Everyone who's in this room and who's listening online, we are at the Trupanion event for the BofA Securities Financial Services Conference. We're really pleased to hear it on the heels of reporting earnings last night. We have Darryl Rawlings, Founder and CEO of Trupanion, and Margi Tooth, President. You know, you get them in before anyone else has seen 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 and member of NAPHIA, 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 was 14, family dog needed surgery and he, it didn't work out, and there were probably many more good years left. 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, they signed their first policy in 2000 in Canada, 2008 in the United States. He's a boating enthusiast with two bulldogs, Tristan and Priscilla, and a cat named Hallie, and a bird named Hugh, 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. She came to Trupanion from the largest pet insurer in the U.K., so really important for the international growth story to consider. A Maltipoo named Gertie and an English bulldog, Mabel. Okay, so now through that, I love dogs, although I do not have one. Let's talk about Trupanion. You know, are dogs and cats customers? Are 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?
Okay. Yes. Is it working? Okay, good. Just at the highest level, the overall approach for us is through the vet channel. When we think about how do you reach a pet owner at a time of need is, you know, by the time you're doing that, it's too late. 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, 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 the vet partners. 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 the vet directly at the time of checkout, which removes the need for reimbursement. When we think about the problem we're solving, pet owners don't know if they're gonna have a lucky or an unlucky pet. 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 gonna wanna take the risk on something that's part of your family.
For us, it's about finding those pet parents at the time when they first get their pet, either through when they go to the vet for the first time. The first year, you're gonna go to the vet three times when you have that pet. 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, the breeder makes a recommendation. They endorse Trupanion. You go to the veterinarian, you've got that continued endorsement. For us, it's about growing that grassroots. The 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, right, 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 wants to be eye candy. I feel like he's doing this right now. From the perspective of the vet channel, to your point, we've been active in 16,000 vet hospitals consistently over the last three months. We have worked with over 25,000 vet hospitals in the last year. There is exposure to Trupanion. The single biggest channel for us is really through reinforcement of what we call Same-Store Sales. How do you help to encourage that habit? When you check into a vet hospital, they ask you who a medical insurance provider is. 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 going to another channel, it's already likely too late. From a breeder, from a refer-a-friend perspective, that's our second biggest channel beyond a vet because our members are re-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 the quality of the product that we have. Vet is gonna 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.
Having people that are working on the ground, building relationships with vet 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.
We also talked a little bit about e-Leads and the role of e-Leads. We have a system, we have integrations with big Practice 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. We get that first communication, that first touch point. That for us, over the course of the next three years is gonna 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 if we go over the past three years of an interesting time, obviously pandemic definitely changed things a lot. People wanted more companionship. There was a some front loading of pet adoption, and people were using that against Trupanion and saying the growth is currently just a mere, a chimera created by the pandemic. Lo and behold, the pandemic abated and the company continued to grow. Inflation came along and said, "Oh, company is going to be felled by inflation." Inflation's a legitimate problem. I hope you can sort of talk about where the company took it. 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 one year.
S o when we're at.
I'll make Darryl answer that.
Yeah, yeah, I'll make him do it.
I'll figure out something. Yeah.
Let me start. I kind of can work backwards when we talk about rates. We came, we exited 2022 with just around 8% rate going through. For those of you that were unfamiliar, in June, you know, 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 vet inflation picking up and more frequent rate increases than typical. Typically a vet will raise their prices once a year. Usually it's in January or in 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 approved. There's usually a three-month cycle for that to happen. 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. From a margin perspective, our target is to be at 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, probably a little bit ahead of that. We recognize there will likely be additional changes in pricing, in vet 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 caught out last year. We're monitoring the data at a lot more granular level as a result of that too. What we're seeing now is we're starting to see those rates come in, and as that margin starts to pick up, that increases our allowable PAC, which then increases our growth rate. You're gonna see a funky shape to the year this year in terms of our gross adds. Because of the margin shapes, as it starts to pick up, our internal rates of return can go up as well.
We're really, we're focusing on being disciplined there. You asked a question right at the beginning.
The, then the third part of the story comes. There was growth, there was inflation, and now there's retention. I think that's sort of like the pattern it takes. Are you retaining fewer pets? And you're raising price on people and they're stopping the coverage from what I heard. Is that correct?
That's a little extreme.
Okay.
You're trying to get headlines here.
