Shared Research Report
2014/6/6

Anicom Holdings, Inc. (8715)
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is
to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an
accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data andfindings. We will always present opinions from company management as such. Our views are ours wherestated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback.
Write to us at sr_inquiries@sharedresearch.jp or find us on Bloomberg.

Anicom Holdings, Inc. (8715)

Shared Research Report

2014/6/6

Contents
Executive summary..................................................................................................3
Key financial data ....................................................................................................5
Recent updates .......................................................................................................6
Trends & outlook .....................................................................................................7
Quarterly trends & results .....................................................................................7
Full-year (FY03/15) outlook ...................................................................................9
Impact of consumption tax increase and change in premiums................................. 11
Business ............................................................................................................... 14
Business description ........................................................................................... 14
Anicom in pet-related markets ............................................................................. 15
Competition ....................................................................................................... 21
Profitability analysis ............................................................................................ 24
Strengths, weaknesses ....................................................................................... 30
Long-Term strategy ................................................................................................ 31
Medium-term plan: FY03/17 recurring profit target of JPY2.2bn .............................. 31
Strategy for the existing business (pet insurance) .................................................. 32
Strategy for new businesses ................................................................................ 35
Financial statements .............................................................................................. 38
Income statement .............................................................................................. 38
Balance sheet .................................................................................................... 39
Cash flow statement ........................................................................................... 40
Other information .................................................................................................. 40
Overview of pet insurance products ..................................................................... 40
Management philosophy ..................................................................................... 42
History .............................................................................................................. 44
Major shareholders ............................................................................................. 44
By the way ........................................................................................................... 45
Company profile .................................................................................................... 46

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Anicom Holdings, Inc. (8715)

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Executive summary
Anicom has a 60% share of Japan’s growing pet insurance market
The market for pet insurance in Japan in FY03/14 is estimated at JPY28bn. The number of new insurance
policies written by Anicom Holdings, Inc. has been growing at an annual average rate of 15.9% over the
past five years.
Anicom Holdings is a nonlife insurer specializing in pet insurance. The company generated 98% of its
revenue, including investment earnings, from pet insurance operations in FY03/14. The company has a
60% share of Japan’s pet insurance market, which was estimated at JPY28bn as of FY03/14. Anicom had
505,000 policies on its books as of end-FY03/14.
Based on the UK example, the potential value of Japan’s pet insurance market is estimated at JPY180bn
Japan’s pet insurance market has great growth potential. The Japan Pet Food Association estimates thatin 2013 Japanese households own just under 21mn dogs and cats, and in FY03/14 only about 800,000, or
3.9% of these pets were insured. In the UK, 22% of the country’s 15mn dog and cats were insured in
FY2009, according to Datamonitor. If the insurance ratio were to rise to the UK level, Japan’s pet
insurance market could expand to JPY180bn.
Anicom’s competitive advantages: OTC insurance settlement and sophisticated IT system (pet owners
who present insurance cards are only liable for copayment portion at hospitals)
Anicom’s dominant market share is underpinned by several strengths: insurance payouts are settled
over-the-counter (OTC) at animal hospitals; the company extensively leverages IT in hospital billingstatements and medical records, insurance sales at pet shops and online, and in CRM (online); and it has
built a large network of hospital and pet shop partners for veterinary services and insurance sales.
Three pet insurance companies in Japan offer OTC settlement, which means pet owners are only liable forthe copayment portion at hospitals. The three companies are Anicom (at approximately 5,600 animal
hospitals as of end-March 2014), ipet Insurance (3,071 animal hospitals as of end-March 2013), and Pet &Family Small-amount Short-term Insurance. This method of settlement is an important tool for animal
hospitals to attract customers, and is becoming the de facto industry standard. Anicom has a large leadover its competitors in the number of animal hospitals that provide OTC insurance settlement.

Pet insurance is a stable source of revenue as Anicom seeks to expand inother areas in the longer term
Pet insurance will provide Anicom with a stable source of revenue as long as there are no changes in thecurrent competitive environment. Anicom is seeking to expand into other business areas while growing its
existing pet insurance operations. By leveraging the knowledge gained in the pet insurance business,Anicom plans to branch out into services not offered by animal hospitals at present, including hereditarydisorder-related advanced medical technology and other types of preventive healthcare.
SR views the pet insurance business as a source of stable growth and earnings, and sees the small-animal
healthcare business as a growth market and target for focused investment.
Anicom seeks to tap Japan’s JPY1.2tn pet market by focusing on value-added services in small-animal
healthcare
Anicom estimates Japan’s pet-related market at JPY1.2tn (animal sales: JPY100; pet food: JPY400-500bn;
animal hospitals: JPY300-400bn [JPY300bn, according to the 2012 Economic Census for Business Activity

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Anicom Holdings, Inc. (8715)

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released by the Ministry of Economy, Trade and Industry and the Statistics Bureau of the Ministry ofInternal Affairs and Communications]; toilet sheets and other consumables: JPY100-200bn). The
company is not considering starting a pet food business since it would not be very profitable. Anicom
instead is likely to branch out into small-animal healthcare and related businesses, and expects to createsynergies with its existing business and the customer base.

Anicom aims to improve its earnings structure by reducing its loss ratio,raising insurance premiums, and taking measures in response to theconsumption tax increase
Anicom has been seeking to improve its earnings structure by revamping its product lineup, however thecompany plans to revise its insurance premium structure and raise prices during FY03/15 for the first timein its corporate history. While the consumption tax increase (from 5% to 8%) on April 1, 2014, is likely tohave a negative impact on Anicom’s earnings structure, this is only part of the pricing change. The
company will not only revise insurance premiums but also product offerings (including the riders) basedon various risk categories in an effort to build a more stable earnings structure.
Impact of the consumption tax increase
Underwriting revenue (JPY18.1bn in FY03/14) is not subject to the consumption tax. However, most of
the underwriting expenses (JPY13.4bn in FY03/14), including net claims paid (JPY10.7bn), are taxed. An
increase of three percentage points in the consumption tax rate translates to an increase of some
JPY400mn–500mn in expenses, or more than half of the JPY733mn booked as recurring profit in FY03/14.
First change in insurance premiums since obtaining nonlife insurance license in December 2007
Anicom has never revised its insurance premium structure since obtaining a nonlife insurance license in
December 2007, even though there were some changes in the product coverage. However, in March 2014
the company announced a plan to revise its premiums in June in response to an increase in pets ofadvanced age and the consumption tax hike. The company is also facing increasing competition withrivals that are seeking to lower premiums by limiting the number of days when their insurance can beused. (Anicom does not impose such a limitation even though there are limits to the amount of daily
payouts.) At the same time, there is a need to adjust premiums to better reflect insurance risks.
SR estimates that the insurance premium change would increase the company’s revenue by JPY1.8bn in
FY03/15. However, of this revenue increase JPY790bn is prepaid premium, and is treated as a provision to
the policy reserve. Hence, under this analysis the actual revenue increase would be JPY1.1bn. However,taking into consideration such factors as the consumption tax rate increase, an increase in contingency
reserve provisions, upfront investments in subsidiaries, and a rise in the loss ratio, the impact on profit islikely to be largely offset.
For FY03/16, Shared Research estimates that there will be a revenue increase of around JPY400mn
compared with FY03/15. In terms of profit, the impact on the policy reserve from a large increase inprepaid premium is expected to largely taper off, leading to an expected reduction in provisions to policy
reserve. Shared Research expects a large portion of the revenue increase will contribute to earnings as
earned premiums. However, it should be noted that in FY03/16 there is the possibility of impact from afurther increase in the consumption tax rate (from the current 8% rate to the proposed 10% rate).

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Anicom Holdings, Inc. (8715)

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Key financial data
Income Statement(JPYmn)Recurring Revenue
YoY
Underwriting revenue
Investment revenue
Other recurring revenue

FY03/08
Cons.
7,267
39
7,228

FY03/09Cons.
10,800
48.6%
6,442
41
4,317

FY03/10Cons.
9,216-14.7%
9,003
71
141

FY03/11Cons.
11,10720.5%
10,85894
154

FY03/12Cons.
13,845
24.7%
13,592108
144

FY03/13Cons.
16,186
16.9%
15,781260
143

FY03/14Cons.
18,32013.2%
18,08086
154

Recurring expenses
YoY
Underwriting expenses
Investment expenses
Operation and administrative expenses

7,067
0
2,950

10,866
53.8%
5,616
66
3,640

8,924
-17.9%
5,541
3,072

10,764
20.6%
7,146
8
3,312

13,508
25.5%
9,797
31
3,392

15,34813.6%
11,4503,632

17,571
14.5%
13,36320
4,000

Recurring profit
YoY
RPM

200
2.8%

-66
-0.6%

292
3.2%

342
17.3%
3.1%

337
-1.5%
2.4%

837
148.4%
5.2%

749-10.5%
4.1%

Net Income
YoY
Net Margin
Per Share Data
Number of Shares (Thousands)
EPS
EPS (Fully Diluted)
Dividend Per ShareBook Value Per Share
Balance Sheet (JPYmn)
Cash
Monetary claims purchased
Investment securities
Tangible Fixed Assets, net
Intangible Assets
Other assets
Allowance for doubtful
Deferred tax assets
Total Assets

178
2.4%

-142
-1.3%

346
3.8%

421
21.7%
3.8%

465
10.5%
3.4%

640
37.6%
4.0%

438
-31.6%
2.4%

11
16
16,838.0 -13,319.2
16,838.0 -13,319.2
164,409.2 261,030.7

4,054
107.1
92.9
1,512.0

4,113
103.1
92.6
1,601.9

16,646
28.2
25.7
424.8

17,169
38.0
35.2
454.6

17,293
25.3
23.4
480.8

Reserve for cash surrender value
Reserve for bonuses
Other liabilities
Reserve for special laws
Total Liabilities

1,116
500
4,107
114
114
1,816
-18
7,748

601
5,723
98
100
2,162
8,685

1,652
7,563
107
212
1,986
74
11,594

3,682
7,065
96
374
1,975
187
13,382

5,098
7,444
93
387
1,981
-5
353
15,355

4,986
9,272
86
373
1,940
-7
219
16,872

5,971
9,705
77
476
1,947
-8
18,168

3,440
21
0
3,464

3,730
744
28
1
4,503

4,626
805
32
2
5,464

5,920
824
46
2
6,793

7,152
1,073
55
8,283

7,702
1,292
69
2
9,067

8,401
1,377
74
2
9,855

FY03/15
Est.

Shareholders' equity
4,279
4,138
6,106
6,569
7,067
7,795
8,305
Valuation and transaction adjustments
5
-2
24
18
3
9
9
Minority interests
46
Total shareholders' equity (net assets)
4,284
4,182
6,130
6,588
7,071
7,805
8,314
Total liabilities and shareholders' equity
7,748
8,685
11,594
13,382
15,355
16,872
18,168Cash Flow Statement (JPYmn)
Operating Cash Flow
162
737
1,608
1,792
1,879
1,507
1,444
Investment Cash Flow-368
-1,367-2,875-1,936-1,044-1,852-625
Financing Cash Flow
-5
1,590
38
28
85
44
Financial Ratios
ROA
-0.8%
2.9%
2.7%
2.3%
5.2%
4.3%
ROE
-3.4%
6.7%
6.6%
6.8%
8.6%
5.4%
Equity ratio
55.3%
47.6%
52.9%
49.2%
46.0%
46.3%
45.8%
Net loss ratio
24.4%
45.5%
48.1%
57.3%
63.7%
62.8%
Net expense ratio
48.0%
40.2%
36.3%
30.7%
28.4%
27.8%
Combined ratio
72.4%
85.7%
84.4%
88.0%
92.1%
90.6%
Solvency ratio
304.1%
307.2%
281.3%
Source: Company data, SR
Figures may differ from company materials due to differences in rounding methods
The company initiated a 1-for-10 stock split on May 1, 2013, but per share figures are calculated as if the split had occurred at the
beginning of FY02/14.

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Anicom Holdings, Inc. (8715)

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Recent updates
Highlights
SR initiates its coverage of Anicom Holdings, Inc. with this report.
On June 10, 2014, the company is scheduled to transfer its securities listing from TSE Mothers to the
TSE First Section.

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Trends & outlook
Quarterly trends & results
Quarterly Performance(JPYmn)Recurring revenue
YoY
Underwriting revenue
Investment revenue
Other recurring revenue

Q1
3,200
26.5%
3,141
21
36

FY03/12Q2Q33,319 3,542
25.8% 23.8%
3,256
3,484
23
24
42
33

Q4
3,784
23.0%
3,711
40
33

Q1
3,846
20.2%
3,774
39
32

FY03/13Q2
Q34,093 3,848
23.3%
8.6%
4,025
3,771
32
38
37
39

Q4
4,399
16.3%
4,211
151
35

Q1
4,394
14.2%
4,327
30
36

FY03/14Q2
Q34,455 4,614
8.8% 19.9%
4,389
4,558
20
19
46
37

Q4
4,903
11.5%
4,813
39
52

Recurring expenses
YoY
Underwriting expenses
Investment expenses
Operation and administration expenses
Other recurring expenses

3,281
35.3%
2,343
865
71

3,312
27.8%
2,379
1
859
74

3,442
20.5%
2,529
843
70

3,473
20.1%
2,546
30
825
72

3,614
10.1%
2,609
933
71

3,826
15.5%
2,869
886
72

3,831
11.3%
2,851
904
75

4,077
17.4%
3,121
909
46

4,280
18.4%
3,208
13
1,010
48

4,269
11.6%
3,248
5
968
47

4,502
17.5%
3,475
983
44

4,582
12.4%
3,517
1,021
44

Recurring profit
YoY
RPM
Net profit
YoY
NPM

-81
8
- -82.8%
-2.5%
0.2%
-89
2
- -96.9%
-2.8%
0.1%

98

312
67.8%
8.2%
393
83.9%
10.4%

231
267
- 3,237.5%
6.0%
6.5%
183
207
10,250.0%
4.8%
5.1%

18
-81.6%
0.5%
36-77.4%
0.9%

321
2.9%
7.3%
214
-45.5%
4.9%

113-51.1%
2.6%
68-62.8%
1.5%

187
112
-30.0% 522.2%
4.2%
2.4%
118
65
-43.0% 80.6%
2.6%
1.4%

321
6.5%
196
-8.4%
4.0%

2,202.6%

2.8%
159
1,035.1%

4.5%

Total contracts
New contracts
Pet shop & General agents
Hospitals accepting anicom

356,088 369,652 382,988 396,234 408,761 421,197 433,345 446,414 462,343 477,952 491,452 504,969
26,606 24,643 24,768 24,997 24,777 24,306 24,523 25,898 28,599 27,841 26,024 26,706
3,943
4,091
4,123
4,099
4,410
4,464
4,530
4,752
4,862
4,892
4,865
4,924
4,853
4,975
5,019
5,115
5,176
5,220
5,267
5,349
5,408
5,459
5,506
5,599

E/I loss ratio
Operating expenses / earned premiums
Combined ratio

62.3% 66.0% 67.3% 61.5% 65.5% 73.4% 68.1% 63.1% 69.0% 69.5% 66.3% 62.1%
36.5% 34.2% 32.1% 30.5% 31.6% 29.2% 29.1% 29.3% 30.5% 28.3% 27.7% 27.9%
98.8% 100.2% 99.4% 92.0% 97.1% 102.6% 97.2% 92.4% 99.5% 97.8% 94.0% 90.0%

Source: Company data, SR
Figures may differ from company materials due to differences in rounding methods

FY03/14 Results
In FY03/14, recurring revenue was JPY18.4bn (+13.5% YoY), recurring profit was JPY733mn (-12.4%
YoY), and net income was JPY447mn (-30.2% YoY)

Large profit increase on an adjusted profit basis (excluding impact of provisions tothe contingency reserve)
Although recurring profit decreased, this was due to the impact of provisions to the contingency reserve(FY03/13: reversal of reserve of JPY277mn; FY03/14: provision to reserve of JPY73mn). Based on theadjusted profit formula used by Anicom (recurring profit ± impact of contingency reserve ±investment income/expense ± other revenue/expense), adjusted recurring profit was JPY729mn, an
increase of JPY420mn, or 73.5% YoY.

