RLAST UPDATE【2016/11/15】

Anicom Holdings | 8715 |Research Report by Shared Research Inc.
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
and findings. We will always present opinions from company management as such. Our views are ours
where stated. We do not try to convince or influence, only inform. We appreciate your suggestions andfeedback. Write to us at sr_inquiries@sharedresearch.jp or find us on Bloomberg.

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Anicom Holdings | 8715 |Shared Research Report

LAST UPDATE【2016/11/15】

INDEX
Executive summary --------------------------------------------------------------------------------------------------- 3
Key financial data ----------------------------------------------------------------------------------------------------- 6
Recent updates --------------------------------------------------------------------------------------------------------- 7
Trends and outlook --------------------------------------------------------------------------------------------------- 8
Quarterly trends and results----------------------------------------------------------------------------------------------- 8
Full-year outlook ------------------------------------------------------------------------------------------------------------ 16
Long-term strategy -------------------------------------------------------------------------------------------------- 172018 medium-term management plan ------------------------------------------------------------------------------ 19
Strategy for the existing business (pet insurance): Establishment of stable revenue source ------- 20
Business ----------------------------------------------------------------------------------------------------------------- 35
Business description ------------------------------------------------------------------------------------------------------- 35
Anicom in pet-related markets ----------------------------------------------------------------------------------------- 36
Competition ------------------------------------------------------------------------------------------------------------------ 43
Profitability analysis -------------------------------------------------------------------------------------------------------- 46
Strengths, weaknesses ---------------------------------------------------------------------------------------------------- 51
Historical performance --------------------------------------------------------------------------------------------- 52
Previous company targets and medium-term plan -------------------------------------------------------------- 87
Impact of consumption tax hike and premium changes (FY03/15 est.) ---------------------------------- 91
Medium-term plan: FY03/17 recurring profit target of JPY2.2bn -------------------------------------------- 93
Strategy for the existing business (pet insurance) --------------------------------------------------------------- 94
Strategy for new businesses --------------------------------------------------------------------------------------------- 97
Financial statements------------------------------------------------------------------------------------------------- 99
Income statement ---------------------------------------------------------------------------------------------------------- 99
Balance sheet--------------------------------------------------------------------------------------------------------------- 100
Cash flow statement ----------------------------------------------------------------------------------------------------- 100
Other information-------------------------------------------------------------------------------------------------- 101
Overview of pet insurance products ------------------------------------------------------------------------------- 101
Management philosophy ---------------------------------------------------------------------------------------------- 104
History ------------------------------------------------------------------------------------------------------------------------ 105
News and topics ---------------------------------------------------------------------------------------------------------- 106
Major shareholders ------------------------------------------------------------------------------------------------------- 108
By the way ------------------------------------------------------------------------------------------------------------------ 109
Company profile ---------------------------------------------------------------------------------------------------------- 110

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Anicom Holdings | 8715 |Shared Research Report

Anicom Holdings ＞ Executive summary

LAST UPDATE【2016/11/15】

Executive summary
Anicom has an approximately 60% share of Japan’s growing pet insurance market
Japan’s pet insurance market in FY03/14 is estimated at JPY28bn. Anicom’s new insurance policies have been growing at anannual average rate of 15.9% over the past five years
Anicom Holdings is a nonlife insurer specializing in pet insurance. The company generated 96% of its revenue, including
investment earnings, from pet insurance operations in FY03/15. The company has an approximately 60% share of Japan’s
pet insurance market, which was estimated at JPY28bn as of FY03/14. Anicom had 545,000 policies on its books as ofend-FY03/15, with an annual average growth rate of 13.4% over the past five years.

Based on the UK, 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 that in 2013 Japanesehouseholds 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.

Competitive advantages: OTC insurance settlement and sophisticated IT system (pet owners with insurance cards only liablefor copayment 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 billing statements 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. The three companies are Anicom (at 5,773 animal hospitals
as of end-March 2015), ipet Insurance (3,427 animal hospitals as of end-March 2015), and Pet & Family Small-amount
Short-term Insurance. This method of settlement is an important tool for animal hospitals to attract customers, and isbecoming the de facto industry standard. Anicom has a large lead over its competitors in the number of animal hospitals
that provide OTC insurance settlement.

Pet insurance offers stable revenue source as Anicom seeks new markets
Pet insurance will provide Anicom with a stable source of revenue as long as there are no changes in the current
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 hereditary disorder-related advanced medical technology and othertypes of preventive healthcare.
Shared Research 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.

Tapping Japan’s JPY1.2tn pet market: focus on value-added 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 released by the Ministry of
Economy, Trade and Industry and the Statistics Bureau of the Ministry of Internal Affairs and Communications]; toilet
sheets and other consumables: JPY100-200bn). The company is not considering starting a pet food business since it

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Anicom Holdings | 8715 |Shared Research Report

Anicom Holdings ＞ Executive summary

LAST UPDATE【2016/11/15】

would not be very profitable. Anicom instead is likely to branch out into small-animal healthcare and related businesses,
and expects to create synergies with its existing business and the customer base.

Reduce loss ratio, raise insurance premiums, and respond to the consumption tax hiketo improve earnings structure
The company has taken various measures to reduce its loss ratio, including 1) strengthening reviewing and checking
procedures before and after insurance payments; 2) strengthening in-house and veterinary hospital systems; 3) raising
insurance premiums as explained below; 4) ceasing sales of a 90% coverage plan and limiting shifts to a 70% coverage
plan; and 5) reviewing online screening of insurance policies.
In FY03/15, Anicom raised its insurance premiums for the first time in its corporate history (in June and November 2014),
and began revamping its product lineup (from November 2014 on). This pricing shift was in part a response to theconsumption tax increase from 5% to 8% in April 2014, which was likely to have a negative impact on Anicom’s earnings
structure. However, it also represented the company’s effort to improve its loss ratio. The company revised insurance
premiums and introduced plans based on various risk categories in an effort to build a more stable earnings structure.

Strengthening reviewing and checking procedures before and after insurance payments expected to have far-reaching impact

These measures are showing tangible results, improving the loss ratio for FY03/15 and FY03/16. In particular, measure 1)
above—strengthening reviewing and checking procedures before and after insurance payments—gives Anicom the ability
to negotiate with animal hospitals, allowing the company to take advantage of scale (large case data and large number ofhospitals under contract). These measures have a cumulative nature, with the ability to leverage its large scale
contributing the stability of the pet insurance business.

On the strength of Anirese F, Anicom aims to prevent excessive treatment, leading to a basic infrastructure leveraging pet data
As part of measure 2) above—strengthening veterinary hospital systems—Anicom plans to promote the use of its
cloud-based medical records management system, Anirese F, and improve its functions to prevent pets from being
excessively treated by showing average treatment cost for each type of medical condition. Going forward, Anirese F is
expected to lead to the creation of a basic infrastructure leveraging open medical records and comprehensive data on the
medical history of each pet’s parents, siblings, and bloodline.
80%70%

Oct 2010: sales of 90% compensation
product begin

62.3%

60%
50%
40%
30%
20%

48.2%
44.8%

53.0%

66.0% 67.3%

61.5%

69.0% 69.5%

68.1%

65.5%

63.1%

66.3%

62.1%

66.7%

68.9%

64.2%
58.7%

56.5% 55.3%
Aug 2012: sales of 90% compensation
product halted(Jul 2013: terminated 90% coverage
product)

41.1% 39.7%
34.6%

Q1
FY03/11Jan- Sep 2014: suspend online sales of 70% compensation plan

73.4%

Q3

36.5%

34.2%

Q1
FY03/12

32.1% 30.5% 31.6%

Q3
E/I loss ratio

Jun 2014: changes topremiums

Aug 2013: limit changes incompensation from 50% to 70%

Q3

Q1
FY03/14

Q3

26.8%

Q1
Q3
FY03/15
Earned premiums expense ratio

60.3%

57.6%

November 2014: introduce
system limiting number of visits
and length of stayOct 2013: extend period from online
aplication to coverage start

29.2% 29.1% 29.3% 30.5% 28.3% 27.7% 27.9% 28.7% 28.3%

Q1
FY03/13

62.1% 60.6%

29.2% 28.4% 29.5%

Q1
FY03/16

33.9%

32.2%

Q3

Source: Shared Research based on company data

Impact of the consumption tax hike
Underwriting income is not subject to consumption tax. However, taxes are incurred from the majority of underwriting
expenses, operating costs, and rental costs included in SG&A expenses. An increase of three percentage points in the
consumption tax rate translates to an increase of some JPY400mn–500mn in expenses. It should be noted that a further

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Shared Research Report

Anicom Holdings | 8715 |Anicom Holdings ＞ Executive summary

LAST UPDATE【2016/11/15】

rise in the consumption tax to 10% would have a similar impact on the company’s earnings.
Since the consumption tax hike was postponed again, the company announced a new version of its “2018 rolling
medium-term plan” based on an 8% tax rate. Compared to the previous plan, earnings targets for FY03/18 and FY03/19
have been raised by JPY400mn (i.e., expenses lowered by JPY400mn) each.

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Anicom Holdings | 8715 |Shared Research Report

Anicom Holdings ＞ Key financial data

LAST UPDATE【2016/11/15】

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

Based on 8% consumption tax

Out May 2016

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.
18,36613.5%
18,087108
171

FY03/15Cons.
22,63823.3%
21,733522
382

FY03/16Cons.
26,50617.1%
25,370690
446

Recurring expenses
YoY
Underwriting expenses
Operation and administrative expenses
Other

7,067
2,950
4,117

10,866
53.8%
5,616
3,640
1,610

8,924
-17.9%
5,541
3,072
311

10,764
20.6%
7,146
3,312
306

13,508
25.5%
9,797
3,392
319

15,34813.6%
11,4503,632
266

17,63314.9%
13,4483,982
203

21,38721.3%
15,9204,905
562

24,37714.0%
17,393
6,699
285

26,100
7.1%
18,1007,550
45027,6005.7%
19,2558,051
295

29,6007.2%
20,6658,444
491

26,100
7.1%
18,1007,550
450

28,0007.3%
19,2558,051
295

30,000
7.1%
20,6658,444
491

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%

1,250
70.5%
5.5%

2,129
70.3%
8.0%

2,600
22.1%
9.1%

3,500
34.6%
11.3%

4,000
14.3%
11.9%

2,600
22.1%
9.1%

3,100
19.2%
10.0%

3,600
16.1%
10.7%

Net income
YoY
Net margin
Per share data
Number of shares ('000)
EPS
EPS (fully diluted)
Dividend per share
Book value per share
ROE
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%

447
-30.2%
2.4%

1,789
27.9%
6.2%

2,416
35.0%
7.8%

2,761
14.3%
8.2%

11
16
16,838.0 -13,319.2
16,838.0 -13,319.2
164,409.2 261,030.7
8.3%
-3.4%

4,054
107.1
92.9
1,512.0
6.7%

4,113
103.1
92.6
1,601.9
6.6%

16,646
28.2
25.7
424.8
6.8%

17,169
38.0
35.2
454.6
8.6%

17,293
26.0
24.1
477.0
5.6%

1,399
68.8%
5.3%
17,934
78.2
77.5
596.6
14.0%
7,556
10,739
1,527
653
4,297
-16
433
25,192

99.8

133.8

152.5

15.4%

17.8%

17.2%

15.4%

17.8%

17.2%

91.0%
58.1%
32.9%

90.7%
57.6%
33.1%

90.5%
57.5%
33.0%

1,789
27.9%
6.2%
99.8
15.4%
15.4%
91.0%
58.1%
32.9%
280.0%

2,140
19.6%
6.9%
118.5
15.9%
15.9%
91.8%
58.6%
33.2%
-

2,485
16.1%
7.4%
137.3
15.9%
15.9%
91.6%
58.4%
33.2%
-

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

4,457
11,367
118
477
2,112
-13
116
18,634

829
85.5%
3.7%
17,842
47.4
44.4
519.6
9.5%
4,217
15,108
250
566
1,945
-13
263
22,337

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

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

8,768
1,520
86
10
10,385

10,5282,411
103
22
13,066

11,8882,414
157
32
14,492

Shareholders' equity
Valuation and transaction adjustments
Minority interests
Total shareholders' equity (net assets)
Total liabilities and shareholders' equity
Cash flow statement (JPYmn)
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Financial ratios
ROA
ROE
Equity ratio
Combined ratio (fully earned basis)
E/I loss ratio
Operating expenses / earned premiums
Combined ratio
Net loss ratio
Net expense ratio
Solvency ratio

4,279
5
4,284
7,748

4,138
-2
46
4,182
8,685

6,106
24
6,130
11,594

6,569
18
6,588
13,382

7,067
3
7,071
15,355

7,795
9
7,805
16,872

8,306
-57
8,248
18,634

162
-368
-

737
-1,367-5

1,608-2,875
1,590

1,792-1,93638

1,879-1,04428

1,507-1,85285

2,009-2,052
60

55.3%
-

-0.8%
-3.4%
47.6%
72.4%
24.4%
48.0%
-

2.9%
6.7%
52.9%
48.6%
85.7%
45.5%
40.2%
-

2.7%
6.6%
49.2%
53.4%
84.4%
48.1%
36.3%
304.1%

2.3%
6.8%
46.0%
97.5%
64.3%
33.2%
88.2%
57.3%
30.9%
307.2%

5.2%
8.6%
46.3%
97.2%
67.5%
29.7%
92.2%
63.7%
28.5%
281.3%

4.1%
5.6%
44.3%
95.3%
66.7%
28.6%
90.1%
62.8%
27.3%
295.1%

9,272
-1
9,270
22,337
3,094-2,963
135
6.1%
9.5%
41.5%
92.7%
64.4%
28.3%
87.7%
59.3%
28.4%
288.7%

10,762-123
10,69925,192
1,960
2,489
89
9.0%
14.1%
42.2%
91.2%
60.1%
31.1%
89.6%
56.9%
32.7%
282.6%

FY03/17 FY03/18 FY03/19 FY03/17 FY03/18 FY03/19
Plan
Plan
Plan Old Plan Old Plan Old Plan
28,70031,10033,60028,70031,10033,600
8.3%
8.4%
8.0%
8.3%
8.4%
8.0%
27,60029,70031,90027,60029,70031,900
600
700
800
600
700
800
500
700
900
500
700
900

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Net loss ratio, net expenses ratio, and combined ratio calculated by Shared Research.
Note: Per share data calculated as of the financial year. The company initiated a 200-for-1 on June 2009, and a 10-for-1 split in October 2011.

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Anicom Holdings | 8715 |Shared Research Report

Anicom Holdings ＞ Recent updates

LAST UPDATE【2016/11/15】

Recent updates
Highlights
On November 15, 2016, Shared Research updated this report following interviews with Anicom Holdings, Inc.

On November 7, 2016, the company announced 1H FY03/17 results; see the results section for details.

For corporate releases and developments more than three months old, please refer to News and topics

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Anicom Holdings | 8715 |Shared Research Report

Anicom Holdings ＞ Trends and outlook

LAST UPDATE【2016/11/15】

Trends and outlook
Quarterly trends and results
Quarterly performance(JPYmn)Recurring revenue
YoY
Underwriting revenue
Investment revenue
Interest and dividend income
Gains on the sale of securities
Other recurring revenue

FY03/15
FY03/16
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
5,163 5,499 5,823 6,153 6,404 6,417 6,616 7,069 7,043
17.5% 23.4% 26.2% 25.5% 24.0% 16.7% 13.6% 14.9% 10.0%
5,012 5,267 5,557 5,897 6,086 6,148 6,406 6,730 6,848
98
127
174
123
188
150
114
238
90
51
51
85
102
71
105
69
89
65
47
75
90
20
116
46
45
148
25
52
106
91
133
129
118
97
102
104

FY03/17
Q2
Q3
6,998
9.1%
6,794
101
77
24
103

41.4%

500

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

4,784 5,205 5,419 5,979 5,913 5,580 6,222 6,662 6,684 6,284
11.8% 21.9% 20.4% 30.5% 23.6%
7.2% 14.8% 11.4% 13.0% 12.6%
3,585 3,960 4,199 4,176 4,465 3,941 4,309 4,678 4,739 4,455
42
7
8
1,148 1,193 1,159 1,405 1,423 1,609 1,809 1,858 1,902 1,758
46
50
54
390
25
29
23
23
42
71

49.7%

26,100
7.1%

Recurring profit
379
293
404
174
491
836
395
407
358
714
235.4% 56.7% 260.7% -45.8% 29.6% 185.3% -2.2% 133.9% -27.1% -14.6%
YoY
2.8%
7.7% 13.0%
6.0%
5.8%
5.1% 10.2%
5.3%
6.9%
RPM
7.3%
Diff. from initial estimates
21.9%- 369.8% -63.1% -23.0% 56.3% 26.6% -33.7% 17.8%
7.4%
Net income
251
206
280
92
349
609
199
242
98
535
269.1% 74.6% 330.8% -53.1% 39.0% 195.6% -28.9% 163.0% -71.9% -12.2%
YoY
Net margin
4.9%
3.7%
4.8%
1.5%
5.4%
9.5%
3.0%
3.4%
1.4%
7.6%
Metrics
Total contracts
516,618 526,439 535,906 544,815 554,837 565,051 575,526 585,962 597,243 610,350
New contracts
26,398 25,249 24,841 25,140 27,055 26,679 27,472 28,887 30,181 30,529
Pet shops
18,682 17,867 18,372 20,086 21,333 20,707 21,474 23,441 24,692 24,492
General agents
7,716 7,382 6,469 5,054 5,722 5,972 5,998 5,446 5,489 6,037
Pet shop & General agents
5,009 5,423 5,608 5,804
Premium payment cases
593
657
655
614
618
709
695
660
680
727
Hospitals accepting Anicom
5,630 5,650 5,696 5,773 5,820 5,848 5,883 5,969 6,001 6,011
676
No. of employees (incl. contract employees)
512
545
627
671
660
644
Veternarians
75
88
100
102
99
104
100
576
Other than veternarians
437
457
527
569
561
540
YoY
Total contracts
11.7% 10.1%
9.0%
7.9%
7.4%
7.3%
7.4%
7.6%
7.6%
8.0%
New contracts-7.7% -9.3% -4.5% -5.9%
2.5%
5.7% 10.6% 14.9% 11.6% 14.4%
Pet shops-2.2% -3.1%
4.7%
6.1% 14.2% 15.9% 16.9% 16.7% 15.7% 18.3%
General agents-18.8% -21.5% -23.7% -35.0% -25.8% -19.1% -7.3%
7.8% -4.1%
1.1%
Pet shop & General agents
3.0% 10.9% 15.3% 17.9%
Premium payment cases
17.6%
3.8%
8.6%
9.6%
4.2%
7.9%
6.0%
7.6% 10.0%
2.6%
Hospitals accepting Anicom
4.1%
3.5%
3.5%
3.1%
3.4%
3.5%
3.3%
3.4%
3.1%
2.8%

41.2%

2,600
22.1%
9.1%

35.4%

1,789
27.9%
6.2%

25.6%
51.4%
52.9%
46.1%

630,000
118,000
93,00025,000

50.3%
13.9%

2,800
6,200

E/I loss ratio
Operating expenses / earned premiums
Combined ratio(Initial estimates)
E/I loss ratio
Operating expenses / earned premiums
Combined ratio
Recurring profit

66.7% 68.9% 64.2% 58.7% 62.1% 60.6% 60.3% 57.6% 59.4% 60.1%
28.7% 28.3% 26.8% 29.2% 28.4% 29.5% 33.9% 32.2% 32.8% 31.0%
95.4% 97.2% 91.0% 87.9% 90.5% 90.1% 94.2% 89.7% 92.2% 91.1%

Underwriting expenses
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees

3,585 3,960 4,199 4,176 4,465 3,941 4,309 4,678 4,739 4,455
2,844 3,092 3,088 3,125 3,073 3,507 3,461 3,506 3,575 3,724
171
188
193
189
212
208
232
243
249
227
296
303
321
349
368
381
401
440
462
461
101
100
43
-100
273
-100
27
-78
68
94
171
277
554
614
535
-53
188
567
383
-52
335
363
376
425
352
182
235
351
294
59
-163
-86
177
188
183
-235
-46
214
88
-109
160
177
188
195
197
205
214
219
217
169
-323
-255
-12
-432
-251
-131
-326
11.8% 21.9% 20.8% 18.7% 24.5% -0.5% 2.6% 12.0% 6.1% 13.0%
17.2%
7.9% 12.4% 17.8%
8.1% 13.4% 12.1% 12.2% 16.3%
6.2%
9.6%
6.8% 16.3% 16.7% 24.0% 10.6% 20.2% 28.6% 17.5%
9.1%
16.1% 20.2% 27.9% 28.8% 24.3% 25.7% 24.9% 26.1% 25.5% 21.0%
69.4% 72.0% 72.1% 67.9% 69.7% 61.4% 65.1% 66.2% 67.3% 63.7%
55.1% 56.2% 53.0% 50.8% 48.0% 54.7% 52.3% 49.6% 50.8% 53.2%
3.3%
3.4%
3.3%
3.1%
3.3%
3.2%
3.5%
3.4%
3.5%
3.2%
5.7%
5.5%
5.5%
5.7%
5.7%
5.9%
6.1%
6.2%
6.6%
6.6%

P rov ision for reserv e for outstanding losses and claims

Provision for underwriting reserves
Unearned premium
Catastrophy reserve(a)...Net premiums written x3.2%...Reversal amount(b)
YoY
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees
% of recurring revenue
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees
Recurring profit - (a)YoY
Recurring profit - (b)YoY

Q4

68.1% 71.6% 68.3% 61.7% 62.1% 63.9% 61.4% 56.8% 58.6% 59.5% 59.7% 55.5%
30.2% 29.8% 28.0% 27.4% 29.5% 31.4% 30.6% 32.0% 35.0% 31.6% 32.2% 29.5%
98.3% 101.4% 96.3% 89.1% 91.6% 95.3% 92.0% 88.8% 93.6% 91.1% 91.9% 85.0%
311
-67
86
471
638
535
312
614
304
665
662
968

216

10,700.0%

56
-

207

581
362
674
601
349
621
446
71.5% -33.8%
479
404
144
407
227
38
404
174
- 260.7% -45.8% 761.7% 951.2% -64.4% 133.9% -52.7%

187.5% 125.2% -23.6% 212.0% 190.3% -39.9%

FY03/17% of FY Init. Est.
48.9%
28,7008.3%
49.4%
27,600
31.8%
600

7.5%
7.2%
7.0%
8.0%
4.4%
3.9%

58.1%
32.9%
91.0%

605
0.7%
388
-4.1%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

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Anicom Holdings | 8715 |Shared Research Report

Anicom Holdings ＞ Trends and outlook

LAST UPDATE【2016/11/15】

1H FY03/17 results (announced November 7, 2016)▶ Recurring revenue: Effects of June 2014 revisions to policy prices wound down, but revenue got boost from higher

prices per premium owing to policy renewals and an increase in the age of pets, and more new policies.
▶ Increase in new policies: successful measures to grow market share, such as strengthened agency strategy; policy

increase of almost 25,000 per quarter sustained in Q1 and Q2.
▶ E/I loss ratio: Down 0.5pp YoY and continuing to improve (the 0.6pp above forecast possibly within margin of error).

Combined impact of several initiatives.
▶ Expense ratio: Up 1.5pp YoY (down 0.6pp versus forecast). Targeting stronger sales and improved loss ratio, stepped

up investment in development and human resources.
▶ Combined ratio: Up 1.0pp YoY (on par with forecast). Expense ratio lowered given rise in E/I loss ratio vs. forecast.

▶ Recurring profit: Declined 14.6% YoY but up 7.4% versus forecast. Contribution from improved expense ratio owing

to thorough cost management and operational improvements.
▶ Parent earnings forecast revised: Given extraordinary losses (impairment of subsidiaries), net income revised down,

but operating revenue, operating profit, and recurring profit revised up
Quarterly performance and new policies sold year-on-year
110%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%

102.6%
900
836
91.1%
99.5%97.9%
98.8%100.2%99.4%
97.2%
97.1%
96.2%
95.4%97.2%
94.2%
93.9%
800 93.0%94.1%
92.4%
92.0%
91.0%
90.1%
89.9%
89.7%92.2% 714
87.9%90.5%
700
90.1%
600
491
500
404
395 407
379
358
400
321
321
312
293
267
300
231
187
186
174
200
113
112
105
98
47
100
18
8
4
0
-100
-81
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
(JPYmn) Q1
FY03/11
FY03/12
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
Contracts (thousands)
Recurring profit (JPYmn)
Combined ratio (right axis)

40%
30%
20%
10%
0%

36%
17%
9%

-10%

29%

38%
16%

6%

4%

11%
5%

4%

1%

12%
5%
-7%

1%

-1%

-1%
-3%

-1%

-20%

26%
15%

17%
6%

4%

-9%

-13%

15%

-4%

-40%

Q1
FY03/12Q3Q1
FY03/13

Q3
New contracts

Q1
FY03/143%-2%-11% -14%

-30%
Q3

16%

14%

12%
5%

-2%

-3%

-8%

-9%

-19%

6%

2%

17%
11%

-5%

-7%

Q3

New contracts through pet shops

-26%
-35%

17%

16%
12%

15%
8%

-6%

-22% -24%

Q1
FY03/15

6%

-4%

18%
14%

1%

-19%

Q1
FY03/16Q3

Q1
FY03/17

Q3

New contracts through agencies

Source: Shared Research based on company data
Not: Q4 FY03/16 figures for E/I loss ratio are company estimates as of Q3

Earnings summary
In Q2, loss ratio and earnings growth continue to improve on rise in new insurance policies, mainly via pet-shop sales channel
The company reported solid results in Q2 FY03/17 for the number of new policies sold, policies held, and the loss ratio.
Contributions to profit included steady signings of new insurance policies, primarily through pet shops, a key sales
channel; over 88% renewal rate; E/I loss ratio improving year-on-year due to continued measures for improvement; andimproved operating expense ratio versus forecast pushed up recurring profit. As a result, the combined ratio was 91.1%,
in line with target, and up 1.0pp YoY as the operating expense ratio increased with upfront spending. But we think thewww.sharedresearch.jp

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Anicom Holdings ＞ Trends and outlook

LAST UPDATE【2016/11/15】

company is not worried, as it continued to keep the ratio in the 90% range, with the expense ratio’s decline (down 0.6pp
versus forecast) offsetting the E/I loss ratio’s rise (up 0.6pp).

Utilizing effects of improved loss ratio to make medium and long-term strategic investments
In Q2, despite the winding down of the effects of revisions to policy prices introduced in June 2014, underwriting
revenue continued to be firm, aided by steady growth in the number of contracts, more policy renewals and higher
prices per premium due to an increase in the age of pets. A loss ratio of 60.1% meant an ongoing year-on-year
improvement, with the company continuing to realize benefits from several initiatives. The upside of 0.6pp against
forecast does not imply meaningful improvement, as the company views changes within 1pp as within expectations.

Increased investment raises operating expense ratio
In Q2, the operating expense ratio rose by 1.5pp to 31.0%, but the company actively reinvested profits generated frompet insurance to strengthen its sales force and in research and development (facilities and specialized personnel).
Through these investments, the company aims at extending the healthy lifespan of pets as a research and development
topic and a new business in the long term. The operating expense ratio declined 0.6pp versus forecast, and the combined
ratio was in line with expectations. The company is making growth investments, paying attention to the combined ratio.
In Q1, in response to E/I loss ratio coming in above the plan, the company had made some cost cuts and pushed somecosts to Q2 or later. In Q2, the operating expense ratio was below plan in response to E/I loss ratio coming in above theplan, and the company worked to keep the combined ratio in the 90% range. Recurring profit came in 7.4% higher thanforecast.

From Q3 onward, investment targeting medium-term growth likely to continue, but company mindful of the combined ratio
Shared Research notes that the company is steadily selling more new policies, which together with measures to improve
its E/I loss ratio should lead to steadily higher revenue over time. The company is also planning further investments in Q3
and beyond geared towards future growth, but Shared Research expects the company to pursue such investment (set toaccelerate in FY03/18) while remaining mindful of the combined ratio.

E/I loss ratio and expense ratio
80%
70%
60%
50%

66.0%67.3%
65.5%
62.3%
61.5%

56.5%55.3%
53.0%
48.2%

40% 44.8%30%
20%Jan- Sep 2014: suspend online sales of 70% compensation plan73.4%

Oct 2010: sales of 90% compensation
product begin

69.0%69.5%
68.9%
68.1%
66.7%
66.3%
64.2%
63.1%
62.1%
62.1%60.6%60.3%
59.4%60.1%
58.7%
57.6%

Aug 2012: sales of 90% compensation
product halted(Jul 2013: terminated 90% coverage
product)

Aug 2013: limit changes incompensation from 50% to 70%

Jun 2014: changes topremiums

November 2014: introduce
system limiting number of visits
and length of stay

41.1%39.7%
Oct 2013: extend period from online
aplication to coverage start
36.5%
34.6%
34.2%
33.9%32.2%32.8%
32.1%30.5%31.6%
31.0%
29.2%29.1%29.3%30.5%28.3%27.7%27.9%28.7%28.3%
29.2%28.4%29.5%
26.8%

Q1
FY03/11Q3

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Q1
FY03/12Q3Q1
FY03/13
E/I loss ratio

Q3

Q1
FY03/14

Q3

Q1
Q3
Q1
Q3
FY03/15
FY03/16
Earned premiums expense ratio

Q1
FY03/17Q3

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Anicom Holdings ＞ Trends and outlook

LAST UPDATE【2016/11/15】

Recurring expenses
7,000
4,784
4,502 4,582
22%
21%(JPYmn)Q1
FY03/12Q3Q1
FY03/13

Operating costs and SG&A expenses

Q3

Q1
FY03/14

Q3

Asset management costs

Q1
FY03/15

28%
25%

26%
24%

22%

22%

Q3

Underwriting expenses

20%

Q1
FY03/16

Q3

1,758

1,193

1,148

1,021

983

968

1,010

909

904

886

933

825

843

859

865

0

26%

20%

2,000
1,000

23%

22%

30%

6,284

27%

1,902

3,000

6,662 6,684

1,858

4,000

25%

1,809

24%
4,077 4,280 4,269
24%
3,826 3,831
23%
3,614
23%
3,281 3,312 3,442 3,473
22%
22%
22%
21%
21%

5,205

6,222
5,580 27%

1,609

26%

5,979 5,913

1,423

5,000

5,419

1,405

27%

1,159

6,000

Q1
FY03/17

18%
16%

Q3

Operating costs and SG&A expense ratio (right axis)

Source: Shared Research based on company data

Progress of key initiatives
Below is an overview of the company’s progress in Q2 regarding key initiatives in FY03/17, including growing the pet
insurance business, allocating resources to new businesses, and building up preventative services.

