Trupanion, Inc. (TRUP) Earnings Call Transcript & Summary

Good morning, everyone who's in this room and who's listening online. We are at the Trupanion event for the Bank of America, a Financial Services Conference. We're really pleased to hear on the heels of reporting earnings last night, we have Darryl Rawlings, Founder and CEO of Trupanion; Margie Tooth, President. You get them in before anyone else to see them, so it's kind of a treat. Let me give you a little biographical information for those who don't know, Darryl, as I said, Founder and CEO. He's also the Founder Member of [ Nafia ], the industry lobbying organization and gets a lot of great information about what's going on there. The story of Trupanion in some ways, when Darryl is 14, family dog needed surgery and it didn't work out. And there were probably many more good years left. And so Darryl's Life mission has been trying to get back those years for other people, and that's the basic sort of ethos behind what fuels Trupanion over time. They signed their first policy in 2000 in Canada, 2008 in the United States. He is a boating enthusiast with 2 bulldogs, Tristan and Priscilla, cat name Howie and a bird named Q who's not covered. And we also have Margi Tooth here. She oversees all the areas of growth, including product distribution, pet acquisition, the international lines, new products, channel offerings. Previously, she was the Chief Revenue Officer and Chief Marketing Officer. So she's been through the whole organization. And she came to Trupanion from the largest pet insurer in the U.K., so really important for the international growth story to consider. And Maltipoo, Gertie and an English bulldog, Mabel. Okay. So now we're through that, I love dogs, although I do not have one. So let's talk about Trupanion. Our dogs and cats customers, our pet owners' customers is the real value in what the business is, veterinarians, how do we sort of scale what the market opportunity is? And what does Trupanion bring to the market overall?

So just at the highest level there, the overall approach for us is through the vet channel. So when we think about how do you reach a pet owner at a time of need by the time you're doing that is too late. So we start with pet owners communicating when they're getting their first pet ideally, they're getting a pet to the household. We know that today, pets are more of the family than they ever have been before. There's a humanization of pets. And so as we speak to that pet parent, we know that they want to be able to understand how they can budget and afford the care for their pet, which is increasingly expensive. As vet inflation continues, we see a greater need for our product. In order to be able to execute on that product, you have to be able to work with a vet partners. So for Trupanion, our unique point of difference is that we start with a vet first product, a product that was designed by vets for vets. It covers more than anyone else in the industry, and we can pay directly at the time of checkout, which removes the need for reimbursement. So when you think about the problem we're solving, pet owners don't know if they're going to have a lucky or an unlucky pet. And if they have an unlucky pet, you could be looking at tens of thousands of dollars. How do you budget for that? If you have a lucky pet, great, but you're never going to want to take the risk on something that's part of your family. And so for us, it's about finding those pet parents at a time when they first get their pet either through when they go to the vet for the first time in the first year, you're going to go to the vet 3x when you have that pet or when you go to choose your breeder, you spend a lot of time trying to find the breeder that's got the right type of dog for you when you meet that breeder that breeder makes a recommendation. They endorse Trupanion and then you go to the veterinary and you've got that continued endorsement. So for us, it's about growing that grass roots of a 3% penetration right now, there is a long way for us to go. And we do that through continued dialogue with the veterinary profession to ensure that we're able to live up to the promise that we offer to our members.

When you talk about that opportunity, I mean, there's many ways to see it. There's people who have second pets, third pets. There's, I think, probably 8,000, 9,000 vet hospitals that you don't currently have a relationship with, with many that you do, they've only sent you one pet in the last month. You're growing internationally. When you scale all the different sort of possibilities for growth? What is the single best sort of avenue that's going to drive the growth near term? And longer term, what does that growth trajectory look like?