Number of insurance policies in force, new insurance policies, registered agencies,
and animal hospitals that accept Anicom insurance all recorded steady increases
As of end-March 2014, the number of insurance policies in force was 504,969, an increase of 58,555
policies, or 13.1%, YoY. The number of new policies was 109,170 (+9.7% YoY), of which 74,002 policies,
or 68%, were acquired through pet shop agencies (mainly newborn pets). This ratio is up from the 62%
recorded in FY03/12 and FY03/13, and this increase is expected to help improve Anicom’s insurance

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Anicom Holdings, Inc. (8715)

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policy portfolio over the longer term.
The number of registered insurance agencies was 4,924 (including 1,450 pet shops), up 3.6% YoY (petshop agencies were up 4.3% YoY). Despite conducting a review process that weeded out low-profit
agencies, the number of agencies continued to increase steadily. This review process focused on the loss
ratio for each sales channel and agency.
The number of animal hospitals that accept Anicom’s insurance was 5,599 (+4.7% YoY). This equates to
80% of the 6,996 animal hospitals nationwide (excluding industrial animal hospitals) as of end-December
2013.

Although the loss ratio showed improvement YoY, it fell short of company forecast
With regard to recurring expenses, net claims paid and provisions to the claims reserve—which accountfor a combined 61% of recurring expenses—increased by more than the company’s forecasts. This
resulted in an E/I loss ratio of 66.7% and a net loss ratio of 62.8% in FY03/14. The equivalent ratios in
FY03/13 were 67.5% and 63.7%, respectively. Despite improvements of just under one percentage point
each, the ratios failed to reach the company’s forecasts of 66.2% and 62.3%, respectively. The company
said that factors contributing to this failure to achieve forecasts included delays in effects from themeasures outlined below aimed at improving the loss ratios.
The company has been implementing the following measures on an ongoing basis to improve the loss
ratios:1. Stricter screening when increasing the coverage portion when policies are renewed (implemented inAugust 2013)
2. Change in the insurance policy commencement date for online policies (extended from 14 days after
application to one month after application; implemented in October 2013), and discontinuance of
products with a 70% coverage portion (implemented in December 2013)
3. Stricter management of the loss ratio for each sales channel; strengthening of relationships withhospitals that accept Anicom insurance; and a stricter management system for insurance payments.
Policies in force with a coverage portion of 90% were phased out as of end-July 2013, and this led to a
YoY improvement in the loss ratio in FY03/14.

Expense ratio improved YoY and in relation to company forecasts
The denominator for the expense ratio is underwriting revenue. The numerator is calculated by combining
commissions and collection costs and operation and administration expenses for the insurance business.
In FY03/14, the company implemented ongoing measures to improve operational efficiency. As a result,
recurring revenue increased, and the net expense ratio improved to 27.3%. That compares with a ratio of
28.5% in FY03/13 and a company forecast of 28.1%. On an earned premium basis, the expense ratio
improved by just over one percentage point from 29.7% in FY03/13, to 28.6%.

For details on previous quarterly and annual results, please refer to the Historical
Performance section.

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Full-year (FY03/15) outlook
FY03/15 Forecast(JPYmn)Recurring revenue
YoY
Recurring Profit
YoY
RPM
Net Income
YoY

1H
8,849
11.5%
300
-39.8%
3.4%
186-52.3%
FY03/10

FY03/14
2H
9,517
15.4%
433
27.7%
4.5%
261
4.4%

290,767
86,904

340,628
91,666396,234
101,014446,41499,504504,969
109,170

FY03/15
Co. Est.
555,404
107,500

E/I loss ratio
Operating expenses / earned premiums
Combined ratio

48.6%
-

53.4%
-

64.3%
33.2%
97.5%

67.5%
29.7%
97.2%

66.7%
28.6%
95.3%

67.3%
28.8%
96.1%

Net loss ratio
Net expense ratio
Combined ratio
E/I loss ratio + net expense ratio
Renewal rate

45.5%
40.2%
85.7%
88.8%
84.1%

48.1%
36.3%
84.4%
89.7%
86.6%

57.3%
30.9%
88.2%
95.2%
87.6%

63.7%
28.5%
92.2%
96.0%
88.1%

62.8%
27.3%
90.1%
94.0%
89.3%

62.3%
27.1%
89.4%
94.4%
87.9%

Total contracts
New contracts

FY03/11

FY03/15 Company Est.
1H
2H
FY
10,29911,491
21,790
16.4%
20.7%
18.6%
243
557
800
-19.1%
28.6%
9.2%
2.4%
4.8%
3.7%
147
362
509
-21.0%
38.7%
13.8%

FY
18,36613.5%
733-12.5%
4.0%
447-30.1%
FY03/12

FY03/13

FY03/14

F igures may differ from company materials due to differences in rounding methods.
S ource: C ompany data, S R Research Inc.

In FY03/15, the company forecasts recurring revenue of JPY21.8bn (+18.6% YoY), recurring profit of
JPY800mn (+9.2% YoY), and net income of JPY509mn (+13.8% YoY).

Four management benchmarks
In FY03/15, the company is focusing on the following key measures:
1. Strengthening loss ratio control
2. Increasing capabilities for acquiring new insurance policies
3. Allocating resources to new businesses.
Related to these measures, the company is focusing on four benchmarks:a) Underwriting revenueb) Loss ratioc) Expensesd) Investment income.
Excluding investment income, below is a summary of these strategies for FY03/15.

Underwriting revenue: impact of insurance premium increase
The company forecasts a 10.0% increase in insurance policies in force
This represents a forecast of continued steady growth. The company sees a favorable operating
environment, underpinned by growing demand for pets as Japan’s population ages and birth rates decline.
Base demand is supported by the insurance market for newborn pets each year.
Impact of consumption tax hike to be offset by increase in insurance premiums
Although the percentage increase in recurring revenue is high in comparison with the increase in

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insurance policies in force, this is driven by the company raising premiums during the term. The company
implemented an increase in premiums in June 2014 partially as a means to offset expense increases dueto the increase in the consumption tax rate to 8% in April 2014 and the planned further increase to 10%
in April 2015.
As explained later in this report, Shared Research expects the rise in premiums to boost revenue by
JPY1.8bn in FY03/15 (JPY1.1bn on an earned premium basis).
Decline in policy renewal rate factored in
The company forecasts a 2.1 percentage point decline in the insurance policy renewal rate. This factors in
the impact of the rise in premiums, and the level of decline is based on an analysis of historical data by thecompany. Anicom’s pet insurance policies are valid for one year, and the company sends out renewal
information to policyholders approximately three months prior to policy expiration. The policy is rolled
over automatically unless the policyholder notifies their intention to terminate the policy. Renewal notices
for policies commencing from June 1, 2014, which are subject to the higher premiums, have been sent topolicyholders. However, as of May 2014 the company says the impact on renewal rates due to thepremium increase is only around 1.4 percentage points.

Strengthened loss ratio control
The impact of the consumption tax rate hike (detailed later in this report) is expected to lead to a
deterioration in the E/I loss ratio (loss ratio based on earned premiums) of 0.6 percentage point. The
company’s pet insurance incurs a rising insurance payout risk as the average age of insured pets increases.
As a result, the loss ratio is on a rising trend. The company is aiming for a loss ratio of 60%, which itdeems as appropriate To achieve this it has made underwriting screening stricter and is working toincrease the number of policies taken out for newborn pets, which represent a lower risk.
Stricter underwriting screening and prevention of excessive medical treatment
Of the company’s approximately 500,000 insurance policies in force, several percent of policies have aloss ratio of 300% based on payout applications. In the case of pet insurance, such high loss ratios areoften due to cases of chronic disease. The company plans to implement stricter renewal screening forsuch policies.
In relation to animal hospitals, by expanding sales of the company’s next-generation medical records
management system, “Anirese F,” Anicom aims to prevent excessive medical treatment. When aveterinarian opens the medical records management system, the system automatically displays theaverage treatment expense for each type of medical case, which helps to prevent over-treatment.
Launch of pet insurance with limited hospitalization days
On May 30, 2014, Anicom received approval from the Financial Services Agency (FSA) to begin sales of a
new type of pet insurance, which places limits on the number of hospitalization days. After sales of thistype begin, the company will, in general, impose limited hospitalization days for all new contracts(extensions will be unaffected). In Shared Research’s view, although insurance plans which place limits on
hospitalization will lead to lower premiums earned, placing an upper limit on time that can be spent in thehospital may yield a lower loss ratio. Taking into account the timing of when sales will begin, the newplans will likely start affecting results from FY03/16 onward.

Selling expenses: measures to accelerate the acquisition of new policies
At its FY03/14 earnings results briefing, the company made clear its intention to apply funds freed up by

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Anicom Holdings, Inc. (8715)

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lowering the loss ratio to sales promotion activities. Specifically, to accelerate new policy acquisition, thecompany plans to spend money on sales promotion-related expenses, including commissions paid toagencies.
In its regional strategy, the company opened a Tohoku branch in May 2014, and is focusing on developing
its agency network among pet shops in the Tohoku region. At present, the company has branches in
Hokkaido (Sapporo), Tohoku (Sendai), Chubu (Nagoya), Kinki (Osaka), and Kyushu (Fukuoka). It also has
an office in Shikoku (Kochi).

Impact of consumption tax increase and change in premiums
Underwriting revenue may rise by JPY1.1bn due to premium changeAnicom adopted a new pricing structure in June 2014. According to SR estimates, the changes inpremiums are expected to lead to an increase in recurring revenue of JPY1.8bn in FY03/15. However,taking into account the proportion of monthly and annual insurance premium payments,
JPY790mn—equivalent to the amount of prepaid premium—is expected to be treated as recurring
expense as a provision to the policy reserve. Hence, on an earned premium basis, the expected impact
on recurring revenue is estimated at JPY1.1bn.
In analyzing the impact, SR first estimated the number of contracts for each breed and age bymultiplying the composition ratios of animals and their ages as of FY03/12 by the number of policies asof FY03/14. SR adjusted these figures by multiplying them by the price differences and adjusting forthe split between policies with annual premium payments and monthly payments. The result showedthat the price change would increase revenue by JPY2.2bn a year. SR assumed the composition ratiosof 40%, 30%, 20%, 5%, and 5% for breeds A, B, C, D, and E based on the 17 most popular breeds for
FY03/12. SR also assumed that the ratio of the company’s two payout plans - 70% and 50% - was
33/67 and the annual premium versus monthly premium payment ratio was 65/35.
With regard to earned premium and prepaid premium, calculation of premiums for policies commencing
in each month from June 2014 onward were based on assumed fixed ratios between policies with monthly
and annual premium payments and estimates of the number of policies commencing in each month.

Calculation Method and Assumptions
Yearly effects (JPYmn)
Settled monthly
Settled yearly

2,208
821
1,387

(a)
(b)
(c)

Effect on FY03/15 (JPYmn)
Earned premiums
Unearned premiums

1,840
1,049
791

(a) x 10 months / 12 months(b x 9 months / 12 months) + (c x 45 months / 144 months)(b x 1 month / 12 months) + (c x 75 months / 144 months)

Assumptions
Contracts in FY03/14
New and old premiums
Breed and animal type% settled yearly% of plans that pay 50%

504,969
65%
67%

FY03/14 actual
SR estimates based on new and old pamphlets
SR estimates based on 2013 Animal Whitepaper
SR calculations based on FY03/14 policy reserve provisions
SR estimates based on interviews with the company

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Anicom Holdings, Inc. (8715)

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Revenue increase of JPY410mn expected in FY03/16 compared with FY03/15
In FY03/16, policies commencing in April and May 2015 will be affected by the premium changes. Shared
Research estimates that the impact on revenue from the changes in premiums will be a JPY410mn
increase compared with FY03/15 (including JPY370mn in earned premium). This is based on an assumed
number of policies in line with the company’s forecast for end-March 2015, and other assumptions held
the same as above.

Underwriting expenses likely to rise by just under JPY500mn due to consumption tax
increase and the pricing change
Consumption tax increase likely to raise expenses by JPY460-500mn in FY03/15
The consumption tax (which rose from 5% to 8% in April 2014) does not affect underwriting revenue.
However, claims paid and other expenses are subject to the consumption tax. Insurers end up
shouldering the tax because tax credits are limited. Among the various underwriting expenses, net claims
paid, provision for reserve for outstanding losses and claims, commissions to sales agents, andoutsourcing expenses are greatly affected by the consumption tax. The majority of rental expense andcertain personnel expense are also affected by the consumption tax hike. Hence, the effect onunderwriting expenses is estimated at JPY460-500mn.
Based on the company’s forecast number of policies in force in FY03/15, Shared Research estimates thatthe initial four expense items mentioned above will see a consumption tax-rise impact of at least
JPY401mn in FY03/15. Taking into account salaries (JPY2.1bn in FY03/14) and operation andadministration expense (JPY1.3bn), the company’s forecast appears to be reasonable.

