one issuer.
The Company also manages the liquidity risk associated with its assumed reinsurance liabilities through its asset liability
matching processes. The long-tailed nature of much of the Company’s reinsurance business also reduces the likelihood
of sudden or unexpected spikes in claim payment requirements.
The Company periodically pledges assets under insurance and reinsurance trust arrangements which are therefore not
readily available for general use by the Company (see Note 4.3).
30
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
11.3
Liquidity risk (continued)
The following tables set out the Company’s financial assets and liabilities by contractual maturity.
As at December 31, 2017
Up to 1 year
1 to 5 years Over 5 years
Cash
Total investments
Structured insurance assets
Premiums receivable
Other financial assets
Reinsurers’ share of claims reserves
Financial and insurance assets (1)
-
13,631
1,992
18,841
2,567
14,385
51,416
-
89,508
5,772
1,711
53
20,128
117,172
-
24,977
4,801
-
-
3,733
33,511
As at December 31, 2016
Up to 1 year
1 to 5 years Over 5 years
Cash
Total investments
Structured insurance assets
Premiums receivable
Other financial assets
Reinsurers’ share of claims reserves
Financial and insurance assets (1)
-
15,629
2,356
15,988
2,222
9,204
45,399
-
73,626
6,943
1,899
62
13,264
95,794
-
45,213
5,830
-
-
2,208
53,251
No specific
maturity
165,675
49,960
-
-
-
-
Total
165,675
178,076
12,565
20,552
2,620
38,246
215,635
417,734
No specific
maturity
122,096
44,796
-
-
1,898
-
Total
122,096
179,264
15,129
17,887
4,182
24,676
168,790
363,234
(1)
Deferred acquisition costs and reinsurers’ share of unearned premiums have been excluded as they are not subject to any
liquidity risk.
As at December 31, 2017
Up to 1 year
1 to 5 years Over 5 years
Unpaid claims and LAE (2)
Reinsurance premiums payable
Loans payable
Other financial liabilities
Financial and insurance liabilities (3)
48,205
17,555
-
12,240
78,000
92,886
31,470
-
29,700
883
123,469
-
-
-
31,470
As at December 31, 2016
Up to 1 year
1 to 5 years Over 5 years
Unpaid claims and LAE (2)
Reinsurance premiums payable
Other financial liabilities
Loans payable
Liabilities to participating shareholders
Financial and insurance liabilities (3)
37,288
13,461
18,984
-
-
89,309
-
1,637
34,100
31,520
-
-
-
-
69,733
125,046
31,520
(2) Undiscounted and excluding PfADs.
(3) Unearned premiums have been excluded as they are not subject to any liquidity risk.
No specific
maturity
3,558
-
-
6,672
10,230
No specific
maturity
-
-
4,813
-
16,008
20,821
Total
176,119
17,555
29,700
19,795
243,169
Total
158,117
13,461
25,434
34,100
16,008
247,120
31
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
11.4
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in market prices. Market risk includes currency risk, interest rate risk and other price risks such as equity price risk.
a)
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in foreign exchange rates. The Company has operations in the United States and Canada, as well as European exposure
through its reinsurance operations and therefore has exposure to currency risk arising from fluctuations in exchange
rates of the Canadian and Euro against the United States dollar. The foreign currency positions of the Company are
monitored quarterly and the Company uses derivatives to manage foreign exchange risks where a material unmatched
foreign exchange position exists. As at December 31, 2017 and December 31, 2016, the short position in Euro was
hedged by a forward currency exchange contract.
The following tables summarize the carrying value of total assets and total liabilities of the Company categorized by
major currency. All amounts below are converted to Canadian dollar equivalents:
As at December 31, 2017
CDN
USD
EUR
Other
Total
Total assets
Total liabilities
Net assets
314,107
273,999
40,108
109,796
21,972
87,824
63,925
71,223
(7,298)
532
(336)
868
488,360
366,858
121,502
As at December 31, 2016
CDN
USD
EUR
Other
Total
Total assets
Total liabilities
Net assets
257,865
240,471
17,394
91,299
30,013
61,286
68,604
77,941
(9,337)
1,633
88
1,545
419,401
348,513
70,888
The assets and liabilities above were translated at exchange rates at the reporting date and are stated before taking into
account the effect of forward currency exchange contracts.
b)
Interest rate risk
Interest rate risk is the potential for financial loss resulting from changes in interest rates. Bonds, structured insurance
assets and preferred shares are subject to interest rate risk although, in the case of bonds, to the extent they are held to
maturity, the risk is limited to the reinvestment yield being different from the original yield to maturity. The fair value of
bonds, change inversely with changes in market rates of interest, with greater impact to bonds with longer durations.