He always want to be eye candy. I feel like he's doing this right now. So from the perspective of the vet channel, so to your point, we're in -- we've been active with 16,000 vet hospitals consistently over the last 3 months. We have worked with over 25,000 vet hospitals in the last year. So there is exposure to Trupanion. The single biggest channel for us is really through reinforcement of what we call same-store sales. So how do you help to encourage that habit. So when you check into about hospital they ask you who a medical insurance provider is. So that normalizes the conversation in the mind of the pet parent. And then the pet parent goes through a cycle where we're getting the lead volume and we're helping to convert that. That is the single differentiating factor for us in distribution globally across the board. We don't look to invest and spend as much time in any other channel because by the time you're go to another channel, it's already likely too late. From a breeder, from a referral friend perspective, that's our second biggest channel beyond a vet because our members are referring their friends or adding pets to your point when they get a second, third, fourth pet. And for us, that's a reinforcement of what we -- the quality of the product that we have, but that is going to be the differentiating factor both in North America. And as we think about expanding globally and we look at Australia where we've been now for a few years and we look at the approach we've taken there, it's through our territory partner model. So having people that are working on the ground, building relationships with our hospitals and being able to establish our same-store sales. And we're seeing that growing in the markets we've been in for the longest. Canada, for example, we've been there for a long time. We see that constant recognition from a vet perspective. And that's really where we'll be focused and will remain focused because we can compete there like no one else, because we understand the industry and we have global relationships that span multiple countries that allow us to be able to take more opportunities there. And we also have talked a little bit about eLeads and the role of eLead, which is where we have a system, we have integrations with big purchase management systems, where every time a pet owner checks in, if there is a new pet in a practice management system, we have the opportunity to engage them and to educate them on Trupanion before they go anywhere else. So we get that first communication, that for touch point. That for us over the course of the next 3 years is going to be a big opportunity for us to really work out how do you convert those leads because that's the biggest opportunity. Again, it's through the vet channel.

I think that we go over the past 3 years of interesting time -- probably pandemic definitely changed things a lot. People wanted more companionship. There was some front-loading of pet adoption and people who were using that against Trupanion and saying the growth is currently just a mirror -- a chimeric created by the pandemic and loan behold the pandemic abated and the company continued to grow. And then inflation came along and said, "Oh, company is going to be felt by inflation." Inflation is a legit problem. I hope you can sort of talk about where the company took right now, I think, as you said, at year-end, you exited with 15% rate increases overall and how the company has put through rate, what the regulatory reaction is, where that means your margins are going to be in 1 year?

So let me start -- kind of can work backwards. When we talk about rates. So we exited 2020 with just around 8% rate going through. And for those of you that were unfamiliar in June, we were looking at the rate. The data we're getting through from vet hospitals, from our invoice data through the beginning of last year, we were hearing noises in the market around that inflation picking up and more frequent rate increases than typical. So typically, a vet will raise our prices once a year. Usually, it's in January around Q1. We saw several frequent updates to that coming through our data. We didn't catch it as quickly as we could have. In June, we did. We reacted quickly. We started to get rate through and rates improved and there's usually a 3-month cycle for that to happen. So at the end of last year, we were looking at an 8% increase. End of Q1, we'll be at 15%. The end of this year, we will have gone through an 18% increase across our book of business. And it takes about 12 months -- it takes 12 months for that to flow through, immediately impacts new business. So from a margin perspective, our target is to be a 15%, adjusted operating margin, and we will be at 15% by the end of the year.

Your exit rate will be?

Exit in the year will be -- and probably a little bit ahead of that. We recognize there will likely be additional changes in pricing in that pricing. So we've taken a little bit more rate than we typically would do to stay ahead of that because of where we got quarter last year. We're monitoring the data a lot more granular level as a result of that too. And what we're seeing now is we're starting to see those rates come in and as the margin starts to pick up, that increases our allowable part, which increases our growth rate. So you're going to see a funky shape to the year this year in terms of our growth stats, because of the margin shape as it starts to pick up, our internal rates of return can go up as well. So we're really -- we're focusing on being disciplined there. You asked a question...

The third part of the story comes so there was growth there was inflation and now there's retention. I think that's sort of like the pattern. You are retaining fewer pets. I think you're raising pricing and -- they're stopping the coverage from what I heard. Is that correct?