Premium changes and upfront investments are expected to raise expenses by
JPY570mn
Premium changes to push up expenses by JPY110mn
Through the increase in net premium income, contingency reserve is expected to rise by JPY110mn(3.2% of the rise in net premium income).
Upfront investments in subsidiaries to push up expenses by just under JPY100mn
In the company’s FY03/15 forecasts, upfront expenses for two subsidiaries (Anicom Parfait and Japan
Animal Specialty Medical Institute [JASMINE]) are estimated at just under JPY100mn. Anicom Parfait
expenses are related to a cloud computing-based animal medical records management system, while
JASMINE only launched operations in April 2014, and is expected to incur initial launch expenses.
Rise in loss ratio to push up expenses by JPY370mn
The company forecasts a 0.6 percentage point rise in the E/I loss ratio in FY03/15. Taking into account therevenue rise driven by changes in premiums (including prepaid premiums) and excluding the impact of
the consumption tax hike, Shared Research estimates that the company has factored in an increase ininsurance payments of JPY370mn in its forecasts.
The rise in the loss ratio is expected to be driven by an increase in the average age of insured pets, and a
YoY decrease in new policies due to the impact of the premium rise. The number of pets under one yearof age (low-risk) as a proportion of all insured pets is expected to fall, leading to a faster increase in the
average insured pet age than would normally be the case. Hence, insurance payments are expected toincrease.

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As a result, the premium changes are expected to mean an increase in recurring revenue of JPY2.0bn in
FY03/15, and the profit-increase effect is expected to be largely offset (JPY1.1bn effect on profit and a
JPY1.1-1.2bn decrease effect on profit from the tax increase), according to Shared Research analysis. In
FY03/16, there is expected to be an additional revenue increase of JPY400mn compared with FY03/15.
Although the consumption tax rate may rise in FY03/16 from 8% to 10%, the impact of the large increasein prepaid premium due to the changes in premiums is expected to have tapered off. Provisions to thepolicy reserve are expected to decrease. As a result, Shared Research believes that there is a highprobability the consumption tax hike will be absorbed.

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Anicom Holdings, Inc. (8715)

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Business
Business description
99% of recurring revenue comes from Anicom Insurance Inc.
Three individuals, including Nobuaki Komori, established a mutual aid association for pets in July 2000
and named it anicom. They also set up a separate company in the same month to handle administrative
duties for the mutual aid association. This company obtained a nonlife insurance license in 2007 andbegan operations in July 2008.
Anicom Holdings has under its umbrella Anicom Insurance Inc. (pet insurance), Anicom Pafe Inc. (animal
hospital support), Anicom Frontier Inc. (insurance agent), and Nihon Dobutsu Senshin Iryo Kenkyujo (ananimal healthcare research center established in January 2014). Anicom Insuranc comprises 99% of thecompany’s recurring revenue.

Performance (JPYmn)
40,00035,00030,00025,00020,00015,00010,000
5,000
0

2,779

2,036

10,800
7,267
200

4,317

7,228

41 -666,442

9,216
141 29271
9,003

FY03/09

FY03/1039

FY03/08

Underwriting revenue

11,107154
342
94

13,845144
108
337

16,186
143 837
260

18,366
171
108 733

21,790
200
100
800

25,000200
10327,700200
105

10,85813,592

15,781

18,087

21,49024,69727,394

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15CE

FY03/16CE

FY03/17
CE

Investment revenue

Other recurring profit

2,800
2,400
2,000
1,600
1,200
800
400
0
-400

Recurring profit (Right axis)

Source: Company data, SR Research

Pioneer in pet insurance; market grew along with the company’s business
Anicom is a pioneer in pet insurance. The company has contributed to an expansion of Japan’s pet
insurance market through the creation of a mechanism to assist the operation of pet shops and animal
hospitals. The number of insurance policies has increased at an average annual rate of 15.9% over the
past five years. The company had 505,000 contracts as of the end of FY03/14, and estimates that it
controlled more than 60% of Japan’s pet insurance market that year.
 Pet insurance: changes in net claims paid (JPYmn)
Total contracts
YoY
New contracts
YoY
Net claims writtenanicom mutual aid assoc. revenue
Subtotal
YoY

FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14
128,832 191,785 246,634 297,917 241,206 290,767 340,628 396,234 446,414 504,969
48.9%
28.6%
20.8% -19.0%
20.5%
17.1%
16.3%
12.7%
13.1%
-

-

-

-

60,189-86,90444.4%

91,666 101,014
5.5%
10.2%

99,504 109,170
-1.5%
9.7%

2,546
2,546
-

4,407
4,407
73.1%

5,575
5,575
26.5%

6,980
6,980
25.2%

6,442
1,445
7,887
13.0%

8,981
8,981
13.9%

10,85810,85820.9%

15,781
15,781
16.1%

13,592
13,59225.2%

18,08718,087
14.6%

Source: Company data, SR Research

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Anicom Holdings, Inc. (8715)

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Anicom in pet-related markets
Japan’s pet insurance market: JPY28bn in FY2013; Ratio of coverage: 3.5%
Anicom estimates that the size of Japan’s pet insurance market is JPY28bn and that the company
controlled JPY18bn of the market in FY2013. While this already sounds sizable, the market still has great
growth potential. Of the 21mn dogs and cats kept by Japanese households, only 3.9% were insured in
FY2013, according to the company. In contrast, 22% of the 15.2mn dogs and cats in the UK were insured
in FY2009, according to Datamonitor. Japan’s market for pet insurance could expand to JPY160bn if theinsurance ratio rises to the UK level.
2.4%
anicom contracts(approx. 500,000 pets)
3.9%
Pet insurance market(approx. 800,000 pets)

32.0%
Want / considering insurance
80.1%
Believe pet insurance is a necessity

100%: 20.6mn pets (total domestic dogs and cats; source: Japan Pet Food Association 2013 survey)
Source: Company estimates based on data from the Japan Pet Food Association and Fuji-Keizai, SR Research

Newborn market (800,000 pets) and family market (20mn pets)
The pet insurance market is classified into the “newborn market” and the “family market,” which,according to Anicom estimates, have 800,000 pets and 20mn pets, respectively. The newborn market isfor newly born pets, while the family market is for animals that are already part of the owner’s family. The
newborn market consists of pet shops and breeders. Anicom’s strength lies in the family market and thepet shop portion of the newborn market.
Of the 109,000 new policies sold by the company in FY03/14, 74,000, or 68%, came through pet shops.
The remaining 32%, or 35,000 policies, mostly came from the family market.

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Overview of newborn-pet market
Approx. 2/3

Approx. 1/3

Breeder market & small pet shops that rely on online sales(All types of dogs)

Pet shops & sales agents(approx. 500 types of dogs)

Approx. 800,000 pets per year
1/3 sold
through agents

Few

Approx. 70,000-80,000 pets

Approx40%
insuredSome solddirectly

Small-breeder market

Potential clients

2/3 are not agents

Other
60%

Clients

2/3 are not agents

Potential clients

Source: SR Research based on interview with the company

Composition of newly written policies

7,776

9,408

9,503

9,010

26,024 26,706

72%
70%
68%

18,93017,543

18,43319,09666%
16,888

9,627

9,568
14,955

14,85014,679

9,927

9,867
15,1309,617
15,151

9,496

9,491

25,8988,481

28,599 27,841
24,643 24,768 24,997 24,777 24,306 24,523

17,115

8,924
14,965

9,290
14,634

14,3485,000

15,74515,00010,00021,252
6,904

20,00022,728

6,983

25,00026,60623,924 23,889

15,14730,000

64%
62%
60%

0

58%
1Q
FY03/113Q

1Q
FY03/12

New contracts for newborns

3Q

1Q
FY03/13

New general contracts

3Q

1Q
FY03/14

3Q

Ratio of new contracts for newborns

Source: Company data, SR Research

Approximately 80% of animal hospitals accept Anicom’s animal health insurancecard; the system is becoming an industry standard
There were 9,191 animal hospitals in Japan as of the end of December 2013, according to the Ministry ofAgriculture, Forestry and Fisheries. Of those, 6,996 hospitals cater to pets. Anicom’s pet insurance pays
for treatment provided by any animal hospital in Japan. Furthermore, 5,591 institutions, or about 80% of
all animal hospitals, accept insurance cards issued by the company (as of the end of March 2014).
This is how the system works: Anicom issues animal health insurance cards to policyholders, who show
their card at hospitals when they bring in their pets for treatment. The pet owners who have insurance
cards are only liable for copayments at hospital counters. This system is a key point of differentiation forAnicom’s services in relation to its competitors.
The number of hospitals that accept the company’s animal health insurance cards has increased by about
200–300 annually over the past five years. In Japan, there is an annual churn rate of around 200 to 300
animal hospitals, as older institutions close to be replaced by a similar number of new institutions. Anicom
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Anicom Holdings, Inc. (8715)

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the company’s settlement system since it improves the convenience for pet owners. The remaining 1,500
hospitals are also expected to soon start accepting the company’s insurance cards.

Anicom’s sales agents and hospitals that accept its animal health insurance cards
6,000
5,000

4,321

4,535

4,621

4,682

4,720

4,759

4,853

4,853

4,975

5,019

5,115

5,176

5,220

5,267

5,349

5,408

5,459

5,506

5,599

3,452

3,472

1,410

1,420

1,447

1,450

3,474

3,362
1,390

3,418

3,235

1,224

1,295

2,892
1,231

3,206

2,836
1,255

1,258

2,719
1,224

3,161

2,719
1,224

4Q

1,249

2,667
1,200

1Q
2Q
3Q
4Q
1Q
2Q
3Q
FY03/11
FY03/12Pet shop agents
General agents

2,875

2,535

1,934
4Q

1,178

2Q
3Q
FY03/10

2,465

0

1,097

1,000

1,081 1,657

2,000

963 968

3,000

1,161

4,000

1Q
2Q
3Q
4Q
1Q
2Q
FY03/13
FY03/14
Hospitals accepting anicom

3Q

4Q

Source: Company estimates based on data from the Japan Pet Food Association and Fuji-Keizai, SR ResearchAnicom’s health insurance cards, and the sign displayed by hospitals that accept thecard

Source: Company data, SR Research

About 70% of new policies come sourced through pet shops; company curbing online
sales, which tend to have a higher risk
Likely to curb online sales for the next two-three years due to relatively high accident rate
Of the company’s sales channels for new policies, pet shops comprise a little less than 70%, sales agents
about 20%, and direct sales 10% (as of FY03/14). Direct sales do not require the company to pay agent
commissions. However, the accident rate also tends to be higher. The company has been gradually
reducing its online insurance sales since the summer of 2013. (The company only offers 50% payoutplans and requires a one-month waiting period after application.) Anicom may continue to curb online
sales for the next two to three years.

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Anicom Holdings, Inc. (8715)

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About one-third of pet shops in Japan are Anicom sales agents (according to company estimates)
Anicom estimates that there are about 4,500 pet shops in Japan. According to the government’s 2012
Economic Census for Business Activity, there are 3,190 shops that sell pets and related goods. Anicom
had agency contracts with 1,450 pet shops, or about a third of all pet shops in the country, at the end of
March 2014. The company’s other sales agents, such as financial institutions (banks, shinkin banks,
nonlife insurance companies, and brokerages) and corporations and others (agencies affiliated with major
corporations, mutual aid associations, car dealers), numbered 3,850 as of the end of March 2014.
Pet insurance market and sales channels
New Markets
1. Newborn market

2. Family market

Net pets (dogs and cats)
Approx. 800,000 pets

Pet dogs and cats
Approx. 20mn pets

Pet shop

Breeder direct

Financial institutions

Corporations

Pet-related

DirectOnline direct

Banks / Shinkin banks

C orporate agencies

Pet hospitals

OnlineNonlife insurance

Mutual aid associations

Pet shops

Call center

Brokerages

Car dealers

agentsInsurance agents

Source: Company estimates based on data from the Japan Pet Food Association and Fuji-Keizai, SR Research

Rising average age of pets and policy renewal
An increase in the average age of pets raises both the average premium written and claims paid
Of insurance policies sold by Anicom, 87.9% were for dogs, 10.9% for cats, and 1.2 for others in FY03/13.
The average age of dogs covered by Anicom has been rising in recent years, reaching 3.6 in FY03/12,
according to SR estimates. Under the company’s pricing structure, the insurance premium rises inaccordance with the pet’s age. Hence, a rise in average pet age would lead to higher premium revenue.

Average age of animals insured by Anicom
Average age of animals

Dogs
Cats
Birds
Rabbits
Ferrets
Av. Annual insurance premium (JPY)FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14

1.6
2.5
2.0
1.7
1.7
-

1.8
2.6
2.1
2.2
2.2
27,492

2.0
2.7
2.3
2.4
2.7
25,433

2.3
3.0
2.4
2.5
2.9
25,636

2.9
3.6
2.5
2.7
3.0
29,258

3.1
3.7
2.4
2.8
3.0
33,764

3.4
3.7
2.5
3.0
2.9
34,394

3.6
3.7
2.6
2.9
2.9
36,89237,45638,008Source: Company data (age, contract expirations after one year, and cancellation due to death), SR Research Estimates

As a pet ages, medical expenses rise. The company maintain the soundness of its portfolio by increasing
the number of policies for animals that are less than one year old.

