Morningstar Equity Research Report 2013.7.1

Largest pet insurance group

Recommendation rating（6/27）

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

Unit of Investment

1,333yen（6/27）

100Shares

BUY

Market Cap

Year HighYear Low

PER（E）

22.96Bil yen

1,837yen（13/5/15）

687yen（13/1/4）（6/27）（6/27）

35.9

Lowering loss ratio points lead to a recovery in profitability
Estimated Share
Price Range■Ordinary profit for March 2013 to surge 2.5 times y-o-yAnicom Holdings, Inc. reported its consolidated earnings
for the year ended March 2013, with ordinary revenue andordinary profit coming in at \16.19 billion (up 16.9% year-onyear) and \840 million (2.5 times) ,respectively. During theyear, the company expanded its insurance distribution channel
by forging distribution agreements with major agents. Thanks
to this measure, the number of pet shop agents increased
by 13.6% y-o-y to 1,390 and general agents rose by 16.9%
to 3,362. As a result, by the end of the year, the number of
insurance policies in force increased to 446,414 (up 12.7 %from the end of March 2012).
On the cost front, the company posted insurance underwriting
expenses of \11.45billion (up 16.9% y-o-y) but its selling andgeneral administrative expenses (SGA) grew at a modest paceto \3,630 million (up 7.1%). Consequently, ordinary expenses,
comprising in large part, these expenses amounted to\15.35billion (up 13.6% y-o-y), successfully holding down therate of increase in ordinary expenses below that of ordinary
revenue. As a result, the company achieved substantial
ordinary income growth.
The main factor for the increase in underwriting expenses
was a rise in insurance claims paid in the wake of the launchof wider coverage insurance products in October 2010 (launch
70% or 90% coverage products, in addition to the conventional
50% coverage products). To cope with this issue, Anicom
discontinued the sale of insurance policies that cover 90% ofdamages effective in August 2012. Following this action, thecompany’s loss ratio has been declining from its peak in 2Q of
FY2012.

￥1,250 ～￥1,700

Yen
2,000

1,837

1,750
1,500
1,250
1,000
750
500

13 Weeks Moving Avg.
463

26 Weeks Moving Avg.

Month 7

8

9

10

11

100,000
SharesVolume13 Weeks Moving Avg.

12

1

2

3

4

5

6

13 WeeksMoving Average

26 WeeksMoving Average

Volume（13 Weeks Average）￥1,261￥1,066

616,069Sharesmarked a notable increase.
The company forecasts that its net loss ratio for March2014 will fall to 61.4% (compared with 63.7% for the same
period a year ago) due in large part to the withdrawal of
insurance policies that cover 90% of damages. On the other
hand, it plans to focus its attention primarily on increasing
pet shop agents with a view to expanding and strengthening
its foundation for acquiring new insurance policy contracts.
This strategy is expected to raise the net expense ratio to28.8% (28.5% in the previous year) but higher revenue andother positive effects are likely to lift the percentage ofordinary income to ordinary revenue to 5.6% (from 5.2% in
the previous year). With the expected decline in both loss
ratio and expense ratio over the medium term, the company
is likely to boost its profitability further from the year ending
March 2015. The pet insurance market has high potential for
growing. Therefore, high-rate growth in insurance policies
in force is anticipated to remain in the foreseeable future,
giving us confident expectation of Anocom’s earnings growthprogressing going forward. In light of the above, we are
maintaining our BUY rating on the company’s shares. We
have moderately extended the range of our estimated shareprice to ¥1,250 ~ ¥1,700, with recent high volatile markets.
(Tomoaki Fujii)■Double-digit growth in revenue and profit is likely to continue in FY2014
Anicom’s earnings forecast for the year ending March 2014shows that ordinary revenue will increase by 12.1% from thesame period last year to \18.14 billion, while ordinary income
will rise by 20.7 % on a year-over-year basis to \1.01 billion.
It expects that year-end policies in force will grow to 505,602(increase 59,188 from the end of March 2013). Policies inforce on a net basis have increased steadily over the last few
months, standing at 456,780 as of the end of May 2013 (up5,445 from the end of April 2013). Thanks to contributing
from leading pet shops, with which the company signed a
distribution agreement in 4Q of March 2012, the New Born
(NB) policy (a type of insurance policy taken out with pet shop
agents by those intending to keep pets in the near future)

Revenue and Earnings Trend （As of June 27）
Ordinary Revenue（Yen Mil）

YoY（％）

Operating Profit

YoY
（％）

Ordinary Profit

YoY
（％）

Net Profit（Yen Mil）（Yen Mil）（Yen Mil）

YoY
EPS（％） （Yen）

2012-3

Past Results

13,845

24.7

－

－

337

▲ 1.6

465

10.4

28.2

2013-3

Past Results

16,186

16.9

－

－

837

148.4

640

37.6

38.1

Company est.

18,136

12.1

－

－

1,010

20.7

637

▲ 0.5

37.1

MS est.