That's a little extreme. You're trying to get headlines here. Nice try. So when we think about our overall book of business, our retention rate is 76 months for the core Trupanion book of business. And overall, as we consider the impact on our retention. So with our rate changes, we more members into that 20% plus bucket. We know when people are in 20% rate change bucket, there is a slightly lower retention rate. So we fully anticipate to see a softening of retention. As we think about that across the book of business, the rate change that we need to take in ARPU is going to more than offset the retention deficit that we see there. Now one thing to note, as you look at the retention metric, and I don't think it came across as clearly yesterday when we were talking about this, you've now got a good mix of business in there. So we know that Trupanion retention is 2x the industry. We know that from our data is what we believe is what we see. Now we have a range of products. We have a portfolio of products out there. We can see exactly how the retention rate is per product. And when you start to grow those other books of business, so we've got [ PHI and FERC ] in brands in Canada, we've got 2 which we launched last year. They have a much, much lower retention rate. As a result of that, you're going to see that retention come down as our blend and our subscription changes. So while we do expect a softening probably, it will go to the lower 70s. That's still 2x the industry average and don't forget you've got that mix coming into, and that mix is price right, still operating within the same guardrail, so the same margin profile for the same internal rates of return. You're just seeing a different shift in mix to pets served.

Given if we think about right now, the medical loss ratio is higher than the goal. And let me just say one thing about -- you used the number 71. The 60-month plan is actually 72. And by the end of this year, we'll be closer to 60 months than we were now almost 2 to 3 fits the way there at that point in time. Why do you keep using the number 71 when maybe we're closer to 72. And is that the real goal?

So I'm going to make and talk in a second, but so 72 is the goal, but 72 is the goal to be there with our operating expenses at the right level. Right now, we got to 72, and we haven't been priced appropriately for it. So what we need to do is get a pricing in check, which is happening, which is why the 18 is coming through at the end of the year. And we need to make sure that we continue to be a low-cost operator. Once we get to that level, our intention is to take those operating expenses down and not to even further. The more data we get, the more we can do that, where we can become more efficient and then we drive that value from up to 72. So yes, you're right, the number we're closer to the number. That's not by design. We're trying to get back to 71, and then we'll step up to 72. But that is still the end sight goal for the -- the 60-month plan. Darryl, what would you like to add to that?

Nothing.

Can you talk about hypothetical where in New York penetration in Manhattan versus penetration in the Bronx? And I asked about that because there's a huge disconnect between your revenue growth and your ARPU growth. Why is that happening? And how significant is the variance between those 2?

We are growing faster in lower-priced neighborhoods than higher-priced neighborhoods as a mix of business and have been for the last several years. I'll explain the dynamic. If you're in a city and you price a city the same and half the city is rich and half the city is poor, and the cost of veterinary care is equivalent to the rich neighborhoods and the poor neighborhoods. If before we were priced the same in that city, you might have had in the rich areas, people getting back $0.85 on the dollar, 85% loss ratio. And in the poor areas, you might have had a $0.55 loss ratio and blended, it was hitting about a $0.70 or $0.71. So if you're looking at your viewpoint is the city, you'd say, "Oh, I'm priced appropriately." When you peel the onion back and you get more details, we were overcharging lower income areas and they were not getting the same value as the higher income areas were. And so we've been pricing more granular and increasing rate faster, higher in the higher income areas, which meant all else being equal, they start to grow a little slower than they were previously. And in the lower income areas, we start to let grow faster and the mix of business changes. So if before, 50% of my pets were coming from low income and 50% are coming from high income areas. Today, it might be 75% coming from low income and 25% from high income, and that affects our mix of business. Ultimately, what it is, is sharing the risk appropriately and fairly to all members. It's no different than pricing a bulldog versus a Shih Tzu. And that is something that we have done consistently, which is to price more granular every year for 20 years consecutively. When I started the company in Canada, I had one price for dogs and one price for cats across Canada. Now I wasn't an idiot. I knew that bulldogs were more expensive than Shih Tzus, but I didn't have the data. I also knew that Toronto was going to be more expensive than Winnipeg, but I didn't have the data. So as we get more granular data down into the neighborhood level and getting our software into the accessing the veterinarians means that if we only have 10 pets enrolled, I don't need to wait for 5 years of claims data to understand the cost of it. Means that I can look at the cost of nonmatured clients, and I can price more actually to our neighborhood and give a better value proposition. And getting the mix right in a more granular way is how you win in this game long term. And if you want an example, go study Progressive. We have been doing the same type of concept using our own data pricing more granular and trying to have the highest value proposition, the lowest frictional cost, best coverage, best customer experience as we've been doing for years. But our mix of business will continue to evolve and change as we get more and more granular over time.

With the exception of company x that might be conspicuously growing. Generally, your loss ratios are higher than your peers loss ratios.