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Anicom Holdings, Inc. (8715)

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Annual premium for a toy poodle (a 5% discount applies to a policy renewal for a dog aged over oneyear) and the average annual medical expenses per dog (JPY)80,000200,000

70,00060,000150,000

50,00040,000100,000

37,56041,78048,15054,92060,71065,06068,05070,02071,26072,04072,51072,81072,99073,10073,17073,21073,24073,250035,97010,00035,71020,00040,32030,000

0 yr

1 yr

2 yrs

3 yrs

4 yrs

5 yrs

6 yrs

7 yrs

8 yrs

9 yrs

10 yrs

11 yrs

12 yrs

13 yrs

14 yrs

15 yrs

16 yrs

17 yrs18 yrs

19 yrs

20 yrsAnnual insurance for toy poodles

50,0000Annual medical costs per dog by age (Right axis)

Source: Company data, SR ResearchPremium payments
700,000

632,848

600,000

5,009 500,224

500,000

416,462 426,404 413,296 430,058

400,000
300,000
200,000
100,0000

528,091

305,521 314,347

4,779

216,159

259,750

4,419

4,343

4,900

334,371

4,545

4,525

480,649

603,5025,400
560,209504,579

5,000

4,975
4,792 4,764

5,200

4,800

4,810

4,732
4,526 4,537

4,382

4,600
4,400
4,200

4,190

4,000

Premium payment cases

Claims paid / payment cases (JPY, right axis)

Source: Company data, SR Research

Number of insured dogs by age

0 yrs
1 yr
2 yrs
3 yrs
4 yrs
5 yrs
6 yrs
7 yrs
8 yrs
9 yrs
10 yrs
11 yrs
12 yrs

FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12
29,88743,55367,45774,25542,92861,44859,116
61,336
19,88934,00743,90047,06537,752
29,21546,71247,603
9,879
22,26036,35640,493
33,112
34,61628,70043,987
5,642
11,522
24,20535,082
29,784
31,176
34,06429,0083,149
7,040
13,10024,154
26,051
28,271
31,14233,960
2,694
4,668
8,688
13,98917,92924,55528,07831,138
1,896
3,456
5,558
9,019
10,754
17,067
24,35728,018
1,537
2,640
4,309
6,050
7,166
10,386
17,24824,317
1,226
2,322
3,454
4,753
5,097
6,930
10,594
17,410
543
1,305
2,438
3,207
3,826
4,998
7,051
10,809
181
590
1,385
2,236
2,751
3,752
5,228
7,409
38
203
635
1,233
1,688
2,348
3,363
4,717
0
48
226
532
1,001
1,382
2,000
2,945

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Age composition of insured dogs
100%
7%

80%

4%
4%

3%
5%
9%

13%

11%
17%

25%

40%

20%

14%

15%

26%

39%

21%

33%

32%

4%
7%

7%
8%

9%

11%
12%

9%

10%

10%

11%

15%

14%

10%

17%

11%

16%

20%

24%

20%

18%

28%

6%
8%

10%

12%

13%

17%

60%

3%
5%
8%

3%
5%
9%

4%
6%

8%

13%
14%
18%

0%
FY03/05
0 yrs

1 yr

FY03/06
2 yrs

FY03/07
3 yrs

4 yrs

FY03/08
5 yrs

FY03/09
6 yrs

7 yrs

FY03/108 yrs

FY03/119 yrs

FY03/1210 yrs and up

Source: Company data, SR Research

Rising policy renewal rate
A rising rate of policy renewal also helps stabilize the company’s portfolio. The renewal rate for pets lessthan one year of age is about 70%. The rate exceeds 90% from the second year. The overall renewal rate
has been increasing, reaching 89.3% in FY03/14. Due to the impact of the rise in insurance premiums,
the company forecasts a decrease in the renewal rate in FY03/15.
Although a portion of policies are canceled due to death, considering that the average age of pets is about
13 years and that Anicom’s composition ratio of pets aged 12 years or older is about 1% (FY03/12), thenumber of cancellations due to death is likely to be small. Potentially, the company could raise its overall
renewal rate by several percentage points by raising the renewal rate of initial-year policies.

Renewal rate

FY03/1084.1%

FY03/1186.6%

FY03/1287.6%

FY03/1388.1%

FY03/14 FY03/15 CE
89.3%
87.9%

Source: Company data, SR Research

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Different attitudes toward pet insurance: ‘animals’ or family members
There are different attitudes toward pet insurance between those who consider pets as mere “animals”
and those who consider them as family members. Those who consider dogs as animals often do not takethem to vets when they get sick. Thus, there are no incentives for them to acquire pet insurance. On theother hand, those who acquire pets as family members tend to buy insurance and take the pets to
hospitals.
A survey taken by Anicom shows that its respondents spent on average JPY331,000 on dogs and
JPY173,000 on cats in 2013. People who acquire pet insurance also seem to be generous in the purchaseof other pet-related goods and services.

Survey on annual spending on pets
(JPY)
Treatment for sickness or injuries
Foods, Snacks
Training
Shampoo, Grooming
Pet insurance
Vaccination, Health check
Pet hotels, pet sitters
Daily necessities
Clothing
Playground, etc.
Disaster prevention
Collars, Leashes
Total (JPY)
Number of responses to questionnaires
Average age of animals

Dogs
2012
74,506
46,14040,48838,82935,00527,311
23,13417,01014,650
7,216
6,436
6,309
337,034
1,792
4.7

2013
75,40047,96534,12839,22634,56426,986
20,23718,064
13,925
7,058
6,193
7,280
331,026
2,027
4.8

Composition
23%
14%
10%
12%
10%
8%
6%
5%
4%
2%
2%
2%
100%
-

YoY
1%
4%
-16%
1%
-1%
-1%
-13%
6%
-5%
-2%
-4%
15%
-2%
13%
2%

Cats
2012
45,712
46,944
6,426
27,53813,391
15,976
17,116
3,436
4,526
3,078
184,143
337
4.6

2013
35,59936,182
6,492
28,054
13,117
20,704
19,173
5,182
5,634
3,035
173,172436
4.4

Composition
21%
21%
4%
16%
8%
12%
11%
3%
3%
2%
100%
-

YoY
-22%
-23%
1%
2%
-2%
30%
12%
51%
24%
-1%
-6%
29%
-4%

Source: Company data released on January 29, 2014, SR ResearchCompetition
Anicom had 10 competitors in the field of pet insurance as of May 2014. This comprised three nonlife
insurance companies and seven small-amount and short-term insurers. Four of these rivals disclose theirearnings results to the public. In addition, from April 2014, au insurance Co., Ltd., began selling pet
insurance products as its second mainstay product category after accident insurance.
According to research company Fuji-Keizai, there were 733,570 pet insurance policies written as of theend of 2012. Four of the five companies that disclose their earnings had 644,923 policies at the end of
March 2013 and 565,917 at the end of March 2012, meaning that these companies have a high combined
share of Japan’s pet insurance market. (One of the five companies, Japan Animal-Club is excluded fromthis study.) The following is a summary of the current status of competition:

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Status of competition (policies, JPYmn)
Number of policies

Anicom Insurance
ipet Insurance
Japan Animal-Club
Pet & Family Small-amount Short-term Insurance
Motto Gyutto Small-amount Short-term Insurance
Total of five companies

FY03/0947,4637,000
17,36071,823

FY03/10
290,767
60,314
11,041
21,889384,011

FY03/11
340,628
79,993
19,934
24,147464,702

FY03/12396,234
107,434
31,32830,921565,917

FY03/13446,414137,188
44,40736,914
664,923

Insurance premium /number of policies

Anicom Insurance
ipet Insurance
Japan Animal-Club
Pet & Family Small-amount Short-term Insurance
Motto Gyutto Small-amount Short-term Insurance

FY03/0921,82822,41926,949FY03/1033,764
31,586
26,45027,162

FY03/11
34,39430,90127,015
26,916

FY03/1236,89230,53927,25528,904

FY03/1337,456
31,234
27,83830,060Composition ofunderwriting revenue

Anicom Insurance
ipet Insurance
Japan Animal-Club
Pet & Family Small-amount Short-term Insurance
Motto Gyutto Small-amount Short-term Insurance

FY03/09
74.6%
12.0%
5.8%
1.8%
5.7%

FY03/10
71.9%
16.0%
4.9%
2.4%
4.9%

FY03/11
70.7%
16.2%
5.3%
3.6%
4.3%

FY03/12
69.4%
16.8%
4.7%
4.4%
4.6%

FY03/13
67.0%
18.2%
4.7%
5.3%
4.8%

Recurring revenue

Anicom Insurance
ipet Insurance
Japan Animal-Club
Pet & Family Small-amount Short-term Insurance
Motto Gyutto Small-amount Short-term Insurance
Total of five companies

FY03/0910,800
1,303
506
160
496
13,264

FY03/10
9,216
2,018
612
296
616
12,757

FY03/11
11,107
2,493
814
547
661
15,622

FY03/12
13,845
3,283
934
871
905
19,838

FY03/13
16,186
4,287
1,121
1,260
1,124
23,979Recurring profit

Anicom Insurance
ipet Insurance
Japan Animal-Club
Pet & Family Small-amount Short-term Insurance
Motto Gyutto Small-amount Short-term Insurance
Total of five companies

FY03/09
-66
-623
-157
-92
-

FY03/10
292
327
-74
-140
-

FY03/11
342
307
20
-194
116
590

FY03/12
337
618
2
-554
79
482

FY03/13
837
392
-13
-571
134
778

Recurring profit margin Anicom Insurance
ipet Insurance
Japan Animal-Club
Pet & Family Small-amount Short-term Insurance
Motto Gyutto Small-amount Short-term Insurance
Total of five companies

FY03/09-0.6%-47.8%-31.0%-57.9%-

FY03/103.2%
16.2%-12.1%-47.3%-

FY03/11
3.1%
12.3%
2.4%
-35.5%
17.5%
3.8%

FY03/12
2.4%
18.8%
0.2%
-63.6%
8.7%
2.4%

FY03/13
5.2%
9.1%
-1.2%
-45.3%
11.9%
3.2%

FY03/09
24.4%
19.7%
46.6%
14.6%
-

FY03/10
45.5%
35.7%
42.9%
31.4%
15.4%
34.2%

FY03/11
48.1%
33.1%
40.1%
39.9%
15.7%
35.4%

FY03/12
57.3%
33.8%
40.2%
43.4%
17.2%
38.4%

FY03/13
63.7%
34.3%
38.2%
42.6%
23.2%
40.4%

Net loss ratio

Anicom Insurance
ipet Insurance
Japan Animal-Club
Pet & Family Small-amount Short-term Insurance
Motto Gyutto Small-amount Short-term Insurance
Total of five companies

Source: Company data, SR Research

Number of policies, underwriting revenue
Anicom is by far the largest provider of pet insurance in Japan, accounting for 70% of all the policies andunderwriting revenue of the five companies combined. According to the company, its Anicom Insurance
unit has the largest market share at over 60%, followed by ipet Insurance (owned by Dream Incubators
Inc.) at a little less than 20%. Pet & Family Small-amount Short-term insurance (T&D Holdings Inc.), UCC
Motto Gyutto (Holdings Co.), and Japan Animal-Club (Taihei Engineering Co. Ltd.) each holds about 5% of
the market.
Other competitors include: AXA DIRECT (underwriting company: AXA GENERAL INSURANCE COMPANY
LIMITED); FPC/Pet Medical Support (FY03/15: recurring revenue of JPY428mn, recurring loss of
JPY8mn); Pets Best Japan Co., Ltd. (a joint venture with Pets best of the US); and au insurance Co., Ltd.
(shareholders: Aioi Nissay Dowa Insurance, KDDI).

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Average premium (insurance premiums / number of policies)
This formula is not very useful since premiums differ greatly depending on the age of animals, and theage composition has a great influence on the average premium. For example, companies that haverecently started to offer insurance tend to have contracts for younger animals with the result that the
average insurance premium may appear lower.
Recurring profit
Anicom, ipet, and Moto Gyutto are profitable on a recurring profit basis. However, ipet has been deferring
operating expenses in accordance with Article 113 of the Insurance Business Act, and would have aposted a recurring loss if it were not for this provision.
Effects of Article 113 of the Insurance Business Act (deduction from recurring expenses, million yen)
Insurance Business Act Anicom Insurance
Article 113
ipet Insurance
Deferred amounts
Japan Animal-Club
Pet & Family Small-amount Short-term Insurance
Motto Gyutto Small-amount Short-term Insurance

FY03/09
-889
-524
-357
-

FY03/10
-417
-333
-

FY03/11
-615
-325
-

FY03/12-946-

FY03/13-517-

Source: Company data, SR Research

Net loss ratio
Anicom appears to have the highest net loss ratio. However, Anicom’s coverage is broader than its
competitors and this makes its net loss ratio higher. This reflects Anicom’s strategy of promoting productsthat will lead to higher policy renewal ratios. In addition, pets insured by Anicom have a higher average
age since the company has been in business longer than its rivals. This situation is similar to the average
insurance premium formula mentioned above.

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 Underwriting revenue and expense ratio
Underwriting expenses / underwriting income
Anicom Insurance
Underwriting expenses
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees
Provision for reserve for outstanding losses and claims
Provision for underwriting reserves
Cash surrender value
Operating, general and administrative expenses
Other recurring expenses
ipet Insurance

FY03/09
87.2%
21.3%
3.2%
4.9%
8.1%
49.8%
1.0%
56.5%
37.8%

FY03/10
61.5%
41.8%
3.5%
6.0%
10.2%
34.1%
3.5%

FY03/11
65.8%
44.5%
3.6%
5.8%
1.4%
10.5%
0.1%
30.5%
2.7%

FY03/12
72.1%
53.7%
3.5%
5.7%
2.6%
6.5%
0.2%
25.0%
2.1%

FY03/13
72.6%
60.0%
3.7%
5.4%
0.9%
2.6%
23.0%
1.7%

19.6%
19.6%

36.3%
33.9%

51.1%
32.9%

18.2%
0.5%
53.1%
8.0%
-24.8%

58.4%
31.8%
2.6%
12.1%
1.0%
11.0%

0.2%
159.7%
6.6%-50.5%

2.4%
0.5%
62.9%
5.5%
-20.8%

61.5%
32.1%
1.7%
12.8%
1.1%
13.9%
37.6%
12.1%
-28.8%

34.7%
9.9%-12.1%

Underwriting expenses
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees
Provision for reserve for outstanding losses and claims
Provision for underwriting reserves
Cash surrender value
Operating, general and administrative expenses
Other recurring expenses
Deferred amounts from Insurance Business Act Article 113

68.2%
50.1%

61.6%
46.6%

46.4%
41.2%

46.4%
38.5%

48.1%
38.8%

10.3%
1.1%
6.7%

15.0%

63.8%
0.4%
-

70.7%
0.3%
-

5.1%
3.7%
62.6%
0.2%
-

7.9%
3.5%
48.3%
0.1%
-

0.9%
8.4%
3.5%
48.8%
0.1%
-

Underwriting expenses
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees
Provision for reserve for outstanding losses and claims
Provision for underwriting reserves
Cash surrender value
Operating, general and administrative expenses
Other recurring expenses
Deferred amounts from Insurance Business Act Article 113

