23-D-1237
December 12, 2023

JCR Solicits Public Comments on Revisions to Rating
Methodologies by Sector “Life Insurance” and “Non-life
Insurance”
Japan Credit Rating Agency, Ltd. (JCR) is considering revisions to the rating methodologies by sector “Life
Insurance” and “Non-life Insurance” as described below, and solicits opinions on the proposed rating
methodologies.

1. Outline
JCR is considering reviewing its rating methodologies by sector "Life Insurance" and "Non-life Insurance"by industry, as described in the attachment.
In this review, JCR is revising the description of the evaluation of insurance companies in terms of bothbusiness and financial bases, with the aim of improving the quality of the evaluation, while following thecurrent rating methodology.
The introduction of economic value-based solvency regulations is imminent. Through thesophistication of ERM, insurance companies are managing earnings and capital in an integrated mannerbased on risk management, and the economic value-based approach has become widespread. JCR has
been focusing on capital adequacy based on economic value, and has added economic value-based
indicators to the key financial indicators for the earnings strength, capital adequacy, and other items.
2. Future Plans
JCR solicits public comments on this matter. Comments will be accepted by e-mail to "Contact Us" on
JCR website until December 25. JCR plans to finalize these rating methodologies in about one or twomonths. There will be no existing individual ratings that need to be reviewed.
Kiichi Sugiura, Tomohiro Miyao, Seito Achiha, and Kota Matsuzawa
Japan Credit Rating Agency, Ltd.
Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Tel. +81 3 3544 7013, Fax. +81 3 3544 7026
Information herein has been obtained by JCR from the issuers and other sources believed to be accurate and reliable. However, because of the possibility of human or mechanical error as well as other factors,
JCR makes no representation or warranty, express or implied, as to accuracy, results, adequacy, timeliness, completeness or merchantability, or fitness for any particular purpose, with respect to any suchinformation, and is not responsible for any errors or omissions, or for results obtained from the use of such information. Under no circumstances will JCR be liable for any special, indirect, incidental orconsequential damages of any kind caused by the use of any such information, including but not limited to, lost opportunity or lost money, whether in contract, tort, strict liability or otherwise, and whether
such damages are foreseeable or unforeseeable. JCR's ratings and credit assessments are statements of JCR's current and comprehensive opinion regarding redemption possibility, etc. of financial obligations
assumed by the issuers or financial products, and not statements of opinion regarding any risk other than credit risk, such as market liquidity risk or price fluctuation risk. JCR's ratings and credit assessments
are statements of opinion, and not statements of fact as to credit risk decisions or recommendations regarding decisions to purchase, sell or hold any securities such as individual bonds or commercial paper.
The ratings and credit assessments may be changed, suspended or withdrawn as a result of changes in or unavailability of information as well as other factors. JCR receives a rating fee paid by issuers for
conducting rating services in principle. JCR retains all rights pertaining to this document, including JCR's rating data. Any reproduction, adaptation, alteration, etc. of this document, including such rating
data, is prohibited, whether or not wholly or partly, without prior consent of JCR.
JCR is registered as a "Nationally Recognized Statistical Rating Organization" with the U.S. Securities and Exchange Commission with respect to the following four classes. (1) Financial institutions, brokers
and dealers, (2) Insurance Companies, (3) Corporate Issuers, (4) Issuers of government securities, municipal securities and foreign government securities.
JCR publishes its press releases regarding the rating actions both in Japanese and in English on the same day. In case that it takes time to translate rating rationale, JCR may publicize the summary version,
which will be replaced by the full translated version within three business days. (Regarding Structured Finance products, JCR only publicize the summary version in English.)

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Attachment

Draft for Public Opinions
Rating Methodology by Sector

Life InsuranceThis rating methodology mainly applies to life insurance companies and life insurance groups in Japan. It also
applies to mutual aid corporations that handle life mutual aid. For overseas life insurance companies and others,
JCR applies this rating methodology after making necessary adjustments to the analytical indicators based on
the laws, accounting systems, regulations, and financial administration, etc. in the country or region where
those companies are located.
