JAPAN EARTHQUAKEREINSURANCE CO., LTD.

PROFILEIn accordance with the introduction of the Law concerning Earthquake Insurance (Law No. 73,May 18, 1966) and following the launch of sales of earthquake insurance on dwelling risks to
be written in conjunction with dwelling and shop-owners comprehensive insurance policies,
JER was established with share capital of 1 billion yen by 20 domestic Japanese non-life insurance companies on May 30, 1966. The Company was licensed for the earthquake insurance
business and started its operation on June 1, 1966.
Earthquake insurance on dwelling risks depends on this reinsurance system (which is a safetynet, as it were), in which the government, non-life insurance companies and JER participate toensure that insurance claims can be paid to policyholders without fail.
The insurance premiums paid by policyholders are separated from non-life insurance companies, and are managed and operated by the government and JER.
JER is thus at the center of a reinsurance system, and undertakes reinsurance procedures withthe government and non-life insurance companies, while managing and operating the insurance premiums paid by policyholders as the sole earthquake reinsurance company in Japan.

FINANCIAL HIGHLIGHTSNet premiums written

Assumed net premiums written(Yen in millions)(Yen in millions)

300,000

130,000

280,000

120,000
257,239

260,000

114,114110,000

243,099
240,000

100,000

220,000

90,0000
Fiscal Year97,30202016

2017

Fiscal Year

2016

2017

Net unrealized gains on available-for-salesecurities of earthquake insurance
and net unrealized gains on available-for-sale securities

Net loss ratio(Yen in millions)

5,000

50200

4,000

40150

3,000

100

2,000

250
206.0%

302,511201,225

21,00050Japan Earthquake
Reinsurance Co., Ltd. Annual
11.4% Report 201800
Fiscal Year

2016

2017

1020

Fiscal Year
2016
2017
Net unrealized gains on available-for-sale securities

0Net premiums written

Assumed net premiums written(Yen in millions)(Yen in millions)

300,000

130,000

280,000

120,000
257,239

260,000

114,114110,000

243,099

Assumed net premiums written

220,000(Yen in millions)

Net premiums written

90,000(Yen in millions)

0300,000
Fiscal Year

20160130,000
Fiscal Year

2017

2016

2017

120,000

280,000
257,239

260,000
Net loss ratio
243,099
240,000

114,114
Net unrealized gains on available-for-sale
110,000 securities of earthquake insurance
and net unrealized gains on available-for-sale securities
97,302(Yen in100,000millions)250
220,000
200

97,302100,000

240,000

206.0%

0Fiscal Year
150

2016

2017

5,000
90,000

50

4,000

40

0

3,000 Fiscal Year
2,511

2016

2017

30

2,000

20
Net unrealized gains on available-for-sale
1,225
securities of earthquake insurance
1,000
10
and net unrealized gains on available-for-sale securities
20(Yen in millions)
0
0
5,000
50
Fiscal Year20162017

10050

Net loss ratio 11.4%

0250 Year
Fiscal2016
206.0%

2017

Net unrealized gains on available-for-sale securities
4,000 of earthquake insurance

200

3,000150

Net unrealized gains on available-for-sale securities
2,511

Total assets and net assets

30

Breakdown of total assets

2,000
Non-consolidated solvency-margin(Yen in millions)ratio

100(Yen in millions)40

20
1,225Others
10
4,0001,000
Call loans
FY2016FY2017
15,69690
20(A) Total
282.6 billion yen
306.6 billion yen 000 amount of non-consolidated solvency-margin549,2203,000
600,000(B) Totalof non-consolidated 2017risk
188.92016
billion yen
161.5
511,297 2016
FiscalamountYear
Fiscal Year2017 billion yen
Securities
Net
unrealized
gains
onavailable-for-salesecurities
Non-consolidated solvency-margin ratio
200,239299.1%
379.6%
of earthquake
insurance
2,000
400,000[(A) / {(B)x1/2}] x 100
1,542
1,540
DepositsNet
unrealized gains on available-for-sale
Breakdown ofsecurities
securities
333,194
Foreign
1,000
200,000
Total assets and net assets
Breakdown of totalassetssecurities

50
800,000

Items

11.4%

34,822 Government(Yen in millions)

0800,000
Fiscal Year

600,000

2016

2017

Total assets

Net assets
549,220

511,297

0
4,000

bonds

(Yen in millions)
Call loans

90

62,581OthersCorporatebonds

15,69682,7843,000

Municipal
bonds

20,051

Securities

400,000

1,542

1,540

200,2392,000
Deposits

333,194
1,000

200,000

Breakdown of securities
Foreignsecurities

34,822 Government
bonds

062,581

0
2016

2017

Corporatebonds

Total assets

Net assets

82,784

Fiscal Year

Municipal
bonds

20,051

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20183ORGANIZATION(As of April 1, 2018)
General meeting of shareholders
Board of auditors
Board of directors

Board of managing directors

Reinsurance
administration dept.