324.4%
4.3%
219.6%
24.4%
2.4%
73.6%

47.3%

48.3%
31.2%

59.2%
39.3%

65.8%
42.6%

5.0%
26.2%
16.0%
282.1%
58.9%-227.6%

6.8%
9.4%
0.8%
165.2%
47.5%-113.1%

3.0%
15.5%
1.4%
100.5%
35.6%-59.5%

8.8%
12.6%
1.8%
75.8%
22.3%
-

26.1%
13.8%
1.5%
5.7%
5.1%
73.3%
-

26.3%
14.9%
1.2%
7.3%
3.0%
63.3%
-

23.7%
15.5%
0.8%
6.0%
1.4%
59.0%
-

34.7%
17.0%
4.1%
12.5%
1.1%
56.4%
-

Underwriting expenses
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees
Provision for reserve for outstanding losses and claims
Provision for underwriting reserves
Cash surrender value
Operating, general and administrative expenses
Other recurring expenses
Deferred amounts from Insurance Business Act Article 113

Japan Animal-Club

Pet & Family Small-amount
Short-term Insurance

Motto Gyutto Small-amount
Short-term Insurance

2,040.3%
298.1%-2,245.8%

Underwriting expenses
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees
Provision for reserve for outstanding losses and claims
Provision for underwriting reserves
Cash surrender value
Operating, general and administrative expenses
Other recurring expenses
Deferred amounts from Insurance Business Act Article 113

Source: Company data, SR Research

Profitability analysis
FY03/08

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14(JPYmn)Recurring revenue
YoY
Underwriting revenue
Investment revenue
Other recurring revenue

7,267
39
7,228

10,800
48.6%
6,442
41
4,317

9,216
-14.7%
9,003
71
141

11,10720.5%
10,85894
154

13,845
24.7%
13,592
108
144

16,186
16.9%
15,781260
143

18,36613.5%
18,087108
171

FY03/15
Est.
21,790
18.6%-

Recurring expenses
YoY
Underwriting expenses
Investment expenses
Opearation and administrative expenses

7,067
0
2,950

10,866
53.8%
5,616
66
3,640

8,924
-17.9%
5,541
3,072

10,764
20.6%
7,146
8
3,312

13,508
25.5%
9,797
31
3,392

15,34813.6%
11,4503,632

17,63314.9%
13,44818
3,982-

Recurring Profit
YoY
RPM

200
2.8%

-66
-0.6%

292
3.2%

342
17.3%
3.1%

337
-1.5%
2.4%

837
148.4%
5.2%

733-12.4%
4.0%

800
9.1%
3.7%

Source: Company data, SR Research

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Anicom Holdings, Inc. (8715)

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Recurring Revenue
In the nonlife insurance industry, recurring revenue refers to sales. Recurring revenue consists ofunderwriting revenue, investment revenue, and other recurring revenue. Investment is an important partof nonlife insurance operations. Therefore, investment revenue is included in recurring revenue.
Underwriting revenue
Anicom’s underwriting revenue consists of net premiums written, reversal of reserve for outstanding
losses and claims, and reversal of underwriting reserves. However, net premiums written account foralmost all the company’s operations since it does not offer savings-type insurance. The company’s pet
insurance policies are valid for one year and are subject to renewal each year.
The company stated that it would revise its pet insurance pricing structure in June 2014. This is the firstprice revision since the company obtained its nonlife insurance license in January 2008. As for the impactof the price revision on the company’s earnings, please see the estimates discussed later in this report.

Recurring revenue composition (JPYmn)

Recurring profit
YoY
Underwriting revenue
Net premiums written
Reversal on outstanding claims
Investment revenue
Interest and dividend income
Gain on sales of investment securities
Othe recurring revenue
anicom mutual aid assoc. revenue
Reversal of unearned anicom revenue
Reversal of unpaid anicom benefits
Other

FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14
7,267 10,800
9,216 11,107 13,845 16,186 18,366
48.6% -14.7%
20.5%
24.7%
16.9%
13.5%
2,546
-

4,407
-

5,575
-

39
39
0
7,228
6,980
248

6,442
6,442
41
40
1
4,317
1,445
2,433
326
112

9,003
8,981
71
71
0
141
-

10,85810,858
94
78
15
154
-

13,592
13,592
108
92
16
144
-

15,781
15,781
260
113
147
143
-

18,08718,087
108
18
89
171
61
-

Source: Company data, SR Research

Investment policy
Liquidity is the highest priority for Anicom in managing its insurance assets since the company’s policies
are valid for one year. Notwithstanding, the company is beginning to place more emphasis on investment
yield now that an increasing number of contracts are being renewed and that the company had annual
premium revenue of JPY18.1bn in FY03/14. However, high-risk investments would affect the company’s
solvency margin. Thus, the company is seeking low-risk investments.
The company shortened the duration of its bond investments from medium term to short term in FY03/13.
During this process, the company unwound its positions and posted gains, increasing its investment yieldfor that year. Consequently, the yield declined in FY03/14.

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 Outstanding balance and the remaining duration of investment securities (million JPY)
End FY03/12
JGBs
Regional bonds
Corp. bonds
Securities
Foreign securities
Other securities
Total
End FY03/13
JGBs
Regional bonds
Corp. bonds
Securities
Foreign securities
Other securities
Total

1 yr
or less
500
702
1,202
1 yr
or less
300
300

Investment securities yields
FY03/07
Public bonds
0.92%
Securities
Foreign securities
Other securities
Total
0.92%
Balance (JPYmn)
2,283

1-3 yrs

3-5 yrs

5-7 yrs

7-10 yrs>10 yrs

Total

500
299
800

200
200

300
300

799
296
1,096

24
3,470
3,494

2,000
1,599
24
3,470
7,095

1-3 yrs

3-5 yrs

5-7 yrs

7-10 yrs>10 yrs

Total

202
202

-

-

-

38
7,957
7,995

202
300
38
7,957
8,498

FY03/08
0.98%
0.34%
0.96%
2,804

FY03/09
1.01%
0.26%
0.90%
5,212

FY03/10
1.23%
1.47%
0.08%
1.18%
6,644

FY03/11
1.23%
1.80%
0.07%
1.04%
6,086

FY03/12
1.22%
0.08%
1.20%
1.21%
7,095

FY03/13
1.24%
0.43%
1.48%
1.35%
8,498

Source: Company data, SR Research

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Overview of expenses
 Underwriting expenses
Underwriting expenses
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees
Provision for reserve for outstanding losses and claims
Provision for underwriting reserves
Prepaid premium
Reserve for casualty
Percentage of net premiums written
Underwriting expenses
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees
Provision for reserve for outstanding losses and claims
Provision for underwriting reserves

FY03/09
5,616
1,369
203
315
523
3,206
0
0

FY03/10
5,541
3,767
317
538
0
919
631
287

FY03/11
7,146
4,829
392
629
152
1,141
793
348

FY03/12
9,797
7,304
480
780
348
883
942
-58

FY03/13
11,450
9,465
581
853
140
409
686
-277

FY03/14
13,448
10,693
660
1,029
149
916
842
73

87.2%
21.3%
3.2%
4.9%
8.1%
49.8%

61.7%
41.9%
3.5%
6.0%
0.0%
10.2%

65.8%
44.5%
3.6%
5.8%
1.4%
10.5%

72.1%
53.7%
3.5%
5.7%
2.6%
6.5%

72.6%
60.0%
3.7%
5.4%
0.9%
2.6%

74.4%
59.1%
3.6%
5.7%
0.8%
5.1%

Source: Company data, SR Research Expense items
FY03/20
13,448
10,693vs underwriting
revenue
74.4%
59.1%

660
1,029

3.6%
5.7%

provision for reserve for outstanding losses
and claims

149

0.8%

Provision for underwriting reserves
Prepaid premium

916
842

5.1%
4.7%

Reserve for casualty

73

0.4%

(JPYmn)Underwriting expenses
Net claims paid

Loss adjustment
Net commissions and brokerage fees

Notes
Closely linked with the number of contracts. Should beconsidered together with the provision for reserve foroutstanding losses and claims
Mostly labor costs
Commissions paid to sales agents. Closely linked with thevalue of newly signed contracts. (Commissions for newly
signed contracts are more generous than those forrenewals.)This serves as an estimate for claims at most insurancecompanies. However, pet insurance companies do notestimate the amount of claims. Thus, for pet insurers, thishas a more preemptive meaning and should be considered
together with claims paid.
A combination of the following two items
Calculated each month by the 1/12 method, and comparedwith a year-ago figure
The difference between the amount of liquidation at theend of the previous fiscal year (reversal) and 3.2% of the
net premiums written. The reserve can be liquidated when
the loss ratio exceeds 50%. The amount of liquidation
cannot exceed the outstanding amount as of the beginningof the fiscal year.

Source: Company data, SR Research

Many expense items are linked with the number of policies and the value of new policies written. However,there are items that could be adjusted through changes in product offerings, such as net claims paid(including a provision for reserve for outstanding losses and claims).

Loss Ratio
Data that can be used in tracking the company’s expenses include net loss ratio, E/I loss ratio, and net
expense ratio, as well as combined ratio, which is a combination of the three ratios. Loss ratio
corresponds to CoGS at non-financial companies. Loss ratio consists of net loss ratio and E/I loss ratio.
Net loss ratio is close to a cash basis, while E/I loss ratio is close to an accrual basis. The net loss ratio canbe obtained from the revenue statement.

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The company’s loss ratio had increased after it changed its product offering in October 2010 (when thecompany introduced a plan that covers 90% of expenses). However, the ratio has been declining since thelatter half of FY03/13 after the company withdrew sales of the product.
E/I loss ratio target of 60%
The company targets an E/I loss ratio of 60%. The target is based on the following formula: about half of
the insured pets get treated for sickness or injury on an annual basis. Five trips to the animal hospital,
with each costing between JPY6,000 and 7,000, would cost a total of JPY35,000. The company offers twoplans: 50% payout and 70% payout, with an average payout of 60%. That means the company would
pay a little over JPY20,000, to which loss adjustment expenses are added. Since the average premium
revenue is JPY38,023,* the loss ratio would be 60%.
*Net loss ratio (FY03/14) ÷ number of policies (average of the end of March 2013 and the end of March2014)

Changes in net loss ratio
FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14

Net loss ratio
E/I loss ratio
Net expense ratio
Combined ratio
E/I loss ratio + net expense ratio
Solvency margin ratio
Source: Company data, SR Research

24.4%
48.0%
72.4%
-

45.5% 48.1% 57.3% 63.7% 62.8%
48.6% 53.4% 64.3% 67.5% 66.7%
40.2% 36.3% 30.9% 28.5% 27.3%
85.7% 84.4% 88.2% 92.2% 90.1%
88.8% 89.7% 95.2% 96.0% 94.0%- 304.1% 307.2% 281.3% 295.1%

Net loss ratio = (net claims paid + loss adjustment expenses) ÷ net premiums written
E/I loss ratio = (net claims paid + increase in reserve for outstanding losses and claims + loss adjustment
expenses) ÷ earned premiums
Net expense ratio = (net commissions and brokerage fees + operating expenses involving underwriting –general and administrative expenses) ÷ net premiums written
Combined ratio = net loss ratio + net expense ratio

Changes in E/I net loss ratio and earned premiums expense ratio
73.4%

70%

66.0%

62.3%

60%
50%

40%

67.3%

53.0%

56.5%

65.5%

69.0%

68.1%

62.1%

Aug 2012: Sales of 90% coverage
product halted

Oct 2010: Sales of 90% coverage
product begins

44.8%
41.1%

39.7%

34.6%

36.5%

34.2%

32.1%

30.5%

31.6%

4Q

1Q
FY03/13

Jul 2013: Terminated 90%
coverage product

29.2%

29.1%

29.3%

30.5%

2Q

3Q

4Q

1Q
FY03/1420%
1Q
FY03/11

2Q

3Q

66.3%

55.3%

48.2%

30%

69.5%

63.1%

61.5%

4Q

1Q
FY03/12E/I loss ratio

2Q

3Q

28.3%

27.7%

27.9%

2Q

3Q

4Q

Earned premiums expense ratio

Source: Company data, SR Research

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Commissions to sales agents
Commissions paid to sales agents are around 15% in the initial year. However, the commissions decline toabout 5% in the second year and thereafter at the time of contract renewal. Therefore, commission
payments vary depending on the number of new contracts and the percentage of sales made throughsales agents.

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Strengths, weaknesses
Strengths
Anicom’s payout settlement system is becoming the industry standard (animal healthinsurance card, health record system).
The company operates an insurance payout system in which pet owners show their animal healthinsurance card at hospital counters and make copayments. The system not only provides convenience topolicyholders but also helps the company reduce administrative expenses.
The company’s animal health insurance cards were accepted by 5,591 institutions as of the end of March
2014. There were 6,996 animal hospitals in Japan (excluding industrial hospitals) as of the end of
December 2013, according to the he Ministry of Agriculture, Forestry and Fisheries. That means the
majority of Japan’s animal hospitals accept Anicom’s insurance cards. Similar services are offered also by
ipet and Pet & Family. However, Anicom has far greater acceptance; the number of animal hospitals that
accept insurance cards issued by ipet was 3,017 as of April 15, 2014.
Anicom’s name recognition, industry data, customer base, and strong earnings structure
provide the company with resources to expand into new business areas.
The company controls more than 60% of Japan’s pet insurance market. This formidable share is a majoradvantage since customer trust is vital in the insurance business. The company’s strong finances and cash
flow will help the company survive the competition and provide it with resources to expand into new
business areas.
Anicom has a stable source of revenue
The company’s pet insurance policies have an average renewal rate of 88.5% (in FY03/14). The renewal
rate for the second year exceeds 90%, generating a stable stream of revenue.

Weaknesses
Anicom’s earnings are vulnerable to sudden cost increases, such as a consumption tax hikeor a surge in the loss ratio.
The company has high variable costs and a low marginal profit ratio. Therefore, the company’s earnings
are vulnerable in the short term to a sudden increase in costs, such as the consumption tax rate and theloss ratio.
Restricted by the Insurance Business Law
The company is engaged in the nonlife insurance business, and is subject to restrictions in its businessactivities dictated by Japan’s Insurance Business Law. When the company embarks on new businesses, it
may find itself in competition with companies that are not subject to the same restrictions. Hence, it may
be at a competitive disadvantage in some situations. For example, the pace of new business rollout may
be slowed or it may suffer impact from consolidated solvency margin ratio rules in its new businessdevelopment. Such restrictions may lead to weakness in the execution of new businesses. On the other
hand, its sound equity base and licensing by the Financial Services Agency under the Insurance Business
Law also may be regarded as a source of strength.
Higher loss ratio than rivals
Anicom has a high loss ratio compared with its competitors. This is proof of a strong customer focus in its
insurance products (insurance payments to customers are high). However, there is the possibility thatcompetitors may try to exploit this cost-difference weakness by going onto the offensive with low-price

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strategies. At the present stage, rivals are still small and their profitability is low, so the impact ofcompetition is not yet large. Anicom is also focusing efforts on lowering its loss ratio. However, it will benecessary to closely monitor trends in this area.

