EARTHQUAKE INSURANCEIN JAPANESTABLISHING THE EARTHQUAKEINSURANCE SYSTEM
Japan is well known for its frequent earthquakes. Traditionally, the thinking has been that itis difficult to provide insurance coverage for damage caused by earthquakes. One reason forthis is that nobody can be sure when an earthquake will strike. Another reason is that there isa risk that a major earthquake could cause tremendous damage. Earthquake insurance wasfor many years the subject of a great deal of research and discussion, to little avail. Despite
this, there was considerable public demand for a system of earthquake insurance on dwellingrisks* to enable victims of an earthquake who have lost their homes or property to rebuild theirlife. Responding to this demand, the non-life insurance business continued to study ways tobuild such a system.
The Niigata Earthquake of June 1964 prompted efforts to establish the system. The government and the non-life insurance industry conducted a detailed examination of the earthquake insurance system, ultimately leading to the Law concerning Earthquake Insurance.
The system for earthquake insurance on dwelling risks was built based on this law and Japan
Earthquake Reinsurance Co., Ltd. (JER) was established. We play a key role in taking on full
responsibility with the reinsurance of earthquake insurance contracts entered into by non-life
insurance companies.

MECHANISM OF THE EARTHQUAKEINSURANCE SYSTEM
Earthquake insurance is arranged as an optional rider to fire insurance which covers buildings
for residential use and/or personal property. Earthquake insurance cannot be purchased on itsown. If you conclude a fire insurance contract without earthquake insurance, you are required
to seal the earthquake insurance check column of the fire insurance contract application form.
If you have entered into a fire insurance contract without earthquake insurance, you will beable to purchase earthquake insurance while your fire insurance contract is valid. In someareas, however, if an announcement warning of an earthquake has been made, you may not
be able to purchase earthquake insurance.

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Japan Earthquake Reinsurance Co., Ltd. Annual Report 2016

Insurance Coverage
Loss of or damage to buildings for residential use and/or personal property through fire,
destruction, burial or flooding caused directly or indirectly by any earthquake or volcanic eruption, or resulting tsunami (hereinafter referred to as an earthquake, etc.).
Fire insurance* does not cover
1. any losses caused by fire (including the spread thereof, and expanded loss) resulting
from an earthquake, etc., and2. any fire that has spread because of an earthquake, etc. Earthquake insurance is needed
to compensate for these kinds of losses.

Insurable interests
Buildings for residential use and/or personal property
None of the following is insurable:
A building used as a plant or office, and not used for dwelling purposes, precious metals,
gems or antiques valued at 300,000 yen or more per piece, currency, securities (checks, sharecertificates, gift certificates), certificates of deposit, revenue stamps, postal stamps, automobiles and certain other items.

Term insured
Short-term, one year and long-term (two to five years)

Amount insured
The policyholder is required to set the amount insured under earthquake insurance within arange of 30-50% of the amount of insurance provided by his/her fire insurance. However, theamount insured is limited to a maximum of 50 million yen for a building** and 10 million yen
for personal property.

*Fire insurance		Ordinary fire insurance, long-term comprehensive insurance, deposit life comprehensive insurance, dwelling fireinsurance, householders’ comprehensive insurance, storekeepers’ comprehensive insurance and certain other types ofinsurance.
**	
The amount insured of a condominium building such as apartment building is limited to 50 million yen, totalingexclusive areas and common areas.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201625

Payment of insurance claims
Insurance claims are paid according to the policyholder’s earthquake insurance to cover total,
half or partial loss of the policyholder’s residential building and/or personal property.
Insurable objects

Residential buildings,
personal property

Degree of loss

Amount of insurance claim paid

Total loss

100% of amount insured (up to the current price* of theinsurable objects)

Half loss

50% of amount insured (up to 50% of the current price of theinsurable objects)

Partial loss

5% of amount insured (up to 5% of the current price of theinsurable objects)

Authorization criteria of losses
Total loss, half loss or partial loss applies to any of the following cases:
Residential building

Personal property

Amount of loss of major
structural parts

Area of floor burnt down or
washed away (partial loss
applies when the residentialbuilding is flooded above
floor level)

Degree of loss of or damage
to the personal property

Total loss

50% or more of the current
price of the residentialbuilding

70% or more of the total
floor area of the residentialbuilding

80% or more of the current
price of the personal
property

Half loss

From 20% to less than 50%of the current price of theresidential building

From 20% to less than 70%of the total floor area of theresidential building

From 30% to less than 80%of the current price of thepersonal property

From 3% to less than 20%of the current price of theresidential building

The residential building wasdamaged but not totally orhalf lost although it was
flooded above the floor levelor above 45 cm or higher
from the ground level.

