Shared Research Report
2015/5/28

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

Anicom Holdings, Inc. (8715)

Shared Research Report

2015/5/28

Contents
Executive summary ................................................................................................... 3
Key financial data ...................................................................................................... 5
Recent updates ......................................................................................................... 6
Trends and outlook .................................................................................................... 7
Quarterly trends and results ................................................................................... 7
Full-year outlook .................................................................................................. 31
Long-term strategy.................................................................................................. 32
Strategy for the existing business (pet insurance): top-line growth .......................... 34
Business ................................................................................................................. 45
Business description ............................................................................................. 45
Anicom in pet-related markets .............................................................................. 46
Competition ......................................................................................................... 53
Profitability analysis.............................................................................................. 56
Strengths, weaknesses ......................................................................................... 61
Historical performance ............................................................................................. 62
Previous company targets and medium-term plan .................................................. 64
Impact of consumption tax hike and premium changes (FY03/15 est.) ..................... 68
Medium-term plan: FY03/17 recurring profit target of JPY2.2bn .............................. 70
Strategy for the existing business (pet insurance)................................................... 70
Strategy for new businesses ................................................................................. 74
Financial statements ................................................................................................ 76
Income statement ................................................................................................ 76
Balance sheet ...................................................................................................... 77
Cash flow statement ............................................................................................ 78
Other information .................................................................................................... 79
Overview of pet insurance products ....................................................................... 79
Management philosophy ....................................................................................... 83
History ................................................................................................................ 84
Major shareholders .............................................................................................. 85
By the way ............................................................................................................. 86
Company profile ...................................................................................................... 87

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2/88Anicom Holdings, Inc. (8715)

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

Pet insurance 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 thecurrent competitive environment. Anicom is seeking to expand into other business areas while growing its
existing pet insurance operations. By leveraging the knowledge gained in the pet insurance business,Anicom plans to branch out into services not offered by animal hospitals at present, including hereditarydisorder-related advanced medical technology and other types of preventive healthcare.
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 ofInternal Affairs and Communications]; toilet sheets and other consumables: JPY100-200bn). The
company is not considering starting a pet food business since it would not be very profitable. Anicom
instead is likely to branch out into small-animal healthcare and related businesses, and expects to createsynergies with its existing business and the customer base.

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Reduce loss ratio, raise insurance premiums, and respond to theconsumption tax hike to 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% coverageplan 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 andNovember 2014), and began revamping its product lineup (from November 2014 on). This pricing shift
was in part a response to the consumption tax increase from 5% to 8% in April 2014, which was likely tohave 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.
Impact of the consumption tax hike and revision to premiums to boost profits
Underwriting income is not subject to consumption tax. However, taxes are incurred from the majority ofunderwriting 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, or more than half of the JPY733mn booked as recurring profit in FY03/14. It should be notedthat a further rise in the consumption tax to 10% would have a similar impact on the company’s earnings.
Shared Research estimates that the insurance premium change would increase the company’s revenue by
JPY1.8bn in FY03/15. However, JPY790mn of this revenue increase is prepaid premium, treated as aprovision to the policy reserve. Hence, under this analysis the actual revenue increase would be JPY1.1bn.
Factors as the consumption tax hike, a significant increase in contingency reserves, upfront investments
in subsidiaries, and a rise in the loss ratio was expected to offset profits. However, the effects of lowering
the loss ratio and controlling the expense ratio were larger than estimated by both Shared Research andthe company as of end 1H FY03/15.
For FY03/16, Shared Research estimates that there will be a revenue increase of around JPY400mn
compared with FY03/15. In terms of profit, the impact on the policy reserve from a large increase inprepaid premium is expected to largely taper off, leading to an expected reduction in provisions to policy
reserve. Shared Research expects a large portion of the revenue increase will contribute to earnings as
earned premiums.
New plan limiting hospital visits and stays from November 2014; neutral impact on earnings
To reduce the loss ratio, the company started selling a new plan that limits veterinary hospital visits andlength of stay, and introduced a system where premium payments depend on the pet’s health. Only the
new plan is available with contracts from November 2014 (existing policyholders can extend theircontracts under their previous plans). So far, only discounts depending on the pet’s health have been
instituted, with extra premiums depending on the animal’s conditions postponed. Premiums under the
new plan are about 8% lower than previous plans. (The company made a second revision to premiums forcustomers on existing plans, raising payments by 6% on average).
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. The discontinuation of an automatic 5% discount forpolicy renewal from June 2015 could be favorable for earnings.

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Anicom Holdings, Inc. (8715)

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

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

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

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

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

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

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

FY03/14Cons.
18,36613.5%
18,087108
171

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

Recurring expenses
YoY
Underwriting expenses
Investment expenses
Operation and administrative expenses

7,067
0
2,950

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

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

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

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

15,34813.6%
11,4503,632

17,63314.9%
13,44818
3,982

21,38721.3%
15,92021
4,905

23,5009.9%-

25,7009.4%-

28,100
9.3%-

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%

2,100
68.0%
8.2%

2,600
23.8%
9.2%

3,100
19.2%
9.9%

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

178
2.4%

-142
-1.3%

346
3.8%

421
21.7%
3.8%

465
10.5%
3.4%

640
37.6%
4.0%

447
-30.2%
2.4%

829
85.5%
3.7%

1,446
74.4%
5.6%

1,808
25.0%
6.4%

2,172
20.1%
7.0%

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

4,054
107.1
92.9
1,512.0

4,113
103.1
92.6
1,601.9

16,646
28.2
25.7
424.8

17,169
38.0
35.2
454.6

17,293
26.0
24.1
477.0

17,842
47.4
44.4
519.6

17,842
81.1-

17,842
101.3-

17,842121.7-

FY03/16 FY03/17 FY03/18
Cons.
Cons.
Cons.
25,60028,30031,200
13.1%
10.5%
10.2%
24,521
26,73829,099
487
550
600
593
1,012
1,501

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

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---

Shareholders' equity
Valuation and transaction adjustments
Minority interests
Total shareholders' equity (net assets)
Total liabilities and shareholders' equity
Cash Flow Statement (JPYmn)
Operating Cash Flow
Investment Cash Flow
Financing Cash Flow
Financial Ratios
ROA
ROE
Equity ratio
Net loss ratio
Net expense ratio
Combined 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

9,272
-1
9,270
22,337

-

-

-

162
-368
-

737
-1,367-5

1,608-2,875
1,590

1,792-1,93638

1,879-1,04428

1,507-1,85285

2,009-2,05260

3,094-2,963
135

-

-

-

55.3%
-

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

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

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

2.3%
6.8%
46.0%
57.3%
30.9%
88.2%
307.2%

5.2%
8.6%
46.3%
63.7%
28.5%
92.2%
281.3%

4.1%
5.6%
44.3%
62.8%
27.3%
90.1%
295.1%

6.1%
9.5%
41.5%
59.3%
28.4%
87.7%
-

14.5%
-

+YoY
-

+YoY
-

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

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5/88Anicom Holdings, Inc. (8715)

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Recent updates
Highlights
On May 28, 2015, Shared Research updated the report after interviewing management.

On May 8, 2015, the company announced full-year earnings results for FY03/15.

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 werebooked as deferred assets in accordance with Article 113 of the Insurance Business Act. The company has
been applying the straight-line method over ten years until FY03/17 (meaning deferred assets for the endof 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 the company expects to book a profit surplus, even after amortization of deferred expenses per
Article 113. Also, rather than weigh 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 in deferred 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 to insurance underwriting improving more than expected.
Compared to other industries, insurance companies have significant initial costs. Under Article 113 Act 1 ofthe Insurance Business Act, business expenses for the first 5 years after beginning operations may berecognized as assets, amortized over a ten-year period using the straight-line method.

For corporate releases and developments more than three months old, see the News andtopics section.

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Anicom Holdings, Inc. (8715)

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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

FY03/13
Q1
Q2
Q3
Q4
Q1
3,846 4,093 3,848 4,399 4,394
20.2% 23.3%
8.6% 16.3% 14.2%
3,774 4,025 3,771 4,211 4,327
39
32
38
151
30
31
31
32
19
4
7
1
6
133
26
32
37
39
35
36

FY03/14
FY03/15
Q2
Q3
Q4
Q1
Q2
4,455 4,614 4,903 5,163 5,499
8.8% 19.9% 11.5% 17.5% 23.4%
4,389 4,558 4,813 5,012 5,267
20
19
39
98
127
6
4
4
51
51
14
14
35
47
75
46
37
52
52
106

Q3
5,823
26.2%
5,557
174
85
90
91

Q4
6,153
25.5%
5,897
123
102
20
133

% of FY FY Est.
102.1% 22,179

FY03/15

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

3,614 3,826 3,831 4,077 4,280 4,269 4,502 4,582 4,784 5,205
10.1% 15.5% 11.3% 17.4% 18.4% 11.6% 17.5% 12.4% 11.8% 21.9%
2,609 2,869 2,851 3,121 3,208 3,248 3,475 3,517 3,585 3,960
13
5
4
2
933
886
904
909 1,010
968
983 1,021 1,148 1,193
71
72
75
46
48
47
44
44
46
50

5,419
20.4%
4,199
7
1,159
54

5,979
30.5%
4,176
8
1,405
390

102.1%

Recurring profit
YoY
RPM
Net profit
YoY
NPM

231
267
18
321
113
187
112
- 3,237.5% -81.6%
2.9% -51.1% -30.0% 522.2%
6.0%
6.5%
0.5%
7.3%
2.6%
4.2%
2.4%
183
207
36
214
68
118
65
- 10,250.0% -77.4% -45.5% -62.8% -43.0% 80.6%
4.8%
5.1%
0.9%
4.9%
1.5%
2.6%
1.4%

321
379
293
404
- 235.4% 56.7% 260.7%
6.5%
7.3%
5.3%
6.9%
196
251
206
280
-8.4% 269.1% 74.6% 330.8%
4.0%
4.9%
3.7%
4.8%

174
-45.8%
2.8%
92-53.1%
1.5%

101.5%

20.8%

20,947

18.8%

1,232
68.1%
5.6%
100.9%
822
83.7%
3.7%

Metrics
Total contracts
New contracts
Pet shops
General agents
Pet shop & General agents
Hospitals accepting anicom
YoY
Total contracts
New contracts
Pet shops
General agents
Pet shop & General agents
Hospitals accepting anicom

24,777 24,306 24,523 25,898 28,599 27,841 26,024 26,706 26,398 25,249
14,850 14,679 14,955 16,888 19,096 18,433 17,543 18,930 18,682 17,867
9,927 9,627 9,568 9,010 9,503 9,408 8,481 7,776 7,716 7,382
4,410 4,464 4,530 4,752 4,862 4,892 4,865 4,924 5,009 5,423
5,176 5,220 5,267 5,349 5,408 5,459 5,506 5,599 5,630 5,650

24,841
18,372
6,469
5,608
5,696

25,14020,086
5,054
5,804
5,773

14.8% 13.9% 13.1% 12.7% 13.1% 13.5% 13.4% 13.1% 11.7% 10.1%-6.9% -1.4% -1.0%
3.6% 15.4% 14.5%
6.1%
3.1% -7.7% -9.3%-13.2% -3.1% -1.3% 11.6% 28.6% 25.6% 17.3% 12.1% -2.2% -3.1%
4.6%
1.4% -0.5% -8.7% -4.3% -2.3% -11.4% -13.7% -18.8% -21.5%
11.8%
9.1%
9.9% 15.9% 10.2%
9.6%
7.4%
3.6%
3.0% 10.9%
6.7%
4.9%
4.9%
4.6%
4.5%
4.6%
4.5%
4.7%
4.1%
3.5%

9.0%
-4.5%
4.7%
-23.7%
15.3%
3.5%

7.9%
-5.9%
6.1%
-35.0%
17.9%
3.1%

8.9%
-4.7%

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

65.5% 73.4% 68.1% 63.1% 69.0% 69.5% 66.3% 62.1% 66.7% 68.9% 64.2% 58.7%
31.6% 29.2% 29.1% 29.3% 30.5% 28.3% 27.7% 27.9% 28.7% 28.3% 26.8% 29.2%
97.1% 102.6% 97.2% 92.4% 99.5% 97.9% 93.9% 90.1% 95.4% 97.2% 91.0% 87.9%

65.5%
28.4%
93.9%

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

2,609
2,157
146
204
35
65
201
-135

P rov ision for reserv e for outstanding losses and claims

Provision for underwriting reserves
Prepaid premium
Reserve for casualty
Revised earnings (*)
YoY

408,761 421,197 433,345 446,414 462,343 477,952 491,452 504,969 516,618 526,439 535,906 544,815

95

187.9%

Recurring profit(JPYmn)Recurring profit
Change in contingency reserve
Recurring profit minus change in contingency reserve

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

2,869
2,398
143
202
191
-276
92
-369

2,851
2,519
144
213
-48
234
142
92

3,121
2,391
148
234
-38
386
251
135

3,208
2,427
156
255
232
136
248
-111

-98
107
315
- 282.1% 11.3%

-2
-

3,248
2,866
176
252
-83
36
150
-115

FY03/14

Q1
113
111
2
69.0%
30.5%
99.5%

3,475
2,748
166
251
-7
319
174
146

3,517
2,652
162
271
7
425
270
153

58
245
427
- 129.0% 35.6%

3,585
2,844
171
296
101
171
335
-163

3,960
3,092
188
303
100
277
363
-86

4,199
3,088
193
321
43
554
376
177

4,176
3,125
189
349
-100
614
425
188

116
26
- -55.2%

377
53.9%

504
18.0%

FY03/15

Q2
187
115
72
69.5%
28.3%
97.9%

Q3
112
-146
258
66.3%
27.7%
93.9%

66.7%
28.7%
95.4%

88.7% 30,000

101.3%

5,700

1.8%

FY03/15

Q4 Q1 Act. Q2 Act.
321
379
293
-153
163
86
474
216
207
62.1%
27.9%
90.1%

99.1% 550,000
97.7% 104,000
101.4% 74,000

68.9%
28.3%
97.2%

Q3 CE

Q4 CE

404

174

-177

-188

581

362

64.2%

58.7%

26.8%

29.2%

91.0%

87.9%

Q1 Est. Q2 Est. Q3 Est. Q4 Est.
311
-67
86
471
285
-27
-172
-182
26
-40
258
653
68.1% 71.6%
30.2% 29.8%
98.3% 101.4%

68.3%
28.0%
96.3%

61.7%
27.4%
89.1%

Source: Company data
Adjusted profit was calculated based on the formula used prior to FY03/15: recurring profit ± impact of contingency reserve ± investment income/expense ± other revenue/expense.
Q4 FY03/15 figures were calculated by subtracting cumulative Q3 results from full-year company forecasts.
Figures may differ from company materials due to differences in rounding methods.