Measures to grow new contracts proving worthwhile
Measures to achieve healthy growth in the pet insurance market: on the insurance premium side, ongoing efforts todevelop the market as well as develop relationships with new insurance agencies and strengthen those with existing
agencies; on the expense side, developing pet insurance products that will keep the loss ratio around 60% over the
medium to long term and accommodate both the needs of policyholders for fair compensation and those of insurancecompanies for maintaining a viable insurance system.
In Q2, the number of policies sold through pet shops rose 18.3% YoY, up more than each of the past five quarters. The
company achieved an E/I loss ratio of 60.1% over the full year, as it continued at levels set under its medium- to long-termtarget (60%), and the renewal rate stayed at 88%.
New contracts and contract renewal rate

8

New contracts (agencies)

Contract renewal rate (right axis)

9.5
8.6
8.0
8.7
8.0
8.4
8.1
8.2
8.7
8.3
8.0
8.3
8.8
7.7
8.2
7.8
8.3
8.3
7.9
8.4
8.4
8.4
9.1
9.1
9.9
9.7
9.4
9.2
9.3
8.1
8.7
9.2
8.8
8.2
9.7
8.7
9.4
8.3
8.0
8.9
8.3
8.6
8.1
8.1
8.4
8.2
8.5
8.9
9.3
8.9
8.5
8.9
9.2
9.1
9.1
9.2
9.9
9.2
9.8
9.8
10.5
9.9
9.9
10.8
9.9

10

New contracts (pet shop)

8.5

12

5.4
6.3
5.5
4.9
5.3
5.0
5.2
4.9
5.1
5.4
5.0
4.7
4.6
5.4
4.9
4.8
4.7
5.2
5.0
4.7
5.2
5.4
5.4
6.0
5.9
6.7
6.5
6.1
6.1
6.2
5.8
5.6
6.2
6.6
5.7
6.6
6.0
6.8
5.9
5.6
6.3
5.9
5.8
6.2
6.4
6.8
6.5
6.8
6.9
7.6
6.9
6.5
6.9
7.3
7.0
7.2
7.3
8.0
7.5
8.0
7.9
8.6
8.1
7.9
8.7
7.9

2

91%
90%
89%

6
4

92%

0
Apr-11

Apr-12

Apr-13Apr-14Apr-15

Apr-16

88%
87%
86%

Source: Shared Research based on company data

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Anicom Holdings ＞ Trends and outlook

LAST UPDATE【2016/11/15】

Breakdown of new contracts (YoY)
40%
30%
20%
10%
0%

36%
17%
9%

29%

38%
16%

6%

-10%

4%

11%
5%

4%

1%

12%
5%
-7%

1%

-1%

-1%
-3%

-1%

-20%

26%
15%

17%

-4%

3%

-2%
-11% -14%

-30%
-40%

Q1
FY03/12Q3Q1
FY03/13Q3Q1
FY03/14

New contracts

Q3

16%

14%

12%

6%

4%

-9%

-13%

15%

5%

-2%

-3%

-8%

-9%

-19%

6%

2%

17%
11%

-5%

Q3

17%

-19%

-35%

Q1
FY03/16

New contracts through pet shops

1%

-4%

-7%
-26%

18%
14%

16%
12%

15%
8%

-6%

-22% -24%

Q1
FY03/156%Q3Q1
FY03/17

Q3

New contracts through agencies

Source: Shared Research based on company data

In pet shop channel, looking to win new shops, sell more policies through existing agents
In pet shop channel, Anicom is taking a two-pronged strategy: expanding the region it covers by acquiring new shops,
and deepening operations by selling more policies through existing agents and enhancing cooperation. Judging from thepace of acquiring new properties and sales of policies through existing agents, Shared Research believes the company
continues to perform well in both areas.
The steady growth in insurance policy sales reflects robust signing up of new pet shops to sell Anicom insurance products
owing to a successful agency strategy, as well as improvement in the rate of policies sold through existing pet shop
agents. While the insurance sales ratio (number of policies sold ÷ number of pets sold) was just under 40% in Q1
FY03/15, it appears to have remained around 50% since Q2 FY03/16. Anicom has been working to get the insurance sales
ratio up to 70% for some time, but the ratio has only started to improve since the company stepped up promotional andmarketing in Q4 FY03/15, such as marketing support for the opening of new pet shops serving as agents for Anicom’s
insurance products. The rise in commissions and collection costs in insurance underwriting expenses is a form ofinvestment and is controlled with the combined ratio of 90% in mind, and leading to an increase in the number of
insurance policy sales.
Shared Research believes this approach should build up policy sales over the long term, and will be keeping a close eyeon new policy sales numbers.

In its effort to support new pet shops serving as agents for Anicom's insurance products, Anicom provides them with personnel, essentials,
and money, with some conditions. Money is not in the form credit, lending, or investment. Rather, the company raises agency commissions fora certain period in exchange for stores prioritizing the acquisition of new insurance contracts. Naturally, actual terms are determined on thebasis of a given shop’s overall contribution to the company’s earnings.

Commissions, brokerage fees, and new contracts for newborns
Net commissions and brokerage fees, % of recurring revenue

New contracts for newborns

24,0007%

20,0006%

16,0005%

12,000Q1
FY03/12Q3Q1
FY03/13Q3Q1
FY03/14Q3

Q1
FY03/15Q3Q1
FY03/16Q3

Q1
FY03/17

4%

Source: Shared Research based on company data

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Anicom Holdings ＞ Trends and outlook

LAST UPDATE【2016/11/15】

Impact of decline in new contracts triggered by review of online contracts wound down in October 2015, up 1.1% in Q2; promising
new measures
In FY03/15 the number of general agency and online contracts, excluding contracts via pet shop agents, fell a dramatic
24.3% YoY. This was a result of a drop in online contracts, rather than general agency contracts, due to a longer period
from application to coverage (from October 2013), tighter underwriting criteria, and the strategic suspension of
70%-compensation insurance products. This did however contribute to the improvement in loss ratio in FY03/15.
The impact of the changes above, which hurt online contracts, wound down in FY03/16. New contracts started to rise in
Q4 FY03/16, fell 4.1% YoY in Q1 03/17, and rose again in Q2 by 1.1%. Shared Research thinks contracts through general
agencies will not substantially hinder the number of new contracts Anicom wins.
Anicom thinks that in order to expand its market share, it will need to win more contracts from existing pet owners, on
top of contracts from new pet owners via pet shop agents. If the company manages to design products and structure
underwriting criteria to make up for the weaknesses of online contracts (e.g., high-risk pet owners taking out insurance),such measures may drive higher earnings.
New general agents under contract (‘000)
30%

General agents newly brought under contract (right axis)

-2%
4%
2%

2,000

-16%
-15%
-21%
-22%
-24%

-12%

8%

1%
3%
-5%
5%

3%

3,000

1,000

-26%
-34%

-43%

-39%
-42%

Apr-14

-26%
-32%

1%
-13%
-17%
-26%
-26%
-17%
-22%

-15%

-0%
-3%
-27%

-30%

Apr-13

4,000

YoY

20%

20%

13%

-40%
-50%
Apr-12

-4%
-0%
-2%

8%

4%
0%
-2%
0%

-30%

-11%
-8%
-6%
-14%
-7%

-20%

-10%

-10%

-8%

0%

8%

10%

16%

20%

Apr-150

Apr-16

Source: Shared Research based on company data

Responding to various initiatives, loss ratio improving in line with plan
The E/I loss ratio (based on earned premiums) came down to 60.1% in Q2, continuing its improving trend. Management
believes that various measures to reduce the loss ratio have been effective. With the effects of revisions to policy prices
winding down, quarterly fluctuations are also subsiding. Despite lingering seasonality, the loss ratio is showing stability,
and we are left to conclude that the company has progressed in improving the earnings structure of its pet insurance
business.

Efforts to strengthen claim assessment (before and after payments) may lead to long-term growth
For instance, Anicom will strengthen its assessment of insurance claims by working closely with animal hospitals. The
company, which deals with many hospitals and maintains a vast amount of clinical data, examines insurance claims both
before and after the payments are made. The company wants to leverage its size to ensure further growth going forward.

Anirese F system likely to discourage unnecessary treatment, allow for creation of industrywide data infrastructure
Anicom will promote Anirese F, a cloud-based record management system. The system may help discourage unnecessary
treatment by showing the average cost of dealing with various ailments. The system may eventually allow for the creationof a data infrastructure that makes medical records widely available. Medical records of parents and siblings of a particular
pet may also become accessible through such a network. The number of animal hospitals using Anirese F is between 700
and 800, below the company’s target for 1,500. The company will revise its medium-term target, which calls for 3,330

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hospitals, and extend the target to the end of March 2019.

Net loss ratio and E/I loss ratio80%

E/I loss ratio

75%

Net loss ratio

70%

67.3%
66.0%

65%

62.3%

60%
55%

69.0%69.5%
68.9%
66.7%
66.3%
64.2%
63.1%
62.1%

68.1%

61.5%
62.9%63.2%

57.2%
56.0%55.6%
54.8%

50% 48.2%
45%

65.5%

56.5%
55.3%

53.0%

73.4%

65.3%

60.3%

58.7%
57.0%
56.7%
55.6%
55.1%
54.8%
54.0%
53.0%
52.1%52.2%
50.5%

56.8%56.1%

48.2%
45.5%45.9%
44.1%

40% 41.9%
Q1
FY03/11Q3

Q1
FY03/12Q3Q1
FY03/13Q3Q1
FY03/1462.1%
60.6%60.3%
59.4%60.1%
57.6%

58.7%

Q3

Q1
FY03/15Q3Q1
FY03/16Q3

Q1
FY03/17

Q3

Source: Shared Research based on company data

Strategic investments aimed at growing top line
Anicom is actively using the improvement in the loss ratio and profits from pet insurance to make both hard and soft
investments and research and development of products and services such as a pet health screening service and theAnicom Concierge service.
At Anicom Specialty Medical Institute, research and analysis are conducted on the intestinal flora of pets and pet owners,
at Anicom Insurance, analysis is conducted on insurance claims data, and at Anicom and Anicom Insurance,
comprehensive surveys are conducted on pets regarded as family members. The company releases the results, continually
updates the information, and plans to undertake initiatives to make those into businesses to expand Group profits.

Preventive initiatives
The effects of these preventive initiatives are hard to measure. However, Shared Research thinks that they do slightly
contribute to improved loss ratio and contract renewal rates. Anicom’s contract renewal rate has stabilized at the 88%
level, ±0.4pp since June 2015. Insurance contracts are most frequently canceled in the second year, likely because it was
not used during the first year. The company reasons that the cancelation rate will decline if its pet insurance customers are
satisfied with the insurance, and this is where preventive measures come in. Shared Research expects that the company
will launch initiatives to reinforce customers’ sense of security by offering information and services to help pets stayhealthy.
Anicom already has a set of preventive measures in place from the breeding stage, which it has focused on from before.

Celltrust Animal Therapeutics—Joint venture with Fujifilm Holdings
The joint venture fully launched operations in October 2016 (Anicom’s stake: 49%). It plans to develop and provide
advanced medical technology and services for animals, with a particular focus on regenerative medicine in the field ofadvanced animal healthcare. Anicom aims to contribute to veterinary medicine by closely partnering with local
administrations, especially the Animal Regenerative Medicine Center Hospital in Yokohama, Kanagawa (the governor of
Kanagawa Prefecture attended the opening ceremony), which is the first base in Japan where the entire process from thedevelopment of advanced animal healthcare to actual treatment takes place.

Strengthening personnel
Though the company is strengthening existing businesses and its internal structure, and continuing to invest in humanresources with an eye towards new businesses, the rising trend has lost some momentum. While both operating expenses

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Anicom Holdings ＞ Trends and outlook

LAST UPDATE【2016/11/15】

and SG&A expenses have been on a steady uptrend year-on-year, the impact is expected to wind down going forward.
While the company had 32 more employees at end Q2 compared to end Q1, this does not mean that it is actively hiring:
A quarterly comparison just creates this impression.
Number of employees
800
700

627

600

545

512

500
300

527

457

437

200

660

644

102

99

104

569

561

540

676
100

88

75

400

100

671

576

100
0

Q4
FY03/15

Q1
Q2
Q3
Q4
FY03/16
Employees (incl. contract employees) in group (exclude vets)

Q1
Q2
Q3
FY03/17
Employees (incl. contract employees) in group (vets)

Q4

Revenue from investments
Interest and dividend income

300

Gains on the sale of marketable securities
238

250
200

In FY03/13, Anicom realized gains as it unwound its bond position, movingfrom a medium-term to a short-term position.

150

127
98

100

133

50
0

20
0
20

35
10
25

Q1
FY03/11

16
0
16

23
5
17

Q3

(JPYmn)

21
0
20

23
1
23

Q1
FY03/12

24
0
23

40
15
26

Q3

39
7
31

32
1
31

Q1
FY03/13

38
6
32

30
19

Q3

188

174

151

26
4

Q1
FY03/14

20
14
6

19
14
4

Q3

39
35
4

90

75

47
51

51

Q1
FY03/15

85

Q3

150
123
20

116

46

148
114

90

45

102

71

105

Q1
FY03/16

69

Q3

101
24

25
89

77

65

Q1
FY03/17

Q3

Source: Shared Research, based on company data

Other recurring revenues
133

140
120

129

118

106

100

97

91

102

104

103

80
60

43

40

45
31

35

36

42

33

33

32

37

39

35

36

46

52

52

37

20
0

Q1
FY03/11(JPYmn)Q3

Q1
FY03/12Q3Q1
FY03/13Q3Q1
FY03/14Q3

Q1
FY03/15Q3Q1
FY03/16Q3

Q1
FY03/17

Q3

Source: Shared Research, based on company data

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

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Anicom Holdings ＞ Trends and outlook

LAST UPDATE【2016/11/15】

Full-year outlook
Initial outlook (incorporated partial revisions to the medium-term management plan announced in August 2016)(JPYmn)Recurring revenue
Underwriting revenue
Investment revenue
Other recurring revenue
YoY
Recurring expenses
Underwriting expenses
Operating expenses/SG&A expenses
OthersRecurring profit
YoY
RPM
Net income
ROE
E/I loss ratio
Operating expenses / earned premiums
Combined ratio
Total contracts
Premium payment cases ('000)

FY03/10
Results
9,216
9,003
71
141
8,924
5,541
3,072
311
292
3.2%
346
6.7%
48.6%
290,767812

FY03/11
Results
11,107
10,85894
154
20.5%
10,764
7,146
3,312
306
342
17.3%
3.1%
421
6.6%
53.4%
340,628
1,096

FY03/12Results
13,845
13,592
108
144
24.7%
13,508
9,797
3,392
319
337
-1.5%
2.4%
465
6.8%
64.3%
33.2%
97.5%
396,234
1,591

FY03/13
Results
16,186
15,781
260
143
16.9%
15,34811,450
3,632
266
837
148.4%
5.2%
640
8.6%
67.5%
29.7%
97.2%
446,4141,939

FY03/14
Results
18,36618,087
108
171
13.5%
17,633
13,448
3,982
203
733
-12.4%
4.0%
447
5.6%
66.7%
28.6%
95.3%
504,969
2,301

FY03/15
Results
22,63821,733
522
382
23.3%
21,387
15,920
4,905
562
1,250
70.5%
5.5%
829
9.5%
64.4%
28.3%
92.7%
544,8152,520

FY03/16Cons.
26,50625,370
690
446
44.3%
24,377
17,393
6,699
285
2,129
70.3%
8.0%
1,399
14.1%
60.1%
31.1%
91.2%
585,9622,682

FY03/17Est.
28,70027,600
600
500
26.8%
26,10018,100
7,550
450
2,600
22.1%
9.1%
1,789
15.4%
58.1%
32.9%
91.0%
630,000
2,800

FY03/18Plan
31,10029,700
700
700
17.3%
27,60019,255
8,051
295
3,500
34.6%
11.3%
2,416
17.8%
57.6%
33.1%
90.7%
682,000

FY03/19Plan
33,60031,900
800
900
17.1%
29,60020,665
8,444
491
4,000
14.3%
11.9%
2,761
17.2%
57.5%
33.0%
90.5%
739,000

Source: Shared Research based on company data

FY03/17 company targets (Initial outlook)
Second year of the “2018 rolling medium-term management plan”
During FY03/17, Anicom will implement measures included in the “2018 rolling medium-term management plan”
announced in May 2016. We have decided to call the current period a second year of Anicom’s medium-term
management plan, though an argument could be made that this description is not entirely accurate since the company
revises its medium-term management plan every year.
Nevertheless, we stand by our decision because of the following reasons: 1) Anicom had completed the task of improving
its loss ratio by FY03/15; 2) the company is now shifting its focus to top-line growth and growth in new services centeredon non-insurance preventive care; 3) the latest management outlines specific measures to expand preventive services; 4)
the company’s overall strategy is the same, as are recurring profit targets for FY03/17 and for FY03/18.
We will be watching the company’s efforts at top-line growth and the results, as well as progress with its new preventive
care services. (For details, please refer to the section on Medium-term strategy.)Plan for FY03/17
The company’s plan for FY03/17 consists of achieving solid growth in pet insurance, investing resources in new
businesses, and beefing up its prevention-related business. (For details, refer to the section on Medium-term strategy.)

Targets
Anicom is targeting an 8.3% YoY increase in recurring revenue based on a steady increase in insurance contracts (+7.5%
YoY). Anicom expects to win more contracts—via both newborn and general routes—while maintaining existingcustomers.
In terms of profits, the company expects efforts through FY03/16 to improve its loss ratio to begin showing results, with a
2.0pp YoY improvement to 58.1%. However, the business expense ratio may decline 1.8pp to 32.9% because of rent
payments and depreciation costs that occurred after the company relocated its headquarters in October 2015. R&D
spending and personal expenses are also rising as the company prepares to provide preventive services. In addition,
outsourcing costs are also rising, as are expenses related Anico Park Nishi-Shinjuku. As a result, the combined ratio is
forecast to improve by 0.2pp YoY to 91.0%.

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Anicom Holdings | 8715 |Shared Research Report

Anicom Holdings ＞ Long-term strategy

LAST UPDATE【2016/11/15】

Long-term strategy
Medium-term plan
Announced May 10, 2011
(JPYmn)Recurring revenue
YoY
Recurring profit
YoY
Profit margin
New contracts
Renewal rate
Total contracts at year-end
Net loss ratio
Net expense ratio
Combined ratio
E/I loss ratio
Announced May 10, 2012

(JPYmn)Recurring revenue
YoY
Recurring profit
YoY
Profit margin
Announced May 8, 2013
(JPYmn)Recurring revenue
YoY
Recurring profit
YoY
Profit margin
Announced May 8, 2014

(JPYmn)Recurring revenue
YoY Recurring revenue
Recurring profit
Recurring profit
Profit margin
E/I loss ratio
Announced May 8, 2015
(JPYmn)Recurring revenue
Underwriting revenue
Investment revenue
Other recurring revenue
YoY
Recurring profit
YoY
Profit margin
Net profit
ROE
E/I loss ratio
Operating expenses / earned premiums
Combined ratio
Total contracts
Premium payment cases (thousand)(JPYmn)Recurring revenue
Underwriting revenue
Investment revenue
Other recurring revenue
YoY
Recurring expenses
Underwriting expenses
Operating expenses/SG&A expenses
OthersRecurring profit
YoY
RPM
Net income
ROE
E/I loss ratio
Operating expenses / earned premiums
Combined ratio
Total contracts
Premium payment cases ('000)

FY03/10
Results
9,216

3.2%
86,90484.1%
290,767

FY03/11
Results
11,107
20.5%
342
17.3%
3.1%
91,66686.6%
340,628

FY03/12Est.
13,458
21.2%
418
22.2%
3.1%
98,60087.5%
395,000

FY03/13Plan
16,04819.2%
855
104.5%
5.3%
107,000
88.0%
451,400

FY03/14Plan
18,733
16.7%
1,429
67.1%
7.6%
116,000
88.3%
511,800

45.5%
40.2%
85.7%
48.6%

48.1%
36.3%
84.4%
53.4%

55.1%
33.1%
88.2%
59.5%

55.5%
31.1%
86.6%
60.0%

56.4%
29.9%
86.3%
60.5%

FY03/10
Results
9,216

FY03/11
Results
11,107
20.5%
342
17.3%
3.1%

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

FY03/13Est.
15,97015.3%
755
124.0%
4.7%

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

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

FY03/11
Results
11,107
20.5%
342
17.3%
3.1%

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

FY03/13
Results
16,18616.9%
837
148.4%
5.2%

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

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

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

FY03/11
Results
11,107
20.5%
342
17.3%
3.1%
53.4%

FY03/12Results
13,845
24.7%
337
-1.5%
2.4%
64.3%

FY03/13
Results
16,18616.9%
837
148.4%
5.2%
67.5%

FY03/14
Results
18,36613.5%
733-12.4%
4.0%
66.7%

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

FY03/16Plan
25,00014.7%
1,600
100.0%
6.4%
65.5%

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

FY03/11
Results
11,107
10,858
94
154
20.5%
342
17.3%
3.1%
421
6.6%
53.4%
340,628
1,096

FY03/12Results
13,845
13,592
108
144
24.7%
337
-1.5%
2.4%
465
6.8%
64.3%
33.2%
97.5%
396,234
1,591

FY03/13
Results
16,186
15,781
260
143
16.9%
837
148.4%
5.2%
640
8.6%
67.5%
29.7%
97.2%
446,4141,939

FY03/14
Results
18,36618,087
108
171
13.5%
733
-12.4%
4.0%
447
5.6%
66.7%
28.6%
95.3%
504,969
2,301

FY03/15
Results
22,63821,733
522
382
23.3%
1,250
70.5%
5.5%
829
9.5%
64.4%
28.3%
92.7%
544,8152,520

FY03/16
Est.
25,60024,521
487
593
13.1%
2,100
68.0%
8.2%
1,446
14.5%
61.0%
30.9%
91.9%
588,000
2,790

FY03/17Plan
28,30026,738
550
1,012
10.5%
2,600
23.8%
9.2%
1,808
Increase
60.0%
31.3%
91.3%
636,000
2,950

FY03/18
Plan
31,20029,099
600
1,501
10.2%
3,100
19.2%
9.9%
2,172
Increase
59.9%
31.0%
90.9%
689,000
3,140

FY03/11
Results
11,107
10,85894
154
20.5%
10,764
7,146
3,312
306
342
17.3%
3.1%
421
6.6%
53.4%
340,628
1,096

FY03/12Results
13,845
13,592
108
144
24.7%
13,508
9,797
3,392
319
337
-1.5%
2.4%
465
6.8%
64.3%
33.2%
97.5%
396,234
1,591

FY03/13
Results
16,186
15,781
260
143
16.9%
15,34811,450
3,632
266
837
148.4%
5.2%
640
8.6%
67.5%
29.7%
97.2%
446,4141,939

FY03/14
Results
18,36618,087
108
171
13.5%
17,633
13,448
3,982
203
733
-12.4%
4.0%
447
5.6%
66.7%
28.6%
95.3%
504,969
2,301

FY03/15
Results
22,63821,733
522
382
23.3%
21,387
15,920
4,905
562
1,250
70.5%
5.5%
829
9.5%
64.4%
28.3%
92.7%
544,8152,520

FY03/16Cons.
26,50625,370
690
446
44.3%
24,377
17,393
6,699
285
2,129
70.3%
8.0%
1,399
14.1%
60.1%
31.1%
91.2%
585,9622,682

FY03/17Est.
28,70027,600
600
500
26.8%
26,10018,100
7,550
450
2,600
22.1%
9.1%
1,789
15.4%
58.1%
32.9%
91.0%
630,000
2,800

FY03/18Plan
31,10029,700
700
700
17.3%
27,60019,255
8,051
295
3,500
34.6%
11.3%
2,416
17.8%
57.6%
33.1%
90.7%
682,000

292

292
3.2%
FY03/10
Results
9,216
292
3.2%
FY03/10
Results
9,216
292
3.2%
48.6%
FY03/10
Results
9,216
9,003
71
141
292
3.2%
346
6.7%
48.6%
290,767812
FY03/10
Results
9,216
9,003
71
141
8,924
5,541
3,072
311
292
3.2%
346
6.7%
48.6%
290,767812

FY03/19Plan
33,60031,900
800
900
17.1%
29,60020,665
8,444
491
4,000
14.3%
11.9%
2,761
17.2%
57.5%
33.0%
90.5%
739,000

Source: Shared Research based on company data

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Shared Research Report

Anicom Holdings ＞ Long-term strategy

Anicom Holdings | 8715 |LAST UPDATE【2016/11/15】

Partial revision to medium-term plan (considers postponement of consumption tax hike)(JPYmn)Recurring revenue
Underwriting revenue
Investment revenue
Other recurring revenue
YoY
Recurring expenses
Underwriting expenses
Operating expenses/SG&A expenses
OthersRecurring profit
YoY
RPM
Net income
ROE
Earned premiums
Premium payments
E/I loss ratio
Operating expenses / earned premiums
Combined ratio
Total contracts
Premium payment cases ('000)(Announced May 9, 2016)(Announced August 5, 2016)
Differences
FY03/17
FY03/18
FY03/19
FY03/17
FY03/18
FY03/19
FY03/17
Est.
Plan
Plan
Est.
Plan
Plan
Est.
28,70031,10033,60028,70031,10033,60027,60029,70031,90027,60029,70031,900
600
700
800
600
700
800
500
700
900
500
700
900
26.8%
17.3%
17.1%
26.8%
17.3%
17.1%
26,10028,00030,00026,10027,60029,60018,10019,55021,00018,10019,255
20,665
7,550
8,150
8,500
7,550
8,051
8,444
450
300
500
450
295
491
2,600
3,100
3,600
2,600
3,500
4,000
22.1%
19.2%
16.1%
22.1%
34.6%
14.3%
9.1%
10.0%
10.7%
9.1%
11.3%
11.9%
1,789
2,140
2,485
1,789
2,416
2,761
15.4%
15.9%
15.9%
15.4%
17.8%
17.2%
27,135
29,15831,31027,135
29,15831,31015,77017,10018,30015,77016,80018,000
58.1%
58.6%
58.4%
58.1%
57.6%
57.5%
32.9%
33.2%
33.2%
32.9%
33.1%
33.0%
91.0%
91.8%
91.6%
91.0%
90.7%
90.5%
630,000
682,000
739,000
630,000
682,000
739,000
2,800
2,800
-

FY03/18
Plan
-400
-295
-99
-5
400
15.4%
1.3%
276
1.9%
-300
-1.0%
-0.1%
-1.1%
-

FY03/19
Plan
-400
-335
-56
-9
400
-1.8%
1.2%
276
1.3%
-300
-0.9%
-0.2%
-1.1%
-

The combined ratio was expected to temporarily deteriorate during FY03/18 because of an increase in the consumption
tax. (The consumption tax does not affect the company’s insurance premium revenue. However, claims and otherexpenses are subject to the tax, and the amount of the deduction is limited. An increase in the consumption tax,
therefore, ends up reducing the company’s earnings.) However, since the consumption tax hike was again postponed,
the company announced a new version of its “2018 rolling medium-term business plan” based on an 8% tax rate.
Compared to the previous plan, recurring profit targets for FY03/18 and FY03/19 have been raised by JPY400mn.

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Anicom Holdings | 8715 |Anicom Holdings ＞ Long-term strategy

LAST UPDATE【2016/11/15】

2018 medium-term management plan
Medium-term management plans released with full-year results since 2011
Anicom revises its medium-term management plan each year, and has released these annually at the same time as its
full-year earnings results. The following is a summary of the medium-term management plan announced in May 2016.

Recurring profit targets unchanged for FY03/17 and FY03/18
In an updated medium-term management plan released in May 2016, the company left its recurring profit targets for
FY03/17 and FY03/18 unchanged from the version unveiled a year earlier. However, there have been changes to the cost
structure, with the company expecting the loss ratio to improve and the business expense ratio to rise. The company is
now ready to invest more aggressively after incurring expenses during FY03/16 as a result of an effort to improve its loss
ratio and finance business growth. Even so, company’s earnings could be hurt by an increase in the consumption tax,
scheduled to take place in FY03/18.

Medium-term management plan more in step with original vision; company focusing on preventive services
Anicom has been planning to become a preventive-service provider since its very inception. Shared Research believes
measures to achieve this vision are gradually being incorporated in the company’s medium-term management plan. The
role of insurance companies has traditionally been understood as that of assessing damages and alleviating suffering byawarding payments. Anicom has said it wants to transform itself into a company that prevents such suffering.
This endeavor was clearly seen in the 2015 medium-term management plan, which spelled out the company’s futureaspirations. The latest medium-term plan appears to outline more specific measures to achieve this goal, focusing on
illness prevention and discussing how the company should invest for future expansion.

New management plan focuses on prevention (keyword: healthy lifespan)
Up until the release of the 2014 medium-term management plan in June, the company had aimed to diversify its businessby developing new businesses through improved profitability of the existing pet insurance business. The 2015 plan,backed by this improved profitability, clearly defined the company’s strategy to grow its pet insurance business, and towork on building the infrastructure necessary to be a preventive insurance company.
In the 2018 medium-term management plan, the company outlines specifics for its pet insurance business and to steadily
expand its business foundation, and sets its sights on further growth by developing preventive insurance services thatoffer customers new added value.
Anicom has also developed VISION, which consists of medium-term and long-term plans focusing on the healthy lifespanof animals. The emphasis is on extending the animals’ healthy lifespan by preventing sickness and accidents. In our view,the company wants to add new value to its existing insurance operations while starting new businesses at the same time.

Illness prevention, insurance payments, advanced medical treatment
The company is implementing measures to bolster its existing insurance operations to realize stable earnings while
establishing preventive insurance services.
Anicom does not expect to easily achieve its 2018 medium-term management plan because investments made during
FY03/16 are weighing heavily on its expense ratio. It must first ensure that these investments lead to business growth.

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Strategy for the existing business (pet insurance): Establishment of
stable revenue source
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 new policies, as well as maintenance of its renewal rate. Reformof the earnings structure is to be based on an overhaul of product content, including pricing and services, andstrengthened loss ratio control.
Below we outline market factors affecting the pet market, Anicom’s strategy for winning new customers (including
product strategy), and its strategy for controlling the loss ratio.

Expansion of insurance premium revenue driven by market growth
Current insurance ratio: 5.4%; more pet owners consider insurance every year
The ratio of pet insurance coverage in Japan was 5.4% in FY2015. In contrast, the ratio in the UK for dogs was 25% and forcats was 15% in 2014, according to Timetric Pet Insurance in the UK Key Trends and Opportunities to 2019. Anicom isconvinced that there is scope for the pet insurance market to grow, and estimates the potential domestic market to befour or five times the current market size.
Of the roughly 19.8mn dogs and cats kept in Japan (2015 data from the National Pet Association), Anicom estimates that
5.4% are insured, yet more than 80% of pet owners feel the need for pet insurance (according to a 2014 survey by Pet

Soken). The same research also indicates that the number of pet owners considering pet insurance is increasing annually,suggesting that there is significant potential for continued growth in the pet insurance market.
Expansion of pet insurance market
3.0%
Anicom contracts(approx. 586,000 pets)
5.4%
Pet insurance market(approx. 1mn pets)
51.6% (2014), 41.6% (2012), 40.9% (2010) eventually want insurance
Of which 16.5% (2014), 10.4% (2012), 8.0% (2010) are considering insurance

82.7% (2014), 84.6% (2012), 82.4% (2010)
Believe pet insurance is a necessity
100%: 19.8mn pets (total domestic dogs and cats; source: Japan Pet Food Association 2015 survey)(Domestic)
2015
2014
2013
2012
2011

Total dogs and cats('000)
19,791
20,305
20,61521,282
21,542(Domestic)

Total pets per householdCats% with cats

2015
2014
2013
2012
2011

0.36
0.37
0.38
0.39
0.40

9,874
9,959
9,743
9,748
9,606

10.09%
10.13%
10.14%
10.22%
10.31%

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Dogs Total households('000)
9,917
55,364
10,34654,952
10,872
54,595
11,53454,171
11,93653,550% with dogs
14.42%
15.06%
15.81%
16.77%
17.69%

Households w/ dogs('000)
7,985
8,277
8,629
9,082
9,473

Avg. pet countHouseholds w/ cats('000)
5,588
5,564
5,536
5,539
5,521

Avg. pet count

1.24
1.25
1.26
1.27
1.26

1.77
1.79
1.76
1.76
1.74

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Source: Pet Soken, Japan Pet Food Association, Ministry of Internal Affairs and Communications, Fuji Keizai, company data, SR Inc. research

Aiming for a pet insurance coverage ratio on par with the UK; long-term target for underwriting revenueof JPY100bn
Survey suggests 16.5% considering pet insurance: a JPY110bn new market.
As detailed below, the company aims to grow the pet insurance market and expand its own earnings through deeper
cultivation of existing pet shop agencies, and synergies with its new businesses. If all 16.5% of pet owners who are
considering buying pet insurance actually did so, assuming the average premium payment of JPY35,000, the market
would expand to around JPY110bn. If all 51.6% of those who answered that they would like to buy pet insurance at somepoint actually did so, that would be a new market of JPY360bn.
Based on the 25% pet insurance coverage ratio in the mature UK market (2014), the Japanese market would be worth
about JPY170bn. Based on a 60% market share, Anicom is targeting revenue of JPY100bn in the long term.
Comparison of potential growth of the pet insurance market in the UK and Japan

UK
Japan

Population(a)64.1mn127.3mn

Number of pets(b)
15.2mn20.3mn% of(a) / (b)pets insured
4.22 approx 23-25%
6.27
approx 5.2%

Market size
JPY106.0bn
JPY35.0bn

Value
per contract
JPY28,000
JPY35,000

Source: Company materials, World Bank (Population figures for 2013), Japan Pet Food Association, Datamonitor
Note: If Japanese get coverage at the same rate as in the UK: JPY35,000 x 20.3mn x 24% = approx. JPY 170.0bn
Note: UK data for CY2011, Japan data for CY2014; forex assumption: GBP/JPY170

Differences between the UK and Japan
The pet insurance coverage ratio accelerated in the UK from around 2004. Anicom analyzes that this growth coincidedwith aggressive sales drives by large retail chains such 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.
Of Japan’s large retail chains, AEON Pet (AEON holds a 75% equity stake) operates pet shops and animal hospitals, but it
did not enter the pet insurance business until recently. In March 2014, its subsidiary AEON S.S. Insurance Co., Ltd. beganselling pet insurance exclusively to AEON cardholders. Note: as the market grows, other new competitors are likely toenter the market. As of May 2015, 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. (AEON
Insurance Market also sells pet insurance from AEON S.S. Insurance Co., Ltd., but exclusively to AEON cardholders.)
In April 2014, au insurance Co., Ltd. a company in the KDDI Corporation group (shares held by both KDDI and Aioi Nissay
Dowa Insurance) also began selling pet insurance limited to hospitalization and operations.

