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ipet Holdings

ipet Holdings 7339

アイペットホールディングス
ipet Holdings, Inc.
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MFPR Roppongi Azabudai Building, Roppongi 1-8-7, Minato-ku, Tokyo 106-0032
https://www.ipet-hd.com
03-5574-8615
Summary
ipet Insurance is Japan’s second-largest provider of pet insurance. The company differs from other pet insurance companies in three main ways. a) Categorized as a “non-life” insurer: Most pet insurance companies are small-amount, short-term insurance companies that register with local Ministry of Finance bureaus and have a capital requirement of JP10mn. Being categorized as a non-life insurer, ipet is licensed by the Financial Services Agency and has a minimum capital requirement of JPY1.0bn. ipet is also a member of the Non-life Insurance Policyholders Protection Corporation of Japan, which functions as a safety net for policyholders. b) Over-the-counter payouts: Like industry leader Anicom Holdings (TSE1: 8715), insurance payouts are settled over the counter at major animal hospitals around Japan. c) Online sales channels: The company has cultivated fast-growing online channels. Expertise in this area has helped keep the overall loss ratio under control and secure profits.
Insurance
Key dates
2019-01-28
Coverage initiation
Full Report
2022-05-16
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Executive summary

Business overview

In October 2020, ipet Holdings was established as the wholly owning parent of ipet Insurance Co., Ltd., through a single share transfer. The company’s core subsidiary, ipet Insurance, sells pet insurance and has a market share in the pet insurance industry of nearly 27%, second only to Anicom Holdings, which has a market share of 40.5%. ipet Holdings’ only reporting segment is the Nonlife Insurance business, which accounted for 98.9% of recurring revenue and 96.5% of recurring profit in FY03/21.

The company sells its mainstay pet insurance to general consumers, especially pet owners, to cover a certain percentage of the cost of surgery or other medical treatment for illness or injury, mainly for dogs, cats, and other pets kept in households (policy length is one year). This insurance is similar in function to medical insurance for humans (third-sector insurance), but the Insurance Business Act defines it as “insurance to cover damages suffered by the policyholder due to accident” (nonlife insurance). Products covering the risk of injury to pets were originally operated by mutual aid associations. The predecessor of ipet Insurance was established in 2004, but the earlier mutual aid associations were reorganized into nonlife or small-amount short-term insurers following a 2005 revision of the Insurance Business Act. Companies competing in the pet insurance industry include five nonlife insurers licensed by the Financial Services Agency (including the company itself) and 10 small-amount short-term insurers registered with Local Finance Bureaus.

The pet insurance sales and underwriting business, which is the company’s main business, is a recurring-revenue business in which the company collects premiums monthly from policyholders. Revenue can be explained in terms of the policy count and premium amount, but profits are affected by insurance accounting. The company first books premium revenue, and insurance payouts (cost of revenue) occur later, with unearned premiums for the next and subsequent insurance periods being carried forward as underwriting reserves, so profits straddle fiscal years. In the case of ipet Insurance, the number of policies in force is increasing rapidly, and Shared Research understands that it will remain difficult for the company to generate accounting profits for the time being. It will be important to maintain or even improve the policy renewal rate and increase productivity.

The following are some key points that differentiate ipet Insurance from competitors: 1) it is a nonlife insurer licensed by the Financial Services Agency (with good credibility as a listed company), 2) it is a member of a safety net called the Non-life Insurance Policy-holders Protection Corporation of Japan, 3) it is able to provide over-the-counter settlement services at major veterinary hospitals nationwide alongside industry leader Anicom Holdings (TSE: 8715, a nonlife insurer), and 4) it has experience and expertise in developing online channels, which are seeing rapid growth (its accumulation of expertise has allowed the company to control the overall loss ratio and secure profits).

ipet Insurance has grown to hold a 27% market share in the pet insurance industry with more than 600,000 policies in force as of FY03/21. Hereafter, the company will focus on restructuring its management base as it works to complement its pet insurance and produce derivative products with the aim of diversifying its Nonlife Insurance business. The company established a pure holding company (ipet Holdings, Inc.) on October 1, 2020, and now plans to establish group companies based on appropriate procedures.

In May 2021, the company formulated and disclosed a new medium-term management plan, positioning the next three years as a phase for laying the groundwork for new growth. It is targeting FY03/24 recurring revenue of JPY37.3bn, adjusted recurring profit of JPY1.4bn, and adjusted net income of JPY910mn, based on the assumption that it can reach 884,000 policies in force. Together with the medium-term plan, the company also announced new KPIs. To its conventional KPI (number of policies in force), it has added lifetime value (LTV), policy acquisition cost (PAC), and internal rate of return (IRR), for a total of four indicators it will use in evaluating performance. It intends to calculate its business value as (LTV per policy) x (average remaining years / average years of renewal) x number of policies in force to date + (LTV per policy – PAC per policy) x (projected increase in number of policies in force).

Earnings trends

For FY03/22, the company reported consolidated recurring revenue of JPY28.7bn (+25.3% YoY), adjusted recurring profit (non-GAAP) of JPY1.8bn (+61.1% YoY, a record high), and adjusted net income (non-GAAP) of JPY1.2bn (loss of JPY195mn in FY03/21). The company posted a profit increase because the Pet Insurance business had a steady top-line increase while the loss ratio fell below the company projection.

For FY03/23, the company forecasts recurring revenue of JPY32.9bn (+14.7% YoY), adjusted recurring profit of JPY1.1bn (-40.7% YoY), and adjusted net income of JPY770mn (-35.8% YoY).

Strengths and weaknesses

ipet Holdings’ strengths include 1) the fact that OTC insurance payouts are an entry barrier, 2) it is a pioneer of online channels, and 3) it has a low-priced product that enables sales expansion without cannibalization. The company’s weaknesses include 1) an unchanged product design since its founding, 2) effect of reserves on recurring profit, and 3) inadequate management resources.

