Morningstar Equity Research Report 2012.6.21

Largest pet insurance group

Recommendation rating（6/21）

Anicom Holdings, Inc.（8715・TSE’s Mothers）
Stock Price

Unit of Investment

447yen（6/19）

100Shares

Market Cap

Year HighYear Low

7.44Bil yen

689yen340yen（6/19）（2/2）

HOLD ▶ BUY
PER
（E）

12.8

（6/4）

（6/19）

Strong earnings on the back of insurance policy growth■Ordinary profit for March 2012 down 1.6% y-o-yAnicom Holdings reported its consolidated earnings for the year
ended March 2012, with ordinary revenue and ordinary profit
coming in at \13.85 billion (up 24.7% year-on-year) and \340 million (down 1.6% y-o-y) respectively. The company posted higher
ordinary revenue on a year-on-year basis, thanks to successful
sales promotional campaigns engaged in by pet shops, its major
insurance distribution channel, during Japan’s long holiday season
and the year-end and New Year holidays, as well as steady growth
in insurance policy sales at general agencies such as financial
institutions and car dealers. As a result, the number of insurance
policies in-force rose to 396,234 (up 16.3% from the end of March
2011), surpassing its earlier forecast of 395,000.
In contrast, the company suffered a rise in ordinary expenses to\13.51 billion (up 25.5% y-o-y) due to the payment of higher insurance claims, which weighed down profit. In October 2010, Anicom
launched insurance products with larger coverage, e.g. 70% or 90%
of damages, in addition to its traditional products of 50% coverage.
The introduction of higher coverage products raised the unit priceof insurance premiums. Although higher unit price of premiums
boosted ordinary revenue, it led to higher-than-projected payment
of insurance claims as well, putting the company’s income underpressure. In the year ended March 2012, 90% and 70% coverage
products represented not more than 7 % and 15 % of the total policies written respectively, but claim proceeds related to these highcoverage products appeared to have significantly dented thecompany’s profit.

■Ordinary profit for March 2013 likely to soar
Anicom’s forecast for the year ending March 2013 shows thatits ordinary revenue will increase 15.3% from the same period lastyear to \15.97 billion while ordinary profit will surge by 2.2 times
on a year-over-year basis to \760 million. It expects that year-end
policies in-force will grow to 448,537 (up 52,303 from the end of
March 2012). The monthly net increase in the number of policies
in-force has exceeded 4,000, amounting to 404,972 at the end of
May 2012 (up 4,362 from the previous month end). The company
has posted steady growth in policies in-force recently; we believethat it is on track to achieve its full-year policies in-force projection.
It should be noted that, from August 2012, the company will
discontinue the sale of insurance policies that cover 90% of damages. The company forecasts that its full-year loss ratio will rise to63.1% (compared with 57.3% for a year ago period) presumably

Estimated Share
Price Range
Yen
800￥400 ～￥550

788

26 Weeks Moving Avg.

700

13 Weeks Moving Avg.

600
500
400
340

300
Volume13 Weeks Moving Avg.
Month 7

8

9

10

11

12

1

2

3

100,000
Shares4

5

6

13 WeeksMoving Average

26 WeeksMoving Average

Volume（13 Weeks Average）

￥449

￥519

104,400Shares

due to the lingering impact of the introduction of larger insurance
coverage products. However, since November 2011, the company
has addressed the creation of a more appropriate system to investigate insurance claims and we observe a recent downward
trend in its quarterly loss ratio. Separately, in reaction to a rise in
its loss ratio exceeding the 50% level during the year ended March
2012, the company posted a \58 million gain from the reversal ofcatastrophe loss reserves previously set aside in response to a rising amount of insurance policies in-force. During the year ending
March 2013, it expects to post slightly below \300 million in gains
on the reversal of catastrophe loss reserves as well, indicating
positively its profit.
Until now, catastrophe loss reserves have reined in the rate of
growth in ordinary profit compared with that of ordinary revenue,
but the year ending March 2014 and subsequent years are likely
to see the performance of ordinary profit largely tied to that of ordinary revenue. With rising popularity in pet insurance and otherfactors, the current solid growth in the company’s policies in-force
is expected to remain in the foreseeable future, demonstrating
great potential for its mid-term growth. In light of the above reasons, we are raising our recommendation rating from「HOLD」to「BUY」. Our estimated share price is in the range of ¥400 ~ ¥550.
（Kazuhiro Shiraishi）