1. Business Foundation(1) Industry Characteristics(i) Market size and growth potential
The life insurance business handles insurance products for the survival or death of a person (the so-called first
sector) and bodily injury or illness (the so-called third sector) in accordance with the Insurance Business Act.
The life insurance market is large and expanding moderately. Life insurance is based on the principle ofmutual assistance and has a social mission to provide security throughout one's life. Japan's population is on adeclining trend, and demographic changes due to the falling birthrate and aging population, as well as thediversification of lifestyles, such as the increase in nuclear families and single-person households, are expected
to further develop. While needs for death benefits are declining, there is room for growth in third-sector
products such as medical insurance that address the risk of longevity, and annuity insurance products to secure
funds for retirement and to support retirement living. Although it is difficult to expect high growth in the life
insurance market, JCR believes that the market is unlikely to shrink rapidly.
(ii) Competition
The life insurance business is licensed, and there are relatively high barriers to entry. On the other hand, thelife insurance household participation rate is very high, and in addition to traditional domestic life insurancecompanies, there are many foreign and non-life insurance companies competing in this mature market. As forsales channels, the sales staff channel held by traditional life insurance companies continues to have a largepresence, but they are diversifying and becoming more specialized, such as joint agencies (insurance shops),
bancassurance, and direct (Internet) channels. Life insurers have little room for differentiation in their products,
so it is not easy for them to secure a competitive advantage. Although there is a certain amount of competition
in all sales channels, major life insurers have a reasonable share of the market, and the growing awareness ofrisk and return due to the prevalence of ERM (Enterprise Risk Management) is making excessive price
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competition less likely.
(iii) Transaction stabilityLife insurance products are not patent subjects, and even if a company develops a product that captures
customer needs, it is likely to be followed by competitors. In addition to being long-term contracts, life
insurance products are unlikely to be cancelled or switched because premiums generally increase as the age ofparticipation increases and there are surrender charges. The stability of transactions is also supported by thestrong grip on customers by sales staff and the company's coping with the obsolescence of coverage through aconversion system. On the other hand, some savings-type products are susceptible to switching to moreadvantageous products due to changes in market conditions, such as rising interest rates and exchange rate
fluctuations.
(iv) Protection and regulation
Life insurance companies are supervised by Financial Services Agency and are required to calculate a solvency
margin (SM) ratio that indicates how much solvency margin they have against risks that exceed normal
expectations. Under the current regulations, early corrective measures are triggered if the SM ratio falls below
200%.
In addition, life insurance companies are subject to bankruptcy resolution procedures under the Insurance
Business Act and the Act on Special Measures for the Reorganization Proceedings of Financial Institutions.
Policies of a failed life insurance company may be continued after its bankruptcy through transfer of policies
by a bailout company, merger, share acquisition, etc. However, reduction of policy reserve may be
implemented. In such cases, Life Insurance Policyholders Protection Corporation of Japan will, in principle,compensate up to 90% of the policy reserve at the time of bankruptcy, except for policies with a high assumed
interest rate, in accordance with the Insurance Business Act and other regulations. In addition to reductions inpolicy reserve, policy terms and conditions may be changed, such as reductions in assumed interest rates.
On the other hand, financial system incorporates various measures (prudential policies) to maintain stability
and efficiently function. The expected protection for insurance companies and insurance holding companies is
weak compared to that of banks.
(2) Market Position and Competitiveness
The market position and competitiveness of life insurance companies are important for ensuring stable earnings
over the medium to long term. The depth and characteristics of the customer base, diversity of sales channels
and sales capabilities, uniqueness of product and management strategies, brand power, and high customer
convenience through the use of digital and other means determine market position and competitiveness.
Regarding the customer base, JCR evaluates the number of customers (policyholders), characteristics of thecustomer segment, and the size and stability of in-force contracts. In order to build a stable customer base, it
is important to secure stable contract performance. JCR evaluates the stability of in-force contracts not only in
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terms of size, but also in terms of the fact that in some cases the company has a presence in its own customer
base, such as belonging to a particular corporate group.