No, no. I get it.
Nice try.
All right.
When we think about our overall book of business, our retention rate is 76 months for the core Trupanion book of business. Overall, as we consider the impact on our retention, with our rate changes, we move more members into that 20% plus bucket. We know when people are in 20% rate change bucket, there is a slightly lower retention rate. 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 gonna more than offset the retention deficit that we see there.
One thing to note, as you look at the retention metric, and I don't think, you know, it came across as clearly yesterday when we were talking about this, you've now got a good mix of business in there. We know that Trupanion retention is 2x the industry. We know that from our data. That's what we believe. That's what we see. 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. When you start to grow those other books of business, we've got PHI and Furkin brands in Canada. We've got Chewy and Aflac, which we launched last year. They have a much lower retention rate.
As a result of that, you're gonna see that retention come down as our blend and our subscription changes. 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 in too. That mix is priced right, still operating within the same guardrails, still the same margin profile, still the same internal rates of return. You're just seeing a different shift in mix of pets there.
Given if we think about right now, the medical loss ratio is higher than the goal. Let me just say one thing about... You used the number 71.
Yeah.
The 60-month plan is actually 72. By the end of this year, we'll be closer to 60 months than we were, than now, almost two to three-fifths of 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?
I'm gonna make him talk in a second, but so 72 is the goal. 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. What we need to do is get our 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 a notch even further. The more data we get, the more we can do that, we can become more efficient, and then we drive that value prop up to 72. Yes, you're right. The number, we're closer to the number.
That's not by design. We're trying to get that to 71, and then we'll step up to 72. But that is still the end state goal for the month, the 60-month plan. Darryl, what would you like to add to that?
Nothing. Can you talk about hypothetical, we're in New York, penetration in Manhattan versus penetration in the Bronx? I ask 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 two?
We're 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 the 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 70% or 71%.
If you're looking, your viewpoint is the city, you'd say, "Oh, I'm priced appropriately." When you peel the onion back and you get more detailed, we were overcharging lower-income areas, and they were not getting the same value as the higher-income areas were. We've been pricing more granular and increasing rates faster or higher in the higher-income areas, which meant all else being equal, they start to grow a little slower than they were previously. In the lower-income areas, we start to net grow faster. The mix of business changes. 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. That affects our mix of business.
Ultimately, what it is sharing the risk appropriately and fairly to all members. It's no different than pricing a bulldog versus a Shih Tzu. 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. 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 gonna be more expensive than Winnipeg, but I didn't have the data.
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 five years of claims data to understand the cost of it. Means that I can look at the cost of non-insured clients, and I can price more accurately to a neighborhood and give a better value proposition. Getting the mix right in a more granular way is how you win in this game long term. 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. That's what we've been doing for years.
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're targeting to pay out $0.71-$0.72 on the dollar. Most of our competitors, if they're targeting 55%, they're hoping next year to get to 51%. 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 of veterinarians. We think we need to do that by being transparent and having the best value proposition. 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. We continue to make progress and be refined and do that more and more over time.
I was being a bit cheeky at the beginning when I said that do you have a growth problem? Do you have an inflation problem? Do you have a retention problem? The truth is, the story actually that makes the biggest barrier to entry for investors is what you just said. You look at Trupanion, it's another unprofitable growth company. Actually, what they're saying is true. You are a non-profitable growth company. Can you help those investors who perceive you that way understand what is the difference between you and other non-profitable growth companies?
Yeah. There's I'm gonna describe it in two different ways. I'm gonna start off with GAAP income statement. 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? We had about $90 million, and then we invested about $80 of that $90 million acquiring 260,000 pets.
If my name was John Malone and I owned cable companies and I bought 260,000 subscribers in the town next door, my GAAP income would have looked like I made $90 million in profit and I made an $80 million acquisition acquiring 260,000 new subscribers. That revenue would show up on the next year's revenue. I would have the combination of those the next year, then I would continue to do it. GAAP accounting does not allow us to capitalize our new pet. The advantage of it is it's pre-tax dollars that we're investing. More important to that is we're getting a 30%-40% Internal Rate of Return on the money we're investing.
The only thing better than us investing $80 million last year at a 30% return would have been investing $150 million at a 30% return. What would have been better than that? Investing $400 million. There is a mechanism that we need to understand cash inflows versus outflows. Where do we get our capital from? We really care about cash, and we care about can we grow at a self-generated level? For the first, basically 20 years of the business, we grew from one pet and the total capital invested in the company, before IPO in 2014 was less than $20 million. We then, we went IPO'd, we raised a bit of money in the IPO, and we got into operating scale.
