Japan earthquake
Reinsurance Co., Ltd.

Financial highlights
Although net premiums written in fiscal 2010 declined from the previous year, total assets
increased steadily to 1,154.1 billion yen at the end of March 2011. Most of the assets undermanagement are invested in bonds with high credit ratings and liquidity to prepare for thepayment of reinsurance claims.

Loss ratio

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

80,00067,98164,04067,12630

72,225 71,532

21.0

60,00020

16.0

40,0008.61020,000

3.700Year 2006

1.8Year 2006

200720082009

2010

2007

2008

2009

2010

Breakdown of total assets
Total assets(Unit: million yen)

(Unit: million yen)

1,600,000

1,200,000

1,154,108
1,092,272
1,015,053
955,968
908,963

OthersTotal
1,154,108
Total of securities

400,000

18

414,095

348,885

800,000

0Year 2006

Government bond

Others348,885

805,223
Foreign securities

2007

2008

2009

2010

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2011

315,624

Corporate bond

75,503

(Unit: Million yen)

Fiscal YearNet premiums written
Loss ratio
Underwriting income
Ordinary profit
Net income
Solvency-margin ratio
Total shareholders’ equity

2006

2007

2008

2009

2010

67,98164,04067,12672,22571,532

3.7%

21.0%

16.0%

8.6%

1.8%

72,451

67,32070,546

79,278148,490

143

16

200

951

990

△164

12

53

175.3%

185.4%

159.1%

161.6%

124.7%

1,600

1,614

1,617

1,633

1,634

908,963955,968

1,015,053

1,092,272

1,154,108

Net unrealized gains on other securities

515

6

16

14

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

1,722

3,063

16,154

8,410

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 safetynet, 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 201119

Top 10 shareholders(As of March 31, 2011)
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

Aioi Nissay Dowa Insurance Co., Ltd.

255

12.8

NIPPONKOA Insurance Co., Ltd.

208

10.4

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.

613.1The Kyoei Fire & Marine Insurance Co., Ltd.

34

1.7

The Asahi Fire and Marine Insurance Co., Ltd.

80.4

ShareholderOrganization(As of April 1, 2011)

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 2011

Audit officeDirectors (full-time)(As of July 1, 2011)
Post

NameChairman(representative director)

Shozo Wakabayashi

President(representative director)

Hideo Suzuki

Managing director(representative director)

Koichi Kubota

Managing director(representative director)

Tadashi Baba

Corporate auditor

Takashi Shikama

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 itsactivities
JER has established the task force against earthquake disasters as a standing in-house organization. Based on annual plans, the task force undertakes training in emergency response andearthquake reinsurance payments, assuming an earthquake with an epicenter directly below
metropolitan Tokyo. For instance, it establishes and reviews an emergency response manual.
In fiscal 2010, JER contracted with external consultants to examine rules, manuals, etc. (TokioMarine & Nichido Risk Consulting Co., Ltd.), create a report assuming damages to our company (InterRisk Research Institute & Consulting, Inc.), and provide technical support (NKSJRisk Management, Inc.). We also undertook an earthquake drill involving all of our officers
and employees participated assuming an earthquake with an epicenter directly below metropolitan Tokyo.
First Earthquake Drill
JER held its first earthquake drill on January 19th, with a focus on the local disaster responsesystem of Chuo-ku, Tokyo, where our office is located. We conducted this drill with the cooperation of the Disaster Prevention Section of Chuo-ku and the neighborhood association of
Nihonbashi Kobunacho. The drill included explanations about the disaster response measuresof the Tokyo Metropolitan Government and a tour of Jushi Square, the local disaster preparedness center, and the disaster prevention facilities of Horidome Children’s Park, the tempoJapan Earthquake Reinsurance Co., Ltd. Annual Report 201121

rary evacuation area. We also practiced operation of the safety confirmation and informationtransmission systems.
Second Earthquake DrillFor the second drill on March 10, we invited Nomura Research Institute, Ltd. and undertooka tabletop exercise assuming an earthquake with an epicenter directly below metropolitan
Tokyo and received a lecture on business continuity plans (BCP). In the tabletop exercise, we
simulated how officers and employees would gather in the office after the occurrence of theearthquake.