Our target loss ratios, what we we're targeting to pay out $0.71, $0.72 on the dollar. Most of our competitors, if they're targeting $0.55, they're hoping next year to get to $0.51 million. They think their job is to make more profit and they get a pat on the back and they may get a short-term bonus, but they want that value proposition being driven down. If we were in a fully commoditized market where 99% of pets were insured, and the only thing you're doing is chasing a bigger profit, then fine. We're trying to grow a category from 3% market penetration and win the hearts and minds and veterinarians. And we think we need to do that by being transparent and having the best value proposition. So in aggregate, our targets are higher than others. We're still not perfect, as I just described in some cities, we were undercharging rich neighborhoods and overcharging poor neighborhoods, but we continue to get -- make progress and being refined and do that more and more over time.

So I was being a bit cheeky at the beginning when I said that the -- so we went from -- do you having a growth problem, do you have an inflation problem. Do you have a retention problem. But the truth is the story actually that makes the biggest barrier to entry for investors is what you just said and look at [ Transit ] it's another unprofitable growth company. And actually, what they're saying is true. You are a nonprofitable growth company. So can you help those investors who perceive you that way, understand what is the difference between you and other nonprofitable growth companies?

Yes, there's -- I'm going to describe it in 2 different ways. I'm going to start off with GAAP income statements. And by the way, I'm a fan of GAAP I think it's very well intentioned. Last year, Margi and her team of -- everyone at the company, we spent about $80 million acquiring about 260,000 pets. We did that by producing about $90 million of adjusted operating income. So the profit from our existing book, right? So we had about $90 million and then we invested about $80 million of that $90 million, acquiring 260,000 pets. Now if my name was John Malone and I own cable companies, and I bought 260,000 subscribers in the town next door, my GAAP income would have looked like I made $90 million of profit, and I made an $80 million acquisition acquiring 260,000 new subscribers, and that revenue would show up on the next year's revenue. And then I would have the combination of those next year, and then I would continue to do it. GAAP accounting does not allow us to capitalize our new pet. Now the advantage of it is, it's pretax dollars that we're investing. And more important to that is we're getting a 30% to 40% internal rate of return on the money we're investing. So the only thing better than us investing $80 million last year to 30% return would have been investing $150 million at a 30% return. What would have been better than that, investing $400 million. But there is a mechanism that we need to understand cash inflows versus outflows, where do we get our capital from. So we really care about cash. And we care about can we grow at a self-generated level. So for the first -- basically 20 years of the business we grew from 1 pet and the total capital invested in the company before IPO in 2014 was less than $20 million. We then -- we went IPO-ed. We raised a bit of money in the IPO and we got into operating scale. We've made an investment. We did took a dilution, and we raised about $60 million and bought a building for $60 million. I'm not sure if buying a building is the best investment today, but that's what we did. But we built a business basically being very, very cash efficient over periods of time. We can grow this business at cash flow, call it, breakeven while investing at very high rates of return, and our GAAP income is going to say, earnings per share cash flow breakeven. And you can look at us in 2017, '18, '19, '20, we started to have some cash outflows. But that's how we're running the company. Last couple of years, we have been investing some CapEx, a couple of M&As doubling our expand -- our market. So we've gone from about 25,000 hospitals in our universe to now about 50,000. So addressable market is we basically doubled it in the last year. So we've had some onetime expenses that we've done. We'll find out in 5 or 10 years, how good of those investments were. But our business, most of our shareholders would rather us deploy greater sums of capital at the rates of return that we do. And as long as we remain disciplined in there, and we understand our cash flows, we think we can self grow at 20-ish percent a year, if we grow at 25%, 30%, 40% a year, then we're cash flow negative.

I know you're a fan of Costco and I don't know if it's still true, but when I was studying it, they required a 17% gross margin on every single product they sold. No more and no less. They wouldn't sell things at a loss. They promise that they are going to make 17%. You mentioned Progressive earlier another company in your respect. Progressive has an ethos a 96% combined ratio or better. Why not require Trupanion to earn an underwriting profit at this point in time to demonstrate to the naysayers that this is a business that's capable of returning a profit? How come you operate the company the way you are right now? What are the trade-offs in doing so?

