JAPAN EARTHQUAKEREINSURANCE CO., LTD.

PROFILEIn accordance with the introduction of the Law concerning Earthquake Insurance (Law No. 73,
May 18, 1966) and following the launch of sales of earthquake insurance on dwelling risks to
be written in conjunction with dwelling and shop-owners comprehensive insurance policies,
JER was established with share capital of 1 billion yen by 20 domestic Japanese non-life insurance companies on May 30, 1966. The Company was licensed for the earthquake insurance
business and started its operation on June 1, 1966.
Earthquake insurance on dwelling risks depends on this reinsurance system (which is a 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.

FINANCIAL HIGHLIGHTSNet premiums written

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

300,000

130,000
283,534

118,679

120,000

280,000
257,239

260,000

110,000

240,000

100,000

220,000

90,000097,3020

Fiscal Year

2017

2018

Fiscal Year

2017

2018

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)150
113.0%
100

50

4,000

40

3,000

30
1,711

2,000

50

2

5,000

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2019
1,000
11.4%

0

0
Fiscal Year

2017

2018

1,225

20
10

0

1

Fiscal Year
2017
2018
Net unrealized gains on available-for-sale securities

0Net premiums written

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

300,000

130,000
283,534

118,679

120,000

280,000
257,239

260,000

110,000

240,000
Assumed net premiums written

220,000

100,000

97,30290,000Net premiums written(Yen in millions)(Yen in millions)0300,000
Fiscal Year2017

0
130,000
Fiscal Year2018283,53420172018
118,679

120,000

280,000

Net unrealized gains on available-for-sale
110,000 securities of earthquake insurance
and net unrealized gains on available-for-sale securities
97,302100,000(Yen in millions)

257,239

260,000

Net loss ratio
240,000
150
220,000
113.0%

0100
Fiscal Year

2017

2018

5,000
90,000

50

4,000

40

3,000

0
Fiscal Year

2017

2018

30

1,711
20
Net1,225
unrealized gains on available-for-salesecurities of earthquake insurance
1,000
10
and net unrealized gains on available-for-sale securities
2,000

50
Net loss ratio

11.4%
0
150
Fiscal Year

1
0
0
5,000
Fiscal Year
2017
2018
Net unrealized gains on available-for-sale securities
4,000 of earthquake insurance(Yen in millions)

2017

2018
113.0%

100

3,000

Total assets and net assets
Breakdown of total assets
1,711
2,000
Non-consolidated solvency-margin
ratio(Yen in millions)
1,225

50

(Yen in millions)

800,000

Monetary receivables
FY20174,0001,000
bought 9,999
Call loans 141

Items

11.4%

(A) Total amount of non-consolidated solvency-margin
0(B) Total amount
549,220 of non-consolidated risk
600,000
Fiscal Year

2017

2018

468,425
Non-consolidated solvency-margin
ratio[(A) / {(B)x1/2}] x 100

400,000

1,543

1,540

200,000(Yen in millions)0800,000
Fiscal Year

2017

2018

Total assets
549,220

Net assets

0306.6 billion0 yen
Others4030
20

FY2018101203.8 billion
yen

137.0 billion yen
3,000 Fiscal Year
2017
2018
Net unrealized
gains
onavailable-for-salesecurities
379.6%
297.6%
of earthquake insurance
Deposits
Securities
2,000
211,842
228,248
Net
unrealized gains
on available-for-salesecurities
Breakdown of securities

161.5 18,192
billion yen

0Foreign

1,000

Total assets and net assets

600,000

Net unrealized gains on available-for-sale securities

0
50

0
4,000

Breakdown of total
assets Government
securities
bonds
33,818(Yen in millions)
52,578
Monetary receivablesbought 9,999
Call loans 141
Others3,000

Corporate Municipal
bonds
bonds

128,435

13,41618,192

468,425
400,000

1,540

1,543

2,000

200,000

1,000

0

0

Fiscal Year

2017

2018

Total assets

Net assets

Deposits

Securities

211,842

228,248

Breakdown of securities
Foreignsecurities Government
bonds
33,81852,578

Corporate Municipal
bonds
bonds

128,435

13,416

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2019

3

ORGANIZATION(As of April 1, 2019)
General meeting of shareholders
Board of auditors
Board of directors

Board of managing directors

Reinsurance
administration dept.

Planning andcontroller dept.

Audit office

No. of shares owned(1,000 shares)

Percentage of shares
owned (%)

Tokio Marine & Nichido Fire Insurance Co., Ltd.

537

26.9

Sompo Japan Nipponkoa Insurance Inc.

529

26.5

Mitsui Sumitomo Insurance Co., Ltd.

338

16.9

Aioi Nissay Dowa Insurance Co., Ltd.

255

12.8

AIG General Insurance Company, Ltd.

123

6.2

The Toa Reinsurance Co., Ltd.

93

4.7

Nisshin Fire & Marine Insurance Co., Ltd.

61

3.1

The Kyoei Fire & Marine Insurance Co., Ltd.

34

1.7

Rakuten General Insurance Co., Ltd.

8

0.4

SECOM General Insurance Co., Ltd.

7

0.4

Financial dept.

