Overview of Standard Full Rates for

Compulsory Automobile Liability Insurance
General Insurance Rating Organization of Japan (GIROJ)

As of April 2023

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Introduction

Automobile insurance is designed to pay insurance claims for the damage caused by automobile accidents. In Japan,
automobile insurance is classified into two major types: Compulsory Automobile Liability Insurance (CALI), which
every automobile is required by law to hold, and voluntary automobile insurance, which primarily car owners canpurchase at their own discretion.

CALI covers the liability for compensating the damage caused if the insured vehicle kills or injures a person in an
automobile accident. It is intended to protect victims of automobile accidents, and all automobiles have obligation
to be insured by CALI by law. Premium rates for CALI do not include any profit for insurance companies, and asystem has been established that covers personal damage within the range of limits prescribed by law through low
premium rates. (Compulsory Automobile Liability Mutual Aid operated by cooperatives serves a similar function to
CALI, but it should be noted that this leaflet's explanations focus on CALI.)

In today's car-dominated society, CALI is indispensable to our daily life from the viewpoint of protecting victims ofautomobile accidents and ensuring that those who cause an automobile accident have sufficient financial resources
for compensation. In addition, it is vital that premium rates for CALI are appropriate and that insurance claims arepaid fairly.

In order to carry out our social mandate, we at the General Insurance Rating Organization of Japan (GIROJ) calculate
standard full rates for CALI and file the calculated rates with the Commissioner of the Financial Services Agency(FSA). In calculating Standard Full Rates, we also utilize the data obtained through the CALI claim surveys, which we
carry out from a fair and neutral standpoint.

This leaflet is designed to give an overview of Standard Full Rates for CALI. We very much hope that it aids yourbetter understanding of them.

General Insurance Rating Organization of Japan (GIROJ)

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Table of contents
I. Compulsory Automobile Liability Insurance (CALI)
1. Characteristics of CALI
2. Relationships between CALI and Voluntary Automobile Insurance
II. Standard Full Rates
1. Price of General Insurance (Premium)2. Standard Full Rates for CALI
3. Structure of Standard Full Rates for CALI
4. Classification of Standard Full Rates for CALI
III. Calculation and Filing of Standard Full Rates
1. Principles of Standard Full Rates for CALI
2. Concept for Calculating Standard Full Rates for CALI
3. Filing of Standard Full Rates for CALI
4. Ensuring the Transparency of Standard Full Rates for CALI
5. Verification and Revision of Standard Full Rates for CALI

What is the General Insurance Rating Organization of Japan (GIROJ)?
GIROJ is a general insurance rating organization (private non-profit corporation) established in accordance with the Act on
Non-Life Insurance Rating Organizations, and its main operations are as follows:
1. Calculation and provision of Reference Loss Cost Rates and Standard Full Rates
GIROJ calculates Reference Loss Cost Rates for voluntary automobile insurance, fire insurance, personal accident
insurance, etc. and Standard Full Rates for CALI and earthquake insurance. GIROJ provides the calculated rates to its
member insurance companies.
2. Claim surveys for CALIGIROJ has set up CALI Claim Surveys Offices in major cities. At the request of insurance companies, it conducts
surveys for CALI claims. The results of these surveys are utilized as important underlying data to calculate Standard
Full Rates for CALI.
3. Databank functions
GIROJ collects, analyzes, and researches various insurance data. It provides the results of analysis and study tomember insurance companies and consumers.
◼ Act on Non-Life Insurance Rating Organizations
The Act on Non-Life Insurance Rating Organizations was established to facilitate the sound development of thegeneral insurance business and protect the interests of policyholders by ensuring the appropriate management ofoperations of rating organizations.