Shared Research believes ipet has the following attributes:
Strong market position in growing online channels
Product mix that enables sales growth of low-priced products without fear of cannibalization
Ability to strengthen business foundation and pioneer new markets through CRM
Potential to improve business efficiency (many inefficiencies in current business processes)

Key financial data


Income statementFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22FY03/23
(JPYmn)ParentParentParentParentParentParentParentParentCons.Cons.Est.
Recurring revenue (Non-GAAP)4,2875,1036,3658,12810,07112,26814,94118,33422,87828,67532,900
YoY30.6%19.0%24.7%27.7%23.9%21.8%21.8%22.7%24.8%25.3%14.7%
Recurring profit (Non-GAAP)626616-1,521-33634544445347740191750
YoY--1.6%---28.7%2.0%5.3%-15.9%128.7%-94.7%
Recurring profit margin14.6%12.1%--3.4%3.6%3.0%2.6%1.8%3.2%0.2%
Net income (Non-GAAP)----271-81963308-712560-
Adjusted recurring profit (Non-GAAP)(Non-GAAP) 764779-1,317-766688359291,0581,1191,8031,070
YoY-2.0%---25.0%11.3%13.9%5.8%61.1%-40.7%
Net margin17.8%15.3%--6.6%6.8%6.2%5.8%4.9%6.3%3.3%
Catastrophe reserve impact138163204260322391475580718886-
Adjusted net income593310816725-1951,198770
YoY-47.7%163.2%-11.2%---35.7%
Net margin5.9%2.5%5.5%4.0%-4.2%2.3%
Catastrophe reserve impact391-147417516--
J-GAAP
Recurring revenue4,2875,1036,3658,12810,07112,26814,94118,33422,87828,675
YoY30.6%19.0%24.7%27.7%23.9%21.8%21.8%22.7%24.8%25.3%
Underwriting revenue4,2855,1006,3638,12710,06712,21214,83118,11522,41227,667
Investment revenue221245060173282335
Other recurring revenue1100-64945182672
Recurring expenses3,8964,6597,8257,8209,77311,70614,64317,92022,49628,483
YoY46.2%19.6%67.9%-0.1%25.0%19.8%25.1%22.4%25.5%26.6%
Underwriting expenses2,5022,7823,2764,6395,8516,9839,39812,23716,46121,163
SG&A expenses1,4871,9462,5853,1903,9214,7135,2245,5795,9447,208
Other4244702,618-909449325
Recurring profit392444-1,460308297561297413381191
YoY-36.7%13.3%---3.5%88.9%-47.1%39.1%-7.7%-49.9%
Recurring profit margin9.1%8.7%-22.9%3.8%2.9%4.6%2.0%2.3%1.7%0.7%
Net income306345-1,24910619632851261-72738
YoY-49.8%12.9%--84.8%-83.7%--69.3%--
Net margin7.1%6.8%-19.6%1.3%1.9%0.3%5.7%1.4%-3.2%0.1%
Per-share data
Shares issued (year-end)('000 shares) ----4,6964,6975,33610,79710,81210,861
EPS----57.9-17.4183.428.7-66.03.5
EPS (fully diluted)---------3.5
Dividend per share----------
Book value per share-337.4-177.4569.4614.6618.01,000.3517.0461.8464.7
Balance sheet (JPYmn)
Cash and deposits2,0712,9983,6345,2595,1134,6665,0353,0501,64910,916
Securities---136832,1603,5665,0678,4213,021
Tangible fixed assets85907869109153232401599854
Intangible assets292956634153461,3122,0491,4101,272
Other assets2,7892,8311,0711,3041,5761,8142,4722,8773,4574,288
Allowance for doubtful accounts-31-34-20-5-5-1-1---
Deferred tax assets215191459276278848341,0171,7542,009
Total assets5,1576,1055,2786,9798,1799,25013,57415,59917,40822,375
Provision for insurance cancellation1,8952,3992,8173,6414,6015,5607,0198,86911,28714,594
Other liabilities2452722425105016841,0559919472,430
Provision for bonuses3095100144174100126144151282
Reserves under special laws---0137142326
Differed tax liabilities----------
Total Liabilities2,1832,7873,2084,3055,2936,3478,23710,01812,41517,341
Shareholders' equity2,9743,3192,0702,6762,8722,9065,3225,6244,9924,958
Valuation and translation adjustments----213-314-438875
Minority interests----------
Total net assets2,9743,3192,0702,6742,8862,9025,3365,5804,9925,033
Total liabilities and capital5,1576,1055,2786,9798,1799,25013,57415,59917,40822,375
Cash flow statement(JPYmn)
Cash flows from operating activities1,1581,5541,3721,1931,0141,3041,5291,5442,2603,453
Cash flows from investing activities-834-1,223-835-65-717-1,846-2,048-2,580-3,5324,808
Cash flows from financing activities-3-5-2498-1-41,484156-1281,005
Financial indicators
ROA (RP-based)8.3%7.9%-25.7%5.0%3.9%6.4%2.6%2.8%2.3%1.0%
ROE10.8%11.0%-46.4%4.5%7.1%1.1%20.7%4.8%-13.6%0.8%
Equity ratio57.7%54.4%39.2%38.3%35.3%31.4%39.3%35.8%29.2%22.5%
Combined ratio (earned premiums basis)84.0%85.9%89.6%90.0%94.1%93.3%94.1%94.5%95.9%94.0%
E/I loss ratio36.1%36.3%37.2%39.1%45.5%43.1%45.5%48.7%52.2%52.3%
Expense ratio (earned premiums basis)47.9%49.6%52.4%50.9%50.9%50.1%48.6%45.8%43.8%41.7%
Combined ratio81.1%82.8%85.5%86.2%87.5%87.9%88.8%88.1%88.6%88.2%
Net loss ratio34.3%34.1%34.6%36.7%38.8%39.9%42.4%44.5%47.2%48.6%
Net expense ratio46.8%48.7%50.9%49.5%48.7%48.0%46.4%46.4%41.5%39.6%
Solvency margin ratio255.9%276.4%330.3%379.2%315.6%284.8%381.4%347.3%260.4%267.2%
LTV (JPY)67,69770,736
PAC (JPY)19,15622,266
IRR (％) 43.7%42.0%
Source: Shared Research based on company data.
The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established

Recent updates

Upward revision to the full-year FY03/22 earnings forecast

2022-03-25

On March 24, 2022, ipet Holdings, Inc. announced an upward revision to its full-year FY03/22 consolidated earnings forecast.

On March 24, 2022, the company upgraded its forecasts again. The revised forecast is recurring revenue of JPY28.6bn (unchanged from the previous forecast), recurring profit of JPY700mn (up JPY450mn), net income of JPY450mn (up JPY370 mn), and EPS of JPY41.57 (JPY7.39 in the previous forecast). Adjusted recurring profit is JPY1.6bn (up JPY450mn YoY), and adjusted net income is JPY1.1bn (up JPY370mn YoY). The reasons for the revision include: (1) Operating and SG&A costs at subsidiary ipet Insurance are forecast to be lower previously assumed due to improved operational efficiency; (2) the increase in the loss ratio has been narrower than previously forecast.  