Operation based on highly liquid assets
Should an earthquake with an epicenter directly below metropolitan Tokyo strike, we would
have to pay a tremendous amount of reinsurance claims in a short period of time. For thisreason, we always hold mainly highly liquid and high-rating securities. To reduce price volatility risks at the time of realization, we hold mainly medium-term securities.

PREPARATIONS FOR DISASTERS
JER has installed in its head office an earthquake alert system provided by the Japan
Meteorological Agency to ensure the safety of visitors, officers, and employees. We havealso made our office resistant to earthquakes by securing office facilities and equipment,
stored emergency supplies in the head office warehouse, and distributed safety shoes, bags
containing emergency goods, and other items to all officers and employees. We thus strive
to ensure business continuity in the event of an earthquake with an epicenter directly below
metropolitan Tokyo.

22

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2011

Corporate governance
In-house governance system
Appointments
and dismissals

Appointments
General meeting and dismissalsof shareholders

Board ofdirectors

Board ofmanaging directors

Audit

Audit

Submission/Report

Submission/Reportcompliance committee

Corporateauditors

In-house audit

Comprehensive
risk managementcommittee

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 is to ensure sound and transparent business operations by strengthening the supervisory
function with the construction of compliance and risk management systems. Preparing fora major earthquake calamity, the Company is provided with a task force against earthquake
disasters to facilitate the payment of insurance 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 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
division conducts in-house audits.
The purpose of an in-house audit is to develop and establish an internal control system.
This is done by conducting an audit to examine and evaluate the execution of plans andactivities in the Company fairly and objectively, and from the standpoint of lawfulness andrationality. It also requires providing the necessary advice and recommendations based on theevaluation, contributing to the sound development of the company and building credibility inthe community.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201123

In fiscal 2011, 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
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 theBoard 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 set forth management methods for various risks facing theCompany in the Risk Management Policy and monitor how risks are managed. In addition,
we work to improve risk management by introducing comprehensive risk management toenhance the quantitative and qualitative methods of risk analysis and management.
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.
These risks are classified into “market risks” and “credit risks” for the management, andthe management standards are stipulated in the “Standards for Management of Investment
Risks” for each fiscal year.
Market risksMarket risks include interest-rate risk, exchange risk, and price volatility risk. These are
the risks of losses that investors may sustained with fluctuations in the value of financial
assets or debt position due to market trends.
We manage overall market risks both quantitatively and qualitatively. We measure the value
at risk (VaR) of interest rates and currency exchanges as the amount of risks, while also
monitoring the unrealized gain/loss and price changes (responsiveness). We also apply an
upper limit of retention or a loss-cut rule as necessary.
We also have separate divisions for executing transactions and for doing paperwork,respectively, thereby enabling the supervisory and checking functions to work.
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 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. We also measure the credit VaR based on the default rate,etc. for managing credit risks.

24Japan Earthquake Reinsurance Co., Ltd. Annual Report 2011

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 “paperwork issues,” “system risk,” and “other risks,” andwe manage these risks as appropriate given the characteristics of each.
Paperwork issues
Paperwork issues 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.
System risks
System risks are risks of losses that may be caused by 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 andSafety 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 ourmeasures for handling crises by developing the Information System Contingency Plan fordisasters and other emergency situations.
Other risks
As operational risks other than paperwork issues and system risks, we are aware of suchrisks as “human risks” (the risks of losses that may be caused by outflows or losses ofhuman resources) and “rumor risks.” We strive to manage these risks with each responsible
division playing the leading role.
* Underwriting risks are excluded because they are guaranteed under the earthquake insurance
system.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201125