JCR evaluates how well the new customers are being acquired by the sales channel's sales force and productappeal. For the sales channel, JCR confirms whether the company is accurately capturing diversifying
customer needs. In the sales staff channel, JCR evaluates the sales force based on the age group and jobclassification of sales staff, as well as the state of recruitment and training, and sales efficiency. In the agency
channel, JCR qualitatively evaluates business relationship between the life insurance company and its agentsand strength of ties between them. In terms of product strategy, in addition to the fullness of product lineup,
key point is whether the company is able to quickly and flexibly respond to changes in customer needs. It is
not easy to differentiate its products from those of other companies, and merchantability (ease ofunderstanding), marketing ingenuity, and skillful promotion are related to the differentiation.
(3) Management Strategy and GovernanceManagement strategy and governance are factors that affect the direction of business foundation, and alsofinancial foundation. With regard to management strategy, JCR evaluates whether the company is able toformulate and execute a management strategy that takes into account changes in the business environment.
JCR also focuses on the direction of risk appetite and the extent to which the ERM culture has penetrated
within the company. With regard to governance, JCR checks whether a check-and-balance function adequately
is functioning through the corporate governance system, such as the board of directors, management control
system, risk management and internal control such as compliance, while taking into account the size of theorganization. In the event of misconduct, risk of damage to the business foundation due to loss of reputation
will become apparent. Therefore, JCR checks whether a system is in place to prevent misconduct fromoccurring, and whether a system will be in place to prevent similar incidents from recurring in the future whensuch misconduct has occurred.
2. Financial Foundation(1) Earnings PowerIn evaluating earnings power, JCR focuses primarily on economic value-based indicators. In particular, JCR
checks trends in the value of new business, a component of Embedded Value (EV), which represents corporate
value based on economic value. In addition, trends in financial accounting-based earnings, including coreprofit, are referenced. To ensure stable new business value and core profit, it is essential to analyze trends incontract performance.
For economic value-based indicators, emphasis is placed on the accumulation of "the amount of increase in
EV associated with the results of sales activities," such as the value of new business, but it should be notedthat the assumptions made differ from company to company. Since third-sector products have relatively highprofitability in terms of economic value, JCR confirms whether the product portfolio is optimized toaccumulate the value of new business, based on the diversification of products. The level of new business
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margin and control of sensitivity to market fluctuations such as interest rates and stock prices are also key
points. At the same time, JCR also analyzes profitability by product, centered on core products.
Earnings power on a financial accounting basis is evaluated based on trends in core profit. With regard to
insurance-related profit/loss of the core profit, JCR focuses on the balance between premium revenue andinsurance claims/benefits payments or operating expenses. Regarding mortality gains/losses, while traditionalmortality insurance is likely to easily have a profit outlook based on historical data, JCR pays attention to thepossibility that the actual incidence rate for medical and nursing care insurance may deviate from the projected
incidence rate based on data against the backdrop of advances in medical technology and system changes
related to medical care and nursing care. In addition, since a decline in contract performance can lead to a
reduction in the cost burden of new policies and other expenses, and core profit can swing upward in the shortterm, JCR does not view increases or decreases in core profit as a straightforward indication of trends inearnings power.
JCR evaluate trends in contract performance, which is the source of earnings power. Particular attention ispaid to annualized new business premiums, which are a flow-based indicator. In addition to the acquisition of
new policies, JCR checks the composition ratio of protection products and savings products, as well as thecomposition ratio of third-sector products. As for annualized premiums in-force, which are a stock-based
indicator, JCR confirms whether the company is maintaining a reasonable policy size. For insurers thatemphasize the provision of death benefits, it may be appropriate to check the trends of amount of new policies
and the amount of in-force policies as indicators.