Revenue and Earnings Trend（As of June 19）
Ordinary Revenue（Yen Mil）

YoY（％）

Operating Profit

YoY
（％）

Ordinary Profit

YoY
（％）

Net Profit（Yen Mil）（Yen Mil）（Yen Mil）

YoY
EPS（％） （Yen）

2011-3

Past Results

11,107

20.5

－

－

342

17.5

421

21.7

25.8

2012-3

Past Results

13,845

24.7

－

－

337

▲ 1.6

465

10.4

28.2

Company est.

15,970

15.3

－

－

755

124.0

580

24.7

34.9

MS est.

15,970

15.3

－

－

755

124.0

580

24.7

34.9

MS est.

18,000

12.7

－

－

1,300

72.2

800

37.9

48.1

2013-32014-3This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.

（1/3）

Morningstar Equity Research Report 2012.6.21

Anicom Holdings, Inc.（8715・ TSE’s Mothers）

Anicomʼ s seamless network■Company Overview

Anicom is the largest pet insurance group. The company sells its
pet insurance policies primarily through pet shops, allowing its
customers to take out insurance on pets immediately after they
have commenced pet ownership. Further, in collaboration withveterinary hospitals across the country, the company introduced asystem that allows its customers to settle their medical expenses(i.e. payments for medical expenses after the deduction of insurance claims) at the hospital counter by simply presenting the company’s exclusive ‘Animal Health Insurance card’. Pet shops receive
commissions based on the number of acquired policies and animal
hospitals are able to use the company’s medical data management
system as well as expect an increase in patients with the help of
the business alliance with the company. This network provides thecompany with a sizeable edge over its competitors and high barriers to entry.
Claims for pet insurance show the features of ‘small in amount’and ‘frequently filed’. This indicates that, compared with other insurance products, the pace of increase in loss ratio (the percentage
of insurance claims paid to premium income) slows down as thenumber of acquired policies increases.
From May 2011, Asahi Mutual Life Insurance Co. commenced
the sale of the company’s pet insurance products. Furthermore,in March 2012, Sony Assurance Inc., the company’s distribution
agency, acquired approximately 6.5 % of total outstanding sharesin the company. With a rise in its profile as a pet insurer, the company has increased business partners and potential capital tie-up
talks are under way.

■Business Environment and Outlook

Driven by a rise in the number of pet owners and increasing pet
longevity, demand for pet insurance is on an upward trend. Thereare estimated 22 million pets (dogs and cats) in Japan, of whichthose insured account for only 2%.
In the future, the pet insurance participation rate is anticipatedto rise to 10 ~ 20-plus %, suggesting brighter prospects for thegrowth of the pet insurance market. There are approximately
7,000 veterinary hospitals across Japan whose treatments arecovered by pet insurance, and Anicom forms a business partnership with 5,115 hospitals of them (as of the end of March 2012).
Additionally, among 4,000 ~ 5,000 pet shops in the country, thecompany deals with 1,224 shops as its distribution agent (as of theend of March 2012), securing a competitive advantageous positionin the market.
Its medium-term management plan projects that its ordinary
profit for the years ending March 2014 and March 2015 will comein at \1.39 billion and \2.01 billion respectively. We believe thatgrowth in insurance policies in-force together with improving
profitability on the back of a revised product line, including thediscontinuation of 90% coverage products and the rising insurance
policy persistency rate should help the company continue to deliver profit growth in the foreseeable future.