FY03/15 results (out May 8, 2015)
Recurring revenue: JPY22.6bn (+23.3% YoY)
Recurring expenses: JPY21.4bn (+21.3%)

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Anicom Holdings, Inc. (8715)

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Recurring profit:
Net income:

JPY1.3bn (+70.5%)
JPY829mn (+85.5%)

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

Q2
Q1
FY03/13Q3

Q4Recurring profit (JPYmn)

Q1
Q2
FY03/14

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 risk balance.
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 and business 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 profitabilityof subsidiaries. These measures, which had been originally planned for FY03/16, were carried out earlybecause the company had strong earnings.

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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
FY03/13Q3Q4

E/I loss ratio

Q1
Q2
FY03/14

Q3

Q4

Q1
Q2
FY03/15

Q3

Q4
Est.

Q1
FY03/15

Q3

Q4

Earned premiums expense ratio

Source: Company data

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

Q2

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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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

Q2

New contracts

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 is developing new products in a bid to gain a competitive edge. Fourth, thecompany 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 affectpolicies until May 2015. We also expect the loss ratio to fall as products with limits on the number andlength of hospital visits account for a rising proportion of the total. With previous products, risk tended toincrease for older animals, but in the company’s view, the loss ratio will gradually fall across the board.
According to the company, it will continue implementing these measures 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 gradually showing 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 theother 50% invested in domestic markets (mainly REITs and bonds). Assuming there are no significant
changes to market conditions, interest and dividend 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 thisbusiness. The company is also promoting the cloud-based medical records-management system Anirese F
to new hospitals and increasingly encouraging existing hospitals to switch over from old products. Thissystem 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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2015/5/28

Possibility of dividend payments for FY03/16
Anicom, a holding company that owns insurance businesses, must meet the following conditions under
corporate and insurance laws in order to pay dividend: 1) the parent company has retained earnings; 2)Anicom Insurance, Inc., a subsidiary, 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
through FY03/18. 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)Source: Company data

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

Q3 FY03/15 results (out February 6, 2015)
Recurring revenue: JPY16.5bn (+22.4% YoY)
Recurring expenses: JPY15.4bn (+18.1%)
Recurring profit:
JPY1.1bn (+161.2%)
Net income:
JPY737mn (+193.4%)

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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
FY03/12

Q3

Q4

Q1
Q2
FY03/13

Contracts ('000)

Q3

Q4

Q1
Q2
FY03/14

Q3

Recurring profit (JPYmn)

Q4

Q1
Q2
FY03/15

Q3

Q4
CE

40%

Combined ratio (right axis)

Source: Company data

Overview
Loss ratio improves; results exceed previous year and beat forecasts; full-year target raised
Recurring revenue and recurring profit for cumulative Q3 FY03/15 exceeded company forecasts thanks to
an improvement in the loss ratio. Shared Research believes that the earnings exceeded the company’s
revised target for 2H. Recurring profit totaled JPY1.1bn, an increase of 161.2% YoY.
Q3 FY03/15 earnings
Robust performance during Q3 FY03/15 was partly due to increased contract volume and an improvementin the contract renewal rate following a decline in Q2. The revenue base in the pet insurance underwriting
business also improved as changes to products and policies in June 2014 had a greater impact than
expected, despite the consumption tax hike affecting the loss and expense ratios. The contribution frominvestment earnings also totaled JPY399mn, 5.8x the amount for Q3 FY03/14.
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
FY03/12Q3

E/I loss ratio

Q4

Q1
Q2
FY03/13

Q3

Q4

Q1
Q2
FY03/14

Q3

Q4

Q1
Q2
FY03/15

Q3

Q4
Est.

Earned premiums expense ratio

Source: Company data

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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
Est.

Gains on the sale of marketable securities

Source: Company data

Sales increase, loss ratio improvement eyed; full-year target retained
Anicom revised its full-year FY03/15 forecasts when the company released its 1H earnings because theresults had significantly exceeded the target. Performance for 2H is assumed to remain on par with initial
forecasts. However, Shared Research believes that the Q3 results were also better than the company had
expected.
In Q4, the following factors are likely to improve the company’s operations: The acquisition of insurance contracts may continue to increase.
 The company’s efforts to improve the loss ratio may continue into Q4, and more quickly than initiallyestimated.
 Firm revenue from investments.
 An upward trend has followed the dip in the insurance renewal rate after the revision to premiums inJune 2014.
For 2H, Anicom plans to frontload investments in R&D and sales promotion. Shared Research forecaststhat the R&D investments are related to President Komori’s goal—controlling hereditary diseases innewborn animals and growing the distribution of healthy newborn pets—and that these measures maylead to expansion in the pet and pet insurance markets.

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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

Approval of insurance limited to hospitalization and surgery boosts competitivenessThe company also announced that it has obtained approval from the government’s Financial Services
Agency to sell pet insurance that covers only hospitalization and surgery.
Expected increase in competitiveness and contract count; timing, details TBC
Anicom has yet to disclose the details and launch timing of this product. Shared Research understands
that the company is probably examining its impact on existing products, and how it will increase
competitiveness. In our view, if the new product is launched in FY03/16, it will increase the company’s
range of products and prices, helping it respond to a wider range of customer demand, and thus boosting
competitiveness and leading to an increase in new contracts.
Existing products are health insurance; new product may be accident or property insurance
Existing products bear some similarities to health insurance, in that they cover all risks related to thehealth of the animal. The new product may be somewhat similar to accident or property insurance, as itcovers only the most significant risks: hospitalization and surgery.
Lower price than existing products
Shared Research expects the new product to fall at a lower price point than existing products. For
example, at ipet Insurance Co., Ltd.—a subsidiary of Dream Incubator Inc. (TSE1: 4310)—the annual
premium on a 70% compensation policy with a wide coverage is JPY32,740 for a Maltese under one year
old; the annual premium on a 90% compensation policy covering only surgery and hospitalization is
JPY12,380 for a dog of the same breed and age. There are differences between the two companies’
products, but Shared Research nevertheless expects the new product to be priced lower than Anicom’s
existing products.

Recurring revenues
It appears that the company’s pace of acquisition and retention was affected by changes to pricing ofpolicies implemented in June 2014, but growth in policies progressed according to plan. The number ofpolicies totaled 535,906 (+9.0% YoY). Anicom has been strategically reducing the number of contracts
sold through insurance agencies. However, the number of new contracts sold through pet shops increased

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4.7% YoY during Q3, the latest three-month period.
The renewal rate, which declined in Q2 after the company revised premium payments in June, recovered
during Q3. For the cumulative Q3 period, the renewal rate was 88.6%, slightly above the company’s
88.4% forecast. (The rates for October, November, and December were 88.8%, 89.2%, and 89.1%,
respectively.)
Revenue from investments
Revenue from investments remained robust in Q3, as in 1H, increasing by JPY330mn during the
cumulative Q3 period and thus contributing to recurring revenue. While watching its solvency margin ratio
carefully, Anicom seeks low-risk investments. Anicom used to invest mainly in domestic bonds. However,the company has raised the ratios of domestic real estate investment trusts (REITs) and domestic stocks,
and achieved higher yields and better investment revenue.
Loss ratio
The E/I loss ratio during the latest three-month period was 64.2%, a 2.1pp improvement over the 66.3%
seen during Q3 FY03/14 and an improvement from the company forecast of 66.4%. Shared Research
believes that the improvements are largely attributable to ongoing initiatives to improve the loss ratio, thediscontinuation of the 90% coverage plan, stronger evaluation procedures for both claims andunderwriting, and pricing changes that took place in June 2014. In addition, the company introduced in
November 2014 a product that limits hospital visits and stays, as well as a system that links premium
payments with the health of the pets.
These efforts have cumulative effects. Shared Research believes that the loss ratio will continue toimprove as a result.
Expense ratio
The expense ratio for the latest three-month period was 26.8%, a 0.9pp improvement from the 27.7%
seen during Q3 FY03/14 and an improvement over the company’s forecast of 27.9%. According to thecompany, improvements are attributable to economies of scale from increased sales, and continuous
improvements in efficiency. The company expects that the ratio will remain below 30% as it strengthens
its sales efforts.
Expenses have also increased as the company focuses on its ability to win new contracts, a core aspect ofits management policy for FY03/15. In a bid to win more contracts at pet shops, the company has spent
more on promotions, marketing, and other agency-related expenses. According to the company, these
efforts are already bearing fruit, and these expenses will remain high in Q4. Yet the overall expense ratio
is falling, perhaps indicating that Anicom’s operations are becoming more efficient.
Recurring profit
Recurring profit was JPY1.1bn, a significant improvement from JPY412mn a year earlier. This wasprimarily due to an increase in the number of policies and improvements in the loss and expense ratios, aswell as the effects of changes in premiums that took place in June.
Adjusted profit: An adjusted profit formula used by Anicom to measure the substantive profits from the pet
insurance underwriting business. Calculated as: recurring profit ± impact of contingency reserve ± operating
expenses other than insurance underwriting and general administration costs± investment income/expense± other revenue/expense.

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Key initiatives for FY03/15 and developments for cumulative Q3Stronger loss ratio controls
Stronger controls on the loss ratio have been an ongoing theme for the company since FY03/14, and it
remained an important initiative during Q3 FY03/15. Through proactive controls, the company was able toeffect significant improvement in the loss ratio. The composite ratio, which is the total of the E/I loss ratio
and expense ratio in the earned premiums business, also improved by 2.9pp, to 91.0% during the latest
three-month period, contributing to further improvement in the company’s profit structure.
Entry and exit measures: In particular, measures to strengthen the insurance payment systemsignificantly improved the loss ratio. Anicom is improving its screening prior to underwriting for each sales
channel, as part of its focus on customers buying new insurance, or “entry measures.” As part of the focus
on customer claims—“exit measures”—it is improving the steps before and after insurance payments byconducting surveys in cooperation with veterinary hospitals regarding whether claims are properly filed.
Introduction of new plan and new premium system: The company in November 2014 started
selling a new coverage plan that limits hospital visits and stays, and introduced a system that links
premium payments with the health of the pets. The company expects the new system to enhance fairness
among policyholders and control frequent requests for insurance benefits from customers with high-risk
contracts. Initiatives that began 2012 may allow the company to achieve its long-term target of a 55-60%
loss ratio.
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 newpremium system, where discounts depend on the health of the animal. Premiums under the new plan arearound 8% lower than previous plans (a revision to premiums 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 be favorable for earnings.
E/I loss ratio
Jan- Sep 2014: suspend online sales of 70%
compensation plan

75%
70%
65%
60%
55%
50%
45%

Oct 2010: sales of 90%
compensation product begin

Q1
FY03/11Q3

Q1
FY03/12Aug 2012: sales of 90%
compensation product halted(Jul 2013: terminated 90%
coverage product)

Q3

Q1
FY03/13

E/I loss ratio (init. est.)

Jun 2014: changes topremiums

Aug 2013: limit changes incompensation from 50% to70%

Oct 2013: extend period fromonline aplication to coverage start

Q3

Q1
FY03/14Q3

Q1
FY03/15

November 2014:
introduce system
limiting number of visits
and length of stayQ3

E/I loss ratio

Source: Company data
Q4 FY03/15 figures are estimates.

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Capturing new contracts
Concerning insurance underwriting revenue, the company focused on enhancing its ability to capture newcontracts, and strengthening its contract renewal rate. Through steady acquisition of new contracts and ahigh renewal rate, the number of policies as of end Q3 FY03/15 was 535,906, up by 30,937 (+6.1% YoY)
from end FY03/14. New contracts came primarily from pet shops acting as agencies, and were in line withcompany estimates. The company forecasts that it will have in excess of 550,000 policies by end FY03/15.
Shared Research notes that Anicom is beginning to reap the rewards of spending on promotions,marketing, and other agency-related expenses, plus efforts to improve its salesforce.
Monthly new contracts('000)
12
10
8
6
4
2
0

Apr 11

Apr 12
New contracts (pet shop)

Apr 13New contracts (agencies)

Apr 14
Net increase

Source: Company data

Strategic reduction of online contracts: The number of policies sold during cumulative Q3 was
76,488, down 7.3% YoY. Contracts through pet shops were down 0.3% and those through agencies were
down 21.3%. The larger decrease in contracts through agencies came as the company strategicallyreinforced screening of applicants for policies sold online to reduce its high loss ratio. According to thecompany, these measures are meeting with some success.
New contracts through agencies appear to have bottomed out at 1,610 in January 2014, partly because
improvements to the online screening process begun in October 2013 wound down (the company also
suspended online sales of 70%-compensation insurance products between January and September 2014).
The company has made efforts to improve this channel since October 2014, including restarting sales of
70%-compensation insurance products. But these efforts have yet to impact results, with new contracts
falling on a monthly basis in November, December, and January.
Competitors such as au insurance Co., Ltd. (subsidiary of KDDI Corporation [TSE1: 9433]) who focus on
online sales have also released low-price products covering only hospitalization and surgery. According to
the company, it may be able to win new contracts from customers who select these types of policies.
Shared Research expects the company to take steps to win such contracts, such as rolling out new
products.

