アイペットホールディングス（7339） – Supplementary Material for FY2021 3Q Financial Results

FY2021 3QFinancial Results Briefingipet Holdings, Inc. (Security code: 7339)February 7, 2022About ipet Groupipet HoldingsEstablished in October 2020 Listed on TSE Mothers100%ipet Insurance100%Subsidiary since March 2021100％ non-consolidatedPets First Shogaku Tanki HokenSubsidiary since October 2020※Pets First Shogaku Tanki Hoken (P’s-first) , small amount and short term insurance provider, is not included in the scope of consolidation (non-consolidated subsidiary company). © 2021 ipet Holdings, Inc.2Recent key business topicsPet insurance businessNumber of policiesRobust growth due to the strong demand for petsRecorded the highest number of new policies per month in FY21 2QMaintaining the industry-leading policy renewal rate (around 90%)→The number of policies in force continues to increase at a steady pace.Surpassing 700,000 policies on Dec 14th (as of the end of December 2021: 703,328 policies).Product revision-From May 2, 2021-Product revision including premium change implemented from May 2, 2021.Contributed to the increase in the insurance income. → See p.5 for detail.Customer supportImprovement of customer support qualityDiversityPromotion of active participation by womenFinancial forecastUpward revision of earnings forecastipet Insurance was awarded the second “Excellence Award” since 2014 at the “24th Corporate Telephone Response Contest” sponsored by the Japan Telegraph and Telephone User Association. 《Related URL》 https://www.ipet-ins.com/info/29822/ipet Insurance received the highest 3rd stage of “Eruboshi” certification from the Minister of Health, Labor and Welfare. Our efforts to promote the active participation of women have been highly evaluated. 《Related URL》 https://www.ipet-ins.com/info/29492/ipet Holdings revised consolidated earnings forecast at the Board of Directors meeting on February 7, 2022.Recurring profit +250 mil JPY, net income +130 mil JPY → See p.4 for detail.© 2021 ipet Holdings, Inc.3Highlights of upward revisions to forecast (Non-GAAP)《 On consolidated basis 》Full Term①FY21Initial Plan②FY21Revised Plan(②-①)/①YoY（Unit：Mil JPY）FY20 RevenueAdjusted recurring profitAdjusted net income28,60028,600－22,8788805801,130710+250+28.4%+130+22.4%1,119▲195②-①YoY－・ S i n c e o u r t o p l i n e i s p e r f o r m i n g w e l l a s i n i t i a l l y p l a n n e d , t h e f o r e c a s t f o r r e v e n u e r e m a i n s u n c h a n g e d .・ I T s y s t e m d e v e l o p m e n t c o s t s a r e e x p e c t e d t o f a l l b e l o w t h e a s s u m p t i o n s o f t h e i n i t i a l p l a n d u e t o t h e r e v i s i o n o f t h e d e v e l o p m e n t s c h e d u l e .・ T h e r a t e o f i n c r e a s e i n t h e l o s s r a t i o i n t h e c u r r e n t f i s c a l y e a r i s s l i g h t l y b e l o w t h e a s s u m p t i o n s o f t h e i n i t i a l p l a n .・ I n v e s t m e n t p r o f i t i s e x p e c t e d t o e x c e e d t h e a s s u m p t i o n s o f t h e i n i t i a l p l a n⇒ F Y2021 f u ll – te rm p ro f it f o re c as t was re v is e d u p ward .© 2021 ipet Holdings, Inc.4Premium change implemented from May 2021In light of the consumption tax hike and the rise in the loss ratio, premium change was implemented from May 2, 2021.＃We have reduced the premiums for the elderly, which were extremely high, and made it easier to renew contract.＃We have raised the premiums for young dogs whose loss ratios are deteriorating.Image of premium changeBeforeAfterUniformlyAge of Dogs01215CustomerBy reducing the premiums for the elderly, the total premium burden for those aged 0 to 15 is greatly reduced.ImpactPremiumIncome premiums increaseLoss RatioSuppress the rise in the loss ratio© 2021 ipet Holdings, Inc.5Group performance indicators – Key pointsDefinition of termsand assumptionAim to expand as a group in the future by developing businesses such as Pets All RightLTV per contract *1(Lifetime customer value)PAC per contract *2(Cost of acquiring new contracts, etc.)[Definition] Total amount of cumulative profits that one customer brings to ipet Group[Calculation formula] Over a certain period of time,(Revenue-Contract maintenance cost)÷ Number of policies in force x average duration(Assumption)1.Total of pet insurance business and Pets All Right business2.Average duration is calculated from the renewal rate3. The model of US -based T is used for comparison[Definition] Marketing cost & forward investment cost for acquiring one contract. AKA Total initial cost[Calculation formula] Over a certain period of time, (Commission for new contracts+ marketing/sales expenses + depreciation expenses + forward investment costs)÷Number of new contracts added(Assumption) Total of pet insurance business and Pets All Right businessNumber of pet insurance policies in forceGroup IRR(Internal rate of