From 10% to less than 30%of the current price of thepersonal property

Degree of loss

Partial loss

Cases when no insurance claim is payable:• Loss or damage due to willful acts or gross negligence or violation of law• Loss or theft of the objects of the insurance• Loss or damage due to war or insurrection• Loss or damage occurring ten days or more after the earthquake• Loss or damage caused only to gates, walls, fences, and other parts that are not majorstructural parts.

*Current price		The current price is such that the amount of depreciation according to the service year is deducted from the price ofa new building.

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Japan Earthquake Reinsurance Co., Ltd. Annual Report 2016

Limit of total amount of insurance claims to be paid
Limit of total amount of insurance claims to be paid* is limited to 11,300 billion yen as
revised in April 1, 2016 per earthquake, etc.. (On the same day, the liability limits of JER,
non-life insurance companies and the government were revised. Please refer to page 33 forthe details.) In the event the total amount of insurance claims payable exceeds the limit, lawallows insurance claims per contract to be reduced.

Premium rate
The premium rate for earthquake insurance is calculated by the General Insurance Rating
Organization of Japan** on the basis of the Law concerning General Insurance Rating Organizations. The basic rate of insurance premiums consists of a risk premium rate applicableto or appropriate for the future payment of insurance claims and a loading premium rate applicable to or appropriate for non-life insurance company expenses and agency commissions.

Premium rate = Risk premium rate + Loading rate
The Headquarters for Earthquake Research Promotion***, a government organization, published the Probabilistic Seismic Hazard Maps. The risk premium rate is calculated based on
the latest revised damage projection method to cover all earthquakes used in the preparationof the maps that are assumed to have the potential to cause damage in the future.
The premium rate actually applied is calculated by multiplying the basic rate of the insurance
premium that is set according to the structure of the residential building and the residentialbuilding to accommodate personal property that are subject to insurance and the building
location, by a discount rate set according to the earthquake-resistance capability (for which
certain confirmation documents are required).

*
Limit of total amount of insurance claims to be paid		The Law concerning Earthquake Insurance stipulates that the limit to the total insurance claims payable by thegovernment and private insurance company per earthquake, etc.. For details, see page 33 Insurance liabilities held byJER, non-life insurance companies and the government.
**General Insurance Rating Organization of Japan		An organization established in accordance with the Law concerning General Insurance Rating Organizations, whichaims to provide a fair basis premium rate applicable to non-life insurance.
***The Headquarters for Earthquake Research Promotion		Following on the lessons learned from the Great Hanshin-Awaji Earthquake Disaster, the Special Measure Law on
Earthquake Disaster Prevention was enacted to develop a system to facilitate research and study on earthquakes, andbased on this Law, the Headquarters for Earthquake Research Promotion was founded in July 1995. In March 2005,
the Headquarters for Earthquake Research Promotion published two kinds of maps as the National Seismic Hazard
Maps for Japan: the Probabilistic Seismic Hazard Map and the Scenario Earthquake Shaking Map.		The National Seismic Hazard Maps are subject to an annual review.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201627

Basic rate (applicable to buildings and personal property)
Examples of premiums
Per one year insurance period and 10 million yen of amount insured (Unit: yen)
Locationclassification

12328

PrefectureNonwooden

WoodenWooden(withtransitionalmeasures)

Iwate-ken, Akita-ken, Yamagata-ken, Tochigi-ken, Gunma-ken, Toyamaken, Ishikawa-ken, Fukui-ken, Nagano-ken, Shiga-ken, Tottori-ken,Shimane-ken, Okayama-ken, Hiroshima-ken, Yamaguchi-ken, Fukuokaken, Saga-ken, Nagasaki-ken, Kumamoto-ken, Kagoshima-ken

6,500

10,6008,400

Fukushima-ken

6,500

13,0008,400

Hokkai-do, Aomori-ken, Miyagi-ken, Niigata-ken, Yamanashi-ken, Gifuken, Hyogo-ken, Nara-ken, Kyoto-fu, Kagawa-ken, Oita-ken, Miyazaki-ken,
Okinawa-ken

8,400

16,50010,900Ibaraki-ken, Ehime-ken

11,800Saitama-ken, Osaka-fu

13,600Tokushima-ken, Kochi-ken

11,80027,90015,300Chiba-ken, Tokyo-to, Kanagawa-ken, Shizuoka-ken, Aichi-ken, Mie-ken,
Wakayama-ken