Planning andcontroller dept.

Audit office

No. of shares owned(1,000 shares)

Percentage of shares
owned (%)

Tokio Marine & Nichido Fire Insurance Co., Ltd.

537

26.9

Sompo Japan Nipponkoa Insurance Inc.

529

26.5

Mitsui Sumitomo Insurance Co., Ltd.

338

16.9

Aioi Nissay Dowa Insurance Co., Ltd.

255

12.8

AIG General Insurance Company, Ltd.

123

6.2

The Toa Reinsurance Co., Ltd.

93

4.7

Nisshin Fire & Marine Insurance Co., Ltd.

61

3.1

The Kyoei Fire & Marine Insurance Co., Ltd.

34

1.7

The Asahi Fire and Marine Insurance Co., Ltd.

80.4

SECOM General Insurance Co., Ltd.

70.4

Financial dept.

Shareholders(As of March 31, 2018)
Shareholder

BOARD MEMBERS (FULL-TIME)(As of April 1, 2018)

4

Post

Name

Chairman (representative director)

Yoshihiko Murase

President (representative director)

Makoto Sugimachi

Managing director (representative director)

Shinji Okazaki

Managing director (representative director)

Shoichiroh Takemoto

Corporate auditor

Katsuhiko Murata

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2018

RESPONSES TO MAJOR EARTHQUAKES
We consider prompt earthquake reinsurance payouts to be our most important mission.
Based on this view, we have established a standing Task Force Against Earthquake Disasterthat deals exclusively with earthquake disaster responses. Consisting of our full-time directors
and division managers, the Task Force oversees system development in preparation for major
earthquakes and carries out periodic earthquake response drills.
We also manage and operate the assets we have accumulated for the purpose of earthquake
reinsurance payouts by paying the utmost attention to their liquidity (cashability) and safety
so that reinsurance payouts are made without delay in the event of a major earthquake.

Task Force Against Earthquake Disaster
Our Task Force Against Earthquake Disaster is working to make business continuity management (BCM) more effective in preparation for an inland earthquake in the Tokyo metropolitanarea, with the view that this activity is of the utmost importance.
Immediately after the Great East Japan Earthquake, the Task Force reformed system infrastructure and relocated important systems to data centers that are more resistant to earthquakes to ensure business continuation in the event of an office disaster. In addition, theTask Force substantially reduced the risk of simultaneous disaster damage by establishing abackup system in Okinawa. The Task Force also established a system that enables directors
and employees to continue undertaking important business from home, even in cases wheretraveling to the office becomes impossible, by building a system that can be accessed fromexternal locations. The Task Force confirms the effectiveness of this system through regular
work-at-home exercises.
In fiscal 2017, we conducted company-wide drills with the Project Team (PT) Against Earthquake Disaster, which was established in the previous fiscal year and comprises working-level
employees, as their main executor, in addition to our regular drills. We are working to makeour measures against earthquake disasters more effective by requiring all JER employees totake part in these exercises planned by working-level employees that more accurately reflect
the viewpoints of the existing in-house conditions and business circumstances.
Drills Sponsored by the PT Against Earthquake Disaster(Simulated Overnight Drills Against Potential Risks)
The PT Against Earthquake Disaster conducted drills aimed at enabling employees remaining in JER offices to take appropriate actions in the absence of officials in charge of BCM,
assuming that an earthquake has occurred and forced them to stay overnight in the offices.
Through the drills, all JER employees had first-hand experience of things like cooking and eating emergency provisions and generating power internally using dynamos. They reconfirmed
the actions that are necessary for staying overnight in the offices, including the confirmationof storage sites and handling methods for the provisions and dynamos.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20185