The Company’s unpaid claims balance is also subject to interest rate risk, in particular the Company’s life reserves which
have longer durations.
The Company manages its interest rate risk through its investment policy which considers average duration of bonds
held and maximum maturity limit as well as asset liability matching.
32
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
11.4
Market risk (continued)
b)
Interest rate risk (continued)
As at December 31, 2017
Sensitivity factor
100 basis point increase parallel shift in the yield
curve, assuming all other variables remain constant
100 basis point decrease parallel shift in the yield
curve, assuming all other variables remain constant
As at December 31, 2016
Sensitivity factor
100 basis point increase parallel shift in the yield
curve, assuming all other variables remain constant
100 basis point decrease parallel shift in the yield
curve, assuming all other variables remain constant
c)
Equity price risk
Fixed income
(including
preferred shares)
Structured
insurance asset
Net unpaid
claims
Impact on
comprehensive
(loss) income
(7,704)
(544)
(22,243)
14,826
8,804
592
29,175
(20,668)
Fixed income
(including
preferred shares)
Structured
insurance asset
Net unpaid
claims
Impact on
comprehensive
(loss) income
(9,649)
(661)
(22,675)
13,490
10,575
719
24,335
(14,122)
Equity price risk is the uncertainty associated with the valuation of assets arising from changes in equity markets.
The Company’s exposure to equity price risk is managed and mitigated through its investment policy which sets out
maximum exposures to equities at aggregate and per issuer levels as well as requiring diversification across different
industry sectors.
As at
December 31, 2017 December 31, 2016
December 31, 2017
December 31, 2016
Sensitivity factor
10% increase in equity prices
(excluding preferred shares)
10% decrease in equity prices
(excluding preferred shares)
Impact on comprehensive (loss) income (1)
Impact on fair value of investment portfolio
2,544
(2,544)
2,216
(2,216)
3,410
(3,410)
2,974
(2,974)
(1)
The methodology used to calculate the latter change is based on 10% of the fair value of the equities (excluding preferred
shares), net of tax, at the balance sheet dates.
Note 12 – Reinsurance
The Company uses reinsurance in the ordinary course of business to reduce its exposure to any one claim or event under
the policies it issues. A large portion of this reinsurance is affected under reinsurance agreements known as treaty
reinsurance. In some instances, it is negotiated on a facultative (one-off) basis for individual policies, generally when the
exposures under these policies are not sufficiently mitigated by the treaty reinsurance.
Reinsurance does not relieve the Company of its obligations to policyholders. A contingent liability exists with respect to
reinsurance ceded which would become a liability of the Company in the event that any reinsurer fails to honour its
obligations. For this reason, the Company evaluates the financial condition of its reinsurers and monitors concentration
of credit risk to minimize its exposure to losses from reinsurer insolvencies. All licensed reinsurers providing treaty or
facultative reinsurance policies are required to have a minimum A.M. Best credit rating of A- at the inception of each
policy. Provisions are incorporated in the treaties to protect the Company in the event a reinsurer’s credit rating
deteriorates during the term of the reinsurance treaty. Unlicensed reinsurers must post an agreed upon level of
collateral.
33
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 12 – Reinsurance (continued)
The Company has determined that a provision is not required for potentially uncollectible reinsurance as at December
31, 2017 and December 31, 2016.