return) *3The number of pet insurance policies in force at a given point in time. The estimate of future cash flows. The total amount of profit (LTV) relative to the investment (PAC) on a group-wide basis. As a holding company in FY2020, the above four indicators are set as key performance indicators*1 LTV (Life Time Value): LTV per insurance contract + LTV per Pets All Right contract x dilution factor (based on the number of pet insurance contracts concluded). See p.27 for definition and calculation process*2 PAC (Pet Acquisition Cost) : PAC per insurance contract + PAC per pets all right contract x dilution factor (based on the number of pet insurance contracts concluded). See p.27 for definition and calculation process*3 IRR (Internal Rate of Return): See p.27 for calculation process© 2021 ipet Holdings, Inc.6Plans during the mid-term planWe use the following four indicators as KPIs in order to emphasizelong-term business profitability.LTV・PAC・IRR[Unit：JPY]100,00043.7%Rise in loss ratioImprove profitability(DX effect)[Unit：Policies]Number of pet insurance policies in force 67,697 29.0%63,000 26.0%65,000 23.0%54,000 24,000 27,000 25,000 19,156 90,00080,00070,00060,00050,00040,00030,00020,00010,000040.0%30.0%20.0%10.0%0.0%-10.0%-20.0%-30.0%884,000 807,000 723,000 622,069 FY2020**FY2021FY2022FY2023FY2020FY2021FY2022FY2023LTVPACIRRipet group goes into investment phase for future growth＊＊ FY2020 Actual（As of October 2020～March 2021)© 2021 ipet Holdings, Inc.7《LTM》 Group performance indicators – Key highlightsResults of Jan 2021～Dec 2021Decreased compared to FY2020because of temporary decline in renewal rate due to product revision in May 2021LTV per contract *1(Lifetime customer value)PAC per contract *2(Cost of acquiring new contracts, etc.)67,282 JPY20,873 JPYNumber of pet insurance policies in force*3Group IRR(Internal rate of return) *4703,328 policies41.4%As a holding company in FY2020, the above four indicators are set as key performance indicators*1 LTV (Life Time Value): LTV per insurance contract + LTV per Pet’s All Right contract x Dilution factor (based on the number of pet insurance contracts concluded). See p.27 for definition and calculation process*2 PAC (Pet Acquisition Cost): PAC per insurance contract concluded + PAC per Pet’s All Right contract concluded x Dilution factor (based on the number of pet insurance contracts concluded). See p.27 for definition and calculation process*3 As of the end of December 2021*4 IRR (Internal Rate of Return): See p.27 for the calculation process© 2021 ipet Holdings, Inc.8《3Q》 Group performance indicators – Key highlightsResults of Oct 2021～Dec 2021Increased compared to FY2020because both loss ratio and operating expense ratio remained low during 3Q.LTV per contract *1(Lifetime customer value)PAC per contract *2(Cost of acquiring new contracts, etc.)73,742 JPY23,769 JPYNumber of pet insurance policies in force*3Group IRR(Internal rate of return) *4703,328 policies40.9%As a holding company in FY2020, the above four indicators are set as key performance indicators*1 LTV (Life Time Value): LTV per insurance contract + LTV per Pet’s All Right contract x Dilution factor (based on the number of pet insurance contracts concluded). See p.28 for definition and calculation process*2 PAC (Pet Acquisition Cost): PAC per insurance contract concluded + PAC per Pet’s All Right contract concluded x Dilution factor (based on the number of pet insurance contracts concluded). See p.28 for definition and calculation process*3 As of the end of December 2021*4 IRR (Internal Rate of Return): See p.28 for the calculation process© 2021 ipet Holdings, Inc.9Pet Insurance BusinessNumber of policies in force and the net increase in the number of policiesIn FY2021, the number of policies in force continues to increase at a steady pace.⇒703,328 contracts as of the end of December 2021（’0000 Policies）Number of policies in force(left axis)Robust demand of pets amid the coronavirus 9,487 9,029 Surpassing 700,000 policies（ Policies ）10,000Monthly average of net increase in the number of policies(right axis)7,073 5,653 4,364 4,239 4,609 62.242.350.824.930.035.688.480.770.372.3FY15FY16FY17FY18FY19FY20FY21(3Q)FY22 PlanFY23 PlanFY21 Initialplan© 2021 ipet Holdings, Inc.119,0008,0007,0006,0005,0004,0003,0002,0001,00009080706050403020100Number of policies in force (by starting year) and renewal rateStrong growth of new policies and top-class renewal rate kept the number of policies in force growing好 調 な 新 規 契 約 と ト ッ プ ク ラ ス の 継 続 率 が 、 保 有 契 約 件 数 の 続 伸 を 実 現（’0000 Policies）89.8%90.2% 90.1% 89.9%90.3% 90.1%89.5% 89.4% 89.4% 89.3% 89.3% 89.3% 89.5% 89.6%Temporary decline in renewal rate due to product revision in May 202188.9% 88.7% 88.8%70.387%67.9 64.8 88.7% 88.9%（Policy starting year)Be f o r e F Y 2 0 0 8F Y 2 0 1 0F Y 2 0 1 2F Y 2 0 1 4F Y 2 0 1 6F Y 2 0 1 8F Y 2 0 2 034.2 35.6 37.2 31.4 32.8 F Y 2 0 0 9F Y 2 0 1 1F Y 2 0 1 3F Y 2 0 1 5F Y 2 0 1 7F Y 2 0 1 9F Y 2 0 2 1R e n e wa l r a t e ( r i g h t a x i s )44.0 42.3 40.6 38.9 48.2 45.9 62.2 59.1 56.3 53.3 50.8 91%89%85%83%81%79%77%75%73%71%69%90807060504030201001Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3QFY17FY18FY19FY20FY21© 2021 ipet Holdings, Inc.12Pet’s All Right businessOverview of services of Pet’s All Right[Pet experts]VeterinariansTrainersFood expertsetc.SupplyPet health consultation businessHealth counseling Training counseling Life counseling[Channel]Pet shopsDirect SEOOwned mediaReal estate-related companies Housing-related companiesTrimming salon Pet hoteletc.