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Pet insurers
Anicom
FY03/15
21,733
No.1
GardenFY03/15
52（JPYｍn）
Insurance revenue
Ranking

Insurance revenue
Ranking

ipet Insurance
FY03/15
6,363
No.2
Japan Animal-Club
FY03/15
2

AXA GENERAL INSURANCE
FY03/151,700

au insurance
FY03/15
naAnshin Pet
FY03/1523

AEON
FY03/15
1

E-Pet
FY03/15
0Pets Best
FY03/15365

Pet & Family
FY03/15
2,354
No.3

Pet Medical Support
FY03/15575

UCC Motto Gyutto
FY03/15
1,425

FPC
FY03/15na

Insurance premium revenue for Anicom and others(JPYmn)60,000AnicomAnicom share (right axis, based on insurance fee )Total of the other companies
Anicom share (right axis, based on number of contract)

62%

50,000

61%

60%
58%

30,00058%

20,000

0

62%

60%

40,00010,000

64%

61%

55%
18,087

FY03/14

21,733

FY03/1558%
54%

25,37027,60029,700FY03/16

FY03/17…

FY03/18…

56%
54%
52%

Source: Shared Research based on estimates by Anicom based on Fuji Keizai report on 2016 pet market and other materials (as of May 2016)

Anicom’s growth strategy: expansion of premium revenue
Anicom controls some 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—acquiring customers looking to get a
pet in the future, and careful development of customers who already have pets.

1) Acquiring customers looking to get a pet in the future
Strength in agency insurance sales by pet shops key to growthAnicom has 1,490 pet shop sales agencies (as of end-March 2015). This is around one-third of all pet shops nationwide.
The company views pet shops as an important source of revenue because contracts obtained through pet shops tend tocarry fewer risks than those obtained via other channels. Pet shops also sell animals that are less than one-year old,allowing the company to provide long-term services. The company wants to increase the number of shops that handle its
insurance products and raise the percentage of pet owners acquiring insurance.
The company believes that there is potential to increase the number of pet shops serving as insurance agencies, and plans
to strengthen its sales structure to increase exposure of its products in the pet shop market. Anicom will put greater
emphasis on raising the percentage of pet owners buying insurance at a time when other insurers are also seeking topartner with pet shops.

Targeting sales ratio at pet shops to 70% in the medium term
The company said in FY03/15 that it would add more pet shop agencies and cultivate deeper ties with existing shops. As
a result, the number of new contracts acquired through pet shops during FY03/16 rose 15.9% from a year earlier,compared with a 7.6% increase for all contracts. About 50% of pet buyers also bought insurance in FY03/16, up from
40% in FY03/15.
This ratio varies from shop to shop, ranging between 30% and 70%. The company believes that there is room for
improvement since some pet shops consistently maintain a sales ratio of 70%. Anicom has also learned from pastexperience which measures would be more effective in raising this ratio.

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By implementing a range of sales measures at agencies, the company seeks to raise the insurance sales ratio at pet shops
to 70% in the medium term. The new medium-term plan includes an increase in sales-related expenditure. We will also
be watching the impact of sales promotion campaigns, including those relating to agency commissions.
By the end of March 2016, the company acquired 87,000 new policies via pet shop agencies. The company believes that
there is ample room to raise that number to 107,000 by the end of March 2019 through sales programs and closer ties
with agencies. That would be an average annual increase of 7.2%.
New contracts thorough pet shop channels
26

Pet shop agencies (right axis)

24

New contracts (thousand)22

New contracts /agencies (Avg. of current and previous
quarters)

1,800
1,600

18

1,400

16
14

1,200

12
Q1
FY03/11

100,000
80,00020

10120,000

Q1
FY03/12Q1
FY03/13Q1
FY03/14Q1
FY03/15Q1
FY03/16

New contracts through pet shop channel

20.6%
74,002

86,95575,00793,000

YoY
100,000

107,000

25%
20%

15.9%

15%

60,00040,00020,000

1,000

0

30%

7.0%

7.5%

10%

7.0%

5%

1.4%

FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19
Act.
Act.
Est.
Plan
Plan
Plan

0%

Source: Shared Research based on company data

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. For example, thecompany says that it is necessary to communicate information about the diseases and symptoms that each breed of dog
may be susceptible to so that owners understand the need for insurance. The company also recognizes that there aremany small pet shops operators who rely on the Internet, which the company’s sales programs are unlikely to reach. Suchshops represent a large potential customer base.

Strengthened agency strategy
To promote awareness of pet insurance among existing pet owners, using pet shop agencies alone is likely to have limited
effect. For this reason, the company has agencies across a range of industries where insurance products may be sold. For
example, regional banks, local savings credit institutions, and other financial institutions sell the company’s products,
along with new car dealers, food co-ops, 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 motivate
high-risk pet owners to take out insurance. For this reason, the company takes a cautious approach to developing thismarket segment.

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New contracts through general agent channels

12

4,000

New contracts /agencies (Avg. of current and previous
quarters)

9

3,000

6

2,000

3

1,000

0

0

Q1
FY03/11Q1
FY03/12Q1
FY03/13Q1
FY03/14Q1
FY03/15

New contracts (right axis)

60%

Q1
FY03/16

YoY

4,000

0

40%

10%

0%

2,000

0%
-10%

-20%

-20%

-40%

-30%
Apr 12

Apr 13

Apr 14

Apr 15

Apr 16

023,13825,00028,00010%

7%30,000

0%
-10%

-8%
-13%

10,000

20%

20%

8%
26,621

20,000YoY
12%35,16830,000

30%

40%

-60%
Apr 11

New contracts through general channel

40,000

-20%

-24%

-30%

FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19
Act.
Act.
Est.
Plan
Plan
Plan
35.9%
37.5%

5,000

New contracts (thousand)

New contracts (right axis)

YoY

12,000

3.5%
10.6%
4.6%
1.4%
-0.5%
-8.7%
-4.3%
-2.3%
-11.4%-13.7%-18.8%-21.5%-23.7%-35.0%-25.8%-19.1%-7.3%
7.8%

New contracts through agencies (right axis)

15

9,000
6,000
3,000

-40%

0

Q1
Q1
Q1
Q1
Q1
Q1
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17

Source: Shared Research based on company data

Review of online contracts halts a decline in new contracts; signs of a rebound emerging
In FY03/15 the number of general agency and online contracts, excluding contracts via pet shop agents, fell a dramatic
24.3% YoY to 26,621 contracts. This was a result of a drop in online contracts, rather than general agency contracts, due
to a longer period from application to coverage (from October 2013), tighter underwriting criteria, the strategic
suspension of 70%-compensation insurance products, and the strategic new insurance with limited hospitalization days,
launched in November 2014. This did contribute to the improvement in loss ratio in FY03/15.
The impact of the fall in online contracts may continue in FY03/16, but it is expected to have mostly bottomed out. Withan increase in contracts via general agents, new contract numbers are expected to reach around the same level as
FY03/15.

The number of new contracts totaled 23,138 during FY03/16, down 13.1% from a year earlier. However, monthly sales
began to rise in November because online contracts halted their declines and sales through banks remained strong.
The company expects this trend to continue into FY03/17.

Developing new products to deal with competitors
Competitors such as au insurance Co., Ltd., who focus on online sales, have also released low-price products covering
hospitalization and surgery only. According to the company, it may be able to win new contracts from customers who
select these policies. Shared Research expects the company to take steps to win such contracts, such as rolling out new
products.

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Controlling the loss ratio
Improved control over the loss ratio
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 rising. The company has implemented the following measures and improved its E/I loss ratio.

Measures to improve the loss ratio, E/I loss ratio80%

Oct 2010: sales of 90% compensation
product begin

70%

62.3%

60%
48.2%

50%
40%

44.8%

30%
20%

53.0%

61.5%

69.0% 69.5%

68.1%

65.5%

63.1%

66.3%

62.1%

66.7%

68.9%

64.2%
58.7%

56.5% 55.3%
Aug 2012: sales of 90% compensation
product halted(Jul 2013: terminated 90% coverage
product)

41.1% 39.7%
34.6%

Q1
FY03/11Jan- Sep 2014: suspend online sales of 70% compensation plan

73.4%
66.0% 67.3%

Q3

36.5%

34.2%

Q1
FY03/12

32.1% 30.5% 31.6%

Q3
E/I loss ratio

Jun 2014: changes topremiums

Aug 2013: limit changes incompensation from 50% to 70%

Q3

Q1
FY03/14

26.8%

Q3

Q1
Q3
FY03/15
Earned premiums expense ratio

60.3%

57.6%

November 2014: introduce
system limiting number of visits
and length of stayOct 2013: extend period from online
aplication to coverage start

29.2% 29.1% 29.3% 30.5% 28.3% 27.7% 27.9% 28.7% 28.3%

Q1
FY03/13

62.1% 60.6%

29.2% 28.4% 29.5%

Q1
FY03/16

33.9%

32.2%

Q3

Source: Shared Research based on company data

Measures to improve loss ratio
Start date

Measures

Results

Aug 2012

Stop sales of 90% coverage policy

Continued instant and long-term effects from no more policies with a relatively high loss-ratio (completely eliminatedat the end of July 2013)

Aug 2013

Limit switch to high-coverage policy(from 50% to 70% coverage)

Restricts switching from low-premium policies when pet is young, to higher premiums when pet is older with morerisk. Results expected in the long term

Oct 2013

Lengthen period from online application to coverage

Avoids high-risk contracts (contracts with expected increase in loss ratio)

Jan 2014

Stop sales of 70% coverage via online application (until Sept 2014) Same as above

June 2014

Revise premiums

Makes up for the effects of the consumption tax hike (pet medical expenses include consumption tax, but premium
revenues do not. Most expendituress also affected by the tax hike.) Contribution expected from FY03/16

Nov 2014

Introduce policy with limited hospital visit days

Controls frequent use of high-risk insurance coverage. Although current low-risk customers have few emergencies,
risk increases with pets' age, so results expected in the long term

Nov 2014

Introduce healthy pet discounts

Discounts premiums based on the number of claims from the contracted company. Loss ratio expected to improvefrom more fairness between customers, higher renewal rate, and restricted insurance use

Source: Company data
Introduction of system for increase or decrease in insurance based on healthOf the company’s approximately 500,000 insurance policies, around half of policyholders have not applied for payouts. About 30% ofpolicyholders have loss ratios of around 60%, while several percent of policyholders made claims with loss ratios of up to 300%. With auto
insurance, policyholders who claim an accident do not have the likelihood of more accidents the following year. In the case of pet insurance,
however, where there is a high loss ratio, a large proportion of cases are of chronic diseases. Shared Research expects that by introducing thesystem for reducing or increasing premiums based on the health of the animal, the company is targeting fairness among contract holders andreduced insurance utilization.
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, whichplaces limits on the number of hospitalization days, and the company began sales of this type of insurance from November 2014. The
company imposes 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 hospital visits may yield alower loss ratio. Taking into account the timing of when sales will begin, the new plans will likely start affecting results from FY03/16 onward.
Other measures to improve loss ratio: The company in FY03/15 invested in personnel for stricter screening on entry and stricter insurance
payout controls on exit, which is showing slight results.

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Stricter underwriting screening means improving ongoing screening for chronic cases in order to avoid the 300% loss-ratio payout claims
from a several percentage of policy holders.
Stricter payout control means improving control structures at the pre-insurance payment (pre-assessment) stage by the payment division,and also at the post-payment (post-assessment) stage by the appropriate insurance payment promotion division. In particular, the system ofassessment and feedback (with the cooperation of pet hospitals) on whether an appropriate insurance claim has been made, after payment,
appears to be effective.

Anicom aims to maintain E/I loss ratio of around 60% over the medium-termAnicom continues to aim at maintaining an E/I loss ratio of around 60%, which it sees as an appropriate level. The
company intends to continue rolling out the kind of product strategy, sales strategy, insurance payment structure
improvements, etc., that it sees as necessary to achieve this. The company also intends to reduce its risk concentration by
better capturing contracts for newborn pets via pet shops using the abovementioned measures. The company will
simultaneously implement various preventive measures to reduce risks.

New medium-term plan assumes no premium revisions related to the consumption tax hike
For the duration of the rolling medium-term management plan through 2018, Anicom forecasts that the measures taken
in FY03/15 will contribute to results through FY03/16, and that for FY03/17, there will be an increasing proportion of pet
insurance policies with limited hospitalization days, expected to reduce risk concentration. For FY03/18, while thecompany does not forecast any impact of a further increase in the consumption tax, the medium-term plan assumes there
will be no change in premiums.

Anirese F, cloud-based record management system
Anicom is seeking to improve its loss ratio through better record management. This will mean using records to help
hospitals provide appropriate treatment and preventing excessive treatment.

Building basic infrastructure for pet data while reducing loss rate
Leveraging its medical records management system, Anicom plans to use big data techniques to contribute to thestandardization of medical care for pets, to conduct research and development into pet health, and to create new value
added businesses by disclosing medical records to pet owners. Going forward, the company wants to build up a basic
infrastructure for pet data accessible to breeders and animal hospitals. Anicom already operates its older medical records
management system in 1,700–1,800 veterinary hospitals, out of an estimated 9,000 veterinary hospitals in Japan(approximately 7,000 if commercial livestock are excluded). Under its medium-term plan, the company plans to promote
the switch to its new system as well as win new customers; its aims to have its new Anirese F system used in 3,330
hospitals by the end of March 2018. Results of promoting the use of Anirese F seem to be slightly behind track to attainthe medium-term target (3,330 hospitals by the end of March 2019).

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Number of hospitals using Anirese F（FY03/17 figure is based on Shared Research estimates）

3,330

3,500
3,000

2,520

2,500
2,000

1,500

1,500
1,000
500
0

approx.700-800
approx.100
FY03/15Act.

349
FY03/15Act.

FY03/16Act.

FY03/17Est.

FY03/18
Plan

FY03/19
Plan

Source: Shared Research based on company data

Utilizing Anirese F to prevent excessive treatment
Anirese F is a next-generation, cloud computing-based medical records management system, launched in November
2013. The system analyzes 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 (dataaccumulated since Anicom was set up in July 2000). When a veterinarian uses the medical records management system,
information such as the average treatment cost for particular symptoms can be displayed. This helps veterinarians to avoid
excessive treatment.

Open medical record system
Anirese F also incorporates an open medical record system. In the future, the pet owner will be able to view at home themedical data recorded by the veterinarian. As well as making treatment more open, this system helps develop trust
between the 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
throughout Japan, and is one of the reasons for Anicom’s successful growth in sales of pet insurance. A switch to Anirese F
was completed by about 100 hospitals as of May 2014, and by the end of March 2015 the number had grown to 349
hospitals. According to Anicom, around 80% of the approximately 200 new veterinary hospitals set up each year are
adopting Anirese F.
For FY03/16, the company had planned to expand the focus from new hospitals to promoting upgrades by the 1,700–
1,800 hospitals using the old Anirese system, targeting a total of 1,500 hospitals. However, it turned out that the number
was somewhere between 700 and 800. (The number totals 2,500 when those using the old system are included.) The
company has pushed back the time for achieving its target by one year.

Analyzing treatment data from hospitals around the country to improve veterinary care
As Anirese F is adopted at veterinary hospitals around the country and more treatment data is accumulated, it will become
possible to run statistical analysis of the causes of illness, the most appropriate treatments, recovery, etc. This willcontribute to progress in veterinary care and also help the company build up its prevention infrastructure.

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Basic infrastructure for pet data
Anicom forecasts further growth in the number of hospitals taking up the new system, as it develops new functions andoptions. The company also plans to develop it into a system that can be used to manage breeding records, etc., inaddition to allowing owners to see medical records. Through keeping a record of comprehensive data from breeders andanimal hospitals alike, Anicom aims to promote preventive medicine as the cumulated data on the types of medical
condition by breed and by bloodline will help predict what specific dog is more prone to what type of illness. Shared
Research expects the new system to become widely used as a basic infrastructure for pet data.

Overseas: Anicom did not have overseas operations as of March 2015. That does not mean, however, that the company 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 system adoption at new animal hospitals is high, at around 80%. 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. The company has not decided on a schedule for overseas expansion.

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Anicom Holdings ＞ Long-term strategy

LAST UPDATE【2016/11/15】

Virtuous cycle of improving brand value and business performance
President Nobuaki Komori has an overall plan of generating a virtuous cycle between improvements in brand value andbusiness performance in the pet-related market. Komori considers the existing pet insurance operations as an expanding,stable source of revenue, and plans to invest the company’s resources in new businesses. Specifically, the company aims
to provide new, value-added services that are not currently provided by animal hospitals, described below. This includes
the provision of advanced medical technology, treatment for hereditary disorders, and other preventive medicine.
Anicom’s virtuous cycle visionRe-investment

Improved earnings fromdecrease in insurance payouts
and more contracts

Research results
Prevention and researchfrom in-house vets

Improved branding
Decrease in disease fromprevention efforts

Customer satisfaction
and more contracts

Source: Company data

Becoming a pet infrastructure company providing the ideal environment for raising pets
The 2015 medium-term management plan put stronger emphasis on the company’s goal of providing preventive
services. This goal was contained in VISION, which called for Anicom to become a “pet infrastructure” company. The
2018 medium-term management plan, released in May 2016, spells out concrete measures to achieve this target, with aparticular focus on prevention services. The company will take on this challenge during FY03/17.

Resources required to become a ‘preventive insurance company’ in place
Although Anicom’s goal since its inception has always been to offer preventive services, the company until recently
lacked sufficient resources to do so. Anicom began to make investments aggressively during the latter half of FY03/15 toresolve this problem. In particular, the company started to hire many employees who have expertise in this field.
Meanwhile, the company’s core pet business became more profitable and won more contracts, eventually offsetting its
cumulative losses. The company has also lined up the necessary resources (information, people, facilities, and capital) to
start offering preventive services. Thus, FY03/17 will mark a significant step for the company as it seeks to become aleading provider of preventive services.

Becoming a pet infrastructure company: Anicom believes there is a need to provide an environment suitable for pets, owing to theincreasing number of pets. Ongoing use of pet foods, water, and supplements continue to have differing results and it is not clear that any
veterinarian hospital is offering the best treatment or recuperation services.
Consequently, Anicom hopes to use its large volume of data, knowledge and experience to expand beyond simply providing pet insurance
and become a pet infrastructure company offering a range of services, providing the most appropriate environment to match the lifestyle ofeach owner and pet.

The 2018 medium-term management plan calls for the company to 1) identify various ailments and develop preventive

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measures against them; 2) promote a project to extend the healthy lifespan for pets; 3) provide insurance and medical
services that reward efforts to maintain pets’ health even if illness does occur; and 4) offer advanced regenerative
treatment. The goal is for the company to expand preventive services and go beyond its existing insurance operations.
Preventive services, which reduce sickness, may also lead to an improvement in the company’s loss ratio. These services
may also increase the company’s insurance renewal ratio (target: 90%) and the ratio of pet buyers who are also acquiring
insurance (target: 70%). Anicom eventually wants to develop preventive services into a standalone business.

Measures to improve preventive services
Measures to improve preventive services, which will begin during FY03/18, include 1) a plan to analyze and use insurance
claim data, 2) the launch of a service aimed at extending animals’ healthy lifespan, and 3) the development of products
and services designed to encourage policyholders to improve the health of their pets.

Analysis, use of claims data
Anicom maintains a database of more than 10 million insurance claims tied to certain illnesses and accidents, allowing thecompany to propose preventive measures by examining how animals become sick and how accidents occur. About
JPY9.2bn of such claims have been classified into two categories based on the related illness or accident: acquired(JP8.9bn or 97%) and congenital. The acquired category is further classified into two areas: cases caused by exogenous
factors (JPY4.5bn, or 49.1%) and those by endogenous factors (JPY4.3bn, or 47.8%).
Exogenous factors include dietary factors (which is further divided into qualitative factors, such as excessive fat in blood,and quantitative factors, such as low blood sugar), environmental factors (such as virus infections and allergic dermatitis),and hazards (such as traffic accidents and chocolate addiction). Endogenous factors include organic disorders (such as
dysplasia, including osteosarcoma, and medulla disorder, including disk herniation), functional factors (such as metabolic
factors, including chronic renal failure, and immune factors, including external ear inflammation).
Already, such data analysis has helped the company’s efforts to offer preventive services. For example, the company has
started to provide tips on how to protect pets from certain hazards (accidental ingestion, bone fracture) and succeededin reducing their occurrence. Anicom will continue to pursue scientific research based on genetic data to prevent more
illnesses and accidents.

Extention of pets’ healthy lifespan
What is most important in preventing pets from becoming sick or injured, according to Anicom, is for owners to ensurethat their animals have healthy day-to-day routines. In addition to providing information based on data analysis, thecompany will also encourage policyholders to take steps to keep their pets in good health. Anicom wants customers tokeep track of the health of their pets and help extend their healthy lifespan.
In FY03/17, the company will focus on issues related to animals’ intestinal health and everyday habits. Anicom plans tooffer suggestions concerning food and exercise that would benefit pets’ intestinal flora. The company will then seek todetermine whether such suggestions are being followed and how they are contributing to the health of the pets. Anicom
will also urge potential customers to have their pets medically examined on a regular basis. These and other measures
may encourage owners of healthy pets to renew their contracts and help lower the loss ratio. Results of the exams will be

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used to screen insurance applications from these potential clients. This way, the company will be able to address the issueof adverse selection as it seeks to expand sales via general channels.
These services require investments in human resources and facilities, and the company had been investing in these areas
up until FY03/16. Anicom, which has already started these services on a trial basis, may need to spend more when it
begins full-scale operations.
Intestinal flora is uncharted territory even when it comes to research on humans, and the field may hold significant
potential. Anicom wants to be among the first in the industry to enter this promising field and develop preventive
services to help extend the heathy lifespan of animals.

Insurance products to reward policyholders’ efforts
The above-mentioned measures are expected to improve the company’s loss ratio. However, the company also wants toreward policyholders who are doing their part to maintain the health of their pets. For this reason, Anicom is seeking todevelop services to reward customers who keep their pets in good health. In addition, the company will also expand
services to deal with illnesses that cannot be prevented.

Veterinary medicine-related services
Improving veterinary medicine
President Nobuaki Komori stated that the company plans to enter the small-animal healthcare business. He wants to bring
the treatment fees to an appropriate level and improve remuneration for veterinarians, with an overriding goal to treat
animals. The company will provide medical support in the event that its preventive measures fail.
In FY03/17, Anicom will enter the field of regenerative medicine through a joint venture with Fujifilm. Regenerative
medicine is becoming more common among veterinarians, but the level of expertise is not always uniform. The joint
venture will launch two businesses:▶ Clinical operations focusing on cell treatment: the new company will offer regenerative treatment for animals

transferred from clinics that do not provide such services▶ Regenerative services: regenerative services will cultivate high-quality cells for use in treatment. Most of theveterinarians will be dispatched from Anicom. This project may help the company reduce its loss ratio by making it
possible to treat some of the ailments that could not be handled with current medical technology.

Business partnership with Fujifilm for advanced animal healthcare: In December 2015, the company announced that it had formed abusiness partnership with wholly-owned subsidiary Fujifilm (Fujifilm Holdings (TSE 4901)) in the field of advanced animal healthcare, with theintention of establishing a joint venture company next spring. Based on the agreement, it plans to develop and distribute advanced medical
technology and services for animals, with a particular focus on regenerative medicine. The company expects this to lead to an improved loss
ratio due to reduced medical costs and improved trust in the Anicom brand, leading to further increases in new policies and a better renewal
rate. Celltrust Animal Therapeutics was established on April 1, 2016. (capitalization: JPY50mn; capital surplus: JPY50mn) (ownership: 49% by
Anicom, 51% by Fujifilm)
The new company will operate in the advanced animal healthcare field, and will work to develop and distribute revolutionary medical
technology and services, with a focus on regenerative medicine.

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Anicom and Fujifilm will establish a joint venture company (51% of shares held by Fujifilm, 49% of shares held by Anicom), which will develop
and distribute advanced medical technology and services, with a focus on regenerative medicine. Fujifilm will contribute its sophisticatedproduction technology and quality control technology, developed though its production of photographic film, as well as image diagnosis
technology, technology used for analyzing the chemical composition of blood, and technology related to regenerative medicine. Anicom willcontribute its network of animal hospitals, its digital clinical records system, and its extensive knowledge of medical examination andtreatment. Both companies aim for the realization of advanced healthcare for animals.
Specifically, they intend to:
Establish a location where they can conduct translational research, and develop regenerative medicine and other medical treatments designed
for animals
Develop technology for the safe production of cells used in medical treatments, and create a system to ensure product quality.
Accumulate medical examination data (including images), and create a system through which they can conduct medical examinations andtreatment.
Among equipment needed to offer the technologies and services, Fujifilm will provide medical equipment such as the materials to be used inregenerative medicine and image diagnosis systems, and Anicom will provide its digital clinical records system. In order to reduce medical
expenses for pet owners and to make advanced healthcare more widely accessible, the company also plans to set up an insurance system forpets.

Business partnership with Fujifilm for advanced animal healthcare
In April 2016, the company formed a joint venture with Fujifilm (a wholly owned subsidiary of Fujifilm Holdings: TSE4901) in the field of advanced animal healthcare. The new company will develop and distribute advanced medical
technology and services for animals, with a particular focus on regenerative medicine. The company expects thisarrangement to lead to an improved loss ratio due to reduced medical costs and improved trust in the Anicom brand,leading to further increases in new policies and a better renewal rate.
The joint venture (51% owned by Fujifilm, 49% by Anicom) will develop and distribute advanced medical technology and services, with afocus on regenerative medicine. Fujifilm will contribute its sophisticated production technology and quality control technology, developed
though its production of photographic film, as well as image diagnosis technology, technology used for analyzing the chemical composition ofblood, and technology related to regenerative medicine. Anicom will contribute its network of animal hospitals, its digital clinical records
system, and its extensive knowledge of medical examination and treatment. Both companies aim for the realization of advanced healthcare foranimals.
Specifically, they intend to:1）

Establish a location where they can conduct translational research, and develop regenerative medicine and other medical treatments
designed for animals

2）

Develop technology for the safe production of cells used in medical treatments, and create a system to ensure product quality.

3）

Accumulate medical examination data (including images), and create a system through which they can conduct medical examinations
and treatment.

Among equipment needed to offer the technologies and services, Fujifilm will provide medical equipment such as the materials to be used inregenerative medicine and image diagnosis systems, and Anicom will provide its digital clinical records system. In order to reduce medical
expenses for pet owners and to make advanced healthcare more widely accessible, the company also plans to set up an insurance system for
pets.

The following is an overview of the company’s 2015 medium-term management plan. The plan is similar to the mostrecent version but is included for reference purposes.

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Clinical and Research
Hopes to lead a prevention services by providing pre-primary and secondary medical careAnicom classifies veterinary care into pre-primary care (prevention), primary care (care provided by local veterinary
hospitals), and secondary care (advanced medical care). The company’s new medium-term management plan aims tokeep the company at the forefront of prevention services by expanding the medical care provided by JASMINE (Japan
Animal Specialty Medical Institute), a consolidated subsidiary, as well as by building out its pre-primary careinfrastructure.
In January 2014, the company set up JASMINE as the first step in this direction, and the subsidiary has been active mainlyin the provision of outpatient medical care for cats and dogs with heart problems. Since then its activities have expanded
overseas, adding Singapore in April 2014, the UK in May 2014, and the US in January 2015. JASMINE currently focuses onheart problems, but the company plans to expand into other treatments and locations.
Under the company’s medium-term management plan, the second step will be building up pre-primary careinfrastructure aimed at preventing disease. The company plans to expand its network with a view to develop health check
centers in cooperation with veterinary hospitals and pet shops, or independently.
Anicom also appears to be considering introducing prevention systems such as checkups at distribution stages such as
breeding and auctions. Shared Research expects that its building out of a prevention system at birth and distribution
stages, its provision of pre-primary prevention care after pets reach owners, and its primary-care pet insurance systems (aswell as secondary care for animals with complications), will improve brand value and business performance, and help pet
owners before it is too late.

Market scale
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 and others.) According to the 2012 Economic Census for Business Activity released by the Ministry of Economy, Trade andIndustry 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.
Relationship with clients
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 offerings of 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 this risk. 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.
Japan Animal Specialty Medical Institute Inc. (JASMINE)
On January 24, 2014, Anicom established JASMINE, which launched operations in April 2014. The institute aims to support the sound andsustainable 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 development of advanced
medical treatment. The company also opened JASMINE Animal Cardiovascular Disease Center in August 2014 in Tsuzuki-ku, Yokohama.
A key difficulty in conducting insurance screening vis-à-vis medical treatment at animal hospitals is defining where medical treatment ends andwhere either nursing care or beauty treatment begins. JASMINE aims to publish research papers on exemplary medical treatment methods forwww.sharedresearch.jp

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Anicom Holdings ＞ Long-term strategy

LAST UPDATE【2016/11/15】

difficult cases, and by utilizing Anirese F make case examples from a large number of hospitals widely available. It is 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.
Prevention of hereditary diseases within the breeding industry
The company’s management, including President Nobuaki Komori, seeks to encourage pet owners to take measures to prevent the occurrenceof any hereditary illnesses. There are more hereditary ailments among dogs in Japan than in the West. That is apparently due to less concernedin Japan about pet bloodlines or hereditary diseases of particular breeds. Many breeders also ignore hereditary diseases and produce 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 longterm, and thereby help prevent hereditary diseases.

Customer services
Anicom aims for Anirese F to use the data it has accumulated since its inception to prevent excessive medical treatment,
and to analyze causes of diseases and methods of care. However, per the company’s medium-term plan, it aims to usethat same data analysis for prevention systems through pet food, etc.
One service the company is considering is its concierge services business, aimed at extending the lifespan of pets. It
involves sending products to owners’ homes, with individual suggestions based on breed, age, and other factors, as wellas the household environment.
Anicom is considering joint development with existing product manufacturers utilizing its accumulated data. The
company hopes to achieve a win-win scenario by linking up with pet shops to promote sales. In the future, the company
hopes to also provide health checkups tailored to individual pets.
This will most likely be added under other recurring revenue. Under the new medium-term plan, Anicom expects otherrecurring revenue to grow to JPY1.5bn in FY03/18 from JPY382mn in FY03/15. Most of the anticipated growth appears tobe from the concierge services business.
Outline of the concierge service
Various factors in having a pet

Characteristics of each pet

Suggest and deliver products
customized to each pet

Breed, age, size, coloring, etc.

Pet shop partnerships

Family structure

Residency

SeasonSource: Company data

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Business
Business description
98% 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 and began 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 Japan Animal Specialty Medical Institute (an animal healthcare
research center established in January 2014). Anicom Insurance comprises 98% of the company’s recurring revenue.
Performance
Underwriting revenue

40,000Investment revenue

Other recurring revenue

Recurring profit (Right axis)

35,00030,00025,00020,00015,00010,80010,000

7,267

5,000

4,317

7,228

41
6,442

0

39

FY03/08

FY03/09

11,107
154
94

9,216
141
71

13,845144
108

16,186143
260

18,366
171
108

22,638382
522

25,600593
487

28,300
1,012
550

3,500
3,000

31,200
1,501
600

2,500
2,000
1,500
1,000
500

9,003

10,85813,592

15,781

18,087

21,73324,521

26,73829,099FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16CE

FY03/17CE

FY03/18CE

0-500

Source: Shared Research based on company data

Pioneer in pet insurance; market growing 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 11.5% over the five years through FY03/16. The company had 586,000
contracts as of the end of FY03/16, and estimates that it controlled about 60% of Japan’s pet insurance market that year,
allowing it to remain the market leader.

