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)

250,000

130,000

240,000

238,645

243,099

121,986
120,000

230,000

110,000

220,000

100,000

210,000

90,0000
Fiscal Year

114,114

0
2015

2016

Fiscal Year

2015

2016

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)

5,000

250

50

206.0%

2

200

4,000

150

3,000

100

2,000

1,000
50
Japan Earthquake
Reinsurance Co., Ltd. Annual Report 2017
5.3%

40
30

2,511

20

3

10
2

0

0
Fiscal Year

3,717

2015

2016

Fiscal Year
2015
2016
Net unrealized gains on available-for-sale securities

0Net premiums written

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

250,000

130,000

243,099

238,645

240,000

121,986
120,000

230,000

110,000

220,000

100,000
Assumed net premiums written

210,000

Net premiums written

90,000(Yen in millions)(Yen in millions)0
250,000
Fiscal Year2015

240,000

238,6450
130,000
Fiscal Year2016
243,0992015
121,986

2016

120,000

114,114
Net unrealized gains on available-for-sale
110,000 securities of earthquake insurance
and net unrealized gains on available-for-sale securities

230,000
Net loss ratio
220,000(Yen in100,000
millions)

250
210,000
200

114,114206.0%

5,000
90,0004,000

0Fiscal Year
150

2015

2016

3,000

0

50
3,717

40

Fiscal Year

2015

2,511

2016

30

2,000

100
50

Net loss ratio

5.3%

0
250 Year
Fiscal2015

2016
206.0%

200

20
Net unrealized gains on available-for-salesecurities of earthquake insurance
1,000
10
and net unrealized gains on available-for-sale securities
3
2(Yen in millions)
0
0
5,000
50
Fiscal Year
2015
2016
Net unrealized gains on available-for-sale securities
3,717 insurance
4,000 of earthquake
3,000

150

Net unrealized gains on available-for-sale securities
2,511
Breakdown of total assets

Total assets and net assets

2,000
Non-consolidated solvency-margin ratio

100

40
30
20

(Yen in millions)(Yen in millions)

Others104,0001,000
FY2015FY2016
Call loans
15,143 32
1,040(A) Total amount of non-consolidated solvency-margin469.3 billion yen
282.6 billion yen
0
0
0
3,000
600,000(B) Total
amountofnon-consolidated
risk
239.3
billionyen
188.9
Fiscal Year
2015
Fiscal Year20152016 billion yen
511,297 2016
Net unrealized gains on available-for-sale securities
Non-consolidated solvency-margin ratio
392.1%
299.1%
Securitiesof earthquake
insurance(A) / {1/2x(B)} x 100
2,000
400,000
234,580
1,542
1,542
Deposits
Net unrealized gains on available-for-sale
Breakdown ofsecurities
securities
260,53450
800,000

709,408 5.3%

200,000

Items(Yen in millions)(Yen in millions)0800,000
Fiscal Year709,408
2015

2016

Total assets

Net assets

600,000

0
4,000 Call loans
1,040

1,542

Breakdown of totalsecurities
assets26,435 Government

Others15,143bonds

Corporatebonds

91,41992,467 Municipal
bonds

24,2573,000

511,297

400,000

Foreign

1,000

Total assets and net assets

1,542

2,000

260,534
1,000

200,000

Securities
Deposits

234,580

Breakdown of securities
Foreignsecurities

26,435 Government
00

Fiscal Year

2015

2016

Total assets

Net assets

Corporate
bonds

bonds

91,41992,467 Municipal
bonds

24,257

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2017

3

ORGANIZATION(As of April 1, 2017)
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

The Fuji Fire and Marine Insurance Co., 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

The Asahi Fire and Marine Insurance Co., Ltd.

8

0.4

SECOM General Insurance Co., Ltd.

7

0.4

Financial dept.

Shareholders(As of March 31, 2017)
Shareholder

BOARD MEMBERS (FULL-TIME)(As of July 1, 2017)

4

Post

Name

Chairman (representative director)

Yoshihiko Murase

President (representative director)

Makoto Sugimachi

Managing director (representative director)

Shinji Okazaki

Managing director (representative director)

Shoichiroh Takemoto

Corporate auditor

Katsuhiko Murata

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2017

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 fiscal 2016, the Task Force Against Earthquake Disaster took steps to respond to the 2016
Kumamoto Earthquakes that struck in April 2016, establishing the “Project Team (PT) Against
Earthquake Disaster” consisting of working-level employees to continuously discuss and examine issues for JER in earthquake disasters from a company-wide and cross-sectional perspective. We are working to increase the effectiveness of our readiness for earthquake disasters, raising the awareness of individual employees about BCM and disaster prevention
by increasing opportunities for working-level employees to be involved in measures against
earthquake disasters through their participation in the PT.
Drills by Department (drills at home and using a temporary
office)From November 2016 to February 2017, the Task Force Against Earthquake Disaster conducted drills by department, based on the assumption that employees were working at homeor in a temporary office, as an initiative to strengthen BCM. The Planning and Controller
Department reconfirmed the initial operation based on the assumption that an earthquake
strikes outside working hours and the operation that responses need to be made for systems
at a time when the persons in charge are absent. The Reinsurance Administration Department

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20175

then ran drills for reinsurance claim payments based on rough estimates. In addition, members of the Financial Department checked the operation to raise funds in the temporary office
immediately after a major earthquake.
Drills for all employees (drills for processing loss assessment expenses)
The number of claims for loss assessment expenses increases significantly when a major
earthquake strikes, making it impossible for the department in charge to handle them.
To address this problem, the Task Force Against Earthquake Disaster conducted drills every
year for checking and inputting the loss assessment expenses, with all JER employees participating, to secure processing personnel. In fiscal 2016, the employees showed the resultsof their routine drills by actually checking and inputting the loss assessment expenses in theclaims for loss assessment of the 2016 Kumamoto Earthquakes. During normal conditions,
the Task Force will work to secure personnel that can make prompt payments to prepare JER
for an inland earthquake in the Tokyo metropolitan area and an earthquake in the Nankai
Trough, both of which are expected to produce claims outnumbering those made at the timeof the Great East Japan Earthquake.

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 2017

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 2017

7

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 2017

Risk management system
We have developed a structure in which risk management is appropriately carried out to ensure
sound and safe management. This organizational framework and important risk management
issues are defined in our Risk Management Rules and Integrated Risk Management Rules.
Specific ways of managing various risks—namely, asset management risks, liquidity risks,and operational risks—are defined in our management rules for each type of risk and our annual risk management policies. Based on these rules, the planning and controller department,
which is the integrated risk management department, manages risks in an integrated mannerby monitoring the risk management situation. We have also established a company-wide Risk
Management Committee as an advisory board for officers in charge of risk management tomake proposals for various risk management issues.
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” for each fiscal year.
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 20179

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.

10

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2017