Key financial indicators■ New business value, new business margin■ EV■ Core profit (interest gains (losses), mortality gains (losses), and expense gains (losses))■ Annualized premiums (new business, policies in-force)(2) Asset Quality (Asset Management)
ALM is extremely important in the asset management of a life insurance company, and JCR confirms whether
the company has built an asset portfolio that is consistent with the characteristics of the insurance liabilities. If
asset management is not consistent with the characteristics of insurance liabilities, negative spread on longterm life insurance products may put pressure on profitability. Since the risk-return approach to asset
management differs depending on the asset management policy of each company, it should be noted that thecomposition of securities, real estate, loans, and other assets, which account for the majority of assets held,
differs. Based on the composition of investment assets, JCR checks the risk of each individual asset and thediversification effect of the assets as a whole. It is important to secure investment income in order to maintainprofits for financial accounting purposes. Based on the recognition of the basic risk-taking policy, JCR
evaluates the appropriateness of the investment stance, adequacy of personnel and systems for asset
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management, and status of securing returns.
Key financial indicator■ Composition ratio of asset portfolio(3) Capital Adequacy
Regarding the financial foundation, JCR places the greatest emphasis on capital adequacy from a quantitative
perspective, evaluating capital adequacy in terms of economic value, which is a market value assessment ofassets and liabilities as a whole. This is in line with the ongoing trend in Japan to introduce solvency regulations
based on economic value (new regulations).
As an indicator, JCR pays particular attention to ESR (Economic value-based Solvency Ratio). Since ESR
is a numerical value based on internal management-based risk management and differs in terms of assumptions,
JCR evaluates ESR by paying attention to trends in regulations and changes in calculation standards both inJapan and overseas. While internal management-based ESR, which represents the characteristics of eachcompany, is the main target of the evaluation, JCR will also incorporate regulatory-based ESR into theevaluation from the viewpoint of comparability, as assumptions and other factors will be standardized after the
introduction of the new regulations. Although the SM ratio under the current regulations is also used as areference, JCR checks the ratio on a basis that includes adjustments for gains/losses on valuation of securities,
taking into account the differences between mutual companies and joint-stock companies.
The effective components of capital, assuming the current regulations, include capital stock and capitalsurplus (joint-stock companies), reserve for redemption of funds (mutual companies), as well as various
reserves such as price fluctuation reserve, contingency reserve, and policy reserve in excess of surrender values.
Hybrid securities, which have characteristics of both equity and liabilities, are factored into the evaluation,
regardless of whether they are subject to current or new regulations, in consideration of their equity content.
Many life insurance companies hold long-term insurance policies and thus have long liability durations.
Therefore, they are exposed to interest rate risk arising from the duration gap between assets and liabilities,
which varies from company to company. It is important to reduce the amount of interest rate risk throughduration matching (shortening the duration gap), cash flow matching, and other measures and control
sensitivity to changes in economic assumptions. In addition to appropriately controlling the amount of risk,
including other asset management risks, JCR confirms whether the company has stabilized the level of ESR
by building up capital through measures such as securing the value of new business.
Key financial indicators■ ESR■ Solvency margin ratio■ Capital adequacy ratio

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(4) Liquidity
Regarding liquidity, JCR confirms that the company possesses highly liquid assets that enable it to respondquickly in times of stress, such as a sharp increase in insurance claims/benefit payments or cash surrender
values. JCR confirms that liquidity risk management is in place to enable reliable payment even if market risk
or credit risk materializes during a financial crisis. A sharp increase in claims and benefit payments happens
when a large-scale disaster occurs, a covered disease or other event becomes prevalent and morbidity andmortality rates are much higher than assumed at the time of product design. A sharp increase in cash surrender
values for savings-type products could be assumed in cases of dynamic cancellations, where cancellations
increase due to switching to more advantageous products when the market fluctuates, or in cases where thereputation of the life insurance company is severely damaged due to a deterioration in the business conditions.