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 FY03/15 FY03/16
128,832 191,785 246,634 297,917 241,206 290,767 340,628 396,234 446,414 504,969 544,815 585,962
48.9%
28.6%
20.8% -19.0%
20.5%
17.1%
16.3%
12.7%
13.1%
7.9%
7.6%
-

-

-

-

60,189-86,90444.4%

91,666 101,014
5.5%
10.2%

99,504 109,170 101,628 110,093
-1.5%
9.7%
-6.9%
8.3%

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%

21,733
21,733
20.2%

25,37025,37016.7%

Source: Shared Research based on company data

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Anicom in pet-related markets
Japan’s pet insurance market: JPY41.7bn in FY2015; Ratio of coverage: 5.4%
Anicom estimates that the size of Japan’s pet insurance market is JPY41.7bn and that the company controlled JPY25.4bn of
the market in FY2015. While this already sounds sizable, the market still has great growth potential. Of the 20mn dogs
and cats kept by Japanese households, only 5.4% were insured in FY2015, 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 JPY170bn if the insurance ratio rises to the UK level.
Expansion of pet insurance market
3.0%
Anicom contracts(approx. 586,000 pets)
5.4%
Pet insurance market(approx. 1mn pets)
51.6% (2014), 41.6% (2012), 40.9% (2010) eventually want insurance
Of which 16.5% (2014), 10.4% (2012), 8.0% (2010) are considering insurance

82.7% (2014), 84.6% (2012), 82.4% (2010)
Believe pet insurance is a necessity
100%: 19.8mn pets (total domestic dogs and cats; source: Japan Pet Food Association 2015 survey)(Domestic)
2015
2014
2013
2012
2011

Total dogs and cats('000)
19,791
20,305
20,61521,282
21,542

Dogs Total households('000)
9,917
55,364
10,34654,952
10,872
54,595
11,53454,171
11,93653,550% with dogs

(Domestic)

Total pets per householdCats% with cats

2015
2014
2013
2012
2011

0.36
0.37
0.38
0.39
0.40

9,874
9,959
9,743
9,748
9,606

10.09%
10.13%
10.14%
10.22%
10.31%

14.42%
15.06%
15.81%
16.77%
17.69%

Households w/ dogs('000)
7,985
8,277
8,629
9,082
9,473

Avg. pet countHouseholds w/ cats('000)
5,588
5,564
5,536
5,539
5,521

Avg. pet count

1.24
1.25
1.26
1.27
1.26

1.77
1.79
1.76
1.76
1.74

Premiums charged by Anicom and other companies(JPYmn)60,00050,000AnicomAnicom share (right axis, based on insurance fee )Total of the other companies
Anicom share (right axis, based on number of contract)

62%

64%

61%

61%

62%

40,00060%
58%

30,00020,00010,000058%
54%

18,087

FY03/14

21,733

FY03/15

25,37027,60029,700FY03/16

FY03/17Est.

FY03/18
Est.

56%
54%
52%

Source: Shared Research based on company estimates compiled with data from the Japan Pet Food Association, Fuji Keizaiwww.sharedresearch.jp

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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 is for 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 the pet shop portion of the newborn market.
Of the 110,000 new policies sold by the company in FY03/16, 87,000, or 79%, came through pet shops. The remaining
21%, or 23,000 policies, mostly came from the family market.
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%

2/3 are not agents

Clients

Potential clients

Source: SR Research based on interview with the company

0

Q1
FY03/12Q1
FY03/13

27,055

26,67927,472

5,722

5,972

5,998

5,054 25,140

85%
80%
75%

Q1
FY03/15

23,441

21,47420,707

21,33370%
20,086

24,841
6,469
18,372

25,2497,382
17,867

26,398
7,716
18,682

26,706
7,776
18,9308,481

26,024

Ratio of new contracts for newborns

17,543

27,8419,408

Q1FY03/14

18,43328,5999,503
19,09625,8989,010
16,88824,523
9,568
14,95524,306
9,627
14,6799,927

24,777

New general contracts

14,85024,997
9,867
15,13024,768
9,617
15,151

24,643
9,496
15,147

26,606
9,491
17,115

8,924

23,924
9,290

21,2526,904

Q1
FY03/11

14,9655,000

14,63410,00015,74515,00014,34820,00022,72825,000

6,983

30,00023,889New contracts for newborns

35,0005,446 28,887

Composition of newly written policies

65%
60%
55%

Q1
FY03/16

Source: Shared Research based on company data

About 80% of hospitals accept Anicom’s insurance; becoming an industry standard
There were 9,238 animal hospitals in Japan as of the end of December 2014, according to the Ministry of Agriculture,
Forestry and Fisheries. Of those, 7,038 hospitals cater to pets. Anicom’s pet insurance pays for treatment provided by any
animal hospital in Japan. Furthermore, 5,773 institutions, or more than 80% of all animal hospitals, accept insurance cards
issued by the company (as of the end of March 2015).
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 forcopayments at hospital counters. This system is a key point of differentiation for Anicom’s services in relation to its
competitors.

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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 estimates that most of these new
hospitals accept the company’s insurance cards. Hospitals benefit from 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 thecompany’s insurance cards.

Anicom sales agents and hospitals that accept Anicom’s health insurance cards

Q1
FY03/10Q3Q1
FY03/11Q3

Q1
FY03/15

4,142

4,314
1,490

3,472
1,420

3,956

3,452
1,410

Q1
FY03/14

1,467

3,362

Q3

1,466

3,235

3,206

Q1
FY03/13

1,390

3,161

1,258

Q3

1,295

2,875

1,249

2,836
1,255

1,224

2,719
1,224

Q1
FY03/12

2,892

2,719
1,224

Q3

1,231

2,667
1,200

2,535

1,934

2,465

0

1,178

1,000

1,097

963 968

2,000

1,081 1,657

3,000

1,161

4,000

5,599 5,630 5,650 5,696 5,773

3,557

5,349 5,408 5,459 5,506

3,474

4,535 4,621

5,115 5,176 5,220 5,267

1,452

4,321

4,975 5,019
4,682 4,720 4,759 4,853 4,853

Hospitals accepting anicom

3,418

5,000

General agents

1,450

6,000

1,447

Pet shop agents

7,000

Q3

5,820 5,848 5,883 5,969

Q1
FY03/16

Q3

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

Anicom’s health insurance cards, and the sign by hospitals that accept the card

Source: Shared Research based on company data

About 70% of new policies from pet shops; curbing higher-risk online sales
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%, anddirect sales 10% (as of FY03/14). Direct sales do not require the company to pay agent commissions. However, theaccident rate also tends to be higher. The company has been gradually reducing its online insurance sales since thesummer of 2013. (The company only offers 50% payout plans and requires a one-month waiting period after application.)
Between January and September 2014, Anicom suspended sales of its 70% coverage plan. As a result, though the numberof new contracts via general sales agents continued to decline year on year, the number has been increasing sinceNovember 2015.

About one-third of pet shops in Japan are Anicom sales agents (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 1,295 petshops at the end of 2012, and 1,490 pet shops—about a third of all pet shops in the country—at the end of June 2015.
The company’s other sales agents, such as financial institutions (banks, shinkin banks, nonlife insurance companies, andbrokerages) and corporations and others (agencies affiliated with major corporations, mutual aid associations, cardealers), numbered 4,314 as of the end of March 2015.

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Number of new contracts

25,000
28.6%
25.6%
17.3%
12.1%

30%

11.6%
-3.1%
-1.3%

15,00010,0005,000-13.2%

-10%

8.7%
5.6%
3.5%
1.1%

10%

20,000

-2.2%
-3.1%
4.7%
6.1%
14.2%
15.9%
16.9%
16.7%

20%

0%

30,000

-20%

Q1
Q1
Q1
Q1
Q1
Q1
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17

0

New general contracts (right axis)

40%
30%

YoY

12,000

35.9%
37.5%

YoY

20%
10%

9,000

3.5%
10.6%
4.6%
1.4%
-0.5%
-8.7%
-4.3%
-2.3%
-11.4%-13.7%-18.8%-21.5%-23.7%-35.0%-25.8%-19.1%-7.3%
7.8%

New pet shops contracts (right axis)

40%

0%
-10%
-20%
-30%
-40%

6,000
3,000
0

Q1
Q1
Q1
Q1
Q1
Q1
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17

Source: Shared Research based on company data

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

Rising average age of pets and policy renewal
Increase in the average age of pets raises 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 averageage of dogs covered by Anicom has been rising in recent years, reaching 4.1 in FY03/14, according to Shared Research
estimates, based on contracts for animals up to age 12. (The average age would be 4.4 according to Shared Research
estimates based on all contracts.) Under the company’s pricing structure, the insurance premium rises in accordancewith the pet’s age. Hence, a rise in average pet age would lead to higher premium revenue.

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Average age of animals insured by Anicom
Average age of animals

Dogs
New:
Cats

Previous (0 to 12)
New (total contracts)
Previous (0 to 12)
New (total contracts)
Birds (previous: 0 to 6)
New (total contracts)
Previous (0 to 6)
New (total contracts)
Previous (0 to 6)
New (total contracts)
Av. Annual insurance premium (JPY)

Birds
Rabbits
Ferrets

FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14

1.6

1.8

2.0

2.3

2.9

3.1

3.4

3.6

4.0

2.5

2.6

2.7

3.0

3.6

3.7

3.7

3.7

3.7

2.0

2.1

2.3

2.4

2.5

2.4

2.5

2.6

2.7

1.7

2.2

2.4

2.5

2.7

2.8

3.0

2.9

2.9

1.7

2.2

2.7

2.9

3.0

3.0

2.9

2.9

3.0

-

27,49225,43325,63629,25833,76434,39436,89237,456

4.1
4.4
3.6
4.0
2.1
3.9
2.3
3.8
2.9
3.3
38,023

FY03/15

FY03/16

41,40544,872

Source: Shared Research based on company data (age, contract expirations after one year, and cancellation due to death), SR Research Estimates

Need to capture market for animals less than one-year old
As a pet ages, medical expenses rise. The company maintains the soundness of its portfolio by increasing the number ofpolicies for animals that are less than one-year old.

Annual premium for toy poodle (5% discount policy renewal for dogs aged over one year as of May 2016); avg. annual medical costs per dog (F03/12)(JPY)

60,00040,00039,160 37,270 37,510 39,010

42,96048,95055,30060,75064,830(JPY)

Annual medical costs per dog by age (Right axis)

Annual insurance for toy poodles

80,00067,640 69,480

70,650 71,380 71,830 72,110 72,270 72,380 72,450 72,480 72,500 72,510

150,000
100,000

20,0000200,000

50,000

0yrs

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

0

20

Source: Shared Research based on company data

Premium payments('000)

Premium payment cases

800
700

633

600

500

500
400
300
200
100
0

416
4,779
216

260

306

413
4,900

334

314

4,419

4,343

426

528

430
5,009

604

505

481

657

593

560

655

709

5,061
4,810

4,732

4,787

695

618

614

Q3

4,947 4,912 4,954

Q3

Q1
FY03/13Q3Q1
FY03/14

Q3

5,200
4,800
4,400

4,526 4,537

4,382

Q1
FY03/12660

4,703 4,715

4,190

Q1
FY03/11

5,600

5,278

4,975
4,792 4,764

4,545

4,525

(JPY)

Claims paid / payment cases (JPY, right axis)

Q1
FY03/15Q3Q1
FY03/16Q3

4,000

Source: Shared Research based on company data

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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 FY03/13 FY03/14
29,88743,55367,45774,25542,92861,44859,116
61,33659,45166,80819,88934,00743,90047,06537,752
29,21546,71247,60350,21749,227
9,879
22,26036,35640,493
33,112
34,61628,70043,98745,34447,915
5,642
11,522
24,20535,082
29,784
31,176
34,06429,00842,97744,094
3,149
7,040
13,10024,154
26,051
28,271
31,14233,96029,29542,276
2,694
4,668
8,688
13,98917,92924,55528,07831,13833,81729,251
1,896
3,456
5,558
9,019
10,754
17,067
24,35728,01831,182
33,591
1,537
2,640
4,309
6,050
7,166
10,386
17,24824,317
27,96130,803
1,226
2,322
3,454
4,753
5,097
6,930
10,594
17,41024,187
27,716
543
1,305
2,438
3,207
3,826
4,998
7,051
10,80917,48324,074
181
590
1,385
2,236
2,751
3,752
5,228
7,409
11,08817,533
38
203
635
1,233
1,688
2,348
3,363
4,717
6,756
10,164
0
48
226
532
1,001
1,382
2,000
2,945
4,179
5,978

Age composition of insured dogs
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

2%
2%
4%
4%
7%

2%
3%
3%
5%
9%

13%
26%

FY03/05
0 yrs

2%
3%
5%

33%

32%

FY03/06
FY03/07
1 yr
2 yrs
3 yrs

6%
8%

7%
8%

9%

11%

8%

10%

17%

11%

20%

24%

20%

FY03/09
5 yrs

FY03/106 yrs

FY03/11
7 yrs

16%

11%

13%
14%
18%

7%
8%
7%
10%

9%
8%

10%

11%

14%

7%
8%

9%

10%

12%

15%

18%

FY03/08
4 yrs

4%
7%
10%

14%

15%

28%

3%

12%

13%

17%
21%

5%
8%

9%

11%

17%
25%

39%

3% 2%
4%
6%

10%

12%

11%

13%

11%

15%

16%

FY03/12
FY03/13
FY03/148 yrs
9 yrs
10 yrs and up

Source: Shared Research based on company data

Policy renewal rate at about 88%
A rising rate of policy renewal also helps stabilize the company’s portfolio. The renewal rate is about 70% for pets lessthan one year of age, and exceeds 90% from the second year. The overall renewal rate has been around 88%. The rate
began to decline in FY03/15 after the company revised its insurance premiums to reduce the loss ratio.

Although a portion of policies are canceled due to death, considering that the average age of pets is about 13 years andthat Anicom’s composition ratio of pets aged 12 years or older is about 1% (FY03/12), the number of cancellations due todeath is likely to be small. Potentially, the company could raise its overall renewal rate by several percentage points byraising the renewal rate in the initial year of the policy and through measures to improve its preventive services.

Renewal rate over time

Renewal rate

FY03/10Act.
84.1%

FY03/11Act.
86.6%

FY03/12Act.
87.6%

FY03/13Act.
88.1%

FY03/14Act.
89.3%

FY03/15Act.
88.7%

FY03/16Act.
88.2%

FY03/17Plan
88.1%

Source: Shared Research based on company data

Different attitudes toward pet insurance: animals or family
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 take them to vets when they get sick.

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Thus, there are no incentives for them to acquire pet insurance. On the other 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 JPY359,000 on dogs and JPY185,000 on cats in2014. People who acquire pet insurance also seem to be generous in the purchase of other pet-related goods andservices.
Survey on annual spending on pet(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

2014
80,912
47,983
41,61442,74038,052
28,311
27,13919,716
13,603
7,407
7,061
5,613
359,151
1,833
5.1

Composition
23%
13%
12%
12%
11%
8%
8%
5%
4%
2%
2%
2%
100%
-

YoY
7%
0%
22%
9%
10%
5%
34%
9%
-2%
5%
14%
-23%
8%
-10%
6%

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
173,172
436
4.4

2014
49,87538,936
8,294
29,067
12,902
15,624
17,200
4,321
2,612
5,964
184,795
409
4.5

Composition
27%
21%
4%
16%
7%
8%
9%
2%
1%
3%
100%
-

YoY
40%
8%
28%
4%
-2%
-25%
-10%
-17%
-54%
97%
7%
-6%
2%

Source: Company data released on January 29, 2014 and February 2, 2015.

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Competition
Anicom had 10 competitors in the field of pet insurance as of May 2014. This comprised three nonlife insurancecompanies and seven small-amount and short-term insurers. Four of these rivals disclose their earnings 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.

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

FY3/081,100
1,100

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

FY03/14504,969
158,146
60,841
40,627
764,583

FY03/15544,815
196,964
76,43045,850864,059

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

FY3/08
14,666-

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
27,83830,060FY03/1438,02332,25230,48930,253

FY03/15
41,06432,30630,78530,804Composition ofunderwriting revenue

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

FY3/08
95.9%
4.1%
-

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%

FY03/14
65.7%
18.5%
4.5%
6.7%
4.5%

FY03/15
64.7%
18.9%
5.1%
7.0%
4.2%

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

FY3/08
7,267
382
20
7,669

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
23,979FY03/1418,366
5,103
1,236
1,856
1,243
27,804

FY03/15
22,638
6,365
1,720
2,354
1,425
34,502

Recurring 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

FY3/08
200
-115
-48
-

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

FY03/14
733
444
29
-527
210
888

FY03/15
1,250-1,460
39
-546
253
-463

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

FY3/082.8%-30.1%-244.9%-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%

FY03/14
4.0%
8.7%
2.3%
-28.4%
16.9%
3.2%

FY03/15
5.5%-22.9%
2.3%-23.2%
17.8%-1.3%

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

FY3/0850.1%-

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%

FY03/14
62.8%
34.1%
42.4%
41.0%
28.4%
41.7%

FY03/15
59.3%
34.6%
38.7%
45.7%
28.7%
41.4%

Net loss ratio

Source: Shared Research based on company data

Number of policies, underwriting revenue
Anicom is by far the largest provider of pet insurance in Japan, accounting for 60% of all the policies and underwriting
revenue of the five companies combined. According to the company, its Anicom Insurance unit has the largest market
share, followed by ipet Insurance (owned by Dream Incubator Inc. [TSE1: 4310]). They are followed by Pet & Family
Small-amount Short-term insurance (T&D Holdings Inc.), UCC Motto Gyutto (Holdings Co.), and Japan Animal-Club(Taihei Engineering Co. Ltd.).
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. (ajoint venture with Pets best of the US); and au insurance Co., Ltd. (shareholders: Aioi Nissay Dowa Insurance, KDDI).

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LAST UPDATE【2016/11/15】

Competitors（JPYｍn）
Insurance revenue
Ranking

Insurance revenue
RankingAnicom
FY03/15
21,733
No.1
GardenFY03/1552

ipet Insurance
FY03/15
6,363
No.2
Japan Animal-Club
FY03/15
2

AXA GENERAL INSURANCE
FY03/151,700

au insurance
FY03/15
naAnshin Pet
FY03/1523

AEON
FY03/15
1

E-Pet
FY03/15
0Pets Best
FY03/15365

Pet & Family
FY03/15
2,354
No.3

Pet Medical Support
FY03/15575

UCC Motto Gyutto
FY03/15
1,425

FPC
FY03/15
na

Source: Shared Research based on data from companies

Average premium (insurance premiums / number of policies)
This formula is not very useful since premiums differ greatly depending on the age of animals, and the age composition
has a great influence on the average premium. For example, companies that have recently 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 a posted 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
Article 113
Deferred amounts

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

FY3/08-455-362-

FY03/09
-889
-524
-357
-

FY03/10
-417
-333
-

FY03/11
-615
-325
-

FY03/12-946-

FY03/13-517-

FY03/14-539-

FY03/15-654-

Source: Shared Research based on company data

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

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Anicom Holdings | 8715 |Anicom Holdings ＞ Business

LAST UPDATE【2016/11/15】

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

Japan Animal-Club

Pet & Family Smallamount Short-term
Insurance

Motto Gyutto
Small-amount
Short-term
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
Deferred amounts from Insurance Business Act Article 113
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
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
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

FY3/08

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%

FY03/14
74.4%
59.1%
3.6%
5.7%
0.8%
5.1%
0.1%
22.0%
1.0%

FY03/15
73.3%
55.9%
3.4%
5.8%
0.7%
7.4%
0.1%
22.6%
2.5%

19.6%
19.6%

36.3%
33.9%

51.1%
32.9%

0.2%
159.7%
6.6%-50.5%

2.4%
0.5%
62.9%
5.5%
-20.8%

18.2%
0.5%
53.1%
8.0%
-24.8%

61.5%
32.1%
1.7%
12.8%
1.1%
13.9%

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

54.5%
31.4%
2.7%
10.6%
1.5%
8.4%

51.5%
32.3%
2.4%
10.3%
1.5%
5.0%

37.6%
12.1%
-28.8%

34.7%
9.9%-12.1%

38.2%
9.2%-10.6%

40.6%
41.2%-10.3%

68.2%
50.1%

61.6%
46.6%

50.1%
41.2%

49.9%
38.5%

51.6%
38.8%

49.5%
37.8%

43.9%
42.3%

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%
-

0.4%
10.3%
0.9%
52.2%
0.0%
-

0.9%
0.7%
53.8%
0.3%
-

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%

64.6%
41.8%

58.6%
41.0%

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%
-

7.4%
13.5%
1.8%
65.4%
15.4%
-

6.5%
11.0%
57.6%
10.5%
-

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%
-

36.1%
23.0%
3.9%
8.1%
1.1%
52.1%
-

36.9%
28.1%
2.4%
5.3%
1.0%
46.3%
-

2,040.3%
298.1%-2,245.8%

Source: Various (complied by Shared Research)www.sharedresearch.jp

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Anicom Holdings | 8715 |Anicom Holdings ＞ Business

LAST UPDATE【2016/11/15】

Profitability analysis
FY03/08

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

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

22,63823.3%
21,733522
382

26,50617.1%
25,370690
446

Recurring expenses
YoY
Underwriting expenses
Investment expenses
Operational 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

21,38721.3%
15,92021
4,905

24,37714.0%
17,393182
6,699

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%

1,250
70.5%
5.5%

2,129
70.3%
8.0%

(JPYmn)Recurring revenue
YoY
Underwriting revenue
Investment revenue
Other recurring revenue

Source: Shared Research based on company data

Recurring revenue
In the nonlife insurance industry, recurring revenue refers to sales. Recurring revenue consists of underwriting revenue,
investment revenue, and other recurring revenue. Investment is an important part of 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 for almost 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 revised its pet insurance pricing structure in June 2014. This is the first price revision since the company
obtained its nonlife insurance license in January 2008. Another revision will be implemented in November 2014 alongwith a product change.
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
Other 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 FY03/15 FY03/16

-

-

-

2,546
-

4,407
-

5,575
-

7,267 10,800- 48.6%

9,216 11,107 13,845 16,186 18,366 22,638 26,506-14.7% 20.5% 24.7% 16.9% 13.5% 23.3% 17.1%

39
39
0
7,228
6,980
248

9,003 10,858 13,592 15,781 18,087 21,733 25,370
8,981 10,858 13,592 15,781 18,087 21,733 25,370
71
94
108
260
108
522
690
71
78
92
113
18
289
334
0
15
16
147
89
232
355
141
154
144
143
171
382
446
61
-

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

Source: Shared Research based on company data

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.

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Anicom Holdings | 8715 |Anicom Holdings ＞ Business

LAST UPDATE【2016/11/15】

The company shortened the duration of its bond investments from medium term to short term in FY03/13. During thisprocess, the company unwound its positions and posted gains, increasing its investment yield for that year.
Consequently, the yield declined in FY03/14.
Outstanding balance and the remaining duration of investment securities (JPYmn)
1 yr
or less
500
702
1,202

End FY03/12
JGBs
Regional bonds
Corp. bonds
Securities
Foreign securities
Other securities
Total

1 yr
or less
300
300

End FY03/13
JGBs
Regional bonds
Corp. bonds
Securities
Foreign securities
Other securities
Total

1 yr
or less-

End FY03/14
JGBs
Regional bonds
Corp. bonds
Securities
Foreign securities
Other securities
Total

1 yr
or less-

End FY03/15
JGBs
Regional bonds
Corp. bonds
Securities
Foreign securities
Other securities
Total

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

1-3 yrs

3-5 yrs

5-7 yrs

7-10 yrs>10 yrs

Total

-

-

-

-

906
10,385
11,292906
10,385
11,292

1-3 yrs

3-5 yrs

5-7 yrs

7-10 yrs>10 yrs

Total

-

-

-

-

590
14,452
15,042590
14,452
15,042

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: Shared Research based on company data

Investment securities yields
Public bonds
Securities
Foreign securities
Other securities
Total
Balance (JPYmn)

y
FY03/07
0.92%
0.92%
2,283

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

FY03/14
0.41%
0.52%
0.07%
0.10%
11,292

FY03/15
3.87%
2.18%
2.26%
15,042

Source: Shared Research based on company data

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Anicom Holdings | 8715 |Anicom Holdings ＞ Business

LAST UPDATE【2016/11/15】

Overview of expenses
Underwriting expenses(JPYmn)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

FY03/15
15,92012,149
741
1,269
144
1,616
1,499
116

FY03/16
17,393
13,547
895
1,590
122
1,237
1,120
116

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%

73.3%
55.9%
3.4%
5.8%
0.7%
7.4%

68.6%
53.4%
3.5%
6.3%
0.5%
4.9%

Source: Shared Research based on company data

Expense items(JPYmn)Underwriting expenses
Net claims paid

Loss adjustment
Net commissions and brokerage fees
Provision for reserve for outstanding losses and claims

Provision for underwriting reserves
Prepaid premium
Reserve for casualty

FY03/16
17,393
13,547vs underwriting
revenue
68.6%
53.4%

895
1,590

3.5%
6.3%

122

0.5%

1,237

4.9%

A combination of the following two items:

1,120

4.4%

Calculated each month by the 1/12 method, and compared with ayear-ago figure

116

0.5%

The difference between the amount of liquidation at the end of theprevious 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 beginning of the fiscal year.

Notes
Closely linked with the number of contracts.
Should be considered together with the provision for reserve foroutstanding losses and claims.
Mostly labor costs.
Commissions paid to sales agents. Closely linked with the value of
newly signed contracts. (Commissions for newly signed contracts are
more generous than those for renewals.)
An estimate for claims at most insurance companies. However, petinsurance companies do not estimate the amount of claims. Thus, forpet insurers, this has a more preemptive meaning and should beconsidered together with claims paid.

Source: Company data

Many expense items are linked with the number of policies and the value of new policies written. However, there areitems that could be adjusted through changes in product offerings, such as net claims paid (including a provision forreserve 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 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 can be obtained from the revenue statement.
The company’s loss ratio had increased after it changed its product offering in October 2010 (when the company
introduced a plan that covers 90% of expenses). However, the ratio has improved dramatically as a result of the measureslisted below.

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Anicom Holdings | 8715 |Anicom Holdings ＞ Business

LAST UPDATE【2016/11/15】

Measures to improve loss ratio
Start date

Measures

Results

Aug 2012

Stop sales of 90% coverage policy

Continued instant and long-term effects from no more policies with a relatively high loss-ratio (completely eliminatedat the end of July 2013)

Aug 2013

Limit switch to high-coverage policy(from 50% to 70% coverage)

Restricts switching from low-premium policies when pet is young, to higher premiums when pet is older with morerisk. Results expected in the long term

Oct 2013

Lengthen period from online application to coverage

Avoids high-risk contracts (contracts with expected increase in loss ratio)

Jan 2014

Stop sales of 70% online application (until Sept 2014)

Same as above

June 2014

Revise premiums

Makes up for the effects of the consumption tax hike (pet medical expenses include consumption tax, but premium
revenues do not. Most expendituress also affected by the tax hike.) Contribution expected from FY03/16

Nov 2014

Introduce policy with limited hospital visit days

Controls frequent use of high-risk insurance coverage. Although current low-risk customers have few emergencies,
risk increases with pets' age, so results expected in the long term

Nov 2014

Introduce healthy pet discounts

Discounts premiums based on the number of claims from the contracted company. Loss ratio expected to improvefrom more fairness between customers, higher renewal rate, and restricted insurance use

Source: Company data

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 insured pets gettreated for sickness or injury on an annual basis. Five trips to the animal hospital, each costing between JPY6,000 and
JPY7,000, would cost a total of JPY35,000. The company offers two plans: 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 March 2014)

Changes in various ratios
E/I loss ratio(Net claims paid + increase in reserve for outstanding claims + loss expense) ÷ earned premiuma)Operating expenses / earned premiumsb)
Combined ratioa) + b)Net loss ratio
W/P, (net claims paid + loss expense) ÷ net claims writtenc)
Net expense ratio(collection costs + undertaking SG&A expenses) ÷ net claims writtend)Combined ratio
Sum, (net loss ratio + net expense ratio)c) + d)Solvency margin ratio
Renewal ratio

FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16

24.4%
48.0%
72.4%
-

48.6% 53.4% 64.3% 67.5% 66.7% 64.4% 60.1%- 33.2% 29.7% 28.6% 28.3% 31.1%- 97.5% 97.2% 95.3% 92.7% 91.2%
45.5% 48.1% 57.3% 63.7% 62.8% 59.3% 56.9%
40.2% 36.3% 30.9% 28.5% 27.3% 28.4% 32.7%
85.7% 84.4% 88.2% 92.2% 90.1% 87.7% 89.6%- 304.1% 307.2% 281.3% 295.1% 288.7% 282.6%
84.1% 86.6% 87.6% 88.1% 89.3% 88.7% 88.2%

Source: Shared Research based on company data

E/I loss ratio and expense ratio
80%70%

Oct 2010: sales of 90% compensation
product begin

62.3%

60%
50%
40%
30%
20%

48.2%
44.8%

53.0%

66.0% 67.3%

61.5%

69.0% 69.5%

68.1%

65.5%

63.1%

66.3%

62.1%

66.7%

68.9%

64.2%
58.7%

56.5% 55.3%
Aug 2012: sales of 90% compensation
product halted(Jul 2013: terminated 90% coverage
product)

41.1% 39.7%
34.6%

Q1
FY03/11Jan- Sep 2014: suspend online sales of 70% compensation plan

73.4%

Q3

36.5%

34.2%

Q1
FY03/12

32.1% 30.5% 31.6%

Q3
E/I loss ratio

Jun 2014: changes topremiums

Aug 2013: limit changes incompensation from 50% to 70%

Q3

Q1
FY03/14

Q3

26.8%

Q1
Q3
FY03/15
Earned premiums expense ratio

60.3%

57.6%

November 2014: introduce
system limiting number of visits
and length of stayOct 2013: extend period from online
aplication to coverage start

29.2% 29.1% 29.3% 30.5% 28.3% 27.7% 27.9% 28.7% 28.3%

Q1
FY03/13

62.1% 60.6%

29.2% 28.4% 29.5%

Q1
FY03/16

33.9%

32.2%

Q3

Source: Shared Research based on company data

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

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Anicom Holdings | 8715 |Anicom Holdings ＞ Business

LAST UPDATE【2016/11/15】

Amortization of deferred assets per Article 113 of the Insurance Business Act
On April 14, 2015, the company announced the bullet amortization of deferred assets per Article 113 of the Insurance
Business Act at core subsidiary Anicom Insurance, Inc. The bullet amortization is one of the factors that helped raise
recurring profit for FY03/16 and FY03/17 up by JPY161mn in the company’s medium-term plan (released in FY05/15), vs
FY03/16 and FY03/17 recurring revenue plans.
Details of the amortization
At Anicom Insurance, some operating costs from FY03/08 (when it began operations) and FY03/09 were booked asdeferred assets in accordance with Article 113 of the Insurance Business Act. The company has been applying thestraight-line method over ten years until FY03/17 (meaning deferred assets for the end of FY03/14 totaled JPY484mn).

Reasons for the bullet amortization
The company decided to use bullet amortization in FY03/15 because robust earnings at Anicom Insurance means thecompany expects to book a profit surplus, even after amortization of deferred expenses per Article 113. Also, rather thanweigh down the balance sheet in the future with deferred expenses, it will use write-offs for healthier finances.

Effects on FY03/15 earnings
In the company’s FY03/15 plan, JPY161mn in recurring costs was accounted for under the straight-line method, but thecompany booked an additional JPY323mn in new recurring costs under the bullet method, and JPY93mn in deferredincome taxes from the reversal of deferred tax liabilities.
However, according to the company, it will not revise its full-year earnings forecasts because of robust earnings, due toinsurance underwriting improving more than expected.
Compared to other industries, insurance companies have significant initial costs. Under Article 113 Act 1 of the Insurance Business Act,
business expenses for the first 5 years after beginning operations may be recognized as assets, amortized over a ten-year period using thestraight-line method.

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Strengths, weaknesses
Strengths
Payout settlement system becoming industry standard (insurance card, health records).
The company operates an insurance payout system in which pet owners show their animal health insurance card at
hospital counters and make copayments. The system not only provides convenience to policyholders but also helps thecompany reduce administrative expenses. The company’s animal health insurance cards were accepted by 5,773
institutions as of the end of March 2015. There were 7,038 animal hospitals in Japan (excluding industrial hospitals) as ofthe end of December 2014, according to the Ministry of Agriculture, Forestry and Fisheries. That means the majority ofJapan’s animal hospitals accept Anicom’s insurance cards. Similar services are offered also by ipet and Pet & Family, but
Anicom has far wider acceptance; 3,481 animal hospitals accepted insurance cards issued by ipet as of April 1, 2015.

Name recognition, industry data, customer base, and strong earnings structure provide resources to expand into new businessareas.
The company controls more than 60% of Japan’s pet insurance market. This formidable share is a major advantage sincecustomer 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.

Stable source of revenue.
The company’s pet insurance policies have an average renewal rate of 88.7% (in FY03/15). The renewal rate for thesecond year exceeds 90%, generating a stable stream of revenue.

Weaknesses
Earnings vulnerable to sudden cost increases, such as a tax hike or a surge in the loss ratio.
The company has high variable costs and a low marginal profit ratio, so earnings are vulnerable in the short term to asudden increase in costs, such as the consumption tax rate and the loss ratio.

