Reinsurance of earthquake
insurance

Mechanism of reinsurance
In the event that a major earthquake happens, it can result in large payouts of insurance claim
by insurance companies. Because there is a certain limit, however, to the ability of these companies to make payments, the government shares insurance responsibility with them throughreinsurance.
JER reinsures the earthquake insurance contracts underwritten by non-life insurance companies to take on full liability, which we homogenize before we pass on the risk proportionally tothe non-life insurance companies and the government by retrocession according to the limitindemnity. We take up the remaining indemnity.

Mechanism of payment ofinsurance claims
The policyholder claims insurance money to the non-life insurance company when the policyholder suffers a certain loss or damage as a result of an earthquake, etc., and the company
will pay insurance claim to the policyholder.
The non-insurance company which paid an insurance claim to the policyholder will claim thefull amount from JER through reinsurance. JER will pay the reinsurance claim in full to thenon-life insurance company.
This means that the amount of reinsurance claim paid by JER is the same as the amount of
the insurance claim paid to the policyholder by the non-life insurance company.
When a major earthquake occurs, a nonlife insurance company must make a large amountof money ready so that it can pay a large number of insurance claims. To avoid problems inpaying insurance claims, the government has set forth a ministerial ordinance that covers thepayment of reinsurance claims pertaining to earthquake insurance based on a rough estimate,and promptly pays reinsurance claims based on a rough estimate (makes a provisionalpayment) through the Company.

10Japan Earthquake Reinsurance Co., Ltd. Annual Report 2011

Flowchart of reinsurance ofearthquake insurance
Policyholder
Conclusion of earthquake insurance contract

Non-life insurance company
Treaty A Reinsurance by JER for non-life insurance companies

JER has entered into a reinsurance contract with non-life insurancecompanies operated in Japan. According to the contract, the non-life
insurance companies conclude a reinsurance contract with JER on theearthquake insurance contracts in full underwritten by them in accordancewith the Law concerning Earthquake Insurance. JER takes up the full
liability for this earthquake insurance without fail.

Japan Earthquake Reinsurance Company, Limited
Treaty B

Non-life
insurancecompany

Treaty C

The governmentof Japan

Retrocession by JER to non-life insurance companies
JER has entered into a reinsurance contract individually with the non-life insurance companies, andretrocedes to each company part of the insurance
liability taken up by JER to the limit as determinedaccording to the balance of earthquake insurance risk
reserves and other factors.

Retrocession by JER to the government(Excess of loss reinsurance)
JER has entered into an excess of loss reinsurance with thegovernment on earthquake insurance for a loss exceeding theamount payable by JER, according to which JER retrocedes to thegovernment part of insurance liability taken up according to Treaty
A to the indemnity limit as approved by the Diet.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201111

Insurance liabilities held by JER,
non-life insurance companies andthe government
The following is the reinsurance scheme, showing how JER, non-life insurance companies andthe government share insurance liabilities, and the way each handles the shared liabilities.
Revised as follows on May 2, 2011, in response to the Great East Japan Earthquake that took
place on March 11 of the same year.
Reinsurance scheme(Payable insurance claim)
Up to115 billion yen

Up to259.6 billion yen

Up to871 billion yen

Up to 3 trillion
185 billion yen

50%

378 billion

4 trillion
397.55 billion

115 billion
72.3billion
JER

305.7 billion

Non-life insurance companies

50%

5.5 trillion yen

95%

115.7 billion

115.75 billion

5%

The government

Liability limit
536.45 billion yen
188.00 billion yen
4,775.55 billion yen

JER
Non-life insurance companies
The government
Total(limit amount of payable insurance claims)

5.50 trillion yen

The previous reinsurance scheme that was effective from April 1, 2009 until May 1, 2011
*This scheme has been applied to the payment of reinsurance claims for losses or damages caused by
the Great East Japan Earthquake.
(Payable insurance claim)
Up to115 billion yenUp to 1 trillion
122.6 billion yen

Up to 1 trillion
925 billion yen

Up to 3 trillion
712 billion yen

50%

905 billion

3 trillion
396.25 billion

115 billion
503.8 billion

JER

401.2 billion

Non-life insurance companies

50%

95%

89.35 billion

89.4 billion

The government

JER
Non-life insurance companies
The government

605.60 billion yen
593.15 billion yen
4,301.25 billion yen

Total(limit amount of payable insurance claims)

12

5.5 trillion yen

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20115.50 trillion yen

5%The balance of risk reserves at JER and non-life insurancecompanies and the government liability reserves at the endof fiscal 2010
JER and non-life insurance companies save the risk premium of insurance premiums paid bypolicyholders as earthquake insurance risk reserves for the possible payment of earthquake
insurance claims while the government saves government reserves in the earthquake insurance special account under law. In the event that an earthquake occurs and causes losses ordamages, each of JER, non-life insurance companies and the government pays an insurance
claim according to each liability as stipulated in the reinsurance scheme by withdrawing fromreserves.
JERNon-life insurance companies
The government

424.4 billion yen
489.1 billion yen
1,342.7 billion yen

Total

2,256.3 billion yen

Note: The risk reserves by the non-life insurance companies include the amount equivalent to deferred tax assets due totax effect accounting.

Examples of insurance claims to be paid by JER, non-life
insurance companies and the government
Suppose that insurance claims amounting to 2 trillion yen for losses or damages associatedwith a single earthquake are to be paid. JER, non-life insurance companies and the government will pay each in the following amount:(Unit: billion yen)

Claims paid

A person of burden

JER
Non-life insurancecompanies
The government
Total

Portion up to115 billion
yenPortion over
115 billion yen,
and up to871 billion yen

Portion over871 billion yen, andup to2,000 billion yen

115.0

305.7

—

420.7

—

72.3

56.45

128.75—378.0

1,072.55

1,450.55

115.0

756.0

1,129.0

2,000.0

Total

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201113