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I. Compulsory Automobile Liability Insurance (CALI)
1. Characteristics of CALIIn 1955, the Automobile Liability Security Act was established mainly to protect victims of automobile accidents, andcompulsory automobile liability insurance (CALI) was developed in accordance with the act.
If an insured vehicle kills or injures a person in an automobile accident and is liable for compensation for damage underlaw, CALI indemnifies injury or death, including compensation for treatment expenses for victims of the accident andconsolation money. The characteristics of CALI are:
Compulsory insurance
In order to operate an automobile (with the exception of some exempted vehicles but including vehicles such as
motorcycles), every operator of a vehicle is required to carry a CALI policy. If a person operates an automobile without
CALI, he or she will be criminally punished with imprisonment of up to one year or a fine of up to ¥500,000 andadministratively punished with the suspension of his or her driver's license.
Setting an upper limit to the amount of insurance claims by law
The upper limit to the amount of insurance claims paid by insurance companies is set by law (see page 6).
Principle of no loss and no profit
Since CALI is compulsory insurance whose objective is to protect victims of automobile accidents, Article 25 of theAutomobile Liability Security Act stipulates that Standard Full Rates for CALI (see page 8) shall be as low as possible
within the range such reasonable costs of an insurance business under the efficient management can be compensated,
and the Standard Full Rates are calculated so that there is no profit or loss. In general, this is called the "principle of noloss and no profit."
Compulsory Automobile Liability Insurance Council (CALI Council)
Important matters such as revision of the Standard Full Rates for CALI are discussed at the Compulsory Automobile
Liability Insurance Council (CALI Council) set up in the FSA.
Government's Automobile Liability Compensation Business
The Government`s Automobile Liability Compensation Business indemnifies victims suffering bodily injury from
hit-and-run accidents, which are not covered by CALI, or from accidents caused by vehicles that are operated without
CALI. The upper limit to such compensation is the same as for CALI.

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Characteristics of CALI

Compulsory insurance
Every operator of a motor vehicle isrequired to carry a CALI policy.

Government's Automobile
Liability Compensation Business
Victims of hit-and-run accidents and accidents
caused by uninsured vehicles can receive
compensation under the Government’s
Automobile Liability Compensation Business.

CALI

Setting upper limits to theamount of insurance claims
by lawCALI Council
Principle of no loss and no profit

The CALI Council deliberates on importantmatters such as revision of standard full rates
for CALI.

Expense Loading(Miscellaneous Expenses)
Standard Full Rates(Premiums)

Pure Premium(Insurance Claims)

Standard full rates are calculated so that there is no profit
or loss.

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2. Relationships between CALI and Voluntary Automobile Insurance
There are two types of insurance to compensate for damage if a vehicle kills or injures a person in an automobile
accident:

CALI and bodily injury liability coverage of voluntary automobile insurance.

Bodily injury liability coverage of voluntary automobile insurance is designed to cover the portion of compensation fordamage that exceeds the amount covered by CALI. It acts as excess cover to CALI.
In addition to bodily injury liability coverage, voluntary automobile insurance provides property damage liability
coverage and damage to own vehicle coverage. Automobile operators can choose any of these types of coverage
according to their needs. On the other hand, CALI does not cover property damage liability or damage to one's own
vehicle.

Upper limit to the amounts covered by CALI (applicable to accidents that occurred on April 1, 2002 or thereafter)
DamageUpper limit to the amount covered (per victim)

Damage due to injury

Up to ¥1.2 million
According to the degree of permanent disability

Damage due to permanent disability

1st grade: up to ¥30 million - 14th grade: up to ¥0.75 million
Leaving severe disabilities in the functions of nervous system, in
mentality or of thorax and abdominal organs
Nursing care is required at all times,

Nursing care is required as needed

Up to ¥40 million

Up to ¥30 million

Damage due to death

Up to ¥30 million

Damage due to injury resulting in death

Up to ¥1.2 million

Relationship between CALI and bodily injury liability coverage of voluntary automobile insurance

Bodily injury liability coverage ofvoluntary automobile insurance(Excess coverage to CALI)

Liability for compensation forbodily injury

CALI

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II. Standard Full Rates
1. Price of General Insurance (Premium)
In general, the price of goods is determined by raw materials, personnel, and other miscellaneous costs. Therefore,
usually, the price of the products is definitely determined before they are sold.
Almost the same idea applies to general insurance, but one major difference is that the principal part of the price ofgeneral insurance is determined by the insurance claims that will be paid by insurance companies when accidents occur
in the future. Furthermore, this portion is not yet definite at the time when insurance is sold.
For this reason, the amount of insurance claims to be paid for future accidents is estimated by predicting the frequencyof accidents in the future and the amount that will be paid for each insurance claim using past insurance and other data.
Here lies the difficulty in calculating the price of general insurance, or premium, and this is where GIROJ fulfils its roles
as a rating organization.
The price thus determined, or the amount paid by policyholders for the insurance claim that may be paid to them by the
insurance company, is called the "premium."