Restricted by the Insurance Business Law.
The company is engaged in the nonlife insurance business, and is subject to restrictions in its business activities dictatedby Japan’s Insurance Business Law. When the company embarks on new businesses, it may find itself in competition withcompanies that are not subject to the same restrictions. Hence, it may be at a competitive disadvantage in somesituations. 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 business development. 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 that competitors may try to
exploit this cost-difference weakness by going onto the offensive with low-price strategies. At the present stage, rivals arestill small and their profitability is low, so the impact of competition is not yet large. Anicom is also focusing efforts onlowering its loss ratio. However, it will be necessary to closely monitor trends in this area.

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Anicom Holdings ＞ Historical performance

LAST UPDATE【2016/11/15】

Historical performance
Q1 FY03/17 results (announced August 5, 2016)▶ Recurring revenue: Effects of June 2014 revisions to policy prices wound down, but revenue got boost from higher

prices per premium owing to policy renewals and an increase in the age of pets, and more new policies.
▶ E/I loss ratio: Rose 0.8pp versus forecast but down 2.7pp YoY as it continues to improve. Benefited from combined

impact from several initiatives.
▶ Expense ratio: Declined 2.2pp versus forecast (up 4.4pp YoY). Targeting stronger future sales and improved loss ratio,

investment was stepped up in development of services, human resources and other initiatives.
▶ Combined ratio: 1.4pp higher than forecast (up 2.0pp YoY). Expense ratio lowered in response to rise in E/I loss ratio.
▶ Recurring profit: Declined 27% YoY but up 18% versus forecast. The improved expense ratio owing to thorough costmanagement and operational improvements contributed.
▶ 2018 medium-term management plan: Announced new targets based on 8% consumption tax rate (FY03/18 andFY03/19 recurring profit raised by JPY400mn).
Quarterly performance and new policies sold year-on-year
900
102.6%
836
99.5%97.9%
98.8%100.2%99.4%
97.2%
97.1%
96.2%
95.4%97.2%
94.2%
93.9%
800 93.0%94.1%
92.4%
92.0%
91.0%
90.1%
89.9%
89.7%92.2%
87.9%90.5%
700
90.1%
600
491
500
404
395 407
379
358
400
321
321
312
293
267
300
231
187
186
174
200
113
112
105
98
47
100
18
8
4
0
-100
-81
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
(JPYmn) Q1
FY03/12
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/11
Contracts (thousands)
Recurring profit (JPYmn)
Combined ratio (right axis)
40%
30%

36%
17%

20%
10%

9%

0%
-10%

29%

38%
16%

6%

12%

4%

11%
5%

5%

4%

1%

-7%

1%
-1%
-3%

-1%

17%
6%

-9%

-4%

Q1
FY03/12Q3Q1
FY03/13

Q3
New contracts

5%3%-11% -14%

Q1
FY03/14

Q3

16%

14%

12%

-2%

-30%
-40%

Q3

26%
15%

4%

-1%

-13%

-20%

15%

110%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%

-2%

-3%

-8%

-9%

-19%

6%

2%

17%
11%

-5%

-7%

Q3

New contracts through pet shops

-26%
-35%

17%

16%
12%

15%
8%

-6%

-22% -24%

Q1
FY03/15

6%

-4%

-19%

Q1
FY03/16Q3

Q1
FY03/17

Q3

New contracts through agencies

Source: Shared Research based on company data
Q4 FY03/16 figures for E/I loss ratio are company estimates as of Q3

Earnings summary
In Q1, loss ratio and earnings growth continue to improve on rise in new insurance policies, particularly via pet-shop sales
channelThe company reported solid results in Q1 FY03/17 for new policies sold, number of policies held and loss ratio. In Q4,contributions to profit included 1) steady signings of new insurance policies, primarily through pet shops, a key sales
channel; 2) a roughly 88% renewal rate; 3) E/I loss ratio improving year-on-year due to continued measures forwww.sharedresearch.jp

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improvement, and 4) improved operating expense ratio versus forecast pushed up recurring profit. Q1 profit declined on
the booking in Q1 of impairment losses Anicom had scheduled to book in Q3 or later, but this was already incorporated
in the full-year budget.

Utilizing effects of improved loss ratio to make medium and long-term strategic investments
In Q1, despite the winding down of the effects of revisions to policy prices introduced in June 2014, underwriting
revenue was firm, aided by steady growth in the number of contracts, more policy renewals and higher prices perpremium due to an increase in the age of pets. Loss ratio of 59.4% meant an ongoing year-on-year improvement, withthe company continuing to realize benefits from several initiatives. The upside of 0.8pp against forecast does not imply
meaningful improvement aspects, as the company views changes within 1pp as within expectations.

Increased investment raises operating expense ratio
In Q1, the operating expense ratio rose by 4.4pp to 32.8%, but the company actively reinvested profits generated frompet insurance to strengthen its sales force and research and development (facilities and specialized personnel). Throughthese investments, the company aims at extending the healthy lifespan of pets as a research and development topic and a
new business in the medium- to long-term perspectives. The operating expense ratio declined 2.2pp versus forecast, andthe combined ratio improved 1.4pp. The company is making growth investments, paying attention to the combined
ratio. In Q1, in response to E/I loss ratio above the plan, the company made some cost cuts and pushed some costs to Q2
or later. As a result, recurring profit came in 18% higher than forecast.

In FY3/17, investment targeting medium-term growth likely to continue, but company mindful of the combined ratio
Shared Research notes that the company is steadily selling more new policies, which together with measures to improve
its E/I loss ratio should lead to steadily higher revenue over time. The company is also planning further investments in
FY3/17 geared towards future growth, but Shared Research expects the company to pursue such investment (set toaccelerate in FY03/18) while remaining mindful of the combined ratio.

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Anicom Holdings ＞ Historical performance

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E/I loss ratio and expense ratio
80%

56.5%55.3%
53.0%
48.2%

60%
50%

Aug 2012: sales of 90% compensation
product halted(Jul 2013: terminated 90% coverage
product)

Jun 2014: changes topremiums

Aug 2013: limit changes incompensation from 50% to 70%

November 2014: introduce
system limiting number of visits

and length of stay
44.8%
41.1%39.7%
Oct 2013: extend period from online
aplication
tocoverage
start
36.5%
34.6%
34.2%
33.9%32.2%32.8%
32.1%30.5%31.6%
29.2%28.4%29.5%
29.2%29.1%29.3%30.5%28.3%27.7%27.9%28.7%28.3%
26.8%

40%
30%
20%

69.0%69.5%
68.9%
68.1%
66.7%
66.3%
64.2%
63.1%
62.1%
62.1%60.6%60.3%
59.4%
58.7%
57.6%

66.0%67.3%
65.5%
62.3%
61.5%

70%

Jan- Sep 2014: suspend online sales of 70% compensation plan73.4%

Oct 2010: sales of 90% compensation
product begin

Q1
FY03/11Q3

Q1
FY03/12Q3Q1
FY03/13
E/I loss ratio

Q3

Q1
FY03/14

Q3

Q1
Q3
Q1
Q3
FY03/15
FY03/16
Earned premiums expense ratio

Q1
FY03/17

Q3

Recurring expenses
7,000
27%

22%
21%

(JPYmn)Q1
FY03/12Q3Q1
FY03/13

Q3

Operating costs and SG&A expenses

Q1
FY03/14

Q3

Asset management costs

28%

26%

26%
24%

22%

22%

20%

Q1
FY03/15

Q3

Underwriting expenses

20%

Q1
FY03/16

Q3

1,902

1,193

1,148

1,021

983

968

1,010

909

904

886

933

825

843

859

865

0

23%

22%

2,000
1,000

30%

27%

1,858

21%

6,662 6,684

25%

1,809

3,000

5,205

1,609

4,000

4,784

6,222
5,580 27%

1,423

4,280 4,269
24%
4,077
24%
3,826 3,831
23%
3,614
23%
3,281 3,312 3,442 3,473
22%
22%
22%
21%

4,502 4,582

1,405

26%

5,000

5,419

1,159

6,000

5,979 5,913

Q1
FY03/17

18%
Q3

16%

Operating costs and SG&A expense ratio (right axis)

Source: Shared Research based on company data

Changes made to the medium-term plan
Mid-term plans(JPYmn)Recurring revenue
Underwriting revenue
Investment revenue
Other recurring revenue
YoY
Recurring expenses
Underwriting expenses
Operating expenses/SG&A expenses
OthersRecurring profit
YoY
RPM
Net income
ROE
Earned premiums
Premium payments
E/I loss ratio
Operating expenses / earned premiums
Combined ratio
Total contracts
Premium payment cases ('000)(Announced May 9, 2016)(Announced August 5, 2016)
Differences
FY03/17
FY03/18
FY03/19
FY03/17
FY03/17
FY03/18
FY03/19
Est.
Plan
Plan
Est.
Plan
Plan
Est.
28,70031,10033,60028,70031,10033,60027,60029,70031,90027,60029,70031,900
600
700
800
600
700
800
500
700
900
500
700
900
26.8%
17.3%
17.1%
26.8%
17.3%
17.1%
26,10028,00030,00026,10027,60029,60018,10019,55021,00018,10019,255
20,665
7,550
8,150
8,500
7,550
8,051
8,444
450
300
500
450
295
491
2,600
3,100
3,600
2,600
3,500
4,000
22.1%
19.2%
16.1%
22.1%
34.6%
14.3%
9.1%
10.0%
10.7%
9.1%
11.3%
11.9%
1,789
2,140
2,485
1,789
2,416
2,761
15.4%
15.9%
15.9%
15.4%
17.8%
17.2%
27,135
29,15831,31027,135
29,15831,31015,77017,10018,30015,77016,80018,000
58.1%
58.6%
58.4%
58.1%
57.6%
57.5%
32.9%
33.2%
33.2%
32.9%
33.1%
33.0%
91.0%
91.8%
91.6%
91.0%
90.7%
90.5%
630,000
682,000
739,000
630,000
682,000
739,000
2,800
2,800
-

FY03/18
Plan
-400
-295
-99
-5
400
15.4%
1.3%
276
1.9%
-300
-1.0%
-0.1%
-1.1%
-

FY03/19
Plan
-400
-335
-56
-9
400
-1.8%
1.2%
276
1.3%
-300
-0.9%
-0.2%
-1.1%
-

Source: Shared Research based on company data

The combined ratio was expected to temporarily deteriorate during FY03/18 because of an increase in the consumption
tax. (The consumption tax does not affect the company’s insurance premium revenue. However, claims and otherexpenses are subject to the tax, and the amount of the deduction is limited. An increase in the consumption tax,
therefore, ends up reducing the company’s earnings.) However, since the consumption tax hike was again postponed,
the company announced a new version of its “2018 rolling medium-term business plan” based on an 8% tax rate.
Compared to the previous plan, recurring profit targets for FY03/18 and FY03/19 have been raised by JPY400mn.

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Anicom Holdings ＞ Historical performance

LAST UPDATE【2016/11/15】

Below is an overview of the company’s progress in Q1 regarding key initiatives in FY03/17, including growing the pet
insurance business, allocating resources to new businesses, and building up preventative services.

Measures to grow new contracts proving worthwhile
Measures to achieve healthy growth in the pet insurance market: on the insurance premium side, ongoing efforts todevelop the market as well as develop relationships with new insurance agencies and strengthen those with existing
agencies; on the expense side, developing pet insurance products that will keep the loss ratio around 60% over the
medium to long term and accommodate both the needs of policyholders for fair compensation and those of insurancecompanies for maintaining a viable insurance system.
In Q1, the number of policies sold through pet shops rose 15.7% YoY, the company achieved an E/I loss ratio of 59.4%
over the full year, as it continues to reach levels set under its medium- to long-term target, and the renewal rate stayed atroughly 88%.
New contracts and contract renewal rate
New contracts (pet shop)

Contract renewal rate (right axis)

92%
91%

8.5

10

New contracts (agencies)

9.5
8.6
8.0
8.7
8.0
8.4
8.1
8.2
8.7
8.3
8.0
8.3
8.8
7.7
8.2
7.8
8.3
8.3
7.9
8.4
8.4
8.4
9.1
9.1
9.9
9.7
9.4
9.2
9.3
8.1
8.7
9.2
8.8
8.2
9.7
8.7
9.4
8.3
8.0
8.9
8.3
8.6
8.1
8.1
8.4
8.2
8.5
8.9
9.3
8.9
8.5
8.9
9.2
9.1
9.1
9.2
9.9
9.2
9.8
9.8
10.5
9.9

12

8

90%
89%

4
2

5.4
6.3
5.5
4.9
5.3
5.0
5.2
4.9
5.1
5.4
5.0
4.7
4.6
5.4
4.9
4.8
4.7
5.2
5.0
4.7
5.2
5.4
5.4
6.0
5.9
6.7
6.5
6.1
6.1
6.2
5.8
5.6
6.2
6.6
5.7
6.6
6.0
6.8
5.9
5.6
6.3
5.9
5.8
6.2
6.4
6.8
6.5
6.8
6.9
7.6
6.9
6.5
6.9
7.3
7.0
7.2
7.3
8.0
7.5
8.0
7.9
8.6
8.1

6

0
Apr-11

Apr-12

Apr-13Apr-14Apr-15

88%
87%
86%

Apr-16

Source: Shared Research based on company data

Breakdown of new contracts (YoY)
40%
30%
20%
10%
0%

36%
17%

9%

-10%

29%

38%
16%

6%

12%

4%

11%
5%

5%

4%

1%

-7%

1%
-1%
-3%

-1%

26%
15%

-9%

17%
6%

4%

-1%

-13%

-20%

15%

-4%

-40%

Q1
FY03/12Q3Q1
FY03/13

Q3
New contracts

5%

3%

-2%
-11% -14%-30%
Q1
FY03/14

Q3

16%

14%

12%
-2%

-3%

-8%

-9%

-19%

6%

2%

17%
11%

-5%

-7%

Q3

-26%
-35%

16%
12%

-4%

-19%

Q1
FY03/16

New contracts through pet shops

17%
15%
8%

-6%

-22% -24%

Q1
FY03/156%Q3Q1
FY03/17

Q3

New contracts through agencies

Source: Shared Research based on company data

In pet shop channel, looking to win new shops, sell more policies through existing agents
In pet shop channel, Anicom is taking a two-pronged strategy: expanding the region it covers by acquiring new shops,
and deepening operations by selling more policies through existing agents and enhancing cooperation. Judging from thepace of acquiring new properties and sales of policies through existing agents, Shared Research believes the company has
performed well in both areas in Q1 as well, continuing the trend from Q4 FY03/16.
The steady growth in insurance policy sales reflects robust signing up of new pet shops to sell Anicom insurance
products, as well as improvement in the rate of policies sold through existing pet shop agents. While the insurance sales
ratio (number of policies sold ÷ number of pets sold) was just under 40% in Q1 FY03/15, it appears to have remained
around 50% since Q2 FY03/16. Anicom has been working to get the insurance sales ratio up to 70% for some time, butwww.sharedresearch.jp

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LAST UPDATE【2016/11/15】

the ratio has only started to improve since the company stepped up promotional and marketing in Q4 FY03/15, such as
marketing support for the opening of new pet shops serving as agents for Anicom’s insurance products. In Q1, thecompany allocated about 20 newly grads to sales for existing agencies, boosting the sales force by 20%. As actual
assignment took place from June, its effects are expected from Q2.
Shared Research believes this approach should build up policy sales over the long term, and will be keeping a close eyeon new policy sales numbers.

In its effort to support new pet shops serving as agents for Anicom's insurance products, Anicom provides them with personnel, essentials,
and money, with some conditions. Money is not in the form credit, lending, or investment. Rather, the company raises agency commissions fora certain period in exchange for stores prioritizing the acquisition of new insurance contracts. Naturally, actual terms are determined on thebasis of a given shop’s overall contribution to the company’s earnings.

Impact of decline in new contracts triggered by review of online contracts wound down in October 2015 but they declined 4% in Q1
In FY03/15 the number of general agency and online contracts, excluding contracts via pet shop agents, fell a dramatic
24.3% YoY. This was a result of a drop in online contracts, rather than general agency contracts, due to a longer period
from application to coverage (from October 2013), tighter underwriting criteria, and the strategic suspension of
70%-compensation insurance products. This did however contribute to the improvement in loss ratio in FY03/15.
The impact of the changes above, which hurt online contracts, wound down in FY03/16. While new contracts thenstarted to rise in Q4, they finished Q1 03/17 down 4.1%YoY. In January 2016, Anicom executed an agency contract with
Softbank (TSE:9984), and from January 21 began selling discounted pet insurance (comprehensive policies) for those
who sign new policies with the company directly. Shared Research will be watching this development closely. The
number of contracts appears to be comparable to other agencies and its contribution to the number of contract waslimited in Q1.
New general agents under contract (‘000)
30%

General agents newly brought under contract (right axis)
20%

3,000

2,000

-16%
-15%
-21%
-22%
-24%

-12%

3%

8%

Apr-14

1,000

-26%
-34%

-26%
-32%

1%
-13%
-17%
-26%
-26%
-17%
-22%

-0%
-3%
-27%

-15%

Apr-13-43%

Apr-12

-39%
-42%

-50%

-4%
-0%
-2%

-30%

-40%

4,000

YoY

1%
3%
-5%
5%

13%

-30%

-11%
-8%
-6%
-14%
-7%

-20%

4%
0%
-2%
0%

8%

-10%

-10%

-8%

0%

8%

16%

10%

20%

20%

Apr-150

Apr-16

Source: Shared Research based on company data

Responding to various initiatives, loss ratio improving in line with plan
On the expense front, the E/I loss ratio (based on earned premiums) came down to 59.4% in Q1, continuing its
improving trend. Management believes that various measures to reduce the loss ratio has been effective, we are left toconclude that the company has progressed in improving the earnings structure of its pet insurance business.

Efforts to strengthen claim assessment (before and after payments) may lead to long-term growth
In particular, Anicom will strengthen its assessment of insurance claims by working closely with animal hospitals. The
company, which deals with many hospitals and maintains a vast amount of clinical data, examines insurance claims bothwww.sharedresearch.jp

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Anicom Holdings ＞ Historical performance

LAST UPDATE【2016/11/15】

before and after the payments are made. The company wants to leverage its size to ensure further growth from Q2.

Anirese F system likely to discourage unnecessary treatment, allow for creation of industrywide data infrastructure
Anicom will promote Anirese F, a cloud-based record management system. The system may help discourage unnecessary
treatment by showing the average cost of dealing with various ailments. The system may eventually allow for the creationof a data infrastructure that makes medical records widely available. Medical records of parents and siblings of a particular
pet may also become accessible through such a network. The number of animal hospitals using Anirese F is between 700
and 800, below the company’s target for 1,500. The company will revise its medium-term target, which calls for 3,330
hospitals, and extend the target to the end of March 2019.

Net loss ratio and E/I loss ratio80%

E/I loss ratio

75%
70%

66.0%

65%
56.5%
53.0%

55%

41.9%

44.1%

Q1
FY03/11

54.8%

57.2%

66.7%

66.3%

63.1%

61.5%

56.0% 55.6%

Q3

69.0% 69.5%

68.1%

65.5%

55.3%

45.5% 45.9%

73.4%
68.9%
64.2%

62.1%

65.3%

62.9% 63.2%

48.2%

45%
40%

67.3%

62.3%

60%
50%

Net loss ratio

60.3%
56.8% 56.1%

55.1%

56.7%

58.7%
55.6%

48.2%

Q1
FY03/12Q3Q1
FY03/13Q3Q1
FY03/14

62.1%
58.7%

Q3

Q1
FY03/15Q3

60.6% 60.3%

57.6%

59.4%

57.0%
53.0%

54.0%
50.5%

Q1
FY03/16

Q3

52.1%52.2%

Q1
FY03/17

Q3

Source: Shared Research based on company data

Strategic investments aimed at growing top line
Anicom is actively using the improvement in the loss ratio and profits from pet insurance to make both hard and soft
investments and research and development of products and services such as a pet health screening service and theAnicom Concierge service.
At Anicom Specialty Medical Institute, research and analysis are conducted on the intestinal flora of pets and pet owners,
at Anicom Insurance, analysis is conducted on insurance claims data, and at Anicom and Anicom Insurance,
comprehensive surveys are conducted on pets regarded as family members. The company releases the results, continually
updates the information, and plans to undertake initiatives to make those into businesses to expand Group profits.

Business partnership with Fujifilm for advanced animal healthcare
In April 2016, the company formed a joint venture with Fujifilm (a wholly owned subsidiary of Fujifilm Holdings: TSE4901) in the field of advanced animal healthcare. The new company will develop and distribute advanced medical
technology and services for animals, with a particular focus on regenerative medicine. The company expects thisarrangement to lead to an improved loss ratio due to reduced medical costs and improved trust in the Anicom brand,leading to further increases in new policies and a better renewal rate.
The joint venture (51% owned by Fujifilm, 49% by Anicom) will develop and distribute advanced medical technology and services, with afocus on regenerative medicine. Fujifilm will contribute its sophisticated production technology and quality control technology, developed
though its production of photographic film, as well as image diagnosis technology, technology used for analyzing the chemical composition ofblood, and technology related to regenerative medicine. Anicom will contribute its network of animal hospitals, its digital clinical records
system, and its extensive knowledge of medical examination and treatment. Both companies aim for the realization of advanced healthcare foranimals.
Specifically, they intend to:www.sharedresearch.jp

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2）

LAST UPDATE【2016/11/15】

Establish a location where they can conduct translational research, and develop regenerative medicine and other medical treatments
designed for animals

2）

Develop technology for the safe production of cells used in medical treatments, and create a system to ensure product quality.

3）

Accumulate medical examination data (including images), and create a system through which they can conduct medical examinations
and treatment.

Among equipment needed to offer the technologies and services, Fujifilm will provide medical equipment such as the materials to be used inregenerative medicine and image diagnosis systems, and Anicom will provide its digital clinical records system. In order to reduce medical
expenses for pet owners and to make advanced healthcare more widely accessible, the company also plans to set up an insurance system forpets.

Strengthening personnel
Though the company is strengthening existing businesses and its internal structure, and continuing to invest in humanresources with an eye towards new businesses, the rising trend has lost some momentum. While both operating expenses
and SG&A expenses have been on a steady uptrend year-on-year, the impact is expected to wind down going forward.
Number of employees
800
700

627

600

545

512

500
300

527

457

437

200

660

644

102

99

104

569

561

540

88

75

400

100

671

100
0

Q4
FY03/15Q2Q3Q1FY03/17
Employees (incl. contract employees) in group (vets)

Q1
Q2
Q3
Q4
FY03/16
Employees (incl. contract employees) in group (exclude vets)

Q4

Source: Shared Research based on company data

Revenue from investments
Interest and dividend income

300

Gains on the sale of marketable securities
238

250
200

In FY03/13, Anicom realized gains as it unwound its bond position, movingfrom a medium-term to a short-term position.

150

127
98

100

133

50
0

20
0
20

Q1
FY03/11(JPYmn)

35
10
25

16
0
16

23
5
17

Q3

21
0
20

Q1
FY03/12

23
1
23

24
0
23

Q3

40
15
26

39
7
31

Q1
FY03/13

32
1
31

38
6
32

Q3

30
19

188

174

151

26
4

Q1
FY03/14

20
14
6

19
14
4

Q3

39
35
4

47
51

Q1
FY03/15

90

75
51

85

Q3

150
123
20

116

46

148
114

90

45

102

71

105

Q1
FY03/16

69

Q3

25
89

65

Q1
FY03/17

Q3

Source: Shared Research, based on company data

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Other recurring revenues
140

133

120

129

118

106

100

97

91

102

104

80
60

43

40

45

36

35

31

42

33

33

39

37

32

52

46

36

35

52

37

20
0

Q1
FY03/11

Q3(JPYmn)Q1
FY03/12Q3Q1
FY03/13Q3Q1
FY03/14Q3

Q1
FY03/15Q3Q1
FY03/16Q3

Q1
FY03/17

Q3

Source: Shared Research, based on company data

Full-year FY03/16 results (announced February 5, 2016)▶ Topline: Efforts to increase sales paid off as new contracts continue to grow in Q4, particularly through pet shop

channels▶ E/I loss ratio: Improvement measures gained traction as the ratio improved to 60.1%; a year-on-year improvement of

4.3pp. The company anticipates further improvement to 58.1% during FY03/17.
▶ FY03/17: Recurring profit forecasts unchanged from the previous plan. Investment to increase in order to implement

strategies in the mid-term plan, capture new contracts, and improve the loss ratio.
▶ 2018 medium-term management plan: While maintaining pet insurance as a stable revenue base, create new

added-value via prevention and aim for strong growth▶ Targets for FY03/19: Recurring profit of JPY3.6bn (CAGR of 19.1%), EPS of JPY137, and ROE of 15.9%.

Quarterly performance and new policies sold year-on-year
900
800
700
600
500
400
300
200
100
0
-100

93.0% 94.1%

96.2%

98.8% 100.2%99.4%
89.9%

92.0%

97.1%

102.6%

97.2%

92.4%

99.5% 97.9%

93.9%

90.1%

95.4% 97.2%

836
91.0%

87.9% 90.5%

94.2%

90.1%
491
312
105

231

186

Q1
FY03/11

Q3

-81
Q1
Q3
FY03/12Contracts (thousands)

Q1
FY03/13

20%
10%
0%

36%
17%
9%

-10%

29%

16%

6%

4%
4%

1%

12%
5%
-7%

1%

-1%

-1%
-3%

-1%

15%

15%

17%
6%

-4%

Q1
FY03/12Q3Q1
FY03/13

Q3

New contracts

Q1
FY03/14

Q3

14%

16%

12%
3%

-2%
-11%

-14%

Q3

-3%

-8%

-9%

Q1
FY03/15

New contracts through pet shops

5%

-2%

-19%

-30%
-40%

Q1
Q3
Q1
FY03/15
FY03/16
Combined ratio (right axis)

26%

4%

-9%

-13%

-20%

174

Q1
Q3
FY03/14Recurring profit (JPYmn)

38%
11%
5%

395

293

112

Q3

40%
30%

187

404

379

18

8

4

321
113

98

47

(JPYmn)

321

267

110%
100%
90%
80%
70%
407
60%
50%
40%
30%
20%
10%

89.7%

-22%

6%

2%

6%

17%
11%

15%
8%

-6%
-5%

-7%

-24%

Q3

17%

-26%
-35%

-19%

Q1
FY03/16

Q3

New contracts through agencies

Source: Shared Research based on company data
Q4 FY03/16 figures for E/I loss ratio are company estimates as of Q3

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LAST UPDATE【2016/11/15】

Earnings summary
Loss ratio and earnings growth continue to improve on rise in new insurance policies, particularly via pet-shop sales channel
The company reported solid results in Q4 FY03/16 for new policies sold, number of policies held and loss ratio. In Q4,contributions to profit included 1) steady signings of new insurance policies, primarily through pet shops, a key sales
channel; 2) a roughly 88% renewal rate; 3) E/I loss ratio improving year-on-year due to continued measures for
improvement, and 4) steady operating income from domestic stocks and REITs contributing more than expected.
Although new policies sold via general insurance agencies—which had been declining since Q3 FY03/13—were up during
Q4.

Utilizing effects of improved loss ratio to make medium and long-term strategic investments
Over the full year, significant growth in underwriting revenue was aided by steady growth in the number of contracts,
coupled with the effects of revisions to policy prices introduced in June 2014. The loss ratio of 58.1% showed
improvement versus initial plans (61.0%), but as the company utilized profits from pet insurance to invest in new medium
and long-term businesses and research and development in extending the healthy lifespan of pets, recurring profit was
JPY2.1bn, in line with the initial plan of JPY2.1bn.

Increased investment raises operating expense ratio
In Q4, the operating expenses ratio rose by 3.0pp to 32.2%. This was due to increased personnel expenses for strategic
hiring and a one-time expense related to the company’s move to larger offices, as well as rent and depreciation expenses
rising to JPY65mn, leading to total expenses of JPY105mn. However, this is lower than the forecast of 35% as of Q3.

Operating expense rise due to the bringing forward of FY3/17 investment plans, inspired by a lower than expected loss ratio
The increase in operating expenses is likely due to the fact that improvements to the company’s loss ratio exceeded its
initial expectations, so it decided to push forward its investment plan, previously planned for FY03/17. It also appears to
be focusing on investing in prevention and improving the healthy lifespan of pets, and as such booked depreciation
expenses on the purchase of research equipment, as well as increased hiring expenses (to recruit specialized staff) andoutsourcing expenses. However, as this investment was made with the combined ratio in mind, recurring profit was inline with plans.

In FY3/17, investment targeting medium-term growth likely to continue, but company mindful of the combined ratio
Shared Research notes that the company is steadily selling more new policies, which together with measures to improve
its E/I loss ratio should lead to steadily higher revenue over time. The company is also planning further investments in
FY3/17 geared towards future growth, but Shared Research expects the company to pursue such investment (set toaccelerate in FY03/18) while remaining mindful of the combined ratio.
Even so, the combined ratio may temporarily deteriorate during FY03/18 because of an increase in the consumption tax.
(The consumption tax does not affect the company’s insurance premium revenue. However, claims and other expenses
are subject to the tax, and the amount of the deduction is limited. An increase in the consumption tax, therefore, ends up
reducing the company’s earnings.)
2018 mid-term plan lays out specifics for preventive care; counting on growth to offset expenses/fixed costs
The newly updated 2018 medium-term management plan provides more concrete measures to provide preventive
services. Expenses began to rise during the latter half of FY03/15 because the company increased spending in existing
operations and sought to develop new businesses. However, the company hopes growth can offset these costs andwww.sharedresearch.jp

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improve profitability.

E/I loss ratio and expense ratio
80%70%

Oct 2010: sales of 90% compensation
product begin

62.3%

60%
50%
40%

48.2%
44.8%

30%
20%

53.0%

56.5% 55.3%

61.5%

68.1%

65.5%

Aug 2012: sales of 90% compensation
product halted(Jul 2013: terminated 90% coverage
product)

41.1% 39.7%
34.6%

Q1
FY03/11Jan- Sep 2014: suspend online sales of 70% compensation plan

73.4%
66.0% 67.3%

Q3

36.5%

34.2%

Q1
FY03/12

32.1% 30.5% 31.6%

Q3
E/I loss ratio

69.0% 69.5%
63.1%

66.3%

62.1%

66.7%

68.9%

58.7%
Jun 2014: changes topremiums

Aug 2013: limit changes incompensation from 50% to 70%

62.1% 60.6%

Q3Q1
FY03/14

26.8%

60.3%

57.6%

November 2014: introduce
system limiting number of visits
and length of stayOct 2013: extend period from online
aplication to coverage start

29.2% 29.1% 29.3% 30.5% 28.3% 27.7% 27.9% 28.7% 28.3%

Q1
FY03/1364.2%

29.2% 28.4% 29.5%

Q3

Q1
Q3
FY03/15
Earned premiums expense ratio

Q1
FY03/16

33.9% 32.2%

Q3

Source: Shared Research based on company data

Revenue from investments
250
200
In FY03/13, Anicom realized gains as it unwound its bond position, movingfrom a medium-term to a short-term position.

150

148
90

100

133

50
0

0
20

Q1
FY03/11

10
25

0
16

Q3

(JPYmn)

5
17

1
31

6
32

Q1
Q3
Q1
FY03/12
FY03/13Interest and dividend income

Q3

0
20

1
23

0
23

15
26

7
31

19

47
26
4

14
6

14
4

35
4

51

20

116

46
45

75
85

51

Q1
Q3
Q1
FY03/14
FY03/15
Gains on the sale of marketable securities

Q3

102

71

Q1
FY03/16

105

69

89

Q3

Source: Shared Research based on company data

Progress towards strategic initiatives in FY03/16
Increase in growth investment-related expenses (e.g., personnel costs) offset by new contracts and improved loss ratio; thepattern expected to continue in FY03/17
After an improvement in the loss ratio in FY03/15, Anicom has shifted its attention to measures to boost top-line recurring
revenues in 2H. Specifically, this includes costs for commissions related to increasing new contracts, personnel costs forinvestment in human resources aimed at growth, and new business-related expenses: the company has incorporated
these costs in its 2H FY03/15 and FY03/16 forecasts. While this has resulted in higher operating costs and general andadministrative expenses from 2H FY03/15, Shared Research believes the impact of the rise in new contracts is likely beevident in FY03/16 earnings. As noted above, 2H FY3/16 loss ratio improved more than expected, so the company
brought forward investment planned for FY3/17.

Operating expenses higher, but continuing to improve the combined ratio in FY03/17 and beyond
While investment in personnel will continue into FY3/17, mid-career hires will slow after FY3/16 and with the exception of
special projects, the main focus will turn to hiring new recruits according to Anicom. While it expects higher operating
costs in FY03/17, the company aims to improve its combined ratio (net loss ratio + net expenses ratio) as stated in its“2018 medium-term business plan”. (The ratio may deteriorate temporarily during FY03/18 because of an increase in the
consumption tax.)