Shareholders(As of March 31, 2019)
Shareholder

BOARD MEMBERS (FULL-TIME)(As of July 1, 2019)

4

Post

Name

Chairman (representative director)

Yoshihiko Murase

President (representative director)

Makoto Sugimachi

Managing director (representative director)

Shoichiroh Takemoto

Managing director (representative director)

Motomi Ikeda

Corporate auditor

Tsuyoshi Suzuki

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2019RESPONSES TO MAJOR EARTHQUAKES
We consider prompt earthquake reinsurance payouts to be our most important mission.
Based on this view, we have established a standing Task Force Against Earthquake Disasterthat deals exclusively with earthquake disaster responses. Consisting of our full-time directors
and division managers, the Task Force oversees system development in preparation for major
earthquakes and carries out periodic earthquake response drills.
We also manage and operate the assets we have accumulated for the purpose of earthquake
reinsurance payouts by paying the utmost attention to their liquidity (cashability) and safety
so that reinsurance payouts are made without delay in the event of a major earthquake.

Task Force Against Earthquake Disaster
Our Task Force Against Earthquake Disaster is working to make business continuity management (BCM) more effective in preparation for an inland earthquake in the Tokyo metropolitanarea, with the view that this activity is of the utmost importance.
Immediately after the Great East Japan Earthquake, the Task Force reformed system infrastructure and relocated important systems to data centers that are more resistant to earthquakes to ensure business continuation in the event of an office disaster. In addition, theTask Force substantially reduced the risk of simultaneous disaster damage by establishing a
backup system in Okinawa. The Task Force also established a system that enables directors
and employees to continue undertaking important business from home, even in cases wheretraveling to the office becomes impossible, by building a system that can be accessed fromexternal locations. The Task Force confirms the effectiveness of this system through regular
work-at-home exercises.
In addition to regular drills by Department, including work-at-home exercises, we conduct
drills every fiscal year to handle issues, etc. that have become apparent in the drills conductedin the previous fiscal year and new drills based on reviews from a company-wide perspectiveby the Project Team (PT) Against Earthquake Disaster, comprising working-level employees. In
conducting these drills, we seek to make our preventive measures against earthquake disasters more effective by enhancing all employees’ awareness of BCM and disaster prevention.
Major drills in fiscal 2018
[Simulated overnight drills against potential risks]
We conduct drills aimed at enabling employees remaining in the office to take appropriate actions in the absence of officials in charge of BCM, assuming that an earthquake has occurredand forced them to stay overnight in the office. In fiscal 2018, the employees who attended
the drills reconfirmed storage sites and handling methods for the provisions, including fire extinguishers and fire hydrants installed in the office buildings and lanterns, emergency toilets,
storage batteries and stove burners that are always stocked within the office.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20195

[Disaster prevention experience & learning (Sona Area
Tokyo)]
To increase employees’ awareness of preventive measures against earthquake disasters,
members of PT Against Earthquake Disaster participated in “Disaster prevention experience& learning,” which is designed to simulate the situation in the aftermath of a major earthquake, in a facility called Sona Area Tokyo. In this fiscal year, we plan to have all officers andemployees to participate in the disaster prevention experience & learning.
[Drills for processing loss adjustment expenses]
The number of claims for loss adjustment expenses increases significantly when a major
earthquake strikes. Making it impossible to handle them within the department in chargealone, employees of other departments attend the training each year to check and input themin a system. In fiscal 2018, the training was carried out for newly hired employees, with theaim of enhancing the level of processing loss adjustment expenses.

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

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

6Japan Earthquake Reinsurance Co., Ltd. Annual Report 2019

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

Remote Access(Home)

Remote Access（Out of the office）

Temporary Office(Saitama City)

Head Office (Tokyo)

Thin Client

ActiveInternet (KDDI)

StandbyWAN

ActiveFirewall
Active/Standby

Internet (USEN)

Standby

ActiveStandby

L3Switch

Virtual Platform

L3Switch

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

Data Synchronization

Surveillance

Surveillance

Okinawa Data CenterTokyo Data Center

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20197

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

Appointments
General meeting and dismissalsof shareholders

Board ofdirectors

Board ofmanaging directors

Submission/Report

In-house audit

Audit
Board ofauditors

Executive division

Audit

Submission/Report

In-house
audit division

Cooperation
Appointments
and dismissals Accounting
auditors
Accounting audit

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

8

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2019

Risk management system
We have made arrangements for proper risk management execution to ensure the soundness
and safety of our management. The organizational framework and important risk management
issues are stipulated in our Integrated Risk Management Rules. Specific ways of managing various
risks – namely, asset management risks, liquidity risks, and operational risks – are prescribedin our management rules for the respective types of risks and our annual risk management
plans. Based on these rules, the planning and controller department, which is the integrated
risk management department, manages risks in an integrated manner by monitoring the risk
management situation. In addition, we have established the cross-sectional Risk Management
Committee as an advisory board that reports to our director in charge of risk management.
The Committee is making a range of proposals for issues related to risk management.
ASSET MANAGEMENT RISKS
Risks relating to asset management are classified into “market risks” and “credit risks”
for risk management, and the management standards are stipulated in the “Standards forManagement of Investment Risks.”
Market risksMarket risks include interest-rate risk, foreign exchange risk, and price volatility risk. These
are the risks of losses that investors may sustain with fluctuations in the value of assets or
debt, 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.
Stress test
The VaR that statistically measures the amount of risks has a limit in circumstances whenfinancial market is fluctuating greatly. The stress test is used to complement monitoring insuch circumstances. The stress test examines the amount of potential losses by assuming
a situation in which risk factors, such as interest rates and exchange rates, fluctuateconsiderably.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 20199

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, we
have 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.

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Japan Earthquake Reinsurance Co., Ltd. Annual Report 2019