[Customers]Pet ownersPets(16 million pets)DemandBusiness scale is steadily expanding as the number of registered users at the end of December increased by 85% compared to the end of March. © 2021 ipet Holdings, Inc.14Financial indicatorsIn addition to Japanese GAAP (J-GAAP), we disclose the business results by using the business management indicators (Non-GAAP indicators).We consider the Non-GAAP indicators to be a more appropriate financial indicators.Please refer to “Summary of Financial Results” for details.《Quarterly》 Consolidated recurring revenue事 業 規 模 の 高 成 長 は 維 持 し つ つ も 、 高 水 準 の 増 収 率 を 達 成Achieved a high level of earnings growth while maintaining high growth rate of business scale(Unit: Mil JPY)7,5007,0006,5006,0005,5005,0004,5004,0003,5002,5007,304 7,052 6,649 6,293 5,840 5,548 5,195 4,964 4,722 4,428 4,217 4,020 3,830 3,623 3,465 3,272 3,154 3,0002,844 2,996 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QFY17FY18FY19FY20FY21© 2021 ipet Holdings, Inc.16《Quarterly》 Loss ratio and operating expense ratio (non-consolidated basis for ipet Insurance) Net premiums written basisLoss ratioOperating expense ratioCombined ratioEarned premiums basis91.6%88.8%86.7%90.7%88.5%86.8%95.1% 95.4%97.0% 96.2%89.6%87.4%Loss ratioOperating expense ratioCombined ratio95.1% 96.2% 97.3%92.6%50%44.3%45.9%49.6% 48.3%45.0%49.8%48.9%48.1%50%48.1%47.0%40%44.5%40.8% 42.0% 41.3% 41.8% 40.9% 40.3%38.5%43.0%44.1% 43.6%44.3% 43.4% 42.8%40.4%52.5% 52.9% 52.6%50.8% 52.8%52.2%54.6%Ｑ4 Ｑ1 Ｑ2 Ｑ3 Ｑ4 Ｑ1 Ｑ2 Ｑ3Ｑ4 Ｑ1 Ｑ2 Ｑ3 Ｑ4 Ｑ1 Ｑ2 Ｑ3FY19FY20FY21FY19FY20FY21© 2021 ipet Holdings, Inc.17100%90%80%70%60%40%30%20%100%90%80%70%60%30%20%Consolidated total assets and Solvency margin ratio(non-consolidated basis for ipet Insurance)(Unit: 100 Million JPY)Investment securitiesCash and depositsOtherSolvency margin ratio(right axis)Consolidated total assets21.0 Billion（Unit：%）381.4 13.6Bil17.4Bil15.6Bil347.3 Declined due to dividend payment to ipet HD and disposal of software315.6 8.2Bil2451284.8 9.3Bil244722505036260.4 731684Decrease of 5.3 billion due to execution of sales based on the execution plan and advance implementationof sales based on the market outlook84275.4 9531653061FY16FY17FY18FY19FY20FY21〈3Q〉© 2021 ipet Holdings, Inc.18450400350300250200150100500220200180160140120100806040200FY2021 3Q Highlights of Non-GAAP indicators《Cumulative numbers for April – December, consolidated basis, QoQ comparison》1. The top line is steadily growing due to the robust increase in insurance policiesRevenue16,584 M ¥21,006 M ¥+26.7％2. Higher profit, even though the increase in the frequency of insurance claims paymentsAdjustedRecurring profit777 M ¥1,121 M ¥Adjusted net income525 M ¥766 M ¥+44.3％+45.9%As the rate of rise in the loss ratio was slightly lower than expected, Revenue and profits increased year on year.© 2021 ipet Holdings, Inc.19FY2021 3Q Non-GAAP indicators Summary《 On consolidated basis 》3Q basis(Oct-Dec)RevenueAdjusted recurring profitAdjusted net income①FY20 Oct-Dec5,840299201②FY21Oct-Dec7,304521362(②-①)/①QoQ③FY21 full Revised plan②/③Contribution rate（Unit：Mil JPY）+25.1%28,60025.5%+73.8%1,13046.1%+79.7%71051.5%Cumulative for 3Q(Apr-Dec)①FY20Apr-Dec②FY21Apr-Dec(②-①)/①YoY③FY21 full Revised plan②/③Achievement rateRevenueAdjusted recurring profitAdjusted net income16,58421,006+26.7%28,60073.5%7775251,121766+44.3%1,13099.2%+45.9%710108.0%© 2021 ipet Holdings, Inc.20Non-GAAP profit indicators (unearned premium basis)《On cumulative, consolidated basis》FY20 3QFY20 FullFY21 3QFY21 Revised plan(Unit: Mil JPY)A) Adjusted recurring profit (=B＋C)Non-GAAPB) Recurring profit C) Catastrophic loss reserve impact7772545231,1194017171,1214736471,130250880・We disclose business performance on the basis both internal indicators (Non-GAAP: unearned premium basis) used by management to make decisions and indicators based on Japanese GAAP (J-GAAP: initial year balance basis) *・We use adjusted recurring profit (=recurring profit based on unearned premium basis ± catastrophe reserve** impact) as a profit indicator for business management that appropriately represents the actual business situation.