Drills by Department (Drills at Home and Drills Using
Temporary Offices)
To bolster BCM, the Task Force Against Earthquake Disaster conducted drills by department
from September 2017 to March 2018, assuming that employees work at home or in temporary offices. Members of the Reinsurance Administration Department practiced reinsurance
claim payments at home based on rough estimates. Members of the Financial Department
checked temporary office operations for raising funds immediately after a major earthquake.
Furthermore, in March 2018, members of the System Department performed operations forswitching systems used in the Tokyo metropolitan area in the event of an earthquake to a data
center in Okinawa. They confirmed the switching operations and identified system problems
under operating conditions in Okinawa by actually performing these operations under the assumed condition of the disaster caused by the quake.
Drills for All Employees (Drills for Processing LossAssessment Expenses)
The number of claims for loss assessment expenses increases significantly when a major
earthquake strikes, making it impossible for the department in charge to handle them. To
secure processing personnel, the Task Force Against Earthquake Disaster is asking all JER
employees to check and input loss assessment expenses every year. In fiscal 2017, the Task
Force sought to raise the collective capacity of all JER employees to process loss assessment
expenses by changing the details of the drills and processing volumes based on their individual experiences in operations for processing loss assessment expenses.

Management Based on Highly Liquid Assets
Should a disaster such as an inland earthquake in the Tokyo metropolitan area strike, wewould have to pay a tremendous amount of reinsurance claims in a short period of time. For
this reason, we always manage assets safely commensurate with our responsibilities, centeredon highly rated bonds such as highly liquid government bonds. We also hold mainly short- andmedium-term bonds to reduce the risk of price fluctuations at the time of their liquidation.

Preparations for Earthquakes
We have installed a terminal for receiving early earthquake warnings from the Japan
Meteorological Agency at our head office. We use this terminal to ensure the safety of visitors,directors and employees. We are proceeding with a program for making business facilities,
equipment and the like at our head office earthquake-proof as well. In accordance with thepart of the Tokyo metropolitan ordinance related to measures for dealing with commuters who
are unable to get home, we store sufficient drinking water, food, daily necessities and otheritems to enable employees to stay in the office if an earthquake occurs during working hours.

6Japan Earthquake Reinsurance Co., Ltd. Annual Report 2018

System Infrastructure in Anticipation of anInland Earthquake in the Tokyo Metropolitan
AreaTo ensure business continuity in the case of the feared inland earthquake in the Tokyo metropolitan area, in March 2013 we renovated all of our important systems and moved them
onto a virtual platform at a cutting-edge data center in Tokyo, which has Japan’s highest-level
earthquake-resistance capacity and energy utilization efficiency. To make doubly sure, we haveestablished a backup system at our data center in Okinawa, which is unlikely to be affectedby an earthquake at the same time as Tokyo, and have built a system for data synchronization
between Tokyo and Okinawa using a communications line.
Moreover, we have made our terminals thin clients and concentrated data on the virtual platform to reduce the risk of data loss and information leakage. Combined with a remote accesssystem whereby users outside the company can access the company’s system via the Internet,
we have created an environment that enables employees to use the same systems as usual ifthey have access to the Internet, even if the transportation network is disrupted by an inland
earthquake in the Tokyo metropolitan area and they are unable to come to the office.
We will continue to focus on strengthening our business continuity management in anticipation of an inland earthquake in the Tokyo metropolitan area.

Remote Access(Home)

Remote Access（Out of the office）

Temporary Office(Saitama City)

Head Office (Tokyo)

Thin Client

ActiveInternet (KDDI)

StandbyWAN

ActiveFirewall
Active/Standby

Internet (USEN)

Standby

ActiveStandby

L3Switch

Virtual Platform

L3Switch

Virtual Platform (Main)(an environment in anticipation of disasters)

Data Synchronization

Surveillance

Surveillance

Okinawa Data CenterTokyo Data Center

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20187CORPORATE GOVERNANCE
We believe that establishing corporate governance is an important management issue, andare endeavoring to manage our business in a sound and appropriate manner by establishinga transparent management system with verification functions.
Appointments
and dismissals

Appointments
General meeting and dismissalsof shareholders

Board ofdirectors

Board ofmanaging directors

Submission/Report

In-house audit

Audit
Board ofauditorsExecutive division

Audit

Submission/Report

In-house
audit division

Cooperation
Appointments
and dismissals Accounting
auditors
Accounting audit

Auditing and Inspection Systems
Outside Auditing and Inspection
We are subject to inspection by the Financial Services Agency under the Insurance BusinessAct and inspection by the Ministry of Finance under the Act on Earthquake Insurance. We
also undergo accounting audits by PricewaterhouseCoopers Aarata LLC in accordance withthe Companies Act.
In-house auditing
Corporate auditors conduct audits and the Audit Division of JER, which is independent from otherdivisions, conducts in-house audits. The corporate auditors and the Audit Office work closely witheach other in a bid to ensure effective audits.
The purpose of an in-house audit is to develop and establish an internal control system. This isdone by conducting an audit to examine and evaluate various in-house systems and the executionof various internal activities fairly and objectively from the standpoint of lawfulness and rationality.
It also requires the provision of the necessary advice and recommendations based on theexamination and evaluation.
The Audit Office conducts regular audits of the internal control conditions of all divisions as well
as audits on priority themes based on the “In-house Audit Plan” for each fiscal year adopted byresolution of the Board of Directors, and the results of in-house audits are reported to the Boardof Directors, etc.

