Japan earthquake
Reinsurance Co., Ltd.

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

Financial highlights
Net premiums written

Assumed net premiums written(Yen in millions)

182,895

190,000(Yen in millions)

100,000
92,996

180,000
170,000

168,676

90,00083,671160,000

80,000150,000
140,000

70,000130,000
0
Fiscal Year02011

2012

Fiscal Year

2011

2012

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

Net loss ratio(Yen in millions)

300.0

282.9%

10,000

100

7,500

75

250.0
200.0
150.0

5,000

4,630

50

4,152

100.0
2,500

50.0

239.2%

0.0

161300Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013
Fiscal Year

2011

2012

25

Fiscal Year
2011
2012
Net unrealized gains on available-for-sale securitiesof earthquake insurance
Net unrealized gains on available-for-sale securities

Net premiums written

Assumed net premiums written(Yen in millions)

182,895

190,000(Yen in millions)

100,000
92,996

180,000
168,676

170,000

90,00083,671160,000

80,000150,000
Assumed net premiums written

140,000(Yen in millions)
130,000

182,895

190,000
0Fiscal Year
180,000

2011

170,000

Fiscal Year92,9962012

2011

90,00083,671
Net unrealized gains on available-for-sale
80,000 securities of earthquake insurance
and net unrealized gains on available-for-sale securities

160,000
150,000(Yen in millions)

100,0000

2012

168,676

Net premiums written

70,000Net loss ratio

140,000(Yen in millions)

70,00010,000282.9%

300.0
130,000
0250.0Fiscal Year
200.0

2011

2012

1000
7,500Fiscal Year

2011

75

2012

4,630
50
4,152
Net unrealized gains on available-for-salesecurities of earthquake insurance
andnet unrealized gains on available-for-sale securities
252,500
1613

150.0

5,000

100.0

Net loss ratio

50.0
300.0
0.0

282.9%

39.2%

Fiscal Year
250.02011

2012(Yen in millions)

10,00001000200.0

Fiscal Year
2011
2012
Net
unrealized
gains
onavailable-for-salesecurities 75
7,500
of earthquake insurance

150.0

5,000

100.0

Total assets and net assets
Breakdown of total assets
Non-consolidated solvency-margin ratio
2,500
1613

(Yen 50.0
in millions)(Yen in millions)

Items

39.2%
4,000
800,000
0.0 amount of non-consolidated solvency-margin(A) Total
Fiscal Year
(B) Total
amount2011
of non-consolidated 2012
risk
600,000

536,808

509,498 solvency-margin ratio
Non-consolidated(A) / {1/2x(B)} x 100

400,000

1,633

1,631

200,000

2,000

1,000

(Yen in millions)

4,000
0

800,000
0
Fiscal Year

2011

2012

Total assets
509,498

Net assets
536,808

400,000

1,631

1,633

FY2011025

FY2012

Call loans Others

336.7 billion yen
357.9 billion yen 0
21,137
12,753
Deposits
FiscalYear
2012
557.22011
billion yen
447.2
billion yen
25,938Net unrealized gains on available-for-sale securities
3,000
of earthquake
insurance
120.8%
160.0%

Total assets and net assets

600,000

Net unrealized gains on available-for-sale securities
4,630
50
4,152

Net unrealized gains on available-for-sale securities
Breakdown of securities
Securities
Breakdown of total assets
476,979
Foreignsecurities(Yen in millions)
Call loans Others

21,137 12,753 Corporate bonds

Deposits

3,000

128,842

20,06525,938Government
bonds

328,071

2,000
Breakdown of securities
Securities

200,000

1,00000476,979

Foreignsecurities

128,842
Fiscal Year

2011

2012

Total assets

Net assets

Corporate bonds

20,065Government
bonds

328,071

Note: The figures for fiscal 2011 have been corrected by a retrospective restatement.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20133Organization(As of April 1, 2013)
General meeting of shareholders

Board of auditors
Board of directors

Board of managing directors

Compliance committee

Risk management committee

Task force against earthquake disaster

Reinsurance
administration dept.

Controller andplanning dept.

Audit office

No. of shares owned(1,000 shares)

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

Aioi Nissay Dowa Insurance Co., Ltd.

255

12.8

NIPPONKOA Insurance Co., Ltd.

208

10.4

The Fuji Fire and Marine Insurance Co., Ltd.

123

6.2

The Toa Reinsurance Co., Ltd.

93

4.7

Nisshin Fire & Marine Insurance Co., Ltd.

61

3.1

The Kyoei Fire & Marine Insurance Co., Ltd.

34

1.7

The Asahi Fire and Marine Insurance Co., Ltd.

80.4

SECOM General Insurance Co., Ltd.

70.4

Financial dept.

