ANNUAL REPORT 2007
Introduction to Earthquake Reinsurance in Japan

Contents

1

Message from the President

2

Earthquake Insurance in Japan

10

Reinsurance of Earthquake Insurance

14

Statistics

18

Japan Earthquake Reinsurance Co., Ltd.

24

Financial Section

41

Corporate Data

MESSAGE FROM
THE PRESIDENT
Chairman:Shozo Wakabayashi

President:

Akihiko Mori

We are delighted to introduce to the readers of this annual report a detailed disclosure of thecurrent situation and activities of the Company.
Japan Earthquake Reinsurance Co., Ltd. was founded in 1966 as the only company in Japan
permitted to exclusively handle reinsurance for earthquake insurance on dwelling risks.
In the last 40 years since the introduction of earthquake insurance on dwelling risks, we havebeen underwriting the risk of dwelling earthquakes in Japan in alliance with the Japanese government and non-life insurance companies. As the core entity in this sector, we have not only
been committed to bolstering and upgrading the system of our reinsurance payment, but also
to providing our best care to managing and operating the assets that support the system.
The number of earthquake insurance contracts continued to rise in fiscal 2006, amounting
to more than 10 million. The total asset balance as of the end of March 2007 was 908.9 billion yen. Earthquake insurance contracts will continue to increase in fiscal 2007, principally
because of tax reform, which make earthquake insurance premiums deductible for tax purposes, and the introduction of the enhanced insurance premium discount system.
We constantly review overall management with the aim at strengthening our business foundations, playing an even more important role, and fulfilling our responsibility.
We have long been dedicated to helping protect the environment. In March 2007, we took another step forward when we acquired the ISO 14001 international environmental management
certificate, by introducing the environment management system.
We have prepared this annual report with an understanding that disclosure is an integral part of
information provision and corporate governance. We hope that it will provide you with insight into
the current situation and activities of the Company. We welcome any comments or opinions.
October 2007

Akihiko Mori
President
Japan Earthquake Reinsurance Co., Ltd.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

1

EARTHQUAKE INSURANCEIN JAPANESTABLISHING THE EARTHQUAKEINSURANCE SYSTEM
Japan is well known for its frequent earthquakes. Traditionally, the thinking has been that it isdifficult provide insurance coverage for damage caused by earthquakes. One reason for thisis that nobody can be sure when an earthquake will strike. Another reason is that there is arisk 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 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 sector conducted a detailed examination of the earthquake
insurance system, ultimately leading to the Law concerning Earthquake Insurance. The systemfor earthquake insurance on dwelling risks was built based on this law and Japan Earthquake
Reinsurance Co., Ltd. (JER) was established. We play an key role in taking on full responsibility with the reinsurance of earthquake insurance contracts entered into by non-life insurancecompanies.

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 its
own. 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 buy earthquake insurance while your fire insurance contract is valid. In some areas,
however, if an announcement warning of an earthquake has been made, you may not be able
to buy earthquake insurance.
*2

Non-life insurance is divided into two groups: insurance in the household risks field taken out by individuals to covervarious risks in the home, and insurance in the corporate risks field taken out by companies to cover various company’s
risks. The same distinction applies to earthquake insurance. Insurance taken out by individuals is called earthquake
insurance on dwelling risks, and the other insurance is called as earthquake insurance for companies.
The Law concerning Earthquake Insurance targets at earthquake insurance on dwelling risks.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

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 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 for a building** and ¥10 million for
personal property.

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

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

3

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 ordamage 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 damage due to war or insurrection• Loss or damage occurring ten days or more after the earthquake• Loss or theft of the objects of the insurance
When a non-life insurance company becomes insolvent:
When the policyholder is an individual, a small business or a condominium management
union, the insurance company is fully indemnified for the insurance claim by the Non-Life
Insurance Policy-holders Protection Corporation of Japan.
*

4

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.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

Limit of total amount of insurance claims to be paid
Limit of total amount of insurance claims to be paid* is limited to 5,000 billion yen as revisedin April 2005 per earthquake, etc.. In the event the total amount of insurance claims payable
exceeds the limit, law allows insurance claims per contract to be reduced.

Premium rate
The premium rate for earthquake insurance is calculated by the Non-Life Insurance Rating
Organization of Japan** on the basis of the Law concerning Non-Life Insurance Rating Organizations. The basic rate of insurance premiums consists of a risk premium rate applicable toor 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 premium rate actually applied is calculated by multiplying the basic rate of the insurance
premium that is set according to the residential building, the structure of the building to accommodate personal property, and the building location, by a discount rate set according to
the earthquake-resistance class (for which certain confirmation documents are required).
October 1, 2007, the basic rate was revised and the scope of residential housing with highearthquake-resistance capacity eligible for a discount was expanded.

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 p.12 Insurance liabilities held by JER,
non-life insurance companies and the government.
**
Non-Life Insurance Rating Organization of Japan
An organization established in accordance with the Law concerning Non-Life Insurance Rating Organizations, whichaims to provide a fair basis premium rate applicable to non-life insurance.
*

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20075

Basic rate (applicable to buildings and personal property)
The basic rate is set according to the residential building, the structure of the building to accommodate the personal property and the building location.
After the revision of insurance
premiums in October 2007

Annual insurance premium (per insurance year)/amount insured (thousand yen of earthquake insurance)(Unit: yen)

Nonwooden■

0.5

WoodenPrefecture

1.00

Iwate-ken, Akita-ken, Yamagataken, Fukushima-ken, Tochigiken, Gunma-ken, Toyama-ken,
Ishikawa-ken, Fukui-ken, Tottoriken, Shimane-ken, Yamaguchiken, Fukuoka-ken, Saga-ken,
Nagasaki-ken, Kumamoto-ken,
Kagoshima-ken

■

0.65

1.27

Hokkaido, Aomori-ken, Miyagiken, Niigata-ken, Nagano-ken,Gifu-ken, Shiga-ken, Kyoto-fu,
Hyogo-ken, Nara-ken, Okayamaken, Hiroshima-ken, Oita-ken,
Miyazaki-ken, Okinawa-ken

■

0.65

1.56

Kagawa-ken

■

0.91

1.88

Ibaraki-ken, Yamanashi-ken,Ehime-ken

■
■

1.05
0.91

■

Saitama-ken, Osaka-fu
2.15

Tokushima-ken, Kochi-ken

3.06

Chiba-ken, Aichi-ken, Mie-ken,
Wakayama-ken

3.13

Tokyo-to, Kanagawa-ken,
Shizuoka-ken

1.69

■

The Headquarters for Earthquake Research Promotion*, a government organization, publishedthe Probabilistic Seismic Hazard Maps. The risk premium rate is calculated based on the latest revised damage projection method to cover all earthquakes (number of epicenters: about
730,000 epicenter model) used in the preparation of the maps that are assumed to have thepotential to cause damage in the future.

*

6

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, theHeadquarters 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 Probabilistic Seismic Hazard Map was revised in April 2007.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

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.
• The discount rules in (c) and (d) were added on October 1, 2007.
(a) Building age discount rate
When the building was constructed during or after June 1981 and accommodated personal property
Discount rate

10%(b) Earthquake-resistance class* discount rate
When the building corresponds to the earthquake-resistance class as provided for by law
and accommodated personal property
Earthquake-resistance class
Discount rate

*

1

2

3

10%

20%

30%

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 Section 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
rarelyJapan Earthquake Reinsurance Co., Ltd. Annual Report 20077

(c) Seismic isolated building* discountWhen the building is a seismic isolated building constructed in accordance with related
laws and accommodated personal property
Discount rate30%(d) Earthquake-resistance diagnosis discountWhen 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%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:(Basic rate – discount rate) x applicable coefficient = premium rate of a long-term contract.

Contract period

2 years

3 years

4 years

5 years

Coefficient

1.90

2.75

3.60

4.45

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 capacity
Earthquake-resistance capacity is an aseismic capacity that conforms to the current earthquake-resistance standards
set out in the Building Standards Law.
*

8

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

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
6 million yen
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: 6 million yen x 50% = 3 million yen
2. Confirming the premium rate applicable: Hyogo-ken, wooden → 1.27
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

1.27

x

(100%

(1,000 yen)

3,000

Earthquake insurance
premium ratex

(1,000 yen)

–

10%)

=

11,400 (yen)=3,420 (yen)

1.14

Earthquake
amount insured=

Discount rate

1.27

x

Discount rate

(100%

–

10%)

1.14

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.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

9

REINSURANCE OF EARTHQUAKEINSURANCEMECHANISM OF REINSURANCE
In the event that a major earthquake happens, it can result in large payouts of insurance claim
by insurance companies. Because there is a certain limit, however, to the ability of these companies to make payments, the government shares insurance responsibility with them throughreinsurance.
We reinsure the earthquake insurance contracts underwritten by non-life insurance companies
to take on full liability, which we homogenize before we pass on the risk proportionally to thenon-life insurance companies and the government by retrocession according to the limit indemnity. We take up the remaining indemnity.
Treaty A

Reinsurance by JER for non-life insurance companies
JER has entered into a reinsurance contract with non-life insurance companies operated
in Japan. According to the contract, the non-life insurance companies conclude a reinsurance contract with JER on the earthquake insurance contracts in full underwritten bythem in accordance with the Law concerning Earthquake Insurance. JER takes up the full
liability for this earthquake insurance without fail.
Treaty B

Retrocession by JER on non-life insurance companies
JER enters into a reinsurance contract individually with the non-life insurance companies,
and retrocedes to each company part of the insurance liability taken up by JER to the limit
as determined according to the balance of earthquake insurance risk reserves and otherfactors.
Treaty C

Retrocession by JER on the government(Excess of loss reinsurance)
JER has entered into an excess of loss reinsurance with the government on earthquake
insurance for a loss exceeding the amount payable by JER, according to which JER retrocedes to the government part of insurance liability taken up according to Treaty A to theindemnity limit as approved by the Diet.