Well, we think we've been very transparent, especially since we've been public since 2004. Anybody can go back and read shareholder letters from 2014, '15, '16, '17 read any of them. We've been very transparent about our goal. And we're our top 20 shareholders own over 90% of our company. Those shareholders want us to invest the cash flow that we have available to acquire new pets. And if we have any additional capital, they're happy for us to do it. We're at a 3% market penetration. And we've got decades of compounding growth ahead of us. The question is, do you want to grow at 15% a year and throw off a little bit of cash? Do you want to grow at 20% and be around cash flow breakeven? Do you want to grow at 30% and compound a lot faster, but have -- require some capital to grow. They're all decisions. They all have pros and cons, partly depends on our cost of capital. But we've been very transparent about what we're trying to do, how we're trying to go about it. We're not in the insurance business where we're doing investment income. If interest rates were to stay high for a while, that might change things a little bit. But we're investing dollars what we think are high rates of return. I think we're disciplined about it. We've proven it over time, and we're going to kind of stick to our knitting.

You mentioned 3%. I don't really have a great source for international penetration. Now you probably get penetration from you some of that. I think Sweden is like 40%, 50% maybe U.K. 15% plus 20%, maybe 25%, some place in continental Europe, 10%, 15%. What's up with America? And knowing my country, we're just not socialists. I mean we don't believe in spreading risk. I mean and what not, what are the real hopes for penetration for this country? I mean we're not going to be Sweden. I'm sure of it.

We might be Sweden. Maybe that's I teach here. I think the difference really for the U.S. has been the penetration rate through the vet channel having products that won't really very -- they weren't as strong as they could. They didn't solve the problem, and they actually ended up hurting the trust between the veterinarian and the pet owner. Then pet owners would go in and then they get a bill, the way to be reimbursed and then what would come back from the insurance company is well, it's not, it's overpriced from my benefit schedule. That really burned us out as a market, the same age. The U.S. and the U.K. started within a couple of years from each other. The U.K. is now at 25% penetration, come through the back channel with the confidence in the vet industry and we're starting to see that shift in the U.S. We are growing just under a point a year. We're seeing that movement. We're seeing more adoption in areas where we have been penetrated for longer. We see our overall penetration rate is there in the kind of closer to 10%. So we know that when you get through that generational cycle where people have a product that they can trust, they may not have got insurance their first or second pet they do and when they do, they get it with Trupanion because we've already got that relationship with the veterinarian. So as we think about that, there isn't a -- people in the U.S. who don't love their pets and invest in people in the U.K. I can speak from personal experience, having been in hundreds of hospitals in both countries. What we have created is now more of an avenue to have that access to care with quality insurance that was lacking before. Europe, were in Europe for a reason. We wouldn't go into Europe just for the sake of it. We're going to operate within those same tight guardrails of 30% to 40% with a 15% AUM. We're not going to be reckless with our spending, but we believe we solve a problem in Europe just as we do in North America. And we can see the penetration rate in France is 2.5%. Germany is seeing low single digits. Japan is around 10%. I'm not going to go through all of them now, but they're all much, much lower than they should be because there hasn't been a quality product, there hasn't been a solution to budgeting for unexpected care. And the cost of care in all of those countries is rising. It's different. The cost of care in Czech here is different to the cost of care in New York. But as long as we get our pricing right, our margin structure is consistent which it will be. That's how we are building these businesses out. We'll be able to grow into those spaces, too. So the runway, not just in the North American market, is huge.

The psyche of Americans or Canadians how they think about their pets is not different than that in the U.K. Sweden has been doing it for a long time. They've been doing it for over 100 years of pet insurance. So let's just put them aside, right? But when a veterinarian gives somebody like a 30-day trial in the U.K. and when a veterinarian gives a 30-day trial in the U.S., the conversion rates are the same. It's not a demographic issue. This is about the consistency of veterinarians, handing it out and doing it over time. So it's an education. Education is hard. It doesn't happen fast. But we've grown 20-plus percent every year for 20 years straight. And we think we have an opportunity to grow for the next 20 years at 20%, we'll have to execute to do that. So it's not guaranteed, but the opportunity is guaranteed to be there.