Shareholder Return

Insurance Customer WEB
policyholders
Insurance soliciting
WEB tools(paperless, cashless)Receipt production
system for veterinary
hospitals

AnicomInsurance
Pet
shops

Veterinary
hospitals

・Insurance validity
confirmation system
・Online receipt
requesting system

Agency WEB

Growth in insurance policies in-force（Number）（件）
410,000
390,000
370,000
350,000

351,198

356,088 360,629

365,399 369,652

374,170 378,691

382,988 387,800

392,204 396,234

400,610330,000
310,000
290,000
270,000
250,000
Month 5
6
7
8
9
10
11
12
1
2011
2012
（Created by Morningstar, based on the companyʼs information）

2

3

4

Risk Factors
If the company experiences a worsening loss ratio
reflecting a rise in the morbidity rate of the pets insured
by the company caused by infectious diseases, etc., it may
suffer a decline in its profit in the face of soaring insurance
claims. Also, its earnings will likely come under pressure
from decreasing insurance policies in-force, falling unit
price of premiums, rising agency commission expenses
and other negative factors, in the face of intensified
market competition triggered by the scale expansion in its
competitors or new entrants from different industries orlarge nonlife insurance companies.

（As of June19）■ Dividends■ Shareholder Special Benefits（Date of Right Allotment、End of June, End of December）

Dividend Per Share
Midterm

Year-End

Not Applicable

Annual

2011-3

Past Results

￥0

￥0

￥0

2012-3

Past Results

￥0

￥0

￥0

2013-3Company est.

￥0

￥0

￥0

This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.

（2/3）

Morningstar Equity Research Report 2012.6.21

Anicom Holdings, Inc.（8715・ TSE’s Mothers）（As of June 19）
Competitor Comparison（If the number is better than rivals, it's highlighted by red character）

Anicom Holdings, Inc.

（8715・TSE’s Mothers）
Stock Price
Basic Point

Profitability

Financial
Health（8766・TSE）￥447￥1,583￥1,888

100Shares

100Shares

100Shares

Minimum Investment Amount￥44,700￥158,300￥188,800

PER（E）

3月

3月

3月

12.8

27.4

13.8

0.7
5.1%

2.9%

PBR

1.1

Dividend Yield（E）

－

0.8

15.3%
2.2

1.1%

－

Return to the Black

2.9%

EPS Growth Rate（E）

23.7%

Return to the Black

17.5

Ordinary Profit Ratio（E）

4.7%

2.3%

－

ROE

6.8%

－

0.3%

2.3%

－

1.0%

46.1%
57.3%

11.2%

11.3%

Loss Ratio

80.6%

81.6%

Solvency Margin Ratio

307.2%

502.5%

629.7%

Ordinary Revenue Growth Rate（E）
GrowthTokio Marine Holdings, Inc.

（8630・TSE）

Unit of Investment
Fiscal Year End

Share Price
Indicator

NKSJ Holdings, Inc.

Operating Profit Growth Rate（E）

ROA（Ordinary income/Total
assets）
Capital Adequacy Ratio

As industry peers, we selected two leading nonlife insurance companies – NKSJ Holdings (NHSJHD) and Tokio Marine Holdings (Tokio Marine). With regard toloss ratios and solvency margin ratios for NKSJHD and Tokio Marine, we employed non-consolidated figures for Sonpo Japan Insurance and Tokio Marine &Nichido Fire Insurance respectively.

■GrowthAnicom’s top line continues to expand
as the number of new policies written
increases. Ordinary revenue for the year
ended March 2012 stood at \13.85 billion (up 24.7% year-on-year) However,higher insurance claims paid due to theintroduction of larger coverage insurance products dragged down its ordinary
profit for the same period to just \340
million (down 1.6% y-o-y). On the other
hand, ordinary revenue for the year ending March 2013 is expected to increaseto \15.97 billion (up 15.3% y-o-y). The
company prides itself on its solid distribution structure with the pet shop channel
at the core, having enjoyed firm market
demand on the strength of its ‘Animal
Health Insurance Card’ that allows policy
holders to make insurance claims without
difficulty. We believe the participation
rate of pet insurance is on a firm path ofgrowth and Anicom will achieve higher
revenue this fiscal year on the back of arise in policies written.