10

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

MECHANISM OF PAYMENT OF
INSURANCE CLAIMSThe policyholder claims insurance money to the non-life insurance company when the policyholder suffers a certain loss or damage as a result of an earthquake, etc., and the company
will pay insurance claim to the policyholder.
The non-insurance company which paid an insurance claim to the policyholder will claim thefull amount from JER through reinsurance. JER will pay the reinsurance claim in full to thenon-life insurance company.
This means that the amount of reinsurance claim paid by JER is the same as the amount of
the insurance claim paid to the policyholder by the non-life insurance company.

FLOWCHART OF REINSURANCE OF
EARTHQUAKE INSURANCE
Flowchart of reinsurance

Flowchart of reinsurance claim payment

Policyholder

Policyholder
Claiming theinsurance claim

Conclusion of earthquake
insurance contract
Payment of
insurance claim

Non-life insurance company

Non-life insurance company
Treaty A

Treaty A
Reinsurance in full amountPayment of
insurance claim

Japan Earthquake
Reinsurance Company, Limited

Japan Earthquake
Reinsurance Company, Limited

Owned by JER
Treaty C

Treaty B

The govermentof JapanNon-life insurancecompanies

Claiming theinsurance claim

Treaty C

Treaty B

Claiming
retrocession
insurance money

Claiming
retrocession
insurance money

Payment ofretrocession
insurance claim
The govermentof Japan

Payment ofretrocession
insurance claim
Non-life insurancecompanies

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200711

INSURANCE LIABILITIES HELD BY JER,
NON-LIFE INSURANCE COMPANIES AND
THE GOVERNMENT
The following is the reinsurance scheme, showing how JER, non-life insurance companies andthe government shares insurance liabilities, and the way each handles the shared liabilities.
As for April 1, 2005, the total amount of insurance claims to be paid for a single earthquake
is limited to 5 trillion yen. See below for the reinsurance scheme and the total maximum liability limit.
Reinsurance scheme(Payable insurance claim)
Up to
75 billion yen

Up to742.2 billion yen

Up to 1 trillion
311.8 billion yen

50%

618.4 billion
75 billion
333.6 billion

JER

284.8 billion

Non-life insurance companies

50%

Up to 3 trillion
155.8 billion yen

5 trillion yen

3 trillion
503.79 billion
92.2 billion

95%

92.21 billion

The government

Liability limit

12JER
Non-life insurance companies
The government

452.01 billion yen
425.8 billion yen
4,122.19 billion yen

Total(limit amount of payable insurance claims)

5 trillion yen

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

5%

The balance of risk reserves at JER and non-life insurancecompanies and the government liability reserves at the endof ﬁscal 2006
JER and non-life insurance companies save the risk premium of insurance premiums paid bypolicyholders as earthquake insurance risk reserves for the possible payment of earthquake
insurance claims while the government saves government reserves in the earthquake insurance special account under law. In the event that an earthquake occurs and causes losses ordamages, each of JER, non-life insurance companies and the government pays an insurance
claim according to each liability as stipulated in the reinsurance scheme by withdrawing fromreserves.
JER
Non-life insurance companies
The government

412.3 billion yen
451.8 billion yen
1,074.1 billion yen

Total

1,938.3 billion yen

Note 1: The risk reserves by the non-life insurance companies include the amount equivalent to deferred tax assets due
to tax effect accounting.
Note 2: Government liability reserves are established when the settlement for fiscal 2006 is approved at the Diet.

Examples of insurance claims to be paid by JER, non-life
insurance companies and the government
Suppose that insurance claims amounting to 2 trillion yen for losses or damages associatedwith a single earthquake are to be paid. JER, non-life insurance companies and the government will pay each in the following amount:(Unit: billion yen)

Claims paid

Portion up to
75 billion yen
A person of burden

JER
Non-life insurancecompanies
The government
Total

Portion over
75 billion yen,
and up to
1,311.8 billion yen

Portion over
1,311.8 billion yen,
and up to
2,000 billion yen

Total

75.0

284.8

—

359.8

—

333.6

34.4

368.0

—

618.4

653.8

1,272.2

75.0

1,236.8688.2

2,000.0

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200713

STATISTICS

The percentage of households purchasing earthquake
insurance in areas at risk of major earthquakes

Earthquake

No. ofhouseholds(A)(1,000households)

No. ofcontracts(B)(1,000contracts)

Amountinsured(million yen)

Percentage
of households withinsurance(B/A) (%)

Great Kanto earthquake

22,585

5,746

45,390,190

25.44

Nearly 0%- 1%

Earthquake with an
epicenter directly below
metropolitan Tokyo

15,9004,180

32,719,007

26.29

About 70%

Probability that an
earthquake could
occur within the next
30 years

Tokai earthquake

21,4695,679

44,853,778

26.45

87% (reference value)

Tonankai earthquake

20,441

4,843

38,229,334

23.69

About 60% – 70%

Nankai earthquake

27,972

6,278

49,824,781

22.44

About 50%

Note: The probability that an earthquake could occur within the next 30 years is based on the 2007 version of the National Seismic Hazard Maps for Japan of the Headquarters for Earthquake Research Promotion of the Japanese
government. The probability of an earthquake with an epicenter directly below metropolitan Tokyo refers to an
earthquake with magnitude of about 7 that could occur in southern Kanto.

Reinsurance claims paid in ﬁscal 2006
Reinsurance claims paid in fiscal 2006 reached 2,240 million yen, including earthquake reinsurance claims paid to cover the Fukuoka-ken-Seiho-oki earthquake that occurred on April
20, 2005. In terms of number, 4,060 claims were paid (on the basis of insurance policies),
as the number of earthquakes that caused damage was relatively small. See below for major
claims paid per earthquake.
Earthquake

14

Date ofoccurrence

Magnitude

No. ofpolicies

Reinsurance claims
paid (million yen)

1. Fukuoka ken Seiho-oki earthquake

April 20, 2005

5.8

2,446

933

2. Fukuoka ken Seiho-oki earthquake

March 20, 2005

7.0

587

430

3. Ohita ken chubu earthquake

June 12, 2006

6.2

526

358

Other earthquakes

—

—

501

517

Total

—

—

4,060

2,240

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

Top ten earthquakes as to reinsurance claims paid
See the table below for the top ten earthquakes with respect to reinsurance claims paid since
the earthquake insurance was established.
(As of March 31, 2007)

2,700

1,499

1,915

2,962

2,540

2,171

4,078

2,868

Reinsurance claims paid (million yen)

5,969

10,527

6,147

10,796

14,774

12,542

16,716

21,66816,93424,43978,34665,427

No. of policies

Earthquake

1.
Hyogo
kenNanbu

2.
Geiyo

3.
Fukuokaken
Seiho-oki

4.
Niigatakentyuetsu

5.
Fukuokaken
Seiho-oki

6.
Tokachioki

7.
TottorikenSeibu

8.
MiyagikenHokubu

9.
Miyagiken-oki10.
Miyagiken-okiDate ofoccurrence

Jan. 17,
1995

Mar. 24,
2001

Mar. 20,2005

Oct. 23,
2004

Apr. 20,2005

Sep. 26,
2003

Oct. 6,
2000

Jul. 26,
2003

May 26,
2003

Aug. 16,
2005

Magnitude

7.3

6.7

7.0

6.8

5.8

8.0

7.3

6.4

7.1

7.2

Note: Insurance claims worth 78,346 million yen were paid to cover the Hyogoken-Nanbu earthquake. Of these claims,
the government paid 6,173 million yen, JER 40,000 million yen and the non-life insurance companies 32,173 million yen according to the reinsurance scheme in force at the time.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200715

Below are the epicenters and magnitudes of the top 10 earthquakes for which we paid reinsurance claims in the past. The number attached to the name of the earthquake is in order ofpayment amount.
As a reference, the epicenter area and the probability that an earthquake with a magnitude
of about 7 in southern Kanto, the Tokai earthquake, the Tonankai earthquake and the Nankai
earthquake could occur within the next 30 years announced by the Headquarters for Earthquake Research Promotion of the government are also included.

6. Tokachi-oki earthquake in 2003 (M8.0)
8. Miyagiken-Hokubu earthquake (2003) (M6.4)

9. Miyagiken-oki earthquake (2003) (M7.1)

4. Niigataken-tyuetsu earthquake in 2004 (M6.8)

7. Tottoriken-Seibu earthquake in 2000 (M7.3)

10. Miyagiken-oki earthquake (2005) (M7.2)

2. Geiyo earthquake
in 2001 (M6.7)
Earthquake of about M7 in the southern Kanto(about M6.7 – 7.2) About 70%

Tokai earthquake (M8.0) 87%(reference value)
1. Hyogoken-Nanbu earthquake in 1995 (M7.3)
Tonankai earthquake(about M8.1) About 60% – 70%

Nankai earthquake(about M8.4) About 50%

5. Fukuokaken Seiho-oki earthquake(April 20, 2005) (M5.8)

3. Fukuokaken Seiho-oki earthquake(March 20, 2005) (M7.0)

16Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

17

JAPAN EARTHQUAKEREINSURANCE CO., LTD.

FINANCIAL HIGHLIGHTS
Although net premiums written declined in fiscal 2006, they have been trending higher in recent years, accompanying the increase in the number of earthquake insurance policyholders.
We invest assets under management in bonds with high credit ratings and liquidity to prepare
for the payment of reinsurance claims.

