Interim recurring profit doubled on a lower expense ratio and investment gains, with 83.9% progress toward the full-year plan. Focus now shifts to containing the loss ratio and bringing the veterinary hospital business to profitability.

Key Positives From The 2Q Results

Ordinary revenue rose to JPY 41,041M (+12.8% YoY) and recurring profit reached JPY 4,194M (+99.9% YoY), delivering both top- and bottom-line growth. The expense ratio improved as costs tied to transferring policies from another insurer fell away. The combined ratio declined to 95.4% (-1.8pt). Excluding gains/losses on securities sales, recurring profit still grew (our estimate).

• The expense ratio on an earned premium basis improved to 30.3% (-4.3pt). This more than offset a 2.5pt rise in the E/I loss ratio, bringing the combined ratio down to 95.4%.
• Net gains on sales and valuation of securities totaled JPY 1,700M (prior year: JPY 226M). Excluding these, recurring profit was JPY 2,494M (prior year: JPY 1,872M), up 33.2% (our estimate).
• Policies in force stood at 1,433,091, up 40,319 from the prior fiscal year-end. The book continues to build even after the intake of policies from another insurer was completed.
• Operating and general administrative expenses were held to JPY 10,333M (-1.1%). The gap versus ordinary revenue growth drove margin expansion.
• Non-insurance businesses, including Health Innovation and Veterinary Hospital Support, posted revenue growth in the 20-30% range. The company is steadily broadening its scope toward becoming a preventive insurance group.

Key Concerns From The 2Q Results

Profit growth was driven largely by gains on securities sales and the roll-off of policy transfer costs. Meanwhile, the E/I loss ratio rose to 65.1% (+2.5pt), reflecting the structural issue of persistently high veterinary costs. Investors need to assess whether underwriting profitability can be sustained once the benefits from investment gains and expense ratio improvement have run their course.

• Net claims paid grew +10.8%, outpacing net premiums written growth of +6.1%. Longer pet life expectancy, more advanced veterinary care, and inflation are pushing up the loss ratio.
• Standalone 2Q recurring profit was JPY 664M, down 41.7% from JPY 1,138M a year earlier (our estimate). Earnings were heavily weighted toward 1Q.
• The Veterinary Hospital Operations segment loss widened to JPY -551M (prior year: JPY -108M). Absorbing ramp-up costs at the advanced care facility remains a challenge.
• The valuation difference on available-for-sale securities widened to JPY -4,163M (prior year-end: JPY -2,263M). Unrealized gains are being crystallized while unrealized losses accumulate.
• New policies fell to 121,342 (-12.4%). With the intake of policies from another insurer complete, organic new policy acquisition will determine growth.

Focus Areas / Items To Monitor Going Forward

• How far premium rate revisions and product redesigns can stem the rising E/I loss ratio. We will track the gap between growth in net premiums written and claims paid.
• Whether the widening loss in Veterinary Hospital Operations is temporary, tied to the ramp-up of JARVIS Animal Medical Center Tokyo, which opened in October 2025. The key question is when caseload accumulation will improve profitability.
• The implied 2H recurring profit plan of JPY 806M is below the prior-year 2H level of JPY 1,445M (our estimate). We want to confirm investment income assumptions and the scope for upside to the full-year plan.

Key Financial Highlights

Recurring profit rose by JPY 2,096M. Of this, the improvement in net investment income (investment income minus investment expenses) accounted for +JPY 1,526M (our estimate). EPS growth outpaced net income growth because share buybacks reduced the average number of shares outstanding during the period to 73,225,163 (prior year: 74,437,811). Comprehensive income declined due to a JPY -1,349M valuation difference.

Performance By Business Segment

The Non-Life Insurance business generates the bulk of recurring profit, while new businesses continue to grow revenue but remain loss-making. The table below includes inter-segment transactions.

Segment Performance Table

*Revenue refers to ordinary revenue; Operating Income refers to segment profit (on a recurring profit basis). Margin and YoY figures are our estimates.

Progress Versus Full-Year Guidance

At the interim stage, the company has achieved 83.9% of its full-year recurring profit plan and 89.8% of its net income plan. This is ahead of progress a year earlier (recurring profit 59.2%, net income 64.8%). The implied 2H recurring profit of JPY 806M is below the prior-year 2H level. Barring a major deterioration in the investment environment or loss ratio, the plan looks highly achievable (our estimate).