・In order to prepare for compensation for damages caused by an abnormal disaster, the underwriting reserve must be recorded as liability calculated by multiplying the underwriting revenue by 3.2% for each fiscal year.**(Article 70.1.2 of Ordinance for Enforcement of the Insurance Business Act)・In the future as well, we will disclose the earnings forecast on the basis of “Non- GAAP indicator: Unearned premium basis” only* Among listed companies, there is no other non-life insurance company that discloses business results based on the initial year balance basis. ** Because the loss ratio of ipet Insurance is less than the standard loss rate of 50% stated in the attached table of Article 2 of Notification No. 232 of Ministry of Finance© 2021 ipet Holdings, Inc.21APPENDIXPet insurance products offered by ipetName of productTargetsOut-patientHospita-lizationSurgeryNotesUchinoko Plus- limited to pet shop channels -Dogs and catsCoveredCoveredCoveredUchinokoDogs and catsCoveredCoveredCovered-OTC payouts : Covered (only from 2nd month)-100% of treatment bills covered in the 1st month of adoption(when pets tend to get sick)-Two coverage plans available from 2nd month(70% and 50%)-OTC payouts : Covered-Two coverage plans available(70% and 50%)Uchinoko LightDogs and catsーCoveredCoveredonly for continuous hospitalization that includes surgery-Focuses on coverage of surgery (which tends to be expensive)-90% of surgery bills covered with reasonable premiumsUchinoko Cute- limited to pet shop channels -Exotic animals designatedby ipet*1CoveredCoveredCovered-OTC payouts : Covered-Three coverage plans available(70%, 50% and 30%)*1 Exotic animals include rabbits, ferrets, birds, hedgehogs, squirrels and flying squirrels, hamsters, mice, guinea pigs, lizards, and turtles.© 2021 ipet Holdings, Inc.23Barriers to entry into the pet insurance business12344 barriers to entryTo be specificCompliance with related laws and regulationsCompliance with various regulations such as Insurance Law and Insurance Business Act is required, and it is necessary to establish a system.Relationship withpet shops agenciesThe environment for new entrants is difficult due to the oligopoly of several pet insurance companies that continue to provide pet shop agencies with detailed support.Partnership with veterinary hospitals《OTC settlement service》The top pet insurance companies have already covered most of veterinary hospitals(VHs), and considering the labor of small and dispersed VHs, new partnerships with pet insurance companies are difficult for VHs.Expertise in assessment technique andadministrative system to respond to high-frequency claimsIt is difficult to secure stable profits even if new entrants are entered, because knowledge for the assessment of veterinary drugs, etc., and administrative system that responds to high-frequency claims are required.© 2021 ipet Holdings, Inc.24Changes in cumulative profit / loss per contract for pet insurance businessPremise of calculation: Average contract life of 10 yearsInsurance premiumClaims paid Cost of acquiring new contracts (PAC)Operating expense per contractCumulative profit / loss per contract (LTV-PAC)01st year2nd year3rd year4th year5th year6th year7th year8th year9th year10th yearAs the number of policies in force is growing rapidly, it is still difficult to generate accounting profits© 2021 ipet Holdings, Inc.25Efforts to reduce the operating expense ratioipet Insurance goes into investment phase for future growthFY2021FY2022FY202320th anniversary of founding(May 2024)For further growth in the future,making investment and strengthening business foundation・DX project etc.RevenueProfitBuilding a foothold in the marketSolidifying the foundation for growthToward further growthPriorities for the period of this medium-term management plan 1. Quality Top line growth2.3.Improvement of productivity Strengthening the business foundation© 2021 ipet Holdings, Inc.26《LTM》 Group performance indicators – Definitions and calculation process■ LTV (Life Time Value)■ PAC (Pet Acquisition Cost: Cost of acquiring new policies, etc.)Monthly average from January to DecemberMonthly average from January to DecemberEarned premium (revenue)Cost incurred on contract maintenance(Incurred loss + general and administrative expenses + commission for renewed policies + taxes and public dues)①②Average monthly profit contribution ③＝①－②Number of policies in force ④Earned premium (revenue) per insurance policyCost incurred on contract maintenance per insurance policy(Incurred loss + general and administrative expenses + commission for renewed policies + taxes and public dues)⑤＝①÷④⑥＝②÷④Average monthly profit contribution per policy ⑦＝⑤－⑥Pet insurance renewal rate ⑧1÷(1－renewal rate)=Average contract duration in years ⑨=1÷(1ー⑧)Average number of months of contract continuation ⑩=⑨×12LTV (lifetime value) per policy ⑪＝⑦×⑩LTV (lifetime value) per Pet’s All Right contract ⑫Dilution factor(based on the number of pet insurance policies)⑬LTV (lifetime value) per contract conversion ⑭＝⑪＋⑫×⑬61389.0%9.010966,8002,9610.16367,282PAC (Cost of acquiring new policies, etc.)