Loss ratio

Net premiums written(Unit: million yen)(%)

100,000

50

80,00040

60,00030

40,00020

20,00010

0Year 2002

2003

2004

2005

0
Year 2002

2006

2003

2004

2005

2006

Breakdown of total assets(as of March 31, 2006)

Total assets(Unit: million yen)

(Unit: million yen)

Other securities

OthersGovernment bond

57,223411,7538,869

1,000,000

Foreign securities

800,000

213,950

600,000

Others57,223

Total
908,963

400,000

Total of securities

851,739200,000
0Year 2002

Corporate bond

2003

2004

2005

2006

212,777
Municipal bond

4,390

18

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

(Unit: Million yen)

Fiscal YearNet premiums written
Loss ratio
Underwriting income
Ordinary profit

2002

2003

2004

2005

2006

47,56650,89658,19871,132

67,981

0.7%

20.5%

28.7%

37.9%

3.7%

51,89754,67861,99591,001

72,451

303

184

98

23

143

Net income
Solvency-margin ratio
Total shareholders’ equity
Total assets

10

17

10

36

△16

176.3%

184.3%

182.2%

160.2%

175.3%

1,577

1,579

1,587

1,605

1,600

726,458

761,594

804,333

838,555

908,963

25

14

11

△5

5

11,825

7,000

5,458

△9,054△4,540Net unrealized gains on other securities
Net unrealized gains on other securities ofearthquake insurance

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 safety
net, 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.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

19

TOP 10 SHAREHOLDERS(As of March 31, 2007)
No. of shares owned(1,000 shares)

Shareholder

Percentage of shares
owned (%)

Tokio Marine & Nichido Fire Insurance Co., Ltd.

537

26.9

Mitsui Sumitomo Insurance Co., Ltd.

338

16.9

Sompo Japan Insurance Inc.

321

16.1

Nippon Koa Insurance Co., Ltd.

208

10.4

Aioi Insurance Co., Ltd.

153

7.7

Fuji Fire and Marine Insurance Co., Ltd.

123

6.2

Nissay Dowa General Insurance Co., Ltd.

102

5.1

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

ORGANIZATION(As of April 1, 2007)

General meeting of shareholders
Board of auditors
Board of directors

Board of managing directors

Compliance committee
In-house auditing committee
Comprehensive risk management committee

Earthquake disaster task force

Reinsurance administration dept.

20

Financial dept.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

Controller dept.

DIRECTORS (FULL-TIME)(As of June 29, 2007)
Post

Name

Chairman(representative director)

Shozo Wakabayashi

President(representative director)

Akihiko MoriManaging director(representative director)

Tatsuro Yoshida

Managing director(representative director)

Masayuki Hashimoto

Corporate auditor

Terumasa Hasegawa

RESPONDING TO MAJOR EARTHQUAKES
Our most important role is to pay reinsurance claims promptly and properly in the event ofa major earthquake. We are provided therefore with a standing task force against earthquake
disasters, consisting of full-time directors and managerial staff, and conduct annual drills tobolster our system for major earthquakes. We also carefully manage and operate our assets,with a focus on liquidity and safety in mind. See below for details.

Task force against earthquake disasters and its
activities
The committee is a standing in-house organization drawn from across JER. It prepares an annual plan, is the first responder according to the plan, sets up a task force headquarters andpays reinsurance claims, keeping an emergency manual for use in the event of an assumed
major earthquake. In fiscal 2006, all directors and employees carried out a drill that involved
walking to and from work.
We have been making improvements to our payment system based on the simulation of damages suffered by Tokyo in the event of a destructive inland earthquake, prepared by the Central
Disaster Prevention Council of Japan and an external research institution. In fiscal 2007, we
will review the payment system centered on the funding plan, by referring to the results of aquestionnaire “Developments in the Bond Market after the Occurrence of Major Earthquake
Disaster” sent in March 2007 to bond market participants at banks and securities firms.

Operation based on highly liquid assets
Should a destructive inland earthquake strike Tokyo, we would have to pay a tremendous
amount of reinsurance claims in a short period of time. For this reason, we always hold mainly
highly liquid, high-rating securities, and basically we are prepared to cash almost all of ourassets within four days. To reduce cost-related risks at the time of realization, we hold mainly
medium-term securities.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 200721

CORPORATE GOVERNANCE
In-house governance system
In-house auditing
committee
General meetingof shareholders

Board ofdirectors

Board ofmanaging directors

Board ofauditors

Compliance committee

Comprehensive risk
management committee
Task force against
earthquake disasters

Committees system based operation
Our corporate governance depends on the committees system under the control of the Board ofManaging Directors. Consisting of three committees—an in-house auditing committee, a compliance committee and a comprehensive risk management committee—the system is designed
to facilitate audits, compliance, risk management and the maintenance of sound business operations. Preparing for a natural calamity, the Company is provided with a task force against
natural disasters to facilitate the payment of insurance claims and maintain the funding plan for
payment, enabling it to take prompt action in response to large-scale earthquake disasters.
The annual operation policy and operating conditions of each committee is periodically reported to the Board of Managing Directors and Board of Directors.

Auditing system, outside and in-house inspection
Outside auditing and inspection
The Financial Services Agency examines our management and general business operation inaccordance with Articles 129 and 313, Insurance Business Law. The Ministry of Finance conducts the same examination under Article 9, Law concerning Earthquake Insurance.
We also receive an accounting audit by an auditing corporation in accordance with the Commercial Code.
In-house auditing
In addition to auditing conducted by auditors based on the Companies Law, we are equippedwith an in-house auditing committee. In-house auditing puts emphasis on how major issues
are handled by each division as well as on the compliance and risk control systems.Internal
control conditions including office work are subject to auditing this year, with an emphasis on
the inspection of the development of a new operating system.

22

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

Risk management system
It is becoming increasingly important to understand and control the complicated and diversifying risks that surround us, such as ongoing financial liberalization and the increasing sophistication of financial technology, to ensure the safety and soundness of management.
As specific measures to respond to this situation, we have been endeavoring to maintain anddevelop our risk control system by establishing a comprehensive risk control committee tosupervise risk management and reinforce the functions of comprehensive risk control. This
helps us understand risks exactly and control them properly. Developments on this matter are
regularly reported to the Board of Directors and the Board of Managing Directors.
Dealing with assets management risks
The investment assets have amounted to approximately 900 billion yen. Because it is primarily necessary to pay reinsurance money promptly and properly in the event of a major earthquake disaster, the assets are generally being operated using public bonds. The managementof risks involved in the management of assets is carried out according to the annual control
policy. See below for detail.
Market risks
We measure the responsiveness to interest rates and currency exchanges and value at risk
(VaR), and calculate the amount of loss due to a heavy change in interest or exchange rate
to limit the volume of risks.
Credit risks
When purchasing securities, we limit the issuers to those with high credibility with reference
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 ofcompanies or type of business.
Liquidity risks
We check individual securities in advance for cashing, and to the assets for cashing.
Dealing with paperwork issues
We constantly examine the rules and regulations of authority and paperwork procedures andmanuals for exact and perfect paperwork. We also regularly check the rules and regulations
through in-house auditing for conformity with related laws and regulations.
Dealing with system risks
We constantly review the risk control plan with an emphasis on system security in the event ofa calamity. This will improve the control system.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200723

Financial Section

Financial Review
Indicators Showing the Main Results over the Last Five Fiscal Years
Indicators Showing Results for the Last Three Fiscal Years
Accounting Concepts
1. Financial statements
2. Risk management credits
3. Present conditions of loans involving trust with contact for replacement of losses
4. Credit obligations based on debtor classification
5. Conditions of solvency-margin ratio
6. Information on market prices(acquisition cost or contract cost, market price and appraisal profit and loss) and others

24Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

FINANCIAL REVIEWThe number of earthquake insurance contracts increased slightly, while premiums written as awhole declined somewhat as the upward trend of long-term contracts settled down. In the meantime, the number and amount of payments of earthquake insurance experienced a significant
decline over the previous year, with no major earthquake occurring.
Business expenses remained nearly flat from the level of the previous year, the result of our efforts to achieve efficient business operations and reduce costs in spite of expanding operations.

(1) Earthquake insurance results in outline
a. Premiums written and insurance claims paid
Earthquake insurance premiums had been increasing until the previous year, but registereda slight decrease in the current fiscal year, resulting in net premiums written amounting to67.9 billion yen.
Earthquake insurance claims paid came to
2.2 billion yen, reflecting the fact that there
were no major earthquakes, although small
earthquakes were frequent.
b. Underwriting reserves
Risk reserves added amounted to 36.4 billion yen, the total of the net premiums written
was 32.2 billion yen, given by deducting theassumed insurance and held of commissions
from the net premiums written and a profit of
4.1 billion yen from investment.
The risk reserves at the end of the current
term came to 412.3 billion yen after the ongoing insurance claims were paid, the outstanding claims calculated in the previous year werereturned and risk reserves were drawn in thepast year by 2.7 billion yen. The underwriting
reserves at the end of the current term amounted to 490.9 billion yen after adding unearned
premium reserves and refunded reserves to therisk reserves.
c. Entrusted reserves
Designated as an entrusted reserve from theearthquake insurance account, the entrusted
reserves for the year reached 401.3 billion

yen, by adding net premiums written and profit
from investment of 24.5 billion yen and drawing advertisement / publicity expenses of 500
million yen.
(2) Investments in outline
Although the BOJ revised its zero interest rate
policy, which had been in place since March 2001,
and raised interest rates twice, medium- and longterm interest rates ended up being lower than thelevel of the previous year. The dollar fell sharply
against the yen at one point but returned to thesame level as at the end of the previous year, while
the euro strengthened about 10% against the yenover the previous year on the foreign exchange
market.
In this environment, we invested assets primarily in government bonds and corporate bonds withhigh credit ratings, placing the greatest emphasison market liquidity risk and credit risk, as well as
market risks such as interest rate risk, followed byprofitability. As a result, profits from investment
before tax rose 1.3 billion yen over the previous
year, to reach 4.4 billion yen in the business account, and increased 0.9 billion yen, to come to
4 billion yen in the entrusted reserve account.
Consequently, investment assets at the end of thecurrent fiscal year reached 896.7 billion yen.
(3) Current profit and loss
The net loss amounted to 16 million yen after
calculating interest, dividend income and corporate taxes.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200725

INDICATORS SHOWING THE MAIN RESULTS
OVER THE LAST FIVE FISCAL YEARS(Unit: Million yen)

