Tackling the Loss Ratio through "Prevention" Rather than Rate Hikes — Leveraging 1.4 Million Policies and Advanced Veterinary Medicine to Build the Next Earnings Foundation for Pet Insurance

Executive Summary

Anicom Holdings has articulated a clear policy of treating rate revisions as a last resort in responding to rising loss ratios amid inflation, instead maintaining the combined ratio at a target level through prevention, data utilization, claims assessment optimization, and expense containment. The veterinary care business is pivoting from expanding the footprint of primary clinics to concentrating on advanced medicine centered on JARVIS Tokyo, initiating a structural transformation to capture within the group what would otherwise be outflows of claims payments. Asset management is also transitioning from a conservative stance to a phase of qualitative portfolio improvement, aiming for stable, incremental earnings uplift. The company maintains a disciplined approach to shareholder returns in line with the cash allocation framework set out in its medium-term management plan.

Message from the Company

Key Discussion Points from the Interview

• The Essence of Loss Ratio Management Is "Prevention and Fair Claims Assessment," Not "Price Pass-Through"

  The company implemented a rate increase of more than 10% in June on its Wide-type plan — for which new applications were already closed — while maintaining rates on the Standard-type plan that accounts for the bulk of policies. Its primary approach centers on prevention: combining gut microbiome testing (Doubutsu Kenkatsu) with in-force policy data to provide breed- and age-specific disease trend feedback to policyholders. Additionally, by operating its own veterinary practices, the company maintains a firsthand understanding of fee levels in the unregulated veterinary market, creating a check function against unnecessary claims payments. Cost efficiencies through AI and automation run in parallel, targeting a stable combined ratio.

• Veterinary Care Is Shifting from Primary Clinic Expansion to Advanced Medicine (JARVIS Tokyo)

  Primary clinics acquired through practice succession are being individually reviewed for profitability, with closures and downsizing under way. Most recently, the Jiyugaoka clinic was closed and select functions were transferred to JARVIS Tokyo. At a group level, the strategy is to capture the secondary and advanced care segments where claims tend to leak out, thereby improving profitability. JARVIS Tokyo targets annual breakeven in FY2027, with management viewing revenue above JPY 2B as the approximate breakeven threshold.

• Health Innovation Business Prioritizes "Demonstrating Preventive Efficacy," Narrowing Products and Channels

  While the timeline to profitability remains uncertain, the priority is first to demonstrate preventive efficacy through daily use by policyholders, with product sales profits expected to follow. Reflecting on the prior fiscal year, when broadening the product lineup drove up SG&A, the company now prioritizes the co-developed oral care gel with Earth Corporation — a product whose benefits are readily apparent — followed by differentiated offerings such as toppings and churu-type treats distributed through veterinary clinics and partner pet shops. Products that gain traction will be rolled out on e-commerce platforms such as Amazon, building a subscription-based repeat purchase foundation.

Envalith's Perspectives

• 01.

  Embedding "Prevention" into the Earnings Model

• 02.

  Structural Transformation through Concentration on Advanced Medicine

• 03.

  Phase Shift in Asset Management

• 04.

  Capital Policy and Governance Discipline

• 05.

  Challenges and Countermeasures

• 06.

  Risk Factors

Q&A Highlights

• Q

  What is the company's thinking on the timing and magnitude of premium rate revisions and changes to deductible terms in an inflationary environment?

  A

  Price pass-through is often cited as the most effective measure, but our policy is to keep it as a last resort — not the first lever we pull. In June, we implemented a revision of over 10% on the Wide-type plan (unlimited annual and per-incident claims), for which new applications were closed more than a decade ago, reflecting a rising loss ratio due to an aging policyholder population. However, rates on the Standard-type plan, which accounts for the majority of policies, have been maintained. Rate revisions come only after all other measures and external factors have been evaluated.

• Q

  What specific measures are being taken to contain the EI loss ratio?

  A

  At its core, it is about prevention. We combine roughly 25 years of accumulated illness and injury data, over 1.4 million policies in force, and data from Doubutsu Kenkatsu (an annual gut microbiome testing service) to analyze disease predisposition by breed and age. This feeds into lifestyle advice for policyholders and recommendations for health-oriented food and oral care products. Furthermore, by operating veterinary practices ourselves, we maintain evidence-based insight into treatment content and fee levels in the unregulated veterinary market, enabling us to provide feedback to policyholders on treatments of questionable necessity and to make inquiries at clinics flagged for anomalies. Clinics that fail to improve may be removed from our direct-settlement partner network — a mechanism that helps curb unnecessary claims payments. We are also advancing case-level causal analysis for specific diseases, addressing areas systematically as statistical significance is established.

• Q

  How is the company managing costs in response to rising loss ratios?