Trends and outlook

Quarterly trends and results

Cumulative quarterly earnings (non-GAAP)
Cumulative Non-GAAPFY03/20FY03/21FY03/22FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.Revised Est.
ParentParentParentParentParentParentCons.Cons.Cons.Cons.Cons.Cons.Cons.
Recurring revenue4,2178,64613,36918,3345,19510,74416,58422,8786,64913,70221,00628,675100.3%28,600
YoY21.7%22.0%22.4%22.7%23.2%24.3%24.0%24.8%28.0%27.5%26.7%25.3%25.0%
Underwriting revenue4,1868,53413,20418,1155,15810,58016,32322,4126,37613,13220,22327,667
YoY21.6%21.3%21.8%22.1%23.2%24.0%23.6%23.7%23.6%24.1%23.9%23.4%
Investment revenue198913117326142226282130270302335
YoY90.0%229.6%227.5%188.3%40.8%59.6%72.5%63.0%387.4%90.1%33.6%18.8%
Other recurring revenue11223445102135182142299480672
YoY-15.4%-8.3%-8.1%-8.2%-9.1%-4.5%2.9%304.4%---269.2%
Recurring expenses4,1218,33012,96117,8565,13510,60716,33022,4776,54513,52320,53327,758
YoY23.2%21.2%23.0%23.3%24.6%27.3%26.0%25.9%27.5%27.5%25.7%23.5%
Underwriting expenses2,6865,5878,79512,1733,7477,76511,99416,4434,7559,91915,13820,440
YoY31.2%29.5%33.1%31.7%39.5%39.0%36.4%35.1%26.9%27.7%26.2%24.3%
Net claims paid1,6733,4245,4147,4432,2154,7197,3149,8532,9765,9589,19712,408
YoY28.7%26.7%28.4%28.6%32.4%37.8%35.1%32.4%34.4%26.3%25.7%25.9%
% of recurring revenue39.7%39.6%40.5%40.6%42.6%43.9%44.1%43.1%44.8%43.5%43.8%43.3%
Loss adjustment expenses1343184786231513345137161964656961,042
YoY38.1%54.4%51.7%26.4%12.7%5.0%7.3%14.9%29.8%39.2%35.7%45.5%
% of recurring revenue3.2%3.7%3.6%3.4%2.9%3.1%3.1%3.1%2.9%3.4%3.3%3.6%
Commissions and collection fees4749841,5972,3207491,6032,4853,4721,0082,0963,2244,404
YoY32.0%30.0%35.6%39.9%58.0%62.9%55.6%49.7%34.6%30.8%29.7%26.8%
% of recurring revenue11.2%11.4%11.9%12.7%14.4%14.9%15.0%15.2%15.2%15.3%15.3%15.4%
Provision for outstanding losses and claims772312623262022483375103228287274
YoY541.7%111.9%309.4%94.0%162.3%7.4%28.6%56.4%-98.5%-8.1%-14.8%-46.3%
% of recurring revenue1.8%2.7%2.0%1.8%3.9%2.3%2.0%2.2%0.0%1.7%1.4%1.0%
Provision for underwriting reserves3226271,0401,4584248571,3411,8855671,1681,7312,307
YoY16.2%16.1%24.8%28.7%31.7%36.7%28.9%29.3%33.7%36.3%29.1%22.4%
% of recurring revenue7.6%7.3%7.8%8.0%8.2%8.0%8.1%8.2%8.5%8.5%8.2%8.0%
Investment expenses44135534515958596181105
YoY---23.5%266.7%690.0%1,017.8%359.8%5.5%73.5%19.6%37.3%81.0%
SG&A expenses1,4282,7344,1155,5791,3542,7804,2485,9441,7313,5435,3127,208
YoY10.0%6.9%5.2%6.8%-5.2%1.7%3.2%6.5%27.8%27.4%25.0%21.3%
Other recurring expenses353849-112932--25
YoY-400.0%---129.7%-23.7%-34.7%---93.1%-84.4%
Recurring profit (Non-GAAP)9631640747760137254401104179473917131.0%700
YoY-19.4%47.7%6.8%5.3%-37.7%-56.6%-37.6%-15.9%73.3%29.9%86.2%128.7%74.6%
Recurring profit margin2.3%3.7%3.0%2.6%1.2%1.3%1.5%1.8%1.6%1.3%2.3%3.2%2.4%
Net income (Non-GAAP)652102643083679148-71259100300560124.4%450
YoY-88.8%-67.1%-64.9%-68.0%-44.6%-62.4%-43.9%-63.9%26.9%102.7%--
Adjusted recurring profit (Non-GAAP)(Non-GAAP) 2315908311,0582264777771,1193086001,1211,803114.1%1,580
YoY0.9%34.4%14.1%13.9%-2.3%-19.2%-6.5%5.8%36.7%25.8%44.3%61.1%41.2%
Recurring profit margin(Adjustment) 5.5%6.8%6.2%5.8%4.4%4.4%4.7%4.9%4.6%4.4%5.3%6.3%5.5%
Catastrophe reserve impact135274424581166340523718204421648886
Adjusted net income (Non-GAAP)161407569726155323525-1952064037661,198110.9%1,080
YoY-4.2%30.9%11.1%-10.9%-4.1%-20.6%-7.7%-33.1%24.8%45.9%--
Combined ratio (Earned / Incurred basis)94.7%94.0%94.3%94.5%95.3%96.2%96.2%95.9%96.2%96.8%95.3%94.0%
Losses incurred1,8843,9736,1548,3922,5685,3018,16411,0793,1756,65110,18013,724
YoY33.7%31.6%33.9%30.1%36.3%33.4%32.7%32.0%23.6%25.5%24.7%23.9%
Loss ratio (Earned / Incurred basis)47.1%48.6%48.9%48.7%52.4%52.7%52.7%52.2%52.8%53.7%53.2%52.3%
Earned premiums (cumulative)3,9988,18012,58717,2374,89910,06215,50521,2446,01312,38519,13926,246
YoY22.1%21.7%21.5%21.6%22.5%23.0%23.2%23.2%22.7%23.1%23.4%23.5%
Earned premiums (calc'd from loss ratio)3,9988,18012,58717,2374,89910,06215,50521,2446,01312,38519,13926,246
Operating expenses1,9023,7185,7127,8992,1034,3836,7549,2972,6095,3388,06410,956
YoY14.8%12.2%12.2%14.8%10.6%17.9%18.2%17.7%24.1%21.8%19.4%17.8%
Expense ratio (Earned / Incurred basis)47.6%45.5%45.4%45.8%42.9%43.6%43.6%43.8%43.4%43.1%42.1%41.7%
Combined ratio (net premiums written basis)88.6%87.4%87.9%88.1%86.6%89.2%89.3%88.6%90.7%89.6%88.8%88.2%
Loss ratio (net premiums written basis)43.2%43.8%44.6%44.5%45.9%47.8%48.0%47.2%49.7%48.9%48.9%48.6%
Expense ratio (net premiums written basis)45.4%43.6%43.3%43.6%40.8%41.4%41.4%41.5%40.9%40.6%39.9%39.6%
Source: Shared Research based on company data
Notes: Net loss ratio = (Net claims paid + loss adjustment expenses) ÷ net premium revenue