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

Q1
FY03/12

Q2

Q3

Q4

Q1
FY03/13

Q2

New contracts

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

Strengthening sales via pet shops: The number of insurance policies sold through pet shops
remained steady at around 18,000 per quarter. However, both sales growth and the number of agent pet
shops appear to be levelling off. The company recognizes this trend and will focus on acquiring newcontracts in FY03/15.
Anicom has tackled reinforcing sales through pet shops and made an effort to raise the ratio of policies
sold at pet shops to 70%. However, the current ratio is far below targets. The chart below shows thenumber of new insurance policies sold per pet shop. Although the number is stable at about four per
agent each month, it has not shown significant growth. In January 2015, however, the number rose to 4.6
contracts per month, indicating possible future growth.
The company is focusing on strengthening operations at agencies by persuading major agents to switchfrom other insurers to Anicom, developing new products, and strengthening sales at branches in easternJapan (opened in Sendai in April 2014) central Japan (opened in Okayama in October 2014). The
company is beginning to reap the rewards of spending on promotions, marketing, and otheragency-related expenses, plus efforts to improve its salesforce. In Q3 (October-December), the numberof new contracts sold at pet shops began to increase year-on-year, growing 4.7%. Sales of contracts
through this channel continued to trend upward in January, increasing 3.3% YoY.
New contracts sold through pet shops
7,000

50%

6,000

40%

5,000

30%

4,000

20%

3,000

10%

2,000

0%

1,000

-10%

0

Apr 11

Apr 12

Apr 13New contracts through pet shops

Apr 14-20%

YoY (right axis)

Source: Company data

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New contracts sold per pet shop
6

20%
15%

5

10%
4

5%
0%

3

-5%

2

-10%
1

-15%
-20%

Apr 11

Apr 12

Apr 13New contracts through pet shops/agencies (Avg. of current and previous months)

Apr 140

YoY (right axis)

Source: Company data

Devoting resources to new businesses
An ongoing initiative is committing resources to new areas of business. Newly consolidated subsidiary,
Japan Animal Specialty Medical Institute, began operations in April 2014. The company also opened
JASMINE Animal Cardiovascular Disease Center on August 1, 2014 in Tsuzuki-ku, Yokohama. The newsubsidiary’s sales in 1H FY 03/15 were JPY45mn (JPY11mn in Q1 and JPY34mn in Q2). Both the volume
and cost of surgeries appear to have surpassed Anicom’s estimates. In 1H, the company forecast full-yearsales of JPY120mn to JPY130mn, but in Q3, it has raised its outlook to about JPY200mn. As of Q3, thecompany appears to have already begun making a profit on a pre-depreciation basis.
Concerning Anirese F, a next generation medical records management system utilizing cloud technology
developed by Anicom Pafe, the company continued to make improvements and strengthened both its
development and sales structures.
For 2H, Anicom plans to frontload part of the planned 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 thatthese measures may lead to expansion in the pet and pet insurance markets.

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 is developing new products in a bid to gain a competitive edge. Fourth, thecompany 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 affectpolicies until May 2015. We also expect the loss ratio to fall as products with limits on the number andlength of hospital visits account for a rising proportion of the total. With previous products, risk tended toincrease for older animals, but in the company’s view, the loss ratio will gradually fall across the board.
According to the company, it will continue implementing these measures through FY03/17, although
Shared Research thinks maximum effect may be seen in FY03/16.

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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 gradually showing 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 theother 50% invested in domestic markets (mainly REITs and bonds). Assuming there are no significant
changes to market conditions, interest and dividend 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 thisbusiness. The company is also promoting the cloud-based medical records-management system Anirese F
to new hospitals and increasingly encouraging existing hospitals to switch over from old products. Thissystem 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.

1H FY03/15 results (out November 6, 2014)
Earnings results for 1H FY03/15 were as follows:
Recurring revenue:
JPY10.7bn (+20.5% YoY)
Recurring expenses: JPY10.0bn(+16.8%)Recurring profit:
JPY672mn(+123.7%)
Net income:
JPY457mn(+145.4%)
Quarterly earnings

Source: Company data

Summary
Improved loss ratio, results exceed previous year and forecasts; full-year forecasts revised
Recurring revenue and recurring profit for 1H FY03/15 exceeded company forecasts, with recurring profit
exceeding forecasts by 176.2% due to progress in improving the loss ratio. As a result, Anicom made an
upward revision to its full-year FY03/15 earnings forecasts.

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1H FY03/15 earnings
Factors behind the robust performance in 1H FY03/15 are as follows: increased contract volume,
quicker-than-expected recovery in the pet insurance underwriting business despite the consumption tax
hike affecting the loss and expense ratios, and contribution from investment earnings of JPY225mn, 4.5
times the figure for 1H FY03/14.
E/I loss ratio (JPYmn)

Source: Company data

Revenue from investments (JPYmn)

Source: Company data

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 is assumed 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 initiallyestimated; Japan Animal Specialty Medical Institute (JASMINE), a subsidiary that started full-fledged operations inAugust 2014, is demonstrating robust performance; An upward trend has followed the dip in the insurance renewal rate after the revision to premiums inJune.
For 2H, Anicom plans to frontload investments in R&D and sales promotion. Shared Research forecasts

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that the R&D investments are related to President Komori’s goal—controlling hereditary diseases innewborn animals and growing the distribution of healthy newborn pets—and that these measures maylead to expansion in the pet and pet insurance markets.
Monthly rates of new and renewed contracts

Source: Company data

Recurring revenues
It appears that the company’s pace of acquisition and retention was affected by changes to pricing ofpolicies implemented in June 2014, but growth in policies progressed according to plan. The number ofpolicies as of end 1H FY03/15 was 526,439 (+10.1% YoY). The effect of the aforementioned pricing
change saw a decrease of 1.5pp in policy retention, leading to an average retention rate of 88.3% in 1H.
The company revised its full-year FY03/15 retention forecast upward by 0.5pp to 88.4%.
Revenues from investments remained robust in Q2, as in Q1, increasing by JPY175mn during 1H and thus
contributing to recurring revenues. While watching its solvency margin ratio carefully, Anicom seeks
low-risk investments. The company used to invest mainly in domestic bonds, but by lifting the ratios ofdomestic real estate investment trusts (REITs) and domestic stocks, it was able to enjoy higher yields,
resulting in the rise in investment revenues in 1H.
Loss ratio
The E/I loss ratio during 1H was 67.8%, a 1.6pp improvement from the 69.4% seen during 1H FY03/14,
and an improvement over company forecasts both for Q1 (forecast: 68.1%, result: 66.7%) and Q2(71.6%, 68.9%). According to the company, improvements are largely attributable to ongoing initiatives
to improve the loss ratio, ceasing sales of the 90% coverage plan, stronger evaluation procedures for bothclaims and underwriting, and the effects of pricing changes in June 2014.
Expense ratio
The expense ratio during 1H was 28.5%, a 0.9pp improvement from the 29.4% seen during Q1 FY03/14,
and an improvement over company forecasts both for Q1 (forecast: 30.2%, result: 28.7%) and Q2(29.8%, 28.3%). According to the company, improvements are attributable to economies of scale fromincreased sales, and continuous improvements in efficiency.
Recurring profit
Recurring profit was JPY672mn, a significant improvement from JPY300mn for 1H FY03/14. This wasprimarily due to an increase in the number of policies and improvements in the loss and expense ratios.
Adjusted profit was JPY354mn, a significant improvement from JPY95mn during 1H FY03/14.

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Adjusted profit: An adjusted profit formula used by Anicom to measure the substantive profits from the pet
insurance underwriting business. Calculated as: recurring profit ± impact of contingency reserve ± operating
expenses other than insurance underwriting and general administration costs± investment income/expense± other revenue/expense.

Key initiatives and environment during 1H FY03/15
Stronger loss ratio controls
Stronger controls on the loss ratio have been an ongoing theme for the company since FY03/14, and it
remained an important initiative during 1H FY03/15. Through proactive controls, the company was able toeffect significant improvement in the loss ratio. The composite ratio, which is the total of the E/I loss ratio
and expense ratio in the earned premiums business, also improved by 3.6pp, to 96.3%, contributing tofurther improvement in the company’s profit structure.
In particular, measures to strengthen the insurance payment system significantly improved the loss ratio.
The company is trying to improve steps before and after insurance payments by conducting surveys incooperation with veterinary hospitals regarding whether claims are properly filed.
Introduction of new plan and new premium system: The company started selling a new coverageplan that limits hospital visits and stays, and introduced a system of insurance premiums that depend on
the health of the pet. The company expects the new system to enhance fairness among policyholders andcontrol frequent requests for insurance benefits from customers with high-risk contracts. Effevtive
initiatives starting from 2012 has allowed the company to achieve its long-term target of a 55-60% loss
ratio.
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 newpremium system, where discounts depend on the health of the animal. Premiums under the new plan arearound 8% lower than previous plans (a revision to premiums 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 be favorable for earnings.

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E/I loss ratio and cost ratio

Source: Company data

Capturing new contracts
Concerning insurance underwriting revenue, the company focused on enhancing its ability to capture newcontracts, and strengthening its contract renewal rate. Through steady acquisition of new contracts and ahigh renewal rate, the number of policies as of end 1H FY03/15 was 526,439, up by 21,470 (+4.3% YoY)
from end FY03/14. New contracts came primarily from pet shops acting as agencies, and were in line withcompany estimates. The company forecasts that it will have in excess of 550,000 policies by end FY03/15.
Monthly new contracts (‘000)

Source: Company data

Strategic reduction of online contracts: The number of policies sold during 1H was 51,647, down
8.5% YoY. Contracts through pet shops were down 2.6% and those through agencies were down 20.2%.
The larger decrease in contracts through agencies came as the company strategically reinforced
screening of applicants for policies sold online to reduce its high loss ratio.

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Breakdown and YoY of new contracts

Source: Company data

Strengthening sales via pet shops: The number of insurance policies sold through pet shops
remained steady at around 18,000 per quarter. However, both sales growth and the number of agent pet
shops appear to be levelling off. The company recognizes this trend and will focus on acquiring newcontracts in FY03/15.
Anicom has tackled reinforcing sales through pet shops and made an effort to raise the ratio of policies
sold at pet shops to 70%. However, the current ratio is far below targets. The table below shows thenumber of new insurance policies sold per pet shop. Although the number is stable at about four per
agent each month, it has not shown significant growth.
The company is focusing on strengthening operations at agencies by persuading major agents to switchfrom other insurers to Anicom, developing new products, and strengthening sales at branches in easternJapan (opened in Sendai in April 2014) central Japan (opened in Okayama in October 2014).

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Pet shop agencies and new contract volume (stores, contracts)

Source: Company data

New contracts per pet shop agencies

Source: Company data

Devoting resources to new businesses
An ongoing initiative is committing resources to new areas of business. Newly consolidated subsidiary,
Japan Animal Specialty Medical Institute, began operations in April 2014. The company also opened
JASMINE Animal Cardiovascular Disease Center on August 1, 2014 in Tsuzuki-ku, Yokohama. The newsubsidiary’s sales in 1H FY 03/15 were JPY45mn (JPY11mn in Q1 and JPY34mn in Q2). Both the volume
and cost of surgeries appear to have surpassed Anicom’s estimates. The company forecasts annual salesof JPY120mn to JPY130mn and about zero profit before depreciation and amortization.
Concerning Anirese F, a next generation medical records management system utilizing cloud technology
developed by Anicom Pafe, the company continued to make improvements and strengthened both its
development and sales structures.
For 2H, Anicom plans to frontload part of the planned 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 thatthese measures may lead to expansion in the pet and pet insurance markets.

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Q1 FY03/15 Results (out August 6, 2014)
Earnings results for Q1 FY03/15 were as follows:
Recurring revenue: JPY5.2bn (+17.5% YoY)
Recurring expenses: JPY4.8bn (+11.8%)
Recurring profit:
JPY379mn (+233.9%)
Net income:
JPY251mn (+270.1%)

Q1 FY03/15 details
During Q1 FY03/15, the company’s revenue structure for the pet insurance underwriting business showedsteady improvement. The number of policies for pet insurance posted strong growth, and although theconsumption tax hike had an impact on the loss and expense ratios, the recovery was quicker than initialexpectations. The company appears to be making steady progress toward its Q2 targets.
Recurring revenue
Investment earnings and contributions from subsidiaries, as well as a higher number of policies, led to a
17.5% YoY revenue increase. The impact of premium changes that took place in June was within
expectations. For Q1, the number of newly signed contracts and the total number of contracts were in linewith the forecast. The company stated that its most recent performance was also strong.
Investment earnings increased by JPY68mn from a year earlier to JPY98mn due to the sale of securities
and a significant gain in interest and dividend income.
Loss ratio
The E/I loss ratio during Q1 was 66.7%, a 2.3pp improvement from the 69.0% seen during Q1 FY03/14,
and 1.4pp lower than company plans of 68.1%. According to the company, improvements are largely
attributable to ceasing sales of the 90% coverage plan, and stronger evaluation procedures for bothclaims and underwriting. In particular, the company has strengthened its coordination with affiliatedhospitals to reduce the misuse of insurance. Shared Research is paying close attention to this effort.
Expense ratio
The expense ratio during Q1 was 28.7%, a 1.8pp improvement from the 30.5% seen during Q1 FY03/14,
and 1.5pp lower than company plans of 30.2%. According to the company, improvements are attributableto economies of scale from increased sales, and continuous improvements in efficiency. The expense ratio
improved also because the company did not use some of the expenses that had been allocated for the
beginning of the quarter. The company stated that these expenses would not be carried over into theremainder of the fiscal year and that it would seek to improve its efficiency even further.
Recurring profit
Recurring profit was JPY379mn, a significant improvement from JPY113mn for Q1 FY03/14, and JPY68mn
higher than the company’s initial forecast of JPY311mn. This was due to an increase in the number ofpolicies and improvements in the loss and expense ratios.
Adjusted profit was JPY216mn, a significant improvement from JPY16mn during Q1 FY03/14. The marginof change is lower than the improvement in recurring profit due to gains from a reversal on contingency
reserve provisions, investment income, and income of subsidiaries.

