NAPHIA State of Industry Report Avalon

North American Pet Health Insurance Industry

Industry Results for Years 2009 to 2013

Agenda

Section 1: Introduction and Methodology Section 2: Gross Written Premium Section 3: Number of Pets Section 4: Average Premiums Section 5: Future Outlook

Introduction & Methodology

The North American Pet Health Insurance Market Survey was established 3 years ago, with data going back to 2008

Today’s presentation is a summary of the key findings of the 2014 North American Pet Health Insurance Industry Report with industry results for years 2009 through 2013

Objectives of the Report:

Create a credible data-driven report that demonstrates to the marketplace and the pet health community in North America that the pet health insurance industry is a solid, growing insurance market

Monitor the industry’s performance and growth in key areas Highlight any emerging trends

The data was collected by means of a survey questionnaire/data call spreadsheet completed by

the NAPHIA members.

The data collected was thoroughly reviewed by Avalon. Reasonableness tests were conducted. Follow-ups with participants were done as necessary. Quality Control processes were put in place and aggregate results were compiled.

Section 1

3

Products monitored in the report

Accident Only Foreign body ingestion, lacerations, motor vehicle accident,

ligament tears, poisoning, etc.

Accident & Illness Accident benefits plus illnesses such as cancer, infections,

digestive problems, etc.

Insurance with Embedded Wellness Comprehensive plans that may include vaccinations, early screening diagnostics, consultations for proper nutrition,

dental care, etc.

Endorsements Riders such as wellness or cancer endorsements.

Section 1 Introduction & Methodology

Section 1 Introduction & Methodology

NAPHIA Members

http://www.petsplus.us/

http://www.hartvillegroup.com/Hartville-Corporate-Home.aspx

http://www.petpartners.com/

http://www.healthypawspetinsurance.com/

Section 2 Gross Written Premium


2009 2010 2011 2012 2013

$297.1 M $339.3 M

$375.3 M $425.2 M

$487.4 M (*)

• 14.6% increase from 2012 to 2013 (*)

• 13.3% increase from 2011 to 2012



In-Force GWP (2009-2013)

The industry has experienced double-digit increases since 2009 (average annual growth rate of 13.2% *).

The North American market is estimated to be approximately $595 million.

(*) Results for 2013 include two new members (their data is not included in 2009-2012)

7

Dogs • 14.8% increase from 2012 to 2013 (*)




In-Force GWP - Cats vs. Dogs (2009-2013)

2009 2010 2011 2012 2013

$32.8 M $36.7 M $40.0 M $45.1 M $51.2 M

(*)

$264.4 M $302.6 M

$335.3 M

$380.1 M

$436.2 M (*)

Cats • 13.5% increase from 2012 to 2013 (*)




Dogs represented approximately 90% of In-Force Gross Written Premium in 2013, for a total of $436.2 million.


8


Accident Only; $4.2 M 0.9%

Accident & Illness; $396.0 M

81.2%

Insurance with Embedded Wellness; $14.5 M

3.0%

Endorsements; $72.7 M 14.9%

Accident & Illness represents the biggest share, with 81.2% of total gross written premium in 2013.

Note: Endorsements include Wellness and Cancer riders.

In-Force GWP - Per Product (2013)


9

Gross Written Premium

In-Force GWP - Per Product (2009-2013)

2009 2010 2011 2012

Accident Only $1.54 M $2.50 M $3.00 M $3.65 M

Accident & Illness $193.0 M $229.0 M $266.0 M $325.2 M

Insurance with Embedded Wellness $33.8 M $35.4 M $34.6 M $24.0 M

Endorsements $68.9 M $72.4 M $71.8 M $72.3 M

TOTAL $297.1 M $339.3 M $375.3 M $425.2 M

2013 (*)

$4.21 M

$396.0 M

$14.5 M

$72.7 M

$487.4 M

% change 2009-2013

+173%

+105%

-57%

+5.5%

+64%

Section 2

10


In-Force GWP - Per Product (2009-2013)

$1.5 M $2.5 M $3.0 M $3.7 M $4.2 M

$33.8 M $35.4 M $34.6 M $24.0 M $14.5 M

$68.9 M $72.4 M $71.8 M $72.3 M $72.7 M

$193.0 M

$229.0 M

$266.0 M

$325.2 M

$396.0 M

2009 2010 2011 2012 2013 (*)