We made an investment. We 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. We built a business basically being very, very cash efficient over periods of time. We can grow this business at cash flow, call it break even, while investing at very high rates of return. Our GAAP income is going to say Earnings Per Share, you know, cash flow break even. You can look at us in 2017, 2018, 2019. 20 we started to have some cash outflows. That's how we're running the company. Last couple of years we've been investing some CapEx, a couple M&A, doubling our market.
We've gone from about 25,000 hospitals in our universe to now about 50,000. Our addressable market is we've basically doubled it in the last in the last year. We've had some one-time expenses that we've done. We'll find out in five or 10 years how good of those investments were. Our business, most of our shareholders, would rather us deploy greater sums of capital at the rates of return that we do it. As long as we remain disciplined in there and we understand our cash flows, we think we can self grow at 20%-ish 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, no less. They wouldn't sell things at a loss. They promised they're gonna make 17% on you. You mentioned Progressive earlier, another company you 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. You know, 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. If we have any additional capital, they're happy for us to do it. We're at a 3% market penetration, 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 require some capital to grow? They're all decisions. They all have pros and cons. Partly depends on our cost of capital. 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, you know, that might change things a little bit. We're investing dollars where we think are high rates of return. I think we're disciplined about it. We've proven it over time, and we're gonna stick to our knitting.
You mentioned 3%. I don't really have a great source for international penetration. I probably get penetration from you sometimes. I think Sweden's like 40%, 50%. Maybe U.K. 15 plus 20, maybe 25. Someplace in Continental Europe, 10, 15. What's up with America? Knowing my country, we're just not socialists. We don't believe in spreading risk, I mean, you know, and whatnot. What are the real hopes for penetration for this country? I mean, we're not gonna be Sweden. I'm sure of it.
We might be Sweden.
We might be Sweden? Okay.
Maybe that's the T-shirt. I think, you know, the, the difference really for the U.S. has been the penetration rate through the vet channel, having products that weren't really. They weren't as strong as they could. You know, they didn't solve the problem, and they actually ended up hurting the trust between the veterinarian and the pet owner, when pet owners would go in and they'd get a bill, they wait to be reimbursed, and then what would come back from the insurance company is, "Well, it's not, it's overpriced for my benefit schedule." That really burnt 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 vet channel with the confidence in the vet industry. We're starting to see that shift in the U.S. We are growing at 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%. We know that when you get through that generational cycle where people have a product that they can trust, you know, they may not have gotten insurance for their first or second pet, but their third pet, they do. When they do, they get it with Trupanion because they've already got that relationship with the veterinarian.
As we think about that, you know, there isn't a p eople in the U.S. do not love their pets any less than 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, we're in Europe for a reason. We wouldn't go into Europe just for the sake of it. We're gonna operate within those same tight guardrails of 30%-40% with a 15% AOM. We're not gonna be reckless with our spending, but we believe we solve a problem in Europe just as we do in North America. We can see the penetration rate in France is 2.5%. Germany is low single digits. Japan is around 10%.
You know, I'm not gonna 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. The cost of care in all of those countries is rising. It's different. The cost of care in Czech is different to the cost of care in New York. As long as we get our pricing right and 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. The, the runway, not just in the North American market, is huge.
The psyche of Americans or Canadians and how they think about their pets is not different than that in the U.K.. Sweden's been doing it for a long time. They've been doing it for over 100 years, pet insurance, so let's just put them aside, right? 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. It's an education. Education's hard. It doesn't happen fast. You know, we've grown 20-+% every year for 20 years straight. We think we have an opportunity to grow for the next 20 years at 20%.
We'll have to execute to do that. It's, you know, it's not guaranteed, but the opportunity is guaranteed to be there.