The following table summarizes the components of reinsurance assets as at December 31, 2017 and December 31, 2016:
As at December 31,
Reinsurers’ share of claims liabilities (see Note 8.1)
Reinsurers’ share of unearned premiums (see Note 7.2)
2017
38,246
27,008
65,254
2016
24,676
22,444
47,120
Note 13 – Capital assets
The Company’s capital assets consist of the following as at December 31, 2017 and December 31, 2016:
As at December 31, 2017
Leasehold improvements
Office equipment
Furniture and fixtures
As at December 31, 2016
Leasehold improvements
Office equipment
Furniture and fixtures
Note 14 – Intangible assets
Cost
1,196
1,125
929
3,250
Cost
1,196
1,163
1,105
3,464
Accumulated
depreciation
Carrying value
(502)
(938)
(725)
(2,165)
694
187
204
1,085
Accumulated
depreciation
Carrying value
(413)
(963)
(842)
(2,218)
783
200
263
1,246
Intangible assets consist of the computer software components of the Company’s policy management system, document
management system and online portal. They are being amortized at a rate of 40%, using the declining balance method.
Intangible assets also include the acquisition of two customer lists which were each acquired for $800. One was
purchased in 2014 and another in 2017 each from other insurance companies. Both lists are being amortized at a rate of
20% using the declining balance method.
The final purchase price of the customer list purchased in 2017 is contingent on revenue generated from the list over the
following two years, subject to a fixed price of $500. The $800 of consideration paid included the $500 fixed price plus
$300 of contingent consideration. As at December 31, 2017 management’s estimate of the contingent consideration
that will ultimately be required to be paid is $300.
The price of the customer list purchased in 2014 was contingent on revenue generated from the list over the two years
ending October 2016, subject to a fixed price of $600. The $800 of consideration paid included the $600 fixed price plus
$200 of contingent consideration. In October 2016 the final price of the customer list was calculated and determined to
be $765. As a result, a portion of the contingent consideration was refunded to Trisura in November 2016. This amount
of $35 was booked to income in November 2016. The original consideration paid of $800 will continue to be amortized
using the 20% declining balance rate.
34
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 14 – Intangible assets (continued)
Computer
software
389
178
(192)
375
December 31, 2017
Customer list
481
800
(129)
1,152
Total
870
978
(321)
1,527
December 31, 2016
Customer list
Total
Computer
software
342
227
(180)
389
602
-
(121)
481
944
227
(301)
870
Opening, carrying value
Additions
Amortization
Closing, carrying value
Note 15 – Restructuring costs
In 2008, TIHL announced that it had ceased writing new business. As a result, provisions were made for severance costs
related to employees whose positions may become redundant and were recorded in Accounts payable, accrued and
other liabilities. The provision was established based on TIHL’s business plans. The movement in the severance
provision for the years ended December 31, 2017 and December 31, 2016 is as follows:
Balance at beginning of the year
Additional accrual
Adjustments for over accruals
Amounts paid
Adjustment for foreign exchange movements
Balance at end of year
Note 16 – Capital management
2017
2016
440
-
-
(405)
(35)
-
551
85
(165)
(19)
(12)
440
The Company’s capital is its shareholders’ equity, which consists of common shares, preferred shares, accumulated
(deficit) retained earnings and accumulated other comprehensive (loss) income. The Company reviews its capital
structure on a regular basis to ensure an appropriate capital structure in keeping with all regulatory, business and
shareholder obligations.
Oversight of the capital of the Company rests with management and the board of directors. Their objectives are
twofold: (i) to ensure the Company is prudently capitalized relative to the amount and type of risks assumed and the
requirements established by the laws and regulations applicable to the Company’s regulated subsidiaries; and (ii) to
ensure shareholders receive an appropriate return on their investment.
16.1
Regulatory capital
a)
Trisura Guarantee
Under guidelines established by the Office of the Superintendent of Financial Institutions which apply to Trisura
Guarantee, Canadian property and casualty insurance companies must maintain minimum levels of capital as
determined in accordance with a prescribed test, the minimum capital test (“MCT”), which expresses available capital
(actual capital plus or minus specified adjustments) as a percentage of required capital. Companies are expected to
maintain MCT level of at least 150% and are further required to establish their own unique target MCT levels based on
the nature of their operations and the business they write. Management, with the board of directors’ approval, has
established Trisura Guarantee’s target MCT level in accordance with these requirements. Trisura Guarantee has
exceeded this measure as at December 31, 2017 and December 31, 2016.