18,200

12.4

－

－

1,020

21.9

640

0.0

37.2

MS est.

20,200

11.0

－

－

1,700

66.7

1,060

65.6

61.5

2014-32015-3This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.

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Morningstar Equity Research Report 2013.7.1

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

Anicomʼ s seamless network

Anicom is the largest pet insurance group. The company sells its
pet insurance policies primarily through pet shops, allowing its
customers to take out insurance on pets immediately after they
have commenced pet ownership. Further, in collaboration withveterinary hospitals across the country, the company introduced asystem that allows its customers to settle their medical expenses(i.e. payments for medical expenses after the deduction of insurance
claims) at the hospital counter by simply presenting the company’s
exclusive ‘Animal Health Insurance card’. Pet shops receive
commissions based on the number of acquired policies and animal
hospitals are able to use the company’s medical data management
system as well as expect an increase in patients with the help of
the business alliance with the company. This network provides thecompany with a sizeable edge over its competitors and high barriers
to entry.
Claims for pet insurance show the features of ‘small in amount’and ‘frequently filed’. This indicates that, compared with other insurance
products, the pace of increase in loss ratio (the percentage
of insurance claims paid to premium income) slows down as thenumber of acquired policies increases.
The current size of the pet insurance market in Japan is approximately\25 billion, of which Anicom holds about 64% (\16 billion). By comparison, the market size in the UK, an advanced country in terms of pet
insurance, stands at around \80 billion. However, Japan has twice thenumber of pets than the UK and it is anticipated that the size of the Japanese pet insurance market has the potential to grow greater than \160billion.

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

AnicomInsurance
Pet
shops

Veterinary
hospitals

・Insurance validity
confirmation system
・Online receipt
requesting system

Agency WEB

Growth of Insurance Policies in force and Ordinary Revenue（millions of yen）
20,000Insurance policies in force(at year-end, right-hand scale)

16,00012,000396,234

0505,602500,000

446,414400,000

340,628
290,767

8,000
4,000

（No. of policies）
600,000

Ordinary revenue (left-hand scale)

9,215

Mar 10

11,107

13,845

18,136

16,186300,000
200,000
100,000

Mar 11

Mar 12

Mar 13

Mar 140Company estimates■Business Environment and Outlook
Driven by a rise in the number of pet owners and increasing pet longevity, demand for pet insurance is on an upward trend. There are an
estimated 21.28 million pets (dogs and cats) in Japan, of which those insured account for a mere 3.4%. On the other hand, 80% of owners thinktheir pets need to be insured, while 32% are either intending or considering taking out pet insurance. These statistics demonstrate the potential
expansion in the pet insurance market in Japan. There are approximately
7,000 veterinary hospitals across Japan whose treatments are coveredby pet insurance; of them Anicom forms a business partnership with
5,349 hospitals (as of the end of March 2013).In addition, among 4,000~ 5,000 pet shops in the country, the company deals with 1,390 shops asits distribution agent (as of the end of March 2013), securing a competitive and advantageous position in the market.
The company’s medium-term management plan projects that its ordinary income for the years ending March 2015 and March 2016 will
come in at \1.71 billion and \2.47 billion, respectively. We believe that
not only increasing in insurance policies in force but also the improving
loss ratio on the back of a revised coverage policy mix, attributable largely to the withdrawal of the 90% cover products, together with a rising insurance policy persistency rate and a lowering expense ratio should help
the company enhance its profitability in the foreseeable future.

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

Shareholder Return （As of June27）■ Dividends■ Shareholder Special Benefits（Date of Right Allotment、End of June, End of December）

Dividend Per Share
Midterm

Year-End

Not Applicable

Annual

2012-3

Past Results

￥0

￥0

￥0

2013-3

Past Results

￥0

￥0

￥0

2014-3Company est.

￥0

￥0

￥0

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

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Morningstar Equity Research Report 2013.7.1

Anicom Holdings, Inc.（8715・ TSE’s Mothers）（As of June 27）
Competitor Comparison（If the number is better than rivals, it's highlighted by red character）

Anicom Holdings, Inc.

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

GrowthProfitability（8630・TSE）

Tokio Marine Holdings, Inc.
（8766・TSE）￥1,333￥2,277￥3,045

Unit of Investment

100Shares

100Shares

100Shares

Minimum Investment Amount￥133,300￥227,700￥304,500

Fiscal Year End
Share Price
Indicator

NKSJ Holdings, Inc.