In terms of something in that growth, you bought Smart Paws to accelerate the licensing and regulatory opportunities in Europe for you. And we talk about cities like London, Paris, Munich and it might be surprising that you found some particle company in Prague to buy in pet expert. It seems like on the one hand, it's a bit unusual to if a start-up exists in Prague that's doing a lot of the same things you are, to what extent does that mean that there's other entrepreneurs who might be in a race with you to establish their presence before Trupanion can bring their products to those markets?

It's a very good question. So I over the last 20 years, in particular, after we went public, we're the only public company that does what we do. We've had many, many companies say, "Can you buy us?" So I've looked at dozens. And there's never been anything that we could get remotely close to a 30% internal rate of return on buying their companies. So most of them didn't have anything that was super desirable. What we found in the acquisition was a very lean mindset and all about the veterinarian. Now they buy their own admission, if they try to come to the United States and compete against us, they would not have had the ability to get into the veterinarians because their product wasn't as good. Their value proposition was and as good as us. But they went to a market where they had nobody going to the veterinarian, and they're able to go after that approach. Trupanion, there's no way I could have started this company if we had to compete against a company like Trupanion. We never would have made it to 10,000 pets because we would have gone to the veterinarians, and we would have said this is who we are, and they would have said, why are you better than the incumbent? Are you offering a better value proposition? Do you have a better coverage? Can you pay us faster? Are you more direct? And the answer would have been, no, no, no. When we've come in the United States, we've had the advantage of never having everybody do it well for the veterinarian, and it's taken us 20 years to earn the trust and respect of 16,000 of 25,000 vet hospitals. It's a hard thing to come up with. But the mindset of entering a new country where nobody had ever done it before. I think that can happen. I haven't seen it anywhere else, nowhere in South America, nowhere in Asia, nowhere in Europe. This was certainly an outlier, and we're pleased to have them part of the family.

On last night's conference call, you mentioned a change in how you think about capital a little bit and what you're doing about that, just for people don't know. Obviously, the flagship Trupanion brand drives the lifeblood of the business, but you do underwrite pet insurance for a partner, very large insurance or insurance product called Pets Best. And that's the most of what we call the other business at Trupanion. But it's a lower-margin business, but has about the same capital requirements as the business that you operate flagship brand. And so the return on that capital is far lower than for your own capital. So what are you doing now whether there's a change in how you're going to run the business to ameliorate the capital stock that the other business is creating for you?

Well, in the last year and a bit, the cost of capital has become more expensive, right? I mean, we're living in a world where cost of capital is more expensive. You said that the Pets Best business had the same capital requirements as Trupanion. That business has about a 2% to 3% margin, and we're targeting a 15% for Trupanion right now, we're around 12-ish. But if they had the same, you would see that you would be much better off to be using that capital for Trupanion. The reality is the Pets Best business has been way more capital intensive because there's a growth rate penalty on how much you need to hold. If you're growing faster, the faster you grow the more the departments of insurance make you hold as a percentage of revenue. And it applies to all of it. So they've been growing 40-plus percent a year. And that growth penalty has been costing us capital reserves, not just for the $60 million that we've needed to hold for them, but it has made us have to hold more capital for our Trupanion product. So it's been not capital efficient. Now a couple of years ago, we got a couple of hundred million dollars from Aflac. And if I got the money sitting in a bank account and making a small margin on it, it's okay. But we're becoming a time when we're going through that capital, and we need to be more disciplined on how we use our capital. So this year, we're focusing on higher internal rates of return. We're trying to get the margins back. We're pulling back on the other business so that we get that capital gets freed up. So we won't have to fund future growth in the larger margin business. Where we deploy capital, growing in new products or new channels will all be designed at the same 30% to 40% internal rate of return. And we'll stick to the knitting there. Last couple of years, we spent quite a bit of money on CapEx and development and a bunch of those things. Those will all slow down this year. That's kind of where we sit and why we were doing it. And it's something that we've been negotiating for 2 years. It took a while. They've been a good partner. We didn't want to leave them in the lurch. So it could be a little longer now organized, but we're happy that we did it.

Some people in the room are listening might be surprised to learn that Priscilla and Bertie are in the marine property. And in order to protect that property requires a very high capital charge, which probably won't happen forever. Can you talk about that weird dynamic where vet actually treats them as property and not pets and what that means for the capital charges long term?