Accident Only

Insurance withEmbeddedWellness

Endorsements

Accident & Illness


11


• 17.6% increase from 2012 to 2013 (*)




GWP - New Business Added (2009-2013)

2009 2010 2011 2012 2013

$100.0 M $110.4 M $114.9 M $117.0 M

$137.6 M (*)


12


GWP - New Business Added, Per Product (2009-2013)

2009 2010 2011 2012

Accident Only $0.69 M $1.93 M $2.03 M $1.74 M

Accident & Illness $55.6 M $67.1 M $77.2 M $90.7 M

Insurance with Embedded Wellness $12.7 M $11.1 M $9.7 M $5.9 M

Endorsements $31.1 M $30.2 M $26.0 M $18.7 M

Total $100.0 M $110.4 M $114.9 M $117.0 M

2013 (*)

$2.11 M

$114.5 M

$3.2 M

$17.8 M

$137.6 M

Section 2

13



GWP - Ratio of New Business Added to In-Force GWP (2009-2013)

2009 2010 2011 2012

New Business Added $100.0 M $110.4 M $114.9 M $117.0 M

Gross Written Premium $297.1 M $339.3 M $375.3 M $425.2 M

Ratio (%) 33.7% 32.5% 30.6% 27.5%

2013 (*)

$137.6 M

$487.4 M

28.2%

Section 2

14



Net Premium Growth (2009-2013)

2009 2010 2011 2012

In-Force Premium Volume (BOY)

$261.5 M (Dec. 31, 2008)

$297.1 M (Dec. 31, 2009)

$339.3 M (Dec. 31, 2010)

$375.4 M (Dec. 31, 2011)

New Business Added $100.0 M $110.4 M $114.9 M $117.0 M

In-Force Premium Volume (EOY)

$297.1 M (Dec. 31, 2009)

$339.3 M (Dec. 31, 2010)

$375.4 M (Dec. 31, 2011)

$425.2 M (Dec. 31, 2012)

Net Premium Loss (1) $64.4 M $68.2 M $78.8 M $67.2 M

Net Premium Loss (%) (Net Premium Loss / (In-Force Volume BOY + New Business

Added))

17.8% 16.7% 17.3% 13.6%

(1) Net Premium Loss represents the difference between the End Of Year (EOY) result and “Beginning Of Year (BOY) plus New Business Added”.

2013 (*)

$425.2 M (Dec. 31, 2012)

$137.6 M

$487.4 M (Dec. 31, 2013)

$75.4 M

13.4%

Section 2

15



Section 3 Number of Pets

Number of Pets

2009 2010 2011 2012 2013

731,404 796,713

844,239 904,694

1,033,983 (*)

• 14.3% increase from 2012 to 2013 (*)




Total Insured Pets (2009-2013)

Section 3

17


Number of Pets

Breakdown: Total Insured Cats vs. Dogs (2009-2013)

2009 2010 2011 2012 2013

112,649 121,425 127,682 136,432

157,542 (*)

618,755 675,288

716,557

768,262

876,441 (*)

Section 3

18


Dogs

Cats

Number of Pets Section 3

19

Results from 2013-14 National Pet Owners Survey (APPA): The APPA National Pet Owners Survey found that pet ownership in the U.S. is at a

record. The survey indicated that pet ownership among all US households is 68%, representing 82.5 million pet-owning households in 2012 (an all-time high).

Dog ownership rose to 56.7 million households, and cat ownership grew to 45.3 million.

These gains in dog- and cat-owning households indicate that the total number of these pets also rose in the U.S. to a total of 179 million: 83.3 million dogs 95.6 million cats

Number of Pets

Accident Only; 31,727 3.1%

Accident & Illness; 988,338 95.6%

Insurance with Embedded Wellness;

13,918 1.3%

• The average age of Insured Pets in 2013 was 4.57 years (was 4.04 in 2012)

• The average age of New Pets Added in 2013 was 2.73 years (was 2.79 in 2012)

Total Insured Pets - Per Product (2013)

Section 3

20

Number of Pets

Insured Pets Per Product (2009-2013)

2009 2010 2011 2012

Accident Only 12,557 19,678 23,697 27,290

Accident & Illness 664,768 726,935 771,973 850,672

Insurance with Embedded Wellness 54,079 50,100 48,569 26,732

TOTAL 731,404 796,713 844,239 904,694

2013 (*)