Key financial indicator■ Liquid assets (cash, deposits, government bonds, etc.)(5) Risk Management System
JCR focuses on the integrated management system of earnings and capital based on risk management, andchecks the status of ERM development and progress in upgrading it. While excellent risk management isunlikely to be a positive factor in the evaluation, it can be a negative factor if it is considered that there is room
for improvement in risk management. JCR mainly evaluates whether the company has incorporated an
economic value-based approach into its management strategy and has secured an appropriate balance between
risk and return. JCR also confirms whether the company comprehensively and accurately assesses various
types of risks, identifies risks that have a significant impact on management, and can appropriately allocate
capital accordingly. For effective risk management, it is necessary to elaborate and upgrade the risk
management system.
In the life insurance business, there is a risk that the increasing frequency of payment events for third-sector
products due to advances in medical technology and changes in the system will put pressure on profits. JCR
takes the evaluation based on management conditions, such as payment trends of insurance claims and benefits
and monitoring of morbidity rates, into consideration. In addition, JCR also confirms whether major life
insurers have a global and group-wide ERM system in place, given the trend toward an increase in the numberof group companies in Japan and overseas. The “Own Risk and Solvency Assessment (‘ORSA’) reports” area useful tool for understanding the status of ERM and risk management systems.

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Because of the possibility of human or mechanical error as well as other factors in the information herein, JCR makes no representation or warranty,
express or implied, as to accuracy, results, adequacy, timeliness, completeness or merchantability, or fitness for any particular purpose, with respect
to any such information, and is not responsible for any errors or omissions, or for results obtained from the use of such information. Under nocircumstances will JCR be liable for any special, indirect, incidental or consequential damages of any kind caused by the use of any such information,
including but not limited to, lost opportunity or lost money, whether in contract, tort, strict liability or otherwise, and whether such damages areforeseeable or unforeseeable. Information herein is statements of opinion, and not statements of fact as to credit risk decisions or recommendations
regarding decisions to purchase, sell or hold any securities such as individual bonds or commercial paper. JCR retains all rights pertaining to thisdocument. Any reproduction, adaptation, alteration, etc. of this document, is prohibited, whether or not wholly or partly, without prior consent of
JCR.

Japan Credit Rating Agency, Ltd.
Jiji Press Building, 5-15-8 Ginza,
Chuo-ku, Tokyo 104-0061, Japan
Tel. +81 3 3544 7013, Fax. +81 3 3544 7026

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Attachment

Draft for Public Opinions
Rating Methodology by Sector

Non-life InsuranceThis rating methodology mainly applies to non-life insurance companies and non-life insurance groups inJapan. It also applies to mutual aid corporations that handle non-life mutual aid. For overseas non-life insurancecompanies and others, JCR applies this rating methodology after making necessary adjustments to theanalytical indicators based on the laws, accounting systems, regulations, and financial administration, etc. in
the country or region where those companies are located. Similarly, for specialized reinsurance companies,
JCR applies this rating methodology, paying attention to the characteristics of business, location of risks, andnature of the system.
1. Business Foundation(1) Industry Characteristics(i) Market size and growth potential
The non-life insurance business handles insurance products for losses caused by certain accidental events (socalled second-sector) and bodily injury and illness (so-called third-sector) in accordance with the Insurance
Business Act.
The non-life insurance market is large and expanding moderately. Non-life insurance is an indispensable
function for the stability of people's lives and the sound development of the economy, and as society's risks
become more diversified, new needs arise there. Japan's population is on a declining trend, and demographic
changes due to the falling birthrate and aging population are expected to further develop. Although it is difficult
to expect high growth in the non-life insurance market due to the limited expansion of needs for traditional
non-life insurance such as automobile insurance, JCR believes that the market is unlikely to shrink rapidly.
With regard to automobile insurance, which is the main product of many non-life insurers, the impact of thepenetration of CASE (connected, automated driving, sharing, and electrification) and MaaS (Mobility as aService) is expected, among others. Although JCR does not expect the automobile insurance market to change
significantly in the short run, it is necessary to monitor the spread of automated vehicles, environmental
improvements, and legislative measures from a medium- to long-term perspective.