Long-Term strategy
Medium-term plan
Announced May 18, 2011

FY03/10
Results
Recurring revenue
9,215
Recurring profit
291
Profit margin
3.2%
YoY
Recurring revenue
Recurring profit

FY03/11
Results
11,107
342
3.1%
20.5%
17.5%

FY03/12Est.
13,458
418
3.1%
21.2%
22.2%

FY03/13Plan
16,048
855
5.3%
19.2%
104.5%

FY03/14Plan
18,733
1,429
7.6%
16.7%
67.1%

-

-

-

Announced May 24, 2012

FY03/10
Results
Recurring revenue
9,215
Recurring profit
291
Profit margin
3.2%
YoY
Recurring revenue
Recurring profit

FY03/11
Results
11,107
342
3.1%
20.5%
17.5%

FY03/12Results
13,845
337
2.4%
24.7%
-1.5%

FY03/13Est.
15,970
755
4.7%
15.3%
124.0%

FY03/14Plan
18,088
1,393
7.7%
13.3%
84.5%

FY03/15Plan
20,368
2,009
9.9%
12.6%
44.2%

-

-

Announced May 23, 2013

FY03/10
Results
Recurring revenue
9,215
Recurring profit
291
Profit margin
3.2%
YoY
Recurring revenue
Recurring profit

FY03/11
Results
11,107
342
3.1%
20.5%
17.5%

FY03/12Results
13,458
418
3.1%
21.2%
22.2%

FY03/13
Results
16,186
837
5.2%
20.3%
100.2%

FY03/14Est.
18,136
1,010
5.6%
12.0%
20.7%

FY03/15Plan
20,218
1,714
8.5%
11.5%
69.7%

FY03/16Plan
22,570
2,468
10.9%
11.6%
44.0%

-

Announced May 23, 2013

FY03/11
Results
11,107
342
3.1%
20.5%
17.5%
53.4%

FY03/12Results
13,458
418
3.1%
21.2%
22.2%
64.3%

FY03/13
Results
16,186
837
5.2%
20.3%
100.2%
67.5%

FY03/14Est.
18,366
733
4.0%
13.5%
-12.4%
66.7%

FY03/15
Plan
21,790
800
3.7%
18.6%
9.1%
67.3%

FY03/16Plan
25,000
1,600
6.4%
14.7%
100.0%
65.5%

FY03/17Plan
27,700
2,200
7.9%
10.8%
37.5%
64.6%

(JPYmn)(JPYmn)(JPYmn)FY03/10
Results
Recurring revenue
9,215
Recurring profit
291
Profit margin
3.2%
YoY
Recurring revenue
Recurring profit
E/I loss ratio
48.6%(JPYmn)Source: Company data, SR ResearchMedium-term plan: FY03/17 recurring profit target of JPY2.2bn
Anicom revises its medium-term plan each year. The medium-term plan released in May 2014 calls forrecurring revenue of JP27.7bn and recurring profit of JPY2.2bn in FY03/17.
Under the medium-term plan, underpinned by the profitability of the existing pet insurance business, thecompany aims to diversify its business by developing new businesses.
Improvement of the profitability of the pet insurance business is divided into two parts—expansion of
insurance premium revenue and reform of the earnings structure. Expansion of insurance premium
revenue is to be driven by growth in the pet insurance market based on Anicom’s efforts to acquire newpolicies, as well as maintenance of its renewal rate. Reform of the earnings structure is to be based on an
overhaul of product content, including pricing and services, and strengthened loss ratio control.
With regard to new businesses, President Nobuaki Komori wants to further enhance the company’s status
in the industry. Komori considers the existing pet insurance operations as a stable source of revenue that

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will continue to expand, and plans to invest the company’s resources in new businesses. Specifically, thecompany aims to provide new, value-added services that are not currently provided by animal hospitals.
This includes the provision of advanced medical technology, treatment for hereditary disorders and otherpreventive medicine.
The company’s strategy is summarized below.

Strategy for the existing business (pet insurance)
Expansion of insurance premium revenue driven by market growth
Current insurance ratio is 3.9%; research suggests 32% of pet owners are
considering insurance coverage
The ratio of pet insurance coverage was 3.9% in FY2012 in Japan, compared with 22% in the UK in
FY2009. Anicom, a pioneer in the pet insurance business in Japan, expects the market to expand.
Japanese households kept 20mn dogs and cats in 2013, according to the National Pet Association, an
industry organization. While only about 800,000 pets are currently insured, Anicom estimates that 32% of
the pet owners who do not yet have insurance are considering joining the system. The company also
estimates that 80% of such pet owners consider insurance necessary.
 Expansion of pet insurance market
2.4%
anicom contracts(approx. 500,000 pets)
3.9%
Pet insurance market(approx. 800,000 pets)

32.0%
Want / considering insurance
80.1%
Believe pet insurance is a necessity

100%: 20.6mn pets (total domestic dogs and cats; source: Japan Pet Food Association 2013 survey)
Source: Company data, SR Research

Aiming for a pet insurance coverage ratio on par with the UK; long-term target forunderwriting revenue of JPY100bn
Through deeper cultivation of existing agencies and expansion of the sales area, the company aims togrow the pet insurance market and expand its own earnings. As a rough guide, based on the researchmentioned above, if all 32%$ of pet owners who answered either as wanting to take out insurance or as
considering buying pet insurance actually took out policies, if premiums remained unchanged the market
would expand to around JPY230.0bn.
Based on the 25% pet insurance coverage ratio in the mature UK market (FY2009), the Japanese market

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would be worth approximately JPY180.0bn. Based on a 60% market share, Anicom is targeting revenueof JPY100bn in the long term.

UK
North America
Japan

Population Number of(a)pets (b)63.2mn15.2mn348.8mn185.0mn
127.6mn
20.6mn% of pets
insured
4.2 approx 25.0%
1.9 more than 1%
6.2
approx 3.5%(a) / (b)Marketsize
JPY80.0bn
JPY62.0bn
JPY28.0bn

Value percontract
JPY26,000
JPY31,000
JPY35,000

If Japanese get coverage at the same rate as in the UK:
JPY28.0bn X 25% / 3.9% = approx JPY180.0bn
UK data for CY2009, North America and Japan data for CY2013
Source: Company materials, World Bank (Population figures for 2012), Japan Pet Food Association, Datamonitor, Packaged Facts)

Differences between the UK and Japan
The pet insurance coverage ratio accelerated in the UK from around 2004. Anicom analyzes that thisgrowth coincided with aggressive sales drives by such large retail chains as TESCO and Sainsbury’s to sell
pet insurance as part of service offerings to existing retail customers. Subsequently, direct marketed pet
insurance products also saw a strong sales push.
In Japan, among the large retail chains, AEON Pet (AEON holds a 75% equity stake) operates pet shops
and animal hospitals, but it has not entered the pet insurance business. It should be noted that there is
the possibility that AEON Pet may enter when the pet insurance market becomes sufficiently large. At
present, both the AEON Group and Seven & i Holdings sell Anicom and AXA DIRECT pet insurance
products through their affiliates, AEON Insurance Market and Seven Insurance Shop, respectively.

Anicom’s growth strategy: expansion of premium revenue
Anicom controls more than 60% of the pet insurance market. The company’s efforts to increase policies
would also lead to an expansion of the overall market. Here the company is focusing on two
strategies—further development of customers among those looking to get a pet in the future, andcautious development of customers who already have pets. Below is a summary of those strategies.

1) Development of customers who are looking to get a pet in the future
Strength in agency insurance sales by pet shops is one key to growthAnicom has 1,450 pet shop sales agencies (as of end-March 2014). This equates to around one-third of all
pet shops nationwide. Hence there is still room for expansion of pet shop agencies. Anicom plans tostrengthen its sales structure to increase exposure to its products in the pet shop market. At existing pet
shop agencies, Anicom also sees ample room to increase the awareness of the need for pet insurance(penetration rate). The insurance sales ratio at agencies (number of policies sold ÷ number of pets sold)shows a large variation among shops—ranging from 30% to 70%.
Expenditure on new customer development
From FY03/15, Anicom has made clear that it plans to spend money on developing new agencies andstrengthening its relationships with existing agencies. In May 2014, the company established a Tohoku
branch, and is working to bolster its sales structure. By implementing a range of sales measures atagencies, the company seeks to raise the insurance sales ratio at pet shops to 70%. The company has

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said it wants to increase its sales-related expenditure in FY03/15. It is possible that the company will run
sales promotion campaigns, including those relating to agency commissions.
In FY03/14, the company acquired 74,000 new policies via pet shop agencies. The company believes that
there is ample room to raise that number to 90,000 through strengthened sales programs and closer ties
with agencies..

2. Targeting existing pet owners
A cautious approach to attracting customers while raising awarenessThe company recognizes the difficulty in raising awareness of pet insurance among existing pet owners
who have low awareness. For example, in relation to this segment, the company says that it is necessary
to communicate information about the diseases and symptoms that each breed of dog may be particularly
susceptible to so that such owners gain an understanding of the need for insurance. The company also
recognizes that there are many small pet shop operators who rely on the Internet and which thecompany’s sales programs are unlikely to reach. Such shops represent a large potential customer base.
Strengthened agency strategy
To promote awareness of pet insurance among existing pet owners, a strategy using pet shop agencies
alone is liley to have only limited effectiveness. For this reason, the company has agencies across a range
of industries where insurance products may be sold. For example, regional banks, shinkin banks (local
savings credit institutions) and other financial institutions sell the company’s products, along with new car
dealers, food coops, and agencies within companies (targeting employees). Some animal hospitals also
act as agencies.
However, the company believes that mass media campaigns to increase awareness of pet insurance may
bring about an adverse selection (the motivation for high-risk pet owners to take out insurance may
increase). For this reason, the company takes a cautious approach to developing this market segment.

Earnings structure reform
Strengthened loss ratio control
Anicom’s pet insurance incurs a higher payout risk as the average age of insured pets rises. Consequenstly,
the loss ratio is on an increasing trend. The company is targeting a loss ratio of 60%, which it deems as
appropriate. To achieve this, it is implementing stricter underwriting screening and working to increase
the number of newborn pets it insures, which have lower risk.
Stricter underwriting screening
Of the company’s approximately 500,000 insurance policies in force, around half of policyholders seldom
apply for payouts. About 30% of policyholders have loss ratios of around 60%, while several percent ofpolicyholders have loss ratios of 300%. With auto insurance, policyholders who have an accident claim do
not have the likelihood of ongoing accidents from the following year. However, in the case of pet insurance,
where there is a high loss ratio, there is a high proportion of chronic disease cases.
Launch of pet insurance with limited hospitalization days
On May 30, 2014, Anicom received approval from the Financial Services Agency (FSA) to begin sales of a
new type of pet insurance, which places limits on the number of hospitalization days. After sales of thistype begin, the company will, in general, impose limited hospitalization days for all new contracts

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2014/6/6(extensions will be unaffected). In Shared Research’s view, although insurance plans which place limits on
hospitalization will lead to lower premiums earned, placing an upper limit on time that can be spent in thehospital may yield a lower loss ratio. Taking into account the timing of when sales will begin, the newplans will likely start affecting results from FY03/16 onward.

Utilizing next-generation medical records management system Anirese F to prevent
excessive treatment
As well as stricter policy renewal screening, the company also provides animal hospitals with such data as
the average treatment cost for each particular type of medical condition. By doing so, the hospital cantake measures to prevent excessive treatment. Sales of Anirese F were launched by the company’s
subsidiary, Anicom Parfait, in November 2013, as part of efforts to prevent excessive treatment.
Anirese F is a next-generation, cloud computing-based medical records management system, whichanalyzes and leverages a wide range of patient statistics and management information. This includes
providing information on the average treatment cost for each type of medical condition by utilizing big
data. When a veterinarian uses the medical records management system, the average treatment cost forthe patient’s type of case is displayed. This helps veterinarians to avoid excessive treatment.
Open medical record system
Anirese F also incorporates an open medical record system. The pet owner can view at home the medical
data recorded by the veterinarian. As well as making the treatment more open, this system helps todevelop trust between the animal hospital and pet owners.
Paying close attention to the uptake rate for Anirese F
The previous generation medical records management system—Anirese—is used by around 2,000 animal
hospitals. Migration to Anirese F was completed by about 100 hospitals as of May 2014, but progress inmigration to the next-generation system is likely to have an impact on lowering the loss ratio. For thisreason this aspect deserves particularly close attention.

Strategy for new businesses
Anicom aims to expand sales through new businesses (healthcare for small animals)Anicom generates 99% of its revenue from pet insurance, including investment revenue (as of FY03/14).
President Nobuaki Komori envisages growing pet insurance revenue to JPY50bn in the long-term, andseeks to increase the company’s recurring revenue by building up new businesses. Shared Research
believes that the pet insurance business will remain the source of stable growth and earnings for thecompany, which plans to focus investment on the growth market of small-animal healthcare.
The following is an overview of the company’s small-animal healthcare businesses.

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New business: small-animal healthcare
The significance of animal healthcare
President Nobuaki Komori stated that the company plans to enter the small-animal healthcare business tobring the treatment fees to an appropriate level and improve remuneration for veterinarians. The
overriding goal, however, is to treat animals.