35
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
16.1
Regulatory capital (continued)
b)
Trisura International
Trisura International is subject to externally imposed regulatory capital requirements in Barbados. As at December 31,
2017, Trisura International was required to maintain minimum capital totaling $157, including its subsidiary (see Note
16.1(c)), and it has exceeded this requirement (December 31, 2016 – Excluding Trisura International’s capital
requirements through its subsidiary, Trisura International was required to maintain capital of $162, and it exceeded this
requirement, Trisura International and its subsidiary were required to maintain aggregate minimum capital $5,270, and
they exceeded this requirement). This amount is restricted from potential dividend payments.
c)
Imagine Asset Services dac
Imagine Asset Services dac (“IASD”), a subsidiary of Trisura International, was regulated by the Central Bank of Ireland
until June 7, 2017. On that date, the Central Bank of Ireland approved the application by IASD to cancel its reinsurance
authorization following the termination of all its reinsurance contracts. Consequently, from that date forward, IASD was
no longer required to maintain any regulatory capital requirements. As at December 31, 2016, IASD was required to
maintain minimum capital of $5,108 and it exceeded this requirement.
d)
Trisura Specialty
Trisura Specialty is subject to externally imposed regulatory capital requirements by the Oklahoma Insurance
Department as a Domestic Surplus Line Insurer. As at December 31, 2017, Trisura Specialty was required to maintain
minimum capital and surplus totaling $18,818, and it has exceeded this requirement.
Note 17 – Loan payable
On August 4, 2016, a subsidiary of the Company entered into an arrangement with a Canadian Schedule I bank to borrow
$35,000 for the purpose of redeeming the balance of its Class A common shares outstanding at that time, as well as
issuing a dividend to pay the $16,100 of accumulated value accretion associated with those shares owing to Brookfield.
The credit arrangement was arranged by way of a five-year lending facility funded through short term banker’s
acceptance or Canadian prime rate advances. The rate is based on the current periods’ bankers’ acceptance rate or
Canadian prime rate, plus a margin. The loan balance is accounted for at amortized cost, which is equal to the carrying
value. The minimum required annual payment consists only of interest, with no mandatory principal payments required.
As part of the covenants of the loan, the Company is required to maintain certain financial ratios, which were fully met
as at December 31, 2017 and December 31, 2016.
During the year ended December 31, 2017, the Company incurred $1,009 of interest expense (December 31, 2016 –
$481). As at December 31, 2017, the loan balance was $29,700 (December 31, 2016 – $34,100).
Note 18 – Share capital
The Company’s authorized share capital consists of: (i) an unlimited number of common shares; (ii) an unlimited number
of non-voting shares; and (iii) an unlimited number of preference shares (issuable in series).
The impact of the Reorganization Transaction on share capital was to increase common shares to $140,270. The impact
of this transaction on retained earnings was to reduce retained earnings by $31,631 being the difference between
consideration paid for Brookfield’s interest in 643 Can Ltd and the book value of 643 Can Ltd as at June 15, 2017. The
impact of the reorganization on share capital was an adjustment to share capital of $(9,618) and an adjustment to
retained earnings of $(90,891), which is inclusive of the reduction in retained earnings of $31,631 described above.
These adjustments reflect the impact of moving from a presentation of financial statements on a combined basis, to a
presentation of financial statements on a consolidated basis.
36
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 18 – Share capital (continued)
On November 30, 2017, the Company exchanged the shares of 643 Can Ltd that were then owned by certain current and
retired members of the management of Trisura Guarantee (“Management”) for newly issued common shares, and Class
A, Series 1, preferred shares of TGL. As a result of this transaction, the Company issued to management 963,143
common shares from treasury and 64,000 preferred shares. The impact of the transaction was an increase to share
capital by $28,944 and a reduction to retained earnings by $9,303. The minority interests were reclassified from a
liability to a reduction in retained earnings.
Consideration also included notes payable by the Company that were used by Management to repay shareholder loans
owing to 643 Can Ltd which were outstanding at the time.
Holders of the preferred shares are entitled to a cumulative dividend of 6%, payable quarterly, at a fixed rate of 6%. The
dividend rate will be reset on December 31, 2022 and every five years thereafter at a rate equal to the five-year
government of Canada bond yield plus 7.5%. The Company has the right to redeem preferred shares at any time on 30
to 60 days notice.