Fiscal Year

Division

2002

2003

2004

2005

2006

Net premiums written(percentage change over the previous term)

47,566(△6.5%)

50,896(7.0%)

58,198(14.3%)

71,132(22.2%)

67,981(△4.4 %)

Ordinary incomes(percentage change over the previous term)

58,460(△20.4%)

66,352(13.5%)

71,856(8.3%)

107,868(50.1%)

90,373(16.2%)

Ordinary expenses(percentage change over the previous term)

58,156(△20.0%)66,167(13.8%)

71,758(8.4%)

107,845(50.3%)

90,229(16.3%)

Ordinary profit(percentage change over the previous term)

303(△57.1%)

184(△39.3%)98(△46.7%)23(△76.4%)143(521.1%)

Net income(percentage change over the previous term)

10(△55.6%)17(74.2%)

10(△40.5%)36(243.6%)△16(△146.4%)

1,000(2 mil. shares)

1,000(2 mil. shares)

1,000(2 mil. shares)

1,000(2 mil. shares)

1,000(2 mil. shares)

Common stock(sum of shares issued)
Net assets

1,577

1,579

1,587

1,605

1,600

Total assets

726,458

761,594

804,333

838,555

908,963

Underwriting reserves(percentage change over the previous term)

391,482(8.5%)

412,968(5.5%)

415,802(0.7%)

450,892(8.4%)

490,901(8.9 %)(of the balance, risk reserve balance)(percentage change over the previous term)

341,675(9.3%)

359,772(5.3%)

355,813(△1.1%)

378,731
(6.4%)

412,364(8.9%)

Loans(percentage change over the previous term)

–
(–)

–
(–)

–
(–)

–
(–)

–
(–)

Securities(percentage change over the previous term)

652,210(5.5%)

682,285(4.6%)

734,046(7.6%)

771,383(5.1%)

851,739(10.4%)

Solvency-margin ratio

176.3%

184.3%

182.2%

160.2%

175.3%

Dividend propensity

–%

–%

–%

–%

–%

No. of employees

20

17

18

21

21

Note:
Order to specify divisions, provided for in Section 2, Article 132, Insurance Business Law, our solvency-margin ratio is not supposed to be used as acriterion to enable the administrative authorities to trigger an order for improvement.
We conduct no trust business.

INDICATORS SHOWING RESULTS FOR THE
LAST THREE FISCAL YEARSq Indicators showing the main business results
2. Underwriting profit

1. Net premiums written
Item: earthquake(Unit: Million yen)

(Unit: Million yen)

Fiscal Year

2005

2006

Underwriting incomes

61,99591,001

72,451

1,760

Underwriting expenses

61,51590,58071,804

Operating and generaladministrative expenses

401

421

521

Other incomes and expenses

△78

–

△126

–

–

–

2005

2006

Division

Premiums written (A)120,972

143,493

142,841Return premiums (B)

1,082

1,440

Division

Assumed net premiums
written (A-B)

117,942

139,621

139,172

Reinsurance premiums
ceded (C)59,744

68,48871,190Net premiums written (A-B-C)

58,19871,132

67,981Note:
1: Return premiums: Return premiums of receiving reinsurance.
2: Assumed net premiums: Produced by deducting return premiums
from receiving premiums.
3: Net premiums written: Produced by deducting paid reinsurance premium ceded from assumed net premiums written.

26

Fiscal Year

2004

2004

Underwriting profit

Note:
1: The above operating, general and administrative expenses are thoserelating to the underwriting of insurances mentioned in the operating, general and administrative expenses in a statement of profits andlosses.
2: Other incomes and expenses are those equivalent to corporate taxes mentioned in a statement of earthquake insurance profits andlosses.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

3. Net claims paide Indicators relating to accounting

Item: earthquake
Fiscal Year

Division

Assumed net claim paid (A)(Unit: Million yen)

2004

2005

2006

15,987

24,662

2,240

–

–

–

15,987

24,662

2,240

Reinsurance claims
recovered (B)Net claims paid (A-B)

Note:
1: Assumed net claims paid: Produced by deducting surrender value
from ceded insurance money paid.
2: Net claims paid: Produced by deducting reinsurance claims recoveredby ceded contract from assumed net claims paid.

1. Amounts of outstanding claims and underwriting
reserves(Unit: Million yen)

Year As of the endof fiscal 2004

Division

As of the endof fiscal 2005

Outstanding claims

17,878

1,104

1,545

Underwriting reserves

415,802450,892

490,901

Total

433,681451,997492,446

2. Detailed listing of liability reserves(Unit: Million yen)w Indicators relating to insurance contracts
1. Loss ratio, net expense ratio and their combined
ratio(Unit: Million yen)

Fiscal YearAs of the endof fiscal 2006

Balance as Amount ofof the end of increase in
fiscal 2005 fiscal 2006

Use per
objectBalance
as of theend offiscal 2005

OthersReserve for ordinary
bad debts

–

–

–

–

–

Reserve for individual bad debts

–

–

–

–

–

2004

2005

Loss ratio

28.7%

37.9%

3.7%

Underwriting expenses

24,80429,982

29,348Reserve for specificforeign securities

–

–

–

–

–

(401)

(421)

(521)

Accrued severance
benefits

83

17

3

–

97

Reserve for directors’ retirement
allowances

7

4

–

–

11

Reserve for bonus
payment

14

16

14

–

16

Reserve for pricefluctuation

7

0

–

–

8

113

37

18

–

132

Division

Insurance related operating,general and administrative
expenses
Agency commissions andbrokerage fees

2006

Division

Amount of decreasein fiscal 2005

(24,403)(28,560)(28,827)

Net expense ratio

42.6%

40.7%

43.2%

Combined ratio

71.3%

78.6%

46.9%

Note:
1: Loss ratio: (Net claims paid + loss adjustment expenses) ÷ net premiums written
2: Net expense ratio: (Agency commissions and brokerage fees + Insurance related operating and general administrative expenses) ÷ net
premiums written
3: Combined ratio: Loss ratio + net expense ratio

2. Rate of premiums written by domestic and overseas contracts
Fiscal Year

Division
Domestic contract

2004
100%

2005
100%

2006
100%

3. No. of reinsurers that ceded insurance contracts
and top five reinsurers for ceded reinsurance
premiums
No. of reinsurers that ceded
insurance contracts

Rate of top five reinsurers’
ceded insurance premiums

18

77.7

Note:
The number of reinsurers that ceded insurance contracts is the number
who ceded treaty reinsurance contracts of 10 million or more yen.
There are no notes about unearned claims paid.
There are no notes about the rate of damage occurrence, the expenses
ratio and rate of sum total before ceded insurance deduction.

Total

3. Detailed listing of shareholders’ equity(Unit: Million yen)

Division

Common stock
Issuedstock

Legalreserveand appropriatedretainedearnings

Balance asof the endof fiscal
2005

Amountofincreasein fiscal
2006

Amountofdecreasein fiscal
2006

Balance asof the endof fiscal
2006

1,000

–

–

1,000

Ordinarystock(2 mil. stock)
1,000

–

–

(2 mil. stock)
1,000

Total

(2 mil. stock)
1,000

–

–

(2 mil. stock)
1,000

Legal
reserve ofretainedearnings

1

–

–

1

Specialreserves

17

–

–

17

Specialprice
fluctuation
reserves

39

–

–

39

Total

57

–

–

57

Note:
The number of owned shares was 11,400 as of the end of fiscal 2006.

The ratio of ceded insurance premiums by rating does not apply toearthquake insurance.
We pay no contractor dividend.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200727

4. Business expenses (inclusive of loss adjustment)

9. Loss from disposal of fixed assets(Unit: Million yen)

Fiscal Year

Division

2004

Personnel expenses
Non personnel expenses
Taxes

2005

2006

Division
Property

2

–

–

1,014

2,512

721

(Land)

(–)

(–)

(–)

159

195

186

(Building)

(2)

(–)

(–)

Equipment–––

Tangible fixed assets

–

–

–

(Land)

(–)

(–)

(–)

(Buildings)

(–)

(–)

(–)

(Others)

(–)

(–)

(–)

–

–

–

(Software)

(–)

(–)

(–)

(Others)

(–)

(–)

(–)

Total

2

–

–

28,827

Total

25,99831,72230,079Note:
Business expenses are the total of loss adjustment expense, operating,general and administrative expenses, agency commissions and brokerage fees as shown in the income statement.

5. Profit on sale of securities by category(Unit: Million yen)

2004

2005

35

2006

92

426

Foreign securities

6

–

–

Total

41

92

426

6. Loss on sale of securities by category(Unit: Million yen)

Fiscal Year

Division

2004

Government bonds

2006

343

28,560Government bonds

2005

453

24,403

Division

2004

420

Agency commissions andbrokerage fees

Fiscal Year

(Unit: Million yen)

Fiscal Year

2005

10

2006

288

246

Foreign securities

221

401

–

Total

231

689

246

Intangible fixed assets

No mention is made about the level of underwriting
reserves because there is no target contract.
Mention about fluctuations of ordinary profit or written loss over the increase in the loss ratio is omitted
because insurance claims are offset by the dispositionof underwriting reserves.
There are no notes about the loan write-off and profit
from property and equipment.
r Special deposit premium accountNothing is to be mentioned.