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Recurring expenses
7,000

22%

4,280

4,077

4,269

23%
22%

21%

21%

22%
21%

5,205

25%

(JPYmn)Q1
FY03/12Q3Q1
FY03/13

Q3

Operating costs and SG&A expenses

Q1
FY03/14

Q3

Asset management costs

6,662

30%
28%

26%

26%
24%

22%

22%

20%

Q1
FY03/15

Underwriting expenses

1,193

1,148

1,021

983

968

1,010

909

904

886

933

825

843

859

865

0

23%

22%

2,000
1,000

6,222
27%

20%

Q3

Q1
FY03/16

1,858

3,831
23%

3,826

4,784

5,580

1,809

3,312

3,281

3,000

24%
3,614

3,473
22%

4,582

5,913

1,609

4,000

24%
3,442

4,502

5,979

1,423

26%

5,000

5,419

1,405

27%

1,159

6,000

18%
16%

Q3

Operating costs and SG&A expense ratio (right axis)

Source: Shared Research based on company data

Below is an overview of the company’s progress in Q4 regarding key initiatives in FY03/16, including growing the pet
insurance business, allocating resources to new businesses, and building up preventative services.

Measures to grow new contracts proving worthwhile
Measures to achieve healthy growth in the pet insurance market: on the insurance premium side, ongoing efforts todevelop the market as well as develop relationships with new insurance agencies and strengthen those with existing
agencies; on the expense side, developing pet insurance products that will keep the loss ratio around 60% over the
medium to long term and accommodate both the needs of policyholders for fair compensation and those of insurancecompanies for maintaining a viable insurance system.
In Q4 FY03/16, the number of policies sold through pet shops rose 16.7% YoY, while policies sold through generalinsurance agencies bottomed out and began to show a year-on-year increase in November. The company achieved an E/Iloss ratio of 60.1% over the full year, which is closing in on its medium-long term target, continuing improvement fromQ3.
New contracts and contract extension rate
New contracts (pet shop)

Contract extension rate (right axis)

92%
91%

8.5

10

New contracts (agencies)

9.5
8.6
8.0
8.7
8.0
8.4
8.1
8.2
8.7
8.3
8.0
8.3
8.8
7.7
8.2
7.8
8.3
8.3
7.9
8.4
8.4
8.4
9.1
9.1
9.9
9.7
9.4
9.2
9.3
8.1
8.7
9.2
8.8
8.2
9.7
8.7
9.4
8.3
8.0
8.9
8.3
8.6
8.1
8.1
8.4
8.2
8.5
8.9
9.3
8.9
8.5
8.9
9.2
9.1
9.1
9.2
9.9
9.2
9.8

12

8

90%
89%

4

88%

2

5.4
6.3
5.5
4.9
5.3
5.0
5.2
4.9
5.1
5.4
5.0
4.7
4.6
5.4
4.9
4.8
4.7
5.2
5.0
4.7
5.2
5.4
5.4
6.0
5.9
6.7
6.5
6.1
6.1
6.2
5.8
5.6
6.2
6.6
5.7
6.6
6.0
6.8
5.9
5.6
6.3
5.9
5.8
6.2
6.4
6.8
6.5
6.8
6.9
7.6
6.9
6.5
6.9
7.3
7.0
7.2
7.3
8.0
7.5
8.0

6

0
Apr-11

Apr-12

Apr-13Apr-14Apr-1587%
86%

Apr-16

Source: Shared Research based on company data

Year-on-breakdown of new contracts
40%
30%
20%
10%
0%

36%
17%
9%

-10%

29%

38%
16%

6%

4%

11%
5%

4%

1%

12%
5%
-7%

1%

-1%

-1%
-3%

-1%

-20%

26%
15%

17%
6%

4%

-9%

-13%

15%

-4%

14%

12%
3%

-2%
-11%

-14%

-40%

Q1
FY03/12Q3Q1
FY03/13

Q3

New contracts

Source: Shared Research based on company data

www.sharedresearch.jp

Q1
FY03/14

Q3

-2%

-3%

-8%

-9%

-19%

-30%

Q1
FY03/15

New contracts through pet shops

5%

-22%

6%

2%

16%
6%

17%
11%

15%
8%

-6%
-5%

-7%

-24%

Q3

17%

-26%
-35%

-19%

Q1
FY03/16

Q3

New contracts through agencies

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In pet shop channel, looking to win new shops, sell more policies through existing agents
In pet shop channel, Anicom is taking a two-pronged strategy: expanding the region it covers by acquiring new shops,
and deepening operations by selling more policies through existing agents and enhancing cooperation. Judging from thepace of acquiring new properties and sales of policies through existing agents, Shared Research believes the company has
performed well in both areas in Q4 as well, continuing the trend from Q3.
The steady growth in insurance policy sales reflects robust signing up of new pet shops to sell Anicom insurance
products, as well as improvement in the rate of policies sold through existing pet shop agents. The insurance sales ratio(number of policies sold ÷ number of pets sold) was just over 40% in Q1 FY03/16, up several percentage points fromunder 40% in the same period last year; it seems to have risen to around 50% in Q2 and Q3. Anicom has been working to
get the insurance sales ratio up to 70% for some time, but the ratio has only started to improve since the company
stepped up promotional and marketing in Q4 FY03/15, such as marketing support for the opening of new pet shops
serving as agents for Anicom’s insurance products. The company believes this improvement will continue into Q4 andbeyond.

Marketing campaigns expected to result in greater policy sales
As part of its “2018 rolling medium-term business plan” announced in May 2015, the company has altered its strategy tofocus on top line growth, and has boosted spending in a bid to increase new policies sold. In Q1 and Q2 promotional
spending––mostly marketing support for the opening of new pet shops serving as agents for Anicom's insurance
products––was in line with plans, and was effective in increasing sales. Shared Research believes this approach should
build up policy sales over the long term, and will be keeping a close eye on new policy sales numbers.

In its effort to support new pet shops serving as agents for Anicom's insurance products, Anicom provides them with personnel, essentials,
and money, with some conditions. Money is not in the form credit, lending, or investment. Rather, the company raises agency commissions fora certain period in exchange for stores prioritizing the acquisition of new insurance contracts. Naturally, actual terms are determined on thebasis of a given shop’s overall contribution to the company’s earnings.

Impact of decline in new contracts triggered by review of online contracts fell in October 2015 but increased in November
In FY03/15 the number of general agency and online contracts, excluding contracts via pet shop agents, fell a dramatic
24.3% YoY. This was a result of a drop in online contracts, rather than general agency contracts, due to a longer period
from application to coverage (from October 2013), tighter underwriting criteria, and the strategic suspension of
70%-compensation insurance products. This did however contribute to the improvement in loss ratio in FY03/15.
Compared to forecasts, the impact of the fall in online contracts may continue in FY03/16, but it is expected to havemostly bottomed out. With an increase in contracts via general agents, new contract numbers were expected to reacharound the same level as FY03/15. 1H saw a continued fall: -25.8% YoY in Q1 and -19.1% YoY in Q2. In the three monthsof Q3 there was a 7.3% fall YoY, but as the negative impact of the aforementioned measure on online contracts winds
down, Q4 has shown an increase.

Execution of agency contract with Softbank (beginning service from January 2016)
The company has been aggressively developing channels with new general agents such as financial institutions, andseems to be having some success capturing larger general financial agents than in the past. We will continue to monitor
the trend from November onwards. In January 2016, Anicom executed an agency contract with Softbank (TSE:9984), andfrom January 21 began selling discounted pet insurance (comprehensive policies) for those who sign new policies withwww.sharedresearch.jp

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LAST UPDATE【2016/11/15】

the company directly. Shared Research will be watching this development closely.

New general agents under contract (‘000)
30%

-22%

1,000

-24%

-15%

-21%

-16%
-26%

2,000

-34%

-26%

-32%

1%

3%

Apr-14

3%

3,000

8%

Apr-13-43%

Apr-12

-42%

-39%

-17%

-22%

-26%

-17%

-26%

1%
-15%
-27%

-30%

-13%

-0%

-3%

-0%

-2%

-4%

-40%
-50%

20%

20%

13%

-30%

-7%

-6%
-14%

-8%

4%

0%

-2%

-11%

-10%

-20%

0%

8%

16%

-10%

-8%

0%

8%

10%

4,000

General agents newly brought under contract (right axis)

20%0Apr-15

Source: Shared Research based on company data

Responding to various initiatives, loss ratio improving in line with plan
On the expense front, the E/I loss ratio (based on earned premiums) came down to 57.6% in Q4 FY03/16, a 1.2pp
improvement versus the same period last year, continuing the improvement trend. Management believes that various
measures to reduce the loss ratio has been effective, we are left to conclude that the company has progressed in
improving the earnings structure of its pet insurance business.

Efforts to strengthen claim assessment (before and after payments) may lead to long-term growth
In particular, Anicom will strengthen its assessment of insurance claims by working closely with animal hospitals. The
company, which deals with many hospitals and maintains a vast amount of clinical data, examines insurance claims both
before and after the payments are made. The company wants to leverage its size to ensure further growth in FY03/17.

Anirese F system likely to discourage unnecessary treatment, allow for creation of industrywide data infrastructure
Anicom will promote Anirese F, a cloud-based record management system. The system may help discourage unnecessary
treatment by showing the average cost of dealing with various ailments. The system may eventually allow for the creationof a data infrastructure that makes medical records widely available. Medical records of parents and siblings of a particular
pet may also become accessible through such a network. The number of animal hospitals using Anirese F is between 700
and 800, below the company’s target for 1,500. The company will revise its medium-term target, which calls for 3,330
hospitals, and extend the target to the end of March 2019.

Net loss ratio and E/I loss ratio80%

E/I loss ratio

75%

Net loss ratio

70%

66.0%

65%

62.3%

60%

56.5%
53.0%

55%
50%
40%

56.0% 55.6%

41.9%

44.1%

Q1
FY03/11

Q3

54.8%

57.2%

66.7%

66.3%

63.1%

61.5%

55.3%

45.5% 45.9%

69.0% 69.5%

68.1%

65.5%

68.9%
64.2%

62.1%

65.3%

62.9% 63.2%

48.2%

45%

73.4%

67.3%

60.3%
56.8% 56.1%

55.1%

56.7%

58.7%

55.6%

48.2%

Q1
FY03/12Q3Q1
FY03/13Q3Q1
FY03/14

62.1%
58.7%

Q3

Q1
FY03/15Q3

60.6% 60.3%

57.0%
53.0%

54.0%

50.5%

Q1
FY03/16

57.6%

52.1%

Q3

Source: Shared Research based on company data

Strategic investments aimed at growing top line
Anicom is actively using the improvement in the loss ratio and profits from pet insurance to make both hard and soft

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investments and research and development into the impact of products and services such as a pet health screening
service and the Anicom Concierge service. One of the company's first projects in Q3 was the opening of "Anico Park
Nishi-Shinjuku" (provisional name) around mid-December for a one-year period, which will be a mixed-use facility aimed
at improving the healthy lifespan of both animals (pets) and humans. It is designed to promote both its pet insurance
sales and the company’s brand recognition. Thus, in addition to food, services that the facility is expected to offer include
a "Family health check (for pets and owners), an athletic performance check and dog yoga classes.

Business partnership with Fujifilm for advanced animal healthcare
In April 2016, the company formed a joint venture with Fujifilm (a wholly owned subsidiary of Fujifilm Holdings: TSE4901) in the field of advanced animal healthcare. The new company will develop and distribute advanced medical
technology and services for animals, with a particular focus on regenerative medicine. The company expects thisarrangement to lead to an improved loss ratio due to reduced medical costs and improved trust in the Anicom brand,leading to further increases in new policies and a better renewal rate.
The new company will operate in the advanced animal healthcare field, and will work to develop and distribute
revolutionary medical technology and services, with a focus on regenerative medicine.

The joint venture (51% owned by Fujifilm, 49% by Anicom) will develop and distribute advanced medical technology and services, with afocus on regenerative medicine. Fujifilm will contribute its sophisticated production technology and quality control technology, developed
though its production of photographic film, as well as image diagnosis technology, technology used for analyzing the chemical composition ofblood, and technology related to regenerative medicine. Anicom will contribute its network of animal hospitals, its digital clinical records
system, and its extensive knowledge of medical examination and treatment. Both companies aim for the realization of advanced healthcare foranimals.
Specifically, they intend to:3）

Establish a location where they can conduct translational research, and develop regenerative medicine and other medical treatments
designed for animals

2）

Develop technology for the safe production of cells used in medical treatments, and create a system to ensure product quality.

3）

Accumulate medical examination data (including images), and create a system through which they can conduct medical examinations
and treatment.

Among equipment needed to offer the technologies and services, Fujifilm will provide medical equipment such as the materials to be used inregenerative medicine and image diagnosis systems, and Anicom will provide its digital clinical records system. In order to reduce medical
expenses for pet owners and to make advanced healthcare more widely accessible, the company also plans to set up an insurance system for
pets.

Increased hiring
Anicom has been steadily investing in human resources. As of the end of March 2016, the total number of employees(including contract workers) amounted to 660, an increase of 148 over the end of March 2015 and 33 over the end of
September. Of the 660 employees, 99 were veterinarians (+24 vs March). The increased hiring is designed to develop
new and existing businesses and improve internal controls. As a result, though operating costs and general andadministrative expenses rose, this was offset by the reduced full-year loss ratio, with the effect that the full-year FY03/16
combined ratio was 91.2%, higher than the forecast of 91.7%. To better accommodate the growth in staff, the company
moved into larger quarters in October 2015.

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Number of employees
800

671

660

102

99

527

569

561

Q4
Q1
Q2
FY03/15
FY03/16
Employees (incl. contract employees) in group (exclude vets)

Q3

Q4

700

627

600

545

512

500

75

400
300

457

437

200

100

88

100
0

Employees (incl. contract employees) in group (vets)

Source: Shared Research based on company data

Other forward investments
Other investments in FY3/16 totaled JPY900mn including additional investment in Anicom Pafe and Japan AnimalSpecialty Medical Institute Inc. (JASMINE) of JPY700mn, the establishment of Anicom Capital (July 2015, capital andcapital reserves of JPY100mn), and investment in the joint venture with Fujifilm mentioned above.

Clinical and research business robust
In the clinical and research business, Japan Animal Specialty Medical Institute Inc. (JASMINE) is performing well. In
addition to provisions related to medical care for heart and other circulatory organ problems, it aims to be at the forefrontof regenerative medicine with prevention services by expanding its medical care. To this end, Anicom has set up alaboratory in the new head office.
Despite the growth of contracted pet shops, there are still areas where the concierge services business can improve thetype of services it provides. The company is looking to strengthen this business.

Other recurring revenues
140

133

120

129

106

100

118
102

97

91

80
60

43

40

45
31

35

36

42

33

33

32

37

39

35

36

46

52

52

37

20
0

Q1
FY03/11(JPYmn)Q3

Q1
FY03/12Q3Q1
FY03/13Q3Q1
FY03/14Q3

Q1
FY03/15Q3Q1
FY03/16

Q3

Source: Shared Research, based on company data

Q3 FY3/16 results (announced February 5, 2016)▶ Topline: Efforts to increase sales paid off as new contracts continue to grow in Q3, particularly through pet shop

channels▶ E/I loss ratio: Measures to improve the loss ratio gained traction in Q3 as the ratio improved to 60.3%; company

anticipates that seasonal factors will bring the ratio to 55% at the end of Q4

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Anicom Holdings | 8715 |LAST UPDATE【2016/11/15】▶ Forward investment: expenses rose as the company sought to boost top line growth, and improve earnings andbrand value focusing on prevention▶ Expenses forecast: investment expenses higher in FY3/16, although the company expects the increase in expenses toslow hereafter▶ FY3/17: the company forecasts a 10% increase in revenue, in line with the medium-term plan, and better cost

controls with an improvement in the combined ratio
Quarterly performance and new policies sold year-on-year

Source: Shared Research based on company data
Q4 FY03/16 figures for E/I loss ratio are company estimates as of Q3

Earnings summary
Loss ratio and earnings growth continue to improve on rise in new insurance policies, particularly via pet-shop sales channel
The company reported solid results in Q3 FY3/16 for new policies sold, number of policies held and loss ratio. In Q3,
contributions to profit included 1) steady signings of new insurance policies, primarily through pet shops, a key sales
channel; 2) a roughly 88% renewal rate; 3) E/I loss ratio improving year-on-year/quarter-on-quarter due to continued
measures for improvement, and 4) steady operating income from domestic stocks and REITs contributing more than
expected. However, due to the rise in operating expense ratio due to prior investments, recurring profit for the threemonth period of Q3 was JPY395mn, down 2.2% YoY. (Cumulative recurring profit for Q3 rose 59.9% YoY, or JPY646mn).

Increased investment raises operating expense ratio; loss ratio to fall in Q4 (improved combined ratio vs Q3)
Operating expenses ratio rose by 7.1pp to 33.9%. This was due to increased personnel expenses for strategic hiring and a
one-time expense of JPY40mn related to the company’s move to larger offices, as well as rent and depreciation expenses
rising to JPY65mn, leading to total expenses of JPY105mn, a 1.7pp rise. In Q4, the company expects the operating
expense ratio to remain high at 35%, but the loss ratio to fall due to seasonal factors (company forecast E/I loss ratio of55%), resulting in expected combined ratio of around 10%, returning to the level seen in Q1 and Q2.

Operating expense rise due to the bringing forward of FY3/17 investment plans, inspired by a lower than expected loss ratio
The increase in operating expenses is largely due to the fact that improvements to the company’s loss ratio exceeded its
initial expectations, so it decided to push forward its investment plan, previously planned for FY03/17. It is focusing on
investing in prevention and improving the healthy lifespan of pets, and as such booked depreciation expenses on thepurchase of research equipment, as well as increased hiring expenses (to recruit specialized staff) and outsourcing
expenses. However, as this investment was made with the combined ratio in mind, Shared Research believes full-year
earnings forecasts are still achievable.

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There were 671 employees at the company in Q3 (including contract employees). This is 44 more than Q2, and 159
more YoY, so Shared Research estimates that around half of the QoQ increase in operating expenses is due to this increasein personnel costs.

In FY3/17, investment targeting medium-term growth likely to continue, but company mindful of the combined ratio
Shared Research notes that the company is steadily selling more new policies, which together with measures to improve
its E/I loss ratio should lead to steadily higher revenue over time. The company is also planning further investments in
FY3/17 geared towards future growth, but Shared Research expects the company to pursue such investment (set toaccelerate in FY03/18) while remaining mindful of the combined ratio.

E/I loss ratio and expense ratio

Source: Shared Research based on company data

Revenue from investments
200
150

In FY03/13, Anicom realized gains as it unwound its bond position, movingfrom a medium-term to a short-term position.

90

100

133

50
0

0
20

Q1
FY03/11

10
25

0
16

Q3

(JPYmn)

5
17

1
31

6
32

Q1
Q3
Q1
FY03/12
FY03/13Interest and dividend income

Q3

0
20

1
23

0
23

15
26

7
31

19

47

26
4

14
6

14
4

35
4

51

20

116

46
45

75

51

Q1
Q3
Q1
FY03/14
FY03/15
Gains on the sale of marketable securities

85

Q3

102

71

Q1
FY03/16

105

69

Q3

Source: Shared Research based on company data
Q4 FY03/16 figures for E/I loss ratio are company estimates as of Q3

Progress towards strategic initiatives in FY03/16
Increase in growth investment-related expenses (e.g., personnel costs) offset by new contracts and improved loss ratio; thepattern expected to continue in FY03/17
After an improvement in the loss ratio in FY03/15, Anicom has shifted its attention to measures to boost top-line recurring
revenues in 2H. Specifically, this includes costs for commissions related to increasing new contracts, personnel costs forinvestment in human resources aimed at growth, and new business-related expenses: the company has incorporated
these costs in its 2H FY03/15 and FY03/16 forecasts. While this has resulted in higher operating costs and general andadministrative expenses from 2H FY03/15, Shared Research believes the impact of the rise in new contracts is likely beevident in FY03/16 earnings. As noted above, 2H FY3/16 loss ratio improved more than expected, so the company
brought forward investment planned for FY3/17.

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Operating expenses higher, but continuing to improve the combined ratio in FY03/17 and beyond
While investment in personnel will continue into FY3/17, mid-career hires will slow after FY3/16 and with the exception of
special projects, the main focus will turn to hiring new recruits according to Anicom. While it expects higher operating
costs in FY03/17, the company aims to improve its combined ratio (net loss ratio + net expenses ratio) as stated in its“2018 rolling medium-term business plan”.

Recurring expenses

Source: Shared Research based on company data

Below is an overview of the company’s progress in Q2 regarding key initiatives in FY03/16, including growing the pet
insurance business, allocating resources to new businesses, and building up preventative services.

Measures to grow new contracts proving worthwhile
Measures to achieve healthy growth in the pet insurance market: on the insurance premium side, ongoing efforts todevelop the market as well as develop relationships with new insurance agencies and strengthen those with existing
agencies; on the expense side, developing pet insurance products that will keep the loss ratio around 60% over the
medium to long term and accommodate both the needs of policyholders for fair compensation and those of insurancecompanies for maintaining a viable insurance system.
In Q3 FY03/16, the number of policies sold through pet shops rose 16.9% YoY, while policies sold through generalinsurance agencies bottomed out and began to rise (November and December both higher YoY). The company achieved
an E/I loss ratio of 60.3%, which is closing in on its medium-long term target, continuing improvement from FY3/15.
New contracts and contract extension rate

Source: Shared Research based on company data

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Year-on-breakdown of new contracts

Source: Shared Research based on company data

In pet shop channel, looking to win new shops, sell more policies through existing agents
In pet shop channel, Anicom is taking a two-pronged strategy: expanding the region it covers by acquiring new shops,
and deepening operations by selling more policies through existing agents and enhancing cooperation. Judging from thepace of acquiring new properties and sales of policies through existing agents, Shared Research believes the company has
performed well in both areas in Q3.
The steady growth in insurance policy sales reflects robust signing up of new pet shops to sell Anicom insurance
products, as well as improvement in the rate of policies sold through existing pet shop agents. The insurance sales ratio(number of policies sold ÷ number of pets sold) was just over 40% in Q1 FY03/16, up several percentage points fromunder 40% in the same period last year; it seems to have risen to around 50% in Q2 and Q3. Anicom has been working to
get the insurance sales ratio up to 70% for some time, but the ratio has only started to improve since the company
stepped up promotional and marketing in Q4 FY03/15, such as marketing support for the opening of new pet shops
serving as agents for Anicom’s insurance products. The company believes this improvement will continue into Q4 andbeyond.

Marketing campaigns expected to result in greater policy sales
As part of its “2018 rolling medium-term business plan” announced in May 2015, the company has altered its strategy tofocus on top line growth, and has boosted spending in a bid to increase new policies sold. In Q1 and Q2 promotional
spending––mostly marketing support for the opening of new pet shops serving as agents for Anicom's insurance
products––was in line with plans, and was effective in increasing sales. Shared Research believes this approach should
build up policy sales over the long term, and will be keeping a close eye on new policy sales numbers.

In its effort to support new pet shops serving as agents for Anicom's insurance products, Anicom provides them with personnel, essentials,
and money, with some conditions. Money is not in the form credit, lending, or investment. Rather, the company raises agency commissions fora certain period in exchange for stores prioritizing the acquisition of new insurance contracts. Naturally, actual terms are determined on thebasis of a given shop’s overall contribution to the company’s earnings.

Impact of decline in new contracts triggered by review of online contracts fell in October 2015 but increased in November
In FY03/15 the number of general agency and online contracts, excluding contracts via pet shop agents, fell a dramatic
24.3% YoY. This was a result of a drop in online contracts, rather than general agency contracts, due to a longer period
from application to coverage (from October 2013), tighter underwriting criteria, and the strategic suspension of
70%-compensation insurance products. This did however contribute to the improvement in loss ratio in FY03/15.
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mostly bottomed out. With an increase in contracts via general agents, new contract numbers were expected to reacharound the same level as FY03/15. 1H saw a continued fall: -25.8% YoY in Q1 and -19.1% YoY in Q2. In the three monthsof Q3 there was a 7.3% fall YoY, but as the negative impact of the aforementioned measure on online contracts winds
down, November and December have shown an increase.

Execution of agency contract with Softbank (beginning service from January 2016)
The company has been aggressively developing channels with new general agents such as financial institutions, andseems to be having some success capturing larger general financial agents than in the past. We will continue to monitor
the trend from November onwards. In January 2016, Anicom executed an agency contract with Softbank (TSE:9984), andfrom January 21 began selling discounted pet insurance (comprehensive policies) for those who sign new policies withthe company directly. Shared Research will be watching this development closely.

New general agents under contract (‘000)

Source: Shared Research based on company data

Responding to various initiatives, loss ratio improving in line with plan
On the expense front, the E/I loss ratio (based on earned premiums) came down to 60.3% in Q3 FY03/16, a 3.9pp
improvement versus the same period last year, and a further improvement on both Q2 (+60.6%) and the company's
initial forecast (+61.4%). Management believes that various measures to reduce the loss ratio has been effective, we areleft to conclude that the company has progressed in improving the earnings structure of its pet insurance business.

Leveraging its medical records management system, Anicom plans to use big data techniques to contribute to thestandardization of medical care for pets, to conduct research and development into pet health, and to create new value
added businesses by disclosing medical records to pet owners. Going forward, the company wants to build up a basic
infrastructure for pet data accessible to breeders and animal hospitals. Anicom already operates its older medical records
management system in 1,700–1,800 veterinary hospitals, out of an estimated 9,000 veterinary hospitals in Japan(approximately 7,000 if commercial livestock are excluded). Under its medium-term plan, the company plans to promote
the switch to its new system as well as win new customers; its aims to have its new Anirese F system used in 3,330
hospitals by the end of March 2018. Results of promoting the use of Anirese F seem to be slightly behind track to attainthe medium-term target (3,330 hospitals by the end of March 2018).
Further, the company is investing its profits from pet insurance in businesses aimed at improving the healthy lifespan ofpets. Shared Research will monitor the impact of these investments.

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Net loss ratio and E/I loss ratio

Source: Shared Research based on company data

Strategic investments aimed at growing top line
Anicom is actively using the improvement in the loss ratio and profits from pet insurance to make both hard and soft
investments and research and development into the impact of products and services such as a pet health screening
service and the Anicom Concierge service. One of the company's first projects in Q3 was the opening of "Anico Park
Nishi-Shinjuku" (provisional name) around mid-December for a one-year period, which will be a mixed-use facility aimed
at improving the healthy lifespan of both animals (pets) and humans. It is designed to promote both its pet insurance
sales and the company’s brand recognition. Thus, in addition to food, services that the facility is expected to offer include
a "Family health check (for pets and owners), an athletic performance check and dog yoga classes.

Business partnership with Fujifilm for advanced animal healthcare
In December 2015, the company announced that it had formed a business partnership with wholly-owned subsidiary
Fujifilm (Fujifilm Holdings (TSE 4901)) in the field of advanced animal healthcare, with the intention of establishing a joint
venture company next spring. Based on the agreement, it plans to develop and distribute advanced medical technology
and services for animals, with a particular focus on regenerative medicine. The company expects this to lead to an
improved loss ratio due to reduced medical costs and improved trust in the Anicom brand, leading to further increases in
new policies and a better renewal rate.
The new company will operate in the advanced animal healthcare field, and will work to develop and distribute
revolutionary medical technology and services, with a focus on regenerative medicine.
Anicom and Fujifilm will establish a joint venture company (51% of shares held by Fujifilm, 49% of shares held byAnicom), which will develop and distribute advanced medical technology and services, with a focus on regenerative
medicine. Fujifilm will contribute its sophisticated production technology and quality control technology, developed
though its production of photographic film, as well as image diagnosis technology, technology used for analyzing thechemical composition of blood, and technology related to regenerative medicine. Anicom will contribute its network ofanimal hospitals, its digital clinical records system, and its extensive knowledge of medical examination and treatment.
Both companies aim for the realization of advanced healthcare for animals.
Specifically, they intend to:1)

Establish a location where they can conduct translational research, and develop regenerative medicine and othermedical treatments designed for animals

2)

Develop technology for the safe production of cells used in medical treatments, and create a system to ensure
product quality.

3)

Accumulate medical examination data (including images), and create a system through which they can conduct
medical examinations and treatment.

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Among equipment needed to offer the technologies and services, Fujifilm will provide medical equipment such as thematerials to be used in regenerative medicine and image diagnosis systems, and Anicom will provide its digital clinicalrecords system. In order to reduce medical expenses for pet owners and to make advanced healthcare more widely
accessible, the company also plans to set up an insurance system for pets.

Increased hiring
Anicom has been steadily investing in human resources. As of the end of December 2015, the total number of employees(including contract workers) amounted to 671, an increase of 159 over the end of March 2015 and 44 over the end of
September. Of the 671 employees, 102 were veterinarians (+22 or +2 vs March and September respectively). The
increased hiring is designed to develop new and existing businesses and improve internal controls. As a result, though
operating costs and general and administrative expenses rose, this was offset by the reduced full-year loss ratio, with theeffect that the full-year FY03/15 combined ratio is expected to be around 91.7%. To better accommodate the growth instaff, the company moved into larger quarters in October 2015.

Number of employees

Source: Shared Research based on company data

Other forward investments
Other investments in FY3/16 totaled JPY900mn including additional investment in Anicom Pafe and Japan AnimalSpecialty Medical Institute Inc. (JASMINE) of JPY700mn, the establishment of Anicom Capital (July 2015, capital andcapital reserves of JPY100mn), and investment in the joint venture with Fujifilm mentioned above.

SG&A expenses increase YoY by nearly JPY2.0bn
In Shared Research’s view, 2H’s operating expenses will surpass those of 1H by JPY800mn with full-year operating
expenses just under JPY2.0bn higher YoY, partially due to the fact that some costs expected for 1H were deferred to 2H.
Shared Research estimates this breaks down to approximately JPY100mn for the aforementioned Anico Park, JPY200mn forthe move to new headquarters, and the remainder investment in human resources (including recruitment costs).

Clinical and research business robust
In the clinical and research business, Japan Animal Specialty Medical Institute Inc. (JASMINE) is performing well. In
addition to provisions related to medical care for heart and other circulatory organ problems, it aims to be at the forefrontof regenerative medicine with prevention services by expanding its medical care. To this end, Anicom has set up alaboratory in the new head office.
Despite the growth of contracted pet shops, there are still areas where the concierge services business can improve thetype of services it provides. The company is looking to strengthen this business.

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Other recurring revenues

Source: Shared Research, based on company data

1H FY3/16 results (announced November 6, 2015)
Quarterly performance and new policies sold year-on-year

Source: Shared Research based on company data

Earnings summary
Loss ratio and earnings growth continue to improve on rise in new insurance policies, particularly via pet-shop sales channel
The company reported solid results in Q2 FY3/16 for new policies sold, number of policies held and loss ratio, with 1H
recurring revenue and recurring profit exceeding initial company forecast by 13.1% and 3.0% respectively. Q2 recurring
profit exceeded forecast by 18.1%. Shared Research notes in particular that the company is steadily selling more newpolicies, which together with its measures to improve its E/I loss ratio should lead to steadily higher revenue over time.
The company is also increasing its investments geared towards future growth.
Recurring profit rose JPY543mn YoY to JPY836mn in Q2, JPY301mn above the company forecast. This was due to 1) steadysignings of new insurance policies, primarily through pet shops, a focus sales channel (new policies signed through pet
shops was over 7% above the company forecast); 2) a roughly 88% renewal rate, in addition to price revisions; 3) E/I loss
ratio improving year-on-year due to continued measures for improvement; 4) a stable business cost ratio below 30% due

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to economies of scale, thorough cost management, and operational improvements (particularly of systems); and 5)
steady operating income from domestic stocks and REITs contributing more than expected. For 1H overall, recurring
profit rose JPY655mn YoY to JPY1.3bn, beating company forecast by JPY154mn.

E/I loss ratio and expense ratio

Source: Shared Research based on company data

Excluding the impact of contingency reserves, company profitability steadily growing
Recurring profit excluding contingency reserves in Q2 increased JPY394mn YoY to JPY601mn, beating the company's
initial forecast by JPY283mn, continuing a trend of steadily growing profitability (for 1H overall, recurring profit excluding
contingency reserves was up JPY852mn YoY to JPY1.3bn, JPY415mn higher than initial company forecast).

Recurring profit excluding contingency reserves (JPYmn)

Source: Shared Research based on company data

Recurring profit unchanged in full-year revised outlook, but effectively revised up (excluding impact of contingency reserves)
The company announced revised full-year FY03/16 targets together with Q2 results, and while recurring revenue has
been revised upward to JPY986mn, recurring profit is unchanged at JPY2.1bn. This is because the company now expects
reversal of contingency reserves to be JPY139mn lower than initially expected (reducing profit). In effect, therefore, thiscan still be said to be an upward revision. While the revised plan anticipates a loss rate that is lower than initially expected,
the operating expense ratio has risen. Shared Research notes that the company is investing in future growth through R&D
spending, etc., and will be watching to see the impact of these this investments.