March

March

March

PER（E）

35.9

27.8

PBR

2.9

Dividend Yield（E）

－

0.7
2.6%

13.7
1.0
2.0%

Ordinary Revenue Growth Rate（E）

12.1%

0.6%

-

Operating Profit Growth Rate（E）

20.7%▲22.7%EPS Growth Rate（E）▲2.5%▲22.0%

Ordinary Profit Ratio（E）

5.6%
8.6%

2.8%

30.1%
31.2%
-

3.8%

6.2%

5.2%

1.2%

1.2%

63.7%
28.5%

70.6%

68.7%

32.8%

31.0%

281.3%

645.6%

665.3%ROE
ROA（Ordinary income/Total
assets）
Net loss ratio (actual)

Management Net expense ratio (actual)indexesSolvency margin ratio (actual)

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

■GrowthAnicom’s top line continues to expand
as the number of new policies written
increases. Ordinary revenue for the year
ending March 2013 rose 16.9% year-onyear to \16.19 billion. Ordinary income
surged 2.5 times the amount posted in
the previous year to \840 million, as thecompany managed to cap a rise in ordinary expenses. At the same time, ordinary
revenue for the year ending March 2014is expected to increase by 12.1% y-o-yto \18.14 billion on the back of strong
growth in new policies written. NB policies have grown at a notable rate over
the recent period, thanks to contributions
from new pet shop agents with which thecompany concluded a distribution agreement during 4Q of the previous year.
The company also forecasts that the loss
ratio will decrease, reflecting the positiveeffects from revenue growth and its withdrawal from the offer of 90% coverage
insurance policies. As a result it expects
ordinary income for the year ending
March 2014 to grow by 20.7% y-o-y to\1.01billion.

■Profitability

Ordinary income as a percentage of ordinary revenue for the year ending March2013 was 5.2 %, marking a significant improvement from the actual 2.4% logged in
the year ended March 2012. The year ended March 2012 saw deterioration of profitability, as higher insurance claims paid in
the wake of the company’s launch of wider
damage coverage products, extending as
far as 90%, weighed on its profit. To copewith this, Anicom withdrew from the saleof insurance policies that cover 90% ofdamages effective in August 2012. Despite
this action, however, payment of insurance
claims continued to increase into the year
ended March 2013, with the net loss ratio
for the same year rising from the previous
year’s 57.3% to 63.7%. On the other hand,the net expense ratio, a percentage of operating expenses such as marketing costs on
net premiums written, fell from the 30.9%
recorded in the previous year to 28.5%. As
a result, the rate of increase in operating
expenses fell below that of operating revenue, contributing to the improvement of theCompany’s profitability. The company forecasts that its net expense ratio for the year
ending March 2014 will come to 28.8%, asimilar level recorded the previous year,
while the net loss ratio will fall to 61.4%,
thereby its ordinary income as a percentage
of ordinary revenue is expected to improve
to 5.6%.

■Management indexes

Anicom’s net loss ratio for March 2013 worsened
to 63.7% as it suffered particularly from the negative impact of insurance products offering wider
damage coverage. Nevertheless, its ratio was still
lower than that of its two competitors. Anicom’s
expense ratio was lower than its competitors’ aswell. This indicates that it had a lower combined
ratio (see※ below) at 92.2%, compared with thatof Tokio Marine & Nichido Fire Insurance Co.,
Ltd. at 99.7% and Sompo Japan Insurance Inc.
at 103.4%, underlining the Company’s higher
productivity than its competitors. Although wecannot simply compare the loss ratio of different
sectors --- general casualty insurance and pet insurance, given Anicom’s efficient control over its
expense ratio, we are seeing the positive effects of
its relatively lower loss ratio. Its solvency margin
ratio exceeds 200% level. Insurers with a solvency
margin ratio at or above this level are considered
to have sufficient ability to make payments for
insurance claims; hence we have no particularconcern about its financial soundness.
※ One of the management indexes that concerns the level of insurance companies’ profitability. It is computed by combining the net loss ratio
and net expense ratio. A reading of 100 indicatesthat the company is at a break-even point, while
the lower than a 100 the reading goes, the more
profitable the company is.
Morningstar Japan K.K.
Equity Research Group
Research & Analysis Department
Analyst Tomoaki Fujii
03-6229-0810 tomofuji@morningstar.co.jp

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

（3/3）

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Analysis Points■ Analyst Comment■ Company Overview■ Growth

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

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

information for stock investment suchour research, it discusses what businesses

with competitors, and evaluate past

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

main business.

business prospects. Also to make sure it

business plan.

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

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

For the current fiscal year, we compare■ Profitability

We compare the company’s forecast of

It discusses current circumstances andoperating margin for the current fiscal

growth potential of the industry to which

year, and return on equity and return on

the company belongs. A comprehensive

asset based on the past year result with

It reports earnings in past two fiscal years,

report on the industry from different

competitors, and evaluate profitability

company forecasts and our forecasts forperspectives is provided through research

trends over the past years.

the current and next fiscal year. We predict

interviews to competitors. Specific figures

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

■ Revenue and Earnings Trend

quarterly earnings trend and analysis bysegments.

■ Risk factors■ Financial Health

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

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

describes various aspects of risks such as

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

stock market risks are also taken into

financial stability based on the amount ofconsideration.

cash and deposits and cash flow.

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