(New sales commission + advertising expenses + sales promotion expenses + DX investment expenses + depreciation charges)Number of new policiesPAC per insurance policy (cost of acquiring new contracts, etc.)PAC per Pet’s All right contract concluded(Cost of acquiring new contracts, etc.)(First year sales commission + strategy cost + goodwill amortization + depreciation)Dilution factor (based on the number of pet insurance policies)(e)(a)(b)(d)■ IRR (Internal Rate of Return)[Entire Group]Number of yearsNumber of months0611221231241251261271281297Annual contribution profit per contract conversion7,6057,4597,3547,3547,3547,3547,3547,3544,290PAC per contract (New contract acquisition cost)Annual FCF per contract (Free cash flow)3,803-20,873-17,0707,6057,4597,3547,3547,3547,3547,3547,3544,2907,4110.16310000109LTV67,282IRR41.4%PAC per contract conversion (New contract acquisition cost)(f)=(c)+(d)×(e)20,873(c)=(a)÷(b)19,667As the number of policies in force is growing rapidly, it is still difficult to generate accounting profits© 2021 ipet Holdings, Inc.27《 3Q 》 Group performance indicators – Definitions and calculation process■ LTV (Life Time Value)■ PAC (Pet Acquisition Cost: Cost of acquiring new policies, etc.)Monthly average from October to DecemberMonthly average from October to DecemberEarned premium (revenue)Cost incurred on contract maintenance(Incurred loss + general and administrative expenses + commission for renewed policies + taxes and public dues)①②Average monthly profit contribution ③＝①－②Number of policies in force ④Earned premium (revenue) per insurance policyCost incurred on contract maintenance per insurance policy(Incurred loss + general and administrative expenses + commission for renewed policies + taxes and public dues)⑤＝①÷④⑥＝②÷④Average monthly profit contribution per policy ⑦＝⑤－⑥Pet insurance renewal rate ⑧1÷(1－renewal rate)=Average contract duration in years ⑨=1÷(1ー⑧)Average number of months of contract continuation ⑩=⑨×12LTV (lifetime value) per policy ⑪＝⑦×⑩LTV (lifetime value) per Pet’s All Right contract ⑫Dilution factor(based on the number of pet insurance policies)⑬LTV (lifetime value) per contract conversion ⑭＝⑪＋⑫×⑬67888.8%8.910772,5045,1490.24073,742PAC (Cost of acquiring new policies, etc.)(New sales commission + advertising expenses + sales promotion expenses + DX investment expenses + depreciation charges)Number of new policiesPAC per insurance policy (cost of acquiring new contracts, etc.)PAC per Pet’s All right contract concluded(Cost of acquiring new contracts, etc.)(First year sales commission + strategy cost + goodwill amortization + depreciation)Dilution factor (based on the number of pet insurance policies)(e)(a)(b)(d)■ IRR (Internal Rate of Return)[Entire Group]Number of yearsNumber of months0611221231241251261271281295Annual contribution profit per contract conversion8,8068,3568,1318,1318,1318,1318,1318,1313,388PAC per contract (New contract acquisition cost)Annual FCF per contract (Free cash flow)4,403-23,769-19,3668,8068,3568,1318,1318,1318,1318,1318,1313,3887,0130.24010000107LTV73,742IRR40.9%PAC per contract conversion (New contract acquisition cost)(f)=(c)+(d)×(e)23,769(c)=(a)÷(b)22,083As the number of policies in force is growing rapidly, it is still difficult to generate accounting profits© 2021 ipet Holdings, Inc.28《 LTM 》 Pet insurance business’ performance indicators- Key highlightsResults of Jan 2021～Dec 2021Decreased compared to FY2020because of temporary decline in renewal rate due to product revision in May 2021LTV per insurance contract ＊1(Lifetime customer value）PAC per insurance contract ＊2(Cost of acquiring new contracts, etc.)66,800 JPY19,667 JPYNumber of pet insurance policies in force＊3Pet insurance business’ IRR ＊4(Internal rate of return)703,328 policies43.9%The above four indicators are set as key performance indicators*1 LTV (Life Time Value): See p.30 for definition and calculation process*3 As of the end of December 2021*4 IRR (Internal Rate of Return): See p.30 for the calculation process*2 PAC (Pet Acquisition Cost): See p.30 for definition and calculation process© 2021 ipet Holdings, Inc.29《 LTM 》 Pet insurance business’ performance indicators – Definitions and calculation process■ LTV (Life Time Value)■ PAC (Pet Acquisition Cost: Cost of acquiring new contracts, etc.)Monthly average from January to DecemberMonthly average from January to DecemberPAC (Cost of acquiring new contracts, etc.)(New sales commission + advertising expenses + sales promotion expenses + DX investment expenses + depreciation charges)Number of new policies PAC per policy(cost of acquiring new contracts, etc.)