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Adjusted profit: An adjusted profit formula used by Anicom to measure the substantive profits from the pet
insurance underwriting business. Calculated as: recurring profit ± impact of contingency reserve ± operating
expenses other than insurance underwriting and general administration costs± investment income/expense± other revenue/expense.
Prior to FY03/15, adjusted profit was calculated by this formula: recurring profit ± impact of contingency
reserve ± investment income/expense ± other revenue/expense.

The amount of withdrawal from contingency reserves was less than expected because the net loss ratio in
Q1 was lower than forecast. The company had planned to withdraw JPY442mn and deposit JPY157mn, amove that would have increased its recurring profit by JPY285mn. However, the company withdrew only
JPY324mn and deposited JPY161mn, raising recurring profit by JPY163mn.
For Q2, the company had initially planned to withdraw JPY137mn and deposit JPY164mn, reducing
recurring profit by JPY27mn. However, at the time of writing, the amount withdrawn was JPY254mn andthe amount deposited was JPY164mn, raising recurring profit by JPY89mn. As a result, recurring profit
may be JPY116mn higher than forecast, possibly changing the company’s Q2 forecast for a JPY67mn
recurring loss.

Product Change
Premium revised on June 1, 2014
Anicom announced in March 2014 that it would revise its insurance premiums effective 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 thetime 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 the number 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 ofhospital visits and 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 were also some changes in the classification of dogs. In addition,
premium payments may rise or fall depending on the health of the animal.
Thus, the company changed its insurance premiums twice within a short period of time—in June andNovember. The company stated that the only change it had planned to implement was the introduction ofa new product upon approval by the Financial Services Agency. However, the company decided to change
the premiums for its existing products in June 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
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 Ferret
035,630 39,160 42,700 48,870 55,970 36,320
01
32,240 35,410 38,710 44,300 50,930 32,860 29,210 34,650 35,500
135,240 38,680 42,290 48,400 55,650 35,910 31,910 37,860 38,790
2
32,730 35,630 39,430 45,120 52,460 33,000 29,210 37,980 43,130
235,760 38,930 43,080 49,290 57,310 36,060 31,910 41,500 46,630
334,800 37,060 41,700 47,760 56,250 33,440 29,210 41,950 56,430
337,860 40,490 45,560 52,180 61,460 36,540 31,910 45,840 61,660
4
39,030 40,810 46,080 52,950 62,410 34,350 29,210 46,120 71,910
4
40,810 44,590 50,340 57,860 68,180 37,530 31,910 50,390 78,560
543,910 46,500 52,090 60,170 69,930 35,820 29,210 50,130 85,880
545,700 49,770 56,900 65,750 76,410 39,150 31,910 54,770 96,180
649,060 52,540 58,620 68,110 77,490 37,790 29,210 53,730 98,150
6
52,210 56,120 64,040 74,410 84,670 41,290 31,910 58,710 112,310
7
53,950 57,710 64,680 75,520 84,160 40,020 29,210 56,810 108,060
758,940 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 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.

Impact on earnings
According to Anicom, an increase in insurance premiums and the discontinuation of an automatic 5%
discount for policy renewal may negatively affect the number of contracts. However, the company statedthat its overall revenue may not be affected by the move. In fact, revenue could even rise as a result. The
company also expects that the loss ratio will improve due to the introduction of the standard plan and thepayment system that favors healthier animals.
Under the new system, the company raises or reduces premium payments when policies are renewed
depending on the number 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 thecompany lower the loss ratio.
Under the new “health discount/extra premium” system, the company determines the premium payments forrenewed contracts based on the policyholders’ insurance use. First-year contracts are assessed based on
their record for the initial six-month period. Second-year contracts and those 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

The company plans to implement these product changes on November 1, 2014. The health discount/extra
premium system will not affect contracts until November 1, 2015, at the earliest. Shared Research thus
expects to see significant contribution to earnings from FY03/16 onward.

Key initiatives and environment during Q1 FY03/15
Stronger loss ratio controls
Stronger controls on the loss ratio have been an ongoing theme for the company since FY03/14, and it

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remained an important initiative during Q1 FY03/15. Through proactive controls, the company was able toeffect significant improvement in the loss ratio. The composite ratio, which is the total of the E/I loss ratio
and expense ratio in the earned premiums business, also improved by 4.1pp, to 95.4%, contributing tofurther improvement in the company’s profit structure.
The company attributes this improvement to two factors: first, efforts to prevent the misuse of insurance
and second, a pullback from a surge in hospital visits immediately before the consumption tax hike. The
company has been cooperating with veterinarians to discourage policyholders from abusing insurance.
Such efforts will continue to have an impact on the loss ratio into Q2 and thereafter. The reaction against
a surge in demand is likely to be temporary, however.
The product change described above may also help the company control its loss ratio.
Capturing new contracts
Concerning insurance underwriting revenue, the company focused on enhancing its ability to capture newcontracts, and strengthening its contract renewal rate. Through steady acquisition of new contracts and ahigh renewal rate, the number of policies as of end Q1 FY03/15 was 516,618, up by 11,649 (+2.3% YoY)
from end FY03/14. New contracts came primarily from pet shops acting as agencies, and were in line withcompany estimates. The company forecasts that it will have in excess of 550,000 policies by end FY03/15.
Anicom strengthened its screening of applicants for policies sold online to reduce their high loss ratio. This
led to a 7.7% YoY decline in new contracts to 26,398. However, the loss ratio improved. Among the newpolicies, the number of contracts sold through pet shops declined 2.2% while those sold throughinsurance agencies fell 18.8%. These figures may demonstrate that the companyis efforts are paying off.
The renewal rate was affected by the price change that took effect in June 2014. Even so, it still stood at
88.8% during Q1 FY03/15, and the company is forecasting a renewal rate of 87.9% for the full year. The
renewal rate was 89.0% in April, 89.4% in May, and 87.9% in June. According to the company, thedecline in June was within expectation. The rate for July appears to be following a similar pattern.
Devoting resources to new businesses
The third initiative is committing resources to new areas of business. Newly consolidated subsidiary,
Japan Animal Specialty Medical Institute, began operations in April 2014. The company also opened
JASMINE Animal Cardiovascular Disease Center on August 1 in Tsuzuki-ku, Yokohama.
Other recurring revenue for Q1 was JPY52mn, an increase of JPY16mn from a year earlier, due largely tothe operations of Japan Animal Specialty Medical Institute. JASMINE Animal Cardiovascular Disease
Center—opened on August 1—may further help the company increase revenue in Q2. The subsidiary is
posting a recurring loss due to upfront investments. However, the company stated that its impact on
consolidated recurring profit would be small.
Concerning Anirese F, a next generation medical records management system utilizing cloud technology
developed by Anicom Pafe, the company continued to make improvements and strengthened both its
development and sales structures. As of Q1, the company was still in the process of developing a system
to transfer institutions using Anicom Receptor to Anirese F. Shared Research expects that the spread ofAnirese F will help reduce the misuse of insurance.

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

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Full-year outlook
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)Source: Company data

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

FY03/16 company targets
First year of the “2018 Rolling Medium-Term Management Plan”
FY03/16 is the first year of the company’s “2018 Rolling Medium-Term Management Plan,” although themedium-term plan is rolled over each year. Shared Research considers FY03/16 the first year, as thecompany mostly dealt with the loss ratio up to FY03/15, and is now shifting focus to top-line growth andgrowth in new services centered around non-insurance preventive care.
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 FY03/16
The company’s plan for FY03/16 consists of achieving solid growth in pet insurance, investing resources innew businesses, and beefing up its prevention-related business. (For details, please refer to the section
on Medium-term strategy.)
Targets
Anicom is targeting double digit growth in recurring revenue (+13.1% YoY), based on a steady increase ininsurance contracts (+7.9% YoY) and the full-year contribution from changes to insurance premiums(average 12%).
In terms of profits, the company expects efforts through FY03/15 to improve its loss ratio to begin
showing results, with a 3.4pp YoY improvement to 61.0%, but forecasts a 2.6pp decline in the business
expense ratio to 30.9% due to an increase in expenses from efforts to improve top-line revenue. This is
despite no longer amortizing deferred assets in accordance with Article 113 of the Insurance Business Act.
As a result, the combined ratio is forecast to improve by 0.8pp YoY to 91.8%.

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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)Source: Company data

FY03/10
Results
9,216
0.0%
292
0.0%
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%

-

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

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

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

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

2018 rolling 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 thesame time as its full-year earnings results.
Previous medium-term plan revised after one-time amortization of deferred assets
The “2018 Rolling Medium-Term Management Plan” announced in May 2015 shows upward revisions of

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recurring revenue and recurring profit in each year, compared to the previous medium-term planannounced in May 2014. Notably, a one-time amortization deferred assets per Article 113 of the
Insurance Business Act added JPY161mn in profits compared to the previous medium-term plan (forexample, if FY03/16 recurring profit included a one-time amortization it would be about JPY2.3bn).
The new medium-term plan includes plans to become a pet infrastructure company
The new medium-term management plan includes a medium-term vision of “leveraging the company’s
position in pet insurance to become a pet infrastructure company that provides an environment suited toraising animals, increasing the number of animals, and extending their healthy lifespan, contributing toincreasing demand and economic development,” and to do so by “growing the pet insurance business,and leveraging the resources accumulated in pet insurance to develop new services.”
Compared to previous plan, emphasis on new business via synergies with existing business
Under the previous medium-term plan, the company aimed to diversify its business by developing new
businesses through improved profitability of the existing pet insurance business. The new medium-term
management plan backed by this improved profitability, makes clear its strategy to grow pet insurance,
and to work on building the infrastructure necessary to be a preventive insurance company. Shared
Research is assessing the company’s plans to build prevention-based infrastructure via its new business,
and also synergies with existing business.

Plans to improve top-line will have a significant impact on expenses
Large increases in expenses forecast in order to fuel ongoing growth
Shared Research views the recurring profit targeted in the new medium-term management plan as too
low if the company is to hit its target increase in contracts, although recurring revenue forecasts lookreasonable. The company suggests that the conservative recurring profit target is due to an expected
increase in expenses (agency fees, advertising expenses, etc.) related to its efforts to grow the number of
new contracts; investment in human resources for future growth (increasing the number of staff qualified
as veterinarian physicians, etc.); and plans for a possible office move (as the current office will be too
small for the increase in staff).
The following is an overview of the medium-term growth scenario for the company with its existing
business in pet insurance and its new services centered around “prevention”.

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Strategy for the existing business (pet insurance): top-line growth
Improvement of the profitability of the pet insurance business is divided into two parts—expansion of
insurance premium revenue and reform of the earnings structure. Expansion of insurance premium
revenue is to be driven by growth in the pet insurance market based on Anicom’s efforts to acquire newpolicies, as well as maintenance of its renewal rate. Reform of the earnings structure is to be based on an
overhaul of product content, including pricing and services, and strengthened loss ratio control.
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: 5.2%; more pet owners consider insurance every year
The ratio of pet insurance coverage in Japan was 5.2% in FY2014, compared with 23–24% in the UK in
FY2011. Anicom is convinced that there is scope for the pet insurance market to grow, and estimates thepotential domestic market to be four or five times the current market size.
Of the roughly 20.3mn dogs and cats kept in Japan (2014 data from the National Pet Association), Anicom
estimates that 5.2% are insured, yet more than 80% of pet owners feel the need for pet insurance(according to a 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 forcontinued growth in the pet insurance market.
Expansion of pet insurance market
2.7%
Anicom contracts(approx. 545,000 pets)
5.2%
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%: 20.3mn pets (total domestic dogs and cats; source: Japan Pet Food Association 2014 survey)
Total dogs and cats('000)
20,305
20,61521,282
21,542

Dogs Total households('000)
54,952
54,59554,17153,550% with dogs

10,346
10,872
11,534
11,93615.06%
15.81%
16.77%
17.69%

Total pets per householdCats% with cats

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

10.13%
10.14%
10.22%
10.31%

2014
2013
2012
2011

2014
2013
2012
2011

0.37
0.38
0.39
0.40

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

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

Avg. pet count

1.25
1.26
1.27
1.26

1.79
1.76
1.76
1.74

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

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Aiming for a pet insurance coverage ratio on par with the UK; long-term target forunderwriting revenue of JPY100bn
Survey suggests 16.5% considering pet insurance: a JPY120bn 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 premiums
remained unchanged, the market would expand to around JPY120bn. If all 51.6% of those who answeredthat they would like to buy pet insurance at some point actually did so, that would be a new market of
JPY370bn.
Based on the 23–25% pet insurance coverage ratio in the mature UK market (FY2011), the Japanesemarket would be worth about JPY160bn. Based on a 60% market share of this JPY160bn, Anicom istargeting 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

Note: If Japanese get coverage at the same rate as in the UK: JPY35,000 X 20.3mn X 24% = approx JPY170.0bn
Note: UK data for CY2011, Japan data for CY2014; forex assumption: GBP/JPY180
Source: Company materials, World Bank (Population figures for 2013), Japan Pet Food Association, Datamonitor

Value
per contract
JPY28,000
JPY35,000

Differences between the UK and Japan
The pet insurance coverage ratio accelerated in the UK from around 2004. Anicom analyzes that thisgrowth coincided with aggressive sales drives by 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. began selling pet insurance exclusively to AEON cardholders. Note: as the market
grows, other new competitors are likely to enter the market. As of May 2015, both the AEON Group andSeven & 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 andoperations.