In terms of selling that growth, you bought Smart Paws to accelerate the licensing and regulatory opportunities in Europe for you. We talk about cities like London, Paris, or Munich. It might be surprising that you found a simpatico company in Prague to buy in PetExpert. Seems like, on the one hand, it's a bit unusual. Two, if a startup 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. 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?" I've looked at dozens. There's never been anything that we could get remotely close to a 30% Internal Rate of Return on buying their companies. 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 by their own admission, if they tried 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 wasn't as good as us. 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." 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?" The answer would have been, "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 of the 25,000 vet hospitals. It's a hard thing to come up with. 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, you know, pleased to have them, you know, 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 who 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. That's the most of what we call the other business at Trupanion. It's a lower margin business, but it has about the same capital requirements as the business that you operate, the flagship brand. The return on that capital is far lower than for your own capital. What are you doing now, whether there's a change in how you're gonna run the business to ameliorate the capital suck that the other business is creating for you?
Well, you know, 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%-3% margin, and we're targeting a 15 for Trupanion. Right now we're around 12-ish. 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.
It applies to all of it. They've been growing, you know, 40+% 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. It's been not capital efficient. Now, a couple of years ago, we got $200 million from Aflac. If I got the money sitting in a bank account and I'm making a small margin on it's okay. 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. You know, 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, they'll all be designed to have the same 30% to 40% Internal Rate of Return. We'll stick to the knitting there. Last couple of years, we've 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're doing it. It's something that we've been negotiating for two years. It took a while. They've been a good partner. We didn't wanna leave them in the lurch, so took a little longer to organize, but we're happy that we did it.
Some people in the room who are listening might be surprised to learn that Priscilla and Gertie are Inland Marine Property. In order to protect that property, it requires a very high capital charge, which probably won't happen forever. Can you talk about that weird dynamic where NAIC treats them as property and not pets and what that means for the capital charges long term?
All right. I'm a fan of GAAP accounting. I think it is good. People need to be transparent, needs to 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. The amount of capital that is required for a health insurance company of humans, which doesn't have catastrophic risk because the cost of care and everything else is quite stable. The variance between one year and the other in human health insurance is very 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 year, you can have big swings. Pets are legally considered property. It's a good thing. We wouldn't want veterinarians being sued for, you know, give me $1 million because your broken leg didn't work out, right? There's some advantage of being considered property, but it falls under Property & Casualty insurance. The category has been so small that they've put us in a group of other small Property & Casualty insurance, and all of those ones have catastrophic risk applied to them. The amount of capital that you hold for those ones needs to be bigger in case you have a hurricane come 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. It'll mean the amount of capital that we need to hold will be lower over time is what we'd expect.
We have no timeline, I assume.
You know, regulators are regulators. It'll take its time. I first had my first conversation about this was in 2009. You know, something about this industry that people don't understand, you know, we'll announce that we're gonna go to a country or that we're doing a partnership, and people think, like, you're gonna go from 0 to 100 in an hour. It takes typically about two years before we issue a first policy, and it takes two-four years for us to build momentum. 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 region, it takes us years to build trust with veterinarians. You know, We're a fast-growing company compared to publicly traded.
We're a consistently growing company compared to most. We don't go from 0 to 100. We're just monthly recurring revenue and just kind of keep plodding along.
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. As we draw attention to the category, that 2009 conversation suddenly kind of it does start to pick up a bit more momentum. There's a lot more noise about it and a lot more people lobbying for it, but it's gonna be a while before it gets there.
We're out of time, but I'm gonna ask one more question. You know, Darryl, I view you as a student of a lot of people who run businesses. That's kinda how you think about your own business. You talked about growing at a 20% CAGR for the next 20 years. I don't expect you plan to be CEO of Trupanion for 20. Maybe you will be, but I sort of. You've found Margi and Tricia and a great team that you've built. In those transitions, from founders letting go and sort of saying, "Look, my team, I've 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? I'm not trying to rush you out in any way, shape, or form, but I know it's on your mind as well.
There's two 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 from the get-go. In 2014, I said I'd committed to be CEO, you know, I could be fired anytime, many times. I didn't expect to be here this long, but until 2025. 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.
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 gonna do well in his first couple 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. 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, of the business. She knows the values and the cultures of the company. It's a, you know, I have a great deal of confidence that we will have Margi raise her hand or some other people inside of the company that would be comfortable running it.
Will you be comfortable not running it?
Yeah, I will be. I didn't build a company to have a job. I built a company that could actually grow and endure. 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 and that they carry forward, but that's it.
Well, I mean, really, man, thanks for the time. I do appreciate it, especially today, right after your earnings call. Margi, Darryl, thanks for being here.
Thank you.
Thank you.
All the best. Thank you, everyone in the audience.