Yes. So all right. I'm a fan of GAAP accounting. I think it is good. People need to be transparent. It needs to be -- have some semblance. Regulatory, I'm a fan of regulation for insurance. You don't want people starting up insurance companies on the Internet and not having capital or balance sheets to back them up. It makes sense. Pets, what we provide is health insurance and the amount of capital that is required for a health insurance company of humans, which doesn't have catastrophic risk because how people -- the cost of care and everything else is quite stable. So the variance between 1 year and the other in human health insurance is very -- it's moderate. We are also very moderate. We don't have rapid changes. Whereas if you're insuring a house or a tractor or something else, you could have catastrophic events, which means in one year to the other area, you can have big swings. Pets are legally considered property. It's a good thing. We wouldn't want veterinarians being sued for give me $1 million because your broken leg didn't work out, right? So there's some advantage of being considered property, but it falls under property and casualty insurance. And the category has been so small that they've put us in a group of other small property and casualty insurance and all of those ones have catastrophic risk applied to them. So the amount of capital that you hold for those ones needs to be bigger in case you have a hurricane comes through or some catastrophic event. When pet insurance becomes a big enough category, we will get our own set of regulatory requirements, and it will probably be closer to health insurance or dental insurance. And it will mean the amount of capital that we need to hold will be lower over time is what we'd expect.

And we believe have no time line, I assume?

Regulators are regulators, will take time. I first had my first conversation about this was in 2009. Something about this industry that people don't understand, we'll announce that we're going to go to a country or that we're doing a partnership and people think like you're going to go from 0 to 100 in an hour. It takes typically about 2 years before we issue a first policy, and it takes 2 to 4 years for us to build momentum. And you can see that we're building good momentum with State Farm. It's taken a long time. When we enter a new city or a region, it takes us years to build trust with veterinarians. So on once -- we're a fast-growing company compared to publicly traded. We're consistently growing company compared to the most, but we don't go from 0 to 100. We're just monthly recurring revenue and just kind of be plotting well.

Just to add to that as well, I'd say that from a regulation perspective, as we get bigger brands in the market, it really helps to draw attention to the category. And as we draw attention to the category that 2009 conversation, suddenly kind of it does start to pick up a bit more momentum. So there's a lot more noise about a lot more people lobbying for it, but it's going to be a while before I get that.

So we're out of time. I mean to ask one more question. Darryl, I view you as a student of a lot of people who run businesses that's kind of how you think about your own business. And you talked about growing at a 20% CAGR for the next 20 years. I don't expect to plan to be CEO of Trupanion for '20...

Maybe you will be.

But I sort of -- you found Margi and Tricia, and a great team that you've built. In those transitions from founders, letting go and sort of say, look, my team I put them in place, how comfortable are you that you can make the right decisions and not be -- and let go when you're ready to do so? And I'm not trying to rush you out in any way, shape or form, but I know it's on your mind as well.

So there's 2 type of succession plans. There's a succession plan that has been well thought out, takes a lot of time and involves an internal team. That's been the goal for the get-go. So in 2014, I said I had committed to be CEO. I could be fired any time. Many times I didn't expect to be here this long -- but until 2025. And then I said I will commit to be on the board until 2035. The goal by 2025 is to make sure that we have an internal team that communicates and is organized and functions extremely strong and that we have an internal candidate that can come up and take on the role. You could -- I could hire Tim Cook and let's assume he's the best manager after some founder, right? I mean, he's certainly proven himself to be amazing. If he inherited a lousy team and a lousy company he's not going to do well in the first couple of years, right? What's most important is that we've got good systems, good teams, good communications, good metrics, good monitoring, good set of values. And that's what we're working towards. Margi knows this business as well or better than I do. She can organize and communicate better than I can. She's running the execution of the business. She knows the values and the cultures of the company. It's a -- I have a great deal of confidence that we will have Margi raise our hand or some other people inside of the company that would be comfortable running it.

Will you be comfortable not running it?

Yes, I will be. I didn't build a company to have a job. I built a company that could actually grow and endure. And if it requires me to be hands-on, then I didn't accomplish the goal. The goal is for us to help millions and millions of pets and veterinarians, and it can never be reliant on a person. I do care about our values and our culture that they carry forward, but that's it.

Well, I mean, really -- thanks for the time. I do appreciate it, especially today, right after your earnings. Margi, Darryl, thanks for being here. And all the best. Take you everyone in the audience.