7. Securities appraisal loss by category(Unit: Million yen)

Fiscal Year

Division

2004

2005

2006

Government bonds

–

–

–

Foreign securities

–

–

–

Total

–

–

–

t Earthquake insurance underwriting reserves by
category(Unit: Million yen)

DivisionYear

Risk reserve
Repayment reserve

8. Depreciation expenses by category(Unit: Million yen)Type of asset

Acquisition cost

Amount ofdepreciation in
fiscal 2006

Aggregateddepreciations

Balanceas the endof fiscal
2006

Rate of aggregateddepreciations %Tangible fixed assets
Buildings

92

2

53

39

57.6

(for
underwriting)

(53)

(39)

(57.6)

(92)

(2)

(for
investment)

(–)

(–)

(–)

(–)

(–)

Others

22

0

19

3

86.5

Total

115

3

73

42

63.3

Software

9

2

4

4

51.3

Others

0

0

0

0

63.1

Total

9

2

5

4

52.0

125

5

78

47

62.4

Intangible fixed assets

Grand total

28

As of the endof fiscal 2004

As of the endof fiscal 2005

As of the endof fiscal 2006

355,813378,731412,364

3,303

2,639

2,291

Unearned premium
reserve

56,68569,521

76,245

Total

415,802450,892

490,901y The conditions at the end of the current fiscal
year (runoff result) of outstanding claims(estimated amount) at the beginning of the term
do not apply to earthquake insurance.
u The amount of estimated final damages
associated with the elapse of a period fromthe occurrence of accidents does not apply toearthquake insurance.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

4. Asset management yield (realized yield)

i Investments
1. Investments policy
Because we have to pay a substantial amount ofclaims promptly in the event of a natural disastersuch as a major earthquake, we put in principle thehighest priority on safety and liquidity in operating
our assets, followed by profitability to increase risk
reserves. The risk management division is engaged
in monitoring and controlling risks of all kinds, independently of the transactions execution division.
2. Investments in outline
Deposits
Division

Deposits

Amountofnumerator

Amountofdenominator

Deposits

91

Call loan

0

Bond trading with
repurchaseagreement
MonetaryreceivablesboughtDivision

Commodity
securities

Yield onworking
assets(%)

Amountofnumerator

Amountofdenominator

Yield onworking
assets
(%)

46,8850.20

14343,612

0.33

208

0.05

–

–

–

–

–

–

–

–

–

4

3,918

0.12

2

842

0.30

–

–

–

–

–

–

As of the endof fiscal 2005

As of the endof fiscal 2006

Money trust

270

15,2601.77

26513,730

1.93

Securities

9,595

737,4101.30

11,885

799,894

1.49

28,47038,02629,986

Publicandcorporate
bonds

4,051

548,823

0.74

4,874

589,636

0.83(Ordinary deposit)(1,140)(10,696)(4,586)(Time deposit)(27,330)(27,330)(25,400)

Total assets and investments assets
FiscalYear

FiscalYear

2006

As of the endof fiscal 2004

(Unit: Million yen)

Year

(Unit: Million yen)

2005

2004

2005

Stocks(Unit: Million yen)

2006
Percentage
composition (%)

Percentage
composition (%)

Percentage
composition (%)

–

–

–

–

–

–

Foreignsecurities

5,594

178,579

3.13

7,005

198,508

3.53

Other
securities△51

10,007△0.52

511,749

0.05

Loan

–

–

–

–

–

–

Deposits

28,4703.5

38,026

4.5

29,986

3.3

Buildings

–

45

–

–

–

–

Call loans

15,000

1.9

–

–

–

–

Financialderivative△3,457––△3,425––

Others

105

–

–

65

–

–

Total

6,609

803,728

0.82

8,938

858,121

1.04

Division

Monetaryreceivablebought

6,297

0.8

1,799

0.2

999

0.1

Money trust

9,173

1.1

15,528

1.9

13,958

1.5

Securities

734,046

91.3 771,383

92.0 851,739

93.7

Buildings

45

0.0

0.0

39

0.0

42

Total ofinvestments
assets793,033

98.6 826,779

98.6 896,723

98.6

Total assets

804,333

100.0 838,555

100.0 908,963

100.0

Note:
Asset management yield (realized yield): indicator to show the result ofmanaging of assets from the point of contribution to the current profit
and loss. The numerator is realized profit and loss while the denominatoris an acquisition cost based assets.
Numerator = profit from asset management + investment income on savings premiums – expenses of assets management
Denominator = acquisition cost or writing-off cost based average balance

3. Amount of interest and dividend received andyield on investment assets (income yield)(Unit: Million yen)

Fiscal
Year

2004

2005

Division

2006
Percentage
composition (%)

Percentage
composition (%)

Percentage
composition (%)

Deposits

85

0.18

91

0.20

143

0.33

Call loan

0

0.05

0

0.05

–

–

Monetaryreceivablesbought

14

0.17

4

0.12

2

0.30

Money trust

75

0.78

86

0.57

52

0.38

Securities

9,140

1.30

10,3071.40

11,705

1.46

Buildings

–

–

–

–

–

–

9,315

1.21

10,4901.31

11,904

1.39

Total

Note:
Yield on investments (income yield): indicator showing the result of investment assets from a point of income (interest and dividend income)(which has been disclosed)
The numerator is composed of interest and dividend income from investment assets while the denominator is an acquisition cost based assets.
Numerator = Interest and dividend income (including the amount equivalent to interest and dividend income of profit (or loss) from monetarytrust operation)
Denominator = Acquisition cost or depreciation based average balance

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200729

5. Market-price based overall yield (for reference)(Unit: Million yen)

Fiscal
Year

2005

2006

(Unit: Million yen)

Division

Amountofnumerator

Amountofdenominator

Yield onworking
assets(%)

Amountofnumerator

Amountofdenominator

Yield onworking
assets(%)

Deposits

91

46,8850.20

14343,6120.33

Call loan

0

208

0.05

–

–

–

Bond
trading with
repurchaseagreement

–

–

–

–

–

–

Monetaryreceivablesbought

4

3,918

0.12

2

842

0.30

Commodity
securities

–

–

–

–

–

–

Money trust

495

15,4343.21

96

14,128△5,171

742,714△0.70

16,588790,431

Securities
Public andcorporatebonds
Stocks△7,147553,869

△1.29

8,817

583,484

As of the end of
fiscal 2004
Percentage
composition (%)

Division

As of the end of
fiscal 2006

Percentage
composition (%)

Percentage
composition (%)

Foreigncurrency
denominatedForeign publicand corporate
bonds

83.2 163,130

76.2

0.68

Foreign publicand corporate
bonds

28,70917.3

16.8

50,819

23.8

2.10

Total

166,320100.0 201,642

100.0 213,950

100.0

1.51

Yield onforeign loans& investment

–

–

–

–

–

–

178,946

1.13

7,589

195,301

3.89

Other
securities

△45

9,897

△0.46

180

11,646

1.55

Loans

–

–

–

–

–

–

Buildings

–

45

–

–

41

–

Financialderivative△3,457––△3,425

–

–

105

–

–

65

–

–

△7,931

809,205△0.98

13,470849,058

1.59

Note:
Market-price based overall yield: indicator showing the efficiency of operation on a market price basis. The numerator reflects realized profit
and loss and fluctuations in market price appraisal while the denominator is market-price based assets.
Numerator = (income from operated assets management + investment
income on savings premium – expenses for assets management) + (aftertax unrealized gain for the year – after-tax unrealized gain for previousyear)* + fluctuation in deferred hedge profit and loss
Denominator = acquisition cost or write-off based average balance +after-tax unrealized gain for previous year of other securities + profit andloss for the previous year related to securities for transaction

Yendenominated33,905Investments
assets yield(incomeyield)

2.84%

3.36%

3.53%

Assetsmanagement (realized yield)

2.69%

3.13%

3.53%

Comprehensive market
price yield(for reference)

1.41%

1.13%

3.89%

Note:
1. Of the yield on foreign loans & investments, the investment asset yield
was calculated in the same manner as 3., Amount of interest anddividend received and yield on investment assets (income yield) inconnection with the assets involving foreign investment.
2. Of the yield on foreign investments, the asset management yield was
calculated in the same manner as 4., Asset management yield (realized yield) in connection with the assets involving foreign investment.

7. Balance of securities by category and percentage
distribution(Unit: Million yen)

*Based on the amount before tax effect deduction

Year

As of the end of
fiscal 2004

As of the end of
fiscal 2005

Percentage
composition (%)

Division

As of the end of
fiscal 2006

Percentage
composition (%)

Percentage
composition (%)

Government
bonds

256,14534.9 310,554

40.3 411,753

48.3

Municipal
bonds

17,940

2.4

0.6

4,390

0.5

Corporatebonds

287,238

39.1 239,851

31.1 212,777

25.0

Stocks–––26.1 213,950

25.1

6,401

0.9

14,858

1.9

8,869

1.1

–

–

–

–

–

–

100.0 851,739

100.0

166,320

Other
securities

Total

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

734,046–4,476

22.7 201,642

Foreignsecurities

Loan
receivable insecurities

30

As of the end of
fiscal 2005

82.7 167,736

2,021

Total

Year

137,611

Foreignsecurities

Others

6. Balance, percentage composition and yield ofForeign Loans & Investments–

100.0 771,383–

As of the end of fiscal 2006

8. Yield on securities held
(Unit: %)Fiscal Year

2004

Division

2005

2006

Division

Up to 1year

3 overup to 5years

Government
bonds

48,073 126,365 211,470–– 25,843 411,753

Investment assets yield (income yield)
Public & corporate bonds

0.88

0.78

0.76

–

–

–

2.84

3.36

3.53

StocksForeign securities(Unit: Million yen)

5
over
up
to 7
years

1 overup to 3years

7 over
up to
10
years

Over
10
years

Other securities

0.28

0.56

2.06

Municipal
bonds

–

4,312

77

–

–

Total

1.30

1.31

1.46

Assets management yield (realized yield)

Corporatebonds

47,93994,26370,07799

397

Public & corporate bond

Stocks

–

–

–

–

–

21,464 112,657

61,789Stocks

0.89

0.74

0.83

–

–

–

Foreign securities

2.69

3.13

3.53

Other securities

△0.03

△0.52

0.05

1.27

0.82

1.49

0.96

△1.29

1.51

Total
Market price yield (for reference)
Public & Corporate bonds
Stocks–––Foreign securities