Shareholders(As of March 31, 2013)
Shareholder

4Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Board Members (full-time)(As of July 1, 2013)
PostNameChairman(representative director)

Shozo Wakabayashi

President(representative director)

Masamichi Irie

Managing director(representative director)

Tadashi Baba

Managing director(representative director)

Hiroyuki Fushimi

Corporate auditor

Takashi Shikama

PREPARATION TO THE ANTICIPATEDLARGE SCALE EARTHQUAKEOur most important mission is to support prompt insurance payouts by non-life insurancecompanies and to promptly and steadily make reinsurance payouts. To achieve this, we haveestablished a standing Task Force against Earthquake Disaster consisting of full-time directors and managers, and it carries out exercises and develops a system on a regular basis
every year to deal with great disasters. We also manage and operate our assets that are accumulated for reinsurance payouts by paying the utmost attention to liquidity (cashability)
and safety so that reinsurance payouts are made without delay in the face of major disasters.
Specific responses are as follows.

Task Force against Earthquake Disaster and its activities
Task Force against Earthquake Disaster has been established as a standing in-house organization. The committee carries out exercises, including emergency responses and drills forreinsurance payouts, in accordance with an annual plan in preparation for the occurrence ofan inland earthquake that strikes the Tokyo metropolitan area, and it develops and examines
a disaster response manual among other activities.
During fiscal 2012, we took the steps described below to prepare for the inland earthquakethat is expected to strike the Tokyo metropolitan area in the future from the perspective ofour business continuity plan (BCP). Aiming to fulfill our mission, we focused in particular on
system-related measures to ensure that our operations will continue even if our offices aredamaged in a disaster by transferring our critical systems to our state-of-the-art data centerin Tokyo, which has superior earthquake resistance. We have also significantly reduced the riskof simultaneous damage from disasters by installing a backup system in Okinawa. Moreover,by installing a system that can be accessed externally over the Internet, we have created anoperating environment in which employees can continue to work without having to go to theiroffices.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 20135

In addition, we carried out disaster response drills that were attended by all officers and employees in preparation for an inland earthquake in the Tokyo metropolitan area, similar to thedrill carried out in the previous year.
First disaster response drill
From the perspective of our BCP, we have upgraded our emergency safety confirmation system as an internal communications tool. In our previous safety confirmation system, ouremployees had to individually access the system to report that they were safe. However, wehave significantly improved the usability of our new safety confirmation system, as it willautomatically send a request to all officers and employees to report on their status if a largescale disaster takes place. We gave a presentation on how to use the system on July 13 and18, 2012, and our officers and employees set up a network to access the system through theirmobile devices. Moreover, to become familiar with this tool, we conducted safety confirmation
drills on September 1, 2012 and March 10, 2013, using the system’s training function.
Second disaster response drill
On March 11, 2013, the second anniversary of the 2011 Great East Japan Earthquake, we
held an informational session on the section of the Tokyo metropolitan ordinance related tomeasures for dealing with commuters who can’t get home, which was enforced in April 2013by the Tokyo Metropolitan Government, and learned more about these measures. We also
revised our special disaster countermeasure manual (for regular home use) by taking into
account the issues that were pointed out by external consultants, and all our officers and employees were fully notified of this revision.
Drills on traveling home by footTo ensure that our officers and employees can get home safely in a disaster, we held drills
from October to December 2012 on traveling home by foot.

Operation based on highly liquid assets
Should an inland earthquake in the Tokyo metropolitan area strike, 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 and high-rating securities. To reduce price volatility risks at the timeof realization, we hold mainly short- and medium-term securities.

Preparations for disasters
We have installed in its head office an earthquake alert system provided from the Japan
Meteorological Agency to ensure the safety of visitors, officers and employees. We have also
taken the initiative to improve the earthquake resistance of its headquarters by securely fixing
office facilities and equipment. In accordance with the part of the Tokyo metropolitan ordinancerelated to measures for dealing with commuters who can’t get home, we are maintaining thenecessary amount of food, water, daily commodities, and other items so that employees canstay in the office if a disaster strikes during working hours.
6Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Corporate governanceWe believe that establishing corporate governance is an important management issue, andare endeavoring to manage our business in a sound and appropriate manner by establishinga transparent management system with verification functions.
Appointments
and dismissals

AppointmentsGeneral meeting and dismissalsof shareholders

Board ofdirectors

Audit

Board ofmanaging directors
Submission/Report

Audit

Compliancecommittee

Board ofauditors

Cooperation
Appointments
and dismissals Accountingauditors

Submission/Report
Executive division
In-house audit

Risk management
committee

In-house audit division

Task force against
earthquake disaster

In-house audit

Accounting audit

Committee-based operation
We have established a Compliance Committee and a Risk Management Committee and positioned them under the direct control of the Board of Managing Directors. Our aim is to ensure
sound and transparent business operations by strengthening the supervisory function with theconstruction of compliance and risk management systems. Preparing for a major earthquake
calamity, we are provided with a Task Force against Earthquake Disasters to facilitate thepayment of insurance claims and maintain the funding plan for payment, enabling it to takeprompt 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 and inspection systems
Outside auditing and inspection
The overall management and operations are subject to inspection by the Financial Services
Agency under the Insurance Business Act and inspection by the Ministry of Finance under theAct on Earthquake Insurance.
We also receive an accounting audit by an auditing corporation in accordance with the Companies Act.
In-house auditing
Apart from the audit conducted by corporate auditors under the Companies Act, the Audit
division conducts in-house audits.
The purpose of an in-house audit is to develop and establish an internal control system. Thisis done by conducting an audit to examine and evaluate the execution of plans and activities
fairly and objectively, and from the standpoint of lawfulness and rationality. It also requires
providing the necessary advice and recommendations based on the evaluation, contributing tothe sound development of the company and building credibility in the community.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 20137