(a)(b)(c)=(a)÷(b)19,667Earned premium (revenue)Cost incurred on contract maintenance(Incurred loss + general and administrative expenses + commission for renewed policies+ taxes and public dues)①②Monthly average profit contribution ③＝①－②Number of policies in force ④Earned premium (revenue) per insurance policyCost incurred on contract maintenance per policy(Incurred loss + general and administrative expenses + commission for renewed policies+ taxes and public dues)⑤＝①÷④⑥＝②÷④Average monthly profit contribution per policy ⑦＝⑤－⑥Pet insurance renewal rate ⑧1÷(1－renewal rate)=Average contract duration in years ⑨＝1÷(1ー⑧)Average number of months of contract continuation ⑩=⑨×12LTV (lifetime value) per policy ⑪＝⑦×⑩■ IRR (Internal Rate of Return)Number of yearsNumber of monthsAverage monthly profit contribution per policyAnnual profit contribution per policyPAC per policy (cost of acquiring new contracts, etc.)066133,677-19,667-15,99061389.0%9.010966,800Annual FCF per insurance contract (Free cash flow)7,3547,3547,3547,3547,3547,3547,3547,3544,29001126137,3542126137,3543126137,3544126137,3545126137,3546126137,3547126137,3548126137,354976134,2901006130109LTV66,800IRR43.9%As the number of contracts in force is growing rapidly, it is still difficult to generate accounting profits© 2021 ipet Holdings, Inc.30《 3Q 》 Pet insurance business’ performance indicators- Key highlightsResults of Oct 2021～Dec 2021Increased compared to FY2020because both loss ratio and operating expense ratio remained low during 3Q.LTV per insurance contract ＊1(Lifetime customer value）PAC per insurance contract ＊2(Cost of acquiring new contracts, etc.)72,504 JPY22,083 JPYNumber of pet insurance policies in force＊3Pet insurance business’ IRR ＊4(Internal rate of return)703,328 policies42.9%The above four indicators are set as key performance indicators*1 LTV (Life Time Value): See p.32 for definition and calculation process*3 As of the end of December 2021*4 IRR (Internal Rate of Return): See p.32 for the calculation process*2 PAC (Pet Acquisition Cost): See p.32 for definition and calculation process© 2021 ipet Holdings, Inc.31《 3Q 》 Pet insurance business’ performance indicators – Definitions and calculation process■ LTV (Life Time Value)■ PAC (Pet Acquisition Cost: Cost of acquiring new contracts, etc.)Monthly average from October to DecemberMonthly average from October to DecemberPAC (Cost of acquiring new contracts, etc.)(New sales commission + advertising expenses + sales promotion expenses + DX investment expenses + depreciation charges)Number of new policies PAC per policy(cost of acquiring new contracts, etc.)(a)(b)(c)=(a)÷(b)22,083Earned premium (revenue)Cost incurred on contract maintenance(Incurred loss + general and administrative expenses + commission for renewed policies+ taxes and public dues)①②Monthly average profit contribution ③＝①－②Number of policies in force ④Earned premium (revenue) per insurance policyCost incurred on contract maintenance per policy(Incurred loss + general and administrative expenses + commission for renewed policies+ taxes and public dues)⑤＝①÷④⑥＝②÷④Average monthly profit contribution per policy ⑦＝⑤－⑥Pet insurance renewal rate ⑧1÷(1－renewal rate)=Average contract duration in years ⑨＝1÷(1ー⑧)Average number of months of contract continuation ⑩=⑨×12LTV (lifetime value) per policy ⑪＝⑦×⑩■ IRR (Internal Rate of Return)Number of yearsNumber of monthsAverage monthly profit contribution per policyAnnual profit contribution per policyPAC per policy (cost of acquiring new contracts, etc.)066784,066-22,083-18,01867888.8%8.910772,504Annual FCF per insurance contract (Free cash flow)8,1318,1318,1318,1318,1318,1318,1318,1313,38801126788,1312126788,1313126788,1314126788,1315126788,1316126788,1317126788,1318126788,131956783,3881006780107LTV72,504IRR42.9%As the number of contracts in force is growing rapidly, it is still difficult to generate accounting profits© 2021 ipet Holdings, Inc.32Pet insurance business – Valuation of our businessValuation of our businessipet’s estimate=+LTV perinsurance contractxAverage remaining years / Average durationx Number of policies in forcecurrently LTV perpolicy- PAC perpolicyxExpected increase in the number of policies in force in the futureBecause insurance is stock business,The value of contracts up to now + The value of contracts to be added in the future = Value of our pet insurance business© 2021 ipet Holdings, Inc.33Valuation of pet insurance business is 29.5 billion JPY + future contract valueValuation of our business=66,800 JPYLTV perinsurance contract*1ipet’s estimate based on the results of Jan 2021～Dec 2021《LTM》The valuation of contracts up to nowx5.7 years/9.0 yearsAverage remaining years/ Average duration*2×703,328 policiesNumber of contracts in force currently*3+LTV perpolicy- PAC perpolicyxExpected increase in the number of policies in force in the futureWe estimate the value of our pet insurance business as the total of the value of contracts in force currently (about 29.5 billion JPY) and the value of contracts to be added in the future.