E/I loss ratio = Incurred loss ÷ earned premiums
Incurred loss = Net claims paid for the current financial year +loss adjustment expenses + provision for reserve for outstanding losses and claims
Earned premiums = Underwriting revenue minus provision for underwriting reserves (unearned premiums basis)
The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
Quarterly earnings (non-GAAP)
Quarterly Non-GAAPFY03/20FY03/21FY03/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
ParentParentParentParentParentParentCons.Cons.Cons.Cons.Cons.Cons.
Recurring revenue4,2174,4294,7234,9655,1955,5495,8406,2946,6497,0537,3047,669
YoY21.7%22.2%23.3%23.5%23.2%25.3%23.7%26.8%28.0%27.1%25.1%21.8%
Underwriting revenue4,1864,3484,6704,9115,1585,4225,7436,0896,3766,7567,0917,444
YoY21.6%21.0%22.7%23.1%23.2%24.7%23.0%24.0%23.6%24.6%23.5%22.3%
Investment revenue197042422611684561301403233
YoY90.0%311.8%223.1%110.0%36.8%65.7%100.0%33.3%400.0%20.7%-61.9%-41.1%
Other recurring revenue11111211101114147142157181192
YoY-15.4%--7.7%-8.3%-9.1%-16.7%----30.6%
Recurring expenses4,1214,2094,6314,8955,1355,4725,7236,1476,5456,9787,0107,225
YoY23.2%19.3%26.4%24.0%24.6%30.0%23.6%25.6%27.5%27.5%22.5%17.5%
Underwriting expenses2,6862,9013,2083,3783,7474,0184,2294,4494,7555,1645,2195,302
YoY31.2%28.0%39.9%28.2%39.5%38.5%31.8%31.7%26.9%28.5%23.4%19.2%
Net claims paid1,6731,7511,9902,0292,2152,5042,5952,5392,9762,9823,2393,211
YoY28.7%24.9%31.4%29.1%32.4%43.0%30.4%25.1%34.4%19.1%24.8%26.5%
% of recurring revenue39.7%39.5%42.1%40.9%42.6%45.1%44.4%40.3%44.8%42.3%44.3%41.9%
Loss adjustment expenses134184160145151183179203196269231346
YoY38.1%68.8%46.8%-18.5%12.7%-0.5%11.9%40.0%29.8%47.0%29.1%70.4%
% of recurring revenue3.2%4.2%3.4%2.9%2.9%3.3%3.1%3.2%2.9%3.8%3.2%4.5%
Commissions and collection fees4745106137237498548829871,0081,0881,1281,180
YoY32.0%28.1%45.6%50.6%58.0%67.5%43.9%36.5%34.6%27.4%27.9%19.6%
% of recurring revenue11.2%11.5%13.0%14.6%14.4%15.4%15.1%15.7%15.2%15.4%15.4%15.4%
Provision for outstanding losses and claims7715431642024689173322559-13
YoY541.7%58.8%--38.5%162.3%-70.1%187.1%170.3%-98.5%389.1%-33.7%-
% of recurring revenue1.8%3.5%0.7%1.3%3.9%0.8%1.5%2.7%0.0%3.2%0.8%-0.2%
Provision for underwriting reserves322305413418424433484544567601563576
YoY16.2%16.0%41.0%39.3%31.7%42.0%17.2%30.1%33.7%38.8%16.3%5.9%
% of recurring revenue7.6%6.9%8.7%8.4%8.2%7.8%8.3%8.6%8.5%8.5%7.7%7.5%
Investment expenses4-94234178-15922024
YoY---47.1%-690.0%--11.1%-73.5%-88.2%150.0%-
SG&A expenses1,4281,3061,3811,4641,3541,4261,4681,6961,7311,8121,7691,896
YoY10.0%3.7%2.1%11.5%-5.2%9.2%6.3%15.8%27.8%27.1%20.5%11.8%
Other recurring expenses323311-11183--23
YoY-100.0%-450.0%-450.0%-45.5%-72.7%---88.9%-
Recurring profit (Non-GAAP)962209170607711714710475294444
YoY-19.4%132.0%-45.5%-2.8%-37.5%-65.0%28.6%110.0%73.3%-2.6%151.3%202.0%
Recurring profit margin2.3%5.0%1.9%1.4%1.2%1.4%2.0%2.3%1.6%1.1%4.0%5.8%
Net income (Non-GAAP)651455444364369-8605941200260
YoY-88.8%141.7%-52.6%-79.1%-44.6%-70.3%27.8%-63.9%-4.7%189.9%-
Adjusted recurring profit (Non-GAAP)(Non-GAAP) 231359241227226251300342308292521682
YoY0.9%71.0%-16.6%12.9%-2.2%-30.1%24.5%50.7%36.3%16.3%73.7%99.4%
Recurring profit margin(After adjustment) 5.5%8.1%5.1%4.6%4.4%4.5%5.1%5.4%4.6%4.1%7.1%8.9%
Catastrophe reserve impact134139150157166174183195204217227238
Adjusted net income (Non-GAAP)161246162157155168202-720206197363432
YoY-4.2%72.0%-19.4%-48.2%-3.7%-31.7%24.7%-32.9%17.3%79.7%-
Combined ratio (Earned / Incurred basis)94.7%93.4%94.7%95.2%95.3%97.1%96.2%95.1%96.2%97.4%92.6%90.6%
Losses incurred1,8842,0892,1812,2382,5682,7332,8632,9153,1753,4763,5293,544
YoY33.7%29.9%38.2%20.7%36.3%30.8%31.3%30.3%23.6%27.2%23.3%21.6%
Loss ratio (Earned / Incurred basis)47.1%50.0%49.5%48.1%52.4%52.9%52.6%50.8%52.8%54.6%52.3%49.9%
Earned premiums3,9984,1824,4074,6504,8995,1635,4435,7396,0136,3726,7547,107
YoY22.1%21.3%21.3%21.8%22.5%23.5%23.5%23.4%22.7%23.4%24.1%23.8%
Operating expenses1,9021,8161,9942,1872,1032,2802,3712,5432,6092,7292,7262,892
YoY14.8%9.5%12.4%22.0%10.6%25.6%18.9%16.3%24.1%19.7%15.0%13.7%
Expense ratio (Earned / Incurred basis)47.6%43.4%45.2%47.0%42.9%44.2%43.6%44.3%43.4%42.8%40.4%40.7%
Combined ratio (net premiums written basis)88.6%86.3%88.7%88.8%86.6%91.6%89.6%86.8%90.7%88.5%87.4%86.6%
Loss ratio (net premiums written basis)43.2%44.5%46.0%44.3%45.9%49.6%48.3%45.0%49.7%48.1%48.9%47.8%
Expense ratio (net premiums written basis)45.4%41.8%42.7%44.5%40.8%42.1%41.3%41.8%40.9%40.4%38.4%38.9%
Source: Shared Research based on company data
Note: The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