On December 11, 2017, the Company held a special meeting of shareholders and approved a one-for-ten share
consolidation of its common shares, followed immediately by a ten-to-one share split by way of a share distribution. The
impact of this transaction on share capital was to reduce shares outstanding by 154,815 shares, and a reduction to share
capital of $4,031.
The following tables show the common and preferred shares issued and outstanding:
December 31, 2017
Balance, beginning of the year
Common shares issued
Common shares redeemed
Balance, end of year
December 31, 2017
Balance, beginning of the year
Preferred shares issued
Preferred shares redeemed
Balance, end of year
Common shares
Number of shares
Amount
(in thousands)
-
6,776,495
(154,815)
6,621,680
-
167,613
(4,031)
163,582
Preferred shares
Number of shares
Amount
(in thousands)
-
64,000
-
64,000
-
1,600
-
1,600
At December 31, 2017, the Company had declared and paid a dividend of $0.13 (in dollars) per share for each Class A,
Series 1, preferred share. The consolidated common share capital of the Company as at December 31, 2017 was
$163,582 (combined common share capital as at December 31, 2016 – $9,618).
37
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 19 – Earnings per share
Basic earnings per common share is calculated by dividing the net income attributable to commons shareholders for the
period from June 22, 2017 to December 31, 2017 by the weighted-average number of common shares. As at December
31, 2017, basic EPS is equal to diluted EPS.
Net income attributable to shareholders
Less: Dividends declared on preferred shares, net of tax
Net income attributable to common shareholders
Weighted-average number of common shares outstanding (in shares)
EPS – basic (in dollars)
Note 20 – Investment Income
December 31, 2017
2,218
(8)
2,210
5,959,229
0.37
The components of net investment income for the years ended December 31, 2017 and 2016 were as follows:
Cash and cash equivalents
Available-for-sale bonds
Interest on executive share purchase plan
Interest expense on notes payable
Net interest income
Available-for-sale income and investment trust units
Available-for-sale common shares
Available-for-sale preferred shares
Business and dividend income
Unrealized (loss) on investments held at FVTPL
Investment income on funds held by ceding companies
Commission income on assets at FVTPL
Investment expenses
Other investments (expense) income
Available-for-sale income and investment trust units
Available-for-sale bonds
Available-for-sale common shares
Available-for-sale preferred shares
Gain on disposition of investments
Impairment on investments
2017
689
3,236
56
(9)
3,972
165
941
707
1,813
(7,717)
-
2,379
(577)
(130)
-
5,758
24
80
5,862
(321)
5,411
2016
417
4,371
72
(24)
4,836
3
739
655
1,397
(2,900)
418
4,940
(531)
8,160
313
6,825
14
-
7,152
(2,888)
12,424
38
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 21 – Letters of credit
Effective November 18, 2008, a subsidiary of the Company entered into a letter of credit facility with a Canadian
Schedule I bank (the “Facility”). This Facility was terminated on June 9, 2017. In prior periods, the bank agreed to
provide letters of credit on an unsecured basis (total capacity as at December 31, 2016 – $8,066). Letters of credit under
the Facility matured 364 days from the date of issuance on an evergreen basis, meaning that they automatically renewed
each year unless utilized by the letter of credit beneficiary. Under the Facility, TIHL and/or certain of its subsidiaries were
required to maintain certain covenants, including a minimum tangible net worth covenant that applied to TIHL only. As
at December 31, 2017, the Facility was terminated and no letters of credit had been issued (December 31, 2016 – four
totaling $7,697). As at December 31, 2016, TIHL was in compliance with all of the covenants under the Facility.
Note 22 – Lease commitments
The Company occupies office facilities under leases that expire on or before May 31, 2026, inclusive of a five year
renewal option. The minimum annual rental commitments under these operating leases, exclusive of taxes and other
operating expenses, are as follows:
2018
2019
2020
2021
2022
Thereafter
Note 23 – Benefits
December 31, 2017
1,258
1,140
1,021
578
263
617
4,877
The Company has established and contributes to a number of group retirement savings plan arrangements under which
the Company makes contributions. Contributions are charged to operating expense and are recognized as incurred. One
of the Company’s subsidiaries operated a long-term incentive plan which was terminated on December 31, 2016, and
has been replaced with the cash-settled equity based plan described in Note 29.2.