Anicom’s growth strategy: expansion of premium revenue
Anicom controls more than half 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.

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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, so there is still room for expansion of pet shop agencies. Anicom plans to strengthen its
sales structure to increase exposure of its products in the pet shop market. At existing pet shop agencies,
Anicom also sees ample room to increase the awareness of the need for pet insurance (penetration rate).
The insurance sales ratio at agencies (number of policies sold ÷ number of pets sold) shows a large
variation among shops—ranging from 30% to 70%.
Proactive expenditure on new customer development
From FY03/15, Anicom plans to spend money on developing new agencies and strengthening its
relationships with existing agencies. The new rolling medium-term management plan includes increases
in related expenditure. The company is working to bolster its sales structure regionally, and established a
Tohoku branch in May 2014, and a Shikoku Branch in October 2014.
By implementing a range of sales measures at agencies, the company seeks to raise the insurance sales
ratio at pet shops to 70%. 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 2015, the company acquired 75,000 new policies via pet shop agencies. The
company believes that there is ample room to raise that number to 90,000 by the end of March 2018
through sales programs and closer ties with agencies.
New contracts through pet shop channels('000 contracts)
22

1,600

20

1,500

18

1,400

16

1,300

14

1,200

12

1,100

20,00010
FY03/11 Q3 FY03/12 Q3 FY03/13 Q3 FY03/14 Q3 FY03/15 Q3
Q1
Q1
Q1
Q1
Q1

1,000

0

Pet shop agencies (right axis)
New contracts (thousand)
New contracts /agencies (Avg. of current and previous quarters)

100,000
90,00080,00070,00060,00050,00040,00030,00010,000FY03/14Act.

FY03/15Act.

FY03/16
Est.

FY03/17Plan

FY03/18
Plan

Source: 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, the company says that it is necessary to communicate information about the diseases andsymptoms that each breed of dog may be susceptible to so that owners understand the need for
insurance. The company also recognizes that there are many small pet shops operators who rely on theInternet, which the company’s sales programs are unlikely to reach. Such shops represent a large
potential customer base.

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Strengthened agency strategy
To promote awareness of pet insurance among existing pet owners, using pet shop agencies alone islikely 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 otherfinancial 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 this market segment.
New contracts through general agent channels('000 contracts)
15

5,000

12

4,000

9

3,000

6

2,000

3

1,000

0
FY03/11 Q3 FY03/12 Q3 FY03/13 Q3 FY03/14 Q3 FY03/15 Q3
Q1
Q1
Q1
Q1
Q1

0

40,00035,00035,16830,00026,621

26,700FY03/15Act.

FY03/16Est.

29,00032,00025,00020,00015,00010,0005,000
0FY03/14Act.

FY03/17Plan

FY03/18Plan

New contracts through agencies (right axis)
New contracts (thousand)
New contracts /agencies (Avg. of current and previous quarters)
Source: Company data

Review of online contracts halts a decline in new contracts
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, and the strategic suspension of 70%-compensation insurance products. 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. With an increase in contracts via general agents, new contract numbers are expected toreach around the same level as FY03/15.
Developing new products to deal with competitors
Competitors such as au insurance Co., Ltd., who focus on online sales, have also released low-priceproducts covering hospitalization and surgery only. According to the company, it may be able to win newcontracts from customers who select these policies. Shared Research expects the company to take steps
to win such contracts, such as rolling out new products.

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, andas a result the FY03/15 E/I loss ratio improved to 64.4%.

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

Oct 2013

Lengthen period from online application to coverage

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 forpayouts. About 30% of policyholders 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 nothave 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 byintroducing the system for reducing or increasing premiums based on the health of the animal, the company
is targeting fairness among contract holders and reduced 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, which places limits on the number of hospitalization days, and the company begansales 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 whichplace limits on hospitalization will lead to lower premiums earned, placing an upper limit on hospital visits
may yield a lower 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.
Stricter underwriting screening means improving ongoing screening for chronic cases in order to avoid
the 300% loss-ratio payout claims from 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 of assessment and feedback(with the cooperation of pet hospitals) on whether an appropriate insurance claim has been made, after
payment, appears to be effective.

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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
FY03/12Q3

E/I loss ratio

Q4

Q1
Q2
FY03/13

Q3

Q4

Q1
Q2
FY03/14

Q3

Q4

Q1
Q2
FY03/15

Q3

Q4
Est.

Earned premiums expense ratio

Source: Company data

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.
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 themeasures 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 reducerisk concentration. For FY03/18, while the company 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.

Virtuous cycle of improving brand value and business performance
President Nobuaki Komori has an overall plan of generating a virtuous cycle between improvements inbrand value and business 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 thatare not currently provided by animal hospitals, described below. This includes the provision of advanced
medical technology, treatment for hereditary disorders, and other preventive medicine.

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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
Compared to previous medium-term plans, the 2018 Rolling Medium-term Management Plan emphasizes
efforts at becoming a “preventive insurance company” and sets out more specifically how it expects toachieve this. Based on the company’s assumption that effective demand will increase domesticallysupported by growing pet numbers, Anicom believes that it is necessary to work on providing anenvironment that is suited to pets. However, it is not clear that the most appropriate environment fordifferent types of pet is provided given that the difference and effect of continued use of pet foods, water,
supplements, etc., and that it is not clear that treatment and recuperation at veterinarian hospitals is thebest it can be.
Given this, Anicom hopes to use its large volume of data, and its knowledge and experience base toexpand beyond simply pet insurance and become a pet infrastructure company providing a range ofservices providing the most appropriate environment suited to each individual lifestyle shared by ownerand pet.
The 2018 Rolling Medium-term Management Plan sets out three main ways in which the company plansto achieve these goals: veterinary medicine related services, clinical and research business, and customer
services.

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.
Anirese F: a cloud-based medical records management system for veterinary hospitals
Leveraging its medical records management system, Anicom plans to use big data techniques tocontribute to the standardization 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. Anicom
already operates its older medical records management system in 1,700–1,800 veterinary hospitals, outof 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 aswell as win new customers; its aims to have its new Anirese F system used in 3,330 hospitals by the endof March 2018.

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Number of hospitals using Anirese F
3,500
3,000
2,500
2,000
1,500
1,000
500
0

FY03/15Act.

FY03/16
Est.

FY03/17Plan

FY03/18
Plan

Source: 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 (data accumulated since Anicom was set up in July 2000). When aveterinarian 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 toview at home the medical data recorded by the veterinarian. As well as making treatment more open, thissystem 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 theapproximately 200 new veterinary hospitals set up each year are adopting Anirese F. For FY03/16, thecompany plans 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.
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 mostappropriate treatments, recovery, etc. This will contribute to progress in veterinary care and also help thecompany build up its prevention infrastructure.
Anicom forecasts further growth in the number of hospitals taking up the new system, as it develops new
functions and options. The company also plans to develop it into a system that can be used to manage
breeding records, etc., in addition to allowing owners to see medical records.
Overseas: Anicom did not have overseas operations as of March 2015. That does not mean, however, thatthe 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

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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 suchcountries as China and Vietnam. The company has not decided on a schedule for overseas expansion.

Clinical and research business
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 to keep 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 care infrastructure.
In January 2014, the company set up JASMINE as the first step in this direction, and the subsidiary has
been active mainly in 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, andthe US in January 2015. JASMINE currently focuses on heart 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-primarycare infrastructure aimed at preventing disease. The company plans to expand its network with a view todevelop 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 reachowners, and its primary-care pet insurance systems (as well as secondary care for animals withcomplications), will improve brand value and business performance, and help pet owners before it is toolate.
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 and Industry andthe 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 bymultiplying 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 bewary 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

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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 instituteaims to support the sound and sustainable growth of the company’s pet insurance business. It has theobjectives of promoting basic research in the animal healthcare field, developing treatment methods withsound 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 topublish research papers on exemplary medical treatment methods for difficult cases, and by utilizing Anirese
F make case examples from a large number of hospitals widely available. It is 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 takemeasures to prevent the occurrence of any hereditary illnesses. There are more hereditary ailments amongdogs in Japan than in the West. That is apparently due to less concerned in Japan about pet bloodlines orhereditary 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 long term, 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 use that 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 lifespanof pets. It involves sending products to owners’ homes, with individual suggestions based on breed, age,and other factors, as well as 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 other recurring revenue to grow to JPY1.5bn in FY03/18 from JPY382mn in FY03/15. Most of the

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anticipated growth appears to be 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
99% of recurring revenue comes from Anicom Insurance Inc.
Three individuals, including Nobuaki Komori, established a mutual aid association for pets in July 2000
and named it anicom. They also set up a separate company in the same month to handle administrative
duties for the mutual aid association. This company obtained a nonlife insurance license in 2007 andbegan operations in July 2008.
Anicom Holdings has under its umbrella Anicom Insurance Inc. (pet insurance), Anicom Pafe Inc. (animal
hospital support), Anicom Frontier Inc. (insurance agent), and Japan Animal Specialty Medical Institute(an animal healthcare research center established in January 2014). Anicom Insurance comprises 99% of
the company’s recurring revenue.
Performance(JPYmn)40,0003,500

35,0003,000

30,0002,500

25,0002,000

20,0001,500

15,0001,000

10,000

500

5,000

0

0

FY03/08

FY03/09

Underwriting revenue

FY03/10

FY03/11

FY03/12Investment revenue

FY03/13

FY03/14

FY03/15

Other recurring revenue

FY03/17
FY03/18
FY03/16CE
CE
CE
Recurring profit (Right axis)-500

Source: 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 15.9% over thefive years through FY03/14. The company had 545,000 contracts as of the end of FY03/15, and estimatesthat it controlled more than 60% of Japan’s pet insurance market that year. Although Anicom’s market
share fell in FY03/15, as did the growth in contracts due to efforts to improve the loss ratio and the impact
of pricing revisions, the company is still the market leader, controlling more than half of the pet insurance
market.

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Pet insurance: changes in net claims paid (JPYmn)
FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15
128,832 191,785 246,634 297,917 241,206 290,767 340,628 396,234 446,414 504,969 544,815
48.9%
28.6%
20.8% -19.0%
20.5%
17.1%
16.3%
12.7%
13.1%
7.9%

Total contracts
YoY
New contracts
YoY
Net claims writtenanicom mutual aid assoc. revenue
Subtotal
YoY

-

-

-

-

60,189-86,90444.4%

91,666 101,014
5.5%
10.2%

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%

13,592
13,59225.2%

99,504 109,170 101,628
-1.5%
9.7%
-6.9%
15,781
15,781
16.1%

18,08718,087
14.6%

21,733
21,733
20.2%

Source: Company data

Anicom in pet-related markets
Japan’s pet insurance market: JPY28bn in FY2013; Ratio of coverage: 3.5%
Anicom estimates that the size of Japan’s pet insurance market is JPY28bn and that the company
controlled JPY18bn of the market in FY2013. While this already sounds sizable, the market still has great
growth potential. Of the 21mn dogs and cats kept by Japanese households, only 3.9% were insured in
FY2013, according to the company. In contrast, 22% of the 15.2mn dogs and cats in the UK were insured
in FY2009, according to Datamonitor. Japan’s market for pet insurance could expand to JPY160bn if theinsurance ratio rises to the UK level.
Expansion of pet insurance market
2.7%
Anicom contracts(approx. 545,000 pets)
5.2%
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%: 20.3mn pets (total domestic dogs and cats; source: Japan Pet Food Association 2014 survey)(Domestic)
2014
2013
2012
2011

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

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

(Domestic)

Total pets per householdCats% with cats

2014
2013
2012
2011

0.37
0.38
0.39
0.40

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

10.13%
10.14%
10.22%
10.31%

15.06%
15.81%
16.77%
17.69%

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

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

Avg. pet count

1.25
1.26
1.27
1.26

1.79
1.76
1.76
1.74

S ource: C ompany estimates based on data from the Japan P et F ood A ssociation and F uji-Keizai

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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 isfor newly born pets, while the family market is for animals that are already part of the owner’s family. The
newborn market consists of pet shops and breeders. Anicom’s strength lies in the family market and thepet shop portion of the newborn market.
Of the 109,000 new policies sold by the company in FY03/14, 74,000, or 68%, came through pet shops.
The remaining 32%, or 35,000 policies, mostly came from the family market.
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

Some solddirectly

Small-breeder market

Potential clients

2/3 are not agents

Approx40%
insuredClients

Other
60%

2/3 are not agents

Potential clients

Source: SR Research based on interview with the company

Composition of newly written policies
30,00085%

25,00080%

20,00075%

15,00070%

10,000

65%

5,000

60%

0

Q1
FY03/11Q3

Q1
FY03/12Q3

New contracts for newborns

Q1
FY03/13

Q3

New general contracts

Q1
FY03/14Q3

Q1
FY03/15

Q3

55%

Ratio of new contracts for newborns

Source: 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 ofAgriculture, 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