Price of general insurance and that of general goods
Price of general insurance

CALI

Price of general Insurance(Premium)

Determined based on
predictions?

Insurance claims in the future
Predicting the frequency of future
accidents and the amount of insurance
claims to be paid

Price of general goods

Expenses, etc.

Price of goods

Determined before sale

Costs of raw materials

72. Standard Full Rates for CALIThe Standard Full Rates for CALI represent the premium rates for CALI calculated by GIROJ, and the member insurancecompanies of GIROJ can use them as their own premium rates.
What are the premium rates?
In general, the premium rates refer to the proportion of premium to insured amount (the maximum claim that could be
paid or the amount covered) in general insurance, and this rate provides the basis for calculation of premiums.
3. Structure of the Standard Full Rates for CALIThe Standard Full Rates for CALI consist of the pure premium rates and expense loading.

The pure premium rates are used for covering insurance claims paid by the insurance company when an accident
occurs.
The pure premiums include the pure levies, which is used for compensation money paid through theGovernment's Compensation Business.
Expense loading consists of three elements that are; operating expenses defrayed for claims surveys,
administrative work for contracts, etc.; agency commissions paid by insurance companies to agencies thatprovide the service of contracting insurance policies on behalf of insurance companies; and levies appropriatedfor the program to promote injured party protection, etc.
Operating expenses include additional levies, which are used to cover operating and other expenses at insurancecompanies which the Government's Program Guaranteeing Compensation for Automobile Accidents is
outsourced.

Structure of the Standard Full Rates for CALI

Pure levy

Additional levy

Pure premium rate

For insurance claims

Expense loadingFor
operating expenses andloss adjustment expenses

For agency commission

Forlevies appropriated for the
program to promote injured party
protection, etc.

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4. Classification of Standard Full Rates for CALIRegionDivided into four regions: Four largest islands of Japan, Remote islands not belonging to Okinawa Prefecture, Okinawa
island, Remote islands belonging to Okinawa Prefecture.
Vehicle type
Vehicles are classified according to the usage and types of automobiles as well as to whether they are used for private orbusiness.
Usage of automobiles

passengers, freight, shared use, etc.

Types of automobiles

standard-size, small-size, light automobiles, etc.

Purpose of use

private use, commercial use

Period of insurance
The Automobile Liability Security Act stipulates that the period of CALI must cover the term of validity of the vehicle
inspection certificate.
The period of insurance is divided as specified below according to the term of validity of the vehicle inspection
certificate.

Automobiles whose vehicle inspection certificate is valid for 1 year
➡13 categories from 1 month to 13 months
Automobiles whose vehicle inspection certificate is valid for 2 years➡25 categories from 1 month to 25 months
Automobiles whose vehicle inspection certificate is valid for three 3 years➡37 categories from 1 month to 37 months
For motorcycles, which do not require vehicle inspection, the period of insurance is divided into 5
categories: 12, 24, 36, 48, and 60 months.

9III. Calculation and Filing of Standard Full Rates

1. Principles of Standard Full Rates for CALIArticle 8 of the Act on Non-Life Insurance Rating Organizations stipulates that Standard Full Rates shall be reasonable
and adequate, and shall not be unfairly discriminatory. These requirements are known as the "three principles ofpremium rates."

What does the word "reasonable" mean?
It means that the insurance statistics andother data underlying the calculation ofStandard Full Rates are objective andaccurate, that the quantity of the data issufficient, and that the calculation adopts ascientific approach based on actuarial science.

Three principles of insurance premium rates

What does the phrase "not unfairly
discriminatory" mean?

What does the word "adequate" mean?
It means that the level of Standard Full Rates isaffordable for insurance applicants and allows
the insurance companies that use the rates tomaintain sound operations.