1.41

1.13

3.89

Other securities

△1.29

△0.46

1.55

1.04

△0.98

2.10

Total

Foreignsecurities

–

Total

4,390

– 212,777–– 18,037–– 213,950

Othersecurities

–

995

–

–

–

7,874

8,869

Loan
receivablein securities

–

–

–

–

–

–

–

Total

117,478 338,594 343,414

99 18,435 33,717 851,739

10. Tangible fixed assets by breakdown(Unit: Million yen)

9. Balance Current Maturity of securities by category
As of the end of fiscal 2005
Division

Government
bonds

Less
than 1year

43,635

1 to less 3 to lessthan 3than 5years
years

87,471 153,791(Unit: Million yen)

5 to
less
than
7
years
–

7 to
less
than
10
years

Total

– 25,655 310,554–

Corporatebonds

56,97999,10983,469

97

195

–

–

–

–

–

1,828

2,553

–

95

–

4,476

– 239,851––

Foreignsecurities

17,053Other
securities

–

–

5,066

–

2,986

6,805

14,858

Loan
receivablein securities

–

–

–

–

–

–

–

117,668 242,012 366,543

6,501

Total

Land
(for underwriting)

53,602 121,662

6,403

2,919

– 201,642

6,196 32,460 771,383

As of the endof fiscal 2004

As of the endof fiscal 2005

As of the endof fiscal 2006

–

–

–

(–)

(–)

(–)

(for investment)

(–)

(–)

(–)

Buildings

45

42

39

(for underwriting)

(45)

(42)

(39)

(for investment)

(–)

(–)

(–)

–

–

–

(–)

(–)

(–)

Construction in progress(for underwriting)

Municipal
bonds

Stocks10
years
orlongerDivisionYear(for investment)

(–)

(–)

(–)

Total of property

45

42

39

(for underwriting)

(45)

(42)

(39)

(for investment)

(–)

(–)

(–)

Others

3

2

3

Total

48

45

42

There are no notes with respect to the following 11
items:
1. Commodity securities
2. Average balance and sales amount of commodity
securities
3. Amount of stocks held by type of business4. Balance current maturity of loan by remaining life
5. Balance of loans by type of collateral secured
6. Balance and percentage distribution of loan bydesignated use
7. Balance of loan by industry and its ratio to the total
8. Balance of loan by debtor size and its ratio to thetotal
9. Amount of loan & investment to public works (on abasis of newly undertaken loan)
10. Housing-related loan
11. Loan interests

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200731

ACCOUNTING CONCEPTS
1. Financial statements❶ Balance sheets(ASSETS)(Unit: Million yen)

Fiscal Year2005
(As of March 31, 2006)
Percentage
distribution

AmountItem
Cash & deposits
Deposits
Monetary receivableboughtMoney trust
Securities
Government bonds
Municipal bonds
Corporate bonds
Foreign securities
Other securities
Property & Equipment
Buildings
Equipment
Tangible fixed assets
Buildings
Other tangible fixed
assetsIntangible fixed assets
Software
Other intangible fixed
assetsOther assets
Reinsurance balancereceivable
Accounts receivable
Uncollected income
Deposits
Suspense payment
Financial derivative
Other assets
Deferred tax assets
Total assets

38,02638,026

4.5

1,799
15,528771,383
310,5544,476
239,851
201,642
14,858
45
42
2
–
–

Item

0.2

999

0.1

1.9
92.0

13,958
851,739
411,753
4,390
212,777
213,950
8,869
–
–
–
42
39

1.5
93.7

–

3

–
–

4
4

–

0

11,686

1.4

12,15532

Fiscal Year

0.1

–

–

617

0.1

–

–

56

–

(17)

(–)

(Special price fluctuation
reserves)

(39)

(–)

Unappropriated retained
earnings for the year

559–

(Net income)

(36)

(–)

Net unrealized gains onother securities

△5

△0.0

–

–

Treasury Stock

△5

△0.0

–

–

Total shareholders’ equity
Total liabilities andshareholders’ equity

0.2

–

–

100.0

–

–

(NET ASSETS)
Fiscal Year
1.3

Retained earnings

0.0

0.0

838,555

100.0

908,963

100.0

Percentage
distribution
54.2

0.0

495,446
1,545
490,901
401,383
17,940
5,457
195
2
756
11,528
97

0.0

11

0.0

0.0

16

0.0

0.0

8

0.0

△1.1

△4,540△0.5

99.8

907,363

99.8

44.2
2.0

(Unit: Million yen)2005
(As of March 31, 2006)

2006(As of March 31, 2007)

Percentage
distribution

Amount

–

–

1,000

0.1

–

–

600

0.1

AmountLegal reserve of retained
earnings–

1

Other legal reserve ofretained earnings–

599

Special reserves–

17

Special price fluctuation
reserves–

39

Retained earnings
brought forward–

542(Unit: Million yen)

2005
2006
(As of March 31, 2006) (As of March 31, 2007)

836,949

1,605
838,555

0.0

Common stock

45.0
2.0

–

(Special reserves)

292
3,348
51
96
161
–
76

53.9

1

Voluntary reserves

427
2,910
51
96
20
6
85

AmountPercentage
distribution

1,000

Item

AmountAmountRetained earnings

8,205

Percentage
distribution

Percentage
distribution

2006(As of March 31, 2007)

Common stock
Legal reserve of retained
earnings

0.0(Unit: Million yen)2005
(As of March 31, 2006)
Amount

Item

8,172

Underwriting funds
451,997
Outstanding claims
1,104
Underwriting reserves
450,892
Entrusted reserves
377,390
Other liabilities
16,503
Reinsurance balance payable
5,390
Corporate taxes payable
114
Deposits payable2
Accrued amounts payable
702
Financial derivative
10,292
Accrued serverance benefits
83
Reserves for directors’
7
retirement benefit
Reserves for bonus
14
payment
Price fluctuation reserves
7
Net unrealized gains
on other securities of△9,054earthquake insurance
Total liabilities

Percentage
distribution

Amount3.3(LIABILITIES)Fiscal Year2006
(As of March 31, 2007)

29,98629,9860.0(SHAREHOLDERS’ EQUITY)

Percentage
distribution

Treasury Stock

–

–

△5

△0.0

Total shareholders’ equity

–

–

1,594

0.2

Net unrealized holding gain
on securities

–

–

5

0.0

Total valuation andtranslation adjustments

–

–

5

0.0

Total net assets

–

–

1,600

0.2

Total liabilities and net
assets––908,963

100.0

0.0

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

1. Appraisal standards and method of securities, andmethod of indication(1) Of other securities, those to which the market
price is applicable is appraised according to themarket price at term end.
(2) Of other securities, those to which the market
price is not applicable is appraised based on
cost or write-off cost price using the movingaverage method.
(3) With respect to the unrealized gain of assets
corresponding to the underwriting reserves andentrusted reserves of earthquake insurance, theamount before tax effect deduction is shown as
an Net unrealized gains on other securities ofearthquake insurance in Liabilities, according to
the pertinent Enforcement Rules of Insurance
Business Act. For other unrealized gains, theamount after tax effect deduction is processed
entirely according to the direct capital injection
method and indicated in Shareholders’ Equity.
The calculation of the sales price is based on
the moving average method.
2. Appraisal standards and method of money trust(1) In money trust exclusively operated centering on
securities, the appraisal of securities operated
as trust assets is done on the basis of market
price.
(2) In money trust exclusively operated with a viewto holding securities which is not intended to be
operated or held to maturity, the appraisal of
securities operated as trust assets is done in thesame manner as other securities.
3. The appraisal of derivatives is done on the basis ofmarket price.

with the self-appraisal standard of assets anddepreciation and reserve standards.
In connection with claims against debtors
who have gone bankrupt legally and formally,
including bankruptcy, special liquidation or disposition by suspension of business at a clearing
house, or debtors who are effectively bankrupt,
the rest of any of the claims deducting an estimated amount of disposable mortgage and adeductible amount by guarantee was appropriated for such reserves.
In connection with the other claims, the rateof bad debts calculated according to past bad
debts and other factors is multiplied by theamount of claims to appropriate for reserves.
In addition, all claims are written after thefinance department appraises the assets, andthe result is audited by the management department independent of the finance department to appropriate the appraisal for reserves.
There are no assets in the current term thatare to be appropriated for reserves, and no reserve is required.
(2) Reserves for employees’ retirement
For employees’ retirement and severance benefits, reserves is appropriated according to theretirement allowance liabilities at the end of
the term and the estimated amount of pension
assets. The retirement allowance liabilities iscalculated using a simple method on the basisof the allowance to be supplied at the end of
the term for any employee who retires for his/her own reasons.
(3) Reserves for directors’ retirement benefit
For reserves for directors’ retirement benefits, thebenefits to be paid at the end of the term are recorded according to the relevant in-house rules.

4. The depreciation of tangible fixed assets is done using the declining balance method.
5. The conversion of foreign currency assets and liabilities into Japanese currency is processed according to the accounting standards for foreign currencytransactions.
6. Writing standards of reserves(1) Reserve for bad debts
Reserves for bad debts are written as follows
against losses from bad debts in accordanceJapan Earthquake Reinsurance Co., Ltd. Annual Report 200733

(4) Accrued bonuses for employees
Accrued bonuses for employees’ bonus is calculated according to the standards of estimatedbonus payable.
(5) Reserves for price fluctuation
To prepare for a loss from price changes ofshares and others, reserves are appropriatedaccording to Ar ticle 115, Insurance Business
Law.
7. Taxes are excluded when preparing accounts for
consumption tax and other items. However, taxes
are included when recording loss adjustment expenses and operating, general and administrative
expenses. Consumption taxes and other items for
assets that are not subject to deductions are recorded as suspense payments and written down by anequal amount over five years.
8. The risk reserves contained in the underwriting
reserves have been deposited according to the instructions for the calculation of liability reserves byaccumulating the amounts resulting from subtracting an amount equivalent to corporate taxes fromthe net premiums written and profit from operating
the assets.
9. Financial lease transactions other than those inwhich the ownership of the leased item is deemed
to be transferred to the leaseholder are processed
according to the method equivalent to that of ordinary lease transactions.
10. Changes in accounting policies
Accounting standard for presentation of net assets
in the balance sheet, etc.
The “Accounting Standard for Presentation of
Net Assets in the Balance Sheet” (Accounting Standards Board of Japan (ASBJ) Statement No. 5 on
December 9, 2005) and the “Guidance on Accounting Standard for Presentation of Net Assets in the
Balance Sheet” (ASBJ Guidance No. 8 on December
9, 2005) are applied from this fiscal year. There isno effect of this application on profit and loss forthe current fiscal year.
The amount equivalent to total shareholders’ equity in the past is 1,600 million yen.