■Profitability

Ordinary profit as a percentage of ordinary revenue for the year ending March2013 is estimated to be 4.7%, comparedwith the 2.4% for the year ended March
2012. Anicom plans to discontinue thesale of insurance policies that cover 90%
of damages from August 2012. Despite
this, insurance claims paid for this fiscal
year are likely to increase, and the net
loss ratio (the ratio of net claims paid
combined with loss adjustment expenses
to net premiums written) is expected torise to 63.1% (57.3% last year). Meanwhile, we anticipate that the company’s net expense ratio, the percentage of
operating expenses such as marketingcosts on net premiums written for thisyear to fall to 29.3 % (30.9% last year).
Nonlife insurance companies typicallyreserve a certain percentage of insurance
premiums written to provide for the huge
insurance claims arising from disasters orother catastrophes (aka catastrophe loss
reserves). From the year ended March
2012, the company has begun to reverse
these reserves, contributing to a rise in its
profit.

■Financial HealthAnicom is a company with a soundbalance sheet. The company’s capital
adequacy ratio for the year ended March2012 stood at 46.1%. Although the ratio
fell from the 49.2% for the year ended
March 2011, it is larger than any one of
its industry peers. The company’s loss ratio for the year was 57.3%, which is lower
than its peers. According to the nature ofindustry, claims for pet insurance show
the features of ‘small in amount’ and‘frequently filed’. The company employs
pet shops as its main distribution channel
and provides them with disease-prevention information, which in turn enables it
to rein in risks. Its solvency margin ratio
exceeds the 200% level, which is considered to be sufficient for insurance companies to have enough ability to makepayments for insurance claims.

Morningstar Japan K.K.
Equity Research Group
Research & Analysis Department
Analyst Kazuhiro Shiraishi
03-6229-0739
kshiraishi@morningstar.co.jp

This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.

（3/3）

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Analysis Points■ Analyst Comment■ Company Overview■ Growth

most recent earnings trend and businesscompany is engaged in and how revenue

the company’s forecasts of growthenvironment. It shows the most importantsources are defined. Also on the basis ofrates for sales, operating profit and EPS

information for stock investment suchour research, it discusses what businesses

with competitors, and evaluate past

as evidence for investment decisions,the company will focus on in years tobackground and growth potential of theperspectives on earnings forecasts andcome and how it carries out mid-term

main business.

business prospects. Also to make sure it

business plan.

Each analyst reports and evaluates theis easy to comprehend, we write in 2-4
paragraphs and use bold to emphasize
important texts.

It explains in detail what businesses the■ Business Environment and Outlook

For the current fiscal year, we compare■ Profitability

We compare the company’s forecast of

It discusses current circumstances andoperating margin for the current fiscal

growth potential of the industry to which

year, and return on equity and return on

the company belongs. A comprehensive

asset based on the past year result with

It reports earnings in past two fiscal years,

report on the industry from different

competitors, and evaluate profitability

company forecasts and our forecasts forperspectives is provided through research

trends over the past years.

the current and next fiscal year. We predict

interviews to competitors. Specific figures

earnings based on research as well as pastof the industry data are also introduced.

■ Revenue and Earnings Trend

quarterly earnings trend and analysis bysegments.

■ Risk factors■ Financial Health

We compare the company’s equity ratio,
debt equity ratio (=interest-bearing debt/

It shows the company’s risk factors andequity*100) and current ratio (=current

describes various aspects of risks such as

assets/current liabilities*100) for the pastbusiness, earnings and financials. Typicalfiscal year with competitors, and evaluate

stock market risks are also taken into

financial stability based on the amount ofconsideration.

cash and deposits and cash flow.

This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.