(ii) Competition
The non-life insurance business is licensed, and there are relatively high barriers to entry. As for sales channels,
exclusive agents continue to have a large presence, but they are diversifying, such as joint agencies (insurance
shops), bancassurance, and direct (Internet) channels. Non-life insurers have little room for differentiation in
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their products, so it is not easy for them to secure a competitive advantage. Although there is a certain amountof competition in all sales channels, the market is dominated by major non-life insurers, and the growing
awareness of risk and return due to the prevalence of ERM (Enterprise Risk Management) is making excessive
price competition less likely.
(iii) Transaction stability
Non-life insurance products include automobile, fire, marine, and personal accident insurance, as well as
liability insurance, expense/ profit insurance, workers' compensation and employers' liability insurance, andpet insurance (so-called new types of insurance). Non-life insurance products are not patent subjects, and even
if a company develops products that captures customer needs, it is likely to be followed by competitors.
Contract terms are relatively short, and contracts are basically renewed each time the maturity date arrives.
Currently, there is no significant difference in product quality, and since agents, who account for the majorityof sales channels, have a strong grip on customers, cancellations and switching are unlikely to occur, and thepolicy persistency rate is stable at a high level.
(iv) Protection and regulation
Non-life insurance companies are supervised by Financial Services Agency and are required to calculate asolvency margin (SM) ratio that indicates how much solvency margin they have against risks that exceed
normal expectations. Under the current regulations, early corrective measures are triggered if the SM ratio falls
below 200%.
In addition, non-life insurance companies are subject to bankruptcy resolution procedures under the
Insurance Business Act and the Act on Special Measures for the Reorganization Proceedings of Financial
Institutions. Non-life Insurance Policy-holders Protection Corporation of Japan has been established to protect
policyholders of bankrupt non-life insurance companies by providing financial assistance for the transfer of
insurance policies of bankrupt insurance companies and the payment of covered insurance claims.
On the other hand, financial system incorporates various measures (prudential policies) to maintain stability
and efficiently function. The expected protection for insurance companies and insurance holding companies is
weak compared to that of banks.
(2) Market Position and Competitiveness
The market position and competitiveness of non-life insurance companies are important for ensuring stableearnings over the medium to long term. The depth and characteristics of the customer base, diversity of sales
channels and sales capabilities, uniqueness of product and management strategies, brand power, and highcustomer convenience through the use of digital and other means determine market position andcompetitiveness.
Regarding the customer base, JCR evaluates the number of customers (policyholders), characteristics of thecustomer segment, and the size and stability of net premiums written. Some non-life insurers, for example,
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belonging to certain corporate groups, have defended themselves against competitors' offensives in theircustomer bases with their unique channel and product strategies, and have a high presence over a long periodof time. JCR also incorporates into its evaluation the possibility that such non-life insurers will demonstrateearnings power for the future.
JCR evaluates how well the new customers are being acquired by the sales channel's sales force and productappeal. For the sales channel, JCR confirms whether the company is accurately capturing diversifying
customer needs. In particular, it is important whether the company has established an appropriate relationshipwith agency channel. In terms of product strategy, in addition to the fullness of product lineup, key point iswhether the company is able to quickly and flexibly respond to changes in customer needs. It is not easy todifferentiate its products from those of other companies, and merchantability (ease of understanding),
marketing ingenuity, and skillful promotion are related to the differentiation.
(3) Management Strategy and GovernanceManagement strategy and governance are factors that affect the direction of business foundation, and alsofinancial foundation. With regard to management strategy, JCR evaluates whether the company is able toformulate and execute a management strategy that takes into account changes in the business environment.
JCR also focuses on the direction of risk appetite and the extent to which the ERM culture has penetrated
within the company. With regard to governance, JCR checks whether a check-and-balance function adequately
is functioning through the corporate governance system, such as the board of directors, management control
system, risk management and internal control such as compliance, while taking into account the size of theorganization. In the event of misconduct, risk of damage to the business foundation due to loss of reputation
will become apparent. Therefore, JCR checks whether a system is in place to prevent misconduct fromoccurring, and whether a system will be in place to prevent similar incidents from recurring in the future whensuch misconduct has occurred.