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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 for copayments at hospital counters. This system is a key point of differentiation forAnicom’s services in relation to its competitors.
The number of hospitals that accept the company’s animal health insurance cards has increased by about
200–300 annually over the past five years. In Japan, there is an annual churn rate of around 200 to 300
animal hospitals, as older institutions close to be replaced by a similar number of new institutions. Anicom
estimates that most of these new hospitals accept the company’s insurance cards. Hospitals benefit fromthe company’s settlement system since it improves the convenience for pet owners. The remaining 1,500
hospitals are also expected to soon start accepting the company’s insurance cards.
Anicom’s sales agents and hospitals that accept its animal health insurance cards
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0

Q2 Q3
FY03/10Q4

Q1 Q2
FY03/11Q3

Q4

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
FY03/12
FY03/13
FY03/14
Pet shop agents
General agents
Hospitals accepting anicom

Q4

Q1 Q2
FY03/15Q3

Q4Source: 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: Company data

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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%, and direct sales 10% (as of FY03/14). Direct sales do not require the company to pay agent
commissions. However, the accident rate also tends to be higher. The company has been gradually
reducing its online insurance sales since the summer of 2013. (The company only offers 50% payoutplans and requires a one-month waiting period after application.) Between January and September 2014,
Anicom suspended sales of its 70% coverage plan.
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 pet shops 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 insurancecompanies, and brokerages) and corporations and others (agencies affiliated with major corporations,mutual aid associations, car dealers), numbered 4,314 as of the end of March 2015.
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

Corporations

Pet-related

DirectBanks / Shinkin banks

C orporate agencies

Pet hospitals

OnlineNonlife insurance

Mutual aid associations

Pet shops

Call center

Brokerages

Car dealers

Breeder direct

Financial institutions

Online direct

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 average age of dogs covered by Anicom has been rising in recent years, reaching 3.6 in FY03/12,
according to Shared Research estimates. Under the company’s pricing structure, the insurance premiumrises in accordance with 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
Cats
Birds
Rabbits
Ferrets
Av. Annual insurance premium (JPY)FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14

1.6
2.5
2.0
1.7
1.7
-

1.8
2.6
2.1
2.2
2.2
27,492

2.0
2.7
2.3
2.4
2.7
25,433

2.3
3.0
2.4
2.5
2.9
25,636

2.9
3.6
2.5
2.7
3.0
29,258

3.1
3.7
2.4
2.8
3.0
33,764

3.4
3.7
2.5
3.0
2.9
34,394

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

As a pet ages, medical expenses rise. The company maintain the soundness of its portfolio by increasing
the number of policies for animals that are less than one year old.
Annual premium for a toy poodle (5% discount applies topolicy renewal for dog aged over one year); average annual medical expenses per dog

(JPY)

(JPY)

80,000200,000

70,000180,000
160,000

60,000140,000

50,000120,000

40,000100,000

30,00080,00060,00020,00040,00010,00020,000

0

0yrs

1

2

3
4
5
6
7
8
Annual insurance for toy poodles

9

10

11
12
13
14
15
16
17
18
Annual medical costs per dog by age (Right axis)

19

20

0

S ource: C ompany data

Premium payments(JPYmn)(JPYmn)700,000

5,400

600,000

5,200

500,000

5,000

400,000

4,800

300,000

4,600

200,000

4,400

100,000

4,200

0

Q1
FY03/11Q3

Q1
FY03/12

Q3

Premium payment cases

Q1
FY03/13Q3Q1
FY03/14Q3

Q1
FY03/15Q34,000

Claims paid / payment cases (JPY, right axis)

S ource: C ompany 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
61,336
59,11642,92861,44867,45774,25543,55329,887
46,71247,60337,752
29,21547,06534,00743,90019,88943,987
34,61628,70040,493
33,11236,356
9,879
22,26029,00834,06429,784
31,17635,082
24,205
5,642
11,52233,96031,142
26,051
28,271
24,154
7,040
13,1003,149
31,13817,92924,55528,078
8,688
13,9894,668
2,694
28,01817,067
24,357
9,019
10,754
5,558
1,896
3,456
24,317
10,386
17,248
7,166
4,309
6,050
1,537
2,640
10,594
17,410
6,930
4,753
5,097
1,226
2,322
3,454
10,809
7,051
3,826
4,998
3,207
543
1,305
2,438
7,409
3,752
5,228
2,236
2,751
590
1,385
181
4,717
2,348
3,363
1,688
635
1,233
38
203
2,945
1,382
2,000
1,001
226
532
48
0

Age composition of insured dogs
100%
80%
60%

7%

4%
4%

13%
26%

40%
20%
0%

39%

FY03/05

0 yrs

1 yr

9%

3%
5%
11%

17%

17%

25%

21%

33%

FY03/06
2 yrs

18%

FY03/07

FY03/08

4 yrs

5 yrs

6%
8%

10%

17%

11%

16%

20%

24%

20%

FY03/10

7 yrs

8 yrs

10%

11%

14%

FY03/09

9%

10%

12%

15%

6 yrs

7%
8%

9%

11%

14%

15%

28%

4%
7%
10%

12%

13%

32%

3 yrs

3%
5%
8%

3%
5%
9%

4%
6%

8%
13%
14%
18%

FY03/119 yrs

FY03/1210 yrs and up

Source: Company data

Rising policy renewal rate
A rising rate of policy renewal also helps stabilize the company’s portfolio. The renewal rate for pets lessthan one year of age is about 70%. The rate exceeds 90% from the second year. The overall renewal rate
has been increasing, reaching 89.3% in FY03/14. Due to the impact of the rise in insurance premiums,
the company forecasts a decrease in the renewal rate in FY03/15.
Although a portion of policies are canceled due to death, considering that the average age of pets is about
13 years and that Anicom’s composition ratio of pets aged 12 years or older is about 1% (FY03/12), thenumber of cancellations due to death is likely to be small. Potentially, the company could raise its overall
renewal rate by several percentage points by raising the renewal rate of initial-year policies.
Renewal rate over time
FY03/1084.1%
Renewal rate

FY03/1186.6%

FY03/1287.6%

FY03/1388.1%

FY03/1489.3%

FY03/1588.7%

FY03/1689.2%

FY03/1789.4%

FY03/18
89.6%

S ource: C ompany 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 takethem to vets when they get sick. Thus, there are no incentives for them to acquire pet insurance. On theother hand, those who acquire pets as family members tend to buy insurance and take the pets to
hospitals.

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A survey taken by Anicom shows that its respondents spent on average JPY359,000 on dogs and
JPY185,000 on cats in 2014. People who acquire pet insurance also seem to be generous in the purchaseof other pet-related goods and services.
Survey on annual spending on pets
(JPY)
Treatment for sickness or injuries
Foods, Snacks
Training
Shampoo, Grooming
Pet insurance
Vaccination, Health check
Pet hotels, pet sitters
Daily necessities
Clothing
Playground, etc.
Disaster prevention
Collars, Leashes
Total (JPY)
Number of responses to questionnaires
Average age of animals

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

S ource: C ompany data released on January 29, 2014 and F ebruary 2, 20152013
75,40047,96534,12839,22634,56426,986
20,23718,064
13,925
7,058
6,193
7,280
331,026
2,027
4.8

http://www.sharedresearch.jp/

201480,912
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
184,795409
4.5

Copyright (C) Shared Research Inc. All Rights Reserved

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%

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

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

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

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

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

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

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

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

Insurance premium /number of policies

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

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

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

FY03/1236,89230,53927,25528,904

FY03/1337,456
31,234
27,83830,060FY03/1438,02332,25230,48930,573Composition ofunderwriting revenue

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

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

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

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

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

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

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

Recurring revenue

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

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

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

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

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

FY03/13
16,186
4,287
1,121
1,260
1,124
23,979FY03/1418,366
5,103
1,236
1,856
1,243
27,804

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FY03/14
62.8%
34.1%
42.4%
41.0%
28.1%
41.7%

Net loss ratio

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

Source: Company data

Number of policies, underwriting revenue
Anicom is by far the largest provider of pet insurance in Japan, accounting for 70% of all the policies andunderwriting revenue of the five companies combined. According to the company, its Anicom Insurance

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unit has the largest market share at over 60%, followed by ipet Insurance (owned by Dream Incubator
Inc. [TSE1: 4310]) at a little less than 20%. Pet & Family Small-amount Short-term insurance (T&D
Holdings Inc.), UCC Motto Gyutto (Holdings Co.), and Japan Animal-Club (Taihei Engineering Co. Ltd.)
each holds about 5% of the market.
Other competitors include: AXA DIRECT (underwriting company: AXA GENERAL INSURANCE COMPANY
LIMITED); FPC/Pet Medical Support (FY03/15: recurring revenue of JPY428mn, recurring loss of
JPY8mn); Pets Best Japan Co., Ltd. (a joint venture with Pets best of the US); and au insurance Co., Ltd.
(shareholders: Aioi Nissay Dowa Insurance, KDDI).
Average premium (insurance premiums / number of policies)
This formula is not very useful since premiums differ greatly depending on the age of animals, and theage composition has a great influence on the average premium. For example, companies that haverecently started to offer insurance tend to have contracts for younger animals with the result that the
average insurance premium may appear lower.
Recurring profit
Anicom, ipet, and Moto Gyutto are profitable on a recurring profit basis. However, ipet has been deferring
operating expenses in accordance with Article 113 of the Insurance Business Act, and would have aposted a recurring loss if it were not for this provision.
Effects of Article 113 of the Insurance Business Act (deduction from recurring expenses, million yen)
Insurance Business Act Anicom Insurance
Article 113
ipet Insurance
Deferred amounts
Japan Animal-Club
Pet & Family Small-amount Short-term Insurance
Motto Gyutto Small-amount Short-term Insurance

FY03/09
-889
-524
-357
-

FY03/10
-417
-333
-

FY03/11
-615
-325
-

FY03/12-946-

FY03/13-517-

FY03/14-539-

Source: Company data

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

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

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

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

FY03/09
87.2%
21.3%
3.2%

FY03/10
61.5%
41.8%
3.5%

FY03/11
65.8%
44.5%
3.6%

FY03/12
72.1%
53.7%
3.5%

FY03/13
72.6%
60.0%
3.7%

FY03/14
74.4%
59.1%
3.6%

4.9%

6.0%

5.8%

5.7%

5.4%

5.7%

8.1%

-

1.4%

2.6%

0.9%

0.8%

49.8%

10.2%

10.5%

6.5%

2.6%

5.1%

1.0%

-

0.1%

0.2%

-

0.1%

56.5%

34.1%

30.5%

25.0%

23.0%

22.0%

37.8%

3.5%

2.7%

2.1%

1.7%

1.0%

19.6%
19.6%

36.3%
33.9%

51.1%
32.9%

61.5%
32.1%
1.7%

58.4%
31.8%
2.6%

54.5%
31.4%
2.7%

12.8%

12.1%

10.6%

1.1%

1.0%

1.5%

13.9%

11.0%

8.4%

38.2%

2.4%

18.2%

0.2%

0.5%

0.5%

159.7%

62.9%

53.1%

37.6%

34.7%

6.6%

5.5%

8.0%

12.1%

9.9%

9.2%

-50.5%-20.8%-24.8%-28.8%-12.1%-10.6%

68.2%
50.1%

61.6%
46.6%

46.4%
41.2%

46.4%
38.5%

48.1%
38.8%

48.6%
37.8%

6.7%

15.0%

5.1%

7.9%

3.7%

3.5%

3.5%

0.9%

63.8%

70.7%

62.6%

48.3%

48.8%

52.2%

0.4%

0.3%

0.2%

0.1%

0.1%

0.0%

-

-

-

-

-

-

324.4%
4.3%
219.6%

47.3%

48.3%
31.2%

59.2%
39.3%

65.8%
42.6%

64.6%
41.8%

10.3%
1.1%

0.9%

0.4%

8.4%

10.3%

24.4%
2.4%

5.0%

6.8%

3.0%

8.8%

7.4%

73.6%

26.2%

9.4%

15.5%

12.6%

13.5%

16.0%

0.8%

1.4%

1.8%

1.8%

2,040.3%

282.1%

165.2%

100.5%

75.8%

65.4%

298.1%

58.9%

47.5%

35.6%

22.3%

15.4%

-2,245.8%-227.6%-113.1%-59.5%

-

-

26.1%
13.8%
-

26.3%
14.9%
-

23.7%
15.5%
-

34.7%
17.0%
-

36.1%
23.0%
-

-

-

-

-

-

1.5%

1.2%

0.8%

4.1%

3.9%

5.7%

7.3%

6.0%

12.5%

8.1%

5.1%

3.0%

1.4%

1.1%

1.1%

73.3%

63.3%

59.0%

56.4%

52.1%

-

-

-

-

-

-

-

-

-

-

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

Source: Various (compiled by Shared Research)

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Profitability analysis
FY03/08

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

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

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
4,905Recurring 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%

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

S ource: C ompany data

Recurring revenue
In the nonlife insurance industry, recurring revenue refers to sales. Recurring revenue consists ofunderwriting revenue, investment revenue, and other recurring revenue. Investment is an important partof nonlife insurance operations. Therefore, investment revenue is included in recurring revenue.