• Recurring profit has been 1H-weighted in each of the past three fiscal years. The 1H share of full-year profit was 62.5% in FY2024/3, 63.3% in FY2025/3, and 59.2% in FY2026/3 (our estimate).
• Standalone 3Q recurring profit in the prior fiscal year was only JPY 130M, reflecting a tendency for profit levels to decline in 2H.
• Ordinary revenue is split roughly evenly between 1H and 2H.

Changes To Guidance

Full-year guidance (announced May 12, 2026) was left unchanged. The company maintained ordinary revenue of JPY 81,000M (+9.7%), recurring profit of JPY 5,000M (+41.1%), and net income of JPY 3,250M (+47.4%). Although interim progress is running ahead of plan, management stated it will promptly announce any revision should future performance warrant one.

Commentary On Shareholder Returns

• The year-end dividend forecast was kept at JPY 13.50. This represents a planned increase of JPY 4.50 from JPY 9.00 in the prior fiscal year, implying a payout ratio of 30.4% on forecast EPS (our estimate).
• Share buybacks in 1H totaled JPY 1,007M, raising treasury shares at period-end to 2,070,735 (prior year-end: 1,300,732).
• Dividends paid in 1H totaled JPY 662M. Combined with buybacks, total shareholder returns came to JPY 1,669M (our estimate).

Financial Position

The company repaid JPY 5,004M in borrowings, reducing interest-bearing debt to JPY 5,101M, mainly bonds. The equity ratio rose to 40.5% on a smaller balance sheet. However, the valuation difference on available-for-sale securities deteriorated to JPY -2,958M, leaving shareholders' equity flat.

Key Figures

Operating CF was JPY 3,237M (prior year: JPY 2,005M). Investing CF was +JPY 3,173M, driven by securities portfolio rebalancing and drawdowns of deposits. Financing CF was JPY -6,680M, reflecting debt repayment, share buybacks, and dividend payments.

Leverage Metrics

Disclosures Released Alongside The Earnings Announcement

Major Announcements During The Quarter

Large-Shareholding Filings / Material Proposals Over The Past Year

• Nobuaki Komori: 8.5%→8.5% (2026/10/26) - Stable holding by the founder for the purpose of participating in management. Filed due to changes in material agreements such as collateral agreements; no material proposals
• Nobuaki Komori: 8.8%→8.5% (2026/10/08) - Amended report. Stable holding by the founder and his wholly owned asset management company for the purpose of participating in management
• Hikari Tsushin: 18.8%→19.3% (2026/09/17) - Pure investment. Filed due to entry into material agreements such as collateral agreements
• Hikari Tsushin: 17.8%→18.8% (2026/05/07) - Pure investment
• Resona Asset Management: 7.0%→6.0% (2026/03/13) - Held for investment management under investment trusts and discretionary investment contracts; stake reduced by 1% or more
• Hikari Tsushin: 16.8%→17.8% (2026/02/19) - Pure investment
• Dalton Investments, Inc.: 13.8%→14.8% (2026/02/06) - Long-term holding based on the view that the shares are undervalued. Noted the possibility of material proposals, including appointment of independent directors, dividend increases, and share buybacks
• Hikari Tsushin: 15.7%→16.8% (2026/01/19) - Pure investment
• Asset Management One: 5.2%→4.2% (2026/01/15) - Held under investment trusts and discretionary investment contracts; stake fell below 5%
• Dalton Investments, Inc.: 12.8%→13.8% (2026/01/20) - Long-term holding. Noted the possibility of material proposals on capital policy and governance
• Dalton Investments, Inc.: 11.7%→12.8% (2026/01/07) - Long-term holding. Noted the possibility of material proposals on capital policy and governance
• Dalton Investments, Inc.: 10.6%→11.7% (2025/12/17) - Long-term holding. Noted the possibility of material proposals on capital policy and governance
• Hikari Tsushin: 14.7%→15.7% (2025/12/12) - Pure investment
• Dalton Investments, Inc.: 9.5%→10.6% (2025/12/03) - Long-term holding. Noted the possibility of material proposals on capital policy and governance
• Dalton Investments, Inc.: 8.4%→9.5% (2025/11/20) - Long-term holding. Noted the possibility of material proposals on capital policy and governance
• Hikari Tsushin: 13.6%→14.7% (2025/11/18) - Pure investment
• Dalton Investments, Inc.: 7.4%→8.4% (2025/11/14) - Long-term holding. Noted the possibility of material proposals on capital policy and governance