  A

  Beyond loss ratio measures, we are also working to contain underwriting expenses — the other component of the combined ratio. By deploying AI and automation to reduce expenses, we aim to offset any rise in the loss ratio with a lower expense ratio, keeping the combined ratio stable.

• Q

  How do you evaluate the contribution of the eight OEM partners to new policy acquisition?

  A

  The largest channel for new policies is the Newborn channel, which uses pet shops and breeders as agents and accounts for more than half of total new business. OEM is a relatively recent initiative, launched only about five years ago, and still represents a small share of overall new policies. That said, incremental contributions are steadily positive year over year as the number of partner companies increases.

• Q

  What is your view on the room for further partnership expansion, including the banking channel?

  A

  Channels have diversified across direct, bancassurance, and OEM (recently including Tokio Marine and Sony Assurance), but pet insurance occupies a different strategic priority at each partner. Even at large P&C and life insurers with significant distribution muscle, pet insurance is not a core product, so sales timing and initiatives are at the partner's discretion. We are not in a position to push partners aggressively on sales, so we take a measured approach and build incrementally rather than setting outsized expectations. Our annual plan does not incorporate any major step-ups, and results to date are tracking in line with plan.

• Q

  Are there plans for new product development leveraging the data platform of over 1 million cumulative Doubutsu Kenkatsu tests?

  A

  Rather than granular segmentation of insurance products, we prioritize accumulating data useful for prevention and combining it with policy data. Specifically, this feeds into food and oral care product development in the health innovation business; the advanced medicine data platform at JARVIS Tokyo, which opened in October 2024; and the envisioned implementation of AI-powered clinical support functions in the veterinary clinic medical records system (Anicom Receptor) provided by Anicom Pafe. The direction is to leverage data to enhance interactions between veterinarians and pet owners.

• Q

  What are your thoughts on introducing risk-segmented pricing, and what is the timeline?

  A

  Awareness of prevention among pet owners is not yet widespread enough, and Doubutsu Kenkatsu is currently positioned as an annual service benefit for policyholders. This makes it difficult at present to differentiate premiums based on participation or test results. That said, analogous insurance and health products for humans have already emerged, and if we can construct a rate structure based on data that policyholders find convincing, there is ample potential for evolution in that direction over time.

• Q

  What is the breakeven timeline and revenue threshold for JARVIS Tokyo?

  A

  We published a P&L plan through FY2030 in December last year, targeting annual profitability for JARVIS Tokyo on a standalone basis in FY2027. On a monthly and quarterly basis, we expect to see profitability come into view at some point during H2 of this fiscal year. We see the breakeven threshold at roughly above JPY 2B in revenue. This fiscal year's plan calls for revenue of JPY 1.485B and a recurring loss of JPY 598M; the FY2027 plan targets revenue of JPY 3.472B and recurring profit of JPY 787M.

• Q

  When will the cost impact from restructuring existing clinics run its course?

  A

  Historically, we acquired primary clinics mainly through practice succession, expecting them to serve as a check function and generate spillover benefits for the insurance business. Going forward, the group is pivoting to concentrate on advanced medicine, as exemplified by JARVIS Tokyo. The structure is designed to capture within the group the claims payments that flow into advanced care, improving profitability in secondary and advanced medicine. Clinics that cannot sustain profitability and show limited prospects for turnaround despite intervention are being reviewed for closure or downsizing. Most recently, the Jiyugaoka clinic was closed and select functions, including pet hotel services, were transferred to JARVIS Tokyo. The group structure will be reorganized going forward with JARVIS at the core.

• Q

  When does the company target segment profitability for the health innovation business?

  A

  Honestly, the timeline for overall profitability is still being explored. While its weight in overall P&L is not large, we recognize that sustained losses are not acceptable. That said, the business policy is to first get policyholders using products in their daily routines to demonstrate preventive efficacy, with product sales profits following thereafter.

• Q

  How are you narrowing down flagship products, including a full-scale entry into pet food?

  A

  In the prior fiscal year, expanding the product lineup resulted in SG&A growth outpacing revenue gains. Rather than competing head-on in the increasingly commoditized pet food market, our policy is to target gaps in the existing market with products that resonate with health-conscious owners. Through our partnership with Ariake Japan, a specialist in natural seasonings, we are also developing health-oriented foods that leverage our pet data expertise. Since shifting purchasing behavior from one-time to subscription requires both cost and time, our top priority is "Crystal Joy," the oral care gel co-developed with Earth Corporation. Next comes differentiated offerings such as toppings and churu-type treats, expanded primarily through veterinary clinics and partner pet shops. Products that gain traction will see expanded distribution on e-commerce platforms like Amazon this fiscal year.

