JAPAN EARTHQUAKEREINSURANCE CO., LTD.

Financial highlights
Although assumed net premiums written and net premiums written in fiscal 2007 declined
from the previous year, total assets increased steadily to 955.9 billion yen at the end of March
2008. Most of the assets under management are invested in bonds with high credit ratingsand liquidity to prepare for the payment of reinsurance claims.

Loss ratio

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

100,000

50

80,00040

60,00030

40,0002020,000

100Year 2003

2004

2005

2006

0Year 2003

2007

2004

2005

2006

2007Breakdown of total assets(as of March 31, 2008)

Total assets(Unit: million yen)

(Unit: million yen)

Other securities

OthersGovernment bond

60,455449,201

9,658

1,000,000

Foreign securities

800,000

240,414600,000

Others60,455

Total
955,968

400,000
Total of securities

895,513200,000
0Year 2003

Corporate bond

2004

2005

2006

2007

191,835
Municipal bond

4,404

18

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2008

(Unit: Million yen)

Fiscal YearNet premiums written

2003

2004

2005

2006

2007

50,89658,19871,132

67,98164,040Loss ratio

20.5%28.7%

37.9%

3.7%

21.0%

Underwriting income

54,67861,99591,001

72,451

67,320

184

98

23143

16

Ordinary profit

171036△164

184.3%

182.2%

160.2%

175.3%

185.4%Net income
Solvency-margin ratio
Total shareholders’ equity
Total assets

1,579

1,587

1,605

1,600

1,614

761,594

804,333

838,555

908,963955,968

1411

△55

15

7,000

5,458

△9,054△4,5401,722

Net unrealized gains on other securities
Net unrealized gains on other securities ofearthquake insurance

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 2008

19

Top 10 shareholders(As of March 31, 2008)
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

Nippon Koa Insurance Co., Ltd.

208

10.4

Aioi Insurance Co., Ltd.

153

7.7

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.

613.1

The Kyoei Fire & Marine Insurance Co., Ltd.

34

1.7

Shareholder

Organization(As of April 1, 2008)

General meeting of shareholders

Board of auditors
Board of directors

Board of managing directors

Compliance committee

Comprehensive risk management committee

Earthquake disaster task force

Audit dept.

20

Reinsurance administration dept.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2008

Financial dept.

Controller dept.

Directors (full-time)(As of June 30, 2008)
Post

NameChairman(representative director)

Shozo Wakabayashi

President(representative director)

Hideo SuzukiManaging director(representative director)

Masayuki Hashimoto

Managing director(representative director)

Hiroaki Shiraki

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.
In fiscal 2007, we updated the funding plan and payment schedule in the event of a destructive inland earthquake in Tokyo by referring to the results of a questionnaire entitled “Developments in the Bond Market after the Occurrence of a Major Earthquake” sent in March
2007 to bond market participants at banks and securities firms, and reviewed the emergency
communication system.
We have also set up a receiving terminal in our office in association with the launch of the Japan Meteorological Agency’s emergency earthquake report, which we use to ensure the safetyof visitors as well as our officials and employees.

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 200821

Corporate governance
In-house governance system

Compliance committee

General meetingof shareholders

Board ofdirectors

Board ofmanaging directors

Board ofauditors

Comprehensive risk
management committee
Task force against
earthquake disastersCommittees system based operation
Our corporate governance depends on the committees system under the control of the Board ofManaging Directors. Consisting of committees—a compliance committee and a comprehensive
risk management committee—the system is designed to facilitate audits, compliance, risk management and the maintenance of sound business operations. Preparing for a natural calamity,
the Company is provided with a task force against natural disasters to facilitate the payment ofinsurance claims and maintain the funding plan for payment, enabling it to take prompt 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 system, outside and in-house inspection
Outside auditing and inspection
The Financial Services Agency examines our management and general business operation inaccordance with Articles 129 and 313, Insurance Business Law. The Ministry of Finance conducts the same examination under Article 9, Law concerning Earthquake Insurance.
We also receive an accounting audit by an auditing corporation in accordance with the Commercial Code.
In-house auditingIn addition to auditing conducted on the basis of the Companies Act, the Audit Department
conducts in-house auditing. Although in-house auditing had previously been conducted byan in-house auditing committee consisting of employees appointed in each division, weestablished the Audit Department in April 2008 to bolster our governance function.
In-house auditing places emphasis on how major issues are handled by each division as wellas on compliance and risk control systems, to contribute to the sound development of theCompany and enhance public confidence in JER. In fiscal 2008, in particular, we have decided
to conduct our audit with a focus on the development and operation of a new operating systemand the internal control conditions of each division with regard to office processing details.
22Japan Earthquake Reinsurance Co., Ltd. Annual Report 2008

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
The investment assets have amounted to approximately 940 billion yen. Because it is primarily necessary to pay reinsurance money promptly and properly in the event of a major
earthquake disaster, the assets are generally being operated using mainly public bonds. The
management of risks involved in the management of assets is carried out according to theannual control policy. See below for detail.
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 200823