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Anicom Holdings ＞ Historical performance

LAST UPDATE【2016/11/15】

Revised outlook
Announced November 6, 2015

3.2%
346
6.7%

FY03/11
Results
11,107
10,858
94
154
20.5%
342
17.3%
3.1%
421
6.6%

FY03/12Results
13,845
13,592
108
144
24.7%
337
-1.5%
2.4%
465
6.8%

FY03/13
Results
16,186
15,781
260
143
16.9%
837
148.4%
5.2%
640
8.6%

FY03/14
Results
18,36618,087
108
171
13.5%
733
-12.4%
4.0%
447
5.6%

FY03/15
Results
22,63821,733
522
382
23.3%
1,250
70.5%
5.5%
829
9.5%

FY03/16
New Est.
26,586
17.4%
2,100
68.0%
7.9%
1,459
-

Intl. Est.
25,60024,521
487
593
13.1%
2,100
68.0%
8.2%
1,446
14.5%

Diff.
+986
+13
-

48.6%
-

53.4%
-

64.3%
33.2%
97.5%

67.5%
29.7%
97.2%

66.7%
28.6%
95.3%

64.4%
28.3%
92.7%

59.3%
32.4%
91.7%

61.0%
30.9%
91.9%

-1.7ppt+1.5ppt-0.2ppt

290,767812

340,628
1,096

396,234
1,591

446,414
1,939

504,969
2,301

544,8152,520

588,000
2,735

588,000
2,790-55

FY03/10
Results
9,216
9,003
71
141

(JPYmn)Recurring revenue
Underwriting revenue
Investment revenue
Other recurring revenue
YoY
Recurring profit
YoY
Profit margin
Net profit
ROE

292

E/I loss ratio
Operating expenses / earned premiums
Combined ratio
Total contracts
Premium payment cases (thousand)

Revenue from investments
200
150

In FY03/13, Anicom realized gains as it unwound its bond position, movingfrom a medium-term to a short-term position.

90

100

133

50
0

0
20

Q1
FY03/11

10
25

0
16

Q3

5
17

0
20

1
23

0
23

15
26

7
31

1
31

Q1
Q3
Q1
FY03/12
FY03/13Interest and dividend income

6
32

Q3

19

47

26
4

14
6

14
4

35
4

51

20

116

46

75

51

Q1
Q3
Q1
FY03/14
FY03/15
Gains on the sale of marketable securities

85

Q3

102

71

Q1
FY03/16105

Q3

Source: Shared Research based on company data

Impact of contingency reserves on recurring profit
The company initially projected that drawdowns from the JPY696mn contingency reserves would end in Q2. However,
because the net loss ratio declined by more than expected in Q1, the reversal will be pushed out past Q2. The Q2
drawdown amount was JPY235mn, roughly in line with the company estimate at the end of Q1 (JPY217mn). Assuming
the loss ratio is in line with plan, the company expects a drawdown in Q3 of the remaining JPY251mn. As a result, thecompany forecasts a JPY46mn increase in profit in Q3 and a JPY139mn profit decrease in Q4 (provisions are only addedto). Net loss ratio assumptions changed from 58.5% in the initial forecast to 55.9% in the revised plan. While this is an
issue from an accounting perspective and may impact recurring profit, it should not affect earnings over the medium
term.

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Anicom Holdings ＞ Historical performance

Initial estimate

800
700
600
500
400
300
200
100
0
-100
-200

LAST UPDATE【2016/11/15】

Q1 results

New estimate

12
289

12
407

696

433

696

696

407

Outstanding
amountQ1
FY03/16

Reversal of reserve

289
-192
+96

277
0

0

Q2

Q3

Q4

407
-190
+217

-196
-196

-205
-205

251
0

Outstanding
amountQ1
FY03/16

Q2

Q3

Q4

12
-195
-183

407
-190
+217

277
-196
+81

-205
-205

-139
Outstanding
amountQ1
FY03/16

Q2

Q3

Q4

FY03/17 outstanding amount JPY953mn
Provision to reserve
Net income

Reversal of reserve
Provision to reserve
Net income

Reversal of reserve
Provision to reserve
Net income

12
-195
-183

433
-197
+236

251
-205
+46

-139
-215
-354

Progress towards strategic initiatives in FY03/16
Increase in growth investment-related expenses (e.g., personnel costs) offset by new contracts and improved loss ratio; thepattern expected to continue in FY03/17
After an improvement in the loss ratio in FY03/15, Anicom has shifted its attention to measures to boost top-line recurring
revenues in 2H. Specifically, this includes costs for commissions related to increasing new contracts, personnel costs forinvestment in human resources aimed at growth, and new business-related expenses: the company has incorporated
these costs in its 2H FY03/15 and FY03/16 forecasts. While this has resulted in higher operating costs and general andadministrative expenses from 2H FY03/15, Shared Research believes the impact of the rise in new contracts is likely beevident in FY03/16 earnings.

Continuing to improve the combined ratio in FY03/17 and beyond
Anicom projects continued improvement in its net loss ratio and net expenses ratio in 2H. While it expects sustained
personnel costs in FY03/17, the company aims to improve combined ratio (net loss ratio + net expenses ratio), as is statedin its “2018 rolling medium-term business plan”.

Recurring expenses

Source: Shared Research based on company data

Below is an overview of the company’s progress in Q2 regarding key initiatives in FY03/16, including growing the pet
insurance business, allocating resources to new businesses, and building up preventative services.

Measures to grow new contracts proving worthwhile
Measures to achieve healthy growth in the pet insurance market: on the insurance premium side, ongoing efforts todevelop the market as well as develop relationships with new insurance agencies and strengthen those with existing
agencies; on the expense side, developing pet insurance products that will keep the loss ratio around 60% over the
medium to long term and accommodate both the needs of policyholders for fair compensation and those of insurancecompanies for maintaining a viable insurance system.

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Anicom Holdings ＞ Historical performance

LAST UPDATE【2016/11/15】

In Q2 FY03/16, the number of policies sold through pet shops rose 15.9% YoY, while policies sold through generalinsurance agencies bottomed out and began to rise (+4.4% QoQ). The company achieved an E/I loss ratio of 60.6%,
which is closing in on its medium-long term target.
New contracts and contract extension rate
New contracts (pet shop)

Contract extension rate (right axis)

92%
91%

8.5

10

New contracts (agencies)

9.5
8.6
8.0
8.7
8.0
8.4
8.1
8.2
8.7
8.3
8.0
8.3
8.8
7.7
8.2
7.8
8.3
8.3
7.9
8.4
8.4
8.4
9.1
9.1
9.9
9.7
9.4
9.2
9.3
8.1
8.7
9.2
8.8
8.2
9.7
8.7
9.4
8.3
8.0
8.9
8.3
8.6
8.1
8.1
8.4
8.2
8.5
8.9
9.3
8.9
8.5
8.9
9.2

12

8

90%
89%

4

88%

2

5.4
6.3
5.5
4.9
5.3
5.0
5.2
4.9
5.1
5.4
5.0
4.7
4.6
5.4
4.9
4.8
4.7
5.2
5.0
4.7
5.2
5.4
5.4
6.0
5.9
6.7
6.5
6.1
6.1
6.2
5.8
5.6
6.2
6.6
5.7
6.6
6.0
6.8
5.9
5.6
6.3
5.9
5.8
6.2
6.4
6.8
6.5
6.8
6.9
7.6
6.9
6.5
6.9
7.3

6

0
Apr-11

Apr-12

Apr-13Apr-1487%
86%

Apr-15

Source: Shared Research based on company data

Year-on-breakdown of new contracts
40%
30%
20%
10%
0%

36%
17%

9%

-10%

29%

38%
16%
4%
6%

4%

11%
5%
1%

12%
5%
-7%

1%

-1%

-1%
-3%

-1%

26%
15%

17%
6%

4%

-9%

-13%

-20%

15%

-4%

14%

12%
3%

-2%
-11%

-14%

-40%

Q1
FY03/12Q3Q1
FY03/13

Q3

New contracts

Q1
FY03/14

Q3

-2%

-3%

-8%

-9%

-19%

-30%

Q1
FY03/15

New contracts through pet shops

5%

-22%

6%

2%

16%
6%

-6%
-5%
-24%

Q3

-26%
-35%

-19%

Q1
FY03/16

Q3

New contracts through agencies

Source: Shared Research based on company data

In pet shop channel, looking to win new shops, sell more policies through existing agents
In pet shop channel, Anicom is taking a two-pronged strategy: expanding the region it covers by acquiring new shops,
and deepening operations by selling more policies through existing agents and enhancing cooperation. Judging from thepace of acquiring new properties and sales of policies through existing agents, Shared Research believes the company has
performed well in both areas in Q2.
The steady growth in insurance policy sales reflects robust signing up of new pet shops to sell Anicom insurance
products, as well as improvement in the rate of policies sold through existing pet shop agents. The insurance sales ratio(number of policies sold ÷ number of pets sold) was just over 40% in Q1 FY03/16, up several percentage points fromunder 40% in the same period last year; it seems to have risen to around 50% in Q2. Anicom has been working to get theinsurance sales ratio up to 70% for some time, but the ratio has only started to improve since the company stepped up
promotional and marketing in Q4 FY03/15. The company believes improvement will continue into Q3 and on.

Marketing campaigns expected to result in greater policy sales
As part of its “2018 rolling medium-term business plan” announced in May 2015, the company has altered its strategy tofocus on top line growth, and has boosted spending in a bid to increase new policies sold. In Q1 and Q2 promotional
spending––mostly marketing support for the opening of new pet shops serving as agents for Anicom's insurance
products––was in line with plans, and was effective in increasing sales. Shared Research believes this approach should
build up policy sales, and will be keeping a close eye on new policy sales numbers.

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Anicom Holdings | 8715 |LAST UPDATE【2016/11/15】

In its effort to support new pet shops serving as agents for Anicom's insurance products, Anicom provides them with personnel, essentials,
and money, with some conditions. Money is not in the form credit, lending, or investment. Rather, the company raises agency commissions fora certain period in exchange for stores prioritizing the acquisition of new insurance contracts. Naturally, actual terms are determined on thebasis of a given shop’s overall contribution to the company’s earnings.

Impact of decline in new contracts triggered by review of online contracts expected to wind down in October 2015
In FY03/15 the number of general agency and online contracts, excluding contracts via pet shop agents, fell a dramatic
24.3% YoY. This was a result of a drop in online contracts, rather than general agency contracts, due to a longer period
from application to coverage (from October 2013), tighter underwriting criteria, and the strategic suspension of
70%-compensation insurance products. This did however contribute to the improvement in loss ratio in FY03/15.
Compared to forecasts, the impact of the fall in online contracts may continue in FY03/16, but it is expected to havemostly bottomed out. With an increase in contracts via general agents, new contract numbers were expected to reacharound the same level as FY03/15. 1H saw a continued fall: -25.8% YoY in Q1 and -19.1% YoY in Q2. However, as thenegative impact of the aforementioned measure on online contracts winds down, Anicom expects a rapid recovery from
November onwards.
The company has been aggressively developing channels with new general agents such as financial institutions, andseems to be having some success capturing larger general financial agents than in the past. We will continue to monitor
the trend from November onwards.
New general agents under contract (‘000)

Source: Shared Research based on company data

Responding to various initiatives, loss ratio improving in line with plan
On the expense front, the E/I loss ratio (based on earned premiums) came down to 60.6% in Q2 FY03/16, an 8.3pp
improvement versus the same period last year, and a further improvement on both Q1 (+62.1%) and the company's
initial forecast (+63.9%). Management believes that various measures to reduce the loss ratio has been effective, we areleft to conclude that the company has progressed in improving the earnings structure of its pet insurance business.

Leveraging its medical records management system, Anicom plans to use big data techniques to contribute to thestandardization of medical care for pets, to conduct research and development into pet health, and to create new value
added businesses by disclosing medical records to pet owners. Going forward, the company wants to build up a basic
infrastructure for pet data accessible to breeders and animal hospitals. Anicom already operates its older medical records
management system in 1,700–1,800 veterinary hospitals, out of an estimated 9,000 veterinary hospitals in Japanwww.sharedresearch.jp

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Anicom Holdings ＞ Historical performance

Anicom Holdings | 8715 |LAST UPDATE【2016/11/15】(approximately 7,000 if commercial livestock are excluded). Under its medium-term plan, the company plans to promote
the switch to its new system as well as win new customers; its aims to have its new Anirese F system used in 3,330
hospitals by the end of March 2018. Results of promoting the use of Anirese F seem to be on track to attain themedium-term target (3,330 hospitals by the end of March 2018).
Further, the company is investing its profits from pet insurance in businesses aimed at improving the healthy lifespan ofpets. Shared Research will monitor the impact of these investments.

Net loss ratio and E/I loss ratio

Source: Shared Research based on company data

Strategic investments aimed at growing top line
Anicom is actively making both hard and soft investments and research and development into the impact of products andservices such as a pet health screening service and the Anicom Concierge service. One of the company's first projects in
2H will be the opening of "Anico Park Nishi-Shinjuku" (provisional name) around mid-December for a one-year period,
which will be a mixed-use facility aimed at improving the healthy lifespan of both animals (pets) and humans. It is
designed to promote both its pet insurance sales and the company’s brand recognition. Thus, in addition to food,services that the facility is expected to offer include a "Family health check (for pets and owners), an athletic performancecheck and dog yoga classes.

Increased hiring
Anicom has been steadily investing in human resources. As of the end of September 2015, the total number of employees(including contract workers) amounted to 627, an increase of 115 over the end of March 2015. Of the 627, 100 wereveterinarians (+25 during the same period). The increased hiring is designed to develop new and existing businesses. As aresult, though operating costs and general and administrative expenses rose, this was offset by the reduced loss ratio,with the effect that the combined ratio from Q3 FY03/15 onwards has been hovering around 90%. To betteraccommodate the growth in staff, the company moved into larger quarters in October 2015. One-time expenses related
to the move and higher recurring expenses (including rent) are already incorporated in the company's 2H plan.

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Anicom Holdings ＞ Historical performance

LAST UPDATE【2016/11/15】

Number of employees

Source: Shared Research based on company data

Operating expenses exceed forecast by JPY300-400mn
In Shared Research’s view, 2H’s operating expenses will surpass those of 1H by JPY300-400mn, partially due to the factthat some costs expected for 1H were deferred to 2H. The excess of JPY300-400mn was in line with the estimate in thecompany’s full-year forecast. According to Anicom, this breaks down to approximately JPY100mn for the aforementioned
Anico Park, the move to new quarters, and investment in human resources (including recruitment costs).

Clinical and research business going robust
In the clinical and research business, Japan Animal Specialty Medical Institute Inc. (JASMINE) is performing well. In
addition to provisions related to medical care for heart and other circulatory organ problems, it aims to be at the forefrontof regenerative medicine with prevention services by expanding its medical care. To this end, Anicom has set up alaboratory in the new head office.
Despite the growth of contracted pet shops, there are still areas where the concierge services business can improve thetype of services it provides. The company is looking to strengthen this business.

Other recurring revenues
133

140
120

129

118

106

100

91

80
60
40

43

45
31

35

36

42

33

33

32

37

39

35

36

46

52

52

37

20
0

Q1
FY03/11Q3

Q1
FY03/12Q3Q1
FY03/13Q3Q1
FY03/14Q3

Q1
FY03/15Q3Q1
FY03/16

Q3

Source: Shared Research, based on company data

FY03/15 results (out May 8, 2015)▶ Recurring revenue:

JPY22.6bn (+23.3% YoY)

▶ Recurring profit:

JPY1.3bn (+70.5%)▶ Recurring expenses: JPY21.4bn (+21.3%)▶ Net income:www.sharedresearch.jp

JPY829mn (+85.5%)

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Anicom Holdings ＞ Historical performance

LAST UPDATE【2016/11/15】

Quarterly earnings performance
600

110%

500

100%

400

90%

300

80%

200

70%

100

60%

0

50%

-100

Q1
Q2
FY03/11

Q3

Q4

Q1
Q2
FY03/12Q3Contracts ('000)

Q4

Q1
Q2
FY03/13

Q3

Q4

Q1
Q2
FY03/14Recurring profit (JPYmn)

Q3

Q4

Q1
Q2
FY03/15

Q3

Q4
CE

40%

Combined ratio (right axis)

Source: Company data

Overview
Recurring revenue and recurring profit were JPY22.6bn (+23.3% YoY) and JPY1.3bn (+70.7% YoY), compared with
JPY21.8bn and JPY800mn projected earlier.
Recurring revenue rose because the number of contracts increased 7.9% from a year earlier and because the company
raised its insurance premiums by an average of 12%. The company also increased its investment revenue with a better riskbalance.

Recurring profit increases by JPY517mn despite JPY323mn depreciation for deferred assets
The company wrote off JPY323mn in deferred assets in accordance with Article 113 of the Insurance Business Act. Even so,recurring profit increased by JPY517mn from a year earlier in part because recurring revenue rose. The loss ratio andbusiness expense ratio were also better than expected.

Loss ratio, expense ratio improve; expenses for FY03/16 already allocated
The loss ratio improved thanks to various measures implemented in the past. The company has increased its insurance
premiums and strengthened payout assessment capabilities.
The business expense ratio improved as the company streamlined operations and increased recurring profit. The
company has also implemented measures to win more contracts and improved the profitability of subsidiaries. These
measures, which had been originally planned for FY03/16, were carried out early because the company had strong
earnings.

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Anicom Holdings ＞ Historical performance

LAST UPDATE【2016/11/15】

E/I loss ratio and expense ratio
80%

Jan- Sep 2014: suspend online sales of 70%
compensation plan

70%
60%
50%
Oct 2010: sales of 90%
compensation product begin40%

Jun 2014: changes topremiums

Aug 2013: limit changes incompensation from 50% to70%

Aug 2012: sales of 90%
compensation product halted(Jul 2013: terminated 90%
coverage product)

Oct 2013: extend period fromonline aplication to coverage start

November 2014:
introduce system
limiting number of visits
and length of stay

30%
20%

Q1
Q2
FY03/11

Q3

Q4

Q1
Q2
FY03/12

Q3

Q4

Q1
Q2
FY03/13Q3

E/I loss ratio

Q4

Q1
Q2
FY03/14

Q3

Q4

Q1
Q2
FY03/15

Q3

Q4
Est.

Earned premiums expense ratio

Revenue from investments(JPYmn)150
In FY03/13, Anicom realized gains as it unwound its
bond position, moving from a medium-term to a shortterm position.

100

50

0

Q1
FY03/11

Q2

Q3

Q4

Q1
FY03/12

Q2

Q3

Q4

Q1
FY03/13Interest and dividend income

Q2

Q3

Q4

Q1
FY03/14

Q2

Q3

Q4

Q1
FY03/15

Q2

Q3

Q4

Gains on the sale of marketable securities

Source: Company data

New contracts and contract extension rate('000)

12

91%

10

90%
89%

8

88%

6

87%

4

86%

2
0

85%

Apr 11

Apr 12
New contracts (pet shop)

Apr 13New contracts (agencies)

Apr 1484%

Contract extension rate (right axis)

Source: Company data

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Anicom Holdings ＞ Historical performance

LAST UPDATE【2016/11/15】

Year-on-year breakdown of new contracts
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%

Q1
FY03/12

Q2

Q3

Q4

Q1
FY03/13

New contracts

Q2

Q3

Q4

Q1
FY03/14

New contracts through pet shops

Q2

Q3

Q4

Q1
FY03/15

Q2

Q3

Q4

New contracts through agencies

Source: Company data

Looking toward FY03/16
A number of factors may affect results, as the company looks toward FY03/16: First, the impact of efforts to lower the loss
ratio may become more pronounced. Second, efforts to win more new contracts may bear fruit. Third, the company isdeveloping new products in a bid to gain a competitive edge. Fourth, the company is entering new businesses other than
pet insurance.

Shared Research expects impact from efforts to lower the loss ratio to peak in FY03/16
As mentioned, measures designed to lower the loss ratio take about a year to achieve full effect. Anicom could further
tighten controls on the loss ratio.
Shared Research expects that changes to the premium structure in June 2014 will continue to affect policies until May
2015. We also expect the loss ratio to fall as products with limits on the number and length of hospital visits account for arising proportion of the total. With previous products, risk tended to increase for older animals, but in the company’sview, the loss ratio will gradually fall across the board. According to the company, it will continue implementing thesemeasures through FY03/17, although Shared Research thinks maximum effect may be seen in FY03/16.

Winning new contracts: hospitalization and surgery-only policies to boost competitivenessAs mentioned, the company’s focus on its salesforce—in a bid to win more new contracts through pet shops—is graduallyshowing effects. But sluggish sales through agencies continue. Shared Research expects the company to release insurance
policies that only cover hospitalization and surgery, which may boost competitiveness.

Revenue from investments; interest and dividend income likely to be on par with FY03/15
Shared Research understands that the company is unlikely to take on risk and will continue paying close heed to its
solvency margin as it invests. The company’s portfolio appears to be about 50% cash, with the other 50% invested indomestic markets (mainly REITs and bonds). Assuming there are no significant changes to market conditions, interest anddividend income will probably be on par with FY03/15.

New businesses
Results at JASMINE are on track to achieve initial targets, and the company is considering expanding this business. The
company is also promoting the cloud-based medical records-management system Anirese F to new hospitals andincreasingly encouraging existing hospitals to switch over from old products. This system was developed by consolidated
subsidiary Anicom Pafe, Inc. In Shared Research’s view, these two new businesses may boost the company’s earnings in
FY03/16.

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Anicom Holdings ＞ Historical performance

LAST UPDATE【2016/11/15】

Possibility of dividend payments for FY03/16
Anicom, a holding company that owns insurance businesses, must meet the following conditions under corporate andinsurance laws in order to pay dividend: 1) the parent company has retained earnings; 2) Anicom Insurance, Inc., asubsidiary, has retained earnings and has no deferred assets outstanding under Article 113 of the Insurance Business Act.
As of the end of March 2015, the company did not meet condition 1. Thus, the company cannot pay dividend to outside
shareholders for FY03/16. However, Anicom Insurance can pay dividend to the parent company. This will allow the parent
to have retained earnings for FY03/16.
The company may start paying dividend after the FY03/16 shareholder meeting provided that earnings remain strong.
However, Anicom executives said that the company will make a decision by taking into consideration various factors
regarding its future business plans.

Medium-term management plan revised
The company has revised its medium-term business plan and released a new target that covers the period throughFY03/18. The key point of the new plan, in our view, is a service that focuses on sickness prevention. The company will
launch this new service while expanding existing businesses.
The new service consists of operations related to 1) treatment for animals, 2) clinical and research practices, and 3)
customer services. The company wants to emphasize prevention byusing clinical data accumulated through its pet insurance operations.
Medium-term targets
Announced May 8, 2015

(JPYmn)Recurring revenue

Recurring profit
Profit margin
YoY
Net profit
ROE

Underwriting revenue
Investment revenue
Other recurring revenue

Recurring revenue
Recurring profit

E/I loss ratio
Operating expenses / earned premiums
Combined ratio
Total contracts
Premium payment cases (thousand)

FY03/10
Results
9,216
9,003
71
141
292
3.2%

346
6.7%

FY03/11
Results
11,107
10,858
94
154
342
3.1%
20.5%
17.3%
421
6.6%

FY03/12Results
13,845
13,592
108
144
337
2.4%
24.7%
-1.5%
465
6.8%

FY03/13
Results
16,186
15,781
260
143
837
5.2%
16.9%
148.4%
640
8.6%

FY03/14
Results
18,36618,087
108
171
733
4.0%
13.5%
-12.4%
447
5.6%

FY03/15
Results
22,63821,733
522
382
1,250
5.5%
23.3%
70.5%
829
9.5%

FY03/16
Est.
25,60024,521
487
593
2,100
8.2%
13.1%
68.0%
1,446
14.5%

FY03/17Plan
28,30026,738
550
1,012
2,600
9.2%
10.5%
23.8%
1,808
Increase

FY03/18
Plan
31,20029,099
600
1,501
3,100
9.9%
10.2%
19.2%
2,172
Increase

48.6%
-

53.4%
-

64.3%
33.2%
97.5%

67.5%
29.7%
97.2%

66.7%
28.6%
95.3%

64.4%
28.3%
92.7%

61.0%
30.9%
91.9%

60.0%
31.3%
91.3%

59.9%
31.0%
90.9%

290,767812

340,628
1,096

396,234
1,591

446,414
1,939

504,969
2,301

544,8152,520

588,000
2,790

636,000
2,950

689,000
3,140

Source: Company data

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 to the 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 the adjusted profit formula used bywww.sharedresearch.jp

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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 policy portfolio over the longer term.
The number of registered insurance agencies was 4,924 (including 1,450 pet shops), up 3.6% YoY (pet shop 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 account for 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% and62.3%, respectively. The company said that factors contributing to this failure to achieve forecasts included delays ineffects from the measures 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:◤◤

Stricter screening when increasing the coverage portion when policies are renewed (implemented in August 2013)
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)◤

Stricter management of the loss ratio for each sales channel; strengthening of relationships with hospitals 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 improvementin 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, to28.6%.

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Previous company targets and medium-term plan
FY03/15 targets
In FY03/15, the company forecasts recurring revenue of JPY22.2bn (+20.8% YoY), recurring profit of JPY1.2bn (+68.1%
YoY), and net income of JPY822mn (+83.9% YoY). Following the results in 1H, the company announced a revision to its
FY03/15 earnings forecasts on November 6, 2014.
Analysis of changes in recurring profit (JPYmn)

Source: Shared Research based on company data

Plans for 2H
Revised full-year forecasts incorporate strong 1H performance; 2H forecasts unchanged
Anicom revised its full-year FY03/15 earnings forecasts to reflect of excess performance seen in 1H. Performance for 2H isassumed to remain on par with initial forecasts.
In 2H, the following factors are likely to improve the company’s operations:◤◤◤

The acquisition of insurance contracts should increase at a similar pace to 1H;
The company’s efforts to improve the loss ratio may continue into 2H, and more quickly than initially estimated;Japan Animal Specialty Medical Institute (JASMINE), a subsidiary that started full-fledged operations in August 2014,is demonstrating robust performance;◤

An upward trend has followed the dip in the insurance renewal rate after the revision to premiums in June.

For 2H, Anicom plans to frontload investments in R&D and sales promotion. Shared Research forecasts that the R&D
investments are related to President Komori’s goal—controlling hereditary diseases in newborn animals and growing the
distribution of healthy newborn pets—and that these measures may lead to expansion in the pet and pet insurance
markets.

Four management benchmarks
From initial forecasts in FY03/15, the company is focusing on the following key measures:▶ Strengthening loss ratio control▶ Increasing capabilities for acquiring new insurance policies▶ Allocating resources to new businesses.

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Related to these measures, the company is focusing on four benchmarks:▶ Underwriting revenue▶ Loss ratio▶ Expenses▶ Investment income.

Excluding investment income, below is a summary of these strategies for FY03/15.

Underwriting revenues: impact of increasing insurance premium
Expected 8.9% increase in in-force insurance policies
Although the company revised down the initial target of a 10.0% increase of contract volume to 8.9%, it still expects
steady growth. The company sees a favorable operating environment, underpinned by growing demand for pets asJapan’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 insurance policies inforce, this is driven by the company raising premiums during the term. The company implemented an increase inpremiums in June 2014 partially as a means to offset expense increases due to 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
expected the rise in premiums to boost revenue by JPY1.8bn in FY03/15 (JPY1.1bn on an earned premium basis) at the
beginning of FY03/15.

Accounting for the decline in policy renewal rate
The company initially forecast a 1.4pp decline year-on-year in the insurance policy renewal rate. This factored in theimpact of the rise in premiums, which was estimated at around 2pp based on an analysis of historical data by thecompany, but the decrease in renewal rates was 1.5pp, a smaller decline than estimated. Based on this rate, the company
revised forecasts of the renewal rate to 88.4%, down 1.0pp YoY.
After the introduction of the new plan in November 2014, customers can choose between two plans—the previous plan
without limits on hospital visits, with premiums raised about 6% on average, or the standard plan with limits on hospital
visits, with premiums around 8% lower than the first plan. Although the old plan raised premiums, the renewal rate does
not seem to have changed significantly, partly because premiums are discounted depending on the animal’s health (thediscount rate is seen at 5% or so on average).

Controlling loss ratio
Worse loss ratio initially expected; revised forecasts reflect improved ratio due to initiatives
In initial forecasts, the impact of the consumption tax hike was expected to lead to a deterioration in the E/I loss ratio (lossratio based on earned premiums) of 0.6pp. However, the company revised the estimate to +1.2pp YoY due to its efforts
to better control its loss ratio, a key measure in the initial plan. Specifically, revised premiums and the reinforced payment
system contributed to the improved loss ratio.
The company’s pet insurance incurs a rising insurance payout risk as the average age of insured pets increases. As a result,www.sharedresearch.jp

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the loss ratio is on a rising trend. The company is aiming for a loss ratio of 60%. To achieve this it has made underwriting
screening stricter, has reinforced the insurance payment system, and is working to increase the number of insurance
contracts for newborn pets, which have a lower risk.

Stricter screening and prevention of excessive medical treatment
Of the company’s approximately 500,000 insurance policies in force, several percent of policies have a loss ratio of 300%
based on payout applications. In the case of pet insurance, such high loss ratios are often due to cases of chronic disease.
The company plans to implement stricter screening for renewal of such policies.
The company is aiming to improve steps before and after insurance payments by conducting surveys in cooperation withveterinary hospitals regarding whether claims are properly filed.
Anicom aims to prevent excessive medical treatment at veterinary hospitals by expanding sales of the company’s
next-generation medical records management system, “Anirese F.” The medical records management system
automatically displays the average treatment expense for each type of medical case, which helps prevent over-treatment.
With feedback on insurance claims, the company expects Anirese F to help facilitate relations between pet owners,
hospitals and pet insurance companies.
E/I loss ratio and expense ratio
80%

Jan- Sep 2014: suspend online sales of 70%
compensation plan

70%
60%
50%
Oct 2010: sales of 90%
compensation product begin40%

Jun 2014: changes topremiums

Aug 2013: limit changes incompensation from 50% to70%

Aug 2012: sales of 90%
compensation product halted(Jul 2013: terminated 90%
coverage product)

Oct 2013: extend period fromonline aplication to coverage start

November 2014:
introduce system
limiting number of visits
and length of stay

30%
20%

Q1
Q2
FY03/11

Q3

Q4

Q1
Q2
FY03/12

Q3

Q4

Q1
Q2
FY03/13Q3

E/I loss ratio

Q4

Q1
Q2
FY03/14

Q3

Q4

Q1
Q2
FY03/15

Q3

Q4
Est.

Earned premiums expense ratio

Source: Company data

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 lowering the loss
ratio to sales promotion activities. Specifically, to accelerate new policy acquisition, the company plans to spend moneyon sales promotion-related expenses, including commissions paid to agencies.
In its regional strategy, the company opened a branch in eastern Japan in May 2014, and one in central Japan in October
2014, and is focusing on developing its agency network among pet shops in these areas. At present, the company has
branches in Hokkaido (Sapporo), Tohoku (Sendai), Chubu (Nagoya), Kinki (Osaka) Chugoku and Shikoku (Okayama), andKyushu (Fukuoka). It also has an office in Shikoku (Kochi).

New insurance plan with limits on hospital visits and stays
Changes in plans from 2014
June 2014www.sharedresearch.jp

Revision to premiums (premiums up 12% on average)

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Revision to premiums (premiums up 6% on average)
New plan with limits on hospital visits and stays introduced (the only plan offered for new
contracts, premiums 8% lower than plans without such limits)
New system with discounts depending on the animal’s health introduced (a 10% or 5% discountdepending on the number of hospital visits)

June 2015

Automatic 5% discount for renewal to be discontinued (replaced by discounts depending on the
animal’s health)November 2015

New system charging extra premiums to be introduced (Premiums up 20% or 50% depending on
the number of hospital visits)

FY03/15 saw major changes in the insurance plan lineup and premium system. Shared Research expects that the June2014 revision to premiums will lower the renewal rate but contribute to revenues, and that the next revision to premiums
and the introduction of the new plan and discount system in November will have a neutral effect overall. The planned
discontinuation of the 5% discount for contract renewal in June 2015 may contribute to a rise in revenues, although
customers may shift to the new plan with limited hospital visits and stays. Shared Research also estimates that charging
extra premiums depending on the animal’s health (starting from November 2015) will have only a slight effect onearnings, as these plans account for less than 10% of all plans.