Underwriting revenue
Anicom’s underwriting revenue consists of net premiums written, reversal of reserve for outstanding
losses and claims, and reversal of underwriting reserves. However, net premiums written account foralmost all the company’s operations since it does not offer savings-type insurance. The company’s pet
insurance policies are valid for one year and are subject to renewal each year.
The company 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 along with 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

S ource: C ompany data

FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15

-

-

-

2,546
-

4,407
-

5,575
-

7,267 10,800- 48.6%

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

39
39
0
7,228
6,980
248

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

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

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

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premium revenue of JPY18.1bn in FY03/14. However, high-risk investments would affect the company’s
solvency margin. Thus, the company is seeking low-risk investments.
The company shortened the duration of its bond investments from medium term to short term in FY03/13.
During this process, the company unwound its positions and posted gains, increasing its investment yieldfor that year. Consequently, the yield declined in FY03/14.
Outstanding balance and the remaining duration of investment securities (JPYmn)
End FY03/12
JGBs
Regional bonds
Corp. bonds
Securities
Foreign securities
Other securities
Total
End FY03/13
JGBs
Regional bonds
Corp. bonds
Securities
Foreign securities
Other securities
Total
End FY03/13
JGBs
Regional bonds
Corp. bonds
Securities
Foreign securities
Other securities
Total

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

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

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

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

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

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

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

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

Source: Company data

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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

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%

S ource: C ompany data

Expense items(JPYmn)Underwriting expenses
Net claims paid

FY03/15
15,92012,149vs underwriting
revenue
73.3%
55.9%

741
1,269

3.4%
5.8%

144

0.7%

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

Provision for underwriting reserves
Prepaid premium
Reserve for casualty

Source: Company data

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.

1,616

7.4%

A combination of the following two items:

1,499

6.9%

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.

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

Loss Ratio
Data that can be used in tracking the company’s expenses include net loss ratio, E/I loss ratio, and net
expense ratio, as well as 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 acash basis, while E/I loss ratio is close to an accrual basis. The net loss ratio can be obtained from therevenue statement.
The company’s loss ratio had increased after it changed its product offering in October 2010 (when thecompany introduced a plan that covers 90% of expenses). However, the ratio has improved dramaticallyas a result of the measures listed below.

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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 get treated for sickness or injury on an annual basis. Five trips to the animal hospital, eachcosting 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 alittle over JPY20,000, to which loss adjustment expenses are added. Since the average premium revenue
is JPY38,023,* the loss ratio would be 60%.
*Net loss ratio (FY03/14) ÷ number of policies (average of the end of March 2013 and the end of March2014)
Changes in net loss
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
Source: Company data

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

24.4%
48.0%
72.4%
-

48.6% 53.4% 64.3% 67.5% 66.7%- 33.2% 29.7% 28.6%- 97.5% 97.2% 95.3%
45.5% 48.1% 57.3% 63.7% 62.8%
40.2% 36.3% 30.9% 28.5% 27.3%
85.7% 84.4% 88.2% 92.2% 90.1%- 304.1% 307.2% 281.3% 295.1%
84.1% 86.6% 87.6% 88.1% 89.3%

64.4%
28.3%
92.7%
59.3%
28.4%
87.7%
88.7%

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
FY03/12Q3

E/I loss ratio

Q4

Q1
Q2
FY03/13

Q3

Q4

Q1
Q2
FY03/14

Q3

Q4

Q1
Q2
FY03/15

Q3

Q4

Earned premiums expense ratio

Source: Company data

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

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 thefactors expected to push recurring profit for FY03/16 and FY03/17 up by JPY161mn in the company’s
medium-term plan, 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 werebooked as deferred assets in accordance with Article 113 of the Insurance Business Act. The company has
been applying the straight-line method over ten years until FY03/17 (meaning deferred assets for the endof 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 the company expects to book a profit surplus, even after amortization of deferred expenses per
Article 113. Also, rather than weigh 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 the company booked an additional JPY323mn in new recurring costs under the bullet method,and JPY93mn in deferred 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 to insurance underwriting improving more than expected.
Compared to other industries, insurance companies have significant initial costs. Under Article 113 Act 1 ofthe Insurance Business Act, business expenses for the first 5 years after beginning operations may berecognized as assets, amortized over a ten-year period using the straight-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 healthinsurance card at hospital counters and make copayments. The system not only provides convenience topolicyholders but also helps the company reduce administrative expenses. The company’s animal healthinsurance 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 of the end of December 2014, according to
the the Ministry of Agriculture, Forestry and Fisheries. That means the majority of Japan’s animal
hospitals accept Anicom’s insurance cards. Similar services are offered also by ipet and Pet & Family, but
Anicom has far wider acceptance; 3,481 animal hospitals accepted insurance cards issued by ipet as ofApril 1, 2015.
Name recognition, industry data, customer base, and strong earnings structure provide
resources to expand into new business areas.
The company controls more than 60% of Japan’s pet insurance market. This formidable share is a majoradvantage since customer trust is vital in the insurance business. The company’s strong finances and cash
flow will help the company survive the competition and provide it with resources to expand into new
business areas.
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 the second 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 a sudden 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 businessactivities dictated by Japan’s Insurance Business Law. When the company embarks on new businesses, it
may find itself in competition with companies that are not subject to the same restrictions. Hence, it may
be at a competitive disadvantage in some situations. For example, the pace of new business rollout may
be slowed or it may suffer impact from consolidated solvency margin ratio rules in its new businessdevelopment. Such restrictions may lead to weakness in the execution of new businesses. On the other
hand, its sound equity base and licensing by the Financial Services Agency under the Insurance Business
Law also may be regarded as a source of strength.
Higher loss ratio than rivals.
Anicom has a high loss ratio compared with its competitors. This is proof of a strong customer focus in its
insurance products (insurance payments to customers are high). However, there is the possibility thatcompetitors may try to exploit this cost-difference weakness by going onto the offensive with low-pricestrategies. At the present stage, rivals are still small and their profitability is low, so the impact ofcompetition is not yet large. Anicom is also focusing efforts on lowering its loss ratio. However, it will benecessary to closely monitor trends in this area.

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

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

Number of insurance policies in force, new insurance policies, registered agencies,
and animal hospitals that accept Anicom insurance all recorded steady increases
As of end-March 2014, the number of insurance policies in force was 504,969, an increase of 58,555
policies, or 13.1%, YoY. The number of new policies was 109,170 (+9.7% YoY), of which 74,002 policies,
or 68%, were acquired through pet shop agencies (mainly newborn pets). This ratio is up from the 62%
recorded in FY03/12 and FY03/13, and this increase is expected to help improve Anicom’s insurance
policy portfolio over the longer term.
The number of registered insurance agencies was 4,924 (including 1,450 pet shops), up 3.6% YoY (petshop agencies were up 4.3% YoY). Despite conducting a review process that weeded out low-profit
agencies, the number of agencies continued to increase steadily. This review process focused on the loss
ratio for each sales channel and agency.
The number of animal hospitals that accept Anicom’s insurance was 5,599 (+4.7% YoY). This equates to
80% of the 6,996 animal hospitals nationwide (excluding industrial animal hospitals) as of end-December
2013.

Although the loss ratio showed improvement YoY, it fell short of company forecast
With regard to recurring expenses, net claims paid and provisions to the claims reserve—which accountfor a combined 61% of recurring expenses—increased by more than the company’s forecasts. This
resulted in an E/I loss ratio of 66.7% and a net loss ratio of 62.8% in FY03/14. The equivalent ratios in
FY03/13 were 67.5% and 63.7%, respectively. Despite improvements of just under one percentage point
each, the ratios failed to reach the company’s forecasts of 66.2% and 62.3%, respectively. The company
said that factors contributing to this failure to achieve forecasts included delays in effects from themeasures outlined below aimed at improving the loss ratios.
The company has been implementing the following measures on an ongoing basis to improve the loss
ratios: Stricter screening when increasing the coverage portion when policies are renewed (implemented in

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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 withhospitals that accept Anicom insurance; and a stricter management system for insurance payments.
Policies in force with a coverage portion of 90% were phased out as of end-July 2013, and this led to a
YoY improvement in the loss ratio in FY03/14.

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

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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, thecompany announced a revision to its FY03/15 earnings forecasts on November 6, 2014.
Analysis of changes in recurring profit (JPYmn)

Source: 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 is assumed 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 initiallyestimated; Japan Animal Specialty Medical Institute (JASMINE), a subsidiary that started full-fledged operations inAugust 2014, is demonstrating robust performance; An upward trend has followed the dip in the insurance renewal rate after the revision to premiums inJune.
For 2H, Anicom plans to frontload investments in R&D and sales promotion. Shared Research forecaststhat the R&D investments are related to President Komori’s goal—controlling hereditary diseases innewborn animals and growing the distribution of healthy newborn pets—and that these measures maylead 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 as Japan’s population ages and birth rates decline. Base demand is supportedby 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 ininsurance policies in force, this is driven by the company raising premiums during the term. The company
implemented an increase in premiums in June 2014 partially as a means to offset expense increases dueto the increase in the consumption tax rate to 8% in April 2014 and the planned further increase to 10%
in April 2015. As explained later in this report, Shared Research 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. Thisfactored in the impact of the rise in premiums, which was estimated at around 2pp based on an analysis
of historical data by the company, but the decrease in renewal rates was 1.5pp, a smaller decline thanestimated. 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—theprevious 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 (the discount 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 (loss ratio 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, 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,

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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 aloss ratio of 300% based on payout applications. In the case of pet insurance, such high loss ratios areoften due to cases of chronic disease. The company plans to implement stricter screening for renewal ofsuch policies.
The company is aiming to improve steps before and after insurance payments by conducting surveys incooperation with veterinary hospitals regarding whether claims are properly filed.
Anicom aims to prevent excessive medical treatment at veterinary hospitals by expanding sales of thecompany’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
FY03/12Q3

E/I loss ratio

Q4

Q1
Q2
FY03/13

Q3

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, thecompany plans to spend money on sales promotion-related expenses, including commissions paid toagencies.
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 Shikooku (Okayama), and Kyushu (Fukuoka). It also has an office in Shikoku(Kochi).

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New insurance plan with limits on hospital visits and stays
Changes in plans from 2014
June 2014
Revision to premiums (premiums up 12% on average)
November 2014
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% discount depending 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 June 2014 revision to premiums will lower the renewal rate but contribute to revenues, and thatthe 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 June2015 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 on earnings, as these plansaccount 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 timespent in hospital is likely to yield a lower loss ratio. Taking into account the timing of 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 thecompany 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 newpremium system, where discounts depend on the health of the animal. Premiums under the new plan arearound 8% lower than previous plans (a revision to premiums 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 be favorable 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, thechanges 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 andage by multiplying the composition ratios of animals and their ages as of FY03/12 by the number ofpolicies as of FY03/14. Shared Research adjusted these figures by multiplying them by the pricedifferences and adjusting for the split between policies with annual 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 theratio of the company’s two payout plans - 70% and 50% - was 33/67 and the annual premium versus
monthly premium payment ratio was 65/35.
With regard to earned premium and prepaid premium, calculation of premiums for policies commencing
in each month from June 2014 onward were based on assumed fixed ratios between policies with monthly
and annual premium payments and estimates of the number of policies commencing in each month.
Calculation Method and Assumptions
Yearly effects (JPYmn)
Settled monthly
Settled yearly

2,208
821
1,387

(a)
(b)
(c)

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

1,840
1,049
791

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

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

504,969
65%
67%

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

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

Underwriting expenses likely to rise by just under JPY500mn due to consumption tax
increase and the pricing change
Consumption tax increase likely to raise expenses by JPY460-500mn in FY03/15
The consumption tax (which rose from 5% to 8% in April 2014) does not affect underwriting revenue.
However, claims paid and other expenses are subject to the consumption tax. Insurers end up

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shouldering the tax because tax credits are limited. Among the various underwriting expenses, net claims
paid, provision for reserve for outstanding losses and claims, commissions to sales agents, andoutsourcing expenses are greatly affected by the consumption tax. The majority of rental expense andcertain personnel 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 thatthe initial four expense items mentioned above will see a consumption tax-rise impact of at least
JPY401mn in FY03/15. Taking into account salaries (JPY2.1bn in FY03/14) and operation andadministration expense (JPY1.3bn), the company’s forecast appears to be reasonable.

Premium changes and upfront investments are expected to raise expenses by
JPY570mn
Premium changes to push up expenses by JPY110mn
Through the increase in net premium income, contingency reserve is expected to rise by JPY110mn(3.2% of the rise in net premium income).
Upfront investments in subsidiaries to push up expenses by just under JPY100mn
In the company’s FY03/15 forecasts, upfront expenses for two subsidiaries (Anicom Pafe and Japan
Animal Specialty Medical Institute [JASMINE]) are estimated at just under JPY100mn. Anicom Pafe
expenses are related to a cloud computing-based animal medical records management system, while
JASMINE only launched operations in April 2014, and is expected to incur initial launch expenses.
Rise in loss ratio to push up expenses by JPY370mn
The company forecasts a 0.6 percentage point rise in the E/I loss ratio in FY03/15. Taking into account therevenue rise driven by changes in premiums (including prepaid premiums) and excluding the impact of
the consumption tax hike, Shared Research estimates that the company has factored in an increase ininsurance payments of JPY370mn in its forecasts.
The rise in the loss ratio is expected to be driven by an increase in the average age of insured pets, and a
YoY decrease in new policies due to the impact of the premium rise. The number of pets under one yearof age (low-risk) as a proportion of all insured pets is expected to fall, leading to a faster increase in the
average insured pet age than would normally be the case. Hence, insurance payments are expected toincrease.
As a result, the premium changes are expected to mean an increase in recurring revenue of JPY2.0bn in
FY03/15, and the profit-increase effect is expected to be largely offset (JPY1.1bn effect on profit and a
JPY1.1-1.2bn decrease effect on profit from the tax increase), according to Shared Research analysis. In
FY03/16, there is expected to be an additional revenue increase of JPY400mn compared with FY03/15.
Although the consumption tax rate may rise in FY03/16 from 8% to 10%, the impact of the large increasein prepaid premium due to the changes in premiums is expected to have tapered off. Provisions to thepolicy reserve are expected to decrease. As a result, Shared Research believes that there is a highprobability the consumption tax hike will be absorbed.