Market estimated at JPY400-500bn
There were 14,956 animal hospitals in Japan, of which 11,032 were for “small animals and others”(excluding industrial animals) as of December 31, 2013, according to data from the Ministry of Agriculture,
Forestry and Fisheries. (Of these, 6,996 were operated by individuals and 3,815 by corporations andothers.) According to the 2012 Economic Census for Business Activity released by the Ministry of Economy,
Trade and Industry and the Statistics Bureau of the Ministry of Internal Affairs and Communications, there
were 7,145 animal hospitals, which together generated revenue of JPY300.8bn. The estimated market
size, calculated by multiplying 11,032 with the average revenue of the economic census, would be
JPY400-500bn.
Promoting strategies that will lead to cost reductions at animal hospitals
Anicom believes that most animal hospitals have only one or a few veterinarians but must bear the cost ofvarious systems and examination equipment. This makes their fixed costs high. The company also thinksthat there is room to improve the remuneration of substitute veterinarians. By cooperating with existing
animal hospitals to develop a model that reduces the fixed cost ratio of animal healthcare, the company
says it is aiming to make the cost of treatment more reasonable and build a win-win relationship withexisting animal hospitals. In addition, by raising the standard of examination and treatment technology,
the company wants to treat animals to the greatest extent possible.
Relationship with clients may be at risk
The company is aiming to develop an animal healthcare business centering on advanced medical
technology and preventive medicine. The company believes that this will not compete with the offeringsof existing animal hospitals. However, the animal hospitals that currently accept the company’s pet
insurance may be wary of Anicom’s entry into the animal hospital business. The company is aware of thisrisk. To alleviate fears of encroachment into existing hospitals’ territory, Anicom sales staff will carefully
explain the company’s intentions to such hospitals, to win the understanding of these hospitals.

Establishment of Japan Animal Specialty Medical Institute Inc. (JASMINE) andlaunch of operations in April 2014
On January 24, 2014, Anicom established JASMINE, which launched operations in April 2014. The
institute aims to support the sound and sustainable growth of the company’s pet insurance business. It
has the objectives of promoting basic research in the animal healthcare field, developing treatment
methods with sound scientific basis, and undertaking clinical work that will contribute to the developmentof advanced medical treatment.
A key difficulty in conducting insurance screening vis-à-vis medical treatment at animal hospitals isdefining where medical treatment ends and where either nursing care or beauty treatment begins.
JASMINE aims to publish research papers on exemplary medical treatment methods for difficult cases,
and by utilizing Anirese F make case examples from a large number of hospitals widely available. It is

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hoped that this will flow through to lower loss ratios and an improvement in the company’s earnings
structure.
JASMINE has appointed as Institute Director Masami Uechi, former professor at the Department of
Veterinary Medicine, College of Bioresource Sciences, Nihon University. The director already has overseas
experience in the cardio-surgery field.

Strategy for overseas expansion
Medical records management system
Anicom did not have overseas operations as of March 2014. That does not mean, however, that thecompany does not have any plan to expand outside Japan. Anicom’s pet medical records management
system is used at 2,000 animal hospitals in Japan and is a major driver of growth in the company’s pet
insurance business. The rate of adoption at new animal hospitals is very high.
The company plans to begin its overseas business by exporting its pet medical records management
system, which has become the de facto standard in Japan. The company also envisages overseas sales of
its pet insurance products. Anicom is considering a step-by-step entry into the Asian market, including
such countries as China and Vietnam. However, the company has not decided on any schedule foroverseas expansion.

Preventive operations
Prevention of hereditary diseases within the breeding industry
The company’s management, including President Nobuaki Komori, seeks to encourage pet owners to takemeasures to prevent the occurrence of any hereditary illnesses. There are more hereditary ailments
among dogs in Japan than in the West. That is apparently due to less concerned in Japan about pet
bloodlines or hereditary diseases of particular breeds. Many breeders also ignore hereditary diseases andproduce dogs that are vulnerable to various illnesses
Breeding mistakes cannot be fixed through treatment. Therefore, the company aims to strengthen its
relationships with breeders in the long-term, and thereby help to prevent hereditary diseases fromoccurring.

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Financial statements
Income statement
Income Statement(JPYmn)Recurring revenue
YoY

FY03/08
Cons.
7,267
-

FY03/09Cons.
10,80048.6%

FY03/10Cons.
9,216-14.7%

FY03/11Cons.
11,10720.5%

FY03/12Cons.
13,84524.7%

FY03/13Cons.
16,18616.9%

FY03/14Cons.
18,366
13.5%

Underwriting revenue
Net claims written
Reversal on outstanding claims
Investment revenue
Interest and dividend income
Gain on sales of securities
Other recurring revenue
anicom mutual aid assoc. revenue
Reversal of unearned anicom revenue
Reversal of unpaid anicom benefits
Other

39
39
0
7,228
6,980
248

6,442
6,442
41
40
1
4,317
1,445
2,433
326
112

9,003
8,981
71
71
0
141
141

10,85810,858
94
78
15
154
154

13,592
13,592
108
92
16
144
144

15,781
15,781
260
113
147
143
143

18,08718,087
108
18
89
171
61
110

Recurring expenses
YoY
Underwriting expenses
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees
Provision for reserve for outstanding losses and claims
Provision for underwriting reserves
Investment expenses
Loss on sales of securities
Loss on valuation of securities
Loss on redemption of securities
Operation and administrative expenses
Other recurring expenses
Interest paid
Provision for allowance for doubtful accounts
Stock issuance cost
Amortization of deferred organization expenses
Amortization of development expenses
Amortization of deferred tax assets under Article 113
Other recurring expenses
Deferred tax assets under Article 113

7,067
0
2,950
4,573
4
26
4,540
-455

10,866
53.8%
5,616
1,369
203
315
523
3,206
66
3,640
2,432
0
2
102
51
2,277
-889

8,924
-17.9%
5,541
3,767
317
538
919
3,072
311
0
28
2
102
162
16
-

10,764
20.6%
7,146
4,829
392
629
152
1,141
8
2
6
3,312
296
102
161
32
-

13,508
25.5%
9,797
7,304
480
780
348
883
31
30
3,392
287
5
102
161
18
-

15,34813.6%
11,450
9,465
581
853
140
409
3,632
264
2
76
161
23
-

17,63314.9%
13,448
10,693
660
1,029
149
916
18
18
3,982
183
6
161
15
-

Recurring profit
YoY
RPM

200
2.8%

-66
-0.6%

292
3.2%

342
17.3%
3.1%

337
-1.5%
2.4%

837
148.4%
5.2%

733-12.4%
4.0%

Extraordinary profit
Extraordinary loss
Total income taxes

10
-21
-12

15
-31
12

-22
76

-14
93

1
-7
133

-2
-194

-8
-276

Net income
178
-142
YoY
NPM
2.4%
-1.3%
Source: Company data, SR
Figures may differ from company materials due to differences in rounding methods.

346
3.8%

421
21.7%
3.8%

465
10.5%
3.4%

640
37.6%
4.0%

447
-30.2%
2.4%

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FY03/15
Est.
21,790
18.6%

800
9.1%
3.7%

509
13.9%
2.3%

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Balance sheet(JPYmn)AssetsCash and cash equivalents
Monetary claims bought
Securities
Fixed assets
Buildings
Lease assets
Other fixed assets
Intangible assets
Software
Software in progress
Lease assets
Other assets
Deferred tax assets under Article 113
Accounts receivable
Accrued premiums
Deferred organization expenses
Business commencement expenses
Other
Allowance for doubtful accounts
Deferred tax assets
Total Assets
Liabilities
Provision for insurance cancellation
Reserve for outstanding claims
Liability reserves
Other liabilities
Unearned revenue
Other accounts payable
Suspense receipts
Other liabilities
Provision for bonuses
Reserves under special laws
Reserve for price fluctuations
Total Liabilities
Net assets
Shareholders' equity
Capital stock
Capital surplus
Retained Earnings
Treasury Stock
Valuation and translation adjustments
Valuation difference on securities
Minority interests
Total net assets
Total liabilities and equity

FY03/08

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

1,116
500
4,107
114
46
68
114
114
1,816
455
739
5
487
-18
7,748
3,440
2,433
948
17
41
21
0
0

601
5,723
98
39
1
58
100
94
7
2,162
1,293
281
76
2
384
8,685
3,730
523
3,206
744
38
362
262
83
28
1
1

1,652
7,563
107
43
7
58
212
112
95
5
1,986
1,132
374
48
282
150
74
11,594
4,626
500
4,125
805
47
326
344
87
32
2
2

3,682
7,065
96
34
7
54
374
125
246
2
1,975
969
575
63
179
186
187
13,382
5,920
653
5,267
824
234
432
157
46
2
2

5,098
7,444
93
31
5
56
387
178
208
1,981
808
839
83
76
172
-5
353
15,355
7,152
1,001
6,151
1,073
341
541
191
55
-

4,986
9,272
86
27
3
55
373
159
213
1,940
646
935
112
245
-7
219
16,872
7,702
1,142
6,560
1,292
398
652
242
69
2
2

4,457
11,367
118
33
1
83
477
263
214
2,112
484
1,121
143
4
357
-13
116
18,634
8,768
1,291
7,476
1,520
447
759
312
86
10
10

3,464

4,503

5,464

6,793

8,283

9,067

10,385

4,279
3,346
3,236
-2,303
5
5
4,284
7,748

4,138
3,346
3,236
-2,444
-2
-2
46
4,182
8,685

6,106
4,157
4,047
-2,09824
24
6,130
11,594

6,569
4,178
4,068
-1,67718
18
6,588
13,382

7,067
4,194
4,084
-1,211
3
3
7,071
15,355

7,795
4,238
4,128
-571
9
9
7,805
16,872

8,306
4,282
4,172
-147
-57
-57
8,248
18,634

Source: Company data, SR
Figures may differ from company materials due to differences in rounding methods.

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Cash flow statement
Cash Flow Statement
FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Operating Cash Flow (1)
737
1,608
1,792
1,879
1,507
2,009
Investment Cash Flow (2)-1,367-2,875-1,936-1,044-1,852-2,052
Free Cash Flow (1+2)-629-1,267
-144
835
-345
-43
Financial Cash Flow
-5
1,590
38
28
85
60
Depreciation & Amortization (A)
68
64
73
82
92
99
Capital Expenditures (B)
-57
-190
-226
-95
-71
-87
Working Capital Changes (C)Simple FCF (NI + A + B - C)
-130
220
268
452
661
459
Source: Company data, SR
Figures may differ from company materials due to differences in rounding methods.

Other information
Overview of pet insurance products
Anicom sells the following products (covering dogs, cats, birds, rabbits, and ferrets).
Product name
Dobutsu kempo Family *Sales channel
Regular sale agent
Pet shops
Direct sales

Dobutsu Kempo Baby**

Pet shops

Dobutsu Kempo Smile Baby

Directly by pet shops

Dobutsu Kempo Smile Family

Pet shops

Product features
Guarantees either 50% of 70% of medical fees for sickness or
injuries during a one-year coverage period. Policyholders choose
either 50% or 70% when they sign a contract.
Covers animals less than 1 year of age sold at pet shops.
Provides 100%coverage during the first one month, and either
50% or 70% during the remaining 11-month period.
Policyholders choose either 50% or 70% when they sign acontract.
Pet shops themselves provide guarantees under contracts with
Anicom Insurance. Covers animals less than 1 year of age.
Provides 100% coverage for pet owners for free during the firstone month.
Dobutsu Kempo Smile Baby expires after one month. Before
expiration, policyholders make an application or additional oneyear coverage for payouts of either 50% or 70%.

*There are limits to daily insurance payouts. The maximum payouts are JPY10,000 a day under the 50% plan and JPY14,000 a day under the 70%
plan for hospital visits or stays. For surgery, the maximum payout is JPY100,000 under the 50% and JPY140,000 under the 70% plan. The
company pays for two surgeries a year. However, there is no limit to the number of days for hospital visits or stays.
**The maximum payouts are JPY20,000 for hospital visits or stays. For surgery, the maximum payout is JPY20,000. The company pays for twosurgeries a year. However, there is no limit to the number of days for hospital visits or stays.

Source: Company data, SR Research

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Pet insurance premiums
Premiums for pet insurance differ depending on the age and the breed of the animal. The company
classifies dogs into five types based on their size, with “A” being the smallest and “E” the largest. The
price rises in proportion to the size of the pet.

The premium for pets that are less than one year of age is high because such animals are vulnerable tosickness. However, the price declines after one year of age. Subsequently, the premium rises each year.
The new premium is applied when the policy is renewed annually.
 Annual premiums according to breeds (after a 5% discount is applied to policy renewal for pets one
year or older; in JPY)

Age
0
1
2
3
4
5
6
7

Dog A
36,28032,17032,72035,03039,77045,88051,76056,490Dog B
40,32035,71035,97037,56041,78048,15054,92060,710Dog C
44,36039,42040,22042,77047,68054,41061,73068,530Dog D
51,43045,69046,60049,55055,38063,47072,36080,670Dog E
59,55053,11054,83059,07065,98074,41082,90090,360Cat
37,06032,85033,01033,51034,53036,19038,39040,890Bird
30,27028,76028,76028,76028,76028,76028,76028,760

Rabbit36,34034,86038,60043,04047,72052,21056,25059,710Ferret37,50035,82044,37059,28076,62092,290104,420
112,960

Source: Company data, SR Research

Dog A: Miniature Dachshund, Chihuahua, Japanese Spitz, etc.; mixed-breed dogs weighing less than 10kg
Dog B: Shiba, Papillon, Toy Poodle, etc.; mixed-breed dogs weighing between 10kg and 20kg
Dog C: Akita, Shih Tzu, Chow Chow, Poodle, Pomeranian, Maltese, Yorkshire Terrie, etc.; mixed-breed dogs weighing
between 20kg and 30kg
Dog D: Golden Retriever, Collie, Dachshund, French Bulldog, etc.; mixed-breed dogs weighing between 30kg and 45kg
Dog E: Siberian Husky, Tosa, Bulldog, etc.; mixed-breed dogs weighing 45kg or more

Comparison with insurance products sold by rivals
120,000

100,000
80,00060,00040,00020,000

0
0 yrs

1 yr

2 yrs

3 yrs

4 yrs

anicom

5 yrs

ipet

6 yrs

7 yrs

8 yrs

9 yrs 10 yrs 11 yrs 12 yrs 13 yrs 14 yrs 15 yrs

Pet & Family

Motto Gyutto

Source: Company data, SR ResearchNotes
1: Price for the 70% plan for medium-sized dogs (large dogs according to Pet & Family classification); the70% plan is not available online.

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2: Anicom’s prices reflect a 5% discount for policy renewal.
3: Prices for online applications before discounts are applied (ipet and Motto Gyutto provide 5% and 10%
discounts, respectively).
4: Discounts are available for owners of more than one pet.
Anicom’s insurance products are more expensive than its rivals’ for animals up to nine years of age.
Subsequently, prices become comparable (in the case of the 70% payout plan for medium to large dogs).