Note 24 – Related party transactions
Prior to the Spin-off on June 22, 2017 the Company was a subsidiary of Brookfield, which was the ultimate controlling
party of the Company as well as TIHL and 643 Can Ltd (see Note 1).
The Company and its subsidiaries have entered into outsourcing arrangements with Brookfield and its affiliated
companies with respect to the provision of information technology, internal audit, and investment management services
and the services of a Brookfield employee who was temporarily the Chief Financial Officer of the Company. The
Company leases office space from, and subleases office space to, subsidiaries of Brookfield. The Company occasionally
issues surety bonds and insurance policies to subsidiaries of Brookfield, and earns interest income from deposits with
companies which are subsidiaries of Brookfield. These transactions are conducted in the normal course of business and
are measured at the amount of consideration paid or established and agreed between the parties.
A subsidiary of the Company entered into a tax transfer arrangement with Brookfield in 2016 and 2017, as permitted
under applicable income tax legislation and the Act and during 2017, it made a payment during the first quarter to
Brookfield for taxes paid related to 2016 of $3,543 (second quarter of 2016 – $1,700 paid related to 2015). During the
first quarter of 2017, a subsidiary was paid a fee of $580 plus HST from Brookfield for services incurred in 2017.
As at December 31, 2017, executive share purchase plan loans due from related parties amounted to $nil (December 31,
2016 – $1,542). Interest receivable of $nil related to this balance was due as at December 31, 2017 (December 31, 2016
– $356). During the year ended December 31, 2017, $6 of interest income was earned related to the shareholder loans
(December 31, 2016 – $24). These balances were settled as part of the transaction with Management described in Note
18.
39
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 24 – Related party transactions (continued)
The amount due to related parties at December 31, 2017 comprises $42 (December 31, 2016 – $37) for outsourced
services provided.
The following table shows the impact of transactions with related parties:
Income and expenses reported in:
Total underwriting revenue
Operating expenses
Net investment income
Assets and liabilities reported in:
Cash and cash equivalents
Premium, accounts receivable and other assets
Accounts payable, accrued and other liabilities
Other cash transactions
24.1
Key management personnel
December 31, 2017
December 31, 2016
2,023
2,054
131
-
-
42
3,543
567
2,051
202
14,200
1,897
567
1,700
Key management personnel are those persons having the authority and responsibility for planning, directing and
controlling the activities of the entity, directly or indirectly, including any executive officers or directors of the Company.
The following transactions were carried out with key management personnel during the years ended December 31, 2017
and 2016:
Salaries and other employee benefits
Share-based payments
Note 25 – Executive share purchase plan receivable
December 31, 2017
December 31, 2016
2,420
229
1,832
-
The Company administered two executive share purchase plans that were established in 2006 and 2012 (the “2006 Plan”
and the “2012 Plan”, respectively). Under the 2006 Plan, employees of Trisura Guarantee could purchase common
shares of 643 Can Ltd in return for notes payable, which bore interest at the prime rate of 643 Can Ltd’s primary lending
institution plus 1%. The loans did not have to be repaid, nor did interest have to be paid, until such time as the shares
are sold or redeemed. Under the 2012 Plan, employees could purchase shares in return for notes payable, which they
were required to repay through semi-monthly payroll deductions, as well as 50% of their after-tax annual bonus, if any.
The loans bore interest at a rate equal to the prime rate of 643 Can Ltd’s primary lending institution plus 1%.
On November 30, 2017, these loans were settled by way of consideration paid by the Company in exchange for the
shares of 643 Can Ltd owned by management (see Note 18).
Note 26 – Minority interests in subsidiary
Under the terms of a unanimous shareholder agreement between the shareholders of 643 Can Ltd, the common shares
owned by Management had a puttable feature which resulted in their being classified as financial liabilities in accordance
with IAS 32, Financial Instrument: Presentation. These liabilities were measured at fair value, being the put value
ascribed to the shares under the unanimous shareholder agreement. Assumptions have been made by management
regarding the put value, as the unanimous shareholder agreement had various clauses under which different values can
be ascribed to the shares.
On November 30, 2017, the shares of 643 Can Ltd, owned by Management, were exchanged with the Company for newly
issued shares of the Company (see Note 18), this liability ceased to exist at that time. As at December 31, 2017, the fair
value of the liabilities was $nil (December 31, 2016 – $16,008).