Quarterly earnings (J-GAAP)
Cumulative J-GAAPFY03/20FY03/21FY03/22FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.Revised Est.
Recurring revenue4,2178,64613,36918,3345,19510,74416,58422,8786,64913,70221,00628,675100.3%28,600
YoY21.7%22.0%22.4%22.7%23.2%24.3%24.0%24.8%28.0%27.5%26.7%25.3%
Underwriting revenue4,1868,53413,20418,1155,15810,58016,32322,4126,37613,13220,22327,667
YoY21.6%21.3%21.8%22.1%23.2%24.0%23.6%23.7%23.6%24.1%23.9%23.4%
Investment revenue198913117326142226282130270302335
YoY90.0%229.6%227.5%188.3%40.8%59.6%72.5%63.0%387.4%90.1%33.6%18.8%
Other recurring revenue11223445102135182142299480672
YoY-15.4%-8.3%-8.1%-8.2%-9.1%-4.5%2.9%304.4%---269.2%
Recurring expenses4,1938,40513,02117,9205,17810,54516,26722,4966,56013,57320,86428,483
YoY26.1%22.0%24.4%22.4%23.5%25.5%24.9%25.5%26.7%28.7%28.3%26.6%
% of recurring revenue99.4%189.8%275.7%360.9%99.7%190.0%278.5%357.4%98.7%192.4%285.7%371.4%
Underwriting expenses2,7575,6618,85412,2373,7877,70111,92916,4614,7699,96815,46821,163
YoY36.0%30.8%35.5%30.2%37.4%36.0%34.7%34.5%25.9%29.4%29.7%28.6%
% of recurring revenue65.4%65.5%66.2%66.7%72.9%71.7%71.9%72.0%71.7%72.7%73.6%73.8%
Net claims paid1,6733,4245,4147,4432,2154,7197,3149,8532,9765,9589,19712,408
YoY28.7%26.7%28.4%28.6%32.4%37.8%35.1%32.4%34.4%26.3%25.7%25.9%
% of recurring revenue39.7%39.6%40.5%40.6%42.6%43.9%44.1%43.1%44.8%43.5%43.8%43.3%
Loss adjustment expenses1343184786231513345137161964656961,042
YoY38.1%54.4%51.7%26.4%12.7%5.0%7.3%14.9%29.8%39.2%35.7%45.5%
% of recurring revenue3.2%3.7%3.6%3.4%2.9%3.1%3.1%3.1%2.9%3.4%3.3%3.6%
Commissions and collection fees4749841,5972,3207491,6032,4853,4721,0082,0963,2244,404
YoY32.0%30.0%35.6%39.9%58.0%62.9%55.6%49.7%34.6%30.8%29.7%26.8%
% of recurring revenue11.2%11.4%11.9%12.7%14.4%14.9%15.0%15.2%15.2%15.3%15.3%15.4%
Provision for outstanding losses and claims772312623262022483375103228287274
YoY541.7%111.9%309.4%94.0%162.3%7.4%28.6%56.4%-98.5%-8.1%-14.8%-46.3%
% of recurring revenue1.8%2.7%2.0%1.8%3.9%2.3%2.0%2.2%0.0%1.7%1.4%1.0%
Provision for underwriting reserves3967031,1001,5224687971,2781,9065831,2182,0633,033
YoY54.1%27.4%44.4%18.1%18.2%13.4%16.2%25.2%24.6%52.8%61.4%59.1%
% of recurring revenue9.4%8.1%8.2%8.3%9.0%7.4%7.7%8.3%8.8%8.9%9.8%10.6%
Investment expenses44135534515958596181105
YoY---23.5%266.7%690.0%1,017.8%359.8%5.5%73.5%19.6%37.3%81.0%
SG&A expenses1,4282,7344,1155,5791,3542,7804,2485,9441,7313,5435,3127,208
YoY10.0%6.9%5.2%6.8%-5.2%1.7%3.2%6.5%27.8%27.4%25.0%21.3%
% of recurring revenue33.9%31.6%30.8%30.4%26.1%25.9%25.6%26.0%26.0%25.9%25.3%25.1%
Other recurring expenses353849-112932--25
Interest expenses------13--13
Recurring profit232403484131719831738189129142191
YoY-83.5%20.0%-23.2%39.1%-26.1%-17.5%-8.9%-7.7%423.5%-34.8%-55.2%-49.9%
Recurring profit margin0.5%5.4%7.4%8.3%0.3%3.6%5.4%6.1%1.3%1.8%1.9%2.5%
Extraordinary gains (losses)-1-4-5-7-2-3-5-1,377-1-1-3-48
Pre-tax profit2223634340615195312-99687127139143
Income taxes9801211441072118-269396278104
Implied tax rate40.9%33.9%35.3%35.5%66.7%36.9%37.8%27.0%44.8%48.8%56.1%72.7%
Net income121562212615122194-72748646138
YoY-98.0%-75.2%-72.5%-69.3%-58.3%-21.8%-12.2%-860.0%-47.5%-68.6%-
Net margin0.3%3.5%4.7%5.3%0.1%2.2%3.3%-0.7%0.9%0.8%0.5%
Quarterly J-GAAPFY03/20FY03/21FY03/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
Recurring revenue4,2174,4294,7234,9655,1955,5495,8406,2946,6497,0537,3047,669
YoY21.7%22.2%23.3%23.5%23.2%25.3%23.7%26.8%28.0%27.1%25.1%21.8%
Underwriting revenue4,1864,3484,6704,9115,1585,4225,7436,0896,3766,7567,0917,444
YoY21.6%21.0%22.7%23.1%23.2%24.7%23.0%24.0%23.6%24.6%23.5%22.3%
Investment revenue197042422611684561301403233
YoY90.0%311.8%223.1%110.0%36.8%65.7%100.0%33.3%400.0%20.7%-61.9%-41.1%
Other recurring revenue11111211101114147142157181192
YoY-15.4%--7.7%-8.3%-9.1%-16.7%----30.6%
Recurring expenses4,1934,2124,6164,8995,1785,3675,7226,2296,5607,0137,2917,619
YoY26.1%18.2%29.0%17.3%23.5%27.4%24.0%27.1%26.7%30.7%27.4%22.3%
% of recurring revenue99.4%95.1%97.7%98.7%99.7%96.7%98.0%99.0%98.7%99.4%99.8%99.3%
Underwriting expenses2,7572,9043,1933,3833,7873,9144,2284,5324,7695,1995,5005,695
YoY36.0%26.2%44.6%18.2%37.4%34.8%32.4%34.0%25.9%32.8%30.1%25.7%
% of recurring revenue65.4%65.6%67.6%68.1%72.9%70.5%72.4%72.0%71.7%73.7%75.3%74.3%
Net claims paid1,6731,7511,9902,0292,2152,5042,5952,5392,9762,9823,2393,211
YoY28.7%24.9%31.4%29.1%32.4%43.0%30.4%25.1%34.4%19.1%24.8%26.5%
% of recurring revenue39.7%39.5%42.1%40.9%42.6%45.1%44.4%40.3%44.8%42.3%44.3%41.9%
Loss adjustment expenses134184160145151183179203196269231346
YoY38.1%68.8%46.8%-18.5%12.7%-0.5%11.9%40.0%29.8%47.0%29.1%70.4%