Process for taking out an insurance policy
When Anicom receives applications from sales channels other than pet shops, the company conducts
screening based on the animal’s breed, age, health conditions, and health records submitted by the owner.
The pets that pass the screening are required to go through a waiting period of 1.5–2.0 months before
the policy is signed. The waiting period is required to prevent payouts for any preexisting conditions. The
company does not screen store-bought pets that are less than one year old. The company considers suchpets virtually risk-free.

Payout settlement at the hospitals
Anicom’s strengths include 1) the payout settlement system at animal hospitals, 2) the use of information
technology to create hospital expense statements, sell insurance at pet shops (and online), and maintaincustomer information (web-based service). There are only three companies in Japan that offer payout
settlement systems at hospitals: Anicom, ipet, and Pet & Family. These settlement systems also help the
hospitals attract customers.
Anicom provides “Anicom Receptor,” a management system for treatment records, to animal hospitals forfree. The system allows hospitals to offer payout settlement services in a way similar to the public healthinsurance system for humans. The hospital provides fee details for clients and submits payment requests
to Anicom, which reviews the requests and sends the money to the hospital. The system improves
administrative efficiency and makes it easier for hospitals to handle insurance payments. It is also
designed to prevent fraudulent claims and miscalculations.

Management philosophy
Ani (Anima : soul in Latin) + communication = ∞ (infinity)
At the base of Anicom’s corporate activity is this formula: Ani (Anima : “soul” in Latin) + communication =∞ (infinity). This comes from the belief that what seems impossible can become possible when livingsouls cooperate with one another and work toward the shared purpose.
In interviewing Anicom management, Shared Research was impressed by the company’s commitment totruly seeking to create happiness for policyholders (in a way that does not necessarily involve monetary
rewards). President Nobuaki Komori’s philosophy seems to represent the company’s mission.

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Making medical records accessible for health insurance purposes;
transitioning into a preventive industry
Making medical records accessible for insurance purposes
Nobuaki Komori, who currently serves as president of Anicom, joined Tokio Marine & Fire Insurance (nowTokio Marine & Nichido Fire Insurance Co., Ltd.) in 1992. In 1996, Komori was transferred to thegovernment’s Economic Planning Agency for three years on a temporary assignment. In April 2004, heestablished anicom (an organization that promotes animal health) and became chairman.
While he was at the Economic Planning Agency, Komori proposed the establishment of a system in which
medical records of individual patients would be made accessible for public health insurance purposes. He
argued for three years that such a system would eliminate overlapping medical examinations and reduce
wasteful expenditure, allowing the government to avoid raising taxes. However, his proposal was rejected
on grounds that Japan’s public health insurance system was part of social security and that it should not
be dictated by economic considerations alone.
While this plan did not work out, Komori wanted to apply it to pets. That is how anicom was established in
2000. The founding members include Komori, Yumiko Momose, who is now a managing director ofAnicom, and one other (now deceased).

Transitioning into preventive industry
Through experience gained in his previous insurance company and government agency roles, President
Komori formed the following insight. “Insurance is paid out due to the occurrence of some kind of
accident. Someone surely suffers as a result of this accident. Insurance companies gather a huge amountof data on such accidents, and this data can be analyzed to reveal common accident causes. In this light,
the future role of an insurance company should be use and provide this data for accident prevention
rather than just using it to assess the level of payouts. By doing so accidents could be prevented andpeople’s suffering from accidents could be reduced.”
In automobile insurance, there is a body of statistical data showing under what circumstances traffic
accidents are most likely to occur. The data, for example, include information on highways, intersections,and weather conditions, as well as the color of the vehicle and the day of the week. The industry
determines insurance premiums using such data. President Nobuaki Komori believes that the industry
should use such data to predict traffic accidents before they happen and warn policyholders. In otherwords, more emphasis should be placed on preventive efforts.

Toshi (The word commonly means investment, but it could also mean to “ignite thewill.”)The Japanese word for “human being” is nin gen, which is made up of Chinese characters for “person”
and “between.” President Nobuaki Komori used to wonder what it all meant. Komori has recently realizedthat human being is a go-between. He wants to become a bridge between people.
Komori seems to love play on words. He has also coined the word toshi, made up of two Chinesecharacters that together mean to “ignite the will.” The pronunciation of this word, however, is the same as
the word for “investment.”

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History
July 2000

BSP (now Anicom) was established in Tokyo’s Toshima Ward to handle
administrative duties for anicom’s mutual pet insurance.

December 2004

Established Anicom Pafe, Inc.

January 2005

BSP was renamed Anicom International.

February 2005

Established Anicom Frontier, Inc.

January 2006

Anicom Insurance Planning was established in Tokyo’s Shinjuku Ward to prepare
for the founding of an insurance company.

December 2007

Anicom Insurance Planning was renamed Anicom Insurance Inc. The Financial
Services Agency allowed the Anicom Insurance to reorganize under a holding
company. Anicom Insurance obtained an insurance license.

January 2008

Anicom Insurance began nonlife insurance operations.

June 2008

Anicom International was renamed Anicom Holdings Inc.

March 2010

Anicom Holdings listed shares on the Tokyo Stock Exchange’s Mothers market.

January 2014

Established Japan Animal Specialty Medical Institute Inc. (JASMINE)

June 2014

Transferred securities listing from TSE Mothers to the TSE First Section.

Major shareholders
As of March 2014

Top 10 shareholders
Shares held ('000s)
The Master Trust Bank of Japan, Ltd. (Trust account)
2,523Japan Trustee Services Bank, Ltd (Trust account)
1,772
KOMORI Asset Management Co., Ltd.
1,220Sony Assurance, Inc.
1,200
The Nomura Trust and Banking Company, Limited (Trust account)
910
CBC Co., Ltd.
666
UBS AG London A/C IPB Segregated Client Account581
Nobuaki Komori
447
JPMorgan Chase Bank 380084
367
Anicom Holdings employees' stockholding association
319

Percentage
14.5%
10.2%
7.0%
7.0%
5.2%
3.8%
3.3%
2.6%
2.1%
1.8%

Source: Company materials, SR research

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By the way
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

1

DachshundDachshundDachshundDachshundDachshundDachshundDachshundDachshundDachshundP oodleP oodleP oodleP oodleP oodleP oodle2

S hih Tzu

S hih Tzu

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

3

G oldenRetriev er

C hihuahua

S hih Tzu

P embroke
Welsh C orgi

P oodleP oodleP oodleP oodleP oodleDachshundDachshundDachshundDachshundDachshundDachshund4

Labrador
Retriev er

P embroke
Welsh C orgi

P embroke
Welsh C orgi

S hih Tzu

P embroke
Welsh C orgi

Yorkshire
TerrierYorkshire
TerrierYorkshire
TerrierYorkshire
Terrier

P omeranian

P omeranian

P omeranian

P omeranian

P omeranian

P omeranian5

C hihuahua

Labrador
Retriev er

Labrador
Retriev er

Labrador
Retriev er

S hih Tzu

P apillon

P apillon

P apillon

P omeranianYorkshire
TerrierYorkshire
TerrierYorkshire
TerrierYorkshire
TerrierYorkshire
TerrierYorkshire
Terrier6

Yorkshire
TerrierYorkshire
TerrierYorkshire
TerrierYorkshire
TerrierYorkshire
Terrier

P embroke
Welsh C orgi

S hih Tzu

P omeranian

P apillon

P apillon

S hiba Inu

S hiba Inu

S hiba Inu

S hiba Inu

S hiba Inu

7

P embroke
Welsh C orgi

G oldenRetriev er

G oldenRetriev er

P apillon

Labrador
Retriev er

S hih Tzu

P embroke
Welsh C orgi

S hih Tzu

S hih Tzu

S hih Tzu

S hih Tzu

S hih Tzu

S hih Tzu

S hih Tzu

S hih Tzu

8

P omeranian

P apillon

P apillon

P oodleP apillon

P omeranian

P omeranian

M iniature
S chnauzer

M iniature
S chnauzer

F renchBulldog

P apillon

F renchBulldog

M altese

M altese

M altese9

M altese

P omeranian

P omeranian

G oldenRetriev er

P omeranianLabrador
Retriev er

M iniature
S chnauzer

P embroke
Welsh C orgi

F renchBulldog

S hiba Inu

F renchBulldog

P apillon

F renchBulldog

F renchBulldog

M iniature
S chnauzer

10

P apillon

M altese

BeagleP omeranian

S hiba Inu

M iniature
S chnauzer

M altese

F renchBulldog

M altese

M iniature
S chnauzer

M altese

M altese

P apillon

M iniature
S chnauzer

F renchBulldog

11

BeagleBeagleP oodleS hiba Inu

G oldenRetriev er

S hiba Inu

S hiba Inu

M altese

P embroke
Welsh C orgi

M altese

M iniature
S chnauzer

M iniature
S chnauzer

M iniature
S chnauzer

G oldenRetriev er

G oldenRetriev er

12

S hiba Inu

S hiba Inu

S hiba Inu

BeagleBeagleM altese

Labrador
Retriev er

S hiba Inu

S hiba Inu

P embroke
Welsh C orgi

P embroke
Welsh C orgi

P embroke
Welsh C orgi

G oldenRetriev er

P apillon

P apillon

13

P oodleP oodleM altese

M altese

M iniature
S chnauzer

C av alierKing C harles
S paniel

F renchBulldog

P ug

P ug

P ug

P ug

G oldenRetriev er

P embroke
Welsh C orgi

P embroke
Welsh C orgi

P embroke
Welsh C orgi

C av alier

C av alierKing C harles
S paniel

C av alierKing C harles
S paniel

M iniature
S chnauzer

M altese

BeagleC av alierKing C harles
S paniel

C av alierKing C harles
S paniel

M iniature
P inscher

M iniature
P inscher

G oldenRetriev er

P ug

S paniel

Labrador
Retriev er

Labrador
Retriev er

Labrador
Retriev er

15

S hetland
S heepdog

M iniature
S chnauzer

M iniature
S chnauzer

C av alierKing C harles
S paniel

C av alierKing C harles
S paniel

G oldenRetriev er

P ug

Labrador
Retriev er

C av alierKing C harles
S paniel

Labrador
Retriev er

Labrador
Retriev er

Labrador
Retriev er

P ug

P ug

Jack Russell
Terrier16

P ug

S hetland
S heepdog

S hetland
S heepdog

P ug

P ug

P ug

M iniature
P inscher

M iniature
P inscher

Labrador
Retriev er

C av alierKing C harles
S paniel

M iniature
P inscher

M iniature
P inscherJack Russell
Terrier

Jack Russell
TerrierP ug

17

M iniature
S chnauzer

P ug

P ug

S hetland
S heepdog

S hetland
S heepdog

F renchBulldog

BeagleG oldenRetriev er

G oldenRetriev er

G oldenRetriev er

C av alierKing C harles
S paniel

Jack Russell
Terrier

M iniature
P inscher

C av alierKing C harles
S paniel

C av alierKing C harles
S paniel18

A merican
C ocker
S paniel

A merican
C ocker
S paniel

A merican
C ocker
S paniel

A merican
C ocker
S paniel

F renchBulldog

M iniature
P inscher

G oldenRetriev er

BeagleJack Russell
Terrier

Jack Russell
Terrier

Jack Russell
Terrier

C av alierKing C harles
S paniel

C av alierKing C harles
S paniel

M iniature
P inscher

M iniature
P inscher19

Dalmatian

M iniature
P inscher

F renchBulldog

F renchBulldog

A merican
C ocker
S paniel

A merican
C ocker
S paniel

A merican
C ocker
S paniel

Jack Russell
Terrier

BeagleBeagleBorder C ollie

Border C ollie

Border C ollie

Border C ollie

Border C ollie

20

West
H ighland
White Terrier

Border C ollie

M iniature
P inscher

Border C ollie

M iniature
P inscher

S hetland
S heepdog

Jack Russell
Terrier

A merican
C ocker
S paniel

Border C ollie

Border C ollie

BeagleBeagleBeagleBeagleP ekingese

14 King C harles

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Anicom Holdings, Inc. (8715)

Shared Research Report

2014/6/6

Company profile

Company Name
Anicom Holdings, Inc.

Phone
+81-3-6733-3000
Established
July 5, 2000
Websitehttp://www.anicom.co.jp/(in Japanese)

http://www.sharedresearch.jp/

Head Office
1-5-22 Shimoochiai, Shinjuku-ku
Tokyo, Japan
161-0033
Listed On
Tokyo Stock Exchange Mothers(TSE First section from June 10, 2014)
Exchange Listing
March 3, 2010
Fiscal Year-End
March

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Anicom Holdings, Inc. (8715)

Shared Research Report

2014/6/6

About Shared Research Inc.
We offer corporate clients comprehensive report coverage, a service that allows them to better inform investors and other stakeholders
by presenting a continuously updated third-party view of business fundamentals, independent of investment biases. Shared Research
can be found on the web at http://www.sharedresearch.jp.
Current Client Coverage of Shared Research Inc.:
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Anicom Holdings, Inc.

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EMERGENCY ASSISTANCE JAPAN Co.

mobcast inc.

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Nippon Parking Development Co., Ltd.

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Disclaimer
This document is provided for informational purposes only. No investment opinion or advice is provided, intended, or solicited. Shared
Research Inc. offers no warranty, either expressed or implied, regarding the veracity of data or interpretations of data included in thisreport. Shared Research Inc. shall not be held responsible for any damage caused by the use of this report.
The copyright of this report and the rights regarding the creation and exploitation of the derivative work of this and other Shared
Research Reports belong to Shared Research Inc. This report may be reproduced or modified for personal use; distribution, transfer, orother uses of this report are strictly prohibited and a violation of the copyright of this report. SR Inc. officers and employees may
currently, or in the future, have a position in securities of the companies mentioned in this report, which may affect this report’s
objectivity.

Japanese Financial Instruments and Exchange Law (FIEL) Disclaimer
The report has been prepared by Shared Research Inc. (“SR”) under a contract with the company described in this report (“theCompany”). Opinions and views presented are SR’s where so stated. Such opinions and views attributed to the Company areinterpretations made by SR. SR represents that if this report is deemed to include an opinion by SR that could influence investment
decisions in the Company, such opinion may be in exchange for consideration or promise of consideration from the Company to SR.

Contact Details
http://www.sharedresearch.jp
Email: info@sharedresearch.jp

http://www.sharedresearch.jp/

3-31-12 Sendagi
Bunkyo-ku Tokyo, Japan
Phone: +81 (0)3 5834-8787

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