JAPAN EARTHQUAKEREINSURANCE CO., LTD.

Financial highlights
Although assumed net premiums written and net premiums written in fiscal 2009 declined
from the previous year, total assets increased steadily to 1,092.2 billion yen at the end ofMarch 2010. Most of the assets under management are invested in bonds with high credit
ratings and liquidity to prepare for the payment of reinsurance claims.

Loss ratio

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

160,000

5040

120,000

3080,000
2040,000

100Year 2005

2006

2007

2008

0Year 2005

2009

2006

2007

2008

2009

Breakdown of total assets(as of March 31, 2010)

Total assets(Unit: million yen)

(Unit: million yen)

Other securities

OthersGovernment bond

85,324457,3243,135

1,600,000

OthersForeign securities

1,200,000

425,813

Total
1,092,272

800,000

Total of securities

400,000

0Year 2005

18

85,324

1,006,947
Municipal bond

2006

2007

2008

2009

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2010

Corporate bond

120,593

80

(Unit: Million yen)

Fiscal YearNet premiums written

2005

2006

2007

2008

2009

71,132

67,98164,04067,12672,225

Loss ratio

37.9%

3.7%

21.0%

16.0%

8.6%

Underwriting income

91,001

72,451

67,32070,546

79,27823143

16200951

Ordinary profit
Net income
Solvency-margin ratio
Total shareholders’ equity

36

△164

125

160.2%

175.3%

185.4%

159.1

161.6

1,605

1,600

1,614

1,617

1,633

838,555

908,963955,968

1,015,053

1,092,272

Net unrealized gains on other securities

△5515

616

Net unrealized gains on other securitiesof earthquake insurance△9,054△4,540

1,722

3,063

16,154

Total assets

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

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201019

Top 10 shareholders(As of March 31, 2010)
No. of shares owned(1,000 shares)

Percentage of sharesowned (%)

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

NIPPONKOA Insurance Co., Ltd.

208

10.4

Aioi Insurance Co., Ltd.

153

7.7

The Fuji Fire and Marine Insurance Co., Ltd.

123

6.2

Nissay Dowa General Insurance Co., Ltd.

102

5.1

The Toa Reinsurance Co., Ltd.

93

4.7

Nisshin Fire & Marine Insurance Co., Ltd.

61

3.1

The Kyoei Fire & Marine Insurance Co., Ltd.

34

1.7

Shareholder

Organization(As of April 1, 2010)

General meeting of shareholders

Board of auditors
Board of directors

Board of managing directors

Compliance committee

Comprehensive risk management committee

Earthquake disaster task force

Reinsurance
administration dept.

20

Financial dept.

Controller dept.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2010

Audit officeDirectors (full-time)(As of July 1, 2010)
Post

Name

Chairman(representative director)

Shozo Wakabayashi

President(representative director)

Hideo SuzukiManaging director(representative director)

Masayuki Hashimoto

Managing director(representative director)

Koichi Kubota

Corporate auditor

Terumasa Hasegawa

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

Task force against earthquake disasters and its
activities
The committee is a standing in-house organization drawn from across JER. It prepares anannual plan, according to which it is the first responder, and implements training such as reinsurance claim payment drills, along with the inspection and maintenance of an emergency
manual for use in the event of an assumed major earthquake.
The Company set up a review team under the earthquake disaster task force in fiscal 2009,
which began to review the emergency manual for business continuity. We also conducted an
operation drill to confirm safety and information transmission systems and organized an
emergency training program at the Jishin-no Gakushukan (earthquake study center) of the
Meguro-ku Bosai Center (Meguro disaster prevention center).

Operation based on highly liquid assets
Should a destructive inland earthquake strike Tokyo, we would have to pay a tremendous
amount of reinsurance claims in a short period of time. For this reason, we always hold mainly
highly liquid and high-rating securities. To reduce cost-related risks at the time of realization,
we hold mainly medium-term securities.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201021

Corporate governance
In-house governance system
Appointments
and dismissals

Board ofdirectors

Board ofmanaging directors

Audit

Audit
Appointments
General meeting and dismissals
Accountingof shareholders
auditors

Submission/Report

Submission/Reportcompliance committee

In-house audit

Comprehensive
risk management
committee

In-house audit division

Earthquake disastertask force

In-house audit

Cooperation

Appointments
and dismissals Accounting
auditors

Executive division

Accounting audit

Committee-based operation
We have established a Compliance Committe and a Comprehensive Risk Management Comittee
and positioned them under the direct control of the Board of Managing Directors. Our aim isto ensure sound and transparent business operations by strengthening the supervisory function
with the construction of compliance and risk management systems. Preparing for a naturalcalamity, the Company is provided with a task force against natural 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 of the Company are subject to inspection by the Financial Services Agency under the Insurance Business Act and inspection by the Ministry ofFinance under the Act 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
office conducts in-house 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 the execution of plans and activities in theCompany 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 to
the sound development of the company and building credibility in the community.
In fiscal 2010, we decided based on the “In-House Audit Policy and Plan” adopted by resolution ofthe Board of Directors to focus on audits of responses to the revision of the insurance inspection
22Japan Earthquake Reinsurance Co., Ltd. Annual Report 2010

manual and to conduct regular audits of the internal control conditions of all divisions.
Audit results including recommendations of corrections and improvements are reported to
the Board of Managing Directors and the Board of Directors and communicated to audited
divisions.

Risk management system
The construction of an appropriate risk management system is an important issue to ensure
the safety and soundness of management, as surrounding risks are becoming increasingly
complicated and diversified.
We have been endeavoring to accurately understand and appropriately manage risks by establishing a comprehensive risk control committee to supervise risk management. We have also
consolidated the risk management system to reinforce the risk control function.
Dealing with assets management risks
Risk management relating to asset management is carried out primarily for paying reinsurance claims promptly and with certainty when there are major earthquakes, in accordancewith the risk management policy of each year. Major items are as follows:
Market risksWe measure the responsiveness to interest rates and currency exchanges and value at risk
(VaR), and calculate the amount of loss due to a heavy change in interest or exchange rate
to limit the volume of risks.
Credit risks
When purchasing securities, we limit the issuers to those with high credibility with reference
to the credit rating made by rating agencies. We always check securities held to determine
credibility, and conduct individual controls to avoid a concentration on a specific group ofcompanies or type of business.
Liquidity risks
We check individual securities in advance for cashing, and to the assets for cashing.
Dealing with paperwork issues
We constantly examine the rules and regulations of authority and paperwork procedures andmanuals for exact and perfect paperwork. We also regularly check the rules and regulations
through in-house auditing for conformity with related laws and regulations.
Dealing with system risks
We constantly review the risk control plan with an emphasis on system security in the event ofa calamity. This will improve the control system.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 201023