40
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 27 – Segmented information
The Company has three reportable segments. The operations of 643 Can Ltd, referred to below as Trisura Guarantee, is
one reportable segment which comprises surety solutions, risk solutions and corporate insurance solutions products
underwritten in Canada. The operations of TIHL, referred to below as Trisura International, is a second reportable
segment which comprises the Company’s international reinsurance operations. Trisura Specialty is a third operating
segment, which will provide specialty insurance solutions underwritten in the United States. Trisura Specialty did not
have active operations for the year ended December 31, 2017.
The following table shows the results for the years ended December 31, 2017 and 2016:
December 31, 2017
Net premiums earned
Fee income
Total underwriting revenue
Net claims
Net expenses
Total claims and expenses
Net underwriting income (loss)
Investment income
Foreign exchange loss
Interest expense
Change in minority interests
Net income (loss) before tax
December 31, 2016
Net premiums earned
Fee income
Total underwriting revenue
Net claims
Net expenses
Total claims and expenses
Net underwriting income (loss)
Investment income
Foreign exchange loss
Interest expense
Change in minority interests
Net income (loss) before tax
Trisura Guarantee
(inclusive of
643 Can Ltd)
Trisura
International
Corporate and
consolidation
adjustments
79,271
3,400
82,671
(19,013)
(54,818)
(73,831)
8,840
3,931
-
(1,009)
(5,156)
6,606
162
-
162
1,360
(2,181)
(821)
(659)
1,205
(6)
-
-
540
-
-
-
-
(4,625)
(4,625)
(4,625)
275
(29)
-
-
(4,379)
Total
79,433
3,400
82,833
(17,653)
(61,624)
(79,277)
3,556
5,411
(35)
(1,009)
(5,156)
2,767
Trisura Guarantee
(inclusive of 643
Can Ltd)
Trisura International
Total
72,092
3,352
75,444
(22,396)
(47,418)
(69,814)
5,630
1,137
-
(481)
(155)
6,131
163
13
176
(6,404)
(5,847)
(12,251)
(12,075)
11,287
(528)
-
-
(1,316)
72,255
3,365
75,620
(28,800)
(53,265)
(82,065)
(6,445)
12,424
(528)
(481)
(155)
4,815
41
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 27 – Segmented information (continued)
The following table shows Loan payable of $29,700 at December 31, 2017 ($34,100 at December 31, 2016) included with
the liabilities of Trisura Guarantee (inclusive of 643 Can Ltd).
As at December 31, 2017
Assets
Liabilities
Trisura Guarantee
(inclusive of 643
Can Ltd)
317,124
273,679
Trisura
International
119,208
92,658
Trisura
Specialty
56,888
426
Corporate and
consolidation
adjustments
(4,860)
95
As at December 31, 2016
Assets
Liabilities
Note 28 – Income taxes
Trisura Guarantee
(inclusive of 643
Can Ltd)
259,857
240,472
Trisura
International
159,544
108,041
Total
488,360
366,858
Total
419,401
348,513
The Company’s deferred tax assets and liabilities consist of the following:
Deferred taxes related to:
Loss carry-forwards and other
Unpaid claims and LAE
Investments – unrealized gains/losses
Less deferred taxes related to:
Investments – unrealized gains/losses
Property and equipment, intangible and other assets
Deferred income taxes
Reported in:
Deferred tax assets
Income tax recovery reported to net (loss) income
Income tax expense reported to other comprehensive
(loss) income
Statement of financial position
December 31,
December 31,
2016
2017
Statement of comprehensive
(loss) income
December 31,
2017
December 31,
2016
164
703
1,186
2,053
(1,295)
(18)
(1,313)
740
740
-
-
166
572
1,190
1,928
(1,281)
(25)
(1,306)
622
622
-
-
(8)
(131)
4
(135)
14
(7)
7
(128)
-
(142)
14
(286)
(164)
(765)
(1,215)
780
(11)
769
(446)
-
(1,226)
780
A deferred income tax asset is recognized only to the extent that realization of the related income tax benefit through
future taxable profits is probable. Management has assessed the recoverability of the deferred income tax asset
carrying values based on future years’ taxable income projections and believes the carrying values of the deferred
income tax assets as at December 31, 2017 and December 31, 2016 are recoverable.