• Q

  What measures are being taken to return the pet-related internet services business to a growth trajectory?

  A

  Advertising revenue is inherently volatile on both a yearly and quarterly basis and alone does not define business performance. The matching service depends on site traffic and conversion, but new competitors have emerged — notably, major pet shops posting pre-store animal listings on their own websites. In addition, the spread of AI-powered search means users increasingly obtain information without ever reaching our site, reducing the effectiveness of conventional advertising spend. We have therefore shifted strategy, redirecting spend toward analog-style customer acquisition leveraging our insurance sales network and proprietary breeder business (Flourence) — methods not available to competitors operating solely online.

• Q

  How sustainable are the capital gains booked in Q1, and what is the policy for Q2 onward?

  A

  We began a portfolio review around Q4 of the prior fiscal year and realized gains on selected assets with unrealized profits, resulting in significant capital gains. Asset management has essentially reached the full-year plan in Q1 alone, and we do not expect to sustain this level of gains every quarter for the remainder of the year. Market conditions may produce capital gains in certain periods, but we are also rotating out of low-yield assets carrying unrealized losses, so we are not planning for a material P&L impact going forward.

• Q

  What is the strategy on rotating out of low-yield assets and managing duration in a rising rate environment?

  A

  Historically, because the core pet insurance business was profitable, there was no need to take excessive risk, and we maintained a conservative investment approach — holding assets long-term while balancing income and capital gains. However, given current market conditions, we determined that leaving capital in cash or continuing to hold long-duration assets for stable income purposes meant forgoing opportunities. We are therefore prioritizing the rotation of assets unlikely to generate returns even if held long-term. This is a transitional phase in which we are working through unrealized losses while elevating the quality and composition of the portfolio toward a framework capable of delivering stable annual returns.

• Q

  How does management view the increase in Hikari Tsushin's ownership stake?

  A

  We generally do not comment on individual shareholders' stake movements, but we maintain regular dialogue with major shareholders including through IR meetings. Hikari Tsushin, while an operating company, generates significant investment-derived earnings, and we see their expertise as potentially valuable advice as we transition our own asset management approach. Director Owada, elected at the June shareholders' meeting, served as head of the insurance business at Hikari Tsushin, and we expect him to bring insurance expertise beyond pet insurance to management committee and board discussions.

• Q

  Will Hikari Tsushin's increased stake or the director appointments affect future capital policy?

  A

  Having a major shareholder or a board appointment does not materially change our capital policy. The foundation of our capital policy is already disclosed and progressing in line with the medium-term management plan: shareholder returns target a ~30% dividend payout ratio, with share buybacks considered on a case-by-case basis when surplus capital is available. This is not something that would change materially in response to requests from a specific shareholder.

• Q

  What is the current status of the dialogue with Dalton Investments, and what themes are being discussed?

  A

  We have maintained an ongoing dialogue for approximately the past year, and no particularly aggressive demands have been raised. Dalton shows strong interest in our business and has expressed a positive view of the insurance business model. Unlike some situations observed at other companies, there is no sense of an extreme activist posture from Mr. Hayashi, who serves as the point of contact. Through continued dialogue, mutual understanding of the business has deepened, and we expect Mr. Hayashi to provide constructive advice and proposals drawing on his financial and capital markets expertise. His board participation is positioned as the result of mutual trust and business understanding built through this dialogue.

• Q

  What demands have shareholders made, and what is management's stance?

  A

  There have been no extreme actions to date. What we expect from Mr. Hayashi is perspective on how our business appears from a shareholder's vantage point and how we can explain it to the market in a way that resonates. He was elected in June and attended one board meeting in July, but he continues to communicate with CEO Komori via email and other channels, and we look forward to receiving valuable advice going forward.

• Q

  Following the completion of the JPY 1B share buyback, is there any consideration of further shareholder returns such as a mid-year dividend forecast increase or additional buybacks?

  A

  Including Q1 results, progress is tracking in line with the plan announced at the start of the fiscal year and the range indicated in the medium-term management plan. We understand expectations around surplus capital arising from the application of ESR and the introduction of new risk coefficients for pet insurance, but these are already factored into the cash allocation framework of the medium-term management plan — as are the share buyback and the ~30% payout ratio target. Accordingly, no additional returns or upward earnings revisions have been announced at this time.

• Q

  How would management respond if earnings outperform the plan?

  A

  There remain unknowns regarding changes in the external environment and the effectiveness of measures addressing rising loss ratios. Once those become clearer and there is reasonable confidence in a material upside versus the current plan, earnings revisions and a review of shareholder return policy would be discussed anew. That said, our assessment is that Q1 results are tracking in line with the H1 recurring profit plan of JPY 4B.