34

11. Changes in presentation methods
We have changed the form of the balance sheet following the amendment of the Enforcement Rules of
Insurance Business Act and the enforcement of the
Corporate Calculation Regulations. Major changes
from the previous year are as follows:(1) “Property & Equipment” has been changed to“Tangible fixed assets.”(2) Software and others that is included in “Other
assets” are presented as “Intangible fixed assets.”(3) “Net unrealized gains on other securities” hasbeen changed to “Net unrealized gains on othersecurities.”(4) “Special price fluctuation reserves” is presented as a component in “Reserves under speciallaws.”
12. The accumulated depreciation of tangible fixed assets is 73 million yen.
13. The total sum of deferred tax assets reach 81 million yen while the total sum of tax liabilities cometo 4 million yen. The deferred tax assets are bybreakdown an unpaid taxes amount of 32 million
yen, a retirement benefit reserve of 35 million yen
and a bonus reserve of 5 million yen. The deferred
tax liabilities come mainly from an unrealized gainof 4 million yen of securities.
14. In addition to the equipment mentioned in B/S,
some computers are used on a lease contract.
15. Net assets per share is 804.80 yen. The basis forthis calculation is such that net assets is 1,600 million yen, net assets accrued from ordinary sharesis 1,600 million yen and the number of ordinary
shares at the end of the term amount to 1 million
988 thousand.
16. The amounts are indicated by rounding down any
amount not reaching the unit as mentioned.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

❷ Statements of income(Unit: Million yen)

Fiscal Year
Item
Ordinary incomes

2005

2006

(from April 1, 2005
to March 31, 2006)(from April 1, 2006
to March 31, 2007)

AmountAmountNotes for fiscal 2006
1. See below for the net premiums written by breakdown.
Premiums written:

139,172 (million yen)

Reinsurance premiums ceded:

71,190 (million yen)

Net premiums written:

67,981 (million yen)

107,868

90,37391,001

72,451

Net premiums written

71,132

67,981

Reversal of outstanding claims

16,773–

Investment income on savings
premium, etc

3,095

4,469

16,846

17,92010,403

11,851

Interest on deposits:

143 (million yen)

Profit from operating monetary trust

376

265

Realized gain on sale of securities

92

426

Interest on monetary
receivable bought:

2 (million yen)

8,964

9,779

Interest on securities:

11,705 (million yen)

105

66

Total:

11,851 (million yen)

△3,095△4,469Underwriting incomes

Investment income
Interest and dividend income

Foreign exchange gain
Profit from other operations
Transfer of profit from Investment
income on savings premiums
Other ordinary incomes

20

1

107,845

90,229Underwriting expenses

90,58071,804

Net claims paid

24,662

2,240

Loss adjustment expenses

2,266

287

Agency commissions and brokeragefees

28,56028,827

Ordinary expenses

Provision for outstanding claims
Provision for underwriting reserves
Investment expenses–

440

35,08940,00813,331

13,452

Loss from operating monetary trust

105–

Realized loss on sale of securities

689

246

Loss on securities refund

114–

Financial derivative cost

12,422

13,2050

0

Other operation cost
Operating, general and administrative
expenses
Other ordinary expenses
Interest paid

894

964

3,038

4,008

3,038

4,008

Ordinary profit

23

143

Extraordinary losses

7

0

7

0

Income before taxes

15

143

Income taxes – current

0158

Income taxes – deferred

△21

2

36

△16

Provision for price fluctuation reserve

Net income

2. The interests and dividends income are given below
by category:

3. Paper profit/loss involved in the financial derivative
expenses is a loss of 11,366 million yen.
4. The net income per share is –8.47 yen.
The basis for this calculation is such that the net
income is 16 million yen, the net income accrued
from ordinary shares is 16 million yen and the term
average No. of ordinary shares amount to 1 million
988 thousand.
5. The legal effective tax rate of the term is 36.21%,
and the rate of burden of corporate taxes after applying tax effect is △111.72%. The difference is
explained by the following breakdown. The amountof write-off carries from publicity expenses related
to risk reserve is △26.26%, nondeductible amountof taxable additions to risk reserve is 134.83%, thesurplus of profit from operating unearned premium
deposits is △43.86%, and the tax loss carried forward is △77.52%.
6. Each amount is rounded down to the nearest wholeunit.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200735

❸ Statements of cash flow
(Unit: Million yen)

(Unit: Million yen)

Fiscal Year
Item

2005

(from April 1, 2005
to March 31, 2006)(from April 1, 2006
to March 31, 2007)

AmountAmountⅠ. Cash flow from operating activities
Net profit before income taxes

15

143

Depreciation

5

5

Increase in outstanding claims△16773440

Increase in underwriting reserves

35,08940,008

Increase in entrusted reserves

22,90723,993

Increase in reserves for employees’
retirement and severance benefits

10

13

Increase in directors’ retirement
benefit reserves

7

4

Increase in accrued bonuses for
employees

11Increase in reserve for pricefluctuation

7

0Interest and dividend income△10,403△11,851

Gain or loss on investment insecurities

711

△180

Foreign exchange gain or loss

△8,705△7,113

Increase in other assets (other thaninvestment and financial activities
related)

△377

102

Increase in other liabilities (otherthan investment and financial
activities related)

418

121

OthersSubtotalInterest and dividends received
Income taxes paid
Net cash provided by operating activities(As of March
31, 2006)(As of March
31, 2007)

Cash & deposits

38,02629,986

Monetary receivables bought

1,799

999

Securities

771,383

851,739

Deposits of a depository periodof three months or longer△27,330△25,400

Monetary receivables bought
other than cash equivalent

△999

–

△771,383△851,739

11,496

5,585

2006

7,486

1,068

30,402

46,757

10,01911,295△10△51

40,41058,001

Securities other than cash equivalent
Cash and cash equivalents

2. Cash flow in investing activities includes cash flow from the investment
assets operations in the insurance business.

❹ Distribution of net profits(Unit: Million yen)

Item

–

1,930

△3,497△499

Proceeds from the sales or maturityof monetary receivables

7,796

1,498

Expenses for increase in monetarytrust△10,130–

Proceeds from sales of money trust

4,000

1,400

△332,403△512,329

Acquisition cost of monetary
receivables bought

Purchase of securities
Proceeds from sales and redemptionof securities

288,186

444,088

Ⅱ ① Subtotal△46,049△63,912(Ⅰ＋Ⅱ ①)(△5,638)(△5,910)△5–

Acquisition of property andequipment
Acquisition of tangible fixed assets–△0

Others–△0△46,054△63,913––

Net cash used in investing activities
Ⅲ. Cash flow in financing activities
Ⅳ. Effect of exchange rate changes oncash and cash equivalents––

Ⅴ. Net change in cash and equivalents△5,643△5,911

Ⅵ. Cash and cash equivalents at the
beginning of the year

17,14011,496

Ⅶ. Cash and cash equivalents at the endof the year

11,496

5,585

559

Retained earnings carried forward

559

Notes
1. Relationship of cash and cash equivalents at the end of the year withthe amounts mentioned in the relevant balance sheet item.

36

2005

Unappropriated retained earnings for the year

Ⅱ. Cash flow from investing activities
Net increase in deposits at bank

Fiscal Year

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

❺ Statement of Changes in Shareholders’ Equity for fiscal 2006 (from April 1, 2006 to March 31, 2007)(Unit: Million yen)

Shareholders’ equity
Capital surplus
Capitalstock

Balance as of March 31, 2006

Capitalsurplus

Othercapitalreserve

Earned surplus

Total
capitalsurplusLegalearnedreserve
1

1,000

Total
earnedsurplusTreasury
stock

Total
shareholders’equity

559

617

△5

1,611

△16

△16

△16

△16

542

600

Other earned surplus
Specialreserves

Special pricefluctuation
reserves

Earned surplus carriedforward

17

39

Amount of change during the term
Issuance of new shares
Dividends from surplus
Net income△16

Net amount of changes in items otherthan owners’ equity during the term
Total change during the term
Balance as of March 31, 2007

1000

1

17

39

Valuation and translation adjustments
Net unrealized
gains on othersecurities
Balance as of March 31, 2006

Deferred gains
or losses onhedgesLand revaluation
surplus△5

Total valuationand translation
adjustments
△5

Stock
subscription
rights

△16
△5

1,594

Total net assets
1,605

Amount of change during the term
Issuance of new shares
Dividends from surplus
Net income△16

Net amount of changes in items other thanowners’ equity during the term

11

11

11

Total change during the term

11

11

△5

Balance as of March 31, 2007

5

5

1,600

Notes:
1. The number of shares issued as at the end of fiscal 2006 is 2 million shares of common stock.
2. The number of treasury stock at the end of fiscal 2006 is 11,400 shares of common stock.