8Japan Earthquake Reinsurance Co., Ltd. Annual Report 2018

Risk management system
We have made arrangements for proper risk management execution to ensure the soundness
and safety of our management. The organizational framework and important risk management
issues are stipulated in our Integrated Risk Management Rules. Specific ways of managing various
risks – namely, asset management risks, liquidity risks, and operational risks – are prescribedin our management rules for the respective types of risks and our annual risk management
plans. Based on these rules, the planning and controller department, which is the integrated
risk management department, manages risks in an integrated manner by monitoring the risk
management situation. In addition, we have established the cross-sectional Risk Management
Committee as an advisory board that reports to our director in charge of risk management.
The Committee is making a range of proposals for issues related to risk management.
ASSET MANAGEMENT RISKS
Risks relating to asset management are classified into “market risks” and “credit risks”
for risk management, and the management standards are stipulated in the “Standards forManagement of Investment Risks.”
Market risksMarket risks include interest-rate risk, foreign exchange risk, and price volatility risk. Theseare the risks of losses that investors may sustain with fluctuations in the value of assets ordebt, or in income, due to changes in a number of risk factors in the market. We manage
overall market risks both quantitatively and qualitatively. We measure the value at risk
(VaR) of interest rates and currency exchange as the amount of risk, while also monitoring
the unrealized gain/loss and price changes (sensitivity). We also apply an upper limitof retention or a loss-cut rule if necessary. In addition, we have separate divisions for
executing transactions and for handling administrative processes, respectively, thereby
enabling the supervisory and checking functions to work effectively.
Credit risks
Credit risks are the risks of a reduction in value or the disappearance of assets, whichresults when the credit standing of the borrower has weakened, for example.
When purchasing securities, we limit their issuers to those with high credibility withreference to the credit rating made by rating agencies. We always check securities held
to determine credibility, and conduct individual controls to avoid a concentration on a
specific group of companies or type of business. We also measure the credit VaR based on
the default rate, etc. for managing credit risks.
Stress test
The VaR that statistically measures the amount of risks has a limit in circumstances whenfinancial market is fluctuating greatly. The stress test is used to complement monitoring insuch circumstances. The stress test examines the amount of potential losses by assuming
a situation in which risk factors, such as interest rates and exchange rates, fluctuateconsiderably.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 20189LIQUIDITY RISKS
Liquidity risks are the risks of losses that may be caused by failure to ensure the liquidityof assets against debt or by being forced to execute transactions at a disadvantageous pricedue to market turmoil, etc. These risks are important in fulfilling our social mission. We own
sufficient liquid assets by keeping in mind the possibly of having to dispose of all assets in theevent of a major earthquake. We also strive to accurately assess cash flows, thereby managing
funds appropriately.
OPERATIONAL RISKS
Operational risks are classified into “Administrative risks,” “IT system risks,” and “otheroperational risks,” and we manage these risks as appropriate given the characteristics ofeach.
Administrative risks
Administrative risks are the risks of losses that may be caused by the failure of officers,employees, or any other members of an organization to do accurate paperwork, orby accidents, fraud, or any other improper acts. We constantly examine the rules andregulations of authority and paperwork procedures and manuals and strive to improve ourtraining programs and educational system, to ensure exact and perfect paperwork. We also
regularly check the rules and regulations through in-house auditing for conformity withrelated laws and regulations.
IT system risks
IT system risks are risks of losses that may be caused by IT system problems such as
computer system failures or glitches or by unauthorized use of a computer.
We strive to protect our information assets appropriately under our Security Policy
and Safety Measure Standards, which we established for preventing leaks of internal
information, etc., and as safety measures for our information system. In addition, wehave clarified our measures for handling crises by developing the Information System
Contingency Plan for disasters and other emergency situations.
Other operational risks
As other operational risks, we are aware of such risks as “human resource risks” (the risksof losses that may be caused by outflows or losses of human resources) and “reputationalrisks.” We strive to manage these risks with each responsible division playing the leadingrole.
* Underwriting risks are excluded from risks to be managed, because earthquake insurance on dwellingrisks has been managed under the legal system.

10Japan Earthquake Reinsurance Co., Ltd. Annual Report 2018