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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 forrecurring revenue of JP27.7bn and recurring profit of JPY2.2bn in FY03/17.
Under the medium-term plan, underpinned by the profitability of the existing pet insurance business, thecompany aims to diversify its business by developing new businesses.
Improvement of the profitability of the pet insurance business is divided into two parts—expansion of
insurance premium revenue and reform of the earnings structure. Expansion of insurance premium
revenue is to be driven by growth in the pet insurance market based on Anicom’s efforts to acquire newpolicies, as well as maintenance of its renewal rate. Reform of the earnings structure is to be based on an
overhaul of product content, including pricing and services, and strengthened loss ratio control.
With regard to new businesses, President Nobuaki Komori wants to further enhance the company’s status
in the industry. Komori considers the existing pet insurance operations as a stable source of revenue thatwill continue to expand, and plans to invest the company’s resources in new businesses. Specifically, thecompany aims to provide new, value-added services that are not currently provided by animal hospitals.
This includes the provision of advanced medical technology, treatment for hereditary disorders and otherpreventive medicine.
The company’s strategy is summarized below.

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

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Expansion of pet insurance market
2.4%
anicom contracts(approx. 500,000 pets)
3.9%
Pet insurance market(approx. 800,000 pets)

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

100%: 20.6mn pets (total domestic dogs and cats; source: Japan Pet Food Association 2013 survey)

Source: Company data

Aiming for a pet insurance coverage ratio on par with the UK; long-term target forunderwriting revenue of JPY100bn
Through deeper cultivation of existing agencies and expansion of the sales area, the company aims togrow the pet insurance market and expand its own earnings. As a rough guide, based on the researchmentioned above, if all 32%$ of pet owners who answered either as wanting to take out insurance or as
considering buying pet insurance actually took out policies, if premiums remained unchanged the market
would expand to around JPY230.0bn.
Based on the 25% pet insurance coverage ratio in the mature UK market (FY2009), the Japanese market
would be worth approximately JPY180.0bn. Based on a 60% market share, Anicom is targeting revenueof JPY100bn in the long term.

UK
North America
Japan

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

Value percontract
JPY26,000
JPY31,000
JPY35,000

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

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

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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 lead to an expansion of the overall market. Here the company is focusing on two
strategies—further development of customers among those looking to get a pet in the future, andcautious development of customers who already have pets. Below is a summary of those strategies.

1) Development of customers who are looking to get a pet in the future
Strength in agency insurance sales by pet shops is one key to growthAnicom has 1,450 pet shop sales agencies (as of end-March 2014). This equates to around one-third of all
pet shops nationwide. Hence there is still room for expansion of pet shop agencies. Anicom plans tostrengthen its sales structure to increase exposure to its products in the pet shop market. At existing pet
shop agencies, Anicom also sees ample room to increase the awareness of the need for pet insurance(penetration rate). The insurance sales ratio at agencies (number of policies sold ÷ number of pets sold)shows a large variation among shops—ranging from 30% to 70%.
Expenditure on new customer development
From FY03/15, Anicom has made clear that it plans to spend money on developing new agencies andstrengthening its relationships with existing agencies. In May 2014, the company established a Tohoku
branch, and is working to bolster its sales structure. By implementing a range of sales measures atagencies, the company seeks to raise the insurance sales ratio at pet shops to 70%. The company has
said it wants to increase its sales-related expenditure in FY03/15. It is possible that the company will run
sales promotion campaigns, including those relating to agency commissions.
In FY03/14, the company acquired 74,000 new policies via pet shop agencies. The company believes that
there is ample room to raise that number to 90,000 through strengthened sales programs and closer ties
with agencies..

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

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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 is on an increasing trend. The company is targeting a loss ratio of 60%, which it deems as
appropriate. To achieve this, it is implementing stricter underwriting screening and working to increase
the number of newborn pets it insures, which have lower risk.
Stricter underwriting screening
Of the company’s approximately 500,000 insurance policies in force, around half of policyholders seldom
apply for payouts. About 30% of policyholders have loss ratios of around 60%, while several percent ofpolicyholders have loss ratios of 300%. With auto insurance, policyholders who have an accident claim do
not have the likelihood of ongoing accidents from the following year. However, in the case of pet insurance,
where there is a high loss ratio, there is a high proportion of chronic disease cases.
Launch of pet insurance with limited hospitalization days
On May 30, 2014, Anicom received approval from the Financial Services Agency (FSA) to begin sales of a
new type of pet insurance, which places limits on the number of hospitalization days. After sales of thistype begin, the company will, in general, impose limited hospitalization days for all new contracts(extensions will be unaffected). In Shared Research’s view, although insurance plans which place limits on
hospitalization will lead to lower premiums earned, placing an upper limit on time that can be spent in thehospital may yield a lower loss ratio. Taking into account the timing of when sales will begin, the newplans will likely start affecting results from FY03/16 onward.

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

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

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

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

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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 developmentof 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 isdefining where medical treatment ends and where either nursing care or beauty treatment begins.
JASMINE aims to publish research papers on exemplary medical treatment methods for difficult cases,
and by utilizing Anirese F make case examples from a large number of hospitals widely available. It is
hoped that this will flow through to lower loss ratios and an improvement in the company’s earnings
structure.
JASMINE has appointed as Institute Director Masami Uechi, former professor at the Department of
Veterinary Medicine, College of Bioresource Sciences, Nihon University. The director already has overseas
experience in the cardio-surgery field.

Strategy for overseas expansion
Medical records management system
Anicom did not have overseas operations as of March 2014. That does not mean, however, that thecompany does not have any plan to expand outside Japan. Anicom’s pet medical records management
system is used at 2,000 animal hospitals in Japan and is a major driver of growth in the company’s pet
insurance business. The rate of adoption at new animal hospitals is very high.
The company plans to begin 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, the company 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 takemeasures to prevent the occurrence of any hereditary illnesses. There are more hereditary ailments
among dogs in Japan than in the West. That is apparently due to less concerned in Japan about pet
bloodlines or hereditary diseases of particular breeds. Many breeders also ignore hereditary diseases andproduce dogs that are vulnerable to various illnesses
Breeding mistakes cannot be fixed through treatment. Therefore, the company aims to strengthen its
relationships with breeders in the long term, and thereby help prevent hereditary diseases.
In FY03/15, the company launched a project to strengthen its effort in this area.

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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 FY03/17 FY03/18
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Est.
Est.
Est.
7,267
10,8009,216
11,107
13,845
16,186
18,366
22,63825,60028,30031,20048.6%-14.7%
20.5%
24.7%
16.9%
13.5%
23.3%
13.1%
10.5%
10.2%

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

24,521

26,73829,099

487

550

600

593

1,012

1,501

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

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
-

23,5009.9%

25,7009.4%

28,100
9.3%

Other recurring expenses
Deferred tax assets under Article 113

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

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%

2,100
68.0%
8.2%

2,600
23.8%
9.2%

3,100
19.2%
9.9%

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

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%

1,446
74.4%
5.6%

1,808
25.0%
6.4%

2,172
20.1%
7.0%

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

A mortization of deferred tax assets under A rticle 113

Net income
YoY
NPM

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

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

FY03/08

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

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

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

3,464

4,503

5,464

6,793

8,283

9,067

10,385

13,066

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
-1
-1
9,270
22,337

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

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Cash flow statement
Cash Flow Statement
FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Operating Cash Flow (1)
3,094
737
1,608
1,792
1,879
1,507
2,009
Investment Cash Flow (2)-1,367-1,936-1,044-1,852-2,052-2,963-2,875
Free Cash Flow (1+2)-629-1,267
-144
835
-345
-43
131
Financial Cash Flow
-5
1,590
38
28
85
60
135
Depreciation & Amortization (A)
68
64
73
82
92
99
166
Capital Expenditures (B)
-57
-190
-226
-95
-71
-87
Working Capital Changes (C)Simple FCF (NI + A + B - C)
-130
220
268
452
661
459
995
Source: Company data, SR
Figures may differ from company materials due to differences in rounding methods.

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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 *Dobutsu Kempo Baby**

Pet shops

Dobutsu Kempo Smile Baby

Directly by pet shops

Dobutsu Kempo Smile Family

Pet shops

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

*There are limits to daily insurance payouts. The maximum payouts are JPY10,000 a day under the 50% plan and JPY14,000 a day under the 70%
plan for hospital visits or stays. For surgery, the maximum payout is JPY100,000 under the 50% and JPY140,000 under the 70% plan. The
company pays for two surgeries a year. However, there is no limit to the number of days for hospital visits or stays.
**The maximum payouts are JPY20,000 for hospital visits or stays. For surgery, the maximum payout is JPY20,000. The company pays for twosurgeries a year. However, there is no limit to the number of days for hospital visits or stays.
***Dobutsu Kempo Family will be revised in November 2014. The company will add a “standard” plan, which limits the number of hospital visits andstays. The existing plan, which does not have such a limit, will be called a “wide” plan.

Source: Company data

Pet insurance premiums
Premiums for pet insurance differ depending on the age and the breed of the animal. The company
classifies dogs into five types based on their size, with “A” being the smallest and “E” the largest. The
price rises in proportion to the size of the pet.
The premium for pets that are less than one year of age is high because such animals are vulnerable tosickness. However, the price declines after one year of age. Subsequently, the premium rises each year.
The new premium is applied when the policy is renewed annually.
Annual premiums according to breeds (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: Company data (as of November 2014)
Dog A: Japanese Spitz, Chihuahua, etc.; mixed-breed dogs weighing less than 10kg

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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)

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

6 yrs

ipet

7 yrs

8 yrs

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

Pet & Family

Motto Gyutto

Source: Company data
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 thetime 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 the number 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 ofhospital visits and 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

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covers birds, rabbits, or ferrets. There were also some changes in the classification of dogs. In addition,
premium payments may rise or fall depending on the health of the animal.
Thus, the company changed its insurance premiums twice within a short period of time—in June andNovember. The company stated that the only change it had planned to implement was the introduction ofa new product upon approval by the Financial Services Agency. However, the company decided to change
the premiums for its existing products in June to mitigate the impact of the April consumption tax hike.
Premiums after November 2014 (5% discount on renewal for pets aged one year or older) and June 2014
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 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.

Health discount/extra premium system
Under the new system, the company raises or reduces premium payments when policies are renewed
depending on the number 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 thecompany lower the loss ratio.
Under the new “health discount/extra premium” system, the company determines the premium payments forrenewed contracts based on the policyholders’ insurance use. First-year contracts are assessed based on theirrecord for the initial six-month period. Second-year contracts and those 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 forsome contracts that begin coverage on November 1 and thereafter. Discounts for healthier animals will begin
beforehand.

Number of hospital visits, stays
Discount/premium

0

1-5

6-19

20-39

40+

10% discount 5% discountNo 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

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screening based on the animal’s breed, age, health conditions, and health records submitted by the owner.
The pets that pass the screening are required to go through a waiting period of 1.5–2.0 months before
the policy is signed. The waiting period is required to prevent payouts for any preexisting conditions. The
company does not screen store-bought pets that are less than one year old. The company considers suchpets virtually risk-free.

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

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

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

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

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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 realizedthat human being is a go-between. He wants to become a bridge between people.
Komori seems to love play on words. He has also coined the word toshi, made up of two Chinesecharacters that together mean to “ignite the will.” The pronunciation of this word, however, is the same as
the word for “investment.”

History
July 2000

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

December 2004

Established Anicom Pafe, Inc.

January 2005

BSP was renamed Anicom International.

February 2005

Established Anicom Frontier, Inc.

January 2006

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

December 2007

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

January 2008

Anicom Insurance began nonlife insurance operations.

June 2008

Anicom International was renamed Anicom Holdings Inc.

March 2010

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

January 2014

Established Japan Animal Specialty Medical Institute Inc. (JASMINE)

June 2014

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

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Major shareholders
As of March 2014

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

http://www.sharedresearch.jp/

Percentage
14.5%
10.2%
7.0%
6.9%
5.2%
3.8%
3.3%
2.6%
2.1%
1.8%

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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

1

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S hih Tzu

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

C hihuahua

3

G oldenRetriev er

C hihuahua

S hih Tzu

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Labrador
Retriev er

P embroke
Welsh C orgi

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S hih Tzu

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Yorkshire
TerrierYorkshire
TerrierYorkshire
TerrierYorkshire
Terrier

P omeranian

P omeranian

P omeranian

P omeranian

P omeranian

P omeranian5

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Labrador
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TerrierYorkshire
Terrier

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Welsh C orgi

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P apillon

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7

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S chnauzer

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M altese

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Retriev er

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M iniature
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10

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M iniature
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M iniature
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11

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12

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BeagleBeagleM altese

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Retriev er

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G oldenRetriev er

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13

P oodleP oodleM altese

M altese

M iniature
S chnauzer

C av alierKing C harles
S paniel

F renchBulldog

P ug

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P ug

P ug

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C av alier
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S paniel

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S paniel

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15

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17

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A merican
C ocker
S paniel

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A merican
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M iniature
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20

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Border C ollie

M iniature
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BeagleBeagleBeagleBeagleP ekingese

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Company profile
Company Name

Head Office

Anicom Holdings, Inc.

1-5-22 Shimoochiai, Shinjuku-ku
Tokyo, Japan
161-0033

Phone

Listed On+81-3-6733-3000

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/

March(in Japanese)

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