*4*1 LTV (Life Time Value): See p.30 for definition and calculation process(1-renewal rate)) = (9.0 years-3.3 years) ÷ (1 ÷ (1-89.0%))burden and the increase in business value due to gains from asset management are regarded as equivalent and set off.*3 As of the end of December 2021*2 Average remaining years / Average duration = (Average duration-Average number of years elapsed) ÷ (1 ÷*4 For the sake of simplicity in the estimation, the decrease in business value due to tax © 2021 ipet Holdings, Inc.34Difficult to generate accounting profits in the contract acquisition year, due to our revenue/expenditure structure・An annual premium payment contract with premium revenue of 24 was concluded near the end of the fiscal year (February 28). Sales commission is 3 (policy acquisition year)・Claims paid: 2 (policy acquisition year), 9 (next fiscal year)・Operating expense: 1 (policy acquisition year), 7 (next fiscal year)Unearned premium basis (Non-GAAP indicator)Reserve (=Unearned premium) 22Next year’s revenue 22(-) Claims paid 2(-) Claims paid 9Policy acquisition yearNext yearInsurance premium 24Claims paid22Claims paid 9Operating expense 1operating expense 73Sales commissionClosing date3/31Next yearExpenditure 16・ The amount that may be paid as a refund in the next fiscal year is 22 ⇒ 22 needs to be recorded in the policy acquisition year as a reserve (= unearned premium) ⇒ 22 is diverted to the next year’s revenue instead of the policy acquisition yearPolicy acquisition yearNext yearInsurance premium 24Insurance premium 07(-)Operating expense1(-)Operating expense(-)Commission 3(-)Commission 0PeriodDeductionDeduction-16(-)Reserve(-)Reserve-22Profit Profit 61822-4As the number of policies in force is growing rapidly, it is still difficult to generate accounting profits© 2021 ipet Holdings, Inc.35Philosophy of ipet Holdings© 2021 ipet Holdings, Inc.36Philosophy of ipet Insurance© 2021 ipet Holdings, Inc.37Fulfill social responsibility for realizing our philosophyPracticing ESG managementWe will use our efforts to reduce the environmental burden through our business (E), contribute to the society where we can live a healthy and happy life with pets (S), and improve reliability by strengthening governance (G) for further growth. EnvironmentBusiness process transformation and environmentally friendly initiatives・Becoming paperless by pursuing digitalization- Digital marketing- Use of online “My Page” exclusively for policy holders, etc.・ Utilization of eco-friendly vehicle for business use・Raising awareness for improving the symbiotic environment and beautifying the environmentPrefecture- Offering information and raising awareness regarding training of dogs/cats・ Making efforts to protect the global environment- Changed “Uchinoko Light” membership cardfrom plastic to paper-Pursuing “Digital Booklet- KEEPGREEN-” initiative- Utilize electronic contracts for contracts with business partnersSocialExpanding the spread of pet insurance and making pet related social contribution・Supporting pet owners with pet insurance‐ Product change, that includes premium changes, to increase the chances that customers continue/renew the policies・Efforts to address social issues related to pets through the activities of our group companies・Cooperation agreement on animal welfare with Aomori ‐ Released the online map showing pet disaster prevention sites and information about shelters that can be used with pets‐ Support to offer online courses to train volunteers to take care of abandoned baby dogs/cats in Aomori Prefecture, where our operation center is located・Various information offering and awareness raising activities・Donations and support for activities related to animal welfare・Employee job satisfaction- Pet vacation, pet bereavement leave, etc.- Creating policies and systems for working from home and staggered working hours・Promotion of young people, women, etc.・Accelerating the employment of people with disabilitiesGovernanceEnhancing governance・Strengthening the supervisory function of the board of directors and improving transparency- Company having the Audit and Supervisory Committee (※)- Establishment of a voluntary nomination / compensation advisory board（※）・Efforts to prevent fraudulent insurance claims・Further strengthening of compliance and risk management※Established at ipet Holdings on October 1,2020Reducing the environmental burdenToward a society where you can live happily with your petsbecoming a more trusted pet insurance companycompany groupRanked 4th among listed companies excluding the First Section of the Tokyo Stock Exchange in the 2020 “ESG Management Survey“ ** In 2020 “ESG Management Survey” (SOMPO Risk Management Co., Ltd.), ranked 4th out of 142 listed