20,20032,60026,200Japan Earthquake Reinsurance Co., Ltd. Annual Report 2016

24,40015,30017,600Discount rate
Either discount rate will apply to the foregoing basic premiums rate when the building andpersonal property come under any of the following:• Discounts cannot be claimed more than once.
(a) Seismic isolated building* discountWhen the building is a seismic isolated building constructed in accordance with related
laws and accommodated personal property
Discount rate50%(b) Earthquake-resistance class** discount rate
When the building corresponds to the earthquake-resistance class as provided for by lawand accommodated personal property
Earthquake-resistance class
Discount rate

123

10%

30%

50%

(c) Earthquake-resistance diagnosis discountWhen the building was assessed as having an earthquake-resistance capacity*** equivalent
to that stipulated by related laws as a result of an earthquake-resistance diagnosis or anearthquake-resistance refurbishment, and accommodated personal property
Discount rate

10%(d) Building age discount rate
When the building was constructed during or after June 1981 and accommodated personal property
Discount rate

10%*
Seismic isolated building		A seismic isolated building is a building that is assessed to be a seismic isolated building in accordance with the related
indicators in the Japanese Housing Performance Designation Standards under the Housing Quality Guarantee Law.
**Earthquake-resistance class		The earthquake-resistance class of a residential building is an indicator of earthquake resistance as stipulated in theJapanese Housing Performance Designation Standards based on the Housing Quality Guarantee Law. It is also used toevaluate a building for earthquake resistance as provided for in the assessment guidelines for earthquake-resistancediagnosis based on the earthquake-resistance class (as to the body of the building) established by the Ministry ofLand, Infrastructure and Transport. A description of the classes is as follows.		 Earthquake-Resistance Class 3		A class suggesting that the building will not topple or collapse against a force that is 1.5 times stronger than theforce of an earthquake (as provided for in Paragraph 3, Article 88, Enforcement Order of the Construction StandardAct) that occurs very rarely (once every some hundred years)		 Earthquake-Resistance Class 2		Class suggesting that the building will not topple or collapse against a force 1.25 times stronger than the force of anearthquake that occurs very rarely		 Earthquake-Resistance Class 1		Class suggesting that the building will not topple or collapse against that force of earthquake that occurs very rarely***Earthquake-resistance capacity		Earthquake-resistance capacity is a seismic capacity that conforms to the current earthquake-resistance standards set
out in the Building Standards Law.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201629

Premium rate of a long-term contract
Premium rate of a long-term contract (a two-to-five year contract with special conditions forpremiums) is calculated as follows:
Contract period

2 years

3 years

4 years

5 years

Coefficient

1.90

2.75

3.60

4.45

An example of insurance premiums calculated
A wooden residential building constructed in January 2000 in Hyogo-ken:
Fire insurance (principal contract) amount insured: Building 20 million yen; personal property
10 million yen
Period of insurance: One year
1. Setting the amount insured of earthquake insurance: In this case, the proportion insured(*) will be 50%.
Residential building: 20 million yen x 50% = 10 million yen
Personal property: 10 million yen x 50% = 5 million yen
2. Confirming the premium rate applicable: Hyogo-ken, wooden→ 1.65 (premium per 1,000 yen insurance)
3. Confirming the discount rate applicable: Building constructed in and after June 1981
→ 10%
Earthquake insurance premiumon residential building

Earthquake insurance premiumon personal property

Earthquake
amount insured=

10,000Earthquake insurance
premium rate

x

1.65x

(100%(1,000 yen)

5,000–10%)=

14,900 (yen)=7,450 (yen)

1.49

Earthquake
amount insured=

Discount rate

Earthquake insurance
premium rate

x

1.65

(1,000 yen)x

Discount rate

(100%–10%)

1.49*
Proportion Insured		The insured earthquake amount as a percentage of the insured fire amount. The insured earthquake amountshould be 30-50% of the insured fire amount.

Income tax credit system for earthquake insurance
In the tax system revision in fiscal 2006, the old income tax credit for non-life insurance wasrevised, and an income tax credit for earthquake insurance was established to support selfhelp efforts of the public in preparation for earthquake damages. As the revision enables
deductions of up to 50,000 yen and 25,000 yen from the gross income, etc. for the purposesof income tax and the local inhabitant tax, respectively, the purchase of an earthquake insurance policy became easier.
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Japan Earthquake Reinsurance Co., Ltd. Annual Report 2016