It means that the risk classification and level
for Standard Full Rates are set appropriately
based on the gap in actual risks and expected
expenses between the classes.

In addition, as described earlier, the Automobile Liability Security Act stipulates that Standard Full Rates shall be as low
as possible within the range of compensating reasonable costs of insurance business under the efficient management("principle of no loss and no profit").
In accordance with these principles, GIROJ calculates the Standard Full Rates based on the law of large numbers.

What is the law of large numbers?
For example, if one increases the number of times one rolls a dice, say, to thousands or tens of thousands of times,
the probability of getting one of the six numbers approaches 1/6. As mentioned above, by collecting large amountsof data, one finds that even apparently chance happenings are taking place according to a certain patterns.
This is called the "law of large numbers." In order to ensure that the law of large numbers functions well, GIROJ
collects large amounts of highly accurate data from insurance companies and other organizations.
In calculating Standard Full Rates, GIROJ makes predictions such as the probability of accidents occurring based on
this law.

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2. Concept for Calculating Standard Full Rates for CALIStandard Full Rates for CALI are calculated according to the "principle of no loss and no profit."
In calculating Standard Full Rates, therefore, GIROJ makes it a rule to include only pure premium rates, which correspondto insurance claims paid by insurance companies, and expense loading, which corresponds to necessary miscellaneous
expenses.
GIROJ also takes into consideration the cumulative underwriting balance, which represents the cumulative balance
between income and expenditure in past insurance contracts, and the cumulative investment income, which denotes
the cumulative interest earned during the period from the initial receipt of insurance premiums to the payment of
insurance claims.
Thus, GIROJ calculates Standard Full Rates so that there is no profit or loss.

Concept for Calculating Standard Full Rates for CALIStandard Full Rates=.

Pure premium rate+
Expense loadingbalance- Cumulative underwriting+
Cumulative investment income11Calculation of pure premium rates
Data on premiums paid by policyholders and data on insurance claims paid by insurance companies is submitted byinsurance companies to GIROJ.
Based on this contract data and payment data as well as data on claim surveys collected by CALI Claim Surveys Offices,
GIROJ predicts the frequency of accidents and the average amount of damage per accident in the future in order tocalculate pure premium rates
In calculating pure premium rates, GIROJ also refers to statistics on traffic accidents, wages, prices, and so forth.

Frequency of accidents

Average amount of damage per accident
Pure premium rates＝

Number of accidents that occurred
Number of insured automobiles＝

Total amount of claims
Number of accidents that occurred＝ Frequency of accidents × Average amount of damage per accident

Calculation of expense loading
Based on the principle of no loss and no profit, GIROJ calculates expense loading referring to the financial statements
insurance companies, statistics of wages and consumer prices, and other data.
Calculation of levies
GIROJ calculates the amount of pure levies and additional levies applied to funds for the Government’s Program
Guaranteeing Compensation for Automobile Accidents, and levies appropriated for the program to promote injured
party protection, etc. using the formula stipulated by a government ordinance that prescribes the amount of levies for
the Government's Automotive Safety & Victims’ Aid Business, etc.

12How to calculate pure premium rates for CALI
Insurance companies, etc. (Note 1) (Note 2)
Contract data

(insurance premiums and the content of contracts)

Claim data

Report on the results of claim surveys(insurance claims paid and the circumstances of accidents)

Requests for claim surveys

ReportHead office

CALI Claim Surveys Offices
Data obtained from claim surveys

Data aggregation

Analysis and review■Reference:

Statistics on traffic accidents
Statistics on wages
Statistics on consumer prices,

etc.

General Insurance Rating
Organization of Japan (GIROJ)

Prediction of the frequency of accidents
Prediction of the average amount of damage per accident

Calculation of pure premium rates(Note 1) Contract and claim data are submitted by all underwriters of CALI policies.
(Note 2) Zenrosai (national federation of workers' insurance cooperatives), Zenjikyo (National Federation of Motor Insurance Cooperatives)and its member cooperatives, Kokyoren (National Mutual Insurance Federation of Truck Transport Co-operatives) and its member
cooperatives, and Zenkyoren (National Mutual Insurance Federation of Agricultural Cooperatives) also request to conduct claim
surveys and to submit the results of such surveys.