% of recurring revenue3.2%4.2%3.4%2.9%2.9%3.3%3.1%3.2%2.9%3.8%3.2%4.5%
Commissions and collection fees4745106137237498548829871,0081,0881,1281,180
YoY32.0%28.1%45.6%50.6%58.0%67.5%43.9%36.5%34.6%27.4%27.9%19.6%
% of recurring revenue11.2%11.5%13.0%14.6%14.4%15.4%15.1%15.7%15.2%15.4%15.4%15.4%
Provision for outstanding losses and claims7715431642024689173322559-13
YoY541.7%58.8%--38.5%162.3%-70.1%187.1%170.3%-98.5%389.1%-33.7%-
% of recurring revenue1.8%3.5%0.7%1.3%3.9%0.8%1.5%2.7%0.0%3.2%0.8%-0.2%
Provision for underwriting reserves396307397422468329481628583635845970
YoY54.1%4.1%89.0%-19.9%18.2%7.2%21.2%48.8%24.6%93.0%75.7%54.5%
% of recurring revenue9.4%6.9%8.4%8.5%9.0%5.9%8.2%10.0%8.8%9.0%11.6%12.6%
Investment expenses4094234178-15922024
YoY---47.1%-750.0%--11.1%-73.5%-88.2%150.0%-
SG&A expenses1,4281,3061,3811,4641,3541,4261,4681,6961,7311,8121,7691,896
YoY10.0%3.7%2.1%11.5%-5.2%9.2%6.3%15.8%27.8%27.1%20.5%11.8%
% of recurring revenue33.9%29.5%29.2%29.5%26.1%25.7%25.1%26.9%26.0%25.7%24.2%24.7%
Other recurring expenses323311-11183--23
Interest expenses------12--12
Recurring profit2321710865171811196489401349
YoY-83.5%255.7%-57.3%--26.1%-16.6%10.2%-1.5%423.5%-77.9%-89.1%-23.4%
Recurring profit margin0.5%4.9%2.3%1.3%0.3%3.3%2.0%1.0%1.3%0.6%0.2%0.6%
Extraordinary gains (losses)-1-3-1-2-2-1-2-1,372-1--1-45
Pre-tax profit222141076315180117-1,3088740124
Income taxes9714123106246-38739231626
Implied tax rate40.9%33.2%38.3%36.5%66.7%34.4%39.3%29.6%44.8%57.5%133.3%650.0%
Net income121446540511772-9214816-3-23
YoY-98.0%300.0%-62.6%-16.7%-58.3%-18.8%10.8%-860.0%-86.3%--
Net margin0.3%3.3%1.4%0.8%0.1%2.1%1.2%-0.7%0.2%--
Source: Shared Research based on company data
Note: The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
Ordinary underwriting reserves and catastrophe reserves on unearned premiums and initial year balance bases
FY03/20FY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Ordinary underwriting reserves (unearned premiums basis)3,7213,8874,1514,4114,6704,9295,2295,5795,9436,3276,6637,000
Provision for underwriting reserves1883546188782595188189093647481,0841,057
Ordinary underwriting reserves (initial year balance basis)4,0944,2624,5104,7755,0785,2335,5305,9646,3436,7627,3798,111
Provision for underwriting reserves2624306789433034587558863797981,4151,768
Catastrophe reserves2,3572,4972,6462,8032,9693,1433,3263,5213,7263,9424,1694,407
Provision for underwriting reserves134274423580166340523552205421648681
Source: Shared Research based on company data
Note: The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
Adjustment from recurring profit on unearned premiums basis (non-GAAP) to recurring profit on initial year balance basis (J-GAAP)
CumulativeFY03/20FY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Recurring profit (Non-GAAP; unearned premium basis)9631640747760137254401104179473917
Ordinary underwriting reserves(unearned premiums basis) (a)1883546178782595188181,1683637471,0841,421
Ordinary underwriting reserves (initial year balance basis) (b)2614306779423024577551,1883787971,4152,146
Adjustments for J-GAAP (a-b)-72-75-60-64-436163-20-15-50-331-725
Recurring profit (J-GAAP; initial year balance basis)232403484131719831738189129142191
QuarterlyFY03/20FY03/21FY03/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
Recurring profit (Non-GAAP; unearned premium basis)962209170607711714710475294444
Ordinary underwriting reserves(unearned premiums basis) (a)188166263261259259300350363384337337
Ordinary underwriting reserves (initial year balance basis) (b)261169247265302155298433378419618731
Adjustments for J-GAAP (a-b)-72-315-4-431042-83-15-35-281-394
Recurring profit (J-GAAP; initial year balance basis)2321710865171811196489401349
Source: Shared Research based on company data
Note: The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.
Number of policies in force and policy renewal rates
FY03/20FY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
No. of policies in force439,854459,051482,336508,225533,364562,993590,825622,069648,045678,532703,328728,724
YoY18.2%17.9%18.8%20.0%21.3%22.6%22.5%22.4%21.5%20.5%19.0%17.1%
Recurring revenue / No. of policies9,51718,59127,37535,6449,67118,79227,62736,0289,83919,35428,75337,966
YoY2.9%2.9%2.5%1.7%1.6%1.1%0.9%1.1%1.7%3.0%4.1%5.4%
Renewal rate89.5%89.4%89.4%89.3%89.3%89.3%89.5%89.6%88.9%88.7%88.8%89.0%
YoY-0.6pp-0.5pp-0.9pp-0.8pp-0.2pp-0.1pp+0.1pp+0.3pp-0.4pp-0.6pp-0.7pp-0.6pp
Source: Shared Research based on company data
Note: The company transitioned to a holding company structure on October 1, 2020, so Q3 FY03/21 was its first consolidated accounting quarter since it was established.