In fiscal 2013, based on the “In-House Audit Policy and Plan” adopted by resolution of theBoard of Directors, we will concentrate on audits of our readiness to respond to risks thatmust be managed following the establishment of our Integrated Risk Management Rules andthe installation of BCP facilities in the event of disasters. We will also conduct system audits
through third parties, including a backup system we developed in accordance with the mediumterm plan for our information systems in response to the inland earthquake that is expected tostrike the Tokyo metropolitan area. We will also conduct regular audits of the internal control
conditions of all divisions.
Audit results including recommendations of corrections and improvements are reported to theBoard of Managing Directors and the Board of Directors and communicated to audited divisions.

Risk management system
We have developed a structure in which risk management is appropriately carried out toensure sound and safe management. This organizational framework and important risk management issues are defined in our Risk Management Rules and Integrated Risk ManagementRules. Specific ways of managing various risks—namely, asset management risks, liquidity
risks, and operational risks—are defined in our management rules for each type of risk andour annual risk management policies. We have also established a company-wide Risk Management Committee, and are managing risks in an integrated manner by fully understanding ourrisk management situation.
ASSET MANAGEMENT RISKS

Risks relating to asset management are classified into “market risks” and “credit risks”
for risk management, and the management standards are stipulated in the “Standards forManagement of Investment Risks” for each fiscal year.
Market risksMarket risks include interest-rate risk, foreign exchange risk, and price volatility risk. Theseare the risks of losses that investors may sustain with fluctuations in the value of assets ordebt, or in income, due to changes in a number of risk factors in the market. We manage
overall market risks both quantitatively and qualitatively. We measure the value at risk
(VaR) of interest rates and currency exchange as the amount of risk, while also monitoring
the unrealized gain/loss and price changes (sensitivity). We also apply an upper limitof retention or a loss-cut rule if necessary. In addition, we have separate divisions for
executing transactions and for handling administrative processes, respectively, thereby
enabling the supervisory and checking functions to work effectively.
Credit risks
Credit risks are the risks of a reduction in value or the disappearance of assets, which
results when the credit standing of the borrower has weakened, for example.
When purchasing securities, we limit their issuers to those with high credibility withreference to the credit rating made by rating agencies. We always check securities held
to determine credibility, and conduct individual controls to avoid a concentration on a
specific group of companies or type of business. We also measure the credit VaR based on
the default rate, etc. for managing credit risks.
8Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Stress test
The VaR that statistically measures the amount of risks has a limit in circumstances whenfinancial market is fluctuating greatly. The stress test is used to complement monitoring insuch circumstances. The stress test examines the amount of potential losses by assuming
a situation in which risk factors, such as interest rates and exchange rates, fluctuateconsiderably.
LIQUIDITY RISKS

Liquidity risks are the risks of losses that may be caused by failure to ensure the liquidityof assets against debt or by being forced to execute transactions at a disadvantageous pricedue to market turmoil, etc. These risks are important in fulfilling our social mission. We own
sufficient liquid assets by keeping in mind the possibly of having to dispose of all assets in theevent of a major earthquake. We also strive to accurately assess cash flows, thereby managing
funds appropriately.
OPERATIONAL RISKS

Operational risks are classified into “Administrative risks,” “IT system risks,” and “otheroperational risks,” and we manage these risks as appropriate given the characteristics ofeach.
Administrative risks
Administrative risks are the risks of losses that may be caused by the failure of officers,employees, or any other members of an organization to do accurate paperwork, orby accidents, fraud, or any other improper acts. We constantly examine the rules andregulations of authority and paperwork procedures and manuals and strive to improve ourtraining programs and educational system, to ensure exact and perfect paperwork. We also
regularly check the rules and regulations through in-house auditing for conformity withrelated laws and regulations.
IT system risks
IT system risks are risks of losses that may be caused by IT system problems such as
computer system failures or glitches or by unauthorized use of a computer.
We strive to protect our information assets appropriately under our Security Policy
and Safety Measure Standards, which we established for preventing leaks of internal
information, etc., and as safety measures for our information system. In addition, wehave clarified our measures for handling crises by developing the Information System
Contingency Plan for disasters and other emergency situations.
Other operational risks
As other operational risks, we are aware of such risks as “human resource risks” (the risksof losses that may be caused by outflows or losses of human resources) and “reputationalrisks.” We strive to manage these risks with each responsible division playing the leadingrole.
* Underwriting risks are excluded from risks to be managed, because earthquake insurance on dwellingrisks has been managed under the legal system.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 20139