Average 6.3% premium hike across the insurance lineup targets loss ratio improvement from FY3/28 onward. JARVIS Tokyo nears JPY 100M in monthly revenue and is adding veterinarians and ICU capacity.

Summary

In 1H, ordinary revenue and recurring profit both reached record highs for a second quarter. Recurring profit beat the 1H plan by 4.9%. At the briefing, management explained how it set the premium revision for policies incepting from April 2027, weighing price sensitivity against the risk of adverse selection. The estimated impact of the revision already factors in some policy lapses, and management views it as highly achievable. Management estimates that JARVIS Tokyo, one year after opening, is growing faster than the largest secondary-care provider in Tokyo did. The company plans to accelerate growth by hiring more veterinarians and nurses and expanding ICU capacity.

Key Points (Earnings Takeaways and Growth Initiatives)

• Management Strategy and Market View
  • Management does not regard price hikes as desirable. Its top priority is controlling the loss ratio through prevention.
  • Pet insurance penetration remains only around 20%, and management sees demand as highly price-sensitive. A steep hike risks driving out claim-free, high-quality policyholders and causing adverse selection.
  • Management kept low-cost competitors such as Amazon and Nippon Life in view. The decision followed the autumn price hike by ipet, the industry's No. 2 player.
  • Management is reviewing its 210% ESR target. If the target is lowered, it will weigh share buybacks against growth investment.
• Current Business Progress and Drivers
  • The decline in SG&A reflects the roll-off of AXA Direct transfer costs, plus operational efficiencies from AI adoption.
  • The loss ratio continues to trend upward amid inflation. Management plans to bring down the combined ratio through premium revisions and a lower expense ratio.
  • SimNet's transaction volume was flat. Commissions run at about 11% of the pet sale price, and lower unit prices on inflation-driven demand softness weighed on results.
  • The Health Innovation business is expanding overseas sales channels, mainly in China. Management believes breakeven is coming into view.
• Key Strategic Initiatives and Changes
  • Premiums will rise by an average of 6.3% across all insurance products, including Dobutsu Kenpo Family. The increase is tiered by age, with smaller hikes for young pets and roughly 20% for older animals.
  • JARVIS Tokyo faces challenges on two fronts: staffing and facilities. Management will address staffing by hiring more veterinarians and nurses, and facilities by expanding the ICU, which is now at full capacity.
  • Existing hospitals outside JARVIS will be rationalized gradually, starting with loss-making and single-vet sites. A rapid full exit is not envisaged.
  • Valuation losses on foreign bond ETFs stem from rising interest rates. Management will realize some losses, offsetting them against investment income, to reduce the position.

Outlook and Strategy

• The full-year plan is unchanged at ordinary revenue of JPY 81,000M and recurring profit of JPY 5,000M. 1H recurring profit progress stands at 83.9% (our estimate).
• The premium revision will have no impact this fiscal year. The E/I loss ratio is expected to improve by about 1.0–1.5pt in FY3/28 and about 3.0–3.5pt in FY3/29 (vs. the company's forecast loss ratio).
• Any further price hike depends on gauging customer reaction to this revision. Management indicated that another revision is possible if inflation pushes the loss ratio beyond expectations.
• The Veterinary Hospital Operations business expects full-year revenue of JPY 3,700–3,900M. The 2H plan assumes steady growth led by JARVIS, and management says the business is on track.
• JARVIS is in the phase of recouping its upfront investment. Management aims to turn it profitable in the near future by building revenue.
• The FY2024–FY2027 capital allocation plan of about JPY 7B for growth investment, about JPY 6B for shareholder returns and about JPY 2B for strengthening the business foundation is being executed as planned.

Positive Factors

• New policies in the 2Q period totaled 61.2K, above the 59.7K in the year-ago period excluding the AXA transfer.
• JARVIS Tokyo's October revenue was JPY 97M, or about JPY 1.2B annualized. Monthly revenue has reached roughly JPY 100M, a faster growth pace than established advanced-care facilities.
• JARVIS's annual revenue per veterinarian is about JPY 36M (based on 32 vets, annualized) and trending upward. A full ICU signals strong demand.
• The company ranked No. 1 in the pet insurance claims/benefits category of the Oricon Customer Satisfaction Survey for the 10th consecutive year, sustaining its brand strength.
• Cumulative Dobutsu Kenkatsu tests surpassed 1 million, with 32 patents held. The data assets underpinning its preventive insurance model continue to grow.
• The estimated revision impact is based on past revisions and historical age-based premium changes, and already factors in policy lapses.

Concerns and Risks

• The 2Q-period E/I loss ratio was 65.6%, as inflation-driven increases in treatment costs persisted.
• Customer reaction after the price hike is uncertain. High-quality policyholders could leave, accelerating adverse selection.
• Losses in the Veterinary Hospital Operations business widened. Reaching breakeven at JARVIS requires additional investment in staff and facilities.
• Valuation and translation adjustments widened to JPY -2,958M, and other unrealized losses on a non-consolidated basis reached JPY 3.8B. Depending on interest rate trends, the company may incur costs from realizing losses.
• Growth in investment income is expected to slow in 2H, as unrealized gains were realized early in 1Q.
• At SimNet, inflation is dampening pet demand, posing a risk of continued declines in sale prices.

Performance Highlights

In 1H, consolidated ordinary revenue was JPY 41,041M (+12.3%), recurring profit JPY 4,194M (+99.9%) and net income JPY 2,920M (+104.3%). Higher underwriting income (+6.1%) and growing investment income (JPY 2,571M) were complemented by lower operating and general administrative expenses (-1.1%). About JPY 5B of borrowings was repaid during the period, reducing other liabilities by 37.6%.