Launch of pet insurance with limited hospitalization days in November 2014
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. The company launched the plan on November 1,
2014. Now the company limits hospitalization days for all new contracts (extensions will be unaffected). In Shared
Research’s view, although the new insurance plans which place limits on hospitalization will lead to lower premiums
earned, placing an upper limit on time spent in hospital is likely to yield a lower loss ratio. Taking into account the timingof when sales began and the characteristics of the plan, a lower loss ratio will affect results from FY03/16 onward.
Along with the new plan, the company also introduced a system of increasing or decreasing insurance premiums
depending on the health of the animal in November 2014. The company expects the new system to enhance fairness
among policyholders and control frequent requests for insurance benefits among customers with high-risk contracts. A
build-up of various measures from 2012 has allowed the company to achieve its long-term target of a loss ratio at 55-60%.
Impact on earnings: Since November 2014, the company has sold only the new plan (although existing policyholders
can extend their contracts under their previous plans), and introduced part of the new premium system, where discounts
depend on the health of the animal. Premiums under the new plan are around 8% lower than previous plans (a revision topremiums raised payments by an average of 6%).
As of November 2014, customers tended to choose the old system when renewing contracts. Renewed contracts with
10%, 5%, and no discounts were on par with previous years, and the composition of new and renewed contracts
remained at about 20% and 80%, respectively. As a result, introduction of the new plan is likely to have a neutral effect on
profits. An improved loss ratio may gradually help boost
recurring profit. The discontinuation of an automatic 5% discount for policy renewal from June 2015 could also befavorable for earnings.

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Impact of consumption tax hike and premium changes (FY03/15 est.)
Underwriting revenue may rise by JPY1.1bn due to premium changeAnicom adopted a new pricing structure in June 2014. According to Shared Research estimates, the changes in premiums
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, Shared Research first estimated the number of contracts for each breed and age by multiplying
the composition ratios of animals and their ages as of FY03/12 by the number of policies as of FY03/14. Shared Researchadjusted these figures by multiplying them by the price differences and adjusting for the split between policies withannual premium payments and monthly payments. The result showed that the price change would increase revenue by
JPY2.2bn a year. Shared Research assumed the composition ratios of 40%, 30%, 20%, 5%, and 5% for breeds A, B, C, D,
and E based on the 17 most popular breeds for FY03/12. Shared Research 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 monthfrom 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

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 thepricing 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 arelimited. Among the various underwriting expenses, net claims paid, provision for reserve for outstanding losses andclaims, commissions to sales agents, and outsourcing expenses are greatly affected by the consumption tax. The majority

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of rental expense and certain personnel expenses 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 that the 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 and administration 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 Pafe and Japan Animal Specialty
Medical Institute [JASMINE]) are estimated at just under JPY100mn. Anicom Pafe expenses are related to a cloudcomputing-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 the revenue 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 in insurance 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 year of age (low-risk) as a proportionof 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 to increase.
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 increase in prepaid premium due to the changes in premiums is expected to have tapered off.
Provisions to the policy 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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Medium-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 for recurring revenueof 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, the company 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 new policies, as well as maintenance of its renewal rate. Reformof the earnings structure is to be based on an overhaul of product content, including pricing and services, andstrengthened 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 will continue to expand, andplans to invest the company’s resources in new businesses. Specifically, the company 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 other preventive medicine.
The company’s strategy is summarized below.

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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 consider insurance coverage
The ratio of pet insurance coverage was 3.9% in FY2012 in Japan, compared with 22% in the UK in FY2009. Anicom, apioneer in the pet insurance business in Japan, expects the market to expand. Japanese households kept 20mn dogs andcats 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: Shared Research based on company data

Aiming for a pet insurance coverage ratio on par with the UK; long-term target for underwriting revenueof JPY100bn
Through deeper cultivation of existing agencies and expansion of the sales area, the company aims to grow the pet
insurance market and expand its own earnings. As a rough guide, based on the research mentioned 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 would be worth
approximately JPY180.0bn. Based on a 60% market share, Anicom is targeting revenue of 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

Source: Company materials, World Bank (Population figures for 2012), Japan Pet Food Association, Datamonitor, Packaged Facts)
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

Differences between the UK and Japan
The pet insurance coverage ratio accelerated in the UK from around 2004. Anicom analyzes that this growth coincidedwith 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.

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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 leadto 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, and cautious development of customers who already have pets. Below is asummary 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 to strengthen its sales structure toincrease exposure to its products in the pet shop market. At existing pet shop agencies, Anicom also sees ample room toincrease the awareness of the need for pet insurance (penetration rate). The insurance sales ratio at agencies (number ofpolicies 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 and strengthening 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 at agencies, the company seeks to raise the insurance sales
ratio at pet shops to 70%. The company has said it wants to increase its sales-related expenditure in FY03/15. It is possiblethat 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 lowawareness. 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 anunderstanding of the need for insurance. The company also recognizes that there are many small pet shop operators who
rely on the Internet and which the company’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 likely tohave 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 anadverse selection (the motivation for high-risk pet owners to take out insurance may increase). For this reason, thecompany takes a cautious approach to developing this market segment.

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Earnings structure reform
Strengthened loss ratio control
Anicom’s pet insurance incurs a higher payout risk as the average age of insured pets rises. Consequently, the loss ratio ison 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 havelower risk.

Stricter underwriting screening
Of the company’s approximately 500,000 insurance policies in force, around half of policyholders seldom apply forpayouts. About 30% of policyholders have loss ratios of around 60%, while several percent of policyholders 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 highproportion 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 this type begin, the company will, in
general, impose limited hospitalization days for all new contracts (extensions will be unaffected). In Shared Research’sview, 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 the hospital may yield a lower loss ratio. Taking into account the timing of whensales will begin, the new plans 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 averagetreatment cost for each particular type of medical condition. By doing so, the hospital can take measures to prevent
excessive treatment. Sales of Anirese F were launched by the company’s subsidiary, Anicom Pafe, in November 2013, aspart of efforts to prevent excessive treatment.
Anirese F is a next-generation, cloud computing-based medical records management system, which analyzes andleverages 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 for the 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 recordedby the veterinarian. As well as making the treatment more open, this system helps to develop 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 in migration to thenext-generation system is likely to have an impact on lowering the loss ratio. For this reason this aspect deserves

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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, and seeks to increase thecompany’s recurring revenue by building up new businesses. Shared Research believes that the pet insurance businesswill remain the source of stable growth and earnings for the company, which plans to focus investment on the growthmarket of small-animal healthcare.
The following is an overview of the company’s small-animal healthcare businesses.

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 to bring thetreatment fees to an appropriate level and improve remuneration for veterinarians. The overriding goal, however, is totreat 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 and others.) 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 ofInternal 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 of various systems
and examination equipment. This makes their fixed costs high. The company also thinks that there is room to improve theremuneration 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 andbuild a win-win relationship with existing animal hospitals. In addition, by raising the standard of examination andtreatment 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 andpreventive medicine. The company believes that this will not compete with the offerings of existing animal hospitals.
However, the animal hospitals that currently accept the company’s pet insurance may be wary of Anicom’s entry into theanimal hospital business. The company is aware of this risk. 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 ofthese hospitals.

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Launch of Japan Animal Specialty Medical Institute Inc. (JASMINE) 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 development of advanced medical treatment. The company also opened JASMINE
Animal Cardiovascular Disease Center in August 2014 in Tsuzuki-ku, Yokohama.
A key difficulty in conducting insurance screening vis-à-vis medical treatment at animal hospitals is defining 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 alarge number of hospitals widely available. It is hoped that this will flow through to lower loss ratios and an improvementin 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 the company does nothave 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 overseas business by exporting its pet medical records management system, which has
become the de facto standard in Japan. It 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, thecompany has not decided on any schedule for overseas 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 take measures toprevent the occurrence of any hereditary illnesses. There are more hereditary ailments among dogs in Japan than in theWest. That is apparently due to less concerned in Japan about pet bloodlines or hereditary diseases of particular breeds.
Many breeders also ignore hereditary diseases and produce dogs that are vulnerable to various illnesses
Breeding mistakes cannot be fixed through treatment. Therefore, the company aims to strengthen its relationships withbreeders in the long term, and thereby help prevent hereditary diseases.
In FY03/15, the company launched a project to strengthen its effort in this area.

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Anicom Holdings ＞ Financial statements

LAST UPDATE【2016/11/15】

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

FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
7,267
10,8009,216
11,107
13,845
16,186
18,366
22,63826,50648.6%-14.7%
20.5%
24.7%
16.9%
13.5%
23.3%
17.1%

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

21,733
21,733
522
289
232
382
382

25,37025,370
690
334
355
446
446

Recurring expenses
YoY
Underwriting expenses
Net claims paid
Loss adjustment expenses
Net commissions and brokerage fees

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
-

21,38721.3%
15,92012,149
741
1,269
144
1,616
21
21
4,905
540
6
484
48
-

24,37714.0%
17,393
13,547
895
1,590
122
1,237
182
101
80
6,699
100
4
96
-

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%

1,250
70.5%
5.5%

2,129
70.3%
8.0%

Extraordinary profit
Extraordinary loss
Total income taxes

10
-21
-12

15
-31
12

-22
76

-14
93

1
-7
133

-2
-194

-8
-276

-18
-403

27
-83
-674

Net income
YoY
Net margin

178
2.4%

-142
-1.3%

346
3.8%

421
21.7%
3.8%

465
10.5%
3.4%

640
37.6%
4.0%

447
-30.2%
2.4%

829
85.5%
3.7%

1,399
68.8%
5.3%

P rov ision for reserv e 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

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

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Anicom Holdings ＞ Financial statements

LAST UPDATE【2016/11/15】

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

FY03/15

FY03/16

1,116
500
4,107
114
46
68
114
114
1,816
455
739
5
487
-18
7,748

601
5,723
98
39
1
58
100
94
7
2,162
1,293
281
76
2
384
8,685

1,652
7,563
107
43
7
58
212
112
95
5
1,986
1,132
374
48
282
150
74
11,594

3,682
7,065
96
34
7
54
374
125
246
2
1,975
969
575
63
179
186
187
13,382

5,098
7,444
93
31
5
56
387
178
208
1,981
808
839
83
76
172
-5
353
15,355

4,986
9,272
86
27
3
55
373
159
213
1,940
646
935
112
245
-7
219
16,872

4,457
11,367
118
33
1
83
477
263
214
2,112
484
1,121
143
4
357
-13
116
18,634

4,217
15,108
250
89
160
566
305
261
1,945
1,118
191
5
629
-13
263
22,337

7,556
10,739
1,527
462
4
542
653
532
33
4,297
2,041
232
2,024
-16
433
25,192

3,440
2,433
948
17
41
21
0
0

3,730
523
3,206
744
38
362
262
83
28
1
1

4,626
500
4,125
805
47
326
344
87
32
2
2

5,920
653
5,267
824
234
432
157
46
2
2

7,152
1,001
6,151
1,073
341
541
191
55
-

7,702
1,142
6,560
1,292
398
652
242
69
2
2

8,768
1,291
7,476
1,520
447
759
312
86
10
10

10,528
1,435
9,093
2,411
777
956
678
103
22
22

11,888
1,558
10,330
2,414
855
1,073
485
157
32
32

3,464

4,503

5,464

6,793

8,283

9,067

10,385

13,066

14,492

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

9,272
4,350
4,240
681
-0
-1
-1
9,270
22,337

10,762
4,396
1,286
2,080
-0
-123
-123
10,69925,192

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

Cash flow statement
Cash flow statement(JPYmn)Cash flows from operating activities (1)Cash flows from investing activities (2)Free cash flow (1+2)
Cash flows from financing activities
Depreciation and amortization (A)Capital expenditures (B)Working capital changes (C)Simple FCF (NI + A + B - C)

FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
737
1,608
1,792
1,879
1,507
2,009
3,094
1,960
-1,367-2,875-1,936-1,044-1,852-2,052-2,963
2,489-629-1,267
-144
835
-345
-43
131
4,449
-5
1,590
38
28
85
60
135
89
68
64
73
82
92
99
166
367
-57
-190
-226
-95
-71
-87
-130
220
268
452
661
459
995
1,813

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

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Anicom Holdings ＞ Other information

LAST UPDATE【2016/11/15】

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

Dobutsu kempo Family *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.

Dobutsu Kempo Baby**

Pet shops

Dobutsu Kempo Smile Baby

Directly by pet shops

Dobutsu Kempo Smile Family

Pet shops

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%.

Source: Shared Research based on company data
*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 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.
*** Dobutsu Kempo Family will be revised in November 2014. The company will add a “standard” plan, which limits the number of hospital visitsand stays. The existing plan, which does not have such a limit, will be called a “wide” plan.

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 ofthe pet.
The premium for pets that are less than one year of age is high because such animals are vulnerable to sickness. 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 (70% Standard Plan; 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
35,63032,24032,73034,80039,03043,91049,06053,950Dog B
39,16035,41035,63037,06040,81046,50052,54057,710Dog C
42,70038,71039,43041,70046,08052,09058,62064,680Dog D
48,87044,30045,12047,76052,95060,17068,11075,520Dog E
55,97050,93052,46056,25062,41069,93077,49084,160Cat36,32032,86033,00033,44034,35035,82037,79040,020Bird
29,21029,21029,21029,21029,21029,21029,210

Rabbit34,65037,98041,95046,12050,13053,73056,810Ferret35,50043,13056,43071,91085,88098,150108,060

Source: Shared Research based on company data (as of November 2014)
Dog A: Japanese Spitz, Chihuahua, etc.; mixed-breed dogs weighing less than 10kg
Dog B: Miniature Dachshund, Shiba, Papillon, Toy Poodle, etc.; mixed-breed dogs weighing between 10kg and 20kg
Dog C: Maltese, Akita, Beagle, Chow Chow, Poodle, Pomeranian, Yorkshire Terrier, etc.; mixed-breed dogs weighing between 20kg and 30kg
Dog D: Shih Tzu, Golden Retriever, Collie, Dachshund, French Bulldog, etc.; mixed-breed dogs weighing between 30kg and 45kg
Dog E: Siberian Husky, Tosa, American Cocker Spaniel, Bulldog, etc.; mixed-breed dogs weighing 45kg or more
Note: Revised in November 2014; standard product (no limit to the number of hospital visits or stays)

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Anicom Holdings ＞ Other information

LAST UPDATE【2016/11/15】

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: Shared Research based on company data
Notes
1: Price for the 70% plan for medium-sized dogs (large dogs according to Pet & Family classification); the 70% plan is not available online.
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).

Details of plan changes in 2014
Premium revised on June 1, 2014
Anicom announced in March 2014 that it would revise its insurance premiums from June 1, 2014. The company also said
that it would adopt a new discount system for policies that begin coverage on June 1, 2015 or thereafter. Under the new
system, the company will offer discounts for healthier animals at the time of contract renewal. The existing system, which
provides automatic discounts when contracts are renewed, will be abolished. The company revised its premiums on June
1, 2014 as planned.

Product change on November 1, 2014
On May 30, 2014, the company received approval from the Financial Services Agency to offer pet insurance that limits thenumber of hospital visits and stays. Consequently, the company announced on August 6, 2014 that it would revise its
Dobutsu Kempo Family product effective November 1, 2014.
Under the revised system, new policyholders can only enroll in a standard plan that limits the number of hospital visitsand stays. Existing policyholders renewing their contracts can choose either the standard plan or a “wide” plan, which
does not have such limitations. At the same time, the new policy no longer covers birds, rabbits, or ferrets. There werealso some changes in the classification of dogs. In addition, premium payments may rise or fall depending on the healthof the animal.
Thus, the company changed its insurance premiums twice within a short period of time—in June and November. The
company stated that the only change it had planned to implement was the introduction of a new product upon approvalby the Financial Services Agency. However, the company decided to change the premiums for its existing products inJune to mitigate the impact of the April consumption tax hike.

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Premiums after November 2014 (5% discount on renewal for pets aged one year or older) and June 2014

(
p
g
y
)
Standard plan (70% payout) premiums from November 2014 onward (JPY)
Wide plan (70% payout) premiums from November 2014 onward (JPY)
Age Dog A Dog B Dog C Dog D Dog E
Cat
Bird Rabbit Ferret
Age Dog A Dog B Dog C Dog D Dog E
Cat
Bird Rabbit Ferret00 35,630 39,160 42,700 48,870 55,970 36,320- - 0
1
1 32,240 35,410 38,710 44,300 50,930 32,860 29,210 34,650 # 1
35,240 38,680 42,290 48,400 55,650 35,910 31,910 37,860 38,790
2
2 32,730 35,630 39,430 45,120 52,460 33,000 29,210 37,980 # 2
35,760 38,930 43,080 49,290 57,310 36,060 31,910 41,500 46,630
3
3 34,800 37,060 41,700 47,760 56,250 33,440 29,210 41,950 # 3
37,860 40,490 45,560 52,180 61,460 36,540 31,910 45,840 61,660
4
4 39,030 40,810 46,080 52,950 62,410 34,350 29,210 46,120 # 4
40,810 44,590 50,340 57,860 68,180 37,530 31,910 50,390 78,560
5
5 43,910 46,500 52,090 60,170 69,930 35,820 29,210 50,130 # 545,700 49,770 56,900 65,750 76,410 39,150 31,910 54,770 96,180
6
6 49,060 52,540 58,620 68,110 77,490 37,790 29,210 53,730 # 6
52,210 56,120 64,040 74,410 84,670 41,290 31,910 58,710 112,310
7
7 53,950 57,710 64,680 75,520 84,160 40,020 29,210 56,810 # 7
58,940 63,060 70,670 82,510 93,620 43,730 31,910 62,070 123,660
June 2014 premium versus November 2014 (standard plan, 70% payout)
Age Dog A Dog B Dog C Dog D Dog E
Cat
Bird Rabbit Ferret0-1.8% -2.9% -3.7% -5.0% -6.0% -2.0%
10.2% -0.8% -1.8% -3.0% -4.1%
0.0%
1.6% -0.6%-0.9%
2
0.0% -0.9% -2.0% -3.2% -4.3% -0.0%
1.6% -1.6%-2.8%
3-0.7% -1.3% -2.5% -3.6% -4.8% -0.2%
1.6% -2.5%-4.8%
4-1.9% -2.3% -3.4% -4.4% -5.4% -0.5%
1.6% -3.4%-6.1%
5-4.3% -3.4% -4.3% -5.2% -6.0% -1.0%
1.6% -4.0%-6.9%
6-5.2% -4.3% -5.0% -5.9% -6.5% -1.6%
1.6% -4.5%-6.0%
7-4.5% -4.9% -5.6% -6.4% -6.9% -2.1%
1.6% -4.9%-4.3%

June 2014 premium versus November 2014 (wide plan, 70% payout)
Age Dog A Dog B Dog C Dog D Dog E
Cat
Bird Rabbit
0
1
9.5%
8.3%
7.3%
5.9%
4.8%
9.3% 11.0%
8.6%
2
9.3%
8.2%
7.1%
5.8%
4.5%
9.2% 11.0%
7.5%
3
8.1%
7.8%
6.5%
5.3%
4.0%
9.0% 11.0%
6.5%
4
2.6%
6.7%
5.6%
4.5%
3.3%
8.7% 11.0%
5.6%
5
-0.4%
3.4%
4.6%
3.6%
2.7%
8.2% 11.0%
4.9%
6
0.9%
2.2%
3.7%
2.8%
2.1%
7.6% 11.0%
4.4%
7
4.3%
3.9%
3.1%
2.3%
3.6%
6.9% 11.0%
4.0%

Ferret
8.3%
5.1%
4.0%
2.5%
4.2%
7.6%
9.5%

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

Health discount/extra premium system
Under the new system, the company raises or reduces premium payments when policies are renewed depending on thenumber and length of hospital visits and surgeries during the previous contract period. Shared Research believes that the
introduction of the new system may lead to a higher rate of contract renewal. The new system may also discourage
policyholders from misusing insurance and help the company lower the loss ratio.
Under the new “health discount/extra premium” system, the company determines the premium payments for renewed contracts based on thepolicyholders’ insurance use. First-year contracts are assessed based on their record for the initial six-month period. Second-year contracts andthose that are older are assessed based on their record for the first six months of the current year and the last six months of the previous year.
The system either offers discounts or charges extra fees based on the health of the animal. Premiums may rise for some contracts that begin
coverage on November 1 and thereafter. Discounts for healthier animals will begin beforehand.

Number of hospital visits, stays
Discount/premium

1-5

6-19

20-39

40+

10% discount 5% discount0

No discount or premium

20% premium

50% premium

Source: Company data

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 such pets 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 tocreate hospital expense statements, sell insurance at pet shops (and online), and maintain customer 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.

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Anicom provides “Anicom Receptor,” a management system for treatment records, to animal hospitals for free. The
system allows hospitals to offer payout settlement services in a way similar to the public health insurance system forhumans. The hospital provides fee details for clients and submits payment requests to Anicom, which reviews therequests 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 living souls cooperate with one anotherand work toward the shared purpose.
In interviewing Anicom management, Shared Research was impressed by the company’s commitment to truly seeking tocreate 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.

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 (now Tokio Marine &Nichido Fire Insurance Co., Ltd.) in 1992. In 1996, Komori was transferred to the government’s Economic Planning
Agency for three years on a temporary assignment. In April 2004, he established 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 sucha 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 waspart 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 of Anicom, and one other (nowdeceased).

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 aresult of this accident. Insurance companies gather a huge amount of data on such accidents, and this data can beanalyzed to reveal common accident causes. In this light, the future role of an insurance company should be use andprovide this data for accident prevention rather than just using it to assess the level of payouts. By doing so accidents
could be prevented and people’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

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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 other words, more emphasis should be placed on preventive efforts.

Toshi (commonly means investment, but could also mean to “ignite the will”)
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 realized that human being is ago-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 Chinese characters that together
mean to “ignite the will.” The pronunciation of this word, however, is the same as the word for “investment.”

History
July 2000

BSP (now Anicom) was established in Tokyo’s Toshima Ward to handle administrative duties forAnicom’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 foundingof 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.

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News and topics
May 2016
On May 9, 2016, the company announced Full-Year FY03/16 result.

April 2016
On April 27, 2016, the company announced a FY03/16 year-end dividend per share of JPY5.
This will be the first dividend since the listing of the company.
Record date: March 31, 2016
Effective date: June 27, 2016
Total dividend amount: JPY90mn

December 2015
On December 21, 2015, the company announced that it had formed a business partnership with wholly-owned
subsidiary Fujifilm (Fujifilm Holdings (TSE 4901)) in the field of advanced animal healthcare, with the intention of
establishing a joint venture company next spring. Based on the agreement, it plans to develop and distribute advanced
medical technology and services for animals, with a particular focus on regenerative medicine.
The new company will operate in the advanced animal healthcare field, and will work to develop and distribute
revolutionary medical technology and services, with a focus on regenerative medicine.
Anicom and Fujifilm will establish a joint venture company (51% of shares held by Fujifilm, 49% of shares held byAnicom), which will develop and distribute advanced medical technology and services, with a focus on regenerative
medicine. Fujifilm will contribute its sophisticated production technology and quality control technology, developed
though its production of photographic film, as well as image diagnosis technology, technology used for analyzing thechemical composition of blood, and technology related to regenerative medicine. Anicom will contribute its network ofanimal hospitals, its digital clinical records system, and its extensive knowledge of medical examination and treatment.
Both companies aim for the realization of advanced healthcare for animals.
Specifically, they intend to:1)

Establish a location where they can conduct translational research, and develop regenerative medicine and othermedical treatments designed for animals

2)

Develop technology for the safe production of cells used in medical treatments, and create a system to ensure
product quality.

3)

Accumulate medical examination data (including images), and create a system through which they can conduct
medical examinations and treatment.

Among equipment needed to offer the technologies and services, Fujifilm will provide medical equipment such as thematerials to be used in regenerative medicine and image diagnosis systems, and Anicom will provide its digital clinicalrecords system. In order to reduce medical expenses for pet owners and to make advanced healthcare more widely
accessible, the company also plans to set up an insurance system for pets.

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April 2015
On April 14, 2015, the company announced the bullet amortization of deferred assets per Article 113 of the Insurance
Business Act at core subsidiary Anicom Insurance, Inc.
The bullet amortization is expected to push recurring profit for FY03/16 and FY03/17 up by JPY161mn. The company
plans to roll over its medium-term plan on May 8, 2015.
Details of the amortization
At Anicom Insurance, some operating costs from FY03/08 (when it began operations) and FY03/09 were booked asdeferred assets in accordance with Article 113 of the Insurance Business Act. The company has been applying thestraight-line method over ten years until FY03/17 (meaning deferred assets for the end of FY03/14 totaled JPY484mn).

Reasons for the bullet amortization
The company decided to use bullet amortization in FY03/15 because robust earnings at Anicom Insurance means thecompany expects to book a profit surplus, even after amortization of deferred expenses per Article 113. Also, rather thanweigh down the balance sheet in the future with deferred expenses, it will use write-offs for healthier finances.

Effects on FY03/15 earnings
In company forecasts for FY03/15, JPY161mn in recurring costs is accounted for under the straight-line method. The
company expects to book an additional JPY323mn in new recurring costs under the bullet method, and JPY93mn indeferred income taxes from the reversal of deferred tax liabilities.
However, according to the company, it will not revise its full-year earnings forecasts because of robust earnings, due toinsurance underwriting improving more than expected.
Compared to other industries, insurance companies have significant initial costs. Under Article 113 Act 1 of the Insurance Business Act,
business expenses for the first 5 years after beginning operations may be recognized as assets, amortized over a ten-year period using thestraight-line method.

February 2015
On February 6, 2015, the company announced that it has obtained approval from the government’s Financial Services
Agency to sell pet insurance that covers only hospitalization and surgery.
Shared Research believes that Anicom will be able to meet the diverse needs of its clients as a result. The company is likely
to expand its product lineup, offer a variety of pricing options to gain a competitive advantage over its rivals. The
company stated, however, that it has not yet decided when to start selling such insurance policies.

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Major shareholders
Top 10 shareholders

Shares held ('000s)

Percentage

Japan Trustee Services Bank, Ltd (trust account)

2,502

14.0%

The Master Trust Bank of Japan, Ltd. (trust account)

1,281

7.1%

KOMORI Asset Management Co., Ltd.

1,220

6.8%

Sony Assurance, Inc.

1,200

6.7%

The Nomura Trust and Banking Company, Limited (trust account)

499

2.8%

Nobuaki Komori

463

2.6%

State Street London Care Of State Street Bank and Trust

450

2.5%

Japan Trustee Services Bank, Ltd (trust account)

391

2.2%

Trust & Custody Services Bank, Ltd. (security investment trust account)

366

2.0%

CBLDN Threadneedle Investment Funds Icvc-Japan Fund

319

1.8%

Source: Company data
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By the way
Popular dog breeds
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

1

DachshundDachshundDachshundDachshundDachshundDachshundDachshundDachshundDachshundP oodleP oodleP 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

C hihuahua

C hihuahua

3

G oldenRetriev er

C hihuahua

S hih Tzu

P embroke
Welsh C orgi

P oodleP oodleP oodleP oodleP oodleDachshundDachshundDachshundDachshundDachshundDachshundDachshundDachshund4

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 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
Terrier

S hiba Inu

S hiba Inu

6

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

Yorkshire
TerrierYorkshire
Terrier

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

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 altese

M altese

M iniature
S chnauzer

9

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

M iniature
S chnauzer

M altese

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

F renchBulldog

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

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

P embroke
Welsh C orgi

P embroke
Welsh C orgi

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

P apillon

P apillon

14 King C harles

C av alier
S paniel

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

Labrador
Retriev er

Labrador
Retriev er

Labrador
Retriev er

Jack Russell
Terrier

P ug

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
Terrier

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
Terrier

P ug

Labrador
Retriev er

C av alierKing C harles
S paniel

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 paniel

C av alierKing C harles
S paniel

Labrador
Retriev er

18

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 inscher

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

P ekingese

P ekingese

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

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Company profile
Company Name

Head Office
8-17-1, Nishi Shinjuku, Shinjuku-ku

Anicom Holdings, Inc.

Tokyo, Japan
160-0023

Phone+81-3-5348-3911

Tokyo Stock Exchange First section (was TSE Mothers until
June 9, 2014)

EstablishedExchange Listing

July 5, 2000

March 3, 2010

WebsiteFiscal Year-End

http://www.anicom.co.jp/(in Japanese)www.sharedresearch.jp

Listed On

March

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Shared Research Report

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.
Accretive Co., Ltd.
Accordia Golf Trust
Adastria Co., Ltd.
AEON DELIGHT Co.
Ai Holdings Corp.
Aiming Inc.
AnGes MG Inc.
Anicom Holdings, Inc.
Anritsu Corporation
Apamanshop Holdings Co., Ltd.
ArtSpark Holdings Inc.
AS ONE Corporation
Ateam Inc.
Aucfan Co.,Ltd.
Axell Corporation
Azbil Corporation
Bell-Park Co., Ltd.
Benefit One Inc.
Canon Marketing Japan Inc.
Carna Biosciences, Inc.
Chiyoda Co., Ltd.
Chugoku Marine Paints, Ltd.
Cocokara Fine, Inc.
Comsys Holdings Corporation
CRE, Inc.
Creek & River Co., Ltd.
Daiseki Corp.
DIC Corporation
Digital Arts Inc.
Digital Garage Inc.
Don Quijote Holdings Co., Ltd.
Dream Incubator Inc.
Earth Chemical Co., Ltd.
Elecom Co.
EMERGENCY ASSISTANCE JAPAN Co.
en-Japan Inc.
FerroTec Corp.

Fields Corp.
Financial Products Group Co., Ltd.
FreeBit Co., Ltd.
FUJITA KANKO INC.
Gamecard-Joyco Holdings, Inc.
GCA Corporation
Grandy House Corp.
Hakuto Co., Ltd.
Happinet Corporation
Harmonic Drive Systems Inc.
Hearts United Group Co., Ltd.
Heiwa Real Estate Co., Ltd.
IDOM Inc.
IID, Inc.
Infomart Corp.
Intelligent Wave Inc.
istyle Inc.
Itochu Enex Co., Ltd.
ITO EN, Ltd.
J Trust Co., Ltd
Japan Best Rescue System Co., Ltd.
JIN Co., Ltd.
Kameda Seika Co., Ltd.
Kenedix, Inc.
KFC Holdings Japan, Ltd.
LAC Co., Ltd.
Lasertec Corp.
MAC-HOUSE Co.
Matsui Securities Co., Ltd.
Medinet Co., Ltd.
MEGANESUPER CO., LTD.
Milbon. Co., Ltd.
MIRAIT Holdings Corp.
MONEY SQUARE HOLDINGS, INC.
NAGASE & CO., LTD
NAIGAI TRANS LINE LTD.
NanoCarrier Ltd.

Nichi-Iko Pharmaceutical Co., Ltd.
Nippon Parking Development Co., Ltd.
Nisshinbo Holdings Inc.
Ono Sokki Co., Ltd.
Onward Holdings Co., Inc.
Paris Miki Holdings Inc.
NS Tool Co.
NTT Urban Development Corporation
Pigeon Corp.
Resorttrust, Inc.
Round One Corp.
Ryohin Keikaku Co., Ltd.
SanBio Company Limited
Sanix Incorporated
Sanrio Co., Ltd.
SATO Holdings Corp.
SBS Holdings, Inc.
Ship Healthcare Holdings Inc.
SMS Co., Ltd.
SOURCENEXT Corporation
Star Mica Co., Ltd.
SymBio Pharmaceuticals Limited
Takashimaya Co., Ltd.
Takihyo Co., Ltd.
Tamagawa Holdings Co., Ltd
TEAR Corporation
3-D Matrix, Ltd.
TKC Corporation
TOKAI Holdings Corp.
WirelessGate, Inc.
Yellow Hat Ltd.
Yumeshin Holdings
Yushiro Chemical Industry Co., Ltd.
V-cube, Inc.
Vision Inc.
VOYAGE GROUP, Inc.
ZAPPALLAS, INC.

Attention: If you would like to see companies you invest in on this list, ask them to become our client, or sponsor a report yourself.

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 this report. 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, or other uses of this report arestrictly prohibited and a violation of the copyright of this report. SR Inc. officers and employees may currently, or in the future, have a position insecurities 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 (“the Company”).
Opinions and views presented are SR’s where so stated. Such opinions and views attributed to the Company are interpretations 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 bein exchange for consideration or promise of consideration from the Company to SR.

Contact Details
Shared Research.inc
3-31-12 Sendagi Bunkyo-ku Tokyo, Japan
http://www.sharedresearch.jp
Phone: +81 (0)3 5834-8787
Email: info@sharedresearch.jp

www.sharedresearch.jp

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