Full-year FY03/22 results

  • Recurring revenue: JPY28.7bn (+25.3% YoY; 100.3% of full-year forecast)
  • Recurring expenses: JPY27.8bn (+23.5% YoY)
  • Recurring profit (Non-GAAP): JPY917mn (+128.7% YoY)
  • Adjusted recurring profit (Non-GAAP): JPY1.8bn (+61.1% YoY; 114.1% of full-year forecast)
  • Adjusted net income (Non-GAAP): JPY1.2bn (loss of JPY195mn in FY03/21; 110.9% of full-year forecast)  

Key Points

Recurring revenue rose 25.3% YoY. The company sold many new policies thanks to strong demand for pets. The average number of new policies sold on a monthly basis reached a record high. The number of policies in force reached 728,724 at end-March 2022 (+17.1% YoY), exceeding the company projection. The policy renewal rate was 89.0％, compared with 89.6% of end-FY03/21 (-0.6pp YoY).

The company changed its system-development schedule. Thus, development costs were lower than initially projected.

E/I loss ratio (based on earned premiums) was up 0.1pp YoY to 52.3%, reflecting an expansion in insurance payouts in line with increases in the number of insurance claims and costs per claim. The loss ratio, which had been rising because insured pet owners increased their vet visits as they spent more time at home, began to stabilize somewhat in 2H. The loss ratio fell below the company projection as a result.

Adjusted recurring profit was JPY1.8bn (+61.1% YoY), a record high. Adjusted net income was JPY1.2bn, compared with a loss for FY03/21.

Relocation of head office functions: the company moved its head office functions from Minato-ku, Tokyo to Koto-ku, Tokyo in order to reduce fixed costs, improve management efficiency, and promote workstyle diversity (May 6, 2022).

Outlook for FY03/23

For FY03/23, the company forecasts recurring revenue of JPY32.9bn (+14.7% YoY), adjusted recurring profit of JPY1.1bn (-40.7% YoY), and adjusted net income of JPY770mn (-35.8% YoY).

For details regarding the FY03/23 earnings forecast, we will update this report at a later date after interviewing the company.

Medium-term management plan

Medium-term management plan (FY03/22–FY03/24)

The number of policies in force topped 600,000 in FY03/21, and the company secured a solid position in the pet insurance market, with a market share of nearly 27%. In October 2020, it transitioned to a holding company format and, in March 2021, made Pet’s All Right Co., Ltd., a subsidiary. It plans to keep expanding its business under the holding company format hereafter.

In this context, the company formulated and disclosed a new medium-term plan (FY03/22–FY03/24) on May 14, 2021, and over the next three years intends to lay the groundwork for growth. Key objectives of the plan are to improve the top line with quality, increase productivity, and enhance the management base. The company will celebrate its 20th anniversary in May 2024.

Key objectives and specific initiatives
Key objectivesSpecific initiatives
1. Improve the top line with qualityEnhance selling capacity as under the previous medium-term plan, continue efforts to contribute to earnings, improve the quality of sales efforts, and maintain or even increase the renewal rate
2. Increase productivityImprove administrative operations and systems, rationalize business expenses, and control the loss ratio’s rise
3. Enhance the management baseStrengthen human resources and risk management systems
Source: Shared Research based on company data

Priority initiatives

Key objective 1: Improve the top line with quality
1) Enhancement of offline channels, centered on pet shops・Enhance consulting sales activities for agencies
・Strengthen contact points for sales
2) Enhancement of other channels・Keep aiming to make the online channel No. 1 in the industry
・Increase the number of new policies acquired through collaboration with Dai-ichi Life Holdings
3) Development of new channels・Develop an adoption agency channel
・Develop a breeder channel
・Develop the cat market
4) Improvement in renewal rateAs the earnings structure makes it difficult to generate profits during a policy’s first year, improving the renewal rate is important for increasing earnings. To improve the rate, the company will focus on promoting CRM measures and improving the quality of sales efforts
5) Expansion of products and services・Develop products that satisfy customer needs
・Further expand OTC settlement services at veterinary hospitals
Source: Shared Research based on company data
Key objective 2: Increase productivity (1)
ObjectiveStrengthen administration and systems to support an increase in the number of policies in force
DescriptionUpdate the backbone system, review workflows, and automate work where possible
ScheduleAssuming implementation over the three years of the medium-term plan, start with administrative areas where investment will have the greatest effect
Expected impactThe company expects the effects of investment will become apparent from FY03/25 onward, after the current medium-term plan ends.
Source: Shared Research based on company data

The company finished upgrading its backbone system in December 2020. Next, it will be promoting the DX Project, which aims to make its administrative systems more resilient. The DX Project represents a change of direction in terms of backbone system development such as that carried out as part of the “promotion of digitalization” conducted under the previous medium-term plan.

Previously, the company developed its entire backbone system in-house, which required a large number of staff and ongoing investment in updates. Development itself was also difficult due to the complexity of pet insurance operations. Hereafter, the company will have an outside vendor develop the backbone system based on a SaaS-type system. It will not have to bear depreciation costs, since it will not own the software as assets. In addition, since development involves only partial customization at the time of SaaS implementation, expandability can be guaranteed. System updates will also be handled by the outside vendor.

Key objective 2: Increase productivity (2)
Non-personnel expensesPromote strategies for operating bases (including the head office), work style reform (bringing teleworking into the mix), and transition of forms to an electronic format
Sales expensesImprove the efficiency of sales expenses, add value through consulting-type sales, and increase the satisfaction of both agencies and sales staff
Personnel expensesPursue optimal allocation of human resources
Maintain combined ratios of 90% (net) and 95% (E/I)
Source: Shared Research based on company data
Key objective 2: Increase productivity (3)
Measure 1Revise premiums flexibly based on loss ratio trends
Measure 2Educate pet owners on how to keep their pets safe from injury and disease (through an online pet consultation service, in which veterinarians provide information on pet diseases, accidents, and training measures)
Measure 3Optimize the company’s portfolio of sales channels
Measure 4Promote initiatives to underwrite suitable policies and prevent fraudulent insurance claims
Source: Shared Research based on company data
Key objective 3: Enhance the management base
Human resources strategy to increase productivity
Enhancement of human resources・Improve the skills of each executive and employee
・Conduct appointments and promotions based on ability and results
・Secure young and talented human resources
Improvement in individual awareness・Increase loyalty à Improve engagement
・Allow a variety of work styles in pursuit of ease of working
・Evaluate personnel using a performance-based approach
Source: Shared Research based on company data
Risk management structure at ipet Insurance
Implementation of risk appetite framework・Ensure soundness of operations
・Identify risks
・Improve earnings capacity
Penetration of risk culture・Enhance risk governance
・Strengthen integrated risk management preparedness
・Ensure preparedness in regard to economic solvency margin regulations
Source: Shared Research based on company data
Risk management structure at ipet Holdings
Groupwide integrated risk appetite (business planning and capital allocation)・Maximize corporate value by improving capital efficiency
・Improve earnings capacity by taking risks in growth areas
・Maintain financial soundness to stay competitive
Implement quantitative and qualitative risk management at each group company
Source: Shared Research based on company data

Group management

Pet’s All Right

In March 2021, the company made Pet’s All Right a wholly owned subsidiary. Pet’s All Right operates an online pet health consultation business that allows customers to consult with veterinarians, dog trainers, and holistic care counselors using their smartphones. The company says it aims to generate synergies by promoting the acquisition of new contracts for the consultation service through its pet shop channel, which is one of the group’s strengths. It also aims to improve its own renewal rate by providing an array of services that enrich pets’ lives.