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3. Filing of Standard Full Rates for CALIGIROJ files the Standard Full Rates for CALI to the Commissioner of the FSA.
The Commissioner of the FSA examines the Standard Full Rates filed by GIROJ to determine whether they conform to thethree principles of insurance premium rates and the principle of no loss and no profit (see page 10).
In examining the rates, the Commissioner obtains the consent of the Minister of Land, Infrastructure, Transport andTourism, seeks opinions from the CALI Council, and receives a report from the CALI Council after its deliberation.
If, after the Standard Full Rates filed by GIROJ are examined, member insurance companies of GIROJ file theCommissioner notifying that they will use the rates, they can use the rates as their own premium rates.

Filing of Standard Full Rates for CALI

Minister of Land, Infrastructure, Transport and Tourism

CALI Council

Consent

ReportSeeking opinions

Commissioner of the FSA
Examination

Filing by way of
Notification of using theStandard Full Rates

FilingFiling by way of
Notification of using theStandard Full Rates

General Insurance Rating
Organization of Japan (GIROJ)XXX Fire
Insurance

XXX Marine
Insurance

XXX Non-life
Insurance

Standard Full Rates

Notice of filing

Notice of filing14

4. Ensuring the Transparency of Standard Full Rates for CALIThe transparency of Standard Full Rates for CALI is ensured as described below.
(1) Filing⚫ When GIROJ files the Standard Full Rates with the Commissioner of the FSA, it makes them known to policyholders
and society in general by publicly announcing them in official gazettes and national daily newspapers.
⚫ GIROJ posts details of the filing on its website.
⚫ GIROJ keeps the table of Standard Full Rates and the underlying data for calculation and makes them available at its
head office for perusal, and all interested parties can view details of them.
(2) After the period of examination has passed⚫ After the period of examination has passed, the Commissioner of the FSA notifies the public of the Standard Full Rates
filed by GIROJ in official gazettes.
⚫ Even after the period of examination has passed, GIROJ keeps the table of Standard Full Rates and the underlying data
used for calculation and makes them available at its head office for perusal, and all interested parties can view detailsof them.

Ensuring the transparency of Standard Full Rates for CALI

Filing(1) (a) Public announcement: Publicly announcing the rates in official gazettes
and the national daily newspapers in order to make them known topolicyholders and society in general(b) Provision of information: Posting details of the filing on GIROJ's
website(c) Public perusal: All interested parties can view the table of Standard
Full Rates and the underlying data used for calculation

After the period of examination
has passed(2) (a) Notification: The Commissioner of the FSA notifies the rates in official
gazettes after the period of examination has passed.
(b) Public perusal: All interested parties can view the table of Standard
Full Rates and the underlying data used for calculation15

5. Verification and revision of Standard Full Rates for CALI
Verification of the Standard Full Rates for CALIAs explained earlier, since Standard Full Rates for CALI are calculated by predicting the frequency of accidents and theaverage amount of damage per accident in the future, there may be excessive or insufficient underwriting income or
expenditure depending on factors such as the incidence of traffic accidents and changes in economic conditions.
Therefore, it is necessary to periodically check whether the Standard Full Rates are maintained at reasonable levels.
GIROJ verifies the adequacy of the Standard Full Rates each year and reports the results of the verification to theCommissioner of the FSA.
The Commissioner reports the results of the verification submitted by GIROJ to the CALI Council.
Revision of the Standard Full Rates for CALI
If, as a result of verification, it determines that the Standard Full Rates for CALI are not adequate (need revision), GIROJ
immediately calculates new Standard Full Rates and files them with the Commissioner of the FSA.

Verification and revision of Standard Full Rates for CALI

Calculation of Standard Full Rates

Filing of the rates with the Commissioner of the FSA

Examination by the Commissioner

CALI Council

Consent of the Minister of Land,
Infrastructure, Transport and Tourism

Use of the Standard Full Rates by member insurance companies

Verification of the Standard Full Rates (each year)

Report to the Commissioner

CALI Council

Revisions are needed

Determining whether the Standard Full Rates are adequate or not

Revision is needed

Revision is not needed16