2. Financial Foundation(1) Earnings PowerIn evaluating earnings power, in addition to the scale of earnings and stability of profits from the core insurance
business, JCR also analyzes the earnings power of the asset management. While future performance will befactored into the evaluation, JCR takes into account the possibility that changes in the business environment
and management strategy can bring changes to the earnings structure of non-life insurance companies, inaddition to past performance trends. JCR also takes into account risk-return balance, as non-life insurers havedifferent risk profiles.
In analyzing earnings power, JCR focuses on the level of the combined ratio. Since profit of non-life
insurance companies is subject to fluctuation due to the occurrence of major natural disasters such as
windstorms, floods, and earthquakes, as well as major accidents, JCR confirms a profit level with one-time
effects leveled off by taking it as a moving average over a certain period. It is extremely important for non-life
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insurers to build a well-diversified business portfolio in terms of risk type and geographic location to ensureprofit stability, and JCR pays attention to the status of such efforts. JCR also confirms the extent to which thevolatility of periodic profit/loss is controlled based on the company's policies for the establishment ofreinsurance schemes and the accumulation of catastrophe loss reserve.
It is also important to confirm that the company has set appropriate premium rates commensurate with risk.
For automobile and fire insurance, which are the main products in the retail sector, profitability could
deteriorate if premiums are not set in line with the actual loss ratios, referring to the advisory pure premium
rates calculated by General Insurance Rating Organization of Japan. For corporate non-life insurance, which
is more individualized, it is important to check whether the company sets premiums in accordance with its own
loss ratio and risk status, and also can control revenue and expenses appropriately by, for example, limiting
underwriting of excessive risks. In the field of new types of insurance, products must be designed based on
appropriate risk management, such as ensuring profitability, because they cover specific risks that are notcovered by traditional non-life insurance. For insurance types with deteriorating profitability, JCR checks theadequacy and progress of measures to improve profitability, such as policies for premium rate revision andproduct revision, and restrictions on or stricter underwriting.
With regard to asset management, JCR mainly analyzes income gains from interest-bearing bonds, which
are expected to contribute to securing stable earnings over the medium to long term. JCR takes into accountthat capital gains/losses are in many cases easily influenced by market conditions. JCR checks medium-term
trends, such as whether the balance of investment assets has been built up to generate stable income that is lesssusceptible to temporary increases or decreases due to aggressive risk-taking.
Key financial indicators■ Combined ratio■ Net premiums written■ Underwriting profit (loss)■ Investment income (loss)(2) Asset Quality (Asset Management)
Although the asset allocation, risk and return of each asset varies among non-life insurers, JCR analyzes
whether they secure returns commensurate with risk while controlling price fluctuation risk and interest raterisk by managing assets in a way that matches the characteristics of the liabilities. JCR also makes an analysisof ALM and risk management techniques, composition of investment assets, and derivatives transactions.
Since the risk-return approach to asset management differs depending on the asset management policy of eachcompany, it should be noted that the composition of securities, real estate, loans, and other assets, which
account for the majority of assets held, differs. Based on the composition of investment assets, JCR checks
whether the risk of each individual asset is not excessively large relative to capital and others and thediversification effect of the assets as a whole. Based on the recognition of the basic risk-taking policy, JCR
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evaluates the appropriateness of the investment stance, adequacy of personnel and systems for asset
management, and status of securing returns.
Key financial indicator■ Composition ratio of asset portfolio(3) Capital Adequacy
Regarding the financial foundation, JCR places the greatest emphasis on capital adequacy from a quantitative
perspective, evaluating capital adequacy in terms of economic value, which is a market value assessment ofassets and liabilities as a whole. This is in line with the ongoing trend in Japan to introduce solvency regulations
based on economic value (new regulations).