31,727

988,338

13,918

1,033,983

% change 2009-2013

+153%

+48.7%

-74.3%

+41.4%

Section 3

21


Number of Pets

2009 2010 2011 2012 2013

251,791 255,728 253,003

257,721

321,373 (*)

• 24.7% increase from 2012 to 2013 (*)


• 1.1% decrease from 2010 to 2011


New Insured Pets Added Each Year (2009-2013)

Section 3

22


Number of Pets

Breakdown by Pet : New Pets Added (2009-2013)

2009 2010 2011 2012 2013

41,627 41,396 41,597 43,095

55,783 (*)

210,164 214,332 211,406

214,626

265,590 (*)

Section 3

23


Cats

Dogs

Number of Pets

Net Growth - Number of Insured Pets (2009-2013)

2009 2010 2011 2012

Total Insured Pets (BOY) 677,585 (Dec. 31, 2008)

731,404 (Dec. 31, 2009)

796,713 (Dec. 31, 2010)

844,239 (Dec. 31, 2011)

New Pets Added during year 251,791 255,728 253,003 257,721

Total Insured Pets (EOY) 731,404 (Dec. 31, 2009)

796,713 (Dec. 31, 2010)

844,239 (Dec. 31, 2011)

904,694 (Dec. 31, 2012)

Net Cancellations 197,972 190,419 205,477 197,266

Attrition (% of “Total Insured Pets BOY plus

“New Pets Added”) 21.3% 19.3% 19.6% 17.9%

2013 (*)

904,694 (Dec. 31, 2012)

321,373

1,033,383 (Dec. 31, 2013)

192,684

15.7%

Attrition Rate: There are various methods of calculating the attrition rate and each company may have their own calculation method. For the purposes of this study, the attrition rate is calculated as Net Cancellations / (Total Insured Pets BOY + New Pets Added).

The industry achieved an average monthly attrition rate of approximately 1.3% in 2013 , which also means the

industry achieved 98.7% monthly retention.

Section 3

24


Section 4 Average Premiums

Average Premiums

Average Premiums - Per Insured Pet (straight average)

Section 4

26


$138.03 $137.29 $143.58 $150.53 $161.92

$316.66 $343.54 $369.06 $407.37 $407.37

$706.64

$799.14 $820.67

$1,018.47 $1,110.50

2009 2010 2011 2012 2013

Accident Only

Accident & Illness

Insurance withEmbedded Wellness

Section 5 Future Outlook

The Survey questions were designed to gather your opinions on industry issues shared by your peers (based on all respondents)

All respondents agree or strongly agree with the statement « The

current economic climate is good for pet insurance »

9 respondents agree or strongly agree with the statement « We will see greater competition for Pet insurance within the next 12 months »

9 respondents agree or strongly agree with the statement « As competition intensifies, Pet insurance products/services will help differentiate among competing providers »

All respondents agree or strongly agree that « Consumers compare Pet insurance options based on benefits/services »

8 respondents agree or strongly agree that « Consumers compare Pet insurance options based on price »


Drivers most likely to affect premium / business growth in the next year:

Ranked 1st by:

Growth in New Pets Insured 5 companies

Increase in Premium Rates 2 companies

New Products 2 companies

Use of Additional Distribution Channels

1 company


29

Main concerns in the industry for the next year:

Ranked 1st by:

Sales / Growth 6 companies

Consumer Satisfaction 2 companies

Regulation 1 company

Pricing 1 company


30

Recap

The participating NAPHIA members combined for a total premium volume of approximately $487.4 million in 2013.

From 2009 to 2013, the average annual growth rate in GWP was approximately 13.2% (including the 2 new participants in 2013)

Based on available public reports and information, the North American market was estimated at approximately $595 million in 2013.

A total of just over 1 Million Pets insured at year-end 2013

• Average annual growth rate of 9% from 2009 to 2013 (including the new participants in 2013)

• Approximately 85% of insured pets are dogs • Approx. 320,000 new pets added in 2013 (including the new participants in 2013);

double-digit increase in 2013 over 2012 for same sample (up from less than 2% year over year from 2009)

Accident & Illness is the top selling plan in North America with $397.6 million GWP in 2013, representing 81.3% of the total premium volume in 2013.

31

NAPHIA State of Industry Report Avalon

Documents

Transcript of NAPHIA State of Industry Report Avalon