Segment Performance

• Policies in Force: 1,433,091 (+6.4% YoY)
• New Policies: 121,342 (-12.4% YoY)
• Retention Rate: 88.5% (+0.1pt YoY)
• E/I Loss Ratio (1H Cumulative): 65.1% (+2.5pt YoY)
• Expense Ratio (Earned Premium Basis): 30.3% (-4.3pt YoY)
• Combined Ratio: 95.4% (-1.8pt YoY)
• Claims Paid (Number of Cases): 2,588K (+6.1% YoY)
• Dobutsu Kenkatsu Applications: 124,232 (-1.9% YoY)

Q&A List

• Q

  What prompted the decision to raise prices at this point?

  A

  As for timing, we feel this decision came at the last possible moment. First, we do not consider price hikes desirable in themselves. As an insurer, we want to control the loss ratio through effective prevention. We deeply regret not having achieved that, but that remains our aim. Second, as a business, we have to watch our competitors. Some insurers, notably Amazon and Nippon Life, set low premiums and compete with us, so we have been weighing our pricing against theirs. A major factor was that ipet, the No. 2 player, raised premiums this autumn. Taking all this into account, we decided to raise prices now.

• Q

  What is the rationale for an average increase of around 6.3%?

  A

  The average increase is 6.3%, and we set it with customer reaction in mind. Some may argue that a 10% or 20% hike would significantly improve the loss ratio. However, pet insurance penetration is only about 20%. Unlike fire or auto insurance, it is not yet seen as a necessity. Some 80% of owners are uninsured and cover any issues out of their own pocket, effectively self-insuring. We therefore view pet insurance as highly price-sensitive. We were concerned that a large hike could drive away good customers, particularly those who never file a claim in a year. Raising premiums while the loss ratio rises is known as risk concentration, or adverse selection. We considered various measures to prevent this in our book. Setting aside the technical details, we concluded that around 8% was appropriate. The 6.3% average is not uniform. We have kept increases smaller for younger pets, our most profitable segment. For older animals, unfortunately, the increase is around 20%. The increases are tiered accordingly.

• Q

  Assuming inflation persists, further hikes may be needed to reach recurring profit of JPY 10B in FY2030. Will you be able to raise prices flexibly going forward?

  A

  The first prerequisite is to carefully assess customer reaction to this hike. As I said at the outset, we do not consider price hikes desirable. Our top priority is to promote prevention together with our customers. That said, if rising prices push the loss ratio beyond our expectations, we may have no choice but to revise prices to some extent. We will continue to balance both considerations as before.

• Q

  Page 15 of the non-consolidated materials shows other unrealized losses rising to JPY 3.8B. What is behind this?

  A

  Valuation losses on foreign bond ETFs account for a large share of other valuation losses. Falling bond prices on the recent rise in interest rates have widened the losses.

• Q

  How do you plan to handle unrealized losses on securities going forward?

  A

  We will monitor how the recent rise in interest rates develops. We plan to realize some of the valuation losses, offsetting them against our higher income, and reduce the position over time.

• Q

  Previously, you indicated that the 210% ESR target was too high. Is there any update on lowering it?

  A

  We are continuing to review the ESR level internally. When we first disclosed the 210% target, we partly referenced peer levels and market conventions. We are now assessing what level is appropriate for the Anicom Group, including a possible revision.

• Q

  Did you consider a share buyback at this time?

  A

  If we lower the target, a share buyback would certainly be one of the options. We will set the appropriate level while balancing it against growth investment.

• Q

  Page 6 shows the impact of the rate increase. Given the sizable hike, some claim-free policyholders who rarely visit a vet will likely switch to cheaper rivals or drop coverage. Does the estimated improvement factor in these lapses?

  A

  Yes, unfortunately, the estimated impact of the rate revision assumes a certain level of lapses. We based the lapse estimate on a premium revision carried out seven or eight years ago. Premiums also change every year, for example by JPY 10,000 between ages five and six, and we factored in that track record. We therefore consider the estimate highly achievable.

• Q

  On JARVIS Tokyo, you explained that the established competitor is profitable while your profits are slower to materialize, and that you need more veterinarians and nurses. Is there a large gap in headcount between you and the competitor?

  A

  What we discussed was revenue, not profit. We understand the established competitor operates outside Tokyo as well and employs about 100 veterinarians in total. We estimate that roughly a third of them are in Tokyo.

• Q

  Why is the competitor profitable while you are not yet close to profitability?

  A

  We believe the difference lies in the payback period on investment. The competitor has operated for over 10 years, while we have operated for one. We have not yet recouped our upfront investment, so we are loss-making. If we grow revenue as planned, we expect to pass breakeven and turn profitable in the near future.

• Q

  You mentioned that pet sale prices at SimNet are declining. Why is that?

  A

  SimNet sells dogs and cats through a direct-from-breeder model that connects breeders with customers. However, most pet sales take place through pet shops. We also monitor pet shop prices, and these have declined slightly as well, not just at SimNet. We suspect current inflation is dampening purchases and keeping demand flat. Supply, on the other hand, is unchanged, so unit prices have fallen somewhat as a result. SimNet is affected by the same dynamic.

• Q

  Will rationalization of existing hospitals outside JARVIS continue? If so, how far do you expect it to go?

  A

  Yes, it will continue. That said, most of these hospitals have a solid customer base and operate well, so we are not rushing. We will start with hospitals that have business issues, such as losses or single-vet operations. We are not planning to close them all by next year or the year after. We will proceed step by step so that hospitals outside JARVIS can also operate on a stable footing.

• Q

  Do you disclose data such as the average age of insured pets?

  A

  We do not disclose it, but it is roughly five years. We will look into disclosing it properly.