As an indicator, JCR pays particular attention to ESR (Economic value-based Solvency Ratio). Since ESR
is a numerical value based on internal management-based risk management and differs in terms of assumptions,
JCR evaluates ESR by paying attention to trends in regulations and changes in calculation standards both inJapan and overseas. While internal management-based ESR, which represents the characteristics of eachcompany, is the main target of the evaluation, JCR will also incorporate regulatory-based ESR into theevaluation from the viewpoint of comparability, as assumptions and other factors will be standardized after the
introduction of the new regulations. Although the SM ratio under the current regulations is also used as areference, JCR checks the ratio on a basis that includes adjustments for gains/losses on valuation of securities.
The effective components of capital, assuming the current regulations, include capital stock and capitalsurplus, as well as various reserves such as price fluctuation reserve and catastrophe loss reserve. Hybrid
securities, which have characteristics of both equity and liabilities, are factored into the evaluation, regardlessof whether they are subject to current or new regulations, in consideration of their equity content.
In general, non-life insurance companies have shorter asset and liability durations and smaller duration gaps
than life insurance companies. Therefore, ESR of non-life insurance companies is less sensitive to interest rates
than that of life insurance companies and remains stable. While considering ESR as a quantitative indicator,
JCR pays attention to whether risk buffers are sufficiently secured through risk-based capital management,such as sales of cross-shareholding shares and underwriting risk through the use of reinsurance.
Key financial indicators■ ESR■ Solvency margin ratio■ Capital adequacy ratio(4) Liquidity
Regarding liquidity, JCR confirms that the company possesses highly liquid assets that enable it to respondquickly in times of stress, such as an occurrence of a major natural disaster. JCR confirms that liquidity risk
management is in place to enable reliable payment even if market risk or credit risk materializes during a
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financial crisis. A sharp increase in cash surrender values for savings-type products could be assumed in casesof dynamic cancellations, where cancellations increase due to switching to more advantageous products whenthe market fluctuates, or in cases where the reputation of the non-life insurance company is severely damaged
due to a deterioration in the business conditions.
Key financial indicator■ Liquid assets (cash, deposits, government bonds, etc.)(5) Risk Management System
JCR focuses on the integrated management system of earnings and capital based on risk management, andchecks the status of ERM development and progress in upgrading it. While excellent risk management isunlikely to be a positive factor in the evaluation, it can be a negative factor if it is considered that there is room
for improvement in risk management. JCR mainly evaluates whether the company has incorporated an
economic value-based approach into its management strategy and has secured an appropriate balance between
risk and return. JCR also confirms whether the company comprehensively and accurately assesses various
types of risks, identifies risks that have a significant impact on management, and can appropriately allocate
capital accordingly. For effective risk management, it is necessary to elaborate and upgrade the risk
management system.
In the non-life insurance business, since the impact of large-scale natural disasters and major accidents isinevitable, it is extremely important for non-life insurers to build a well-diversified business portfolio in termsof risk type and geographic location. In addition, JCR also confirms whether major non-life insurers have a
global and group-wide ERM system in place, given the trend toward an increase in the number of groupcompanies in Japan and overseas. The “Own Risk and Solvency Assessment (‘ORSA’) reports” are a useful
tool for understanding the status of ERM and risk management systems.

Because of the possibility of human or mechanical error as well as other factors in the information herein, JCR makes no representation or warranty,
express or implied, as to accuracy, results, adequacy, timeliness, completeness or merchantability, or fitness for any particular purpose, with respect
to any such information, and is not responsible for any errors or omissions, or for results obtained from the use of such information. Under nocircumstances will JCR be liable for any special, indirect, incidental or consequential damages of any kind caused by the use of any such information,
including but not limited to, lost opportunity or lost money, whether in contract, tort, strict liability or otherwise, and whether such damages areforeseeable or unforeseeable. Information herein is statements of opinion, and not statements of fact as to credit risk decisions or recommendations
regarding decisions to purchase, sell or hold any securities such as individual bonds or commercial paper. JCR retains all rights pertaining to thisdocument. Any reproduction, adaptation, alteration, etc. of this document, is prohibited, whether or not wholly or partly, without prior consent of
JCR.

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