P’s-first Insurance

P’s-first Insurance became a subsidiary of ipet Insurance on October 1, 2020. Since P’s-first does not underwrite policy renewals, existing customers can continue with ipet Insurance if they wish. P’s-first began referring customers to ipet Insurance for policies expiring in December 2020, and the inflow of customers has already exceeded ipet Insurance’s expectations, contributing to group synergy. Hereafter, P’s-first will maintain a system for appropriately responding to insurance claims from customers even after all of its policies have expired or been transferred to ipet Insurance. It also plans to develop new products as a small-amount short-term insurer capable of responding flexibly to customer needs.

Targets

(JPYmn)FY03/19FY03/20FY03/21FY03/22FY03/23FY03/24FY03/21-FY03/24 Growth rate
Act.Act.Act.Targets (as of 24 March 2022)TargetsTargets
Recurring revenue14,94118,33422,87828,60033,50037,30017.7%
Adjusted (cons.) recurring revenue9291,0581,1191,5801,3201,3707.0%
Adjusted (cons.) net income815726-1951,080880910-
No. of policies in force423,352508,225622,069723,000807,000884,00012.4%
Source: Shared Research based on company data

Main KPIs

In formulating the new medium-term management plan, the company emphasized the profitability of its business over the medium to long term. For this reason, to its conventional KPI (number of policies in force), it has added lifetime value (LTV), policy acquisition cost (PAC), and internal rate of return (IRR), for a total of four indicators it will use in evaluating performance.

Lifetime value (LTV) per policyPolicy acquisition cost (PAC) per policy
Definition:Total cumulative profit a customer brings to the ipet groupDefinition:Marketing cost and one-time investment cost per policy acquisition; in other words, total initial costs
Formula:(Revenue - policy maintenance cost) ÷ number of policies in force x average duration in a given periodFormula:(Commissions on new policies + sales cost + amortization + one-time investment) ÷ number of new policies in a given period
Assumptions:1) Total of Pet Insurance and Pets All Right businessesAssumptions:Total of Pet Insurance and Pets All Right businesses
2) Average duration is calculated from the renewal rate
3) Uses US-based Trupanion's model for comparability
Number of pet insurance policies in forceGroup internal rate of return (IRR)
This is the number of active pet insurance policies at a certain point in time, serving as basis for future revenue generation.From the perspective of the entire group, this is the total amount of profit (LTV) the company expects to earn on its investment (PAC), expressed as a percentage yield.
Source: Shared Research based on company data

The company’s business value can be calculated using the following equation. As its mainstay business is a recurring-revenue business based on the assumption that pet insurance policies will be renewed, its business value comprises the value of policies in force to date plus the value of policies to be issued in the future. Business value can therefore be calculated as follows.

Business value = (LTV per policy) x (average remaining years / average years of renewal) x number of policies in force to date + (LTV per policy – PAC per policy) x (projected increase in number of policies in force)

Based on the company’s 2H FY03/21 results, LTV per policy is JPY67,545, average remaining years is 6.3, average years of renewal is 9.6, and there were 622,069 policies in force. Plugging these values (as disclosed by the company) into the equation, we can estimate that the value of policies to date is JPY27.5bn. Also, based on actual results, the company says PAC per policy was JPY18,325, and IRR for the pet insurance businesses was 46.1%. By adding the value of policies to be issued in the future, the company believes it can calculate a reasonable business value.

Business

Business model overview

Business description

Market share of nearly 27%, putting the company in second place in the pet insurance industry

In October 2020, ipet Holdings was established as the wholly owning parent of ipet Insurance Co., Ltd., through a single share transfer. The company’s core subsidiary, ipet Insurance, sells pet insurance and has a market share in the pet insurance industry of nearly 27%, second only to Anicom Holdings, which has a market share of 40.5%. ipet Holdings’ only reporting segment is the Nonlife Insurance business, which accounted for 98.9% of recurring revenue and 96.5% of recurring profit in FY03/21.

The company sells its mainstay pet insurance to general consumers, especially pet owners, to cover a certain percentage of the cost of surgery or other medical treatment for illness or injury, mainly for dogs, cats, and other pets kept in households (policy length is one year). This insurance is similar in function to medical insurance for humans (third-sector insurance), but the Insurance Business Act defines it as “insurance to cover damages suffered by the policyholder due to accident” (nonlife insurance). Products covering the risk of injury to pets were originally operated by mutual aid associations. The predecessor of ipet Insurance was established in 2004, but the earlier mutual aid associations were reorganized into nonlife or small-amount short-term insurers following a 2005 revision of the Insurance Business Act. Companies competing in the pet insurance industry include five nonlife insurers licensed by the Financial Services Agency (including the company itself) and 10 small-amount short-term insurers registered with Local Finance Bureaus.

The pet insurance sales and underwriting business, which is the company’s main business, is a recurring-revenue business in which the company collects premiums monthly from policyholders. Revenue can be explained in terms of the policy count and premium amount, but profits are affected by insurance accounting. The company first books premium revenue, and insurance payouts (cost of revenue) occur later, with unearned premiums for the next and subsequent insurance periods being carried forward as underwriting reserves, so profits straddle fiscal years.

The following are some key points that differentiate ipet Insurance from competitors: 1) it is a nonlife insurer licensed by the Financial Services Agency (with good credibility as a listed company), 2) it is a member of a safety net called the Non-life Insurance Policy-holders Protection Corporation of Japan, 3) it is able to provide over-the-counter settlement services at major veterinary hospitals nationwide alongside industry leader Anicom Holdings (TSE: 8715, a nonlife insurer), and 4) it has experience and expertise in developing online channels, which are seeing rapid growth (its accumulation of expertise has allowed the company to control the overall loss ratio and secure profits).

ipet Insurance has grown to hold a 27% market share in the pet insurance industry with more than 600,000 policies in force as of FY03/21. Hereafter, the company will focus on restructuring its management base as it works to complement its pet insurance and produce derivative products with the aim of diversifying its Nonlife Insurance business. The company established a pure holding company (ipet Holdings, Inc.) on October 1, 2020, and now plans to establish group companies based on appropriate procedures.

Policy on entering new businesses

Shared Research understands that ipet Holdings will focus on entering new businesses under its holding company structure by focusing on the pet industry and businesses with a large potential market size, and by actively making use of M&A and capital and business alliances with other companies, with an emphasis on synergies with the pet insurance business. In fact, in March 2021, ipet Holdings acquired all shares in Pet’s All Right Co., Ltd., which operates a platform service providing consultations on pet health and training and a range of pet-related information.

In FY03/21, the company’s recurring revenue grew 24.8% YoY due to steady gains in the number of policies in force. Adjusted recurring profit rose just 5.8% YoY due to an increase in expenses accompanying the influx of new policies and more frequent insurance claims.

Performance