companies excluding the first section of the Tokyo Stock Exchange© 2021 ipet Holdings, Inc.38Reference: Initiatives for SDGsAt ipet Insurance, which is the core company of our group, we are working on “SDGs for pets and people” with the aim of creating a society where pets and people can live together in good health and happiness by promoting and evolving the pet insurance business.Priority goalsSpecific initiatives (examples)Corresponding SDGs goalsBe healthy with your petBe safe with your pet・Providing pet insurance・Offering information and raising awareness regarding pet illnesses and injuries・Changing the features of products for increasing the chances that customers continue/renew the policies・Offering Information and raising awareness regarding disaster prevention for pets・Strengthening promotion of disaster prevention measures for people and pets in Aomori Prefecture・Providing support for raising disaster rescue dogsMake people happy irrespective of whether they have or do not have pets・Offering information and raising awareness regarding training pets・Conducting activities to enhance etiquette awareness ・Donating Karuta (a traditional Japanese playing card game) and calendars to orphanagesLove for all livesTo further improve reliability as an insurance companyToward the healthy life and growth of employees who are “Uchinoko (our children)”・Cooperation agreement on animal welfare with Aomori Prefecture・ Support to offer online courses to train volunteers to take care of abandoned baby dogs/cats in Aomori Prefecture, where our operation center is located・Donation through Karuta and calendar photo posting campaign based on the number of photos posted by users・Support for “Flea and tick repellents” for “Pet homes*”・Offering Information and raising awareness regarding lifelong breeding・Practicing customer first principle ・Strengthening governance・Efforts to prevent fraudulent insurance claims・Further strengthening of compliance and risk management・Becoming paperless by pursuing digitalization・Using eco-friendly vehicle for business use・Making efforts to protect the global environment through digital booklets, etc.・Utilize electronic contracts for contracts with business partners・Introduction of pet vacation and pet bereavement leaves・Promotion of young people women, etc.・Strengthening disaster prevention measures・Online employee education・Creating policies and systems for working from home and staggered working hours・Accelerating the employment of people with disabilities*Japan’s largest pet foster parent recruitment site operated by Easy Communications Co., Ltd.© 2021 ipet Holdings, Inc.39First year balance method (J-GAAP) and unearned premium method (Non-GAAP)・Non-life insurance companies are required to record the larger of the unearned premium balance and the first year balance as an ordinary policy reserve (Ordinance for Enforcement of the Insurance Business Act, Article 70, Paragraph 1, Clause 1).・ipet Insurance uses the first year balance method for system accounting because the balance of the first year balance exceeds the balance of unearned premiums, but for business management, it uses the unearned premium method that is in line with the accrual accounting.First year balance method and unearned premium method[Premise] ・ One-time payment of 100 during the period, of which unearned insurance premium is 50 at the end of x 1st fiscal year・Insurance amount and operating cost are as shown in the figure below.Insurance premium Insurance amount Operating cost ×1st fiscal year ×2nd fiscal year 50502025202502025-45-5510First year balance method: J-GAAPUnearned premium method: Non-GAAPx 1st yearx2nd yearx 1st yearx2nd yearInsurance premium(-)Insurance amount(-)Operating costDeduction(-)ReserveProfit100202555550Insurance premium(-)Insurance amount(-)Operating costDeduction(-)ReserveProfit100202555505Profit for the first year is 0 Profit on accrual basis © 2021 ipet Holdings, Inc.40100405002025-45-505Notes regarding future prospects and outlook· The materials and information provided in this presentation include so-called “Outlook information” (forward-looking statements).· These are based on current expectations, forecasts and assumptions filled with risks and contain uncertainties that could lead to results that are substantially different from these statements.· These risks and uncertainties include general industry and market conditions, general local and international economic conditions such as interest rates and currency exchange fluctuations.·In the future, even if new information becomes available or other events take place, we are not obligated to update or revise the “Outlook information” included in this document.Inquiries concerning this document and other IR mattersipet Holdings, Inc.Business Planning Department IR GroupE-mail: ir@ipet-hd.com© 2021 ipet Holdings, Inc.41