42
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 28 – Income taxes (continued)
The following shows the major components of income tax expense for the year ended December 31, 2017 and 2016:
December 31, 2017
December 31, 2016
Current tax expense:
Current year
Prior year true up
Deferred tax expense:
Origination and reversal of temporary differences
Income tax expense
Income taxes recorded in other comprehensive (loss) income:
Net changes in unrealized gains on available-for-sale investments
Reclassification to net (loss) income of net losses on available-for-
sale investments
Origination and reversal of temporary differences
Total income tax expense recorded in other comprehensive (loss)
income
3,210
42
3,252
(143)
3,109
291
17
14
322
2,517
(10)
2,507
(645)
1,862
826
210
782
1,818
The following is a reconciliation of income taxes calculated at the statutory income tax rate to the income tax provision
included in the consolidated statements of comprehensive (loss) income for the years ended December 31, 2017 and
2016:
December 31, 2017
December 31, 2016
Income (loss) before income taxes
Statutory income tax rate
Variations due to:
Permanent differences
International operations subject to different tax rates
Unrecognized tax loss
Rate differentials:
Current rate versus future rate
Change in future rate
True up
Income tax expense
2,749
26.5%
728
1,051
74
1,226
(1)
(11)
42
3,109
4,816
26.5%
1,276
22
366
212
(2)
(1)
(10)
1,862
43
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
Note 29 – Share-based compensation
29.1
Equity-settled stock options
The Company currently administers a stock option plan. Under the stock option plan, the exercise price of each stock
option will be established at the time that the option is granted. It is expected that the vesting period will normally be
20% per year over five years and the expiry date of stock options granted will not exceed ten years.
The following is a continuity schedule of stock options outstanding as at December 31, 2017:
As at December 31, 2017
Outstanding, beginning of year
Granted during the year
Outstanding, end of year
Number of options
Weighted average exercise
price per share (in dollars)
-
87,000
87,000
-
24.36
24.36
As at December 31, 2017, the outstanding stock options consist of the following:
December 31, 2017
Exercise price per share (in dollars)
24.36
Number of options
outstanding
Average remaining
contractual life (in years)
Number of options
exercisable
87,000
9.64
-
As at December 31, 2017, no equity-based stock options were vested. The Company recorded $89 in share reserve
related to the options in the contributed surplus balance of the consolidated statements of financial position. The fair
value of the options issued in 2017 was determined using the Black-Scholes option pricing model. Volatility estimate was
20.64% and was based on the historical volatility of the Company. The Bank of Canada risk-free rate of 2.45% was used
and the weighted average fair value per stock option at the measurement date was $6.20 (in dollars).
29.2
Cash-settled stock options
On July 1, 2017, 60,000 options were issued to an officer of the Company by the board of directors as part of a cash-
settled share-based payment plan, with a vesting period of 20% per year over five years, and an expiration date of ten
years. As at December 31, 2017, no options had been vested. For the year ended December 31, 2017, the Company
recorded $130 of expense related to the options, in Operating expenses. The fair value of the options issued in 2017 was
determined using the Black-Scholes option pricing model. Volatility was estimate based on the historical volatility of the
Company. The weighted average fair value per share option at December 31, 2017 is $9.51 (in dollars).
44
TRISURA GROUP LTD.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except as otherwise noted)
29.3
Equity-settled DSUs
DSUs are awarded to certain directors of the Company at the market value of the Company’s common shares at the
grant date. These DSUs are awarded in lieu of directors fees at the option of the Directors. Each DSU entitles the holder
to receive an amount equivalent to the value of a common share at settlement. As at December 31, 2017, 2,102 DSUs
with immediate vesting were awarded to directors who are not employees of the Company or one of its affiliates.
The following table shows the movement in the number of DSUs issued during the year:
Opening balance
Granted during the year
Exercised during the year
Ending balance
Number of DSUs
-
2,102
-
2,102
As at December 31, 2017, no units had been exercised and $55 had been recorded as liabilities (see Note 10). The
liability was measured based on the fair value of the common shares of the Company at December 31, 2017. For the
year ended December 31, 2017, the Company recorded $55 of expense related to the DSUs in Operating expenses.
45