❻ Dividend per stock and total assets per employee(Unit: Million yen)

Division
Dividend per stock
Net income per stock

Fiscal Year

2004

2005

2006

–

–

–

5.30 yen

18.23 yen

△8.47 yen

Dividend propensity

–

–

–

Net assets per stock

798.07 yen

807.42 yen

804.80 yen

44,68539,931

43,283

Total assets per employee

Notes:
1. Net income per share comes from net income / term average No. ofstocks
2. The number of treasury stock is deducted from producing information per stock
3. The total assets per employee come from the total assets at the end of
the term / No. of employees at the end of the term.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200737

2. Risk management credits

Solvency-margin ratio
The non-life insurance company deposit reserves incase that they pay insurance money for any insurance
accident that occurred or refund depository insurance
at maturity. It is also necessary for them to maintaina satisfactory ability to make payments or solvency
even in case of unusual, unforeseeable risk, including
a huge disaster or sharp drop in price of such assets
as owned by them.
The rate of “Non-life insurance company’s ability tomake payments by owned assets and reserves (A in theabove table) over any risk unforeseeable (B in the abovetable)” is indicated as the solvency-margin ratio (C inthe above table) which is calculated according to thepertinent rules, including the Insurance Business Law.

There are no notes about the following five items:(1) Currently in bankruptcy(2) Delinquent in payments(3) Payments more than three months in arrears(4) Favorable loan revisions completed(5) Total of risk management credit

3. Present conditions of loans involving trustwith contact for replacement of losses
No notes required.

4. Credits obligations based on debtor
classification
There are no notes about the following four items:(1) Bankrupt or bankrupt for all intents andpurposes(2) On verge of bankruptcy(3) Financial status needs careful monitoring(4) Financial status normal

5. Conditions of solvency-margin ratio(Unit: Million yen)Year
Division
Total of solvency-margin
Total of stockholders’ equity (otherthan estimated outflow to theoutside, deferred assets and Net
unrealized gains on other securities)
Price fluctuation reserve359,908

375,606

411,687

1,575

1,611

1,594

7

8

378,731412,364

–

–

–

2,520

△4,743△2,279Unrealized gain and loss included
land holdings

–

–

–

Funding instruments with a debtlike nature

–

–

–

Items deductible

–

–

–

Others–––Variance of estimate for othersecurities (excluded deductions for
Tax Consequences) unrealized gain /loss on securities available for sale

Total risk
√R12 + (R2+R3)2 + R4 + R5

394,964

468,880

469,506

General underwriting risk (RI)

–

–

–

Anticipated Rate of Return Risk (R2)

–

–

–

7,190

7,676

8,290

Investment risk (R3)

(C)

As of
the endof fiscal
2006

0

Reversal for ordinary bad debts

(B)

As of
the endof fiscal
2005

355,813

Catastrophe reserves
(A)

As of
the endof fiscal
2004

Management risk (R4)

7,744

9,193

9,206

Catastrophe risk (R5)

380,030

452,010452,010

Solvency-Margin ratio[(A) / { (B) x 1 / 2 }] x 100

182.2%

160.2%

175.3%Note:
The above amounts and figures were produced in accordance with Articles 86 and 87, Enforcement Rules of Insurance Business Act, and Bulletin No. 50 issued by the Ministry of Finance in 1996.

38[Unforeseeable risk] (Total of risks): Sum of 1~5
1. General underwriting risk: risk associated with aninsurance accident rate that is higher than normallypredictable (other than the risk associated with ahuge disaster).
2. Anticipated ratio of Return Risk: risk that mightarise when actual yields from operation are lower
than original at the time of calculating premiums ofa depository insurance
3. Investment risk: management risk that might arise
when the value of assets owned including securities
changes in an unforeseeable manner.
4. Management risk: risk that might arise on business
management in an unforeseeable manner, otherthan 1~3 and 5.
5. Catastrophe risk: risk that might arise with a hugedisaster (such as the Great Kanto Earthquake) which
is normally unforeseeable.
[Capability of payment by non-life insurance company owned capital and reserves] (Total of solvencymargin)
The total of capital owned by a non-life insurance company, reserves (price fluctuation reserve, catastrophe reserve, securities and part of latent profit from land, andso on)The solvency-margin ratio is one of the indicators used
when the administrative authorities check insurancecompanies to determine the soundness of management for supervisory purposes. When the rate is 200%
or more, the insurance company is deemed satisfactory in terms of its ability to make insurance and otherpayouts.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

◎ JER has entered into a reinsurance contract with thegovernment of Japan for earthquake insurance in accordance with Law concerning Earthquake Insurance.
The law stipulates in addition that the government takes
responsibility for support and for lending funds for thepayment of insurance money. Because this is a form ofspecial business, JER’s solvency-margin ratio is not usable as a figure to enable the administrative authorities
to trigger an order for improvement, irrespective of theabove solvency-margin ratio, as provided for in Section
4, Article 3, Order to specify the division stated in Section 2, Article 132, Insurance Business Law.
Note: The article is as follows.
[In the event that an insurance company has enteredinto a reinsurance contract with the government asstated in Section 1, Article 3, Law concerning Earthquake Insurance (law No. 73, 1966), any order to beissued according to the listed division in Section 1 of
the Article applicable to the insurance company shallbe issued in accordance with the list of inapplicabledivision.]

6. Information on market prices (acquisition costor contract cost, market price and appraisal
profit and loss) and others❶ Securities
1. Other securities with market priceAt the end of fiscal 2005
Division

Securities withacquisition costhigher than thatposted on thebalance sheet

Securities withacquisition cost
not higher thanthat posted on thebalance sheet

Total

Type
Public &corporatebonds
StocksForeignsecurities(Unit: Million yen)

Acquisition
cost
99,781

Book value

Division

Securities withacquisition costhigher than thatposted on thebalance sheet(Unit: Million yen)Type

Acquisition
cost

Public &corporatebonds

197,594

198,763

1,169

StocksSecurities withacquisition cost
not higher thanthat posted on thebalance sheet

Book value

Difference

–

–

–

Foreignsecurities

156,809

171,806

14,996

Others

2,800

2,921

121

Subtotal

357,203

373,492

16,288Public &corporatebonds

433,535

430,156△3,378Stocks–––Foreignsecurities

42,60342,143△460

Others

5,997

5,947

△50

Subtotal

482,136478,247△3,888839,340

851,739

12,399Total

2. Other securities sold at the term
(Unit: Million yen)

Fiscal 2005

Fiscal 2006

Type

Sales
price

Total ofprofit on
sale

Total ofloss on
sale

Sales
price

Total ofprofit on
sale

Total ofloss on
sale

Total

51,14992

689

67,531

426

246

There are no notes with respect to the following items:
1. Securities held for trading purposes
2. Securities to be held until maturity and with market
price
3. Securities sold at the term which were to be held
until maturity
4. Main contents of securities without market priceand the amounts posted on the balance sheet.

Difference

100,108

327

–

–

–

134,319

142,393

8,073

Others

1,797

1,826

28

Subtotal

235,898

244,328

8,430

Public &corporatebonds

461,253454,773△6,480–––Foreignsecurities

60,48359,248△1,234

Others13,164

13,032△131

Subtotal

534,901

527,054△7,846

770,799

771,383

583

StocksAt the end of fiscal 2006

❷ Money trust
1. Money trust for investment(Unit: Million yen)

As of end of fiscal 2005
Type

Money trust

As of end of fiscal 2006

Amountposted on
the balance
sheetAppraisaldifferencecontained in
profit/loss

Amountposted on
the balance
sheetAppraisaldifferencecontained in
profit/loss

10,000–10,000–2. Money trust for maturity
Nothing to be mentioned.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 200739

3. Other money trusts with any other purpose thanoperation and maturity(Unit: Million yen)

As of the end of fiscal 2005

As of the end of fiscal 2006

Type

Acquisition
cost

Book
value

Difference

Acquisition
cost

Book
value

Difference

Money trust

5,130

5,528

398

3,730

3,958

228

❸ Information on transactions involving derivatives
1. On the conditions of transactions
With a view to hedging risks as a result of possible
changes in the foreign exchange of assets in foreign
currency, JER deals in foreign exchange forward
contracts and currency option transactions. In addition, we conduct over-the-counter securities option
transactions to reduce interest fluctuation risks inconnection with securities.
The derivative transactions we engage in havemarket risks associated with market fluctuations.
Most of them are done, however, to hedge the as-

sets in kind, and losses from the transaction inquestion never arise on their own. In some cases,
we use options transactions for securities scheduled
to be purchased. But risks are limited because weput a quantitative limit on such transactions.
Because we deal with highly reputable financial
institutions, we believe that there is little credit risksuch as non-fulfillment of a contract.
Our derivatives transactions are checked by the
Risk Management Division, independent of theTransactions Execution Division, and the results ofthe checks are regularly reported to the board ofmanaging directors.
2. On market prices for transactions
A contract amount in a derivative transaction is
simply a nominal contract amount or an assumed
principal by calculation in such a transaction. The
contract amount as such represents no market risk
or credit risk.

3. Derivative transaction contract amounts, market price and appraisal profit and loss(a) Currency related(Unit: Million yen)

As of end of fiscal 2005
Type

Contract amountMarket priceAs of end of fiscal 2006
Appraisal profit
and loss

Contract amount1 year or
longer ones

Market priceAppraisal profit
and loss

1 year or
longer ones

Transactions other thanmarket transactions
Forward foreignexchange contracts
Currency used

Total

US dollar

61,231

28,403

66,631△5,40056,592

25,88960,440△3,848Euro

83,141

34,77987,637△4,49676,38033,086

83,738△7,358Canadian dollar

2,872

1,211

3,246

△374

3,037

3,037

3,197

△10,272

Note: Calculating a market priceForeign exchange forward contract: Foreign exchange rates depend on futures quotations.

40

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

△160
△11,366

CORPORATE DATA (as of March 31, 2007)
Established:

May 30, 1966

Capital:1 billion yen

Total assets:

908 billion yen

President:

Akihiko Mori

No. of employees:

21

Address:

Kobuna-cho Fuji Plaza,
8-1, Nihonbashi-kobuna-cho,
Chuo-ku, Tokyo Japan 103-0024

Phone:

03-3664-6098

E-mail:kanri@nihonjishin.co.jp

URL:

http://www.nihonjishin.co.jp/